Preliminary Comments on the Trump Organization and CFO Indictment (7/2/21; 7/4/21)

The much-anticipated indictment of the Trump Corporation and components and its Chief Financial Officer (“CFO”), Allen Weisselberg, has been released.  The caption is The People of New York v. The Trump Corporation, et. al. (N.Y. Supreme Court - no number available).  The indictment is here.  (The pdf copies on the web were not adequately OCR’d; I had this copy OCR’d using Adobe Acrobat text recognition; the OCRing came out much better than the copies I found in my quick searches.)

Here are my first general comments (which I may supplement or revise later):

1. The general thrust of the indictment had been reported before the indictment came out.  Basically, through various schemes, certain individuals (including, for purposes of this indictment, the CFO) caused the corporation to underreport and underpay tax liabilities.  Essentially, these individuals caused the corporation to pay compensation that did not appear on the books and filings as corporation subject to various tax obligations – including reporting income of the individuals benefiting from the payments, avoiding payroll tax to the payors and payees, etc.  

2.  This is a fairly common pattern in a closely held corporation except that the payments often go to the owner and the owner’s family rather than to an employee (here the CFO).  In this case, the owner is Trump and the owner’s family are the Trump children and spouses.  Nothing is said about Trump’s off-the-books use of corporate assets, but with the egregious conduct for Weisselberg, one has to wonder whether charges against Trump are waiting in the wings, with the prosecutor hoping Weisselberg will flip.  Given Trump's alleged use of oral instructions (or signals) to avoid putting his conduct in writing to the extent possible, somebody like the CFO would be an important (perhaps not a necessary) witness against Trump if he were indicted.

Second Circuit Offers Excellent Discussion of Accomplice and Conspirator Pinkerton Liability and Exception (11/16/18)

I have previously written on a tax iteration of the use of what I call derivative criminal liability -- i.e., not liability as a principal of the substantive offense but liability as an accomplice (aider or abettor) or a conspirator (Pinkerton liability).  John A. Townsend, Theories of Criminal Liability for Tax Evasion (May 15, 2012), available at SSRN: http://ssrn.com/abstract=2060496.  Basically, my concern was that by charging in the pleading that a defendant was a principal of the crime, an aider and abettor or causer of the crime, and a co-conspirator liable under Pinkerton, the Government was getting an advantage in the jury charge that overstated its case.  At least in the context of tax evasion, liability for the substantive offense for nontaxpayers (return preparers or abusive shelter promoters) incorporated the other potential liabilities and, if the defendant was not liable for the substantive offense, he was not liable for the other nominal offenses.  By charging the jury on all three, the impression could be given to the jury that if he was not guilty of one or two, he still could be convicted of the third.

I write today on a recent Second Circuit decision that, although not a tax case, addresses some of these derivative liability theories so ubiquitous in white collar crimes generally.  In United States v. Hoskins, 902 F.3d 69 (2d Cir. 2018), here, the Court address a related issue in the context of the FCPA.  The Court framed the issue as follows:

In this case, we are asked to decide whether the government may employ theories of conspiracy or complicity to charge a defendant with violating the Foreign Corrupt Practices Act ("FCPA"), even if he is not in the category of persons directly covered by the statute. 

* * * *  

The central question of the appeal is whether Hoskins, a foreign national who never set foot in the United States or worked for an American company during the alleged scheme, may be held liable, under a conspiracy or complicity theory, for violating FCPA provisions targeting American persons and companies and their agents, officers, directors, employees, and shareholders, and persons physically present within the United States. In other words, can a person be guilty as an accomplice or a co-conspirator for an FCPA crime that he or she is incapable of committing as a principal?

I will now offer substantial "cleaned up" quotes (see my discussion of the cleaned up technique here), with most footnotes omitted:

Birkenfeld Loses Malicious Prosecution Suit and Appeal Against His Partner in Crime, Olenicoff (11/13/17)

In my periodic sweep for new cases for my blogs and publications, I came across Birkenfeld v. Olenicoff, 2017 Cal. App. Unpub. LEXIS 7675 (Cal. Ct. App. 4th Dist. Div. 3 2017), here.  The names are probably familiar with many, perhaps most, readers of this blog.  Birkenfeld was the guy who spilled the beans on UBS and broke the information logjam that permitted the U.S. juggernaut against UBS and other Swiss banks.  Olenicoff was a very wealthy U.S. taxpayer who was convicted for his unreported offshore bank activities.  As I understand it, Olenicoff put Birkenfeld on the U.S. radar screen and Birkenfeld extrapolated a form of success ($104 million in whistleblower award) as well as the punishment for some of his tax crimes with a prosecution, conviction and 40 month sentence.

At any case, when people suffer misfortunes of public disgrace and punishment, they often look for scapegoats.  Olenicoff started the ball rolling.  Olenicoff sued UBS AG, Birkenfeld and an assorted cast of characters related to the offshore account activity for which Olenicoff was convicted.  Olenicoff lost that gambit.  Olenicoff v. UBS AG, 2012 U.S. Dist. LEXIS 57360 (CD Cal. 2012), here.  Basically, in that case Olenicoff sued his co-conspirators in crime alleging all sorts of skullduggery on their parts and seeking to whitewash his own conduct.  The flavor of the court's reaction in dismissing the case can be appreciated from this single comment:  "Like a bad foundation undermining a building's structure, Olenicoff's Plea Agreement places nearly every room of his legal house of cards into jeopardy."  Of course, any time there is a legal proceeding, the prevailing parties incur fees which are often substantial in defending a case that should not have been brought in the first instance.

That leads us to the next and, hopefully, final steps in this drama.

UBS and Birkenfeld then, in separate actions, sued Olenicoff for malicious prosecution and related claims from Olenicoff's earlier failed suit against them.  UBS and Birkenfeld's suits failed for variations on the theme of unclean hands. As to UBS, see Janet Novack, UBS Too Dirty To Sue Billionaire Offshore Tax Cheat, Judge Rules (Forbes Personal Finance 7/28/15), here.  The case cited at the beginning of the blog relates to Birkenfeld's case.  Birkenfeld claimed to have spent $350,000 to $400,000 defending the case Olenicoff brought.  The court of appeals sustained the trial court's holding that Birkenfeld's suit was barred by the unclean hands defense.  At the start of its analysis, the court of appeals projects it holding:

The conduct engaged in by Birkenfeld is, without question, bad and satisfies the unconscionable, bad faith, or inequitable conduct requirement of the unclean hands doctrine. Birkenfeld does not contend otherwise and candidly acknowledges that he and Olenicoff were "partners in crime."