10th Circuit Reverses on Defraud/Klein conspiracy instruction and Advice of Counsel Instruction, with Reminder on Limitations of Pattern Jury Instructions (9/4/25; 9/7/25)

See discussion added at end on 9/5/25 @ 11:30 am.

In United States v. Kearney, ___ F.4th ___ (10th Cir. 9/2/25), CA10 here and GS here [to come], the Court held that the trial court erred in two jury instructions: (i) the trial court instructed the jury on the uncharged offense conspiracy rather than the charged defraud conspiracy; and (ii) the trial court did not include the conspiracy charge in the advice-of-counsel defense instruction. Both errors required a remand for further proceedings.

Both holdings are not particularly exceptional. The first holding does offer an opportunity to remind readers of the difference between the two types of conspiracy criminalized by 18 USC § 371, here, helpfully titled “Conspiracy to commit offense or to defraud United States.” The two types of conspiracy are thus often identified as the offense conspiracy and the defraud conspiracy. The offense conspiracy is a conspiracy to commit a specific offense. The defraud conspiracy is a conspiracy “to defraud the United States, or any agency thereof in any manner or for any purpose.” But defraud, as interpreted, has a special meaning for the defraud conspiracy. The word “fraud” and its counterpart “defraud” normally requires an object to obtain money or property by fraudulent means. Fraud for purposes of the defraud conspiracy includes that object but also includes an object to impair or impede the lawful functioning of a government agency, here the IRS. (When charged with the latter object (impair or impede), the defraud conspiracy is often referred to as a Klein conspiracy, named after United States v. Klein, 247 F.2d 908 (2d Cir. 1957).) I have written on the defraud/Klein Conspiracy and its textual problem. The following is my most recent foray into the subject: Is It Too Much to Ask that the Defraud Conspiracy Crime Require Fraud? (Federal Tax Crimes Blog 8/3/24; 8/6/24), here (citing a prior article and blogs).

But, for this blog, accept the defraud conspiracy as it is now; it does not require what we normally think of as fraud with a monetary or property object but can include an object “to interfere with or obstruct one of its lawful governmental functions by deceit, craft[,] or trickery, or at least by means that are dishonest.” Hammerschmidt v. United States, 265 U.S. 182, 188 (1924), quoted in Kearney at Slip Op. 8.

The problem in Kearney was that, at the Government’s invitation at trial, the court instructed the jury based on the 10^th Circuit’s pattern jury instruction describing the offense conspiracy which was not charged. Kearney was charged with and convicted for the defraud conspiracy which, the 10^th Circuit panel holds should have included the limiting language from Hammerschmidt quoted above.

The Government requested the offense conspiracy instruction based on the 10^th Circuit’s Pattern Jury Instructions. The 2025 version of the pattern jury instructions is here (see Instruction 2.19 CONSPIRACY 18 U.S.C. § 371). That pattern instruction is for the offense conspiracy without any discussion of the defraud conspiracy, a discussion which, if included, might have timely alerted the parties and the judge as to the problem with the offense conspiracy instruction. (In fairness, Kearney’s attorney realized the problem and proposed a variation instruction.)

The Court offers this helpful discussion on the limitations of pattern jury instructions (Slip Op. 12-13):

          To be sure, the district court used this circuit’s pattern instruction on § 371 conspiracies, which typically “weighs against a finding of plain error.” United States v. Kepler, 74 F.4th 1292, 1315 (10th Cir. 2023). But pattern instructions are merely a guide. See Tenth Cir. Crim. Pattern Jury Instrs. Introductory Note (“The Committee’s approach was to generate generic minimalist instructions that would be tailored to individual cases.”); United States v. Freeman, 70 F.4th 1265, 1280 n.13 (10th Cir. 2023) (noting that “pattern instructions are merely intended to serve as a guide” and suggesting that, where Tenth Circuit has not issued pattern instruction for offense, parties may need “to select alternate formulations” of offense elements). And the pattern instruction in this instance not only fails to account for the two kinds of conspiracies in § 371, it doesn’t describe the charged offense at all. See Tenth Cir. Crim. Pattern Jury Instrs. § 2.19 at 98 (2025). Given the  statute’s plain language, the error in using the pattern instruction on conspiracy to violate the law for a charge of conspiracy to defraud was also plain.

Fifth Circuit Reversal of Count of Conviction Based on Statute of Limitations May Permit the Reversed Count Conduct as Relevant Conduct for Affirmed Count (7/28/24)

In United States v. Boswell, 109 F.4th 36 (5th Cir. 2024), CA5 here and GS here, the Court reversed Boswell’s conviction for bankruptcy-fraud conviction (Count One) and affirmed his conviction for tax evasion (Count Two).

The Court reversed the bankruptcy-fraud conviction based on the indictment being untimely under the 5-year statute of limitations. When Count One was originally indicted as a one-count indictment, the indictment was obtained within the 5-year period but the Government sought and obtained a sealing order for the indictment. Then, about 6 months after the 5-month period expired, the Government obtained a superseding indictment adding tax evasion (Count Two), and the indictment was unsealed. The tax evasion statute of limitations is 6-years, so that Count was clearly timely.

The Court reversed the bankruptcy-fraud conviction because the Government failed to adduce a satisfactory reason for the Government to obtain an order sealing the original indictment. The Court relied principally upon the reasoning United States v. Gigante, 436 F. Supp. 2d 647 (S.D.N.Y. 2006) which dismissed because the Government’s claims for need of a superseding indictment were rejected. Hence, the Court reversed the bankruptcy-fraud charge (Count One) for failure to satisfy the required statute of limitations.

The conviction on the tax evasion count (Count Two) was affirmed. The Court rejected Boswell’s various claims on Count Two, holding: (i) the two convictions were not inextricably intertwined so that improper conviction on Count One required reversal on Count Two, (ii) the trial court properly rejected Boswell’s request for a bill of particulars on Count Two; (iii) there was no variance between the evidence and the tax evasion crime charged in Count Two, so Boswell was not surprised by the evidence at trial; (iv) there was no constructive amendment of Count Two as charged; (v) the evidence was sufficient to support the jury verdict; and (vi) the errors, if any, did not support application of the “cumulative error” doctrine permitting reversal for individual nonreversible errors which in the aggregate impaired the right to a fair trial.

All of this is fairly routine. I post on the case to address a related issue regarding sentencing calculations.

Sentencing Guidelines Amendment Eliminates Acquitted Conduct from Sentencing Calculations (6/6/24; 6/11/24)

Effective 11/1/24, the U.S. Sentencing Commission has eliminated acquitted conduct as relevant conduct under §1B1.3 to enhance sentencing calculations. See Sentencing Commission web page titled "2024 AMENDMENTS IN BRIEF: Acquitted Conduct," here. 

Of course, because the Guidelines were advisory, a sentencing judge did not have to consider acquitted conduct as relevant conduct in imposing sentence, although the judge might feel compelled to include acquitted conduct in calculating the advisory Guidelines sentence. Under the prior rules, the acquitted conduct could be considered only if the judge found the acquitted conduct by a preponderance of the evidence.

The announcement caveats that “This amendment does not comment on the use of uncharged, dismissed, or other relevant conduct as defined in §1B1.3.” What does that mean? Well, for example, it means that a plea bargain dismissing counts permits the sentencing judge to consider the dismissed counts as relevant conduct, provided that by sentencing the judge is convinced by a preponderance of the evidence that the defendant committed the relevant conduct crimes. Same for uncharged conduct. (PSRs often note, particularly for dismissed counts, that the sentencing calculations are the same as if the dismissed counts were counts of conviction.)

There are other amendments that are potentially applicable in tax crimes or FBAR crimes cases. Readers might want to review the Sentencing Commissioner web page titled “Amendments in Brief,” here.

Added 6/11/24 10:00 am:

I offer more on the amendment to prohibit conduct behind “not guilty” verdicts from the Guidelines sentencing calculations. I picked up this blog on the Sentencing Commissions decision: Ellen Podgor, Sentencing Commission Change - Acquitted Conduct - "Not Guilty Means Not Guilty" (White Collar Crime Blog 5/24/24), here. I just wanted to clarify why the Guidelines ever included acquitted conduct as relevant conduct and what the practical effect of the elimination of acquitted conduct in the formal Guidelines calculations may be.

Daugerdas Gets 15 Year Sentence (6/25/14)

Paul M. Daugerdas, previously convicted of tax crimes, was sentenced to 15 years.  See the DOJ press release here:  Key excerpts from the press release:

Deputy Assistant Attorney General Ronald A. Cimino for the Tax Division of the Department of Justice and U.S. Attorney Preet Bharara for the Southern District of New York announced that Paul M. Daugerdas, 63, a tax attorney and certified public accountant, was sentenced today in Manhattan federal court to serve 15 years in prison for orchestrating a massive fraudulent tax shelter scheme in which he and his co-conspirators designed, marketed and implemented fraudulent tax shelters used by wealthy individuals to evade over $1.6 billion in taxes owed to the Internal Revenue Service (IRS).  The 20-year scheme, which Daugerdas hatched while working at the Arthur Andersen accounting firm and then continued while a partner at two law firms – Altheimer & Gray and then Jenkens & Gilchrist (J&G) – generated over $7 billion in fraudulent tax losses and yielded approximately $95 million in fees to Daugerdas personally.  

* * * * 

According to the evidence at trial and other documents filed in the case: 

 From 1994 through 2004, Daugerdas, who is a lawyer, a certified public accountant, and the former head of the Chicago office of J&G and its tax practice, participated in a scheme to defraud the IRS by designing, marketing, implementing and defending fraudulent tax shelters. 

 As part of the scheme, Daugerdas and others plotted to defraud the IRS by, among other things, corruptly endeavoring to prevent the IRS from: detecting their clients’ use of these shelters; understanding how the transactions operated to produce the tax results reported by the clients; learning that, rather than serving as legitimate investment transactions, the tax shelters lacked economic substance in that they were designed and marketed as cookie-cutter products intended exclusively to eliminate or reduce large tax liabilities; learning that the clients were not seeking profit-making investment opportunities, but were instead seeking huge tax benefits; and learning that, from the outset, all of the clients intended to complete a pre-planned series of steps that had been designed to lead to the specific tax benefits they sought.  Daugerdas and others created and assisted in creating transactional documents and other materials that falsely and fraudulently described their clients’ motivations for entering into the tax shelters and for taking various steps in order to yield the tax benefits. 

 As part of the scheme, Daugerdas and his co-conspirators also fraudulently backdated some of the tax shelter transactions.  In particular, Daugerdas and his co-defendants learned that certain tax shelter transactions had been implemented incorrectly during the year of the transactions in that they failed to produce the amount or type of tax losses requested by the clients.  Rather than reporting those tax shelter results as they occurred – as required by the Internal Revenue Code – Daugerdas and others engaged in corrupt “correcting” transactions after the close of the pertinent tax years, and then backdated the tax shelter documents to make it appear that the amount and type of tax losses sought by the clients had in fact been generated during the pertinent tax years.  Daugerdas also authored fraudulent tax opinion letters that falsely described when certain aspects of the transactions had actually occurred.  As a result of the fraudulent backdating, Daugerdas and others caused tax shelter clients to file tax returns that falsely and fraudulently claimed tens of millions of dollars of tax losses to which the clients were not entitled.

Garbage in the Sentencing Process - The Larson Case (4/3/09)

One of the risks of the sentencing process is that the sentencing judge can have prejudicial garbage dumped on him or her to influence his or her sentencing decision. Most of the time, the intended prejudice is visited on an immediate party to the case -- usually the defendant, but sometimes perhaps the prosecutors. But, it can also be directed at others who are not parties to the sentencing and thus not in a position to contest the garbage. That happened during the sentencing in United States v. Larson (USDC SDNY No. S1 05 Cr. 888 (LAK)) which I discussed in yesterday's blog here.

Readers will recall that the original case involved 19 defendants and, in a major decision, the trial judge, Judge Kaplan, smelled a rat in the prosecutors' heavy hand in forcing KPMG to withdraw paying attorneys fees for 13 of the defendants under the guise of the now-discredited Thompson Memorandum. Judge Kaplan called the constitutional foul and dismissed 13 defendants. (Not only was the prosecutor's action constitutionally abusive, Judge Kaplan found the prosecutors economical with the truth about their conduct when the issue surfaced.) The Second Circuit affirmed the dismissal United States v. Stein, 541 F.3d 130 (2d Cir. 2008), here, much to the chagrin of the prosecutors. Those defendants who have never been tried or afforded an opportunity to present a defense are, constitutionally, presumed innocent of the charges the Government made.