More on the Simon Conviction (4/9/11)

I previously report on United States v. Simon involving convictions for four tax perjury counts (§ 7206(1)), three FBAR counts (31 U.S.C. §§ 5314, 5322), eight mail fraud counts (§ 1341), and four financial aid fraud counts (20 U.S.C. § 1097). (For my blogs on Simon, see here.)  Because of the facts and the other counts of conviction, Simon is outside the mainstream of the criminal cases being brought in the Government's current civil and criminal juggernaut against offshore account holders.

I had not previously reported the actual sentence in Simon. The sentence is 6 years. I picked up the sentence from a recent decision denying bail pending appeal. United States v. Simon, 2011 U.S. Dist. LEXIS 37001 (N.D. IN 2011), here. This decision did not report the various sentencing factors, hence my spreadsheet (downloadable to the right) is incomplete.

I review here the decision on bail.

18 U.S.C. § 3143 provides a general rule that requires immediate incarceration upon a verdict of guilty or, if later, after sentencing even if an appeal is taken. The exceptions are generally applicable in a tax case, at least after the verdict and before sentencing where the court can release pending sentencing upon a finding by clear and convincing evidence that the defendant is not likely to flee or pose a danger to another person or the community. After sentencing during the appeals process, it is a bit dicier. In order to avoid detention after sentencing pending the appeal, the court must find by clear and convincing evidence that the defendant is not likely to flee or pose a danger to another person or the community and that the appeal is both not for purposes of delay and does raise a substantial question of law or fact that might result in reversal (either outright or for new trial), a sentence with no imprisonment or a reduced sentence that exceeds the time already served and to be served during the appeals process.

The Court found that Simon did not meet the substantial question condition. The Court reviewed the standard for the substantial question determination:

A substantial question is "a 'close' question or one that very well could be decided the other way." United States v. Bilanzich, 771 F.2d 292, 299 (7th Cir. 1985). In other words, "a toss-up or nearly so." United States v. Shoffner, 791 F.2d 586, 590 n.6 (7th Cir. 1986). In making these determinations, a district court should be humble with respect to the correctness of its own decisions.

Alleged Substantial Question as to FBAR Waiver of Prosecution

The Court then reviewed Simon's claims of substantial question. The one that is probably most material to the readers of this Blog relates to his claim that the IRS administrative pronouncements regarding FBARs had, in effect, somehow waived its right to prosecute Simon. The court is a bit cryptic as to the claim, but it had addressed that issue in its earlier holding (discussed on my blog titled Can Signatories Filing FBARs During the Administratively Extended FBAR Filing Period Be Prosecuted for Failure to File? (10/16/10)), here. The gravamen of the claim is that Simon was a signatory only as to the foreign accounts Readers will recall that the IRS has administratively pronounced that signatories only have an extension until 6/30/11 to file past due FBARs. As to signatories who file past due FBARs by 6/30/11, it is difficult to imagine that the Government would prosecute given the fact that the IRS, in its administrative capacity, can extend the deadline which is one it did so FBARs filed by that date are timely. Nevertheless, in the case, the prosecutors asserted that Simon had a financial interest and was not a signatory only, so that he did not qualify for this relief. As a fall back, the prosecutors urged that an administrative pronouncement could not absolve Simon of his criminal liability and thus he could be prosecuted even if he were a signatory only. The Court bought into the latter theory in its prior holding. (I think the Court is wrong on that, but its error is clouded by the probable fact that Simon had a financial interest in the accounts, thus mooting the issue.) The general guilty verdict did not resolve the issue -- did the jury convict because he had a financial interest or because he had a signatory only interest? Simon presented the issue again in the bail proceeding as a substantial question. The Court rejected it as a substantial question as follows:

Mr. Simon raises arguments that would challenge first his FBAR convictions and less directly his tax convictions. Mr. Simon argues that because the Internal Revenue Service extended the deadlines for filing FBARs (and indeed purported to foreswear enforcement under certain circumstances), his failure to file the forms when they otherwise would have been due wasn't a crime. This court denied Mr. Simon's dismissal motion based on that argument on October 8, reasoning that if Mr. Simon committed a crime by not filing a required form when he was supposed to, the Internal Revenue Service had no magic wand to absolve him of that crime retroactively. Mr. Simon will appeal that ruling.

From this argument, Mr. Simon reasons that if he succeeds, his convictions on the tax counts must fall, as well, because they charged that his income tax returns were false, not solely because he omitted what the government contends was taxable income, but also because he denied having reportable interests in foreign accounts. See Yates v. United States, 354 U.S. 298, 311-312 (1957); United States v. Lee, 558 F.3d 638 (7th Cir. 2009).

The government cites a horde of cases that support the proposition that amendment of a regulation doesn't relieve criminal liability for pre-amendment conduct, citing United States v. United States Coin and Currency, 401 U.S. 715, 737-738 (1971); Allen v. Grand Central Aircraft Co., 347 U.S. 535, 553-555 (1954); United States v. Hark, 320 U.S. 531, 536 (1944); United States v. Curtiss-Wright Export Corp., 299 U.S. 304, 332 (1936); United States v. Grimaud, 220 U.S. 506, 522 (1911); United States v. Uni Oil, Inc., 710 F.2d 1078, 1986 (5th Cir. 1983); City & County of Denver v. Bergland, 695 F.2d 465, 480 (10th Cir. 1982); United States v. Resnick, 455 F.2d 1127, 1134 (5th Cir. 1972); Crary v. Porter, 157 F.2d 410, 415 (8th Cir. 1946); Bowles v. Jones, 151 F.2d 232, 234 (10th Cir. 1945); O'Neal v. United States, 140 F.2d 908, 913-914 (6th Cir. 1944); United States v. Philipp, 63 F. Supp. 853 (E.D. Pa. 1945), and notes that the Notice on which Mr. Simon relies didn't rise to the level of a regulation. The government notes that the only case on which Mr. Simon relies (United States v. Tenzer, 950 F. Supp. 554 (S.D.N.Y. 1996)) is "a reversed district court case, the reasoning of which, according to Westlaw, no court anywhere has ever followed."

The court agrees with the government that Mr. Simon's argument on this point doesn't raise a close question of law. The court can't describe this issue as anything resembling a "toss-up."

Other Claimed Substantial Questions

I will only summarize the other tax related issues that Simons raised as substantial questions.

First, Simon raised a Boulware issue. Boulware v. United States, 552 U.S. 421 (2008). Apparently, that issue related to exclusions of evidence and expert testimony related to whether transactions with related entities were loans. Regarding the alleged exclusions, the Court's discussion is hard for me to summarize crisply, so I will not try. Suffice it to say that the Court did not think it was a Boulware situation. In any event, the Court reasoned, ultimately even that evidence would have been understandable to the jury only if the defendant were allowed to present the expert testimony he proffered as to the law. The Court said that there was no substantial question raised as to whether Simon was entitled to have his expert testify to the jury as to what the law is. The Court cites numerous authorities that the Court, and not proffered experts, instructs the jury as to the law.

Second, Simon raised an argument inspired by United States v. Sturdivant, 244 F.3d 71, 78-79 (2d Cir. 2001) that, since the Government's claim of tax perjury related to both the alleged lie by omitting income and the alleged lie to the foreign account question, the general jury verdict of guilty on the tax perjury counts does not allow the Court to determine which of the alleged "lies" was the basis of the jury verdict. As Simon interpreted Sturdivant, that would require that the judge, in sentencing, take the lesser of the two lies in terms of the Sentencing Guideline calculations. The lesser of the two lies would be the foreign account lie because it has no tax loss associated with it. The Court rejects the argument. I quite frankly don't understand what the argument is. Merely because the jury may have convicted on the foreign account lie does not mean that the Court cannot sentence on the same tax loss associated with the omission of income. If nothing else, the tax loss was relevant conduct that could be included in the calculation and form the basis for sentencing (assuming that the guidelines calculation is made under the tax guidelines, and it would be far worse for Simon to have been sentenced under the only other guidelines potentially relevant to an FBAR violation). In any event, the Court concludes that, even if the minimal base offense level were used instead of the higher tax table offense level based on the tax loss, the other sentencing adjustments would require a sentence of 33 to 41 months imprisonment so there was " no reason to believe the appeal process would exceed the sentencing range the guidelines would recommend if Mr. Simon prevails on his Sturdivant argument, so the requirements of the bail statute are not satisfied."