Court Rejects Claim That Prosecutor Failed to Advise Grand Jury of Boulware Elements (2/2/12)

In United States v. Kasper, 2012 U.S. Dist. LEXIS 8679 (WD NY 2012), here, the defendant argued that, in seeking an indictment for a charge of failure to report constructive distributions, the prosecutor must provide the grand jury proof that the alleged distribution in question met the requirements of Sections 301 and 316.  In Boulware v. United States, 552 U.S. 421 (2008), the Supreme Court said that these sections "govern the tax consequences of constructive distributions made by a corporation to a shareholder with respect to its stock." Id. at 439.  These sections make corporate earnings and profits a condition for a corporate distribution being a dividend.  The Court explained the argument:

Seizing on the Court's statement in Boulware that sections 301 and 316(a) govern the tax consequences of corporate distributions to shareholders, Defendants argue that the prosecutor was required to present the Burgdorf payments to the grand jury to allow it to apply sections 301 and 316 (a) (or ask that those sections be applied for it) to determine, in the first instance, whether any of the corporate distributions Kenneth Kasper received were required to be reported as income. The prosecutor's failure to do so, argue Defendants, is the equivalent of the prosecutor knowingly presenting false and misleading information and instruction to the grand jury.

The defendants were trying to avoid the general rule that the basis for an indictment will generally not be scrutinized, by pushing the inquiry from the basis of the indictment to the alleged misbehavior of the prosecutor.  But the court in Kasper held (quotations marks and case citations omitted):

Further still, the United States Supreme Court has warned that a complaint about the quality or adequacy of the evidence can always be recast as a complaint that the prosecutor's presentation was incomplete or misleading.In a very skillful way, that is what Defendants have done here. They have recast arguments that at their core go to the sufficiency or competency of the evidence presented to the grand jury as protestations that the prosecutor misled the grand jury and prevented it from acting independently. Entertaining such challenges would run counter to the whole history of the grand jury institution, and neither justice nor the concept of a fair trial requires it. There are no allegations that the prosecutor deliberately presented perjury or engaged in prosecutorial misconduct; the charge of misleading the grand jury is centered only on the prosecutor's conclusion that he was not legally required to present the grand jury with the Burgdorf payments or application of sections 301 and 316 (a), a conclusion with which this Court agrees.

Accordingly, the court rejected this challenge to the indictment, but did note that this issue can be pursued, consistently with Boulware, at trial where the Government must prove the constructive dividend..

For my prior blog treatments of Boulware and the earnings and profits issue, see

Boulware Wins the Battle Only to Lose the War (3/9/09), here.

Schumacher Article on Boulware (4/9/09), here.