When Does the Conspiracy End? (12/10/13)

I have previously written that conspiracy is a common charge in tax crimes, as also in white collar and other crimes.  One of the many issues in conspiracy law is the scope of the conspiracy, one facet of which is when the conspiracy ends, thus setting the date for the statute of limitations.  In United States v. Grimm, 738 F.3d 498 (2d Cir. 2013), here, The Second Circuit reversed a conspiracy conviction because the overt acts alleged in the indictment did not occur within the applicable statutes of limitations.  The majority of the panel opens and summarizes its holdings as follows (emphases supplied by JAT):

Three employees of General Electric Company ("GE") conducted a multi-year scheme to fix below-market rates on interest paid by GE to municipalities. When municipalities receive proceeds of tax-exempt bond issues, they invest those proceeds (with GE and others) until such time as the funds become needed for the underlying capital projects. To prevent abuse of municipal bonds for pure arbitrage, the Internal Revenue Code and Treasury regulations require a municipality to rebate to the Treasury any excess over the municipal bond rate. To guarantee a market rate of interest on these investments, municipalities are required to use competitive bidding. The conspiracy between GE employees and brokers depressed the interest rate on the guaranteed investment contracts paid by unindicted co-conspirator GE; each instance cheated either the municipalities or the Treasury (or both). 

Steven Goldberg, Peter Grimm, and Dominick Carollo (collectively, "Defendants") were tried and convicted in the United States District Court  [*3] for the Southern District of New York (Baer, J.) of violating the general federal conspiracy statute, 18 U.S.C. § 371. Goldberg was sentenced principally to four years in prison, Grimm and Carollo to three. They appeal the judgments of conviction on the ground (inter alia) that the indictment is barred by the applicable statutes of limitations. The district court held that the statute of limitations continued to run during the period when GE paid the (depressed) interest to the municipalities, and that the interest payments could constitute overt acts. We conclude that those payments do not constitute overt acts in furtherance of the conspiracy.

Other key excerpts:

The applicable statutes of limitations are: five years for general conspiracy, see 18 U.S.C. § 3282(a), and six years for conspiracy to defraud the United States by violating the internal revenue laws, see 26 U.S.C. § 6531(1).3 The Initial Indictment was returned on July 27, 2010. To satisfy the statute of limitations for general conspiracy, the government must establish that a conspirator knowingly committed at least one overt act in furtherance after July 27, 2005; to satisfy the statute of limitations for a fraud on the United States, the government must establish at least one overt act in furtherance after July 27, 2004. See United States v. Salmonese, 352 F.3d 608, 614 (2d Cir. 2003) (citing Grunewald v. United States, 353 U.S. 391, 396-97 (1957)).

Of the fifty-five overt acts alleged in the Superseding Indictment, the only ones that involved conduct after July 27, 2004 were the periodic interest payments made by providers to issuers pursuant to the GICs: "On numerous occasions, [provider] . . . made payments to municipal issuers via interstate wire transfer at artificially determined or suppressed rates." Superseding Indictment ¶¶ 22(f) (Count One); 30(f) (Count Two); 38(f) (Count Three); 47(f) (Count Four); 57(f) (Count Five); 64(f) (Count Six).4 The Defendants argue that such interest payments cannot serve as overt acts because the routine payments were scheduled to continue for years (if not decades) after the GICs were awarded and after all concerted conduct had ended. We review this legal claim de novo. Salmonese, 352 F.3d at 614. 

"'[T]he crucial question in determining whether the statute of limitations has run is the scope of the conspiratorial agreement, for it is that which determines both the duration of the conspiracy, and whether the act relied on as an overt act may properly be regarded as in furtherance of the conspiracy.'" Id. (quoting Grunewald, 353 U.S. at 397). Here, the alleged purposes of the conspiracies were (1) to "deprive municipal issuers of money by causing them to award investment agreements and other municipal finance contracts at artificially determined or suppressed rates, and to deprive the municipal issuers of the property right to control their assets by causing them to make economic decisions based on false and misleading information"; and (2) to "defraud the United States . . . and the IRS by impeding . . . [the] collection of revenue due . . . from municipal issuers." Superseding Indictment ¶¶ 19-20. 

In United States v. Salmonese, we held that a conspirator's receipt of anticipated profits from the sale of stripped warrants constituted an "overt act in furtherance of an economically-motivated conspiracy." 352 F.3d at 616. We explained that, "where a conspiracy's purpose is economic enrichment, the jointly undertaken scheme continues through the conspirators' receipt of 'their anticipated economic benefits.'" Id. at 615 (citing United States v. Mennuti, 679 F.2d 1032, 1035 (2d Cir. 1982)).  The government relies on that passage to support its view that each successive payment of interest by an unindicted co-conspirator is another overt act. Salmonese gets the government only so far.

The Court rejects the theory.  Read the opinion.

The dissenting judge (Judge Kearse) says:

In my view, it was permissible for the jury to find that (a) an objective of the conspiracies was, as alleged, to enable the providers to make their periodic interest payments at artificially suppressed rates, and (b) that objective existed within the limitations period. It was also permissible for the jury to find that all of the providers' interest payments were acts in furtherance of the conspiracies. Indeed, the payments were essential to the conspiracies' success: If the payments were not made, the providers would be in breach of the investment contracts and would cease to achieve their conspiratorial goals of economic gain through payments of interest below fair market rates.

Off the main topic:  an interesting fact in the case is GE's role as unindicted co-conspirator.  I have previously written on GE's aggressive tax tactics that could be viewed as crossing the line.  See the blog citataions and links at the bottom of this blog entry.  Grimm offers another instance of GE's misconduct, this time clearly criminal (it was an unindicted co-conspirator whose actions, even if not within the scope of the conspiracy, clearly continued within the applicable statute of limitations and, I am sure, there had to have been some other conspiracy involved there).

• Thoughts on the the Corporate Audit Lottery (Federal Tax Crimes Blog 2/11/12), here.
• Second Circuit Strikes Down Another BS Tax Shelter (1/24/12), here.

Addendum 12/12/13 11:00 am:

Sara Kropf, Second Circuit Reverses Convictions, Rejecting Government’s Expansive “Continuing Conspiracy” Theory (White Collar Crime Prof Blog 12/12/13), here.  The conclusion:

Because white collar indictments frequently arise out of complex, long-term financial instruments (and are often the result of lengthy government investigations), the Grimm opinion is of note. The opinion announces a general rule that may be applied to other financial fraud cases. And, of course, it is a refreshing change to see a court limit the government’s use of the continuing conspiracy theory. Every minor ripple effect of a conspiracy should not be used to excuse the government’s failure to bring a case within the already lengthy limitations period.