United States v. Shellef and Rubenstein, No. 06-1495 (2d Cir. 2007)
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The court issued a subsequent related opinion or order on November 20, 2007.
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06-1495-cr(L), 06-1710-cr(CON) United States v. Shellef and Rubenstein 1 UNITED STATES COURT OF APPEALS 2 FOR THE SECOND CIRCUIT 3 August Term, 2006 4 (Argued: December 18, 2006 Decided: November 8, 2007) 5 Docket Nos. 06-1495-cr(L), 06-1710-cr(CON) 6 ------------------------------------- 7 UNITED STATES OF AMERICA, 8 Appellee, 9 - v - 10 DOV SHELLEF and WILLIAM RUBENSTEIN, 11 Defendants-Appellants. 12 ------------------------------------- 13 Before: POOLER, SACK, and WESLEY, Circuit Judges. 14 Appeal from judgments of conviction following a trial 15 in the United States District Court for the Eastern District of 16 New York (Joanna Seybert, Judge) for wire fraud, money 17 laundering, tax evasion, filing false tax returns, and conspiracy 18 to defraud the IRS as to defendant Dov Shellef, and conspiracy to 19 defraud the IRS and wire fraud as to defendant William 20 Rubenstein. 21 certain tax counts with the other charges against the defendants, 22 that it improperly joined Shellef and Rubenstein as defendants, 23 and that the misjoinders were not harmless. 24 We conclude that the indictment improperly joined Vacated and remanded. 1 2 3 4 5 ANDREW L. FREY, Mayer Brown LLP (Andrew H. Shapiro, Daniel B. Kirschner, Mayer Brown LLP, Stuart E. Abrams, Frankel & Abrams, of counsel), New York, NY, for Defendant-Appellant Dov Shellef. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 ALAN L. ZEGAS, Law Offices of Alan L. Zegas, Chatham, NJ (William Nossen, Law Offices of Alan L. Zegas, Chatham, NJ, and, Robert W. Gluck, Mandelbaum, Salsburg, Gold, Lazris & Discenza, P.C., New Brunswick, NJ, of counsel), for Defendant-Appellant William Rubenstein. 23 24 S. ROBERT LYONS, Tax Division, Department of Justice, Washington, D.C., (Eileen J. O'Connor, Assistant Attorney General, Alan Hechtkopf, Karen M. Quesnel, Tax Division, Department of Justice, Washington, D.C., and Roslynn Mauskopf, United States Attorney for the Eastern District of New York, New York, NY, of counsel), for Appellee. SACK, Circuit Judge: The defendant Dov Shellef owned or operated several 25 companies engaged in the distribution of industrial chemicals. 26 The defendant William Rubenstein owned or operated Dunbar Sales, 27 Inc., and Stevens Industries, Inc., which also distributed 28 industrial chemicals and provided warehousing, packaging, 29 labeling, and billing services to other distributors. 30 chemical at issue in this case -- CFC-113 -- is exempt from 31 excise taxes if its sale comports with applicable federal 32 statutory and regulatory requirements. 33 defendants' representations to the manufacturers from whom they 34 bought the chemical that the defendants would sell it in a manner 35 that would render the sales excise-tax-free, some of Shellef's 36 and Rubenstein's sales of CFC-113 did not comply with at least 2 The Notwithstanding the 1 one of these requirements. The government charged Shellef and 2 Rubenstein jointly with conspiracy to defraud the IRS and wire 3 fraud. 4 with 1) personal income tax evasion in 1996; 2) filing on behalf 5 of one of his businesses a corporate tax return that was false 6 insofar as it failed to report legitimate income in 1996; and 3) 7 filing a corporate tax return on behalf of another of his 8 businesses that was false insofar as it failed to report income 9 in 1999. The indictment also charged Shellef (but not Rubenstein) Shellef alone was also charged with money laundering 10 associated with the alleged wire fraud. 11 and Rubenstein on all charges against them.1 12 A jury convicted Shellef On appeal, Rubenstein argues, as a threshold matter, 13 that the 1996 tax charges against Shellef were improperly 14 joined with the conspiracy to defraud and wire fraud charges 15 against him. 16 should not have been joined with the other charges against him.2 Shellef similarly argues that the 1996 tax charges 17 Under Rule 8 of the Federal Rules of Criminal 18 Procedure, joinder of criminal charges is permissible when, inter 19 alia, the charges are "based on the same act or transaction." 20 Fed. R. Crim. P. 8(a). 21 charges under Rule 8 is therefore permissible if "the tax Joinder of tax charges with non-tax 1 The government dismissed three of the wire fraud counts against Shellef and Rubenstein. 2 Shellef and Rubenstein each request that we adopt whichever arguments in the other's brief may be applicable to him. We do so, but for ease of exposition refer individually to the appellant in whose brief a particular argument was made. 3 1 offenses arose directly from the other offenses charged," such as 2 when the funds derived from the acts underlying the non-tax 3 charges "either are or produce the unreported income" that is the 4 basis for the tax charges. 5 1037, 1043 (2d Cir. 1988) (internal quotation marks and citations 6 omitted). 7 convince us of the benefit of joining the[] two schemes in one 8 indictment, other overlapping facts or issues may." 9 44. 10 United States v. Turoff, 853 F.2d Even "if the character of the funds . . . do[es] not Id. at 1043- We conclude that the indictment improperly joined the 11 1996 tax evasion and false return counts against Shellef with the 12 other charges against both defendants because the 1996 counts are 13 not "based on the same act or transaction" as the other charges 14 within the meaning of Rule 8. 15 set forth below, that the joinder of Shellef and Rubenstein as 16 defendants in the indictment was also improper. 17 government has not established that the misjoinders of charges 18 and defendants were harmless, we vacate the judgments of 19 conviction and remand for further proceedings. 20 We further conclude, for reasons Because the Shellef and Rubenstein raise several other issues on 21 appeal that we need not decide in light of our disposition of the 22 question of joinder: 1) the legal sufficiency of the wire fraud 23 and conspiracy indictments; 2) the evidentiary sufficiency of the 24 conviction for wire fraud; 3) the propriety of several 25 evidentiary rulings made by the district court; and 4) the 26 propriety of the jury instructions. 4 We nonetheless discuss all 1 but the district court's evidentiary rulings to guide the 2 district court on retrial. BACKGROUND 3 4 Because the jury returned a guilty verdict, the 5 evidence presented to it is construed "in the light most 6 favorable to the government." 7 40, 46 (2d Cir. 2000) (citation omitted). 8 below, the parties do not dispute the relevant material facts. 9 10 United States v. Naiman, 211 F.3d Except where noted The Defendants The defendant Dov Shellef owned or operated four 11 companies: Poly Systems, Inc. ("Poly Systems"); PolyTuff, Ltd. 12 ("PolyTuff"); PolyTuff USA, Inc. ("PolyTuff USA"); and Poly 13 Systems USA, Inc. ("Poly Systems USA"). 14 entity located in and doing business from the United States, 15 which sold and distributed defense-related materials, including 16 aircraft manufacturing and maintenance products, primarily to the 17 government of Israel. 18 as Poly Systems's representative in Israel. 19 ownership of PolyTuff was transferred to one Avi Dolev in 1990, 20 Shellef ran the company beginning no later than 1995, when, 21 according to Shellef, Dolev "disappeared." 22 Trial Tr. 2270-71, July 14, 2005. 23 and doing business from the United States; it had been founded by 24 Dolev in 1992 after the Israeli government refused to continue 25 doing business with Shellef and Poly Systems. 26 manufactured and sold industrial solvents. Poly Systems was an PolyTuff, an Israeli company, functioned 5 Although nominal Test. of Dov Shellef, PolyTuff USA was located in Poly Systems USA 1 Rubenstein is the executive vice president and a forty- 2 five percent owner of two New Jersey-based companies, Dunbar 3 Sales, Inc. ("Dunbar"), and Stevens Industries, Inc. ("Stevens"). 4 The companies buy a variety of industrial chemicals and re-sell 5 them to the United States and foreign governments. 6 entities also provide warehousing, packaging, labeling, shipping, 7 and bill collection services. 8 management for the companies. 9 These Rubenstein provides day-to-day In 1995, Rubenstein and Shellef began working together 10 in an attempt to profit from an impending ban on domestic 11 production of CFC-113. 12 of CFC-113 that had been produced and stockpiled in anticipation 13 of the ban on production and to sell it to entities that would 14 have difficulty obtaining it elsewhere thereafter. 15 Their plan was to purchase a large volume In 1998, Stevens became a co-owner, with Shellef, of 16 Poly Systems USA. That year, Shellef or his company Poly Systems 17 transferred cash to Poly Systems USA as capital. 18 time, Shellef also invested in three unrelated real estate 19 ventures that Rubenstein had undertaken. Around that 20 Regulatory Regime Governing CFC-113 21 CFC-113 is a highly regulated, ozone-depleting 22 industrial solvent commonly used to remove grease from metal. 23 Global regulation of CFC-113 began in earnest following the 24 ratification of the Montreal Protocol on Substances that Deplete 25 the Ozone Layer (the "Montreal Protocol") in 1987. 26 Protocol, Sept. 16, 1987, S. Treaty Doc. No. 100-10, 1522 6 Montreal 1 U.N.T.S. 29. Pursuant to the Montreal Protocol, Congress sharply 2 limited American production of CFC-113 as part of the Clean Air 3 Act, 42 U.S.C. §§ 7401 et seq. 4 to be completed by 2000, of the "production and consumption" of 5 the substance in the United States. 6 Previously stockpiled CFC-113 could, however, still lawfully be 7 used in the United States. 8 such use, Congress imposed an excise tax on any CFC-113 "sold or 9 used by the manufacturer . . . thereof." The Act implemented a phased ban, See 42 U.S.C. § 7671c. As an incentive for discontinuance of See 26 U.S.C. § 10 4681(a)(1) (imposing a tax on sales of ozone-depleting 11 chemicals); 26 U.S.C. § 4682(a)(2) (including CFC-113 within the 12 definition of ozone-depleting chemicals). 13 Congress carved out three exceptions to the 14 applicability of the excise tax, two of which are relevant here. 15 See 26 U.S.C. § 4682(d). 16 First, CFC-113 that has been "diverted or recovered in 17 the United States as part of a recycling process (and not as part 18 of the original manufacturing or production process)" is not 19 subject to the tax. 20 recovered CFC-113 is known as "reclaimed CFC-113." 21 manufactured CFC-113, by contrast, is referred to as "virgin CFC- 22 113." 26 U.S.C. § 4682(d)(1). Such diverted or Newly 23 Second, the statute exempts "sale[s] by the 24 manufacturer or producer of [CFC-113] for export, or for resale 25 by the purchaser to a second purchaser for export." 26 § 4662(e)(1)(A); see also 26 U.S.C. § 4682(d)(3) (incorporating 7 26 U.S.C. 1 section 4662(e) by reference). The statutes and regulations 2 thereunder impose three procedural requirements for a sale to 3 qualify for this export exemption: 1) both parties must be 4 registered with the Internal Revenue Service ("IRS"), see 26 5 C.F.R. § 52.4682-5(d)(1)(i)(B); 2) the purchaser must provide the 6 manufacturer with a certificate containing a sworn statement from 7 the purchaser that the CFC-113 will be exported, see 26 C.F.R. 8 § 52.4682-5(d)(1)(i)(C), (d)(3); and 3) the manufacturer must 9 receive proof of export within six months of the initial sale, 10 see 26 U.S.C. § 4221(b) (requiring proof of export); 26 U.S.C. 11 § 4662(e)(1)(B) (incorporating section 4221(b) by reference). 12 Elf Atochem CFC-113 13 In 1995, Rubenstein's Stevens placed five purchase 14 orders with Elf Atochem ("Elf") for a total of 217,812 pounds of 15 CFC-113 imported from an Elf affiliate in France (the "Elf CFC- 16 113").3 17 CFC-113, which price included, in addition to a relatively modest 18 base price, the applicable excise tax of $819,599.58. 19 parties stipulated before trial, however, that Rubenstein 20 initially intended to export the Elf CFC-113, as he had 21 represented to Elf that he would in order to negotiate an excise- Elf initially charged Stevens $1,152,516.78 for the Elf 3 The At trial, an IRS agent testified that Rubenstein purchased 21,768 pounds of CFC-113 in 1995. The government, in questioning the witness, referred to Rubenstein's purchase of 201,000 pounds. Our own calculation using the witness's testimony regarding the applicable invoices indicates that Rubenstein purchased 217,812 pounds. We assume that the witness's reference to 21,768 pounds is a transcription error or that the government attorney misspoke. 8 1 tax-free agreement. 2 with the IRS to satisfy his obligations under section 4682(d). 3 Elf, which had previously paid the excise tax to the IRS on its 4 quarterly return, took a credit for it on a subsequent return, 5 and credited Rubenstein's account for the previously invoiced 6 tax.4 7 Rubenstein further attempted to register Rubenstein exported nearly 190,000 pounds -- or all but 8 about 28,000 pounds -- of the Elf CFC-113. In 1997, however, 9 Rubenstein, with Shellef's help, began to sell the remaining Elf 10 CFC-113 domestically for domestic use notwithstanding the fact 11 that the original sales of any such Elf CFC-113 to Rubenstein's 12 companies would no longer qualify for the excise tax exemption 13 that Rubenstein told Elf would apply to the entire purchase.5 14 Shellef paid an employee of Marisol, Inc., a chemical 15 solvent distributor, to refer Marisol's domestic CFC-113 sales 16 leads to Shellef. Among the prospects referred to Shellef under 4 The record often does not distinguish the acts of Rubenstein from those of his corporations, Stevens and Dunbar. Here, for example, the witnesses testified that Elf credited Rubenstein's account, but the invoices refer to Stevens. Similar confusion exists with respect to Shellef and his various corporate entities. These distinctions are largely irrelevant for our purposes, so we primarily follow the trial transcript. With respect to the tax charges against Shellef, however, the identity of each entity is important and we are therefore precise when we discuss the conduct underlying those charges. 5 Shellef and Rubenstein sought to persuade the jury that they thought the Elf CFC-113 would also be tax-exempt pursuant to 26 U.S.C. § 4682(d)(1) because it was "reclaimed." The Elf CFC113, as shipped by Elf, was blended with alcohol. Shellef, a chemical engineer by training, put the blended material through a water extraction process to separate the CFC-113 from alcohol, thus retaining only pure CFC-113. 9 1 that arrangement were All Discount Laboratories ("All Discount") 2 and Custom Laboratories ("Custom"), both based in California. 3 Shellef used Rubenstein's Elf CFC-113 to fill some of 4 All Discount's and Custom's orders.6 5 purchased four drums totaling 2,760 pounds of Elf CFC-113 from 6 Rubenstein and resold them to All Discount. 7 October 1997, Shellef made four shipments of the Elf CFC-113 to 8 All Discount and Custom. 9 purchased Elf CFC-113 from Rubenstein, this time reselling it to 10 On July 14, 1997, Shellef In September and Finally, on September 8, 1998, Shellef Marisol. 11 In sum, between July 1997 and September 1998, Shellef 12 bought approximately 28,000 pounds of Elf CFC-113 from Rubenstein 13 and resold it domestically. 14 prepared documents -- labels and invoices -- falsely indicating 15 that the Elf CFC-113 was reclaimed or was being shipped for 16 export. 17 CFC-113 totaled $136,482. For many of these sales, Rubenstein The excise tax owing and unpaid on these sales of Elf 18 Allied Signal CFC-113 19 In 1995, Shellef sought virgin CFC-113 from Allied 20 Signal Inc. ("Allied"), in the United States, purportedly for 21 excise-tax-free resale abroad. 22 eventually executed a contract effective January 1, 1996 (the 23 "Allied Contract"), under which Allied was required to Allied and Poly Systems 6 Custom placed an order on July 9, 1997, seeking twenty drums of CFC-113 per month for four months. All Discount placed its order on July 11, 1997. 10 1 manufacture 700,000 pounds of CFC-113 (the "Allied CFC-113") for 2 Poly Systems and store it until Poly Systems requested delivery. 3 Poly Systems agreed to purchase and take delivery of all of the 4 Allied CFC-113 sometime prior to December 31, 1997. 5 Under the Allied Contract, Poly Systems could sell the 6 Allied CFC-113 only within a designated territory: Israel, Saudi 7 Arabia, Syria, Egypt, and Jordan. 8 that the Allied CFC-113 be exported, Allied agreed not to charge 9 Poly Systems the excise tax. Because the contract required As set forth in Paragraph 8.A of 10 the agreement, Poly Systems bore the risk of future government 11 regulations prohibiting it from selling the CFC-113 so long as 12 Allied spent at least twelve months after the effective date of 13 the regulation "exercis[ing] reasonable commercial efforts to 14 sell [the Allied CFC-113] to other parties who are permitted to 15 use [it]," with the proceeds of any such sale that exceeded the 16 contract price to be divided equally by Poly Systems and Allied. 17 Allied Contract, effective Jan. 1, 1996, at 3 ¶ 8.A. 18 The Allied Contract required Poly Systems to pay an up- 19 front $140,000 reservation fee, of which Rubenstein paid half in 20 exchange for a share of the profits Poly Systems would earn 21 selling Allied CFC-113 to the Israeli government. 22 Rubenstein did not receive a share of Poly Systems's profits from 23 domestic sales of Allied CFC-113, he did store some in his 24 warehouse in Bayonne, New Jersey, and shipped the product as Poly 25 Systems directed. 11 Although 1 Poly Systems's initial sales were to the Israeli 2 government. 3 the Montreal Protocol -- was attempting to reduce its 4 manufacture, importation, and use of ozone-depleting chemicals, 5 including CFC-113. 6 113, which had slowed in 1996, came to a halt. 7 with Allied followed the same pattern, but he did not then inform 8 Allied of the regulatory change in Israel which might have 9 invoked Paragraph 8.A. 10 But Israel -- like the United States, a signatory to By December 1997, Israeli purchases of CFCShellef's orders Poly Systems and Allied consequently became involved in 11 "a dispute around Poly Systems not taking the material on the 12 schedule that it was required to under the original agreement." 13 Test. of Anne Madden, Trial Tr. 858:18-21, June 29, 2005. 14 resolve the dispute, Allied and Poly Systems amended the Allied 15 Contract effective December 1, 1997 ("First Amended Allied 16 Contract"). 17 Systems was required to order the remaining Allied CFC-113 by 18 December 15, 1997, but Allied was required to continue storing it 19 through December 31, 1998. 20 Systems's territorial exclusivity in the Middle East until 21 December 31, 1999, if Poly Systems took possession of the Allied 22 CFC-113 by December 31, 1998. 23 other consistent terms of the original October 1995 contract. 24 To Under the First Amended Allied Contract, Poly Allied also agreed to extend Poly The amendment incorporated all The amendment to the Allied Contract did not solve 25 Shellef's biggest problem: The government of Israel, his best 26 customer, was no longer importing CFC-113. 12 Shellef did have 1 other willing buyers of CFC-113 -- Custom and All Discount, which 2 began buying Elf CFC-113 in mid-1997 -- but the First Amended 3 Allied Contract prohibited Shellef from selling Allied CFC-113 to 4 them. 5 CFC-113 to fill the Custom and All Discount orders, Shellef 6 negotiated another amendment to the Allied Contract on 7 February 10, 1998, effective January 7, 1998 ("Second Amended 8 Allied Contract"). 9 take possession of the remaining Allied CFC-113 -- 493,000 Still, knowing that Rubenstein did not have enough Elf Poly Systems now was required to purchase and 10 pounds -- by June 30, 1998, but the price was reduced from $3.75 11 to $3.55 per pound. 12 the contract if the Israeli government informed him that it would 13 not order CFC-113 in 1998. 14 stated that "from and after June 30, 1998, all price, volume, and 15 other terms and conditions of sale of [CFC-113] by [Allied] to 16 [Poly Systems] under the Contract shall not be as set forth in 17 the Contract, but shall be as negotiated by the parties from time 18 to time from and after June 30, 1998." 19 Contract, at 1 ¶ 1. 20 Shellef rejected Allied's offer to terminate The Second Amended Allied Contract Second Amended Allied On June 3, 1998, Shellef sent his contact at Allied, 21 Albert "Lou" Dorsey, a letter stating that Israel had adopted a 22 law generally prohibiting CFC importation. 23 though, that there might be an exception for "previous importers" 24 and that Shellef was negotiating with such an entity. 25 from Shellef to Dorsey dated June 3, 1998. 26 pending the outcome of those negotiations, a) Poly Systems would 13 The letter asserted, Letter He suggested that 1 place orders with Allied before June 30 at the contract price; b) 2 Poly Systems would buy at the regular market price after June 30; 3 and c) Allied should "exercise reasonable commercial efforts" to 4 sell the remaining CFC-113 in accordance with Paragraph 8.A of 5 the original contract. 6 pressed Shellef to purchase all the remaining CFC-113 under the 7 agreement and questioned the nature of the governmental 8 regulation that would allow Shellef to invoke Paragraph 8.A. 9 Shellef responded on June 19 by sending Allied a copy of a letter Id.; Allied Contract at 3 ¶ 8.A. Allied 10 dated March 15, 1998, from an Israeli governmental official to 11 Shellef's lawyer. 12 Vienna Convention, Montreal Protocol, the import [sic] of . . . 13 CFC-113 is prohibited." 14 19, June 28, 2005. 15 It stated: "In principle, according to the Test. of Lou Dorsey, Trial Tr. 711:17- On October 5, 1998, Shellef offered to purchase all of 16 the remaining Allied CFC-113 at a rate of one truckload per 17 month, if Allied reduced the price to $1.60 per pound and 18 continued his exclusive rights in the Middle East. 19 an Allied lawyer that "a window had opened up [in Israel] and he 20 would be able to move some material at a lower price." 21 Anne Madden, Trial Tr. 883:17-18, June 29, 2005. 22 Shellef agreed on a price of $1.75 per pound and, with other 23 changes not relevant here, agreed that the "other terms and 24 conditions of the Agreement, except to the extent they are 25 inconsistent with the above provisions shall continue in full 14 Shellef told Test. of Allied and 1 force and effect." 2 1998 (the "Autumn 1998 Agreement").7 3 Letter from Dorsey to Shellef dated Oct. 28, Sometime after the February 1998 amendment became 4 effective, but probably before June 1998, Custom stopped buying 5 CFC-113 from Shellef. 6 contractual dispute and subsequent negotiations, Shellef began 7 selling Allied CFC-113 to All Discount, making two shipments in 8 September 1998. 9 113 out of the Bayonne warehouse in which it had previously been 10 stored, to remove any references to Allied on the drums, and to 11 label the virgin Allied CFC-113 falsely as "reclaimed 113."8 But during and after the course of the Shellef asked Rubenstein to ship the Allied CFC- 7 Shellef strenuously contests whether the territorial restrictions on him contained in the original contract remained in effect. On his reading, the Autumn 1998 Agreement did not incorporate the original contract terms limiting sales to the original market. Shellef testified at trial that he believed that, pursuant to the Second Amended Allied Agreement, the limitation to export sales expired on June 30, 1998, and was not revived by the Autumn 1998 Agreement. The Autumn 1998 Agreement made reference to the original contract "as amended," and the Second Amended Allied Agreement specified that the "terms and conditions of sale[s]" made after June 30, 1998, "shall not be as set forth in the Contract, but shall be negotiated by the parties." But it also said that Allied "agrees to extend [Shellef's] exclusive rights to sell [CFC-113] in the [Middle East] through the end of 1999." Allied representatives similarly testified that they understood the new agreement to incorporate the export obligation from the previous agreement. 8 At trial, evidence was presented to the effect that the re-labeling of materials was a common service rendered at the behest of the product distributor, who did not want the final purchaser to know where the product was manufactured for fear that the purchaser would bypass the distributor and buy the product directly from the manufacturer. Although this practice of "customer protection" might explain the removal of Allied labels, it is unclear why it should also be viewed as necessary for such purposes to change the designation from "virgin" to "reclaimed." The defendants may have thought that the Elf CFC15 1 From October through December 1998, Shellef made four more 2 shipments of Allied CFC-113 to All Discount. 3 In early 1999, Shellef began storing Allied CFC-113 4 with Five Star Enterprises ("Five Star"), a consignee freight 5 forwarder in California. 6 instructions given by Rubenstein. 7 Rubenstein's employee, at Shellef's direction, shipped thirty-six 8 drums of the Allied CFC-113 from Rubenstein's New Jersey 9 warehouse to Five Star's California warehouse. Shellef directed Five Star to follow On March 12, 1999, Five Star then 10 made periodic shipments of the Allied CFC-113 to All Discount 11 when instructed to do so by Shellef. 12 CFC-113, including sixty drums on February 7, 2000, were also 13 made to Five Star for distribution to All Discount. 14 Other shipments of Allied Beginning on March 9, 2000, Shellef also sold Allied 15 CFC-113 to Mid-Atlantic Chemical, Inc. ("Mid-Atlantic"), a 16 Pennsylvania-based domestic distributor of CFC-113. 17 the president of Mid-Atlantic that excise taxes "had been taken 18 care of" on the Allied CFC-113. 19 Trial Tr. 1250:9-14, June 29, 2005. 20 purchase of Allied CFC-113 from Shellef was resold by Mid- 21 Atlantic to EM Science in Ohio. 22 Shellef told Test. of Theodore Stepanoff, Mid-Atlantic's first In April 2000, Shellef contacted EM Science directly to 23 offer ten drums of Allied CFC-113 "left over from a project in 24 California." Test. of Ronald Wizda, Trial Tr. 523-24, June 27, 113 was "reclaimed," but there is no evidence that they thought the Allied CFC-113 to be anything but virgin. 16 1 2005. 2 to test the quality of Shellef's product before placing an order. 3 On May 18, 2000, Shellef directed Rubenstein to ship one drum of 4 Allied CFC-113 to EM Science, but to make sure to remove a label 5 falsely indicating that it was reclaimed and attach instead a 6 label correctly indicating that the product was virgin CFC-113 7 produced by Allied. 8 CFC-113 requirements through Mid-Atlantic, not through Shellef. 9 Shellef offered it at a tax-paid price. EM Science wanted EM Science decided to satisfy its additional Shellef sold Allied CFC-113 on the domestic market each 10 year from 1998 through 2000, with the applicable but unpaid 11 excise tax rate varying from year to year. 12 sold 30,360 pounds of Allied CFC-113 domestically in 1998; the 13 excise tax due on these sales totaled $162,729.60. 14 Shellef sold 198,580 pounds domestically, resulting in an unpaid 15 excise tax in the amount of $1,135,877.60. 16 Shellef's domestic sales of 73,252 pounds of CFC-113 required a 17 total excise-tax payment of $445,372.16 that was never paid. 18 Shellef never sent Allied any documentation regarding any of the 19 domestic sales of its product. All told, Shellef In 1999, Finally, in 2000, 20 1996 Tax Charges 21 Two of the tax charges concern filings with the IRS for 22 the year 1996 -- Shellef's personal return and the PolyTuff USA 23 corporate return filed by Shellef. 24 accountant, Stephen Stein, to prepare corporate tax returns for 25 Poly Systems, Poly Systems USA, and PolyTuff USA for that year. 26 Stein had also prepared Shellef's personal income tax returns. 17 Shellef had hired an 1 Shellef gave Stein copies of "Quicken" records9 that Shellef 2 kept, but he never gave Stein original invoices or similar backup 3 documents to substantiate the information contained in the 4 Quicken documents. 5 For PolyTuff USA's 1996 fiscal year, which ended on 6 February 28, 1997, Shellef's Quicken records, and the PolyTuff 7 USA tax return prepared by Stein, revealed gross receipts10 of 8 $633,639. 9 $10,547. After expenses, this amounted to a taxable income of Stein reconciled the 1996 PolyTuff USA Quicken 10 information with records from checking and money market accounts 11 PolyTuff USA held at First Bank of the Americas. 12 not inform Stein of a PolyTuff USA account held at Marine Midland 13 Bank in which PolyTuff USA had deposited four checks in the total 14 amount of $1,942,113.62 during fiscal year 1996. 15 gross receipts therefore understated actual gross receipts by 16 nearly $2 million. 17 PolyTuff USA owed $288,621.58 in taxes for 1996, instead of the 18 $1,582 it claimed to owe on its return. But Shellef did The reported After accounting for unreported expenses, 9 "Quicken" is the name given by Intuit Inc. to its widely used group of financial computer programs for consumer and business use. They are used, among other things, to keep financial records, including check registers. See Test. of Stephen Stein, Trial Tr. 1467:12-20, July 6, 2005; Intuit, http://www.intuit.com (last visited July 21, 2007). 10 This amount is calculated by adding the cash received in a fiscal year to the accounts receivable at the end of that year and then subtracting the accounts receivable that were reported in the prior year and collected in the current year. 18 1 Shellef's personal income tax return for 1996, also 2 prepared by Stein, reported total income of $77,446 and taxable 3 income of $53,996. 4 Stein. 5 accounts and PolyTuff USA, Shellef's taxable income for 1996 in 6 fact was $957,326 -- $903,330 more than the $53,996 Shellef 7 reported. 8 1996 than the $9,900 he had reported and paid. But Shellef hid personal bank accounts from Because of undisclosed transactions involving these 9 Shellef owed $344,152 more in personal income tax for 1999 Tax Charge 10 By 1998, Shellef was working with a different 11 accountant at Stein's firm -- Stephen Kashinsky. Kashinsky 12 prepared Poly Systems's original 1999 corporate tax return. 13 Based on the Quicken records and bank statements that Shellef 14 gave him, Kashinsky reported gross receipts of $986,224. 15 But Shellef did not tell Kashinsky about accounts held 16 by Poly Systems at North Fork Bank ("North Fork") and Commercial 17 Bank of New York ("CBNY"). 18 Systems $662,400 for Allied CFC-113, which it transferred by wire 19 into the undisclosed Poly Systems account at CBNY. 20 also deposited two checks in the total amount of $120,216 into 21 its undisclosed North Fork account. 22 corporate tax return thus under-reported gross receipts by 23 $782,616. 24 his business affairs, he replaced Kashinsky with Michael 25 Maddaloni, who had been preparing Poly Systems USA's filings 26 since Rubenstein made his investment in that company. In 1999, All Discount paid Poly Poly Systems Poly Systems's 1999 When Shellef became aware of an FBI investigation of 19 Shellef 1 filed an amended return for Poly Systems that added $760,701 to 2 the original return's report of $986,000 in gross receipts, 3 $21,915 less than the $782,616 he had failed to report. 4 Shellef also withheld information from Kashinsky about 5 personal foreign bank accounts -- one at Credit Suisse in 6 Switzerland and the other at Bank Leumi in Israel. 7 three wire transfers in the total amount of $450,240 out of Poly 8 Systems's CBNY account and into the Credit Suisse and Bank Leumi 9 accounts. He conducted The original return did not reflect these 10 transactions. The amended return showed most of these transfers 11 as loans from Poly Systems to Shellef. 12 with interest. Shellef repaid the loans 13 The Indictment 14 On June 24, 2003, a grand jury in the United States 15 District Court for the Eastern District of New York returned a 16 ninety-one count indictment against Shellef and a forty-six count 17 indictment against Rubenstein. 18 with conspiring to impede the IRS's collection of excise taxes in 19 violation of 18 U.S.C. § 371, based on their domestic sales of 20 Elf and Allied CFC-113. 21 jointly in Counts Five through Fifty with wire fraud, in 22 violation of 18 U.S.C. § 1343. 23 alternative theories of fraud based on Shellef's alleged promise 24 to export all the Allied CFC-113: 1) absent Shellef's alleged 25 misrepresentation about the CFC-113's destination, Allied would 26 have charged Poly Systems for the excise tax due on domestic Count One charges them jointly Shellef and Rubenstein were also charged Those counts rested on two 20 1 sales of virgin CFC-113; and 2) absent the alleged 2 misrepresentation, Allied would not have sold Shellef the CFC- 3 113. 4 re-label, and ship the Allied CFC-113 to domestic customers at 5 Shellef's direction. 6 communications to transmit shipping instructions, invoices, and 7 payments they received for domestic sales as part of their plan. 8 9 Rubenstein's alleged role in the wire fraud was to store, Shellef and Rubenstein allegedly used wire The remainder of the counts in the indictment charge only Shellef. Count Two alleges that Shellef violated 26 U.S.C. 10 § 7206(1) by subscribing to false statements regarding the gross 11 receipts reported in PolyTuff USA's 1996 tax return. 12 alleges that Shellef evaded personal income taxes for 1996 by 13 understating his taxable income and the tax due, a violation of 14 26 U.S.C. § 7201. 15 violation of section 7206(1), this one arising out of the alleged 16 understatement of Poly Systems's gross receipts on its 1999 17 corporate tax return. 18 Count Three Count Four charges Shellef with another In addition to these tax charges, Shellef was indicted 19 on forty-one counts of money laundering, based on his actions 20 underlying the conspiracy and wire fraud counts. 21 Counts Fifty-One through Fifty-Five, allege violations of 18 22 U.S.C. § 1956(a)(1)(A)(i) arising out of Shellef's use of 23 proceeds from domestic sales of CFC-113 to buy more Allied CFC- 24 113. 25 U.S.C. §§ 1956(a)(1)(A)(ii) and (B)(i), arising out of Shellef's The first five, Counts Fifty-Six through Ninety-One allege violations of 18 21 1 transfer of proceeds from domestic CFC-113 sales to U.S. and 2 foreign bank accounts. 3 District Court Proceedings 4 Prior to trial, Shellef moved to dismiss the 5 conspiracy, wire fraud, and 1999 tax counts for failure to allege 6 offenses and to sever all tax counts from the other counts under 7 Rule 8 of the Federal Rules of Criminal Procedure.11 8 joined in seeking the relief sought by Shellef. 9 court denied the motions. 10 The trial began on June 20, 2005. Rubenstein The district The government's 11 evidence supporting the conspiracy and wire fraud charges -- and, 12 by extension, the money laundering charges based on the 13 conspiracy and wire fraud counts -- came principally from two 14 witnesses, Allied's Albert Dorsey and Anne Madden. 15 testified, inter alia, that Shellef obligated himself in the 16 Autumn 1998 Agreement to continue to confine himself to export 17 sales. 18 on his assertion that he did not, under the Autumn 1998 Agreement 19 or otherwise, undertake to export the Allied CFC-113 after the 20 original contract expired on June 30, 1998. They Shellef's defense to these charges rested in large part 11 We note that Shellef argued below that all the tax charges should be severed from all the non-tax charges but he argues on appeal that the 1996 tax charges were misjoined with the remaining charges, including the 1999 tax charge. The government does not, however, contend that Shellef's argument on appeal was waived, and so we consider it as argued and briefed before us. 22 1 Although most of the trial explored Shellef's and 2 Rubenstein's dealings with Elf and Allied, substantial portions 3 related to the 1996 personal tax evasion and false return charges 4 against Shellef. 5 examination of Shellef focused on the 1996 tax evasion and false 6 return charges. 7 Indeed, roughly half of the government's cross- On July 28, 2005, the jury returned general verdicts of 8 guilty against both defendants on all counts of which each was 9 charged. The district court thereafter sentenced Shellef 10 principally to seventy months' imprisonment and three years of 11 supervised release. 12 principally to eighteen months' imprisonment and three years of 13 supervised release. 14 $1,880,461 in restitution. 15 final order of forfeiture requiring Shellef to forfeit 16 $1,350,650. 17 The district court sentenced Rubenstein Shellef and Rubenstein were ordered to pay The district court also entered a This appeal followed. By Order of this Court dated 18 December 19, 2006, the district court released the defendants on 19 bond pending appeal. DISCUSSION 20 21 I. Jurisdiction 22 The district court had jurisdiction over the 23 prosecution of Shellef and Rubenstein pursuant to 18 U.S.C. 24 § 3231 because they were charged with violating federal criminal 25 laws. 26 Rubenstein in March 2006 and against Shellef in April 2006. The district court entered judgments of conviction against 23 We 1 have jurisdiction over the appeal of such final judgments under 2 28 U.S.C. § 1291. 3 II. Basis for Vacatur and Remand 4 The defendants argue that the 1996 tax evasion and 5 false return counts against Shellef were improperly joined with 6 the remainder of the counts in the indictment. 7 defends the joinder on the ground that "the charges were 'based 8 on the same act or transaction' as the other charges the jury was 9 to consider." 10 The government Gov't Br. at 51. We review the propriety of joinder de novo. United 11 States v. Feyrer, 333 F.3d 110, 113 (2d Cir. 2003). 12 propriety of Rule 8 joinder is subject to full appellate review, 13 and where joinder should not have been permitted, a conviction 14 must be reversed, unless failure to sever was harmless error." 15 United States v. Attanasio, 870 F.2d 809, 815 (2d Cir. 1989) 16 (internal quotation marks and citations omitted). 17 18 "[T]he Federal Rule of Criminal Procedure 8 sets forth when joinder is appropriate in criminal cases: 19 Joinder of Offenses or Defendants 20 21 22 23 24 25 26 27 (a) Joinder of Offenses. The indictment or information may charge a defendant in separate counts with 2 or more offenses if the offenses charged -- whether felonies or misdemeanors or both -- are of the same or similar character, or are based on the same act or transaction, or are connected with or constitute parts of a common scheme or plan. 28 29 30 31 (b) Joinder of Defendants. The indictment or information may charge 2 or more defendants if they are alleged to have participated in the same act or transaction, or in the same 24 1 2 3 4 5 series of acts or transactions, constituting an offense or offenses. The defendants may be charged in one or more counts together or separately. All defendants need not be charged in each count. 6 Fed R. Crim. P. 8. 7 offenses that are of "the same or similar character," Rule 8(b) 8 does not allow joinder of defendants on that basis alone -- they 9 must be "alleged to have participated in the same act or 10 Thus, while Rule 8(a) allows joinder of transaction, or in the same series of acts or transactions." 11 Id. The parties devote considerable attention to the 12 question whether Rule 8(a) or Rule 8(b) applies when a defendant 13 in a multi-defendant, multi-count prosecution such as the one 14 against Shellef challenges the joinder of a count in which he is 15 the only defendant charged.12 16 defends both the joinder under Rule 8(a) of the charges against But the government explicitly 12 Indeed, the answer to this question is not well-settled. Compare United States v. Turoff, 853 F.2d 1037, 1043 (2d Cir. 1988) (stating that "our cases indicate that when a defendant in a multiple-defendant case challenges joinder of offenses, his motion is made under 8(b) rather than 8(a)") (internal quotation marks omitted) (citing cases) and Attanasio, 870 F.2d at 814-15 (applying Rule 8(b) to determine whether two conspiracies should have been charged together) with United States v. Biaggi, 909 F.2d 662, 675-76 (2d Cir. 1990) (citation omitted) (acknowledging the "thoughtful opinion" of the district court, which limited the reach of Turoff on the ground that it "should be understood to apply Rule 8(b) standards to the claim of a defendant in a multidefendant trial only when he seeks severance of counts in which he and at least one of his co-defendants are charged," while leaving open the possibility "that Rule 8(a) standards apply to a defendant in a multi-defendant trial who seeks severance of counts in which he is the only defendant charged," but failing to resolve the issue because joinder was also proper under Rule 8(b)). We, likewise, need not opine on the reach of Turoff here because our resolution of this appeal is the same even if Rule 8(a), the more expansive joinder provision, applies. 25 1 Shellef and the joinder under Rule 8(b) of defendants only on the 2 grounds that the 1996 tax charges "are 'based on the same act or 3 transaction' as the other charges the jury was to consider." 4 Gov't Br. at 51. 5 "share a common nucleus, the sale of the CFC-113." 6 51. 7 offenses under Rule 8(a) on the grounds that the charged offenses 8 "are connected with or constitute parts of a common scheme or 9 plan," Fed. R. Crim. P. 8(a), and for joinder of defendants under It further asserts that all of the charges Gov't Br. at The government thus appears also to rely for joinder of 10 Rule 8(b) on the parallel grounds that the defendants 11 "participated . . . in the same series of acts or transactions, 12 constituting an offense or offenses," Fed. R. Crim. P. 8(b). 13 United States v. Halper, 590 F.2d 422, 430 (2d Cir. 1978) 14 (justifying joinder under the "common scheme or plan" clause 15 because it saves the government from having to "prov[e] what is 16 essentially the same set of facts more than once" and the 17 defendant from "defending more than once against what are 18 essentially the same, or at least connected, charges"). 19 Cf. Critically, the government does not defend the joinder 20 of offenses under Rule 8(a)'s "same or similar character" clause. 21 See United States v. Turoff, 853 F.2d 1037, 1042-43 (2d Cir. 22 1988) (concluding that Rule "8(b) provides a more restrictive 23 test" because "[u]nlike Rule 8(a), Rule 8(b) does not permit 24 joinder . . . solely on the ground that the offenses charged are 25 of 'the same or similar character'"). 26 against Shellef alone are not "based on the same act or 26 If, then, the charges 1 transaction" or "are [not] connected with or constitute parts of 2 a common scheme or plan," Fed. R. Crim. P. 8(a), and the charges 3 against both Shellef and Rubenstein are not based on "the same 4 act or transaction, or [o]n the same series of acts or 5 transactions," Fed. R. Crim. P. 8(b), both the joinder of charges 6 and the joinder of defendants were improper. 7 A. 8 9 Joinder of Charges against Shellef 1. Propriety of Joinder. against Shellef. There are three tax charges Two of them arise from Shellef's 1996 tax 10 returns (the "1996 Tax Counts"). First, Shellef is charged with 11 falsely reporting the gross receipts on PolyTuff USA's 1996 12 corporate income tax return (the "PolyTuff Tax Count"). 13 he is charged with misstating his taxable income on his 1996 14 personal income tax return (the "Personal Tax Count"). 15 is charged with falsely reporting gross receipts on Poly 16 Systems's corporate income tax return in 1999 (the "1999 Tax 17 Count" or the "Poly Systems Tax Count"). 18 counts are joined with several non-tax counts charging both 19 Shellef and Rubenstein with conspiracy and wire fraud and 20 charging Shellef alone with money laundering. 21 that the 1996 Tax Counts should not have been joined with the 22 remaining counts, including the 1999 Tax Count. Second, Third, he As noted, these tax Shellef contends 23 We apply a "commonsense rule" to decide whether, in 24 light of the factual overlap among charges, joint proceedings 25 would produce sufficient efficiencies such that joinder is proper 26 notwithstanding the possibility of prejudice to either or both of 27 1 the defendants resulting from the joinder. See Turoff, 853 F.2d 2 at 1044 ("applying a commonsense rule to these facts" to 3 determine whether "a reasonable person would easily recognize the 4 common factual elements that permit joinder"); see also id. at 5 1042 (recognizing that the tests for joinder "reflect[] a policy 6 determination that [in some circumstances,] gains in trial 7 efficiency outweigh the recognized prejudice that accrues to the 8 accused"). 9 the offenses "depend[s] upon []or necessarily l[eads] to the For example, counts might be "connected" if one of 10 commission of the other," or if proof of one act "constitute[s] 11 []or depend[s] upon proof of the other." 12 429. 13 Halper, 590 F.2d at "Tax counts may be joined with non-tax counts where it 14 is shown that the tax offenses arose directly from the other 15 offenses charged." 16 link possible between non-tax crimes and tax fraud is that funds 17 derived from non-tax violations either are or produce the 18 unreported income." 19 fraud, the government may prosecute the defendant for fraud and 20 for not paying taxes on the profits produced by the alleged fraud 21 jointly. 22 convince us of the benefit of joining these two schemes in one 23 indictment, other overlapping facts or issues may." 24 44. 25 26 Turoff, 853 F.2d at 1043. Id. "The most direct Thus, if a defendant is charged with And "if the character of the funds derived do not Id. at 1043- Here, the Personal Tax Count and the PolyTuff Tax Count against Shellef might have been properly joined with an 28 1 indictment charging the 1999 Tax Count because there are common 2 facts concerning Shellef's relationship with Stein and 3 Kashinsky's accounting firm, which handled both his 1996 and 1999 4 tax returns. 5 counts against Shellef and Rubenstein generated the allegedly 6 unreported 1999 income of Poly Systems that formed the basis for 7 the 1999 Tax Count against Shellef, it seems likely that the 1999 8 Tax Count against Shellef could have been properly joined with an 9 indictment charging only the conspiracy, wire fraud, and money And inasmuch as the schemes underlying the non-tax 10 laundering schemes against Shellef -- the unreported 1999 income 11 was produced by those schemes. 12 F.2d 662, 676 (2d Cir. 1990) (holding that tax counts were 13 properly joined with conspiracy counts because most of the 14 unreported income was produced by the conspiracy). 15 See United States v. Biaggi, 909 The funds generated by the wire fraud, money 16 laundering, and conspiracy schemes, however, were unrelated to 17 the unreported income that was the basis for the 1996 Tax Counts. 18 Indeed, the alleged 1996 tax violations took place before the 19 conspiracy and wire fraud allegedly began. 20 contention that all the charges "share a common nucleus, the sale 21 of the CFC-113," Gov't Br. at 51, paints the allegations with too 22 broad a brush. 23 gross receipts and Shellef's unreported personal income derived 24 entirely from CFC-113 sales (a fact about which the record is 25 silent), the fact that the businesses that produced the 1996 26 unreported income were also subsequently used to perpetrate the The government's Even assuming that PolyTuff USA's unreported 29 1 alleged conspiracy and wire fraud does not justify a conclusion 2 that the offenses charged are "based on the same act or 3 transaction, or are connected with or constitute parts of a 4 common scheme or plan" under Rule 8(a). 5 see also Halper, 590 F.2d at 429 (rejecting the joinder of income 6 tax counts with Medicaid fraud counts, even though the unreported 7 income was generated by the same business that allegedly 8 committed the Medicaid fraud, because the unreported income may 9 have been produced by legitimate activities of the business 10 Fed R. Crim. P. 8(a); unrelated to the fraud). 11 We can find no other link between the 1996 Tax Counts 12 and the other charges sufficient to justify joinder of all of the 13 counts. 14 the wire fraud, money laundering, conspiracy, and 1999 tax 15 offenses is that Shellef and Rubenstein conspired to obstruct the 16 IRS's collection of the excise tax due on their sales of CFC-113 17 by misrepresenting to Allied and Elf their intent to resell the 18 product abroad. 19 charges and the 1996 Tax Counts is that Shellef purchased CFC-113 20 from Allied and that Shellef used Stein and Kashinsky's 21 accounting firm from 1996 through 1999. 22 Counts that are not common to the conspiracy, wire fraud, money 23 laundering, and 1999 tax counts include that Shellef made sales 24 to the government of Israel in 1996; that PolyTuff USA deposited 25 these funds in an undisclosed Marine Midland account; that 26 Shellef held an undisclosed personal account at Citibank to which The gravamen of the government's case with respect to The only common factual elements between those 30 Elements of the 1996 Tax 1 he diverted corporate profits; and that he omitted the funds from 2 his tax returns. 3 laundering, and 1999 tax counts that are not common to the 1996 4 Tax Counts include that the Israeli government ceased importing 5 CFC-113 in 1997; that Shellef renegotiated his contract with 6 Allied on more than one occasion; that Rubenstein purchased CFC- 7 113 from Elf; that Shellef and Rubenstein sold CFC-113 8 domestically; and that they misrepresented to their domestic 9 buyers that the excise tax had been paid. 10 Elements of the conspiracy, wire fraud, money Requiring that the 1996 Tax Counts be tried separately 11 from the remaining counts, moreover, would not require that the 12 government "prov[e] what is essentially the same set of facts 13 more than once" and Shellef to "defend[] more than once against 14 what are essentially the same, or at least connected, charges." 15 Halper, 590 F.2d at 430. 16 wire fraud and conspiracy] neither depended upon nor necessarily 17 led to the commission of" the alleged 1996 tax misconduct and 18 "proof of the one act neither constituted nor depended upon proof 19 of the other," joinder was improper. 20 Because "[c]ommission of [the alleged Id. at 429. The charges are thus not "based on the same act or 21 transaction, [and] are [not] connected with [and do not] 22 constitute parts of a common scheme or plan" under Rule 8(a). 23 Cf. Biaggi, 909 F.2d at 676 ("Proof of one scheme was helpful to 24 a full understanding of the other."). 25 Counts may be relevant to determining whether Shellef possessed 26 the requisite mens rea for the 1999 Tax Count, the 1996 Tax 31 Although the 1996 Tax 1 Counts and the non-tax counts are not sufficiently "unified by 2 some substantial identity of facts or participants," nor do they 3 "arise out of a common plan or scheme." 4 815 (quoting United States v. Porter, 821 F.2d 968, 972 (4th Cir. 5 1987), cert. denied, 485 U.S. 934 (1988)) (finding joinder 6 appropriate where two contemporaneous conspiracies "shared a 7 common purpose" and included "an overlap of participants and 8 acts"). 9 Attanasio, 870 F.2d at We do not think, then, that the 1999 Tax Count -- which 10 might have been joined with either the 1996 Tax Counts or the 11 conspiracy, wire fraud, and money laundering counts -- provides 12 an adequate link between the 1996 Tax Counts and the non-tax 13 counts to justify joinder of all the charges against Shellef. 14 The 1996 Tax Counts therefore should not have been joined with 15 the remaining counts.13 13 In Biaggi, multiple defendants were involved in a largescale conspiracy to extort money from a company called Wedtech. See Biaggi, 909 F.2d at 670-74. One defendant was also charged with extorting money from a contractor named Fogliano. See id. at 673. This defendant was further charged with a tax violation for unreported income. See id. at 675. We reasoned that because the overwhelming majority of the unreported income was derived from the Wedtech extortion that was at the center of the trial, joinder was proper notwithstanding that a small amount of the income was from the unrelated Fogliano extortion. See id. at 676. Nonetheless, we noted hypothetically that if the trial had focused on the Fogliano extortion, joinder of a tax count based largely on unreported Wedtech extortion income may be improper, even if it included a small amount of Fogliano extortion income. See id. Biaggi thus reinforced the notion that the propriety of joining tax charges with non-tax charges depends in large part on whether the unreported income forming the basis for the tax charges was derived from the criminal acts that form the basis for the non-tax charges. 32 1 2. Harmlessness of Misjoinder as to Shellef. 2 Erroneous joinder "requires reversal only if the misjoinder 3 results in actual prejudice because it 'had substantial and 4 injurious effect or influence in determining the jury's 5 verdict.'" 6 (quoting Kotteakos v. United States, 328 U.S. 750, 776 (1946)); 7 see also id. at 450 (concluding that the error in that case was 8 harmless because the evidence of guilt was overwhelming, limiting 9 instructions were given, and the evidence on the misjoined count 10 would have been admissible in a trial on the remaining counts). 11 In determining whether the error was harmless, we inquire whether 12 "evidence tending to prove the charge that should have been 13 severed would nevertheless have been admissible at the trial of 14 the objecting []defendant, and was admitted subject to 15 appropriate limiting instructions." 16 (quoting United States v. Turbide, 558 F.2d 1053, 1061 (2d Cir.), 17 cert. denied, 434 U.S. 934 (1977)) (internal quotation marks 18 omitted). 19 government." United States v. Quattrone, 441 F.3d 153, 181 (2d 20 Cir. 2006). We must examine whether the misjoinder was harmless 21 with respect to the jury's conviction of Shellef on each count. United States v. Lane, 474 U.S. 438, 449 (1986) Attanasio, 870 F.2d at 815 "The burden of establishing harmlessness is on the Shellef's case stands even further outside Rule 8's scope than the hypothetical posed by the Biaggi Court. Here, none of the unreported personal or corporate income was derived from the conspiracy or wire fraud schemes that formed the basis for the other charges against Shellef and Rubenstein. There is simply no meaningful factual overlap between the 1996 Tax Counts and the remainder of the case. 33 1 a. The non-tax counts 2 We conclude that misjoinder of the tax and non-tax 3 counts was not harmless with respect to Shellef's convictions on 4 the non-tax counts. 5 counts and the 1999 Tax Count, some of the evidence related to 6 the 1996 Tax Counts might have been admissible for the limited 7 purpose of establishing Shellef's mental state with respect to 8 the 1999 Tax Count. 9 (2d Cir. 1998) ("[W]e have often explained [that] a defendant's Had Shellef been tried on only the non-tax See United States v. Bok, 156 F.3d 157, 165 10 past taxpaying record is admissible to prove willfulness 11 circumstantially."); cf. Fed. R. Evid. 404(b) ("Evidence of other 12 crimes, wrongs, or acts" may be admissible to prove, inter alia, 13 "intent, . . . knowledge, . . . or absence of mistake or 14 accident . . . ."). 15 But other-acts evidence admissible under Rule 404(b) is 16 subject to exclusion under Rule 403, which provides that evidence 17 "may be excluded if its probative value is substantially 18 outweighed by the danger of unfair prejudice." 19 403; see also United States v. Myerson, 18 F.3d 153, 166 (2d Cir. 20 1994) (recognizing that "[r]elevant evidence of a defendant's 21 prior bad acts [may be] admissible under Rule 404(b) . . . so 22 long as that evidence is not substantially more prejudicial than 23 probative under Rule 403"). 24 prejudice would have been excessive if evidence of the 1996 Tax 25 Counts were to have been admitted in a trial on the non-tax 26 counts and the 1999 Tax Count. Fed. R. Evid. We think that the risk of unfair A danger generally associated 34 1 with other-acts evidence is that the jury will understand it to 2 suggest that the defendant is predisposed to engage in a 3 particular type of criminal activity. 4 (providing that other-acts evidence "is not admissible to prove 5 the character of a person in order to show action in conformity 6 therewith"). 7 the other-acts evidence that would warrant its exclusion. 8 there is the danger that the jury may improperly apply the other- 9 acts evidence to the non-tax counts even though it is admissible See Fed. R. Evid. 404(b) In this case, there are at least two concerns about First, 10 only as to the 1999 Tax Count. 11 reason that if Shellef was willing to lie to the IRS in 1996, he 12 would be willing subsequently to lie to others, including Allied 13 and Elf personnel. 14 relates to Shellef's alleged deceit, there is an additional risk: 15 The jury might have interpreted the 1996 Tax Counts evidence as 16 an indication of Shellef's general mendacity relevant to the 17 remaining counts and thereby discount his testimony unrelated to 18 the tax counts. 19 The risk is that the jury would Second, because here the other-acts evidence Perhaps, as in Attanasio, an instruction strictly 20 limiting the jury's use of the evidence admitted as to the 1996 21 Tax Counts to that which is permissible -- to negate the 22 inference that the misstated gross receipts on the 1999 Poly 23 Systems return were the product of mere mistake -- would have 24 helped cure the prejudice. 25 here. 26 judge "gave appropriate limiting instructions to the jury" to But no such instruction was given See Attanasio, 870 F.2d at 815 (noting that the district 35 1 narrow evidence admitted under Rule 404(b) to the defendant's 2 intent and motive). 3 evidence as to the 1996 Tax Counts would not have been admissible 4 in a trial on all the other counts. 5 the misjoinder of the 1996 Tax Counts was not harmless error as 6 to the non-tax counts. Since no limiting instruction was given, the We therefore conclude that 7 b. The 1996 Tax Counts 8 Prejudicial misjoinder of the charges is, in this case, 9 a two-way street. Just as the introduction of evidence as to 10 elements of the 1996 Tax Counts was prejudicial to jury 11 deliberation on the conspiracy, wire fraud, and money laundering 12 counts, introduction of evidence as to elements of the 13 conspiracy, wire fraud, and money laundering counts was 14 prejudicial to jury deliberation on the 1996 Tax Counts. 15 hearing evidence of the conspiracy, wire fraud, and money 16 laundering counts, the jury may have thought that Shellef was 17 predisposed to commit crimes of deceit like those alleged in the 18 1996 Tax Counts. 19 have been adequate to protect against these risks. 20 Attanasio, 870 F.2d at 815. 21 c. 1999 Tax Count 22 We conclude, finally on this score, that because of the After No limiting instruction was given that would See 23 misjoinder, the jury's conviction of Shellef on the 1999 Tax 24 Count also cannot stand. 25 Tax Counts and the non-tax counts is admissible as to the 1999 26 Tax Count, a limiting instruction was required to prevent the Although evidence relating to the 1996 36 1 jury from improperly considering such evidence as demonstrating 2 Shellef's propensity to commit crimes of deceit. 3 F.3d at 165 ("[W]e have often explained [that] a defendant's past 4 taxpaying record is admissible to prove willfulness 5 circumstantially."); Attanasio, 870 F.2d at 815. 6 court included an instruction of this sort, but it expressly 7 related only to "evidence of acts of the defendants which may be 8 similar to those charged in the indictment, but which were 9 committed on other occasions." See Bok, 156 The district Trial Tr. 3146:13-16, July 25, 10 2005. 11 acts charged in the indictment, however, the government has not 12 demonstrated that the evidence relating to the 1996 Tax Counts or 13 the non-tax counts did not result in actual prejudice to the 14 jury's deliberation. 15 conviction on the 1999 Tax Count also must be vacated.14 14 Without a similar limiting instruction applicable to the As a result, Shellef's judgment of The district court also gave this instruction: Any wilful failure to comply with the requirements of the Internal Revenue Code for one year is a separate matter from any such failure to comply for a different year. The tax obligations of defendant Shellef in any one year must be determined separately from the tax obligations in any other year. That language is not sufficient to avoid the propensity problem. Even though the jury was instructed to "determine[] separately" guilt as to the tax charges, this instruction does not explain to the jury that, if it finds Shellef guilty on one tax charge, it may consider this conduct only as it relates to intent to commit the other tax charge. While the instruction properly directs the jury to determine guilt or innocence separately for each count, it does not limit the extent that the jury may consider evidence submitted to prove one count in determining guilt on another count. For the misjoinder to be harmless, given the facts of this case, such an instruction was required. 37 1 B. Sufficiency of the Evidence of Conspiracy as to Shellef 2 Shellef also argues that the evidence presented failed 3 to support his conviction for conspiring to defraud the IRS, and 4 that therefore his conviction must be reversed rather than 5 vacated. 6 Shellef contends that all of the evidence is consistent 7 with a motive to evade Allied's exclusive domestic 8 distributorship agreements by deceiving the company into thinking 9 that he would not sell the CFC-113 domestically. Because that 10 scheme did not have as a necessary result the perpetration of a 11 fraud on the IRS and there is no additional evidence of actions 12 that would not be explained by a motive to deceive Allied instead 13 of the IRS, Shellef argues, we are required to vacate his 14 conviction for conspiracy. 15 But the government introduced considerable evidence of 16 conduct by Shellef and Rubenstein that supports the inference 17 that they intended to avoid payment of the excise tax entirely, 18 rather than only to trick Allied into selling them CFC-113. 19 example, Shellef represented to his buyers that the excise tax 20 had been paid; Rubenstein prepared documents indicating that the 21 material was either reclaimed or for export only; and Shellef 22 charged his customers just below Allied's tax-paid rate (and 23 significantly above the tax-free rate Shellef paid). 24 was done after they had acquired the CFC-113, and hence is not 25 explainable solely by "the objective of obtaining the chemical 26 from Allied." Shellef Br. at 51. 38 For All this The evidence "allow[ed] the 1 jury to reasonably infer that each essential element of the crime 2 charged," United States v. D'Amato, 39 F.3d 1249, 1256 (2d Cir. 3 1994), including the "inten[t] to impede or obstruct the IRS from 4 carrying out its functions," Gurary, 860 F.2d at 525, "has been 5 proven beyond a reasonable doubt," D'Amato, 39 F.3d at 1256. 6 In any event, even if the evidence was consistent with 7 a motive to defraud Allied, it is also consistent with a motive 8 to defraud the IRS. 9 of the verdict, United States v. Naiman, 211 F.3d 40, 46 (2d Cir. Because we must draw all inferences in favor 10 2000), the challenge fails. 11 C. 12 Joinder of Charges against Rubenstein For many of the same reasons that there was a 13 prejudicial misjoinder of the 1996 Tax Counts with the 14 conspiracy, wire fraud, and money laundering counts as they 15 relate to Shellef, a fortiori, the conspiracy and wire fraud 16 counts against Rubenstein were prejudicially misjoined with the 17 1996 Tax Counts against Shellef. 18 Shellef and Rubenstein devised and executed the wire fraud and 19 conspiracy schemes together, but, as we have explained, the 20 connection between that scheme and the 1996 Tax Counts is too 21 tenuous to justify joinder under Rule 8. 22 joinder of the 1996 Tax Counts with the non-tax counts against 23 Shellef may have materially and improperly influenced the jury's 24 deliberations on the non-tax counts as to Shellef, it also may 25 have materially and improperly influenced the jury's 26 deliberations on the wire fraud and conspiracy counts as to 39 The indictment alleged that Moreover, just as the 1 Rubenstein. Indeed, the potential for prejudice misjoinder is 2 arguably greater as for Rubenstein than Shellef, not only because 3 he had no connection at all with the 1996 Tax Count, but also 4 because he chose not to testify yet may have suffered from any 5 adverse credibility determinations made by the jury regarding 6 Shellef's testimony. 7 of Rubenstein for wire fraud and conspiracy, too. We therefore vacate the jury's conviction 8 III. Issues on Remand 9 Because of the prejudicial misjoinder of charges 10 against the defendants, we must vacate and remand the case to the 11 district court for further proceedings. 12 issues asserted as bases for vacatur of the defendants' judgments 13 of conviction have been fully briefed and argued, and because 14 they are likely to arise again on remand and retrial, we address 15 them here even though their resolution is not strictly necessary 16 in order to decide this appeal. 17 A. 18 Because several other Conspiracy to Defraud the IRS Count One of the indictment charged that Shellef and 19 Rubenstein conspired to defraud the IRS. 20 (rendering it a crime to conspire "to defraud the United States, 21 or any agency thereof in any manner or for any purpose"). 22 Shellef and Rubenstein challenge the sufficiency of the 23 indictment and the jury instructions on this count. 24 that their challenges are without merit. 25 1. See 18 U.S.C. § 371 Sufficiency of the Indictment. 40 We conclude 1 Shellef contends that the acts alleged in the 2 indictment do not constitute a conspiracy to defraud the IRS 3 because there is no allegation that he misled Allied or Elf 4 regarding the IRS registration number or certificates of export 5 required to make CFC-113 sales excise-tax free. 6 misrepresentation, the CFC-113 remained taxable and Allied and 7 Elf should have charged Shellef and Rubenstein the applicable 8 excise taxes. 9 excise taxes. 10 Without such a Only Allied and Elf are guilty of failure to pay The government responds that the likely success of the 11 alleged conspiracy is irrelevant. 12 the indictment allege that Shellef and Rubenstein agreed to 13 defraud the IRS, that they participated knowingly and voluntarily 14 in the conspiracy, and that at least one of them committed an 15 overt act in furtherance of the conspiracy. 16 indictment meets these requirements, the government argues, it is 17 legally sufficient. 18 All that is required is that Because the "The sufficiency of the indictment is a matter of law 19 that is reviewed de novo." United States v. Pirro, 212 F.3d 86, 20 92 (2d Cir. 2000). 21 United States (also known as a "defraud clause conspiracy") are 22 "'(1) [that defendant] entered into an agreement (2) to obstruct 23 a lawful function of the government (3) by deceitful or dishonest 24 means and (4) at least one overt act in furtherance of the 25 conspiracy.'" 26 Cir. 1996) (quoting United States v. Caldwell, 989 F.2d 1056, The elements of a conspiracy to defraud the United States v. Ballistrea, 101 F.3d 827, 832 (2d 41 1 1059 (9th Cir. 1993)) (brackets in original). 2 charging a defraud clause conspiracy [must] set forth with 3 precision the essential nature of the alleged fraud." 4 States v. Helmsley, 941 F.2d 71, 90 (2d Cir. 1991) (internal 5 quotation marks and citations omitted). 6 The "indictment United Here, the "essential nature of the alleged fraud" was 7 that Shellef and Rubenstein misled manufacturers about the 8 taxable status of their transactions. 9 themselves proceeded to mislead the IRS is immaterial. Whether the manufacturers All that 10 is necessary is that the scheme had the object of making it more 11 difficult for the IRS to carry out its lawful functions and that 12 the scheme depend on "dishonest or deceitful means." 13 Ballistrea, 101 F.3d at 831-32 ("[Title 18 U.S.C. § 371] covers 14 acts that interfere with or obstruct one of [the United States'] 15 lawful governmental functions by deceit, craft or trickery, or at 16 least by means that are dishonest, even if the Government is not 17 subjected to property or pecuniary loss by the fraud" (citations 18 and quotation marks omitted; second brackets in original)). 19 Shellef and Rubenstein's scheme would have made it more difficult 20 for the IRS to collect taxes on the CFC-113 transactions because 21 Allied and Elf were allegedly misled by Shellef and Rubenstein as 22 to the chemical's destination. 23 could be expected, unwittingly or otherwise, to mislead the IRS 24 about the taxable status of their CFC-113 sales. 25 26 See Thus misinformed, Allied and Elf Shellef argues that because Allied and Elf, not Shellef or Rubenstein, were under a duty to report the transactions to 42 1 the IRS and pay the taxes, and because the transactions were 2 taxable unless further misrepresentations were made, either by 3 him or the manufacturers, he cannot be convicted under 18 U.S.C. 4 § 371. 5 transactions or pay taxes to be convicted of a conspiracy to 6 defraud the IRS with respect to those reports or payments. 7 United States v. Nersesian, 824 F.2d 1294, 1313 (2d Cir.), cert. 8 denied, 484 U.S. 958 (1987) ("[T]he fact that [the defendant] 9 . . . had no duty to report [the] transactions . . . is not the But a defendant need not have a duty to report See 10 operative issue as to whether he agreed to unlawfully defraud the 11 United States by impairing and obstructing [the IRS's] lawful 12 governmental function[] of collecting data. . . ."). 13 Shellef avoid the reach of the conspiracy statute by arguing that 14 his scheme would fail because other requirements for tax-free 15 treatment -- certification of export and IRS registration -- 16 would not be satisfied. 17 not depend upon the achievement of its goal" and it therefore 18 "does not matter that the ends of the conspiracy were from the 19 beginning unattainable." 20 245, 249 (2d Cir. 1982) (citations omitted). 21 Nor can "[T]he illegality of [a conspiracy] does United States v. Giordano, 693 F.2d Shellef and Rubenstein's scheme, as alleged in the 22 indictment, is similar to that of the defendants in Nersesian, 23 824 F.2d at 1309-13. 24 requirement under the Bank Secrecy Act, 31 U.S.C. § 5311 et seq., 25 that banks report currency transactions exceeding $10,000 in a 26 single day. Nersesian involved, among other things, the See Nersesian, 824 F.2d at 1310. 43 The defendants 1 structured their transactions so the banks would not know that 2 they exceeded the $10,000 limit. 3 the defendants had no duty to report the transactions themselves, 4 we upheld their convictions under 18 U.S.C. § 371 because they 5 had "agreed to interfere with and to obstruct this lawful 6 function of the IRS." 7 See id. at 1309-10. Although Id. at 1313.15 Here, the indictment alleges that Shellef and 8 Rubenstein agreed to interfere with the IRS's collection of the 9 excise tax by conspiring to misrepresent to Allied and Elf the 10 CFC-113's destination, which in turn would lead them to refrain 11 from paying the excise tax. 12 could be convicted for misrepresenting the nature of their 13 transactions to a third party who owed an independent duty to the 14 IRS, so can Shellef and Rubenstein. Just as the Nersesian defendants 15 United States v. Gurary, 860 F.2d 521 (2d Cir. 1988), cert. denied, 490 U.S. 1035 (1989), is also analogous. The three defendants in Gurary "sold invoices to corporations . . . falsely reflecting that one of the defendants' companies had sold goods to the invoice-purchasing company." Id. at 523. That it remained for the "[c]orporations purchasing the fictitious invoices [to] include[] the non-existent goods in their calculations of cost-of-goods sold for tax purposes, fraudulently misstating their taxable income" was ultimately of no moment. See id. (describing scheme); id. at 525 (holding that evidence supported the conspiracy count). Similarly, here, it remained for Allied and Elf to submit documents to the IRS falsely indicating that the CFC-113 they sold to Shellef and Rubenstein was, as they represented, exported. See id. at 525 (noting that "[a]ccurate disclosure of the transactions in corporate records and tax returns would prevent the scheme from working"). But Shellef and Rubenstein cannot avoid guilt by reason of the fact that they did not encourage Allied and Elf to take this further step -- the indictment sufficiently alleges that they "were well aware their scheme would . . . impede the IRS from learning" the transactions were domestic and hence taxable. Id. 44 1 Shellef seeks to avoid the implications of Nersesian by 2 arguing that "[t]he reason that [the scheme in Nersesian] 3 interfered with the IRS's lawful function was that the financial 4 institutions could have no way of knowing that [the defendant] 5 was structuring transactions in a way to prevent the banks from 6 submitting" required reports. 7 ability of the reporting party to discover the true nature of the 8 transaction is related only to the likelihood of the scheme's 9 success. 10 But the And, as noted, the likely success of the scheme is immaterial. 11 Shellef Br. at 43. Giordano, 693 F.2d at 249. Finally, Shellef argues that the rule of lenity 12 prohibits application of the statute to his conduct. 13 analysis indicates, the statute, as interpreted by our case law, 14 makes clear that his conduct is proscribed. 15 lenity . . . is not applicable unless there is a grievous 16 ambiguity or uncertainty in the language and structure of the 17 [statute], such that even after a court has seized every thing 18 from which aid can be derived, it is still left with an ambiguous 19 statute." 20 (citations, internal brackets, and internal quotation marks 21 omitted). 22 23 24 25 But, as our And "[t]he rule of Chapman v. United States, 500 U.S. 453, 463 (1991) The indictment sufficiently alleges a violation of 18 U.S.C. § 371. 2. Jury Instructions. Rubenstein asserts that the jury instructions erroneously omitted an essential element from 45 1 their description of the conspiracy offense. 2 responds that, because Rubenstein made no contemporaneous 3 objection to the instructions, any error was not "plain" as 4 required by our review. 5 The government Rubenstein effectively concedes that he did not object 6 to these instructions. 7 issued again in the course of a new trial, Rubenstein presumably 8 would object. 9 therefore not an issue we need address. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 But if these instructions were to be Whether any error would be "plain error" is We discuss only whether the instructions were erroneous. The district court instructed the jury on the conspiracy count as follows: In order to satisfy its burden as to Count One, the government must prove each of the following four essential elements beyond a reasonable doubt: First, that two or more persons entered the unlawful agreement charged in the indictment starting in or about July 1997; second, that each defendant knowingly and willfully became a member of the conspiracy; third, that one of the members of the conspiracy knowingly committed at least one of the overt acts charged in the indictment; and fourth, that the overt act or acts which you find to have been committed was or were committed to further some objective of the conspiracy. Trial Tr. 3158-59, July 26, 2005. [W]e have emphasized the need for particular vigilance in enforcing the government's burden of proof in prosecutions under § 371, in view of the broad range of conduct covered by the federal fraud statutes and the risk that a defendant may be convicted of conspiracy based upon an agreement other than that specifically charged in the government's indictment. 46 1 United States v. Gallerani, 68 F.3d 611, 618 (2d Cir. 1995) 2 (internal quotation marks and citation omitted). 3 "particular vigilance," Gallerani, 68 F.3d at 618, we think that 4 the instruction here was erroneous, see United States v. Bayless, 5 201 F.3d 116, 127-28 (2d Cir.), cert. denied, 529 U.S. 1061 6 (2000) (noting that an error exists when there is a "deviation 7 from a legal rule which has not been waived" (internal quotation 8 marks and citation omitted)). 9 conspiracy to defraud the United States are, as we have noted, Applying The elements of a section 371 10 "(1) [that defendant] entered into an agreement (2) to obstruct a 11 lawful function of the government (3) by deceitful or dishonest 12 means and (4) at least one overt act in furtherance of the 13 conspiracy." 14 citation and internal quotation marks omitted). 15 court did not instruct the jurors that they would be required to 16 find that Shellef and Rubenstein agreed to use "deceitful or 17 dishonest means" to obstruct the "lawful function of the 18 government."16 19 B. Ballistrea, 101 F.3d at 832 (brackets in original; The district Wire Fraud 20 The government also charged Shellef and Rubenstein with 21 multiple counts of wire fraud. The wire fraud statute makes it a 22 federal crime to use interstate wire communication to execute a 16 We express no view as to whether this error was harmless. See United States v. Locascio, 6 F.3d 924, 939 (2d Cir. 1993), cert. denied, 511 U.S. 1070 (1994) (recognizing that we reverse on the basis of erroneous jury instructions only if "the defendants-appellants can show that the charge given, when read as a whole, caused them prejudice"). 47 1 "scheme or artifice to defraud, or for obtaining money or 2 property by means of false or fraudulent pretenses, 3 representations, or promises." 4 Rubenstein challenge the sufficiency of the indictment, the 5 sufficiency of the evidence for one of the government's theories, 6 and the jury instructions. 7 1. 18 U.S.C. § 1343. Sufficiency of the Indictment. Shellef and The indictment here 8 contains two theories of fraud: a "no-sale" theory and a "tax 9 liability" theory. "Where a jury is presented with multiple 10 theories of conviction, one of which is invalid, the jury's 11 verdict must be overturned if it is impossible to tell which 12 theory formed the basis for conviction." 13 289 F.3d 200, 208 (2d Cir. 2002) (citations omitted). United States v. Szur, 14 a. No-Sale Theory 15 Under the "no-sale" theory, the indictment alleges that 16 Shellef's misrepresentation "induced Allied Signal to sell 17 additional amounts of virgin CFC-113 to Poly Systems that it 18 would not have sold had it known that Shellef in fact intended to 19 sell the product domestically." 20 contends that this theory is not viable because the scheme did 21 not constitute a scheme to defraud within the meaning of the wire 22 fraud statute. 23 Allied of "'the right to define the terms for the sale of its 24 property'" and that this is sufficient to bring his scheme within 25 the reach of the wire fraud statute. 26 United States v. Schwartz, 924 F.2d 410, 421 (2d Cir. 1991). Indictment ¶ 53. Shellef The government responds that Shellef deprived 48 Gov't Br. at 40-43 (quoting 1 The "essential elements of a mail or wire fraud 2 violation are (1) a scheme to defraud, (2) money or property as 3 the object of the scheme, and (3) use of the mails or wires to 4 further the scheme." 5 255 (2d Cir. 2004), cert. denied, 544 U.S. 1017 (2005) (quotation 6 marks, citation, and brackets omitted). 7 and the wire fraud statutes use the same relevant language, we 8 analyze them the same way." 9 the indictment need not allege that the victims of the fraud were Fountain v. United States, 357 F.3d 250, "Because the mail fraud Schwartz, 924 F.2d at 416. Although 10 in fact injured, it is required to allege that the defendant 11 contemplated actual harm that would befall victims due to his 12 deception in order to meet the "scheme to defraud" prong. 13 United States v. Novak, 443 F.3d 150, 156 (2d Cir.), cert. 14 denied, --- U.S. ----, 127 S. Ct. 525 (2006). 15 See Our cases have drawn a fine line between schemes that 16 do no more than cause their victims to enter into transactions 17 they would otherwise avoid -- which do not violate the mail or 18 wire fraud statutes -- and schemes that depend for their 19 completion on a misrepresentation of an essential element of the 20 bargain -- which do violate the mail and wire fraud statutes. 21 In United States v. Regent Office Supply Co., 421 F.2d 22 1174 (2d Cir. 1970), the defendants sold stationery, id. at 1176. 23 The defendants' scheme consisted of directing their sales 24 personnel to misrepresent their identities to prospective 25 customers so that the customers would be willing to entertain 26 their offers. See id. (noting, as an example, that the sales 49 1 personnel fraudulently claimed that they had been referred by a 2 friend of the customer or an officer of the customer's firm). 3 concluded that no conviction under the mail fraud statute could 4 stand where the misrepresentation was "not directed to the 5 quality, adequacy or price of goods to be sold, or otherwise to 6 the nature of the bargain." 7 We See id. at 1179. United States v. Starr, 816 F.2d 94 (2d Cir. 1987), is 8 similar. The defendants there collected bulk mailings from their 9 customers and then sent them through the post office. See id. at 10 95-96. At the post office, however, they hid high-rate mail in 11 low-rate mail packages, and paid the low-rate price for the 12 entire shipments. 13 their customers as if the mailings were high-rate, and produced 14 and mailed false invoices to show that the high-rate price had in 15 fact been paid. 16 funds simply ha[d] no relevance to the object of the contract; 17 namely, the delivery of mail to the appropriate destination in a 18 timely fashion." 19 amounting only to a deceit are insufficient to maintain a mail or 20 wire fraud prosecution," we concluded that such a charge can not 21 apply to situations where the alleged victims "received exactly 22 what they paid for" and "there was no discrepancy between 23 benefits reasonably anticipated and actual benefits received." 24 Id. at 98-99 (internal quotation marks and citation omitted); cf. 25 id. at 102 (Newman, J., concurring) ("An indictment for Id. at 96. Id. The defendants nonetheless charged We decided that "[t]he misappropriation of Id. at 100. Because "[m]isrepresentations 50 1 defrauding the Postal Service would have led to a conviction that 2 would surely have been affirmed. 3 defrauding the customers has led to a conviction that must be 4 reversed.") 5 However, the indictment for In Schwartz, 924 F.2d 410, however, we were faced with 6 the type of misrepresentation that Regent Office recognized might 7 form the basis for a wire fraud prosecution -- that is, one 8 "directed to . . . the nature of the bargain," id. at 1179. 9 defendants in Schwartz had purchased night-vision goggles from Schwartz, 924 F.2d at 414. The 10 Litton Industries. 11 Export Control Act restricted the sale of these goggles to 12 certain nations, Litton sought assurances, both in the contract 13 and during the course of performance, that the defendants would 14 not export to the restricted nations. 15 promised to abide by all applicable export regulations, they sold 16 the goggles to nations that were prohibited from purchasing them. 17 Id. at 414-16. 18 no-sale theory because the "misrepresentations went to an 19 essential element of the bargain between the parties and were not 20 simply fraudulent inducements to gain access to Litton 21 equipment." 22 the right to define the terms for the sale of its property in 23 that way," that is, that its product not be exported from this 24 country illegally, and therefore "cost it, as well, good will." 25 Id. Id. Because the Arms Though the defendants We upheld their conviction for wire fraud under a Id. at 421. The defendants had "deprived Litton of 51 1 The indictment in the case before us alleges: 2 3 4 5 6 7 8 9 It was a further part of the scheme and artifice that by promising to export all of the CFC-113 purchased, defendant DOV SHELLEF induced Allied Signal to sell additional amounts of virgin CFC-113 to Poly Systems that it would not have sold had it known that SHELLEF in fact intended to sell the product domestically. 10 Indictment ¶ 53. 11 allege, pursuant to the government's "no-sale" theory, that there 12 was a "discrepancy between benefits reasonably anticipated" and 13 actual benefits received. 14 Regent Office, it fails to allege that Shellef misrepresented 15 "the nature of the bargain." 16 Instead, the indictment states only that Shellef's 17 misrepresentation induced Allied to enter into a transaction it 18 would otherwise have avoided. 19 Shellef's misrepresentation had "relevance to the object of the 20 contract," Starr, 816 F.2d at 100, we do not think it is legally 21 sufficient. 22 As in Starr, the indictment here does not Starr, 816 F.2d at 98. And as in Regent Office, 421 F.2d at 1179. Because it does not assert that We recognize that the facts on which this prosecution 23 rested closely resemble those in Schwartz. As in Schwartz, in 24 the case at bar, government regulations and the contract between 25 the parties called for territorial restrictions on the sale of a 26 product. 27 the indictment, not the sufficiency of the evidence. 28 here might have erroneously convicted Shellef and Rubenstein even 29 though it concluded that the defendants did not misrepresent an But we are concerned here only with the sufficiency of 52 The jury 1 "essential element" of the bargain, but rather made "simpl[e] 2 fraudulent inducements to gain access to" Allied and Elf 3 products. 4 that possibility, we do not think a jury can be permitted to 5 convict either defendant on the "no-sale" theory. 6 F.3d at 208 (concluding that a remand is required where the jury 7 may have convicted on a legally invalid theory). Schwartz, 924 F.2d at 421. Because we cannot rule out See Szur, 289 8 b. Tax Liability Theory 9 Under the "tax liability" theory, the indictment 10 alleges that Shellef's misrepresentation regarding the 11 destination of the CFC-113 "induced Allied Signal to continue to 12 sell the product to Poly Systems without paying the excise tax to 13 the Internal Revenue Service, or including the tax in the price 14 it charged Poly Systems." 15 the taxes could not have been "property" within the meaning of 16 the wire fraud statute because Shellef's scheme could not have 17 deprived Allied of the tax money that was owed to the federal 18 government. 19 We disagree. Indictment ¶ 52. Shellef argues that Under the agreement, Shellef owed Allied 20 the amount of "any federal excise tax imposed on the sale of" the 21 CFC-113 "which is not anticipated by Seller at the time of 22 contract execution." 23 4 ¶ 11.C; id. at 2 ¶ 6.B. 24 sell the CFC-113 abroad. 25 the destination of the CFC-113 he was purchasing from Allied so 26 that he could avoid paying to Allied the price increase Allied Contract, effective Jan. 1, 1996, at The agreement also required Shellef to Id. at 1 ¶ 1. 53 Shellef misrepresented 1 necessitated by the application of the excise tax. Allied 2 therefore did not receive the money due it under the agreement, 3 property that was owed to it. 4 destined to be passed on to the government. 5 relevant to our inquiry. 6 Shellef's scheme was intended to deprive Allied of it. 7 therefore a scheme to deprive within the meaning of the wire 8 fraud statute. 9 (2d Cir. 2006) ("[I]t is sufficient that a defendant's scheme was To be sure, that money was But that is not Allied had a right to the property and See United States v. Males, It was 459 F.3d 154, 158 10 intended to deprive another of property rights, even if the 11 defendant did not physically 'obtain' any money or property by 12 taking it from the victim."). 13 2. Sufficiency of Evidence. Shellef argues that the 14 evidence was not sufficient to sustain his conviction under the 15 "no-sale" theory. 16 of the allegations on the "no-sale" theory and therefore need not 17 and do not consider the evidentiary sufficiency of a conviction 18 based upon it in the previous trial. 19 contest the sufficiency of the evidence at that trial with 20 respect to the "tax liability" theory. 21 3. As noted above, we doubt the legal sufficiency Jury Instructions. Shellef does not seriously Rubenstein asserts that the 22 district court's instructions as to wire fraud were erroneous 23 because the district court did not caution the jury that 24 Rubenstein could not be found guilty as an aider and abetter 25 based only on a "general knowledge or suspicion that a crime was 26 being committed" or his "'mere association' with the alleged 54 1 principal, defendant Shellef." The district court issued an 2 instruction for the wire fraud counts and included in the 3 instruction a verbatim reading of the aiding and abetting 4 statute. 5 describe the elements of wire fraud. 6 that the aiding and abetting instruction was incorrect -- he 7 asserts only that additional cautionary instructions should have 8 been given. 9 C. No party appears to contest that they accurately Nor does Rubenstein argue We conclude that the instruction was not improper. Evidentiary Rulings 10 Shellef and Rubenstein assert that evidentiary rulings 11 during the course of trial violated their constitutional right to 12 present a meaningful defense17 and their Sixth Amendment right to 13 confront witnesses. 14 district court's decisions as to admissibility of evidence, see, 15 e.g., United States v. Ebbers, 458 F.3d 110, 122 (2d Cir. 2006), 16 cert. denied, --- U.S. ----, 127 S. Ct. 1483 (2007), and because 17 we cannot foresee what decisions the district court might make in 18 any new trial, or in precisely what context those decisions might 19 be made, we decline to comment on them or the arguments of the 20 government and the defendants in this regard. In light of the deference we owe to a CONCLUSION 21 17 "Whether rooted directly in the Due Process Clause of the Fourteenth Amendment, or in the Compulsory Process or Confrontation clauses of the Sixth Amendment, the Constitution guarantees criminal defendants 'a meaningful opportunity to present a complete defense.'" Crane v. Kentucky, 476 U.S. 683, 690 (1986) (citations omitted). 55 1 Having reviewed the remainder of the defendants' 2 arguments, we conclude that they are without merit. 3 1996 Tax Counts were improperly joined with the remainder of the 4 charges against Shellef and Rubenstein; and because these errors 5 were not harmless, we vacate the judgments of conviction of both 6 defendants and remand the case to the district court for further 7 proceedings. 56 Because the
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