Monday, June 4, 2012

18 U.S.C. section 371

To prove a violation of  18 U.S.C. § 371 by conspiring to defraud the IRS, the government must demonstrate “(1) an agreement to accomplish an illegal objective against the United States; (2) one or more overt acts in furtherance of the illegal purpose; and (3) the intent to commit the substantive offense, i.e., to defraud the United States.”United States v. Furkin , 119 F.3d 1276, 1279 [80 AFTR 2d 97-5352] (7th Cir. 1997). The government's obligation to prove “intent to defraud” refers to evidence showing the defendant knew of his tax liability, not that he knew “of the criminality of the objective.” (quoting United States v. Cyprian, 23 F.3d 1189, 1201 (7th Cir. 1994)). A conviction for aiding in the filing of a false tax return under 18 U.S.C. § 7206(2) requires proof that the defendant willfully assisted in the preparation of a false or fraudulent tax return. See United States v. Powell, 576 F.3d 482, 495 [104 AFTR 2d 2009-5885] (7th Cir. 2009).

U.S. v. WASSON, Cite as 109 AFTR 2d 2012-XXXX, 05/21/2012

UNITED STATES of America, Plaintiff-Appellee, v. Brian Wasson, Defendant-Appellant.
Case Information:

Code Sec(s):      
Court Name:      In the United States Court of Appeals For the Seventh Circuit,
Docket No.:        No. 10-2577,
Date Argued:     05/03/2011
Date Decided:   05/21/2012.




In the United States Court of Appeals For the Seventh Circuit,

Appeal from the United States District Court for the Central District of Illinois. No. 06 CR 20055—Michael P. McCuskey, Judge.

Before Rovner and Williams, Circuit Judges, and Young, District Judge. *

Judge: Rovner, Circuit Judge.

Brian K. Wasson was convicted after a bench trial of one count of conspiracy to defraud the United States, see 18 U.S.C. § 371, and six counts of aiding in the filing of a false tax return, see 26 U.S.C. § 7206(2). He was sentenced to a total of 180 months' imprisonment to be followed by three years of supervised release. Wasson appeals, arguing that the district court erred by denying his motion to dismiss the indictment because he did not receive a speedy trial. He also challenges the sufficiency of the evidence and claims that his sentence violates the ex post facto clause of the Constitution.


Wasson's conviction stems from his involvement with a more extensive tax fraud conspiracy involving the now defunct The Aegis Company. 1 The Aegis Company was founded in Palos Hills, Illinois. Aegis promoted and sold “trusts” to wealthy taxpayer clients, promising them asset protection and reduced tax liability. These trusts, which were essentially shams, were used to divert the clients' taxable income, thereby reducing or eliminating liability for the taxpayer client. Sometime in 1997, Wasson and his codefendant Joseph Starns founded “Midwest Alternative Planning” in Danville, Illinois. They used this business to market the Aegis trust scheme. Starns introduced the Aegis system to the third codefendant, John Wolgamot, who was an attorney in Danville. Wolgamot assisted by preparing the trust entities for Wasson and Starns's clients.

Generally clients paid between $20,000 and $40,000 to set up the trusts under the Aegis system and an additional annual “financial planning” or “management” fee of between $3,000 and $7,000. For example, one Aegis client, Dennis Frichtl, paid approximately $20,000 to set up a domestic and two “offshore charitable” trusts into which he transferred his business profits. Frichtl owned his own welding business and made between $3 and $4 million annually in gross sales. He was told to transfer the money from the first to the second trust and finally to the third, offshore trust, which he was told had no IRS reporting requirements. Using this method, he went from paying between $20,000 and $25,000 annually in taxes to paying no income tax. He later sold his business for $5.2 million, and Wasson assisted him in wiring the profit from the sale overseas into an account that could still be accessed by Frichtl's personal credit card.

In March 2000, the Internal Revenue Service Criminal Investigation Division executed a search warrant on the Aegis offices in Palos Hills. Subsequently, Wasson and others continued marketing the Aegis trusts, despite ongoing investigation by the IRS and the fact that multiple Aegis participants had by this time begun receiving requests for audits. In May 2003, the FBI executed search warrants on the Aegis offices and the residence of top Aegis official Michael Vallone. All told Wasson, Starns, and Wolgamot assisted at least twelve taxpayers using the Aegis system to conceal millions of dollars in income from the IRS. They received over $350,000 in fees and commissions and caused a tax loss to the United States of approximately $6 million.

As we will discuss in more detail below, the path to trial for Wasson was a long one. It began in September 2006, when he was charged in an initial indictment with aiding in the filing of a false tax return in violation of 26 U.S.C. § 7206(2). The grand jury then twice superseded the indictment in order to add Starns and Wolgamot as defendants, include additional counts under § 7206(2), and charge all three defendants with conspiracy to defraud the IRS in violation of 18 U.S.C. § 371. The third superseding indictment was returned on May 2, 2007.

Following the return of the third superseding indictment, Wasson moved on June 8, 2007 to continue trial. On June 28, the court ruled on Wasson's motion and continued trial until March 31, 2008. At that time, the court “reaffirmed” its previous finding that the case was complex and again excluded time under the ends-of-justice exception, see 18 U.S.C. § 3161(h)(7)(A). Starns's counsel also informed the court that Starns had been diagnosed with cancer. Starns subsequently passed away in August 2007.

Before trial commenced on March 2, Wasson moved to dismiss the indictment for failure to comply with the Speedy Trial Act.See 18 U.S.C. §§ 3161–74. The district court denied Wasson's motion, noting that there had been specific reasons supporting each continuance and that in each instance it had balanced the ends of justice against the interests of the parties and the public. The court also observed that the parties had agreed from the beginning that it was a complex case, and that Wasson had either requested or agreed to every continuance between his indictment and the scheduled trial on March 2, 2009.

On appeal, Wasson argues primarily that the district court erred by denying his motions to dismiss the indictment under the Speedy Trial Act. See 18 U.S.C. §§ 3161–74. We review the district court's legal interpretations of the Act de novo, and its decisions to exclude time for an abuse of discretion. See, e.g., United States v. Hills, 618 F.3d 619, 625 [106 AFTR 2d 2010-5909] (7th Cir. 2010). Unless the defendant shows legal error, we will reverse the district court's decision to exclude time only where the defendant can show both an abuse of discretion and actual prejudice.Id. ; see also United States v. Broadnax, 536 F.3d 695, 698 (7th Cir. 2008) (“[E]xclusions of time cannot be reversed except when there is an abuse of discretion by the court and a showing of actual prejudice.”).

Generally speaking, the Act requires a federal criminal trial to commence within 70 days after the defendant is charged or makes an initial appearance, whichever occurs later. 18 U.S.C. § 3161(c)(1). However, in recognition of the realities of widely varying and potentially complex criminal trials, the Act sets forth a number of allowable delays that may be excluded from the seventy-day clock. 18 U.S.C. § 3161(h); see also United States v. Zedner, 547 U.S. 489, 497–98 (2006).

The one exclusion relevant to Wasson's appeal is § 3161(h)(7)(A), which provides that the following periods of delay should be excluded:

Any period of delay resulting from a continuance ... if the judge granted such continuance on the basis of his findings that the ends of justice served by taking such action outweigh the best interest of the public and the defendant in a speedy trial. No such period of delay resulting from a continuance granted by the court in accordance with this paragraph shall be excludable under this subsection unless the court sets forth, in the record of the case, either orally or in writing, its reasons for finding that the ends of justice served by the granting of such continuance outweigh the best interests of the public and the defendant in a speedy trial.
18 U.S.C. § 3161(h)(7)(A).

Section 3161(h)(7)(B) also sets forth four nonexhaustive factors which the court “shall consider” in determining whether to grant an ends-of-justice continuance. In particular, subsection (7)(B)(ii) directs the judge to consider “[w]hether the case is so unusual or so complex, due to the number of defendants, the nature of the prosecution, or the existence of novel questions of fact or law, that it is unreasonable to expect adequate preparation for pretrial proceedings or for the trial itself within the time limits established by this section.” As detailed above, the district court relied on the ends of justice and the complex nature of the case when it repeatedly continued Wasson's trial date.

The parties agree that the speedy trial clock began running when Wolgamot was arraigned on May 11, 2007. It is also undisputed that between that date and the commencement of trial on March 2, 2009, 224 days were automatically excluded for the handling of the defendants' fourteen pretrial motions.See 18 U.S.C. § 3161(h)(1)(D) (excluding delay “resulting from any pretrial motion” from its filing through its disposition); Hills, 618 F.3d at 626–27 (upholding automatic excludability of time between filing and resolution of pretrial motions). That leaves the continuances granted by the district court, which resulted in a total of 437 remaining days between the commencement of the speedy trial clock and Wasson's trial.

As detailed above, there are two statutory prerequisites for excluding a continuance from the Act's 70-day time limit. First, the court must find that the ends of justice served by granting the continuance “outweigh the best interest of the public and the defendant in a speedy trial.” 18 U.S.C. § 3161(h)(7). Second, time “shall” not be excludable unless the court “sets forth, in the record ... its reasons for finding that the ends of justice” outweigh the interest of the public and the defendant in a speedy trial. Id. In light of these statutory requirements, Wasson argues that the delays may not be excluded under the Act because the district court failed to make explicit contemporaneous findings on the record justifying the continuances. The government responds that, taken together with the sequence of events culminating in the continuances, the district court's findings accompanying each continuance suffice under the Act. The requirement of express findings is the “procedural strictness” that counteracts the “substantive open-endedness” of the ends-of-justice provision. Zedner, 547 U.S. at 509.

Wasson's argument boils down to his insistence that to satisfy the Act, the district court's findings must be both explicit and contemporaneous with the granting of an excludable continuance. But although the Act specifies the need to make findings “in the record,” it does not spell out precisely howthe court must effectuate this. Wasson relies heavily onZedner to support his claim that neither implicit nor after-the-fact findings will support an ends-of-justice continuance. But Wasson overreads Zedner. InZedner , the Supreme Court concluded that the Act does not permit a defendant to prospectively waive its application. At the district court's urging, the defendant inZedner had signed a preprinted waiver form purporting to waive his speedy trial rights “for all time.”Zedner , 547 U.S. at 493–94. In rejecting the efficacy of the defendant's waiver, the Court clarified the Act's requirement for express findings to support a § 3161(h)(7) continuance.

Specifically, the government in Zedner had argued that although the district court had never entered an express finding on the record, such a finding could be entered on remand because the circumstances at the time in fact supported the continuance under the ends-of-justice factors.Zedner , 547 U.S. at 506. The Court rejected that argument, pointing out that “[i]n the first place, the Act requires express findings, and in the second place, it does not permit those findings to be made on remand as the Government proposes.” Id. The Court noted the ambiguity that exists between (1) the Act's clear requirement that the court must make findings “if only in the judge's mind,” before granting the continuance, and (2) its duty to set those findings forth “in the record of the case.”Id. at 506–07 (citing what is now codified as 18 U.S.C. § 3161(h)(7)(A)). Without conclusively resolving the ambiguity, the Court noted that “at the very least the Act implies that those findings must be put on the record by the time a district court rules on a defendant's motion to dismiss under § 3162(a)(2).” Id. at 507.

Wasson seizes on this passage to support his claim that the district court must consider the ends-of-justice factors contemporaneously with each continuance granted.Zedner certainly supports his claim that the court must balance the factors at the time it grants the continuance; but Zedner does not go so far as to say this balancing must be memorialized at that time. It recognizes that “[t]he best practice, of course, is for a district court to put its findings on the record at or near the time when it grants the continuance.” 547 U.S. at 507 n.7. Although this is undoubtedly the “best practice,” it is not theonly permissible practice. Zedner and its progeny support our interpretation that a court's ends-of-justice findings need not be articulated contemporaneously on the record. See Hills, 618 F.3d at 628 (court need not articulate its findings contemporaneously with exclusion of time).

Instead we must assure ourselves that the court's reasons have been articulated by the time it rules on a defendant's motion to dismiss and that those reasons satisfy § 3161(h)(7).Id. ““The requirement that the district court make clear on the record its reasons for granting an ends-of-justice continuance serves two core purposes. It both ensures the district court considers the relevant factors and provides this court with an adequate record to review.””United States v. Napadow , 596 F.3d 398, 405 (7th Cir. 2010) (quoting United States v. Toombs, 574 F.3d 1262, 1269 (10th Cir. 2009)).

In Napadow, we concluded that despite minute entries that were “clearly unsatisfactory explanations of the district court's ends-of-justice determinations,” 596 F.3d at 406, the “sequence of events” leading up to the continuance “followed by the court's later explanation” sufficed to support an ends-of-justice continuance, id. at 405–06. Specifically, the record in Napadowreflected that the defendant's counsel had requested more time to prepare for trial and that government counsel had requested more time to coordinate certain witnesses' schedules. The court had then granted the continuance with a perfunctory minute entry referencing an “excludable delay in the interest of justice.” Id. at 400. The court later recalled that it had “probably” excluded the time to ensure continuity of counsel and because it was the first date the attorneys were available. Id. at 405. In concluding that the sequence of events coupled with the later explanation sufficed, we noted that “[w]hen facts have been presented to the court and the court has acted on them, it is not necessary to articulate those same facts in a continuance order.” Id. (internal quotations and citation omitted).

The record of the two hearings in question coupled with the district court's written denial of Wasson's motions to dismiss certainly satisfy this standard. The February continuance, recall, was requested by Wasson. Wasson's motion, joined by Wolgamot and by the government, spelled out for the district court precisely why the ends of justice supported a continuance: (1) the complexity of the case (a matter which had already been agreed to by both the court and the parties); (2) the extensive discovery; and (3) the death of one co-defendant (Starns) and the addition of another (Wolgamot). Counsel represented that given the state of discovery he could not be prepared to adequately represent Wasson without a continuance. Faced with this motion and the parties' unanimous position that more time was needed to prepare for trial, the court's granting of the motion with its unadorned conclusion that the ends of justice were satisfied lets us know the court considered the § 3161(h)(7)(A) factors. In its ruling on Wasson's motion to dismiss, the court elaborated, noting that Wasson had requested several of the continuances and that in each instance it had made findings supporting its conclusion that the ends of justice outweighed the best interests of the defendant and the public in a speedy trial. Although it may have been better for the district court to spell out its agreement with Wasson's motion when granting it, the fact that Wasson's motion laid out the reasons supporting the continuance and the court subsequently granted the motion satisfies us the court considered the appropriate factors. Napadow, 596 F.3d at 405; United States v. Pakala, 568 F.3d 47, 60 (1st Cir. 2009) (rejecting defendant's challenges to Speedy Trial Act continuances where defendant moved for continuances and it was “clearly obvious” the district court adopted the grounds given in the motion).

Likewise, the colloquy on August 22, 2008 provides ample evidence that the court considered and balanced the ends of justice against the competing interests in a speedy trial. When the government explained the impact of Wolgamot's plea on its case, the court specifically inquired whether the plea changed the complexity of the case or simply the length of trial. The court verified that the case remained complex on account of the many taxpayer witnesses and the complexity of the trusts, and also asked Wasson's counsel if he continued to believe the case was complex. And the district judge learned that Wolgamot's plea would likely lead to additional discovery in terms of a proffer statement. Notably, Wasson's counsel then explained to the court that because of the discovery and Wolgamot's plea, which he represented “profoundly affect[ed]” Wasson's case, “[i]t would be very difficult for us to go to trial in just a few weeks.” Given the many issues (including another “minor but key witness” for the government contemplating a guilty plea), the court expressed its understanding as to why Wasson was “about ready to come before the Court” himself to request a continuance. The court then assured itself that if the case were set in March, neither party anticipated requesting another continuance. Finally, the court asked Wasson directly if he had any objection to the motion to continue, stating that it “just wanted to make sure that you understand that the Court was willing to listen to your situation.” Wasson stated that if his attorney—who had essentially joined the government's motion at this point—had no objection, neither did he. The court then summarized the changing landscape of the case and noted that if the defense had moved to continue, it would have been “compelled” to grant the defense motion. This extensive colloquy more than satisfies us that the court balanced the factors and that the time between August 22 and the trial's commencement was excludable.

Wasson suggests that the court simply relied on its previous finding of complexity, but as the synopsis above makes clear, the court assured itself not only that the case remained complex, but that the complexity and the changing nature of the case warranted the continuance. See 18 U.S.C. § 3161(h)(7)(B)(ii). The court also took into account Wasson's need to prepare adequately for trial, id.  § 3161(h)(7)(B)(iv), and the continuity of government counsel,id. And it is apparent that the court balanced the interest of the public, id. § 3161(h)(7)(A), when it assured itself that this would be the final continuance in the already long-delayed case (prompting government counsel's hyperbolic promise that nothing short of his “death” would prompt another continuance). With this background, the court's finding on the docket sheet that the ends of justice supported the continuance suffices, particularly when taken together with its later written explanation when ruling on Wasson's motion to dismiss. And although the court commented on the weather in January and February, it is clear from the colloquy above that the weather was not the basis for the continuance. See Hills, 618 F.3d at 629 (noting that court's comment about its time and schedule did not detract from primary reasons for ends-of-justice finding).

Because we are satisfied with the court's findings under § 3161, we need not reach the government's argument that because Wasson either requested or agreed to each continuance he is estopped from challenging them on appeal. We note, however, that Wasson's stance in the district court is at the very least inconsistent with his later challenges to the continuances. Although Wasson claims in his reply brief thatZedner precludes the government from making an argument based on judicial estoppel, that is not so.Zedner simply concluded that judicial estoppel did not apply when, among other reasons, the district court, not the defendant, had proposed that the defendant prospectively waive his rights under the Speedy Trial Act. Zedner, 547 U.S. at 505. Indeed, the court in Zedner noted that “[t]his would be a different case if petitioner had succeeded in persuading the District Court ... that the factual predicate for a statutorily authorized exclusion of delay could be established.” Id. As the detailed description above makes clear, Wasson did in fact succeed in persuading the district court that the factual predicates for an ends-of-justice continuance existed. Unlike the defendant in Zedner, of the two continuances in question, Wasson requested one and essentially joined the government in requesting the second. We thus reject Wasson's suggestion that estoppel would not apply here simply because he made a timely motion to dismiss under the Act. See Pakala, 568 F.3d at 60 (concluding that judicial estoppel barred defendant's Speedy Trial Act argument when he moved for continuances in question and “each time asserted statutorily authorized exclusions of delay”); cf. United States v. Larson, 417 F.3d 741, 746 [96 AFTR 2d 2005-5547] (7th Cir. 2005) (noting that defendant pressing Speedy Trial Act claim was “hardly in a position to complain about the delay because he was the one who asked for it”); United States v. Baskin-Bey, 45 F.3d 200, 204 (7th Cir. 1995) (pointing out that it was “unfair” for defendant “to ask that the trial be delayed to suit her, implicitly agree to the government's request that time be excluded because of her request, and then try to sandbag the government by insisting that the time be counted against the speedy trial clock”). So although we reserve judgment on the question of when estoppel prevents a plaintiff from challenging continuances under the Act, we note that Wasson's support for the continuances certainly does little to enhance his position on appeal. Finally, we are hard-pressed in any event to see how Wasson was prejudiced by the continuances. “Prejudice is caused by delays intended to hamper defendant's ability to present his defense,” Larson, 417 F.3d at 746 (citation and internal quotations omitted), and the delays here had the opposite effect: they ensured Wasson and his counsel adequate time to deal with the complex and voluminous discovery and to adjust his defense in light of Starns's death and Wolgamot's plea.

Wasson next argues that there was insufficient evidence to sustain his convictions for conspiring to defraud the IRS or aiding in the filing of false tax returns. We review challenges to the sufficiency of the evidence at a bench trial under the same demanding standard applied to a jury trial. United States v. Doody, 600 F.3d 752, 754 (7th Cir. 2010). Thus, we will overturn the verdict only if we conclude, after viewing the evidence in the light most favorable to the prosecution, that no rational trier of fact could have found the defendant guilty beyond a reasonable doubt. Id. We neither reweigh the evidence nor assess witness credibility, and may uphold even a verdict based entirely on circumstantial evidence.United States v. Kruse , 606 F.3d 404, 408 [105 AFTR 2d 2010-2569] (7th Cir. 2010).

To prove that Wasson violated 18 U.S.C. § 371 by conspiring to defraud the IRS, the government must demonstrate “(1) an agreement to accomplish an illegal objective against the United States; (2) one or more overt acts in furtherance of the illegal purpose; and (3) the intent to commit the substantive offense, i.e., to defraud the United States.”United States v. Furkin , 119 F.3d 1276, 1279 [80 AFTR 2d 97-5352] (7th Cir. 1997) (citation and internal quotations omitted). The government's obligation to prove “intent to defraud” refers to evidence showing the defendant knew of his tax liability, not that he knew “of the criminality of the objective.”Id. (quoting United States v. Cyprian, 23 F.3d 1189, 1201 (7th Cir. 1994)). As relevant here, a conviction for aiding in the filing of a false tax return under 18 U.S.C. § 7206(2) requires proof that the defendantwillfully assisted in the preparation of a false or fraudulent tax return. See United States v. Powell, 576 F.3d 482, 495 [104 AFTR 2d 2009-5885] (7th Cir. 2009).

Wasson continues to press his claim that he sincerely believed in the legality of the Aegis system, and thus the government failed to prove that he willfully violated the tax laws. To prove willfulness in a criminal tax case, the government must show that “the law imposed a duty on the defendant, that the defendant knew of this duty, and that he voluntarily and intentionally violated that duty.” Cheek v. United States, 498 U.S. 192, 201 [67 AFTR 2d 91-344] (1991). Making this showing requires the government to negate “a defendant's claim of ignorance of the law or a claim that because of a misunderstanding of the law, he had a good-faith belief that he was not violating any of the provisions of the tax laws.” Id. at 202.

Wasson would have us reweigh the evidence on appeal and credit his assertions that because multiple individuals involved in the marketing and promoting of the Aegis system vouched for its legality, he subjectively believed it to be so. But in contrast to the testimony of Aegis promoters and participants who believed it to be legal, the government presented ample evidence to support the district court's finding that Wasson had no such good-faith belief in the trust system. Most damning is Wasson's use of the so-called “audit arsenal” to respond to IRS inquiries and requests for audits directed to Aegis participants. As several individuals who purchased and used the Aegis system testified, after using the system to vastly reduce their tax liability, they received letters from the IRS requesting a meeting and informing them that they were being audited. In each instance, Wasson instructed these individuals not to respond to the communications from the IRS. Instead, Wasson sent the IRS a series of letters, signed by his clients, refusing to acknowledge the authority of the IRS, disavowing control or authority over the trust assets (which were at all times accessible to these individuals), questioning the “jurisdiction” of the IRS, threatening the IRS agents with lawsuits if they pursued audits, and falsely denying United States citizenship.

Take, for example, Everett Alan Bugg, who had worked as a bank president and acquired $400,000 to $500,000 of stock in that position. Wasson marketed the trust to Bugg as a means whereby he could sell his stock and avoid tax liability by wiping out the gains on the sale. After Bugg set up three trusts using the Aegis system, he sold his bank stock for an approximately $500,000 gain but reported a loss on his income taxes for that year. Predictably, he received an audit letter from the IRS for that tax year. Bugg testified that Wasson told him to ignore the audit letter and tell the IRS that he was not willing to cooperate. Wasson also told Bugg that he had the right to “protect” himself by not “incriminating” himself. This response to the audit request is not consistent with a good-faith belief that the Aegis trusts and the tax returns utilizing them were lawful.

Other Aegis users testified to similar experiences with requests for audits and Wasson's urging them to use the “audit arsenal” to respond. Brian Scott Brooks, who owned a Dairy Queen and essentially eliminated his entire tax liability in 1997 and 1998 with claimed contributions of nearly $100,000 to charity, also received audit requests from the IRS. He testified that after Wasson advised him to avoid the IRS, he eventually decided to work with the IRS and correct his past returns and pay any back taxes and penalties. At that point Wasson advised Brooks to “be careful” getting out of the Aegis system. He also responded very negatively to Brooks's intention to cooperate, telling Brooks that he could “provide problems to others” using the Aegis system who were being advised by Wasson not to cooperate with the IRS.

We cannot square Wasson's avoidance of the IRS with his stated belief that the Aegis trusts were legal. Wolgamot testified as follows when asked how he perceived his codefendants' use of the audit letters: “I thought they were nuts, that they should be—if they thought this system was legal, they should get a lawyer and go to court and have a judge tell them whether it's legal or not and not be fighting with these stupid audit arsenal letters.” Indeed, if Wasson did actually think the system was legal, it strains reason to believe that instead of cooperating with the IRS, he would encourage clients to challenge its authority and avoid it at all costs—particularly when this ill-conceived advice resulted in his former clients ultimately paying hundreds of thousands of dollars in back taxes and penalties. This evidence certainly supports the district court's conclusion that Wasson did not in fact subjectively believe in the legality of the trust system.

The court also heard evidence that Wasson was on notice that the trusts were not legitimate. In 1999, Wasson showed Wolgamot a document from the IRS entitled “New Tax Snake Oil—Abusive Trusts.” This document set forth what Wasson certainly should have known by then—that if a tax-free trust system seemed too good to be true, it probably was. Wasson also received a copy of a letter from Merrill Lynch that alerted him to the likelihood that the Aegis trusts were not lawful. David Kindred, an obstetrician/gynecologist who had purchased Aegis trusts, received a letter from Merrill Lynch in response to an inquiry about setting up a trust. The letter stated that Merrill Lynch could not set up the requested trusts because such trusts could be used to illegally shelter assets from the IRS and the trusts were the subject of an ongoing IRS investigation. Wasson faxed the letter to Mike Vallone with the subject heading: “Merrill Lynch account for Dr. Kindred.” Wolgamot also testified that in 1999 Wasson faxed him a copy of an article discussing an IRS revenue ruling describing trusts similar to the Aegis trusts and identifying them as illegal sham transactions. Given Wasson's awareness from multiple sources that the trust system or systems like it were considered abusive and illegal by the IRS, the district court had ample evidence to discredit his claim that he subjectively believed what he was doing was legal.

The trial evidence to the contrary does not undercut the sufficiency of the evidence. Wasson points out that Aegis officials repeatedly assured him that the trusts were legal. He also makes much of his own unwavering position to clients that the Aegis system was lawful and legitimate. But as the trier of fact, the district court was free to infer from the extensive evidence to the contrary that Wasson did not in fact have a subjective good-faith belief in the legality of the system. We are in no position to second-guess that decision, nor does the evidence Wasson presents “compel” us to conclude the evidence fell short of demonstrating willful violations of the tax laws. Indeed, the evidence of Wasson's good-faith belief in the system amounts primarily to generalized assertions about the system's legality with the very people with whom he conspired to violate the tax laws. We are thus satisfied that the evidence was sufficient to prove both the conspiracy charge and the charges for assisting in the filing of a false income tax return.

Lastly, Wasson renews his claim that by sentencing him under the 2008 sentencing guidelines rather than those in effect when he committed his crimes, the district court violated the ex post facto clause of the Constitution. Under U.S.S.G. § 2T4.1(K), the 2008 guidelines caused Wasson's offense level to increase by four levels. Wasson acknowledges our holding in United States v. Demaree, 459 F.3d 791, 795 (7th Cir. 2006), that the advisory nature of the guidelines eliminates any ex post facto problem with changes that retroactively increase the sentencing range for a crime. Although he urges us to reconsider our holding and reminds us that ours is a minority view among the circuits, see, e.g., United States v. Wetherald, 636 F.3d 1315, 1321 (11th Cir. 2011); United States v. Lanham, 617 F.3d 873, 889–90 (6th Cir. 2010);United States v. Ortiz , 621 F.3d 82, 86–87 (2d Cir. 2010), he offers nothing new to convince us that we should change course on this issue now, see, e.g., United States v. Peugh, 675 F.3d 736, 741 (7th Cir. 2012) (“We ... stand by Demaree's reasoning ... and again decline the invitation to overrule it.”); United States v. Sandoval, 668 F.3d 865, 870 (7th Cir. 2011) (same).


For the foregoing reasons, we AFFIRM Wasson's convictions and sentence in all respects.

  The Honorable Richard L. Young, Chief District Judge for the United States District Court for the Southern District of Indiana, sitting by designation.
  In addition to Wasson and his codefendant Starns, a number of other Aegis officials were convicted of tax fraud in the Northern District of Illinois. Their criminal appeals are currently pending before this court.United States v. Vallone, et al. , No. 08-3690;see also “Six Principals of Former Aegis Company Convicted of $60 million tax fraud conspiracy following three-month federal trial,” U.S. Dep't of Justice, May 19, 2008 available at
  Wasson's reply brief actually refers to a continuance granted August 28, 2008, but it is clear from the context of his argument and the district court's docket sheet that he intended to reference August 22.

U.S. v. FURKIN, Cite as 80 AFTR 2d 97-5352 (119 F3d 1276), 7/14/1997 , Code Sec(s) 7201

Case Information:

[pg. 97-5352]
Code Sec(s):       7201
Court Name:      U.S. Court of Appeals, Seventh Circuit,
Docket No.:        Docket No. 95-3911,
Date Decided:   7/14/1997.
Prior History:      District Court affirmed.
Tax Year(s):        Years 1985, 1986, 1987, 1988, 1989, 1990, 1991, 1992, 1993, 1994.
Disposition:        Decision for Govt. 119 F.3d 1276.
Related Proceedings:     Related Proceedings at United States v. Howard (Ted) Furkin, No. 95-3973 (7th Cir. July 14, 1997)
Cites:     80 AFTR 2d 97-5352, 119 F3d 1276.

1. Tax crimes—conspiracy to defraud IRS; obstruction of justice—sufficiency of evidence—sentencing. 7th Cir. affirmed amusement machine lessor's convictions for conspiracy to defraud IRS and for obstruction of justice. Employee/alleged co-conspirator's involvement in illegal gambling activities established “conspiracy”: employee had strong business relationship with taxpayer, discussed hiding illegal gambling machines' income, was primarily responsible for machines' operation, and persuaded bar owners to lie about machines' income and to sign backdated leases; and finding that conspiracy began in '85, not '91, supported taxpayer's sentence. And taxpayer, who knew IRS was integrally involved in grand jury investigation, intended to impede investigation by directing employee to induce customers to sign backdated leases.

Reference(s): ¶ 72,015.03(5) ; ¶ 73,446.516(5) ; ¶ 73,447.507(35) Code Sec. 7201

2. Tax crimes—U.S. Sentencing Guidelines—enhancements—sophisticated means; obstruction of justice. Sentence against amusement machine lessor convicted of conspiracy to defraud IRS and obstruction of justice was affirmed: upward departure from U.S.S.G. was proper where taxpayer committed 8 of 9 types of obstructive conduct listed in U.S.S.G. §3C1.1 in instructing customers to lie to grand jury and hiding illegal gambling income. And, 2-level sophisticated means enhancement was proper based on taxpayer's everyday business operations, use of fictitious names, and destruction of records; conduct showing taxpayer's role in org. was properly referenced in applying U.S.S.G. §3B1.1 adjustment for his role in offense; and 2-level obstruction of justice enhancement was warranted by number of people taxpayer involved in activities.

Reference(s): ¶ 73,446.516(55)


Patrick J. Chesley, Office of the U.S. Atty., 600 E. Monroe St., Springfield, Ill., for Plaintiff-Appellee.

Daniel G. O'Day, Cusack, Fleming, Gilfillan & O'Day, 124 S.W. Adams St., Peoria, Ill., for Defendant-Appellant.

Appeal from the United States District Court for the Central District of Illinois

Before Bauer, Cudahy and Manion, Circuit Judges.

Judge: BAUER, Circuit Judge:

Before us are two direct appeals from separate criminal convictions of Howard (Ted) Furkin. In cause 94-30014, “the gambling case,” Furkin was convicted by a jury of conspiracy to defraud the IRS, witness tampering, obstruction of justice, and dealing in unregistered gambling devices. In cause 94-30030, “the gun case,” Furkin was convicted by a jury of possession of an unregistered sawed-off shotgun. At a joint sentencing hearing for both cases, Furkin was sentenced to 144 months' incarceration, to be followed by three years of supervised release; he was fined $250,000 plus the cost of incarceration; and he was ordered to pay $2,149,338 in restitution to the IRS. Furkin appeals his convictions in both cases and his sentence on numerous grounds, none of which has any merit. We affirm.


Furkin was the sole owner of a corporation called Allstar Music. Allstar was in the business of leasing amusement machines, such as pool tables, pinball machines, and jukeboxes, to bars and service clubs. In the early 1980's, Furkin hired David Lanzotti to work at Allstar. Lanzotti convinced Furkin to buy gambling machines and to supply the machines to Allstar's customers in order to avoid being at a “competitive disadvantage.” So, the lucrative gambling conspiracy began.

During the 1980's, Furkin purchased gambling machines with cash, using ficti- [pg. 97-5354] tious names, such as Lucky Coin. Neither Allstar's in-house accountant nor its outside accountant was aware of equipment purchases being made with cash. By 1991, Allstar had approximately 160 gambling machines at sixty-six different locations.

Lanzotti was the person primarily responsible for all aspects of the gambling machines' operations. He was the main proceeds “collector” for the gambling machines, and he often instructed other employees how to collect on the gambling machines. No records were generated to document the income from the gambling machines or to maintain an inventory of the machines. Marty Crosby, an Allstar employee who was trained by Lanzotti to collect on the gambling machines, testified at trial that Furkin told her not to generate any records and to destroy any paperwork pertaining to the gambling machines. Allstar stored records for the non-gambling machines on a computer program starting in 1985.

Furkin and Lanzotti, who both filed tax returns for the years in issue (1985 to 1994), knew that income had to be reported to the IRS. However, they filed their tax returns without reporting income from the gambling machines. Crosby testified that Furkin and Lanzotti had conversations during which they talked about not paying taxes on the gambling machine income. Also, in a tape-recorded conversation from December 22, 1992, Lanzotti indicated that he knew taxes were not being paid on the gambling machine income.

In 1991, Furkin and Lanzotti became aware that they were being investigated by the IRS. A grand jury subpoena was issued to Allstar in November 1991. Also in November 1991, the IRS sent letters to Furkin's customers disclosing the existence of the pending grand jury investigation. This greatly angered Furkin. Between thirty and one-hundred witnesses testified before the grand jury, including numerous Allstar employees and customers.

Furkin and Lanzotti were less than cooperative with the investigating authorities. Furkin made false statements to law enforcement agents. Both Furkin and Lanzotti encouraged bar owners to lie about how much income was generated by the gambling machines. Furkin instructed his employees, including Crosby and Gary Hinkle, to lie to the grand jury, and he had employee Merle Buerkett pressure bar owners to sign backdated leases which misrepresented when and how much income had been generated by the gambling machines. Furkin and Lanzotti made statements to various customers that the lease arrangements had a tax purpose or were necessary due to the IRS investigation.

On March 18, 1993, a search warrant was executed on Allstar's business premises. During the course of the search, law enforcement agents found an unregistered sawed-off shotgun in the closet of Furkin's office. A one-count indictment was returned on September 22, 1994, charging Furkin with possessing an unregistered sawed-off shotgun, 26 U.S.C. section 5861(d). A jury convicted Furkin of this charge on April 11, 1994.

Furkin was then charged in a seven- count superseding indictment returned on November 16, 1994. Count 1 charged conducting an illegal gambling business, 18 U.S.C. section 1955; Count 2 charged conspiracy to defraud the IRS, 18 U.S.C. section 371; Counts 3 and 4 charged witness tampering, 18 U.S.C. section 1512(b)(1); Count 5 charged obstruction of justice, 18 U.S.C. section 1503; Count 6 charged witness tampering, 18 U.S.C. section 1512(b)(2)(A); and Count 7 charged unregistered transactions in gambling devices, 15 U.S.C. sections 1173(a)(3) and 1176. Count 6 was dismissed before trial. Furkin proceeded to trial on the remaining counts. At the close of the Government's case, he moved for a judgment of acquittal on Counts 2 and 7. The motion was denied. He was convicted by a jury of all counts except Count 4. On June 8, 1995, the district court granted Furkin's post-trial motion for a new trial on Count 1. The motion was granted. Counts 1 and 4 were dismissed on June 15, 1995. Furkin was sentenced on Counts 2, 3, 5 and 7. Following trial, the district court denied Furkin's [pg. 97-5355] motion for an acquittal and for dismissal of Count 5.

A joint sentencing hearing for both the gambling case and the gun case was held on December 4 and 5, 1995. Furkin was sentenced to 144 months' incarceration, to be followed by three years of supervised release; he was fined $250,000 plus the cost of incarceration; and he was ordered to pay $2,149,338 in restitution to the IRS. The lengthy prison sentence was the result of numerous adjustments under the Sentencing Guidelines plus an upward departure of two levels for egregious obstruction of justice. Final judgment was entered on December 8, 1995. Furkin appeals from both the gambling conviction and the gun conviction, claiming various errors by the district court at trial and at sentencing. Furkin also raises arguments relating to the sufficiency of the evidence on several counts.


I. Sufficiency of the Evidence Regarding Conspiracy to Defraud the IRS

[1] Count 2 of the superseding indictment charged that, from 1985 to 1994, Furkin and Lanzotti conspired to defraud the United States “by impairing, obstructing and defeating the lawful function of the Internal Revenue ascertain, compute, assess and collect income taxes,” in violation of 18 U.S.C. section 371. This is commonly known as a “Klein conspiracy.” See United States v. Klein, 247 F.2d 908 [52 AFTR 614] (2d Cir. 1957), cert. denied, 355 U.S. 924 (1958). To sustain a conviction for conspiring to defraud the IRS, “the government has the burden of proving three elements under section 371: (1) an agreement to accomplish an illegal objective against the United States; (2) one or more overt acts in furtherance of the illegal purpose; and (3) the intent to commit the substantive offense, i.e., to defraud the United States.” United States v. Cyprian, 23 F.3d 1189, 1201 (7th Cir.), cert. denied, 115 S. Ct. 211 (1994) (citation omitted). The “intent” element of section 371 requires the government to prove “not that the conspirator was aware of the criminality of the objective, but that the conspirator knew of the liability for federal taxes.” Cyprian, 23 F.3d at 1201 (internal quotations and citation omitted). The parties' intent, as well as their agreement, may be inferred from circumstantial evidence concerning the relationship of the parties, their overt acts, and the totality of their conduct. United States v. Marren, 890 F.2d 924, 933 (7th Cir. 1989).

Furkin concedes that the evidence was sufficient to establish that he, alone, defrauded the IRS. His argument focuses, rather, on the lack of evidence as to Lanzotti's involvement in Furkin's scheme. According to Furkin, the only conduct Lanzotti intended to engage in, agreed to engage in, and in fact engaged in, related to illegal gambling activities. He contends that Lanzotti simply collected the proceeds of the illegal gambling operation and turned in the proceeds to the appropriate personnel at Allstar, while having no idea that the income was not being reported to the IRS. It takes two to conspire — a conspiracy is “a combination or confederation of two or more persons formed for the purpose of committing, by their joint efforts, a criminal act,” United States v. Durrive, 902 F.2d 1221, 1225 (7th Cir. 1990) (citations omitted) — so, the argument goes, if Lanzotti cannot be linked to the scheme, Furkin could not have been involved in a Klein conspiracy. The guilty verdict must then be set aside.

We review the evidence and all reasonable inferences that can be drawn therefrom in the light most favorable to the Government, and we will affirm if any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt. United States v. Jackson, 103 F.3d 561, 567 (7th Cir. 1996). Only when the record contains no evidence, regardless of how it is weighed, from which a jury could find guilt beyond a reasonable doubt will a jury verdict be overturned. United States v. Hickok, 77 F.3d 992, 1002 (7th Cir.), cert. denied, 116 S. Ct. 1701 (1996).

The Government clearly met its burden of proving the three elements under section 371 as to Lanzotti. The evidence showed that Furkin and Lanzotti had a strong busi- [pg. 97-5356] ness relationship — they were business associates since the early 1980's. The evidence also showed that Lanzotti was the one who convinced Furkin to enter into the illegal gambling market. Lanzotti was primarily responsible for all aspects of the gambling machines' operations. He was the main collector for Allstar's share of the proceeds from the machines, and he trained other employees how to collect. Lanzotti did not generate records documenting the income from the gambling machines. Indeed, no one created records documenting the income from, or maintained any inventory of, the gambling machines. The absence of records obviously made it impossible for the IRS to ascertain, compute, assess or collect Allstar's income taxes.

The evidence also showed that both Lanzotti and Furkin made extensive efforts to hide the income from the gambling machines. Lanzotti knew that, in the 1980's, Furkin purchased gambling machines with cash using fictitious names. Lanzotti was also aware that Furkin was not reporting the illegal gambling income to the IRS. Both Lanzotti and Furkin knew that income had to be reported to the IRS. They both filed tax returns. Marty Crosby testified that Furkin and Lanzotti had conversations in which they discussed not paying taxes on the gambling machine income. During a December 1992 tape-recorded conversation, Lanzotti indicated that he was aware taxes were not being paid on the gambling machines' income. He also agreed that legalizing gambling machines would do away with unreported income.

In 1991, after becoming aware that they were being investigated by the IRS, Furkin and Lanzotti encouraged bar owners to lie about how much income they received from the gambling machines. They also began entering into backdated lease agreements which misrepresented when and how much income had been received from the gambling machines. The leases purportedly required the bar owners to pay Allstar a flat rate per machine each week. Allstar never collected the flat rate. Instead, Allstar split equally the gross earnings from the illegal gambling activities with each particular tavern owner. The flat rate was less than half the gross earnings, so the practical effect of the arrangements was to grossly underestimate Allstar's unreported income that was derived from the gambling machines. In other words, the backdated leases were intended to lead the IRS to believe that Allstar failed to report less income than it actually failed to report. If Allstar had succeeded in the scam, it would have been liable to the IRS for a lesser amount of unpaid income taxes.

Moreover, Furkin and Lanzotti told the tavern owners that the lease arrangements had a tax purpose or were needed because of the IRS investigation. Lanzotti told Nile Beebe of the VFW, a gambling machine customer of Allstar, that Allstar needed a lease agreement for “tax purposes.” Lanzotti told bar owner David Hampsten that Allstar needed a lease agreement because “the Government was on his ass.” Furkin also told tavern owner George Johnson that Allstar needed a lease agreement because he was being investigated by the IRS.

A review of the evidence in its totality shows that tax evasion was at least one of the motivations behind Furkin's and Lanzotti's actions. “A conspiracy...may have multiple objectives, and if one of its objectives, even a minor one, be the evasion of federal taxes, the offense is made out, though the primary objective may be concealment of another crime.” Ingram v. United States, 360 U.S. 672, 679-80 [4 AFTR 2d 6128] (1959) (citation omitted). No doubt Lanzotti's conduct was undertaken to hide Allstar's involvement in the illegal gambling market, but it is equally reasonable to infer that Lanzotti's conduct was also undertaken to hide Allstar's illegal gambling income from the IRS.

In sum, the evidence at trial established Lanzotti's intent and agreement to become involved in Furkin's scheme. Lanzotti was not only aware of Allstar's tax liability, but he was also aware that his conduct in relation to the illegal gambling operation would impede the IRS's ability to ascertain Allstar's tax liability. [pg. 97-5357]

As an ancillary argument, Furkin maintains that even if the evidence is sufficient to establish a Klein conspiracy, the conduct serving as the basis for the conspiracy began in 1991, not 1985. Furkin asks to be resentenced for a conspiracy beginning in 1991. The district court noted in its September 18, 1995 order that whether the conspiracy began in 1985 or 1991 is immaterial to the question of whether the evidence was sufficient to support the conspiracy conviction. So long as the evidence supports the conspiracy during any relevant time period, the conviction will be sustained. United States v. Jackson, 935 F.2d 832, 844 (7th Cir. 1991). The length of the conspiracy is relevant only for sentencing purposes in this case. The computation of Furkin's offense level depends upon the total amount of the tax loss resulting from the conspiracy. When only sentencing issues are implicated, the district court determines the duration of a conspiracy under a preponderance of the evidence standard. United States v. Williams, 81 F.3d 1434, 1442-43 (7th Cir. 1996).

Based on our discussion above, we believe that the district court was correct in finding that the conspiracy between Furkin and Lanzotti began as early as 1985. Furkin and Lanzotti maintained a strong business relationship since the early 1980's, Lanzotti was primarily responsible for the operation of the illegal gambling machines from the inception of the gambling business, and Lanzotti did not record the income earned from the illegal gambling machines prior to 1991. It is thus reasonable to infer that Lanzotti was aware as early as 1985 that Furkin was not reporting the illegal gambling proceeds to the IRS. We reject Furkin's sufficiency of the evidence argument in its entirety.

II. Obstruction of Justice

Furkin was convicted of violating 18 U.S.C. section 1503's “Omnibus Clause,” which is a catch-all provision prohibiting persons from endeavoring to influence, obstruct, or impede the due administration of justice. In order to establish a violation of the Omnibus Clause, there must be a nexus between a defendant's efforts and the judicial proceeding (in this case, the grand jury investigation) sought to be corruptly influenced. United States v. Aguilar, 115 S. Ct. 2357, 2362 (1995). In other words, “the act must have a relationship in time, causation or logic with the judicial proceedings.... [T]he endeavor must have the “natural and probable effect” of interfering with the due administration of justice.” Id. (quotations and citations omitted). This means that the Government was required to show that Furkin knew of the pending grand jury investigation and intended to impede its administration. United States v. Maloney, 71 F.3d 645, 656 (7th Cir. 1995).

Count 5 of the superseding indictment charged Furkin with corruptly endeavoring to influence, obstruct, or impede the due administration of justice by four separate means. The jury was given special verdicts as to those separate means, and the jury returned guilty verdicts as to two of them. The jury found that Furkin had violated section 1503 “by causing another to get businesses and organizations at which Allstar had its electronic video gaming machines to enter into lease agreements and have such leases backdated,” and “by continuing to split the proceeds from gambling on the electronic video gaming machines even after some locations had signed a lease by which they agreed to pay a fixed weekly or monthly rate for such gaming machines.”

Furkin argues that none of the conduct for which the jury convicted him (specifically, causing Merle Buerkett to get businesses to enter into backdated leases and continuing to split the proceeds from gambling machines after agreeing to a fixed rate) evidences a nexus with the grand jury investigation. He cites Aguilar for the principle that “[t]he action taken by the accused must be with an intent to influence judicial or grand jury proceedings; it is not enough that there be an intent to influence some ancillary proceeding, such as an investigation independent of the Court's or grand jury's authority.” 115 S. Ct. at 2362 (citation omitted). Furkin points out that Buerkett never testified that Furkin told him to submit false or backdated lease [pg. 97-5358] agreements to the grand jury. According to Furkin, even if he had convinced businesses to enter backdated lease agreements, at most, this shows that the backdated leases were obtained for possible use in the IRS investigation, not in the grand jury proceedings.

Furkin's argument is basically a sufficiency of the evidence argument. We will reverse a conviction for insufficient evidence only if, after viewing the evidence in the light most favorable to the Government, we determine that no rational jury could have found the defendant guilty beyond a reasonable doubt. Maloney, 71 F.3d at 656 (citation omitted).

If the defendant lacks knowledge that his actions are likely to affect a judicial proceeding, he lacks the requisite intent to obstruct. See Aguilar, 115 S. Ct. at 2362. A grand jury subpoena was issued to Allstar in November 1991. Furkin knew that the investigation was ongoing after that time. Clearly, a judicial proceeding was pending and Furkin knew about it as early as 1991.

Furkin was also aware that the IRS was integrally involved in the grand jury investigation. “[I]nvestigations undertaken with the intention of presenting evidence before a grand jury are sufficient to constitute “the due administration of justice” under section 1503.” Maloney, 71 F.3d at 657 (citation omitted). Furkin knew that the grand jury was seeking evidence regarding Allstar's relationships with various bar owners and that the evidence sought pertained to income taxes. Numerous Allstar employees and customers were subpoenaed to testify. George Johnson, an Allstar customer, testified at trial that several weeks before he testified before the grand jury, Furkin said he was being investigated by the IRS and wanted Johnson to lie to the grand jury about his lease agreement with Allstar. At trial, Buerkett testified that Furkin told him that he was being scrutinized by the IRS. IRS agent Vonnie Hinesley testified that Furkin was very upset that his customers had been informed by the IRS that he was being investigated by a federal grand jury for possible federal tax violations. In May of 1992, Furkin persuaded bar owners Johnson and Louie Manci, Jr. to sign backdated leases, when he knew that they would be testifying before the grand jury. Furkin had a tax motivation for backdating the leases, and Furkin knew that information regarding the leases was part of the evidence sought by the grand jury. The IRS investigation was not some “ancillary proceeding” unrelated to the grand jury investigation. Indeed, the IRS investigation and the grand jury investigation were one and the same, and the evidence established that Furkin understood this fact.

The evidence also established that Furkin intended to impede the administration of the investigation by directing Buerkett to induce numerous bar owners to sign backdated leases. For Furkin to be guilty of violating section 1503, Buerkett need not have specifically and explicitly testified that the purpose of backdating the leases was connected to the grand jury investigation. The jury could make that connection from considering the evidence as a whole. Furkin's conduct in relation to Buerkett was sufficient to justify a guilty verdict under section 1503 because the conduct had the “natural and probable effect” of interfering with the grand jury investigation.

III. Upward Departure

[2] Furkin next claims that the district court erred at sentencing when it departed upward two levels from the applicable guideline range. Specifically, Furkin argues that the court failed to analyze whether his case was outside the “heartland” of conspiracy to impede the IRS cases. We review for abuse of discretion. Koon v. United States, 116 S. Ct. 2035, 2043 (1996); United States v. Otis, 107 F.3d 487, 490 (7th Cir. 1997).

Generally, a district judge must impose a sentence falling within the applicable guideline range. A sentencing court may depart from the guideline range if “the court finds “that there exists an aggravating or mitigating circumstance of a kind, or to a degree, not adequately taken into consideration by the Sentencing Commission in formulating the guidelines that should re- [pg. 97-5359] sult in a sentence different from that described.”” U.S.S.G. section 5K2.0 (quoting 18 U.S.C. section 3553(b)). In addressing the meaning of section 5K2.0, the Supreme Court in Koon explained that “the Commission did not adequately take into account cases that are, for one reason or another, “unusual.”” Koon, 116 S. Ct. at 2044. The Introduction to the Sentencing Guidelines states:

The Commission intends the sentencing courts to treat each guideline as carving out a “heartland,” a set of typical cases embodying the conduct that each guideline describes. When a court finds an atypical case, one to which a particular guideline linguistically applies but where conduct significantly differs from the norm, the court may consider whether a departure is warranted.
U.S.S.G. ch. 1, pt. A, intro. comment. 4(b). So, in considering whether to depart, a sentencing court should ask the following questions:

1) What features of this case, potentially, take it outside the Guidelines' “heartland” and make of it a special, or unusual, case?
2) Has the Commission forbidden departures based on those features?
3) If not, has the Commission encouraged departures based on those features?
4) If not, has the Commission discouraged departures based on those features?
Koon, 116 S. Ct. at 2045 (quoting United States v. Rivera, 994 F.2d 942, 949 (1st Cir. 1993)).

Furkin complains that the district court failed to follow this framework. He argues that instead of comparing his case to a class of cases within the heartland of his offense, the court discussed the issue of a departure in terms of generalities.

To be in line with Koon, Furkin's conduct after he was aware of the IRS investigation “must be sufficiently unusual either in type or degree “to take the case out of the Guideline's heartland.”” Otis, 107 F.3d at 490 (quoting Koon, 116 S. Ct. at 2045). The district court cited two independent reasons for the upward departure. The first relates to the extent and egregiousness of Furkin's obstructive conduct. U.S.S.G. section 3C1.1 called for a two-level increase in Furkin's offense level for obstruction of justice. The court felt a two-level enhancement in this particular case was “grossly inadequate” to reflect the outrageousness of Furkin's conduct. The court stated in review:

[Furkin] instructed Louis Manci to lie in front of the grand jury; he instructed George Johnson to lie in front of the grand jury; he instructed Merle Buerkett to convince the tavern owners to sign back-dated leases; he instructed Bud Kelly to persuade particular locations to sign back-dated leases; he instructed Gary Hinkle to tell anyone that asked that the gambling machines were on a lease and he intimidated Hinkle and told Hinkle not to do anything in front of the grand jury that would hurt him; and he instructed Marty Crosby on how to lie in front of the grand jury.
The court went on to state that “Furkin's conduct was far more severe than the ordinary case where the obstruction of justice enhancement applies. Indeed, this Court has never witnessed such an attempt to thwart the judicial process.” As an alternative basis for the departure, the court found that Furkin was hiding assets — the fruits of the illegal gambling business. Millions of dollars were, and continue to be, unaccounted for.

The egregiousness of Furkin's conduct in obstructing justice and hiding millions of dollars in assets take this case outside the heartland of conspiracy to defraud the IRS cases. See United States v. Jagim, 978 F.2d 1032 [71 AFTR 2d 93-418] (8th Cir. 1992), cert. denied, 508 U.S. 952 (1993) (holding that extent and egregious nature of obstruction of justice can support an upward departure); United States v. Baez, 944 F.2d 88 (2d Cir. 1991) (same); United States v. Wade, 931 F.2d 300 (5th Cir.), cert. denied, 502 U.S. 888 (1991) (same). These are not factors for which the Commission has forbidden, encouraged or dis- [pg. 97-5360] couraged departure. U.S.S.G. section 5K2.0 allows a sentencing court to depart from the applicable guideline range “even though the reason for departure is taken into consideration in the guidelines (e.g., as a specific offense characteristic or other adjustment), if the court determines that, in light of unusual circumstances, the guideline level attached to that factor is inadequate.” That is exactly what the district court explicitly determined to be the case here. Application Note 3 to U.S.S.G. section 3C1.1 provides nine examples of types of conduct, any one of which justifies a two-level increase for obstruction of justice. Furkin committed eight of the nine types of conduct listed, and some of the conduct he committed multiple times.

The facts of this case establish that Furkin's egregious obstruction of justice and concealment of assets make this an unusual case. The district court did not abuse its discretion in departing upward from the applicable guideline range.

IV. Sophisticated means, Obstruction of Justice and Upward Departure

Furkin next contends that, in calculating his sentence, the district court impermissibly took into account multiple times his conduct in obstructing the IRS investigation. He argues that Count 2, conspiracy to impede the IRS, Count 3, witness tampering, Count 5, obstruction of justice, and Count 7, unregistered transactions in gambling devices, were directly related to his attempts to avoid detection and prosecution or had the “effect of covering up activities.” According to Furkin, factoring the conduct underlying these charges into not only his base offense level for the Klein conspiracy, but also into the “sophisticated means” specific offense characteristic, the role in the offense adjustment, and the upward departure constitutes impermissible multiple-counting.

Furkin is correct that there is a certain amount of overlap among various factors as they relate to sophisticated means, obstruction of justice, departure, as well as the guideline for the underlying conspiracy. However, as the Government points out, the base offense level for a Klein conspiracy, the various enhancements, and the departure each represent different considerations under the Guidelines.

The sophisticated means enhancement relates to the complexity of a defendant's scheme. U.S.S.G. section 2T1.4(b)(2) instructs the sentencing court to increase the defendant's offense level by two levels “[i]f sophisticated means were used to impede discovery of the existence or extent of the offense.” The enhancement targets

conduct that is more complex or demonstrates greater intricacy or planning than a routine tax-evasion case. An enhancement would be applied, for example, where the defendant used offshore bank accounts or transactions through corporate shells or fictitious entities.
U.S.S.G. section 2T1.1, comment. (n.4); U.S.S.G section 2T1.4, comment. (n.3). The sophisticated means enhancement in this case was based on Furkin's conduct relating to the everyday operation of the business, such as using fictitious names, failing to keep records concerning income, destroying records, using cash to buy equipment, failing to tell Allstar's accountants of the cash purchases, and failing to keep an inventory of equipment.

By contrast, the obstruction of justice enhancement relates to efforts taken to subvert the administration of justice during the investigation, prosecution and sentencing of an offense. U.S.S.G. section 3C1.1 directs a sentencing court to increase the defendant's offense level by two levels “[i]f the defendant willfully obstructed or impeded, or attempted to obstruct or impede, the administration of justice during the investigation, prosecution, or sentencing of the instant offense....” Application Note 3 to the section provides a nonexhaustive list of examples of types of conduct to which the enhancement applies. As noted supra, Furkin committed eight of the nine types of listed conduct that qualify for the obstruction of justice enhancement. For example, after Furkin learned of the grand jury investigation, he lied to the IRS and caused others to do so, he caused others to lie to the grand jury, he failed to produce records which had been subpoe- [pg. 97-5361] naed, and he created false documents to be turned over to the IRS and to the grand jury.

In further contrast is the adjustment for Furkin's role in the offense. U.S.S.G. section 3B1.1 “provides a range of adjustments to increase the offense level based upon the size of a criminal organization (i.e., the number of participants in the offense) and the degree to which the defendant was responsible for committing the offense.” U.S.S.G. section 3B1.1, comment. (backg'd). The sentencing court is directed to increase the defendant's offense level by four levels if he “was an organizer or leader of a criminal activity that involved five or more participants or was otherwise extensive.” U.S.S.G. section 3B1.1(a). In order to show the extent of, and Furkin's role in, the organization, the district court needed to identify the actions taken in furtherance of the organization by Furkin as well as by various other people. The court considered evidence of Furkin's conduct in instructing at least six others to destroy records, backdate leases, and omit income on corporate books. Granted, this conduct was also considered when other enhancements were applied, but for purposes of section 3B1.1, the conduct was referenced only to establish why others should be included in the organization.

Finally, the upward departure in this case relates to Furkin's concealment of assets and the egregiousness and extent of Furkin's efforts to obstruct justice. The departure was warranted by the number of such activities and the number ofdifferent people Furkin caused to participate in such activities, as discussed in part III of this Opinion. The focus was on Furkin's conduct, as opposed to his employees' or his customers' conduct.

Again, we acknowledge that the district court mentioned some of the same factors in connection with the different adjustments and the departure. However, it was not error to do so, as the different guidelines address different concerns relating to a defendant's obstructive conduct.

V. Wiley Moore's Failure to Testify

Finally, Furkin contends that he should have been granted a new trial in the gun case because the Government presented a witness whom it knew or should have known would refuse to testify upon taking the witness stand. The Government called to the stand Wiley Moore, an Allstar employee for two years. Although the Government knew that Moore was apprehensive, the Government believed that he would testify. Moore managed to answer several background questions, but then he stated: “I had a conversation earlier with [the prosecutor] about testifying.” At that time, the attorneys approached the bench, and the jury was excused. Outside the presence of the jury, Moore explained that he would not testify because he was afraid of Furkin. Moore gave no further testimony in the case. The record also indicates that, outside the presence of the jury, the sentencing court stated that based upon its observations in open court, it believed Moore refused to testify because he was afraid of Furkin.

Furkin filed a post-trial motion seeking a new trial based upon Moore's appearance and failure to testify. The district court denied the motion, ruling that the jury could not have drawn an adverse inference against Furkin by Moore's appearance and failure to complete his testimony. Furkin claims that he was prejudiced by Moore's appearance and failure to complete his testimony because “[s]urely the jury picked up the same vibes as the court, rendering Moore's testimony harmful to [Furkin].” This argument was not raised in the district court, so our review is for plain error. United States v. Funches, 84 F.3d 249, 254 (7th Cir. 1996) (citation omitted).

We find no error here. Moore never refused to testify in the presence of the jury. The district court was in the best position to determine whether Moore's testimony created an adverse inference against Furkin in the jury's mind. The court concluded that no such inference was created, and that conclusion is not plain error. [pg. 97-5362]


For the foregoing reasons, Furkin's convictions and sentence are Affirmed. Furkin's other arguments have been waived or are otherwise without merit. (212) 588-1113

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