Wednesday, June 6, 2018

Second Circuit Questions Loss Computation In Ponzi Scheme Sentences

This post was originally published on Forbes May 1, 2015

It is hard to think of anything better for desert than key lime pie, but maybe $40,000 would do the trick.  That was dessert in the "gifting tables' that Jill Platt and Donna Bello were involved in.  Ms. Platt and Ms. Bello were in the Second Circuit appealing the sentences that were the end result of their "gifting table" venture.  I guess they didn't think the sentences represent "just desserts".  As is common, the story behind the story is more interesting than the decision.

What Is A Gifting Table?

The "gifting tables" were both a social event and a chance to make some money.  The participants were exclusively women and the "gifting tables" that show up in this litigation were happening in an area of Connecticut known as the Shoreline.  I haven't found an exact definition of "Shoreline", but it seems to be the general vicinity of New Haven and includes North Branford and Guilford.

The structure in the women's gifting table -- which resembles a pyramid -- has four levels composed of one person on the top, two below her, four below them and eight on the bottom level. Buying into the bottom level requires new members to attend an introductory meeting and costs $5,000, which goes into the wallet of the top position-holder.
When the eight lowest positions are filled with new recruits each paying $5,000, the woman at the top leaves the table with $40,000 or can enter it again at the bottom by contributing $5,000 to whoever now rises to the top of the pyramid.
So you pay in five grand and bring an appetizer to your first meeting.  The next two meetings you bring soup and then the main course.  Finally, you bring dessert and the five grand from each of the eight appetizer people goes to you.  Then the table divides into two tables requiring sixteen appetizer people.  What could possibly go wrong?  Well about the twelfth time the tables divide you need all the women in Connecticut to be participating.  Around the 23rd time, you need all the women in the world.  You probably already knew that, but it is worth pointing out.

What About The Taxes?

Jill and Donna got in early enough that they each received their forty grand. It also seems that they were organizers of these events. Since they were "gifting tables" and the receipt of a gift is not included in gross income, they did not report the $35,000 profit from this exercise as part of their taxable income and influenced others to take the same position.  That turned out to be a mistake.
 After a joint trial, Platt was convicted of one count of conspiracy to defraud the Internal Revenue Service (“IRS”), in violation of 18 U.S.C. § 371, one count of filing a false tax return, in violation of 26 U.S.C. § 7206(1), four counts of wire fraud, in violation of 18 U.S.C. § 1343, and one count of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1349. She appeals from the district court's August 15, 2013 judgment of conviction, sentencing her principally to 54 months' imprisonment.
Bello appeals from the district court's August 15, 2013 judgment, convicting her of one count of conspiracy to defraud the IRS, two counts of filing a false tax return, eleven counts of wire fraud, and one count of conspiracy to commit wire fraud, and principally sentencing her to 72 months' imprisonment.
Conviction Upheld
They were appealing their convictions because they thought the government had discriminated by eliminating women from the jury with preemptory strikes.  I thought that was interesting.  I would think that men would be more inclined to cut them a break, but maybe chivalry is dead.  Anyway, that challenge didn't get anywhere.
The district court did not clearly err in crediting the government's explanations for exercising its peremptory strikes against female venire members and denying defendants'Batson challenge. Given the nature of the defendants' scheme, it was not impermissible for the district court to credit the government's explanation that the struck female venire members had a close family member with a negative experience with the IRS or were potentially sympathetic to defendants because of their employment,
Then there was some testimony from an attorney that they challenged
O'Connor testified that he informed a group of gifting table participants, including Eileen Brennan, and possibly Nancy Dillon, Ann Jordan, and Joan Collins, that the $5,000 payments received by a dessert were not gifts but in fact would be considered taxable payments by the IRS. He further stated that he had not supplied any legal advice to defendants directly nor did he know if his statements had been conveyed to them.
That did not anywhere either.
This evidence was undoubtably relevant because it tended to undermine defendants' good faith defense that they relied on the advice of attorneys, transmitted by other gifting table participants, that the tables were operating legally. 
Finally they complained that prosecution witnesses had been granted immunity, but potential defense witnesses were not.  No luck there.

Sentences Will Get Another Look

They did, however, catch a break on sentencing.  Under the guidelines, sentences for tax-related crimes hinge on the amount of the tax loss.  The appeals court indicates that included in the tax loss computations were participants who had only a tenuous connection to the defendants.
Although we remand for the district court to make particularized findings, consistent with our decision inStudley , we harbor significant doubts regarding whether all of the women whose gain was used to calculate defendants' loss amounts were properly considered members of the fraud conspiracy. As we have noted “the scope of conduct for which a defendant can be held accountable under the sentencing guidelines is significantly narrower than the conduct embraced by the law of conspiracy.
So it is back to the district court for resentencing.

 Other Commentary

Norm Pattis, who represented one of the ladies wrote about the original sentencing in August 2013.
I watched the imposition of sentence as though I were in an airless room. Six years in prison. The crime? Impeding the IRS’s ability to determine taxable income; misinforming others about IRS gift tax exemptions.
Give me a break. Predatory lenders crash the economy, and we bail out bankers. But we call justice sending grandmothers to jail for long sentences in which only willing participants were hurt, if they were hurt at all.
Marcia Chamber of the Branford Eagle covered the appeal.
Jonathan J. Einhorn, Platt’s attorney at trial noted how few “victims” of the gifting tables there were. “How bad can it be when there are a minimal number of victims seeking restitution?” he asked.
Norman Pattis, Bello’s attorney, observed that the defendants “were targeted by the prosecution to send a message. I don’t know whether the other 37 women on the tables will be indicted but they are equally culpable.”
Jack Townsend also had something on the appellate decision.
For purposes of criminal conviction, one conspirator can be prosecuted for the reasonably foreseeable criminal conduct of co-conspirators within the scope of the conspiracy. For purposes of sentencing, though, the inclusion of financial loss from other persons' conduct is more restricted

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