Reversal in 9th Circuit
Bob Hurt
I think you’ll find this reversal interesting. The court convicted Morans of all kinds of crimes having to do with offshore money laundering to evade taxation, fraud, and the like. The 9th circuit reversed it on the basis of VIOLATIONS OF PROCEDURE BY CRIMINALS IN THE Department of Justice.
If all such cases were appealed and reversed, we’d see few wins against tax protesters.
Bob
-----Original Message-----
From: Larry Becraft [mailto:bec...@hiwaay.net]
Sent: Thursday, August 30, 2007 8:00 PM
Subject: Reversal in 9th Circuit
U.S. v. MORAN, 05-30215 (9th Cir. 2007)
UNITED STATES OF AMERICA, Plaintiff-Appellee, v. JAMES MORAN,
Defendant-Appellant. UNITED STATES OF AMERICA, Plaintiff-Appellee, v.
PAMELA MORAN, Defendant-Appellant.
Nos. 05-30215, 05-30226.
United States Court of Appeals, Ninth Circuit.
Argued and Submitted December 4, 2006 — Seattle, Washington.
Filed April 2, 2007, Amended July 6, 2007.
Appeal from the United States District Court for the Western District
of Washington, John C. Coughenour, Chief District Judge, Presiding, D.C.
Nos. CR-02-00423-007-JCC, CR-02-00423-006-JCC.
Page 8051
Sheryl Gordon McCloud, Law Offices of Sheryl G. McCloud, Seattle,
Washington; Peter Mair, Seattle, Washington, Walter G. Palmer, Seattle,
Washington, for defendants-appellants Grosnickle, James Moran and Pamela
Moran; Ronald D. Ness, CJA, Port Arthur, Washington, for
defendant-appellant Wayne S. Anderson.
Gregory Victor Davis and Alan Hechtkopf, Attorneys, Tax Division,
Department of Justice, Washington, D.C., for the plaintiff-appellee.
Before: Betty B. Fletcher and M. Margaret McKeown, Circuit Judges, and
William W Schwarzer,[fn*] District Judge.
Per Curiam Opinion.
[fn*] The Honorable William W Schwarzer, Senior United States District
Judge for the Northern District of California, sitting by designation.
ORDER
Appellee's petition for rehearing is denied. The Opinion filed on
April 2, 2007 is amended as follows:
On slip Opinion page 3753, line 14, delete <tax> before <schemes.>.
On slip Opinion page 3755, line 10, delete <tax> before <program,>.
On slip Opinion page 3755, line 12, delete <tax> before <program.>.
On slip Opinion page 3761, line 19, delete <tax> before <programs>.
On slip Opinion page 3765, line 29, insert the following footnote
after the word <objections.>: <In its petition for
Page 8052
rehearing, the government contends that the court erred in reversing the
Morans' conviction on the wire and mail fraud counts, arguing that those
counts were based not on the Morans' willful violations of the tax laws
but on their misrepresentations to clients regarding the existence and
validity of the loans in the "Look Back" program and the legitimacy of
the fees AAA collected. However, the tax fraud and wire and mail fraud
counts were inextricably intertwined in the government's case. Count Two
of the second superseding indictment, the wire and mail fraud count,
incorporated by reference all but one of the 376 paragraphs of Count
One, the tax fraud count. In its opening statement, the government
asserted that "these programs were nothing more than a tax fraud
scheme," and the jury instructions were limited to generic fraud without
distinguishing between evidence bearing on one or the other count.
Finally, the Hayes letter questioned the legitimacy of the programs that
were the subject of the wire and mail fraud counts; in barring Mrs.
Moran from testifying about legal opinions she had received about the
CBO program after the government had cross-examined her about the
letter, the court prevented her from presenting a good faith defense to
those counts as well.>.
Future petitions for rehearing and petitions for rehearing en banc
will not be entertained.
OPINION
PER CURIAM:
Pamela and James Moran appeal their convictions of conspiracy to
defraud the United States (18 U.S.C. § 371), conspiracy to commit wire
and mail fraud (18 U.S.C. § 371), aiding and assisting in the
preparation and filing of false federal income tax returns
(26 U.S.C. § 7206(2)), mail fraud (18 U.S.C. § 1341), and wire fraud
(18 U.S.C. § 1343). They contend
Page 8053
that the district court erred in four ways: (1) by allowing expert
testimony that certain financial transactions were "shams"; (2) by
giving allegedly improper Pinkerton instructions to the jury; (3) by
admitting codefendant Wayne Anderson's computer records as coconspirator
statements;[fn1] and (4) by excluding Mrs. Moran's testimony regarding
outside expert opinions she had received about the legality of the
Morans' schemes. We find no error in allowing the expert testimony,
admitting the computer records, or in the jury instructions. However,
because the district court erroneously excluded Mrs. Moran's testimony
as hearsay and did not provide a reasoned basis for excluding it under
Federal Rule of Evidence 403, and because this testimony would have
comprised a critical element of the Morans' good faith defense, we
reverse and remand for a new trial.
FACTUAL AND PROCEDURAL HISTORY
Anderson's Ark and Associates (AAA) offered clients several forms of
"tax reduction plans" (according to the government, offshore money
laundering plans), and promoted these plans in public seminars.
Appellants Pamela and James Moran were the "Executive Education
Officers" who trained the AAA sales force.
AAA offered several programs to customers who had paid for and
successfully completed the membership application process. The
"Sociedads Anonima" (SA) program allegedly provided Costa Rican
corporate entities through which to pass United States funds. The "Look
Forward Partnership" program allegedly allowed clients to take tax
deductions on money invested in the SAs and subsequently repatriate the
money tax-free by paying for nonexistent services. The "Look Back Joint
Venture" program allegedly provided a tax shelter
Page 8054
by generating fictitious losses as part of fictitious loans to Costa
Rican corporations which were ostensibly going to develop and market a
"Tax Magic" program. Finally, the "Loan 4" plan, while marketed as a way
to earn tax-free returns on the funds clients had transferred to Costa
Rica, allegedly was actually a Ponzi scheme.
On December 10, 2002, December 4, 2003, and August 11, 2004, the
United States filed initial, first, and second superseding indictments
against Pamela Moran, James Moran, and eight other defendants. The
Morans were indicted on numerous counts of conspiracy, wire and mail
fraud, aiding and assisting in the preparation and filing of false
federal income tax returns, and other substantive offenses related to
the conspiracies.
At trial, the court sustained the government's hearsay objection to
Mrs. Moran's testimony about what her CPA had told her concerning filing
statements in place of Form 1040 with the IRS; in sustaining the
objection, the court also cited Federal Rule of Evidence 403. On a later
occasion, after the government had cross-examined Mrs. Moran about a
letter she had seen from an outside lawyer expressing concerns about the
AAA program, defense counsel on redirect asked Mrs. Moran whether
anybody else had given her a legal opinion about the program. Again, the
court sustained the government's objection on hearsay and Rule 403
grounds.
As part of the government's case, an expert testified that the AAA
programs involved "sham" transactions. The term "sham" was also used as
part of the jury instructions on the counts involving assistance in
filing false tax returns. The judge also gave the jury
Pinkerton instructions, stating that they could convict one defendant of
the substantive crime of a coconspirator if the crime was committed in
furtherance of that conspiracy. Finally, over objection, Wayne
Anderson's computer records were admitted under Federal Rule of Evidence
Page 8055
801, which exempts co-conspirator statements from the hearsay rule.
On December 27, 2004, following a thirty-seven day jury trial, Pamela
and James Moran were convicted on thirty-six counts each, including the
conspiracy counts. This timely appeal followed.
DISCUSSION
I. "SHAM" TRANSACTION TESTIMONY
Appellants contend that by testifying that the Look Forward program
was "a sham," Professor Sherman offered an impermissible legal
conclusion and vouched for the credibility of certain witnesses. They
also argue that the "sham" transaction instruction improperly provided a
nonstatutory basis for conviction. Neither of these arguments has merit.
[1] Generally, an expert can testify on an ultimate issue in a case,
except regarding the requisite mental state of the defendant or a
condition constituting an element of or defense to the crime.
Fed.R.Evid. 704. However, "an expert witness cannot give an opinion as
to her legal conclusion, i.e., an opinion on an ultimate issue of law.
Similarly, instructing the jury as to the applicable law is the distinct
and exclusive province of the court." Hangarter v. Provident Life and
Accident Ins. Co., 373 F.3d 998, 1016 (9th Cir. 2004) (internal
quotation and citation omitted). As appellant objected to the testimony
before and during trial, "[w]e review a district court's decision to
admit expert testimony for abuse of discretion." United States v.
Perlaza, 439 F.3d 1149, 1175 n. 29 (9th Cir. 2006).
[2] The "sham" testimony related to the second element of the offense:
that "the return was false as to something that was necessary to a
determination of whether income tax was owed." Thus, the word "sham"
does not address a legal conclusion.
Page 8056
Under the judge's instructions, even if the transactions were a sham,
"the jury would still have had to draw its own inference from that
predicate testimony to answer the ultimate factual question," of whether
income tax was owed. See United States v. Morales, 108 F.3d 1031, 1037
(9th Cir. 1997). While use of an expert's term in the jury instructions
may not have been ideal, it was not erroneous.
Appellants also argue that by testifying that the Look Forward program
was fraudulent, contrary to the testimony of some clients who believed
that the transactions were real, Professor Sherman improperly vouched
for the veracity of government witnesses.
It is misconduct for a prosecutor to elicit comments on the veracity
of witnesses or the guilt of the defendant. See, e.g., United States v.
Combs, 379 F.3d 564, 572 (9th Cir. 2004) (finding error where prosecutor
asked defendant to testify that government agent was lying); United
States v. Henke, 222 F.3d 633, 642 (9th Cir. 2000) (finding that
admission of testimony that defendants "must have known" of misconduct
was erroneous). Nothing of the sort occurred here; Sherman never
referred to a single witness or discussed the veracity of witnesses
generally. That an expert reaches a conclusion that either agrees with
or conflicts with that of a witness whose testimony he incorporated into
his conclusions, does not without more constitute vouching. There was no
error.
[3] Finally, appellants argue that the instruction defining "sham"
transactions was untethered to any element or particular crime, and
allowed the jury to convict defendants without finding the elements of a
crime. When assessing jury instructions, we examine them "as a whole,
and in context." United States v. Stapleton, 293 F.3d 1111, 1114 (9th
Cir. 2002). The instruction complained of merely defined a sham
transaction; it did not state that such a transaction standing alone is
a basis for conviction. Read in context with the instructions as a
whole, it provided guidance to the jury in determining
Page 8057
whether the AAA program could provide a valid tax deduction which, in
turn, led to the determination whether the income tax returns were
false. There was no error.
II. Pinkerton INSTRUCTIONS
[4] The Morans argue that the district court's conspiracy
instructions, based on Pinkerton v. United States, 328 U.S. 640 (1946),
allowed the jury to convict one defendant of a substantive crime
committed by another defendant, even when that crime was not part of a
conspiracy in which both defendants took part. Under Pinkerton, a
defendant may be found guilty of a substantive crime committed by a
coconspirator in furtherance of their conspiracy. Id. at 646-47. In the
absence of a timely objection to the jury instructions, we review for
plain error. See United States v. Sanders, 421 F.3d 1044, 1050 (9th Cir.
2005). In evaluating jury instructions, "[w]e consider how the jury
would have reasonably understood the challenged instruction in the
context of the instructions as a whole." United States v. Warren,
25 F.3d 890, 897 (9th Cir. 1994) (citing Francis v. Franklin, 471 U.S. 307,
315 (1985)).
The jury instructions in question (as read by the district judge) were
as follows:
Each member of the conspiracy is responsible for
the actions of the other conspirators performed
during the course and in furtherance of the
conspiracy. If one member of a conspiracy commits
a crime in furtherance of the conspiracy, the
other members have also, under the law, committed
the crime.
. . .
Therefore, you may find a defendant guilty of one
or more of the substantive counts alleged in the
indictment
Page 8058
if the government has proved each of the
following elements beyond a reasonable doubt:
A person named in a substantive count of the
indictment committed the crime alleged in that
count.
The same person was a member of the conspiracy
charged in counts 1, 2 or 98.
The person committed the substantive crime in
furtherance of the conspiracy charged in counts
1, 2 or 98.
The defendant was a member of the conspiracy
charged in counts 12 [sic] or 98 at the time the
offense charged in the substantive count was
committed by the other person.
And the conduct constituting the substantive
count fell within the scope of the unlawful
agreement and could reasonably have been foreseen
to have been a necessary or natural consequence
of the unlawful agreement.
Appellants contend that, using only the elements listed, one defendant
could be convicted of a second defendant's substantive crime if the two
were involved in a separate conspiracy which did not involve that
particular crime.
[5] While a careful picking apart of the instructions' wording does
reveal minor ambiguity, when read in its entirety, the instructions were
clear and did not permit such an improper conviction. The first
paragraph lays out the point of the instruction: that if one member of a
conspiracy commits a crime in furtherance of the conspiracy, the other
members can be found liable of that crime. Thus, while the wording of
the individual instructions may not have been perfect when examined
under a microscope, when read as a whole it would have
Page 8059
been clear to a jury that before it could convict a defendant of a
substantive count committed by a codefendant, it had to find that the
conduct underlying that count fell within the scope of a conspiracy of
which both defendants were members and was reasonably foreseeable under
the conspiracy. There was no error.
III. ADMISSION OF COMPUTER RECORDS
Over objection, the district court admitted as coconspirator
statements testimony and related exhibits regarding the Quickbooks
financial data recovered from Wayne Anderson's computer. Appellants
contend that the admission of these records against them was error
because the records were not kept in furtherance of the conspiracy.
[6] "We review for an abuse of discretion the district court's
decision to admit coconspirators' statements, and review for clear error
the district court's underlying factual determinations that a conspiracy
existed and that the statements were made in furtherance of that
conspiracy." United States v. Shryock, 342 F.3d 948, 981 (9th Cir. 2003)
(citing United States v. Bowman, 215 F.3d 951, 960 (9th Cir. 2000)).
When offered against a party, "a statement by a coconspirator of a party
during the course and in furtherance of the conspiracy" is not barred by
the hearsay rule. Fed.R.Evid. 801(d)(2)(E); Bowman, 215 F.3d at 960-61
(citing Bourjaily v. United States, 483 U.S. 171, 175 (1987)).
[7] Appellants argue that Anderson was keeping the books for his own
purposes, not in furtherance of a conspiracy. Statements made for
personal objectives outside the conspiracy or as part of idle
conversation are not admissible under Rule 801(d)(2)(E). See, e.g.,
United States v. Bibbero, 749 F.2d 581, 584 (9th Cir. 1984) (holding
statements in idle conversation inadmissible). However, "statements made
to keep coconspirators abreast of an ongoing conspiracy's activities
Page 8060
satisfy the `in furtherance' of requirement." United States v.
Yarbrough, 852 F.2d 1522, 1536 (9th Cir. 1988).
[8] The district court determined that the government had shown by a
preponderance of the evidence that the computer records were statements
by Wayne Anderson in furtherance of the conspiracy. The computer was
seized from a home belonging to Anderson. Access to the computer was
protected with a password. At least one account was in Anderson's name.
The computer contained numerous documents relating to AAA, including a
Quickbooks database reflecting financial data about the various AAA
principals, clients and programs. Taken together, these facts tend to
show that the computer records were used to keep track of transactions
which were a part of AAA's fraudulent schemes; as the district court
observed, "[I]n any conspiracy that involves complex financial
transactions, it is in furtherance of the conspiracy to maintain a
record of those transactions."
[9] While appellants offered evidence that the records were
inaccurate, suggesting that they were meant to deceive, not inform
Anderson's coconspirators, which would render them inadmissible, they
have not demonstrated clear error in finding them to be coconspirators'
statements.
[10] Finally, the alleged evidence of inaccuracies in the computer
records does not affect their admissibility, but merely goes to their
weight. See Bourjaily, 483 U.S. at 183 ("[A] court need not
independently inquire into the reliability of [coconspirator]
statements."). The district court did not err in admitting the
Quickbooks data.
IV. MRS. MORAN'S TESTIMONY
The Morans argue that by excluding Mrs. Moran's testimony about advice
she received from outside financial and legal experts, the district
court committed reversible error. Mrs. Moran's principal defense was
that she held a good faith
Page 8061
belief that the programs in which she participated were legal. She
contends that her belief was based, among other things, on opinions from
a CPA and outside experts. The district court sustained objections to
her testimony about what she had been told on grounds of hearsay and
Rule 403.[fn2]
On two occasions during the trial, the district court excluded
testimony by Mrs. Moran about what she had learned from outside experts.
On the first occasion, she started to testify what the CPA preparing her
statements to the IRS had told her. When the prosecution objected to
"hearsay," the court sustained the objection and added, "That's a 403
analysis . . . that the probative value is outweighed by the potential
for prejudice."[fn3]
Page 8062
The second exchange occurred following the cross-examination of Mrs.
Moran, during which the government questioned Mrs. Moran regarding a
letter she had received from an outside attorney in which that attorney
had questioned the legality of AAA's programs.[fn4] On redirect, Mrs.
Page 8063
Moran attempted to testify about legal opinions she had received from
outside experts; the government objected (without specifying grounds),
and the court sustained the objection, referring to both Rule 403 and
the hearsay rule.[fn5]
Page 8064
A. Whether the District Court Committed Error
A district court's ruling excluding testimony is reviewed for abuse of
discretion. United States v. Sure Chief, 438 F.3d 920, 925 (9th Cir.
2006). However, when the court excludes evidence under Rule 403 but does
not engage in explicit balancing, we review such a determination de
novo. United States v. Boulware, 384 F.3d 794, 808 n. 6 (9th Cir. 2004).
[11] "[W]illfulness is an element in all criminal tax cases."
United States v. Bishop, 291 F.3d 1100, 1106 (9th Cir. 2002).
"Willfulness . . . requires the Government to prove 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." Id. The burden is
on the government to negate the defendant's claim that he had a good
faith belief that he was not violating the tax law. Id. "Good faith
reliance on a qualified accountant has long been a defense to
willfulness in cases of tax fraud." Id. The defendant is entitled to
testify about the tax advice he received — subject, of course, to
cross-examination — and exclusion of this testimony is error.
Id. at 1111. Not only is testimony about the reliance on qualified
experts relevant to establishing this defense, but the defendant "[has]
the right to tell the court his own version of the tax advice on which
he claim[s] to have relied." Id. Such testimony does not constitute
hearsay when not offered for the
Page 8065
truth of the matter stated. Id. Because there is an intent element in
fraud cases, good faith belief in legality also provides a defense to
the fraud counts. See, e.g., United States v. Amlani, 111 F.3d 705,
717-18 (9th Cir. 1997) (wire fraud); United States v. Beecroft,
608 F.2d 753, 757 (9th Cir. 1979) (mail fraud). The government's
brief concedes that Mrs. Moran was entitled to testify about what
outside experts told her but argues that she did not do so. The
record makes clear that she did try — twice — but was stopped
by the court's sustaining the government's objections.[fn6]
[12] To the extent the court excluded the disputed testimony from Mrs.
Moran's redirect as hearsay, it was error since the testimony was not
offered for the truth of the matter asserted and thus its exclusion was
an abuse of discretion. See Bishop, 291 F.3d at 1112. To the extent the
ruling was based on Rule 403, we review it de novo because the court did
not engage in explicit balancing of the Rule 403 factors. See Sure
Chief, 438 F.3d at 925. The government defends the exclusion on the
ground that the cross-examination exceeded the scope
Page 8066
of direct. However, the government in its brief takes an unreasonably
narrow view of the permissible scope of redirect, limiting it to what
the defendants did or could have done in response to the concerns
expressed in the Hayes letter. The government's questioning of Mrs.
Moran raised the implication, as her counsel explained at trial, that
the Hayes letter was the only opinion the Morans ever received, thus
opening the door to redirect about what other legal opinions they had
received.
[13] The government further argues that this testimony would have been
cumulative because Mrs. Moran had previously testified to other opinions
she had received. Those opinions, however, came from insiders, the
principals and architects of the AAA plan, and not qualified outside
professionals, and thus could be expected to carry significantly less
weight with the jury. Thus, because the testimony was not hearsay, fell
within the scope of redirect, and was not cumulative or otherwise in
violation of Rule 403, the district court erred in excluding it.
B. Whether the Error Was Harmless
When testimony has been erroneously excluded, we apply the harmless
error standard for nonconstitutional error. "We must reverse unless
there is a `fair assurance' of harmlessness or, stated otherwise, unless
it is more probable than not that the error did not materially affect
the verdict." United States v. Morales, 108 F.3d 1031, 1040 (9th Cir.
1997). "This standard requires that the Government show a `fair
assurance' that the verdict was not substantially swayed by error."
United States v. Seschillie, 310 F.3d 1208, 1214 (9th Cir. 2002).
[14] The government argues only that the district court's ruling did
not deny Mrs. Moran's right to present a defense. We agree that her
constitutional right was not violated. Mrs. Moran testified about advice
she received from in-house advisers. The government has failed, however,
to address its
Page 8067
burden to show a "fair assurance" that the verdict was not substantially
swayed by the exclusion of evidence of opinions from outside experts.
That evidence went to the heart of Mrs. Moran's defense, which entitled
her to "rebut the Government's proof of willfulness by establishing good
faith reliance on a qualified accountant after full disclosure of
tax-related information." Bishop, 291 F.3d at 1106-07 (quoting
United States v. Claiborne, 765 F.2d 784, 798 (9th Cir. 1985),
abrogated on other grounds, Ross v. Oklahoma, 487 U.S. 81 (1988)). We
conclude the error was not harmless.
V. MR. MORAN
James Moran contends that since he also asserted a good faith defense,
he is entitled to the same relief as Mrs. Moran. The government does not
dispute that Mr. Moran raised a good faith defense but argues that the
defense is specific to the individual: "Whether or not one person
possesses a good faith belief in the legality of her actions has no
effect on whether another person has a good faith belief." That
statement is undoubtedly true, but it misconceives the issue. The
question is whether the district court's ruling excluding evidence of
outside professional opinions prejudiced Mr. Moran's defense.
[15] In Bishop, the government had charged Mr. Bishop, but not his
wife, with violation of the tax laws. 291 F.3d at 1105. The defendant
called Mrs. Bishop to testify about tax advice she and her husband had
received from an accountant to show Bishop's good faith reliance on
professional advice. Id. at 1111-12. The government's objection was
sustained. Id. at 1112. On appeal, we held that it was error to exclude
the evidence, stating:
While Ms. Bishop's own state of mind was not an
issue in the case, her testimony would have been
relevant and would have qualified as
circumstantial evidence to prove [Mr.] Bishop's
state of mind.
Page 8068
[Mr.] Bishop's state of mind is also relevant to
Cardenaz, as they were convicted of conspiring,
and this crime requires willfulness.
Bishop, 291 F.3d at 1112. Here, the Morans were charged as
coconspirators. The testimony sought from Mrs. Moran concerning
professional opinions about the tax scheme with which they were jointly
charged would have been relevant as circumstantial evidence to prove the
state of mind of her husband and coconspirator, James Moran.
[16] The testimony at trial underlines the relevance of Mrs. Moran's
testimony to Mr. Moran's defense. In her testimony, she often used the
words "we" and "our," referring to her husband and herself when
explaining their participation in AAA. The letter from Mr. Hayes about
which Mrs. Moran was cross-examined was addressed in part to Mr. Moran.
And most notably, when asked on redirect about outside expert opinions,
Mrs. Moran stated that "we had had several give us their . . ."
(emphasis added) before she was cut off. The court issued no limiting
instructions regarding crossover of evidence between the Morans, and it
appears that no such instructions were requested. Moreover, by the time
Mr. Moran testified — after Mrs. Moran — the court had already made it
clear that it was not going to permit testimony about the opinions of
outside experts. But for this error, Mr. Moran would have had the
opportunity to present evidence of the advice he received.
[17] The convictions of defendants Pamela Moran and James Moran are
VACATED and the case is REMANDED for a new trial.[fn7]
[fn1] Karolyn Grosnickle, who filed joint briefs with the Morans in this
appeal, joined in the first three arguments. Mrs. Grosnickle has since
withdrawn her appeal, and so is not included in this opinion.
[fn2] Rule 403 states: "Although relevant, evidence may be excluded if
its probative value is substantially outweighed by the danger of unfair
prejudice, confusion of the issues, or misleading the jury, or by
considerations of undue delay, waste of time, or needless presentation
of cumulative evidence."
[fn3] The first exchange was as follows: Q. (By Ms. Costello [defense
counsel for Mrs. Moran]) Did you at some point file statements with the
IRS? Could you just tell the jury what you did? A. Yes, we did. After we
had realized that this is not helping us at all not to be filing tax
returns at all, we did receive further information that to file a
statement according to code section 601(12), I believe, that that is
what you should do rather than filing a form 1040. And just declare that
you are someone who is not required to pay the income tax. And attach to
that statement all the authorities cited stating why you believe that
you sincerely are not someone who would be eligible to file a tax. Q.
And what years did you do that? A. We did that for 19 — I did that for
1995, '96 and '97. And then 2001, 2002. . . . Q. And you mentioned
receiving income from your SA? A. Yes. Q. Why didn't you put that on the
statement in lieu of a tax return? A. The CPA preparing those statements
for us told us — MS. TONGRING [counsel for the government]: Objection.
Hearsay. THE COURT: Sustained. Q. (By Ms. Costello) Why didn't you file
— okay, I'll move on. THE COURT: That's a 403 analysis, counsel, that
the probative value is outweighed by the potential for prejudice.
[fn4] On cross-examination, the following occurred: Q. Now, I want to
turn to what's been admitted into evidence as government's exhibit 2016,
please, starting at the bottom. Actually if we can turn to the second
page, please. This is a letter that was sent from Mr. Hayes, Stephen
Hayes to your husband and Ms. La Grand. You've seen this letter before,
haven't you, Mrs. Moran? A. Yes. . . . Q. (By Ms. Tongring) In this
letter, Mr. Hayes indicates that he had serious concerns regarding the
Anderson's Ark program, the Look Back program, doesn't he? MR. ENGELHARD
[counsel for defendant Tara La Grand]: Your Honor, I'm going to object.
This letter speaks for itself. THE COURT: Sustained. Q. And you knew
that Mr. Hayes had these serious concerns, did you not, in April of
1999? A. Well, Mr. Hayes must have been the information officer for Mr.
And non [sic] and that was his job to take care of any issues that would
come up. So, I can see that he would be just following through there. .
. . Q. (By Ms. Tongring) Sure. You knew that Stephen Hayes, the man who
wrote this letter, had no connection to Anderson's Ark. Isn't that
correct? A. Well, we didn't really understand much about this at all. We
did receive the letter from a Mr. Hayes. And that's about all I can tell
you. Obviously he was not a part of Anderson's Ark. Q. But in it he said
that he had concerns about this program? A. Yes.
[fn5] The second exchange concluded as follows: Q. Were you aware — did
anybody else give you their legal opinion about the program, the CBO
program? A. We had had several give us their — MS. TONGRING: Objection.
THE COURT: I'm going to sustain the objection on 403 grounds. I'm going
to exclude the testimony. MS. COSTELLO: Your Honor, I believe I was —
may I be heard briefly on this? THE COURT: Yes. (At sidebar, out of the
hearing of the jury:) MS. COSTELLO: I believe that the prosecutor opened
the door by asking the question about Steve Hayes. THE COURT: No. MS.
COSTELLO: And leaving it unanswered — THE COURT: No. MS. COSTELLO — the
inference is that's the only opinion she ever got. THE COURT: The
objection is sustained. (Within the hearing of the jury:) THE COURT:
Counsel, let me add for the record any testimony of that type will have
to come from the person who gave the advice and who will be subject to
cross-examination. I'm not going to permit it in through hearsay.
Through 403.
[fn6] In its petition for rehearing, the government contends that the
court erred in reversing the Morans' conviction on the wire and mail
fraud counts, arguing that those counts were based not on the Morans'
willful violations of the tax laws but on their misrepresentations to
clients regarding the existence and validity of the loans in the "Look
Back" program and the legitimacy of the fees AAA collected. However, the
tax fraud and wire and mail fraud counts were inextricably intertwined
in the government's case. Count Two of the second superseding
indictment, the wire and mail fraud count, incorporated by reference all
but one of the 376 paragraphs of Count One, the tax fraud count. In its
opening statement, the government asserted that "these programs were
nothing more than a tax fraud scheme," and the jury instructions were
limited to generic fraud without distinguishing between evidence bearing
on one or the other count. Finally, the Hayes letter questioned the
legitimacy of the programs that were the subject of the wire and mail
fraud counts; in barring Mrs. Moran from testifying about legal opinions
she had received about the CBO program after the government had
cross-examined her about the letter, the court prevented her from
presenting a good faith defense to those counts as well.
[fn7] The district court entered a forfeiture order based on the
convictions of the Morans under 18 U.S.C. §§ 1341 and 1343. Because we
vacate the convictions, we also vacate the forfeiture order.