United States v. Michael Vallone , 698 F.3d 416 ( 2012 )

In the
United States Court of Appeals
For the Seventh Circuit
Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
U NITED STATES OF A MERICA,
Plaintiff-Appellee,
v.
M ICHAEL A. V ALLONE, W ILLIAM S. C OVER,
M ICHAEL T. D OWD , R OBERT W. H OPPER,
T IMOTHY S. D UNN, and E DWARD B ARTOLI,
Defendants-Appellants.
Appeals from the United States District Court
for the Northern District of Illinois, Eastern Division.
No. 04 CR 372—Charles R. Norgle, Sr., Judge.
A RGUED M AY 3, 2011—D ECIDED S EPTEMBER 28, 2012
2 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
Before R OVNER and W ILLIAMS, Circuit Judges, and
Y OUNG, District Judge.Œ
R OVNER, Circuit Judge. At the conclusion of an eleven-
week trial, a jury convicted defendants Michael A. Vallone,
William S. Cover, Michael T. Dowd, Robert W. Hopper,
Timothy S. Dunn, and Edward Bartoli of conspiring to
defraud the United States by impeding and impairing
the functions of the Internal Revenue Service (“IRS”) and
to commit offenses against the United States, along
with related fraud and tax offenses. They were sen-
tenced to prison terms ranging from 120 to 223 months.
The defendants appeal their convictions and sentences.
We affirm.
I.
This is the latest in a series of cases arising out of abusive
trusts promoted by The Aegis Company (“Aegis”) and
its sister company, Heritage Assurance Group (“Heri-
tage”), both based in Palos Hills, Illinois. See United
States v. Wasson, 679 F.3d 938 (7th Cir. 2012); United States
v. Hills, 618 F.3d 619 (7th Cir. 2010), cert. denied, 131 S. Ct.
2958, 132 S. Ct. 130 (2011); United States v. Patridge, 507
F.3d 1092 (7th Cir. 2007); United States v. Baxter, 217
F. App’x 557 (7th Cir. 2007); Muhich v. C.I.R., 238 F.3d
860 (7th Cir. 2001); Bartoli v. Richmond, 215 F.3d 1329,
Œ
The Honorable Richard L. Young, Chief Judge of the
Southern District of Indiana, sitting by designation.
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 3
08-4320, 09-1864 & 09-2174
2000 WL 687155 (7th Cir. 2000); see also United States
v. Richardson, 681 F.3d 736 (6th Cir. 2012); United States
v. Welti, 446 F. App’x 784 (6th Cir. 2012); United States v.
Ellefsen, 655 F.3d 769 (8th Cir. 2011); Richardson v. C.I.R.,
509 F.3d 736 (6th Cir. 2007); United States v. Diesel,
238 F. App’x 398 (10th Cir. 2007); United States v. Tiner, 152
F. App’x 891 (11th Cir. 2005).
Heritage was formed in 1990 by Michael Richmond as
the Illinois offshoot of a like-named California firm.
Defendants Michael Vallone and Robert Hopper joined
the staff of Heritage shortly thereafter. Defendant
Edward Bartoli, an attorney with degrees from both
Notre Dame and Harvard, later became affiliated with
Heritage as its legal counsel. Heritage was in the
business of selling living trusts for estate planning
purposes. These trusts were marketed to customers
through a network of cooperating insurance agents.
In 1993, Bartoli put forward the idea of a package of
business, family, and charitable trusts that could be
marketed to customers as a means of both estate planning
and income tax minimization. Bartoli thought that such
a package could command a price of $25,000 or more.
Vallone and Hopper were amenable to the idea and
joined Bartoli in bringing his idea to fruition. They began
to promote the concept of a multi-trust system at training
sessions that Heritage sponsored for its cooperating
insurance agents, and eventually began to sell some
trust packages to Heritage clients. By early 1994,
however, Vallone and Hopper had fallen out with Rich-
mond and forced him out of Heritage, accusing him
4 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
of embezzlement. Along with Bartoli, they decided to
form a new company, Aegis, to take over marketing of
the multi-trust system. Aegis was formed later that
same year, and it began to sell multi-trust systems as a
way for high-income individuals to minimize their
income taxes. Aegis and Heritage continued to share
the same building in Palos Hills, a Chicago suburb, as
their headquarters.
Although the Aegis system of trusts was portrayed as a
legitimate, sophisticated means of tax minimization
grounded in the common law, the system was in essence
a sham, designed solely to conceal a trust purchaser’s
assets and income from the IRS, thereby reducing his
apparent tax liability and defrauding the United States
of revenue to which it was entitled. Pursuant to the
Aegis system, “customers appeared to sell their assets
to several trusts when, in fact, customers never really
ceded control of their assets.” Hills, 618 F.3d at 624.
The trusts were marketed to and implemented for
customers across the United States through a network of
corrupt promoters, managers, attorneys, and accountants.
Although prospective customers who bothered to seek
independent advice as to the legitimacy of the Aegis
system were routinely warned of its flaws, greed led
many to overlook the system’s “too good to be true”
attributes. Between 1994 and 2003, some 650 individuals
purchased Aegis trust packages, at prices ranging
from $10,000 to $50,000 or more. The diverse clientele
included real estate brokers, doctors, public officials, and
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 5
08-4320, 09-1864 & 09-2174
a variety of small-business owners. Among the pur-
chasers was a co-founder of the Hooters restaurants
chain, Lynn “L.D.” Stewart, who himself was later
charged with tax evasion, although the charges were
dismissed after his trial resulted in a hung jury. (Others
were not so lucky; some Aegis clients were convicted
and sent to prison.) The thousands of false income tax
returns that were filed based on the use of the Aegis
trusts are estimated to have cost the federal govern-
ment more than $60 million in tax revenue.
The defendants in this case include the progenitors of
the Aegis trust along with some of its major promoters.
Vallone was the executive director of Aegis; Bartoli, who
came up with the idea of the trust system, was the
firm’s first legal director until 1996, and continued to
help manage Aegis thereafter; and Hopper served as the
firm’s managing director. In 1995, these three, along
with Timothy Shawn Dunn, created Aegis Manage-
ment Company (“Aegis Management”) to provide trust
management services and tax advice to individuals who
purchased the Aegis trusts. Dunn, a certified financial
planner, was a promoter as well as a manager of Aegis
trusts; he became the executive director of Aegis Manage-
ment. William Cover, like Dunn, was a promoter and
manager of Aegis trusts. He served as the president of
Sigma Resource Management, Inc. and later held the
controlling interest in Sigma Resource Management, LLC
(collectively,“Sigma”), which also provided manage-
ment services to purchasers of Aegis trusts. Vallone and
Michael Dowd served as directors and officers of Sigma.
6 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
Dowd came to work at the Palos Hills offices of Heritage
and Aegis in 1997, after earning a degree in business
finance. In addition to assisting the Aegis principals,
Dowd provided management services to trust pur-
chasers through both Aegis and Sigma. David Parker,
a New York attorney, served as the legal director of
Aegis Management. He assisted in the promotion and
management of Aegis trusts as well as the defense of the
trust system from government inquiries. John Stambulis,
an Illinois attorney, worked in the Palos Hills office
of Aegis, and assisted with the creation and defense of
Aegis trusts. Both Parker and Stambulis would later
plead guilty and testify against the remaining defendants
at trial.
The Aegis trusts were typically marketed to wealthy,
self-employed individuals whose income could not be
easily traced through the W-2 forms that are issued to
ordinary taxpayers. Aegis representatives, including the
defendants, conducted seminars promoting the Aegis
trusts in cities around the country. Attendance at these
seminars was by invitation only, and guests were
charged between $150 and $500 to participate. Attendees
were told at such seminars that use of the Aegis trust
system would reduce if not eliminate their federal
income taxes. They were often given materials that pur-
ported to document the legitimacy of the system with
seemingly thorough and impressive citations to the
various legal authorities that supported the trusts. But as
one lawyer wrote to a client who sought his advice as
to the legitimacy of the system:
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 7
08-4320, 09-1864 & 09-2174
This material is full of errors, irrelevancies and
partial truths followed by non sequiturs. I know that
I must resist the temptation to follow every line or
I could spend the rest of my life on this. I will concen-
trate on how, even if it were 99 percent correct, the
claimed tax effects fail. In doing so, I’m not implying
that that 99 percent is correct. I’m just skipping
over the errors.
Gov’t Ex. Dunn Office 32, R. 962 Tr. 3395. Those persons
who purchased packages of one or more trusts were
also encouraged to purchase trust management services
from Aegis Management or Sigma, for which they would
pay thousands of dollars annually on top of the $10,000
to $50,000 they paid for the trusts themselves. These
management services included advice and counsel
on using the trusts to conceal income and assets from
the IRS.
The typical Aegis system comprised multiple domestic
trusts, including a business trust, an asset management
trust, and a charitable trust. (As we shall explain in a
moment, foreign trusts were also used in many
instances to further conceal an individual’s assets and
income.) The centerpiece of the system was the
business trust, also referred to as a “common law
business organization” or “CBO.” The business trust was
purportedly modeled after the Massachusetts Business
Trust, a non-statutory arrangement by which ownership
of a business is transferred to a trust in exchange for
certificates of beneficial interest; the trustee then holds
8 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
and manages the business on behalf of the holders of
those certificates. See Navarro Sav. Ass’n v. Lee, 446 U.S.
458, 468-69, 100 S. Ct. 1779, 1785-86 (1980) (quoting Hecht
v. Malley, 265 U.S. 144, 146-47, 44 S. Ct. 462, 463
(1924)) (describing Massachusetts Business Trust). A key
point distinguishing the Aegis business trust (along
with the other trusts making up the Aegis system) is
that an independent trustee never assumed any real
control over the trust assets. With the aid of Aegis per-
sonnel, a purchaser nominally would transfer his as-
sets—including his businesses and residence—to one or
more trusts and formally cede control of those assets to
the named trustee, typically Bartoli, Parker, or Stambulis.
But routinely, within a few days after the trust was first
established—and sometimes before the client had even
transferred assets to the trust—the Aegis attorney would
resign by means of a boilerplate letter citing “circum-
stances beyond [his] control,” and appoint the client
as his replacement. E.g., R. 917 Tr. 3495-96; R. 921 Tr. 5408-
09; R. 965 Tr. 306. Because the purchaser thus retained
control over the assets assigned to the trusts, the transfer
of those assets into the trust amounted to nothing
more than a paper transaction with no economic
substance.1 Again, the sole purpose of the trust was to
1
As originally envisioned by Bartoli, a client’s wife would first
convey all of her interest in the couple’s property to her hus-
band, she would then become the temporary “independent”
trustee of the business trust, her husband would transfer
(continued...)
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 9
08-4320, 09-1864 & 09-2174
conceal the purchaser’s assets from the IRS in an effort
to reduce his tax liability. As the defendants themselves
put it to their clients, the clients would “own nothing
but control everything.” R. 921 Tr. 5384, 5406; R. 943
Tr. 204.
That the Aegis trust system was a fraudulent scheme
was borne out in the manner in which the underlying
documentation was prepared. We have noted, for ex-
ample, that the purportedly independent trustee named
in the creation of the trust routinely would resign
shortly after the trust was created and be replaced by
the client on whose behalf the trust was created.
Typically the boilerplate resignation letter was prepared
and signed at the same time as the paperwork creating
the trust, although it was dated several days later,
leaving no doubt that the resignation of the initial, “inde-
pendent” trustee was planned from the outset. More-
over, in many instances, the trust documents were back-
dated to make it appear that a client had (nominally)
transferred his assets to the trusts long before he had
even purchased the trusts—sometimes years earlier—in
order to retroactively claim the tax advantages of the
trusts. (False notarizations were routinely provided to
give cover to the backdating.) An additional fee was
1
(...continued)
the property to that trust, and finally he would succeed his
wife as the trustee. As the defendants implemented the
system, an Aegis attorney replaced the client’s spouse as
the initial trustee.
10 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
sometimes charged for backdating documents in this
way. Finally, false documents were created to make it
appear that various legally important events had taken
place—for example, minutes indicating that the directors
of a trust had met—when in fact they never had.
The income that Aegis clients derived from their busi-
nesses was also diverted to the trusts by means of manage-
ment and consulting contracts between the clients’ busi-
nesses and their trusts, an arrangement that Aegis per-
sonnel suggested and helped to implement. Ostensibly,
pursuant to such a contract, a trust would provide
services to the client’s business, for which the business
would in turn compensate the trust. In actuality, the
trust would provide no services to the business, although
the business would compensate the trust and write
the payments off as an expense. The actual purpose
of these contracts was thus to conceal the diversion of
business profits to the trusts without the payment of
taxes on that income. See Ellefsen, supra, 655 F.3d at
775, 779-80.
The money that Aegis clients transferred to their
trusts would be returned to the clients and their
businesses in a variety of ways. In some instances, the
trusts would make fictitious loans to the client or his
business. In other instances, charitable trusts were used
to pay for things that really had nothing to do with
the stated aims of those trusts. For example, a charitable
trust might pay hundreds of thousands of dollars to
purchase a primary residence or vacation home for the
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 11
08-4320, 09-1864 & 09-2174
Aegis customer, on the theory that the home would
serve as the “world headquarters” of the trust. R. 943
Tr. 207, 222. Similarly, the charitable trust might pay for
a family vacation trip on the theory that one of the pur-
poses of the trip was to visit charitable enterprises to
which the trust might make donations.
Tax returns were prepared for the Aegis trust pur-
chasers and for the trusts themselves, but these too were
fraudulent in multiple respects. First, Aegis clients
were advised by the defendants to assign their own
income to the trusts despite the fact that the income
was being earned and controlled by the clients just as
it had been before the trusts were created. Second, clients
were advised to report that assigned income on certain
trust tax returns, but then to pass the income on to
other trusts without taxes being paid on that income.
The result was that the income remained in the clients’
hands, but the tax liability was transferred elsewhere.
Third, the defendants encouraged clients to claim
various deductions on the trusts’ federal tax returns
that had no basis in law or fact. For example, clients
were told to deduct their household utility and other
expenses on the theory that their homes were the “world
headquarters” of their trusts. College tuition for clients’
children was likewise posited as a trust expense based
on the notion that the children would one day become
directors of the trusts.
The wealthiest Aegis clients were advised to par-
ticipate in an offshore trust system employing foreign
12 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
trusts and so-called “international business companies”
(IBCs) in Belize. Belize was chosen as the locus for the
offshore system because it was not particularly coopera-
tive with the United States on issues related to asset-
hiding and tax evasion. David Jenkins, a citizen of Belize,
assisted the defendants with this aspect of the Aegis
system, which commenced in 1995. The use of offshore
trusts and foreign bank accounts enabled clients to
further conceal their income by nominally transferring
that income to a foreign trust. Again, control of the
money would in fact remain with the client, but the tax
liability would be shifted to a foreign entity that would,
in actuality, file no U.S. tax return and pay no tax.
As with the domestic trusts, foreign trusts and IBCs
were established in such a way as to create the illusion
that they were not under the control of Aegis clients.
Jenkins would designate certain foreign entities to serve
as the nominal directors, trustees, and protectors of
these trusts or IBCs. For example, Freedom Services
Company, an entity directed by Vallone, was often
named as a trust protector (whose job it was to oversee
the trustee), and a second company controlled by Jenkins
was typically named as trustee. Meanwhile, Aegis clients
were given undated letters of resignation from Vallone
and Jenkins so that control of the trusts and IBCs at
all times remained with them. Offshore accounts in
Antigua were established in the names of these Belizean
trusts and IBCs, and these accounts too were in
reality under the control of the Aegis clients.
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 13
08-4320, 09-1864 & 09-2174
To effect the concealment of his income using the off-
shore trust system, an Aegis client was advised to first
transfer his untaxed income to a trust bank account
in the United States. From there, the money would be
transferred to a bank account in Antigua that was
held in the name of a foreign trust. The money was
then transferred again to a second bank account, this one
in the name of an IBC. The transfer of funds between
domestic and foreign trusts often was characterized as
a loan, evidenced by one or more promissory notes.
Because the transfer of funds from one trust account
to another was simply a means of hiding the client’s
funds from the IRS, these notes were a fiction. But to
give them a patina of legitimacy, Aegis clients were
advised that periodic demands should be made on the
notes and, in turn, relatively small repayments (say,
$10,000) should be made on the outstanding “loans.”
Once a client’s funds had been transferred to the IBC’s
bank account, the money could be repatriated to the
client in the United States in one of several ways. The
client would be given a credit card linked to the IBC
account in Antigua, which card he could use to access
his money, either by making purchases using that card
or by receiving cash advances through Automated
Teller Machines (ATMs) in the United States. Because
the card was linked to an offshore account, there would
be no record of these transactions clearing in the
United States. The IBC could also make fictitious “loans”
or “gifts” of deposited funds to the client.
14 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
No taxes were paid on income diverted through the
offshore trust system. Aegis clients were assured that
the IRS would not have access to offshore trust and
bank records and would never be able to link the clients
to the control of the IBCs or the bank accounts linked
to those IBCs. The system worked to the benefit of the
defendants as well: they could receive transaction fees
equal to two or three percent of any funds funneled
through the offshore trusts.
The services that the defendants provided to Aegis
clients did not end with the establishment of the
various trusts. The defendants also provided clients with
assistance on two fronts in an effort to ensure that the
goal of tax evasion was accomplished—preparation of
tax returns, and defense of IRS audits.
As the trusts were a sham, Aegis insisted that clients
use pre-selected tax return preparers whom the
defendants knew would both conceal the true nature of
the tax-avoidance scheme and help to perpetuate it by
preparing returns consistent with the purpose of that
scheme. Vallone, Dunn, and Cover each assisted clients
and their tax preparers in preparing their personal, busi-
ness, and trust tax returns. Copies of the tax returns
filed on behalf of many Aegis clients were later found
in the defendants’ offices.
By the mid-1990s, the IRS was aware that Aegis and
other organizations were promoting various forms of
trusts as a means of income tax evasion, and it began to
step up its efforts to combat the abuse of trusts for
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 15
08-4320, 09-1864 & 09-2174
this purpose. It formally signaled its focus on
abusive trusts in April 1997, with the issuance of IRS
Notice 97-24, available at 1997 WL 187852. The notice
explained that it was “intended to alert taxpayers about
certain trust arrangements that purport to reduce or
eliminate federal taxes in ways that are not permitted
by federal tax law.” Notice 97-24 at 1. The notice went on
to cite five examples of potentially abusive tax arrange-
ments, among them the business trust. Id. at 2. It ex-
plained that a common feature of an abusive trust is
that the original owner of the assets nominally subject
to the trust retains the authority to cause the financial
benefits of those assets to be returned to or made
available to himself. Id. at 1-2. The notice also sum-
marized the key legal principles applicable to trusts
and tax liability, including firstly the point that
“[s]ubstance—not form—controls taxation,” such that
abusive trust arrangements may be treated as shams
for tax purposes. Id. at 3. It also noted:
When used in accordance with the tax laws, trusts
will not transform a taxpayer’s personal, living or
educational expenses into deductible items, and will
not seek to avoid tax liability by ignoring either
the true ownership of income and assets or the
true substance of transactions. Accordingly, the tax
results that are promised by the promoters of
abusive trust arrangements are not allowable
under federal tax law. . . .
16 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
Id. at 3. As we discuss in greater detail below, the
Aegis principals were aware of Notice 97-24: Vallone,
for example, acknowledged that Aegis received multiple
copies of the notice (along with client inquiries) soon
after it was issued by the IRS. R. 921 Tr. 5434. Yet, the
notice did not cause the firm to stop promoting
Aegis trusts; instead, as we discuss below, it trig-
gered efforts to avoid and/or obstruct IRS inquiry into
the trusts.
In fact, even before it issued Notice 97-24, the IRS
was already quietly investigating Aegis. Michael Priess,
then a Special Agent with the Criminal Investigation
Division of the IRS, was among several agents who partici-
pated in an undercover investigation of Aegis that
began in 1996. Priess posed as Mike Jordan, an invest-
ment adviser whose clients were mostly physicians.
After attending an Aegis seminar in June 1996 at the
Oak Lawn Hilton in suburban Chicago, Priess and another
agent met with Dunn in 1997 to discuss the possibility
of purchasing an Aegis package that would include an
offshore trust. After attending two additional Aegis
seminars—an October 1997 seminar in New York and a
January 1998 seminar in Belize—Priess met again with
Dunn in July 1998 to confirm that he was interested
in purchasing an offshore trust package. During that
meeting, Dunn assured Priess that he would surrender
control of the assets he placed into the trust system for
only about five minutes before the initial trustee re-
signed. “In fact,” Dunn told Priess, “the resignation
letter is completed before you’re actually signing up.”
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 17
08-4320, 09-1864 & 09-2174
R. 965 Tr. 275. Two months later, Priess (as Jordan)
agreed to purchase a trust package at a price of $38,000,
and to engage Aegis Management to service the trusts at
a cost of $11,500 per year. Priess told Dunn at that time
that his accountant had told him the Aegis system
was “bullshit” and that he should not go ahead with
the purchase. R. 965 Tr. 288. Dunn was not surprised:
“It’s not the first time we’ve heard those words, believe
me.” Id. Tr. 288. The trust documents were ready for
Priess’s (or rather Jordan’s) signature in November.
The package that Priess had purchased included a
CBO/business trust (the Jordan Business Company
Trust), an asset management trust (the MJ Asset Manage-
ment Trust), an offshore trust (the Fructus Inter-
national Trust), and an IBC (the Pernour Services Com-
pany). Parker had already signed the paperwork as
trustee of the MJ Asset Management Trust, and Jordan’s
forthcoming signature had already been notarized.
Dunn told Priess to date his signature August 26, 1998,
although that date had come and gone more than
eleven weeks earlier. (As it turned out, the dates on
some of the documents had to be corrected later so
that they matched the notarized dates.) Minutes had
already been prepared showing that the asset manage-
ment trust’s board of directors (which included only
one director—Parker) had met by telephone on August 26,
1998. Parker had signed a letter of resignation effective
on September 28, 1998; and Priess was also given an
undated letter of resignation from the trustee and
protector of the Belizean trust, “[t]o give me [i.e.,
18 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
Jordan] assurances that I had control of the Fructus Inter-
national Trust.” R. 965 Tr. 332. Bank accounts at the
Swiss American Bank in Antigua were opened for both
the offshore trust and the IBC.
After the trust system was established, Priess (as Jor-
dan) set about with Dunn’s help to use the system to
divert profits from his (fictitious) business into the
trusts. A contract was prepared between Jordan’s
business (Cumberland Investment Group) and the CBO
(Jordan Business Company Trust) pursuant to which the
CBO purportedly would provide management services
to the business. The fee that the CBO would charge
for these services was pegged at the amount of money
Jordan expected his business to realize in profits that
year—initially $220,000 and later $290,000. In reality,
the CBO would provide no services at all to Jordan’s
investment business, but the business would pay the fee
to the business trust as a cover for the diversion of the
business’s profits; the business trust would then
transfer the fee to the asset management trust, which
would in turn convey the fee to the offshore trust, which
would then transfer the fee to the IBC. Priess posed a
wrinkle to Dunn: he (Jordan) did not have $290,000 on
hand to pay the CBO its “fee.” Dunn helped Priess come
up with a “Plan B”: Jordan’s business would make an
initial payment of $185,000 to the CBO; that money
would then be transferred among the various trusts
into the bank account of the IBC in Antigua; then
$105,000 of that money would be repatriated to Jordan
from the IBC account to Jordan as a “gift”; Jordan would
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 19
08-4320, 09-1864 & 09-2174
then send that $105,000 back into the trust system by
writing a check for $106,400 to Fructus International
Trust in purported repayment (with interest) of a
$105,000 “loan” that Fructus had made previously. These
machinations added a new level of deceit to the charade
of the management fee, making it appear as though Jor-
dan’s business ultimately paid the entire “fee” of
$290,000, when in fact part of that total was simply a
recycling of the initial downpayment of $185,000. The net
effect was that Jordan’s business gained a $290,000 de-
duction for its books, for which it paid only $185,000;
the income tax liability that would have been due on the
business’s profits was effectively shipped offshore to
the IBC (which was beyond the reach of the IRS); and
Jordan at all times retained control over the money.
Priess subsequently had conversations with both Cover
and Vallone at a February 1999 Aegis seminar in Cleve-
land about the way in which he had repatriated the
$105,000 from the Belizean IBC to himself as a “gift.”
Cover, who told Priess that he was managing trusts
from some fifty Aegis clients, warned Priess that bringing
money back into the United States as a gift from the
IBC was risky, as he would owe tax on the portion of
any gift in excess of $10,000. Cover suggested to Priess
that he bring back the remainder of the $290,000 sent
abroad as a “loan.” Cover also mentioned to Priess that
he (Cover) used a credit card linked to his own offshore
IBC account to obtain cash from that account. “I go to the
Cash Station every week and pull out $400,” he told the
agent. Priess Tr. 42; R. 944 Tr. 409; R. 966 Tr. 688. When
20 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
Priess raised the same subject with Vallone over lunch,
Vallone had a different idea. Vallone suggested that
Priess could still use a “gift” as the means of repatriating
money from the Belizean entities, so long as he named
a nominee director to the offshore bank accounts linked
to the international trust and the IBC. That way, Vallone
explained, Priess could say he had nothing to do with
the “gift” if ever questioned by the IRS.
Priess’s experience with the Aegis system documented
most of the tax-evasive aspects of the Aegis scheme: a
chain of connected trusts that, on paper, accomplished
the transfer of client income abroad and assigned the
income tax liability to an IBC, where it would effectively
disappear; the designation of nominally independent
trustees whose immediate resignation was planned for
before the client signed the trust paperwork; the back-
dating of documents; the preparation of minutes to
reflect fictitious meetings of the trusts’ boards of directors
(e.g., Parker’s telephonic meeting with himself); the use
of bogus management services contracts to facilitate
the transfer of a client’s business profits into the trust
system; the repatriation of funds diverted to the
offshore trust and IBC back to the client in the United
States through fictitious loans and gifts; and the reality
that for the Aegis client, all of these transactions and
events occurred on paper only, without altering the
operation of their businesses, control of their assets, or
access to their money.
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 21
08-4320, 09-1864 & 09-2174
After the IRS signaled its interest in abusive trust ar-
rangements with the issuance of Notice 97-24 in 1997, the
defendants created what they referred to as the “Aegis
Audit Arsenal.” This so-called arsenal was basically a
series of obstructionist measures that the defendants
encouraged Aegis clients to use, and in some instances
aided their clients in using, to thwart IRS inquiries into
the use of Aegis trusts. For example, the defendants
encouraged clients to withhold information from IRS
agents, to respond to IRS inquiries and requests for
the production of financial records with non-responsive
letters and questionnaires drafted by defendants, and
to file frivolous motions to quash summonses issued by
the IRS. In some instances, attorneys Parker and Stambulis
sent letters drafted by Vallone to the IRS on behalf of
Aegis clients. A nine-page letter that Parker sent to
the IRS in November 1999 on behalf of Aegis client
Genevieve Riccordino, a real estate broker, exemplifies
the nature of this correspondence. The letter is a font of
evasion and obfuscation, posing a multitude of questions
as to the IRS’s purposes in seeking information re-
lated to Riccordino’s trusts, voicing doubt as to the IRS’s
authority to investigate the trusts, making frivolous docu-
ment requests, and threatening to seek sanctions if the
IRS did not comply with Parker’s demands. Gov’t Ex.
Dunn Office 25 (Gov’t Supp. App. 189-97). Parker later
confessed on the witness stand that he issued letters
such as this one with little or no forethought as to
whether they had any arguable basis in the law. “I was
more concerned about sending these letters out
22 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
pursuant to the Aegis Audit Arsenal than determining
at the time whether they were legally defensible or not,”
he testified. R. 947 Tr. 2040.
Early in 2000, the defendants also created the Washing-
ton, D.C., law firm of Parker & Associates, which was
owned by Parker and Hopper, to represent Aegis clients
during IRS audits and examinations. The law firm
served the dual function of helping to implement the
Audit Arsenal’s goal of obstruction and to generate
additional fees from Aegis clients.
In a particularly brazen move, several of the
defendants filed lawsuits against both the IRS and a
number of its revenue and special agents, among others.
Bartoli, Vallone, Hopper, and Dunn filed one such suit
on May 8, 1997, in the Northern District of Illinois
against (among others) IRS Revenue Agent James Pogue
and the Illinois Attorney Registration and Disciplinary
Commission (“ARDC”), which had initiated disciplinary
proceedings against Bartoli based on his involvement
with the trusts sold by both Heritage and Aegis. (We
shall have more to say about the ARDC proceeding
below.) That suit was assigned to Judge Plunkett who,
after dismissing most of the defendants and granting
summary judgment to Pogue, imposed Rule 11 sanctions
on the four plaintiffs for filing a frivolous lawsuit. See
Fed. R. Civ. P. 11. His sanctions opinion, which we later
affirmed and adopted on appeal, observed:
At base, the plaintiffs filed this claim because they
believe the trusts they promote should be a legal
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 23
08-4320, 09-1864 & 09-2174
means to avoid paying taxes. They are not. Plaintiffs
may disagree with the state of the law, but
Rule 11 prohibits them from filing fictional claims
to protest it. . . .
Bartoli v. A.R.D.C. of Ill., 1999 WL 1045210, at *3 (N.D. Ill.
Nov. 12, 1999) (citations omitted), aff’d sub nom. Bartoli v.
Richmond, supra, 2000 WL 687155. In May 2001, Vallone,
Aegis, and Heritage also filed a class-action suit against the
IRS and three of its agents (among other defendants) in the
Southern District of Illinois, seeking damages of $556
billion for purported violations of the plaintiffs’ civil rights.
That action was dismissed as devoid of merit in June 2003.
Judge Plunkett’s November 1999 ruling in the Bartoli
case was an unmistakable rejection of the legitimacy of
the Aegis trusts, but in fact the defendants were on
notice long before his ruling that the Aegis system was
contrary to longstanding rules governing trusts and
taxation. Prospective clients of Aegis who received warn-
ings as to the legitimacy of the system from their own
lawyers and accountants frequently forwarded the nega-
tive opinions to Aegis personnel; copies of such opinions
were later discovered in the files at Aegis headquarters.
We quoted earlier from one such opinion letter, which
noted that the Aegis materials distributed at promo-
tional seminars purporting to document the legality of
the system were “full of errors, irrelevancies and partial
truths followed by non sequiturs.” Gov’t Ex. Dunn
Office 32, R. 962 Tr. 3395. We also noted that when
Priess (posing as Mike Jordan) reported his own accoun-
tant’s description of the Aegis system as “bullshit,” Dunn
24 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
assured him it was not the first time he had heard
such language used in reference to Aegis.
IRS Notice 97-24, issued in April 1997, reiterated the
ways in which abusive trusts akin to those promoted by
Aegis violated longstanding and well-known legal princi-
ples. This notice, as we have discussed was well-known
to the Aegis principals, and copies of the notice were
found in the Aegis headquarters.
Then in June 1999, the United States Tax Court issued
its decision in Muhich v. C.I.R., 1999 WL 390695 (U.S. Tax
Court June 14, 1999), holding that a multi-trust system
that Bartoli had sold to Frank and Virginia Muhich
through Heritage was a sham lacking in economic sub-
stance that should be disregarded for tax purposes.
Mr. and Mrs. Muhich owned a family photography busi-
ness. They purchased a trust package from Heritage in
1994 after meeting with Bartoli; they subsequently
engaged Aegis to help operate the trusts. The Muhichs’
system ultimately comprised five trusts, including an
asset management trust, a business trust, a charitable
trust, an equity trust, and a vehicle trust. Bartoli served
as the initial trustee of the asset management trust,
which was formed first, and following Bartoli’s resigna-
tion as the initial trustee, the Muhichs became the
sole trustees and beneficiaries of that and the other four
trusts. Most of the Muhich’s assets were assigned to
the asset management trust, including Mr. Muhich’s
right to receive compensation for his services. Once the
trusts were in place, Mr. Muhich ran the family business
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 25
08-4320, 09-1864 & 09-2174
just as he did before. In lieu of paying a salary to him,
however, the business paid the asset management trust
for his services, calling the payments “consulting fees.”
The Muhichs, as officers of the asset management trust,
assumed responsibility for managing the trust’s affairs,
and as compensation for their services, the trust “agreed”
to pay the family’s housing, transportation, health care,
and other expenses. The asset management trust, of
course, claimed deductions for those expenses; and any
net income remaining after the deduction of those
expenses was transferred to the charitable trust. The
asset management trust thus reported zero taxable
income, and the charitable trust (which made only
modest charitable contributions) claimed exemption
from taxation. The other trusts reported no income what-
soever. On the returns that the Muhichs themselves
filed for 1994 and 1995, they reported no income in
the form of compensation.
The IRS determined that the trust arrangement was
an abusive one that should be disregarded for tax pur-
poses, and the Tax Court agreed. The court found that
the trusts lacked any economic substance apart from
tax considerations. The court pointed out that (1) the
Muhichs’ relationship with their property did not
change (“the Muhichs could manipulate, distribute, or
otherwise use trust property at their whim”) (2) the
trusts lacked an independent trustee (“[t]he fact that
Bartoli served as a trustee for a limited time is
meaningless; it was a paper appointment solely for the
purpose of facilitating the creation of the trust scheme”);
26 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
(3) “no economic interest in the trusts ever passed to
anyone other than the Muhichs”; and (4) the Muhichs
were not bound by any restrictions as to the use of
trust property. Id., at *6-*7. The court noted that, overall,
“the tangled web” of trusts did little more than
conceal who really owned the assets and who earned
the income assigned to the trusts. Id., at *7.
In sum, petitioners established the trusts with an
aim to avoid, improperly, Federal income tax. None
of the trusts ever reported taxable income, and none
of them conducted a legitimate business activity.
Petitioners’ purpose for the trust scheme was to
take untaxed money out of Midwest [the family
business] and circulate it around the trusts to pay
for the Muhichs’ personal expenses. The Muhichs
admitted as much at trial. Although the Muhichs
attempted to identify other nontax reasons for the
trusts, we find these reasons incredible. Because
the trusts lacked economic reality, the Court will
ignore them for tax purposes.
Id. (footnotes omitted). This decision to treat the trusts
as a sham meant that the business income that had
been diverted to the trusts would instead be treated as
income to the Muhichs on which they would owe tax.
The court went on to hold the Muhichs liable for a
penalty equal to twenty percent of the amount of
income they had underpaid in the relevant tax years
based on their negligence in under-reporting their
income. Id., at *10-*11; see 26 U.S.C. § 6662(a) and (b)(1).
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 27
08-4320, 09-1864 & 09-2174
In imposing that penalty, the court rejected the
Muhichs’ contention that they had reasonably relied on
the advice of Bartoli, among others, as to the legitimacy
of the trusts. “Bartoli’s bias was obvious, and his ability
to benefit financially by luring individuals into the
scheme should have sent up a red flag. Petitioner is an
experienced businessman who should have been suspi-
cious of Bartoli’s claims.” Id., at *11. The court opted not
to impose an additional penalty on the Muhichs under
26 U.S.C. § 6673(a)(1) for asserting a frivolous or ground-
less position in response to the IRS’s claims. The court
agreed that the Muhichs’ contention that the trusts had
economic substance indeed was frivolous; it rejected the
penalty only because the Muhichs had prevailed on
the distinct question whether the “consulting fees” paid
by the Muhichs’ business to the asset management
trust should be included in the Muhichs’ income as
compensation or constructive dividends. Id.The Muhichs appealed the Tax Court’s decision to this
court. We affirmed the Tax Court’s holding in
January 2001, noting that it was wholly consistent with
prior cases rejecting efforts to assign a taxpayer’s
income and other assets to a trust, treat his personal
expenses as deductible costs of trust administration,
and avoid paying income taxes on his income.
The Muhichs transferred their assets to the trusts
and attempted to have their trusts pay all their per-
sonal expenses. As detailed above, courts have uni-
formly held that such transactions are a sham and
28 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
that the Commissioner [of Internal Revenue] may
disregard these sham trusts for tax purposes. This is
what the Commissioner did and we can see no
reason to overturn the decision of the Tax Court.
238 F.3d at 864 (footnote omitted).
The executives of Aegis were keenly aware of the Tax
Court’s decision in Muhich. The Muhichs may have pur-
chased an early version of a trust system from Heritage
(where Bartoli, Vallone, and Hopper developed the
concept of a multi-trust package aimed at tax avoidance),
but their package of trusts was similar in essential
respects to the Aegis system of trusts, and the Muhichs
had in fact engaged Aegis to help them operate their
trusts. Frank Muhich was spotted in the audience at the
first Aegis seminar that Agent Priess attended in 1996,
and in the wake of the Tax Court’s decision three
years later, Hopper remarked to Priess that Muhich “was
one of our CBO clients.” Priess Tr. 48; R. 944 Tr. 419.
There was extensive discussion and correspondence
both within Aegis and between Aegis representatives
and existing and prospective clients regarding the
Muhich decision. Publicly, Aegis officials put on a brave
face when referencing the decision, attempting to distin-
guish the Aegis trusts from the Heritage system that
the Muhichs had purchased and criticizing the Muhichs’
implementation and use of the system. Privately, some
at Aegis feared that the Tax Court’s decision marked
the beginning of the end of Aegis. As we discuss in
greater detail later in this opinion, the adverse decision
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 29
08-4320, 09-1864 & 09-2174
led to a schism between Hopper and Vallone: Hopper
believed that Muhich’s description of the trusts as a sham
exposed the Aegis principals to criminal liability for
promoting the Aegis trusts; he thought that Aegis
clients should be encouraged to seek out independent
advice as to how they should proceed in the wake of
Muhich. Vallone, on the other hand, thought that Aegis
should increase its efforts to avoid and obstruct IRS
inquiries into the Aegis trusts.
The other red flag that signaled official disapproval of
the Aegis system came in the form of the disciplinary
complaint that the Illinois ARDC filed against Bartoli in
November 1996. By this time, Bartoli had resigned as
Aegis’s legal counsel, assumed inactive status with the
Illinois bar, and relocated to Myrtle Beach, South
Carolina; but he remained involved in the management
of Aegis. The ARDC began investigating Bartoli after
Richmond, who had been forced out of Heritage in 1994,
complained to the ARDC about Bartoli. The complaint
that the ARDC ultimately filed against Bartoli was pre-
mised primarily on the assertion that Bartoli had
engaged in dishonesty, fraud, and deceit in promoting
CBOs as a means of tax avoidance, because the
applicable principles of trust, tax, and common law did
not recognize the CBO as employed by Heritage, Aegis,
and Bartoli as a viable entity. R. 916 Tr. 2652-53. Much
like the Muhich litigation, then, the ARDC proceeding
directly implicated the legitimacy of the Aegis system
of trusts. We shall have more to say about the ARDC
proceeding later in this opinion as we discuss an issue
30 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
with respect to the evidence that the government offered
at trial regarding that proceeding. For now it is enough
to note that although only Bartoli was named as a re-
spondent in the ARDC proceeding, the defendants were
well aware of the proceeding. Vallone and Hopper, in
addition to Bartoli, were deposed in the course of that
proceeding. Copies of the ARDC documents were later
discovered in the Aegis headquarters. And, as we have
already noted, four of the defendants filed suit against
the ARDC based on its conduct in investigating and
charging Bartoli. Ultimately, a Hearing Board of the
ARDC issued a Report and Recommendation in
February 2000 proposing that Bartoli be disbarred in
Illinois based on his conduct in connection with
promoting and selling the CBOs. That proposal was
adopted by the ARDC’s Review Board in December 2001,
and Bartoli was formally disbarred by the Illinois
Supreme Court in May 2002.
By early 2000, it was apparent to all that the govern-
ment had both Aegis and the firm’s clientele in its
sights. Vallone would report in an April 2000 letter to
Aegis clients that as of January 2000, some 150 Aegis
members had received audit requests from the IRS, al-
though he assured clients that the IRS dropped half
of these “after one or two letters from us.” Gov’t Ex. Priess
26; R. 944 Tr. 435. On March 31, 2000, search warrants
were executed at the Aegis headquarters in Palos Hills,
Illinois, at Dunn’s office in Indiana, and at the offices
of other individuals working with the defendants. Both
documents and computers were seized during the
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 31
08-4320, 09-1864 & 09-2174
search, making plain that the government was not
only building a case against Aegis and its officials but
attempting to identify the firm’s clients as well. Vallone
would later testify that “new business was practically
completely finished” at that point. R. 921 Tr. 5356. It
would be another four years, however, before Aegis
finally closed its doors. Aegis continued to service
existing clients of the trust system; and Vallone led an
ultimately unsuccessful effort to prevent the govern-
ment from identifying those clients.
Vallone initiated changes in the trust system in an
ongoing effort to keep Aegis clients “off the radar screen”
of the IRS. E.g., R. 944 Tr. 452-53, 455; R. 954 Tr. 5501-02.
Vallone learned that the government had been able to
identify some Aegis clients from the Schedule C forms
(used to report income from sole proprietorships) that
those clients had attached to their trust tax returns. R. 944
Tr. 438-39. Vallone adopted a new business name—“The
Fortress Trust” (which had the same address as the
Aegis headquarters)—and under that name promoted
a new “Tax Minimization Plan,” which employed a
different type of trust and a limited liability company, so
as to eliminate the type of tax return that called for a
Schedule C. Existing Aegis clients were encouraged to
switch to the new system—at a cost of several thousand
dollars—in order to avoid scrutiny from the IRS. Dunn,
in fact, had such a conversation with Agent Priess.
Priess, in his role as Aegis client Mike Jordan, had a
June 2000 meeting with Dunn in which Priess voiced
skepticism whether he had an ongoing need for the
32 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
services of Aegis Management. Dunn responded that
Priess (Jordan) needed those services more than ever
“[i]n light of the increased scrutiny and them [the IRS]
now having the records” from the March 2000 search.
Gov’t Ex. Priess Tr. 59; R. 944 Tr. 452. “There are ways
to get those same benefits without having to be on
the radar screen,” Dunn told Priess. Id. Tr. 452.
In the meantime, changes were occurring within
Aegis. Hopper resigned as the managing director of the
firm in January 2000, although he remained on hand to
provide assistance through April. Parker ceased his
involvement as counsel in May 2000, after the Muhich
decision caused him to seek independent advice as to
the legitimacy of the Aegis trusts from three different
tax attorneys, who informed him that the trusts were
not valid. In May 2000, the same month as Parker’s de-
parture, Dowd was named by Vallone to be the
operations manager of both Heritage and Aegis. In a
letter to Aegis clients announcing (among other events)
Harper’s departure and Dowd’s promotion, Vallone
described Dowd’s new role as a “purely administrative
position, not managerial,” but added that Dowd “will
greatly help me in carrying on with our operations.” Gov’t
Ex. 27; R. 944 Tr. 450. In June 2000, Dowd, Cover and
others joined what was known as the Aegis Advisory
Board to counsel Vallone in his management of Aegis
and the Fortress Trust.
A discussion of the facts would not be complete
without mention of the ways in which the defendants
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 33
08-4320, 09-1864 & 09-2174
themselves used the Aegis trusts. The defendants not
only promoted the Aegis trust system but used that
system to hide the substantial income they reaped
from sales of trust packages. (From 1997 through 2000,
the total incomes earned by each defendant ranged
from a low of $142,000 in Dowd’s case to a high of
$1.5 million in Dunn’s case. Collectively, the defendants
earned more than $6 million from the sale and manage-
ment of Aegis trusts over the life of the scheme.) In some
cases, the defendants failed to file tax returns at all:
Vallone, Bartoli, and Hopper filed no individual tax
returns for the years 1997 to 2000, for example. To hide
the income they earned from Aegis and other sources,
their paychecks were made payable to the trusts they
controlled and were deposited into the bank accounts
held by those trusts; the defendants then withdrew
cash and paid for personal expenditures out of the trust
accounts. None of the income funneled through the
trusts was reported as income and thus no tax was paid
on it. Vallone failed to report gross income of $700,000
from 1997 through 1999 (he was not charged for the 2000
tax year), on which he owed federal income taxes of
$182,000. Bartoli failed to report gross income of over
$600,000 in 1997 through 2000, on which he owed tax of
$192,000. Hopper failed to report gross income of more
than $814,0000 in those four years, on which his tax
liability was more than $220,000.
Like Vallone, Bartoli, and Hopper, Dunn did not file a
federal income tax for 1999, although his gross income
exceeded $438,000 that year. He did file tax returns for
1997 and 1998, but he reported only modest income of
34 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
approximately $16,000 and $9,000 for those years, when
his actual income exceeded $434,000 and $604,000 re-
spectively. On the income that he failed to report in
these three years, Dunn owed taxes totaling more
than $315,000.
Dowd and Cover both filed federal income tax returns
in 1997 through 2000, but as with Dunn the returns
they filed substantially under-reported their actual
income. Dowd, for example, reported income of only
$3,000 to $6,000 annually, although his gross income
in those four years amounted to more than $211,000.
He owed $55,000 on the income that he failed to report,
while Cover owed an additional $84,000 on the income
that he did not report for 1997 through 1999.
Although the doors of Aegis did not close until 2004,
the scheme was largely at an end by 2003. By that time,
people were being summoned to testify about Aegis to
a grand jury. In March 2003, the government conducted a
second round of searches which included, among
other locations, the Aegis headquarters and Vallone’s
homes in Illinois and Florida.
The defendants were indicted in April 2004. Count One
of the superseding indictment charged all of the defen-
dants with conspiring to defraud the United States by
impairing and impeding the functions of the IRS and to
commit tax offenses against the United States. 18 U.S.C.
§ 371. The defendants were also charged with multiple
counts of mail fraud, 18 U.S.C. § 1341; wire fraud, 18
U.S.C. § 1343; aiding and assisting the filing of false tax
returns by others, 26 U.S.C. § 7206(2); filing their own
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 35
08-4320, 09-1864 & 09-2174
false tax returns, 26 U.S.C. § 7206(1); and tax evasion,
26 U.S.C. § 7201.
After multiple continuances were granted at the
requests of one or more of the defendants, an eleven-
week trial commenced in February 2008 and concluded
in May 2008. The jury convicted Vallone, Bartoli, Hopper,
and Cover on all counts in which they were charged.
Dunn was convicted on the conspiracy charge and
fourteen tax-offense charges, but he was acquitted on
nine counts of mail and wire fraud. Dowd was convicted
on the conspiracy count, one count of mail fraud, and
four counts of filing false tax returns but was acquitted
on four mail and wire fraud counts and four counts
alleging that he aided and assisted the filing of false
tax returns by others.
Each of the defendants was sentenced to a substantial
term of imprisonment: Vallone was ordered to serve a
prison term of 223 months; Bartoli, 120 months; Hopper,
200 months; Dunn, 210 months; Cover, 160 months; and
Dowd, 120 months. All six defendants appeal, raising
a multitude of joint and individual issues that we
resolve in turn below.
II.
JOINT ISSUES
A. Speedy Trial Act Claim
The trial in this case was originally set for June 29, 2004,
R. 31, but was continued on multiple occasions thereafter
36 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
at the request of various defendants. In a number of
instances, these continuances were granted over the
objection of the government, but at no time did any
defense counsel voice an objection to the delays. How-
ever, in February 2008, shortly before the trial com-
menced, defendant Vallone moved to dismiss the indict-
ment, contending that the multiple postponements of
the trial date had violated his right to an expeditious
trial under the Speedy Trial Act, 18 U.S.C. § 3161, et seq.
(the “STA” or the “Act”). R. 408, 411.2 That Act grants
a defendant the right to a trial commencing within
seventy days after he is charged or makes an initial ap-
pearance, § 3161(c)(1), subject to certain authorized ex-
ceptions that permit time to be excluded from the seventy-
day period, § 3161(h). See Zedner v. United States, 547
U.S. 489, 492, 126 S. Ct. 1976, 1981 (2006); United States
v. O’Connor, 656 F.3d 630, 636 (7th Cir. 2011), cert. denied,
132 S. Ct. 2373 (2012). On the defendant’s motion,
the district court must dismiss the indictment if the trial
does not commence within seventy non-excluded days.
§ 3162(a)(2). Principally, Vallone contended that from
February 7 to May 3, 2007, the court had failed to enter
an order properly tolling the running of the speedy-
trial clock, so that by April 18, 2007, seventy days had
elapsed and because the trial had not yet commenced, his
2
In a supplement to his motion, Vallone contended without
elaboration that his speedy trial claims were based on the
Sixth Amendment as well as the Speedy Trial Act. R. 414.
However, Vallone’s appeal relies solely on the statute.
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 37
08-4320, 09-1864 & 09-2174
right to a speedy trial had been violated. (Secondarily,
Vallone suggested that “other time periods” were prob-
lematic because the court’s findings as to the excluda-
bility of these time periods were inadequate. But Vallone
never identified which time periods he was relying
upon.) At the hearing on Vallone’s motion, the gov-
ernment responded that the lack of an order entered
between February 7 and May 3, 2007, was immaterial,
because the court in December 2006 had continued the
trial date at the request of the defendants until Octo-
ber 23, 2007, and had excluded time through that new
trial date from the STA’s seventy-day mandate with the
agreement of the parties. R. 1051 at 54-57; see R. 1057 at 6.
The government presented the court with a transcript
of the December 7, 2006 hearing at which this had oc-
curred. R. 1051 at 58-59. After reading a portion of that
transcript into the record, the court denied Vallone’s
motion. R. 1051 at 64. Vallone, now joined by the other
defendants, contends that the court erred in denying
his motion.
As the defendants acknowledge, “certain specified
periods of delay are not counted” toward the STA’s
seventy-day limit. Defendants’ Joint Br. 23 (quoting
Zedner, 547 U.S. at 492, 126 S. Ct. at 1981); United States
v. Wasson, supra, 679 F.3d at 944. One such exception, and
the one most on point here, is a continuance of the trial
date granted based on the court’s finding that “the ends
of justice served by taking such action outweigh the
best interest of the public and the defendant in a
speedy trial.” § 3161(h)(7)(A) (formerly § 3161(h)(8)(A)
38 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
as noted in O’Connor, 656 F.3d at 636 n.2). The statute
identifies a number of factors that the court must consider
in deciding whether such a continuance is warranted.
§ 3161(h)(7)(B); see Wasson, 679 F.3d at 944. The district
judge has broad discretion in weighing the pertinent
factors and in determining whether a continuance is
warranted. United States v. Rojas-Contreras, 474 U.S. 231,
236, 106 S. Ct. 555, 558 (1985); see also United States v.
Broadnax, 536 F.3d 695, 698 (7th Cir. 2008); United States
v. Taylor, 196 F.3d 854, 860 (7th Cir. 1999) (citing United
States v. Blandina, 895 F.2d 293, 296 (7th Cir. 1989)).
Counterbalancing that open-ended discretion, however,
is “procedural strictness”: The judge must set forth in
the record, either orally or in writing, his reasons for
concluding that a continuance is warranted by the ends
of justice. § 3161(h)(7); Zedner, 547 U.S. at 509, 126 S. Ct. at
1990; see O’Connor, 656 F.3d at 639-40; United States v.
Adams, 625 F.3d 371, 378-79 (7th Cir. 2010).
The defendants’ lead and principal argument on
appeal, as it was below, is that the district court did not
order the exclusion of time during the time period com-
mencing on February 7, 2007, and ending on May 3, 2007.
As the speedy trial clock consequently was running
during that period, the defendants reason, the district
court was obliged to start the trial no later than April 18,
2007 (seventy days after February 7). The fact that it
did not shows that they were deprived of their right to a
speedy trial and compelled the district court to grant
Vallone’s request that the indictment be dismissed.
§ 3162(a)(2).
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 39
08-4320, 09-1864 & 09-2174
We conclude that the defendants have waived this
argument. The argument, as we have said, assumes
that there was no order at all excluding time between
February 7, 2007, and May 3, 2007, such that the speedy
trial clock expired in April. This argument overlooks the
fact that the court on December 7, 2006, had already
continued the trial date from February 7, 2007, on
motion of defendants, to October 23, 2007, and had
orally excluded time, by agreement. The government
relied on the December 7 continuance, and the sur-
rounding context, as adequate to support the exclusion
of time under the STA’s ends-of-justice provision. It is
clear that the court itself relied on what had transpired
on December 7 to deny Vallone’s motion: the court,
after all, read the relevant portion of the December 7
transcript into the record in ruling on the motion. R. 416;
R. 1051 at 64. It made the point even more explicitly in
its order denying the defendants’ post-trial motions for
judgments of acquittal, where it noted that it had granted
the continuances based on defense counsels’ representa-
tions regarding the complexity of the case and the length
of time needed to prepare for trial. R. 650 at 7-8. So
the threshold question presented by the appeal on this
issue is whether, as the government and the district
court concluded, the December 2006 continuance of the
trial date and the accompanying exclusion of time com-
plied with the STA’s ends-of-justice provision. (To the
extent the defendants presume that exclusion must take
the form of a written order, they are mistaken. Our deci-
sion in United States v. Napadow, 596 F.3d 398, 405 (7th
40 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
Cir. 2010), leaves no doubt that a written order is not
required so long as the district court’s oral remarks
make clear its intent to exclude time. See also O’Connor,
656 F.3d at 639-40; Adams, 625 F.3d at 380.)
Yet, in their lead brief, the defendants make no
mention at all of what took place on December 7, 2006, let
alone any argument as to why the court’s oral directive
that time would be excluded from December 7, 2006, to
October 23, 2007, was insufficient to comply with the
STA. There can be no reasonable excuse for this omis-
sion. The December continuance and exclusion of
time was the centerpiece of the government’s response
to the motion to dismiss below and was repeated when
the defendants reasserted the speedy trial issue in
their post-judgment motions for acquittal. The record
leaves no doubt that the district court itself relied on
the events of December 7, 2006, as the basis for its
decision to deny Vallone’s motion to dismiss and like-
wise to deny the defendants’ post-judgment motions
for acquittal as to this issue. But the defendants’ lead
brief is altogether silent as to December 7. They
belatedly address the subject in their reply brief, but this
is too late. E.g., United States v. Stevenson, 656 F.3d 747,
753 (7th Cir. 2011) (citing United States v. Boisture, 563
F.3d 295, 299 n.3 (7th Cir. 2009)). Having altogether
ignored the rationale for the district court’s ruling in
presenting the issue and making their initial argument
on appeal, the defendants have waived this aspect of
their challenge. See Bonte v. U.S. Bank, N.A., 624 F.3d 461,
466 (7th Cir. 2010) (failure to grapple with basis for
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 41
08-4320, 09-1864 & 09-2174
district court’s decision to dismiss case, and to respond
to defendant’s arguments in support of dismissal,
results in waiver of appeal); In re Snyder, 152 F.3d 596, 599-
600 (7th Cir. 1998) (although, in bankruptcy appeal,
appellate court’s review is not confined to district
court’s findings but extends to findings of bankruptcy
court as well, it is nonetheless “unacceptable” for
appellant to ignore basis for district court’s ruling);
United States v. Fuchs, 635 F.3d 929, 933-34 (7th Cir.
2011) (failure to address district court’s alternative
holding on an issue waives any challenge to that holding)
(coll. cases); Fin. Inv. Co. (Bermuda) Ltd. v. Geberit A.G.,
165 F.3d 526, 531 (7th Cir. 1998) (failure to address alter-
native ground for district court’s decision until reply
brief constitutes waiver of challenge to that ground).
The defendants argue secondarily that many of the
district court’s other orders excluding time based on the
ends of justice were not supported by adequate findings;
but this argument was waived in the district court.
We noted above that although Vallone’s motion to
dismiss primarily focused on the period from February 7
to May 3, 2007, he also suggested that the district court
had not properly excluded other periods of time in the
case. The entirety of Vallone’s argument in that regard
reads as follows:
In addition, other time periods in these proceedings
are also not excludable for speedy-trial purposes,
because the record does not reflect that the requisite
42 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
“findings” were “made” in support of the “ends-of-
justice” continuances that were nominally entered.
R. 411 at 6 (citations omitted). Vallone did not cite any
particular order as defective, and the sole documenta-
tion he provided to the court in support of his motion
was the transcript of the February 7, 2007 hearing, which
obviously had to do with his primary argument con-
cerning the February 7 to May 3, 2007, period rather
than any other period. At the hearing on Vallone’s
motion, the government’s counsel asserted that this
second argument was “undeveloped and, therefore,
waived.” R. 1051 at 57. When Vallone’s counsel was
given the opportunity to reply to the government’s argu-
ments, counsel said nothing to amplify on this second
argument nor to contest the government’s assertion that
it was waived for lack of development. The district
court, having been given no grist in support of the argu-
ment, never addressed it. Because this was Vallone’s
motion, because the secondary argument was never
fleshed out, and because Vallone’s counsel remained
silent in the district court in response to the govern-
ment’s contention that the argument had been waived,
we find that Vallone indeed did waive it.
We add that the defendants have barely expanded on
the basis for their secondary contention in their lead
brief on appeal: they have cited roughly a dozen of the
district court’s orders continuing the trial date, but have
not bothered to address any individual orders and
explain why, in light of the requirements of the STA and
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 43
08-4320, 09-1864 & 09-2174
case law applying the Act, the district court’s exclusion
of time was inadequate. To the extent that the
defendants mean to suggest that time was not properly
excluded because the court’s written orders granting the
various continuances do not on their face reflect
findings sufficient to satisfy the statute’s requirements
as to ends-of-justice exclusions of time, we reiterate
that the defendants are operating on a mistaken prem-
ise. As we have already said, the court need not put its
findings justifying such an exclusion in a written order,
so long as the record otherwise makes clear the
reasons why the court found that the ends of justice
warranted the exclusion of time. The defendants have
not bothered to address whether the court’s oral
remarks in granting the continuances, and the con-
text surrounding the continuances, otherwise satisfy
the statute. See Wasson, 679 F.3d at 946-48; O’Connor,
656 F.3d at 639-40; Adams, 625 F.3d at 380; Napadow, 596
F.3d at 405.
B. Cheek Defense
All six of the defendants before us were charged, inter
alia, with the willful attempt to evade or defeat the
federal income taxes owed on their income, either by
filing tax returns that substantially understated their
income or by filing no tax return at all. R. 103, Counts 35-
55; see 26 U.S.C. § 7201. Four of the defendants—Vallone,
Bartoli, Hopper, and Dunn—also were charged with
willfully aiding and assisting, procuring, counseling,
44 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
and advising the preparation and presentation of the
false and fraudulent income tax returns filed by
multiple Aegis clients. R. 103, Counts 11-34; see 26 U.S.C.
§ 7206(2). In Cheek v. United States, 498 U.S. 192, 201, 111
S. Ct. 604, 610 (1991), the Supreme Court noted that the
mental state of willfulness, for purposes of section
7201 and other criminal tax laws, demands proof that
the defendant knew of a duty imposed on him by the
law and that he voluntarily and intentionally violated
that duty. The court went on to hold that a defendant’s
genuine belief that he is not legally required to do a
particular act—to report his wages as income to the
IRS, for example—is inconsistent with actual knowledge
of that obligation, even if his understanding is objec-
tively unreasonable.
[I]f the Government proves actual knowledge of the
pertinent legal duty, the prosecution, without more,
has satisfied the knowledge component of the will-
fulness requirement. But carrying this burden re-
quires negating a defendant’s claim of ignorance of
the law or a claim that because of a misunder-
standing of the law, he had a good-faith belief that
he was not violating any of the provisions of the
tax laws. This is so because one cannot be aware
that the law imposes a duty upon him and yet be
ignorant of it, misunderstand the law, or believe
that the duty does not exist. In the end, the issue is
whether, based on all the evidence, the Government
has proved that the defendant was aware of the
duty at issue, which cannot be true if the jury credits
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 45
08-4320, 09-1864 & 09-2174
a good faith misunderstanding and belief submis-
sion, whether or not the claimed belief or misunder-
standing is objectively reasonable.
Id. at 202, 111 S. Ct. at 610-11.
The over-arching premise of the government’s case
was that the Aegis trust system was a sham and that the
defendants knew as much. The defendants disputed
this premise, contending that they in fact had a good-
faith belief that the Aegis trust system was consistent
with the relevant provisions of the Internal Revenue
Code and thus a legitimate means of income tax
minimization. Under Cheek, this required the govern-
ment to negate their claim of good faith and to prove
that they in fact realized that the Aegis system was not
legitimate. Only if the defendants knew that the Aegis
trusts were ineffective in reducing the income tax owed
by those who used the trusts could the jury find that
the defendants acted willfully with respect to their
own income tax obligations and those of Aegis clients.
But the defendants contend that the district court
undermined their Cheek defense by precluding them
from demonstrating to the jury that they had a good-
faith belief in the legality of their actions. The problem,
as they see it, began with the court’s pretrial ruling
barring any attempt to show that the trusts were, in fact,
a legal means of tax avoidance. By relieving the govern-
ment of the burden of presenting testimony showing
that the trusts violated the law, the court eliminated
an opportunity for the defense to question whatever
46 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
witnesses the government would have called on that
subject as to potential ambiguities in the law that
might have supported the defendants’ purported good
faith belief in the legitimacy of the Aegis trusts. The
defendants argue that the court later compounded the
problem in two ways. First, the court would not allow
the defendants to question any government witnesses
about purported ambiguities with respect to the tax code
and its application to entities like the Aegis trusts. Sec-
ond, relying on the charge that the defendants had en-
gaged in a conspiracy with one another, the court
indicated to counsel that notice to one member of the
conspiracy that the trusts were a sham would constitute
notice of the same to all other members of the conspir-
acy. The defendants assert that, collectively, these
rulings both prevented the defendants from showing
that ambiguities in federal tax law made room for their
good-faith belief that the trusts were legitimate and
eliminated the government’s burden of negating that
good faith belief. We take each aspect of this argument
in turn, beginning with the court’s pretrial ruling as to
the legality of the Aegis trust system.
In advance of trial, the government moved in limine
to bar the defendants from presenting to the jury any
evidence or argument suggesting that the Aegis trust
system was a lawful means of tax avoidance. The gov-
ernment noted that this court in a series of decisions
had already determined that the Aegis trust system
and others like it constituted unlawful tax shelters. R. 314
at 2-3, citing United States v. Patridge, supra, 507 F.3d at
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 47
08-4320, 09-1864 & 09-2174
1093-94; Muhich v. C.I.R., supra, 238 F.3d at 861-63; Bartoli
v. Richmond, supra, 2000 WL 687155, at *1, *4; Pfluger v.
C.I.R., 840 F.2d 1379, 1385-86 (7th Cir. 1988); and Schulz v.
C.I.R., 686 F.2d 490, 493-94 (7th Cir. 1982).
Because defendants’ trust system “clearly [is] not” a
“legal means to avoid paying taxes” (Bartoli, 2000 WL
687155, at *1), any evidence or argument that they
are lawful tax-avoidance schemes would be contrary
to law, and the “probative value [of the evidence
would be] substantially outweighed by the danger
of . . . unfair prejudice, confusion of the issues, or
misleading the jury” (Fed. R. Evid. 403).
R. 314 at 3-4 (emphasis in original).
The district court granted the motion. The court acknowl-
edged that the Supreme Court’s decision in Cheek re-
quired proof that the defendants knew what the Internal
Revenue Code required of them. R. 1046 at 90. None-
theless, “once the Court has decided that a particular
trust or plan is unlawful, it cannot be relitigated to
the jury.” R. 1046 at 90. Thus:
You cannot argue to the jury that Aegis was a
lawful plan and therefore because it was or is lawful
that somehow the defendants are not guilty in this
case. You certainly can require the government to
prove that each defendant may be convicted of tax
offenses only if he knows that the code requires him
to pay. That’s the government’s burden here, they
must show that the actions were willful, that they
were done with knowledge, and the government
48 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
concedes that. But you will not be permitted to
reargue the lawfulness of the Aegis plan itself.
R. 1046 at 90-91.
The defendants contend that this ruling, while paying
lip service to Cheek, actually precluded them from estab-
lishing that they had a good-faith belief in the legality of
the Aegis trust system. They maintain that the court’s
order barred them not only from asserting the
legality of the Aegis trusts, but also from “raising the
statutes, regulations and case law on which they relied
in formulating what they subjectively believed was a
lawful means of income tax reduction through the use
of the Aegis CBO system.” Defendants’ Joint Brief
at 38 (emphasis in original).
We do not construe the court’s order as the defendants
do. The district court was correct in holding that the
legality of the Aegis trust system was not a matter for
the jury to resolve. This was, instead, a question of law
for the court to resolve, e.g., United States v. Caputo, 517
F.3d 935, 942 (7th Cir. 2008) (“The only legal expert in a
federal courtroom is the judge.”), and one which this
court, indeed, had already resolved, see Muhich, 238 F.3d
at 864; Bartoli, 2000 WL 687155, at *1. It was therefore
appropriate to preclude the defendants from attempting
to show that the Aegis trust system was legal. See
United States v. Cheek, 3 F.3d 1057, 1063 (7th Cir. 1993)
(sustaining instructions advising jury that certain of
defendant’s beliefs as to the tax laws were erroneous)
(citing United States v. Powell, 955 F.2d 1206, 1213 (9th Cir.
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 49
08-4320, 09-1864 & 09-2174
1992) (because jury cannot decide legality of particular
conduct under tax code, district court must instruct jury
that conduct was unlawful)). The district court’s order
in no way blocked an appropriate Cheek defense, how-
ever. The court explicitly recognized that it was the gov-
ernment’s burden to prove that the defendants knew
what their obligations were under the law. And nothing
the court said suggested that it would preclude the de-
fendants from attempting to show why they in good
faith believed that the Aegis trust system was a lawful
means of tax avoidance under the relevant statutes,
regulations, and case law.
To the contrary, the testimony that some of the defen-
dants themselves went on to give demonstrates that
they remained free to pursue such a defense, as the gov-
ernment points out. Dowd’s testimony is a good exam-
ple. Dowd explained that his employment with Her-
itage was his first job after graduating from college.
Although he would later assume more significant re-
sponsibilities with Aegis, in the beginning Dowd was
something of a Man Friday whose responsibilities in-
cluded a number of menial tasks:
I changed light bulbs. I cleaned up. I brought my
own vacuum a couple times and vacuumed the place,
cleaned the windows, shoveled the walk. I made—
whatever it took. We would have clients, they
would have clients come in, and so I tried to make
it look neat.
50 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
R. 938 Tr. 6377. Dowd was given an asset management
trust when he started work with Heritage, which his
father (who was familiar with Heritage) told him was
“a great idea.” Id. Tr. 6358. Dowd himself had only a
rudimentary familiarity with trusts and emphasized
repeatedly during his testimony that he relied on what
Aegis officers such as Vallone and Bartoli told him
about the legitimacy of the Aegis system. “I believed
in what I was doing, and I believed in The Aegis Com-
pany. They were very convincing,” Dowd testified. R. 922
Tr. 6415. Over time Dowd did become aware that
the IRS was looking into the use of sham trusts, that
Aegis clients were being audited, and that doubts were
being raised in the media and other quarters about the
use of trusts to minimize or avoid income taxes. He
kept his own file (labeled “Trusts - Attacks On”) collecting
negative opinions, rulings, and news articles. Yet, when-
ever he discussed such negative authorities or expressed
concern to others at Aegis, he was assured either that
the Aegis system was materially different from the
trust systems that the IRS was finding to be invalid or
that the IRS itself was acting improperly. See, e.g., id. Tr.
6402 (Vallone told him that Muhich did not know how
to use the trust system); 6409 (Cover told him that the
Aegis system did not operate like the sham trusts
referred to in a W ALL S TREET JOURNAL article); 6414
(Vallone told him that other trust companies that the IRS
had shut down were “doing it wrong”); 6417 (when he
asked Vallone about IRS Notice 97-24, Vallone told him
that Aegis was not abusing business trusts in the way
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 51
08-4320, 09-1864 & 09-2174
described by that ruling and that Vallone was working
on a line-by-line rebuttal to the ruling); 6418 (Vallone
in multiple conversations cited various provisions
of the Internal Revenue Code or pointed him to the
Aegis Directors’ Manual in support of the validity of Aegis
trusts); 6431 (Vallone cited a specific Code section that
said use of a foreign credit card was acceptable. “So
I believed him.”). Dowd also found reassurance in the
professionals who spoke at Aegis seminars. He recalled
attorney Parker saying at one of the seminars that Aegis’s
attorneys were “the best,” that the Aegis trust was “ko-
sher,” and that were it otherwise he (Parker) would not
be promoting the trust. Id. Tr. 6424-25. Even when the
Aegis offices were searched in March 2000 and the com-
pany’s computers and files seized, Vallone assured
Dowd that the IRS was “just trying to impede Aegis.”
Id. Tr. 6412. Not until Dowd learned later that Vallone
and other Aegis officers were filing statements with the
IRS claiming that they were not “citizens” subject to
income taxes did Dowd conclude that something was
wrong. Id. Tr. 6440-41. At that point, he decided to leave
the company. Dowd’s testimony, during which he was
permitted to both recount what others told him about
the legitimacy of the Aegis system and to identify and
discuss the various Aegis materials and favorable authori-
ties on which his belief in the system was based,
illustrates that nothing in the district court’s ruling pre-
vented him from pursuing a Cheek defense. See also infra
at 58-59 n.4; R. 974 Tr. 5142-5220 (on direct examina-
tion, Vallone’s counsel walks him through multiple legal
52 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
authorities which purportedly formed basis for Vallone’s
good-faith belief in legality of Aegis system); e.g., id. Tr.
5158-65 (court overrules government objection to ad-
mission of Vallone Ex. Aegis School Book Second Ed.
1998—which collected authorities Vallone believed sup-
ported Aegis trust system and which was given to par-
ticipants at Aegis seminars—reasoning that exhibit was
admissible as evidence of Vallone’s belief in legality
of Aegis system; jury apprised that exhibit was admitted
for purposes of establishing Vallone’s state of mind); id.Tr. 5189 (Vallone testifies that he understood Parker’s
comment at March 1999 seminar regarding lack of legal
precedent on business trusts “to mean that there were
certain issues that related to business trusts and their
operation that simply had not been settled in the law”).
The defendants posit, and we may assume arguendo,
that expert testimony would be one way in which a
defendant charged with tax evasion can establish that he
had a good faith, albeit mistaken, belief that his conduct
was lawful. Our own decision in United States v. Harris,
942 F.2d 1125, 1132 n.6 (7th Cir. 1991), explicitly
recognizes this possibility.3 Again, however, we see
3
Harris notes that among the evidence a defendant may present
in support of a defense that he “subjectively, but wrongly”
believed his conduct was consistent with the Internal Revenue
Code and the cases interpreting it is expert testimony as to
the case law on which the defendant purports to have
actually relied. 942 F.2d at 1132 n.6. See United States v. Garber,
(continued...)
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 53
08-4320, 09-1864 & 09-2174
3
(...continued)
607 F.2d 92, 95-99 (5th Cir. 1979) (en banc) (in tax evasion
case, district court erred, inter alia, by excluding expert testi-
mony proffered by defense on novel question of whether
certain payments defendant received in exchange for her rare
blood plasma constituted taxable income: “In a case such as
this where the element of willfulness is critical to the
defense, the defendant is entitled to wide latitude in the intro-
duction of evidence tending to show lack of intent. The defen-
dant testified that she subjectively thought that proceeds
from the sale of part of her body were not taxable. By disal-
lowing [the expert’s] testimony that a recognized theory of
tax law supports Garber’s feelings, the court deprived the
defendant of evidence showing her state of mind to be reason-
able.”), cited with approval in United States v. Clardy, 612 F.2d
1139, 1153 (9th Cir. 1980) (district court did not err in permit-
ting IRS agent to give expert testimony that particular
deduction was not proper: “we believe that this type of testi-
mony is relevant to the issue of willfulness where the theory of
the defense is that there is a good faith dispute as to the inter-
pretation of the tax laws”); but see also United States v. Klaphake,
64 F.3d 435, 438-39 (8th Cir. 1995) (where defendant’s
attorney was permitted to testify he was retained to prepare
prototype trust document and as to legitimate purposes and
advantages of business trust, and where attorney’s opinion
letter to defendant was also admitted into evidence, court
properly excluded attorney from testifying on legality of trust
arrangement; latter point presented question of law for court,
and given the evidence that was admitted, defendant’s
defense that he reasonably relied on advice of counsel was
(continued...)
54 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
nothing in the district court’s ruling that preemptively
rejected the possibility of a defense expert testifying
about the legal precedents on which defendants pur-
ported to have based their belief that the Aegis trusts
were effective tax-avoidance vehicles. The defendants’
real contention seems to be that the district court’s
3
(...continued)
not eviscerated); United States v. West, 22 F.3d 586, 597-600 (5th
Cir. 1994) (in bankruptcy fraud case, where defendant’s bank-
ruptcy experts were permitted to testify that they advised
defendant to structure relevant transactions as he did and that
the transactions were lawful, district court did not abuse its
discretion in refusing to let experts explain the legal basis
for their advice); United States v. Bryan, 896 F.2d 68, 72-73 (5th
Cir. 1990) (although expert testimony might be relevant to
willfulness in certain cases, it was properly excluded where
tax shelters devised by defendants were clearly shams lacking
any valid business purpose); United States v. Curtis, 782 F.2d
593, 599 (6th Cir. 1986) (rejecting Garber and sustaining exclu-
sion of defendant’s proffered expert testimony regarding uncer-
tainty in particular area of tax law, reasoning in part that
absent connection between uncertain state of law and defen-
dant’s state of mind, expert’s testimony regarding uncertainty
in law is irrelevant); United States v. Ingredient Tech. Corp., 698
F.2d 88, 96-97 (2d Cir. 1983) (declining to follow Garber and
sustaining exclusion of expert testimony as to Department of
Treasury regulations that defendant offered to show de-
fendant could not have formed willful intent to evade taxes);
United States v. Herzog, 632 F.2d 469, 473 (5th Cir. 1980) (expert’s
view on complexity of tax laws sheds no light on defendant’s
intent).
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 55
08-4320, 09-1864 & 09-2174
ruling somehow relieved the government of presenting
its own expert testimony as to the relevant provisions of
the law, which would have presented the defendants
with an opportunity to cross-examine the experts about
potential good-faith misinterpretations of those provi-
sions. Defendants’ Joint Brief at 47-48. Yet, although the
government bore the burden under Cheek of negating
the defendants’ good-faith defense and proving their
actual knowledge of what the law required of them, it
was not obliged to do so in any particular way. As we
noted earlier in our summary of the facts, there was
ample evidence that the defendants were on notice
of the illegality of the Aegis trust system, and the defen-
dants do not suggest that the government failed to carry
its burden on this point. And because the legality of
the Aegis trusts presented a question of law that had
already been resolved by this court, there was no need
for the government to present expert testimony as to
what the law provided. The district court instead
properly instructed the jury on the relevant provisions
of the law.
Finally, to the extent the defendants are suggesting
that the government’s motion and the district court’s
ruling somehow prevented them from showing that the
relevant provisions of the law were ambiguous, see De-
fendants’ Joint Brief at 45-46, they are blurring the dis-
tinctions between objective ambiguity in the law and
their own purportedly good-faith misinterpretation of
the law. As our decision in Harris makes clear, objective
ambiguity is a question for the court; and if the court
56 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
were to find the law objectively ambiguous, that finding
would require dismissal of the indictment, as the defen-
dants would not have had appropriate notice that
their conduct was illegal. 942 F.2d at 1132 n.6. Defendants
make no argument that the provisions of the Internal
Revenue Code and regulations governing trusts are
objectively ambiguous.
The defendants next contend that the district court, in
a series of evidentiary rulings during the government’s
case, “eviscerated the government’s burden regarding
the Cheek defense.” Defendants’ Joint Br. 48. They point
out that the government was allowed to establish,
through various exhibits seized during searches of
Aegis’s office, Vallone’s home, Dunn’s office, and the
offices of certain accountants not charged in this case,
that the defendants had notice that the Aegis trust
system was not lawful and thus lacked a good faith
belief in its legality. By contrast, the defendants argue,
when they attempted to establish on cross-examination
of the government’s witnesses that there was other evi-
dence indicating that the defendants in fact harbored
a subjective belief that the Aegis system was lawful, the
court barred them from doing so. They posit that the
government in effect was allowed to present a one-
sided case as to their own subjective understanding of
the tax laws.
Our own review of the record convinces us that
although the district court prohibited certain questions
and the introduction, during the government’s case, of
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 57
08-4320, 09-1864 & 09-2174
exhibits that the defendants believed were favorable
to them, it by no means precluded the defendants
from presenting a Cheek defense. In virtually all of the
cited instances in which the defendants complain that
they were not allowed to ask particular questions of a
government witness, the court appears to have sus-
tained government objections not on the ground that
the questions were not relevant and permissible with
respect to the Cheek defense, but on the basis of some
wholly independent, and valid, ground. For example,
while cross-examining Revenue Agent Paul Ponzo as
to why, in calculating the income that a defendant had
earned but failed to report, the agent had disallowed
reliance on an asset management trust to reduce the
defendant’s income, Bartoli’s counsel sought to question
Ponzo about a particular revenue ruling (No. 75-258)
and the circumstances under which a business trust
might be lawful as opposed to a sham. R. 971, Tr. 4581-86.
But the government had called Ponzo not to offer expert
testimony as to the meaning of a particular revenue
ruling or why the Aegis trust system violated the law,
but solely to establish what income taxes three of the
defendants (Hopper, Cover, and Dowd) would have
owed had they properly reported their income. So it
was perfectly reasonable to sustain the objections
Bartoli’s attorney was attempting to pose. When com-
parable questions were posed of Agent Priess, who in
his undercover capacity helped expose the Aegis
fraud, they too were properly sustained because that
agent had been called as a fact witness rather than an
58 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
expert witness. See, e.g., R. 966 Tr. 678-88 (court pre-
cludes questions of agent about whether particular IRS
regulations exist, but permits defense to inquire whether
defendant Cover cited regulations to the agent); id. Tr. 712-
14 (sustaining objection to question about what agent
understood was meant by citation in Aegis trust package
to Internal Revenue regulation). Nothing that the court
said in sustaining these objections suggested that it
would not allow questions legitimately aimed at estab-
lishing the defendants’ subjective understanding of
the relevant tax laws at an appropriate time.
As for the court’s unwillingness to allow the defense
to introduce documents during the government’s case
which supported their Cheek defense, this is explained
by the court’s decision to confine defense exhibits to
the defense case. See, e.g., R. 947 Tr. 2106-08, 2113-17; R. 969
Tr. 3772-75; R. 935 Tr. 4086-89, 4222-29. As the de-
fendants do not contend that they were prevented from
introducing these exhibits in their own case,4 the
4
In fact, as the government suggests, the defendants had no
difficulty introducing these exhibits in their own cases. See,
e.g., R. 920 Tr. 5111-34 (A MERICAN J URISPRUDENCE and
A MERICAN L AW R EPORTS articles on business trusts, among
other authorities that Vallone purportedly relied upon); R. 953
Tr. 5237-5248 (three positive opinion letters that Vallone
relied upon); id. Tr. 5248-63 (three additional opinion letters
admitted as to Vallone’s state of mind), id. Tr. 5295; R. 921
Tr. 5300-03 (multiple versions of Aegis Directors’ Manual,
(continued...)
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 59
08-4320, 09-1864 & 09-2174
objection boils down to one of timing rather than of
exclusion. This implicates the court’s discretion over the
method and order of introducing evidence. Fed. R. Evid.
611(a); see, e.g., United States v. Smith, 26 F.3d 739, 744
(7th Cir. 1994); see generally United States v. Wilson, 985
F.2d 348, 351 (7th Cir. 1993) (district court has wide
discretion in managing cross-examination and ruling
on admissibility of evidence). The defendants have not
actually addressed the merits of the district court’s prefer-
ence for reserving defense exhibits to the defense case,
nor have they shown how they were harmed by having
to wait to bring those exhibits before the jury. See United
States v. Hall, 165 F.3d 1095, 1117 (7th Cir. 1999) (district
court did not abuse discretion in refusing admission of
defense photo during cross-examination of government
witness, when defendant could have introduced photo-
graph during his own case); United States v. Ellison,
557 F.2d 128, 135 (7th Cir. 1977) (“even if we assume
that the records would have been relevant rebuttal evi-
dence if offered during the presentation of Ellison’s
own case, we need not thereby conclude that the
district court erred in excluding the evidence at the time
4
(...continued)
which included citations to authorities that Vallone believed
supported legitimacy of Aegis trusts); R. 938 Tr. 6359-60
(Heritage promotional brochure, indicating that Heritage
was represented by “one of the finest counsels possible,” given
to Dowd by his father); id. Tr. 6369-70 (additional docu-
ments Dowd was given).
60 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
it was offered” in the government’s case); United States
v. Lambert, 580 F.2d 740, 747-48 & n.7 (5th Cir. 1978)
(“Our review of the record, which discloses proffers of
voluminous documentary evidence, leads us to the con-
clusion that the district judge properly controlled the
flow of the trial under” Rule 611 by requiring defendant
to introduce defense evidence during his own case).
Next, the defendants complain that the district court
improperly allowed the jury to construe notice to one
defendant of the illegality of the Aegis trust system as
notice to all of them. The government, as we have noted,
relied on various documents—including adverse court
rulings as to the legality of the Aegis system—that
were found in the offices either of Aegis or one of its
officers or employees (or their homes) to show that each
of the defendants was aware that the Aegis trusts were
not lawful means of tax avoidance and thus was
willfully participating in a criminal tax evasion scheme.
In a colloquy concerning the notice evidence that
occurred fairly early on in the trial, the district court
made the following remarks:
THE COURT: What is it exactly that you want to say?
MR. SCHINDLER: That this document is offered
solely for the purpose of—that the defendants were
on notice as of this date.
MR. KOMIE: Some defendants.
MR. SCHINDLER: Some defendants were on notice
as of that date.
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 61
08-4320, 09-1864 & 09-2174
MR. MECYZK: Otherwise I would object.
THE COURT: Some defendants is not the issue, be-
cause if the conspiracy is on notice, the conspiracy has
knowledge if these documents are found in the
premises of the conspiracy. It is like finding the
scales and the drug paraphernalia and the ledgers
in the place that the conspirators congregate from
time to time or place their materials. So now it goes
to notice but also goes to that this was found in
the premises. It is direct evidence in that sense.
***
MR. SALTZMAN: Judge, if I may just add one thing.
It’s my view that this is not like drug paraphernalia
found which has only one purpose. These are docu-
ments that pertain to legal opinions that can be
agreed with, disagreed with, and the fact that they’re
found there doesn’t have the same significance,
and there’s a knowledge issue.
THE COURT: It’s not conclusive of the issue, of course
not. But it’s evidence of knowledge, it is evidence
of willfulness, it is evidence of notice.
MR. SALTZMAN: Judge, with all due—in my view
it’s not evidence of knowledge when it’s a few pages
out of 1.2 million pages.
62 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
R. 949 Tr. 2806-08 (emphasis ours).5 The defendants
read the district court’s remarks regarding notice to the
conspiracy as endorsing a theory that their individual
willfulness could be inferred from evidence indicating
that the conspiracy generally, or one member of the
conspiracy, had knowledge that the Aegis trust system
was unlawful. The court’s view, they reason, improperly
relieved the government of its burden to show that each
of them, individually, knew that the Aegis trust system
was illegal and thus willfully participated in and
promoted an illegal means of tax avoidance.
5
See also R. 927 Tr. 58 (“And so you can make your argument
to the jury somehow that it doesn’t apply to you, but there is an
agreement here, the Court said there was an agreement by a
preponderance of the evidence. There is notice to one and,
therefore, other members of the conspiracy.”); R. 914 Tr. 2265-66
(“So it’s [admissible] in terms of the effect on Mr. Parker, the
notice that he had . . . at a time when the conspiracy was
in existence, which is to say notice to him is notice to the
coconspirators . . . .”); R. 955 Tr. 6-7 (“where one member of a
conspiracy knows certain things, is confronted with certain
things or matters, it means that those who have joined the
agreement have also been confronted with those things
and others”); R. 969 Tr. 3774 (in discussion of willfulness, and
whether defense exhibits should be admitted during gov-
ernment’s case to show good faith: “In terms of Count 1, any
act by any one member of the conspiracy may be enough,
along with the other elements of the offense, to make out
a prima [facie] case.”).
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 63
08-4320, 09-1864 & 09-2174
Assuming that this was the court’s theory, any error
in the court’s remarks was harmless, because the theory
was not communicated to the jury. Certainly we agree
that it would be error to instruct the jury that notice to
one conspirator that his conduct is illegal—or notice to
the conspiracy generally—is, in itself, notice to all
members of the conspiracy sufficient to overcome every-
one’s Cheek defense. See Jefferson v. United States, 340 F.2d
193, 197-98 (9th Cir. 1965) (where statute required proof
of defendant’s specific knowledge that drug was
illegally imported, it was plain error to instruct jury
that knowledge of any alleged co-conspirator was
imputed to all members of conspiracy, thus permitting
jury to impute one conspirator’s knowledge regarding
illegal importation to his co-conspirators, without proof
that other conspirators actually knew drug was im-
ported illegally); see also Cheek, 498 U.S. at 202, 111 S. Ct. at
610 (“if the Government proves actual knowledge of the
pertinent legal duty, the prosecution, without more, has
satisfied the knowledge requirement of the wilfulness
requirement”) (emphasis ours). But the jury in this case
was never so instructed, nor does the record reveal
that such a theory was otherwise communicated to the
jury at any point in the trial—either by the court or by
the government. The remarks on which the defendants
rely were voiced outside the presence of the jury, and
despite our invitation at oral argument, the defendants
were not able to cite any instance in which comparable
remarks were made in the jury’s presence. Certainly the
government invited the jury to infer, from the various
64 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
documents found in the possession of one or more of
the defendants, that each defendant had actual know-
ledge that the Aegis trust system was not legal. It
was entirely plausible for the government to urge that
inference be drawn and for the jury to draw it, for the
evidence showed that Aegis officers were actively
tracking court decisions and legal opinions as to the
validity of the Aegis trusts and had received unequivocal
notice, from multiple sources and on multiple occasions,
that the Aegis system was illegal. Evidence reflecting
that notice was found in Aegis’s offices, for example.
In Hills, we found comparable documentation dis-
covered in the defendant’s office sufficient to support
a finding of a defendant’s actual notice of the illegality
of the Aegis trust system and her criminal willfulness,
notwithstanding the absence of any direct evidence
that she had seen these documents. 618 F.3d at 638. The
plausibility of such an inference may have been all that
the district court in this case meant to convey during
the colloquy we have recounted above, as the court’s
subsequent remarks suggest. See R. 916 Tr. 2666 (“[I]f
your client [Hopper] or others say that they were not on
notice [as to the ARDC proceedings], they can certainly
make that claim.”); id. Tr. 2668 (“Whether your client
[Dunn] was put on notice as a result of these [ARDC]
proceedings is an issue for the jury to determine.”); R. 910
Tr. 6298 (“[I]f the government establishes that this . . . was
a seized document [from Aegis headquarters], it will be
up to the jury to determine which one [of the defendants]
or how many saw it. But in terms of the law itself, it is
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 65
08-4320, 09-1864 & 09-2174
at least admissible as notice to the conspirators.”). In any
case, the government never argued anything more
than this sort of inference to the jury; on the contrary, its
attorneys addressed notice, knowledge, and willfulness
on an individualized basis in their closing arguments.
See R. 923 Tr. 6808-24; R. 911 Tr. 6827-71. And cer-
tainly the court never advised the jury that it could deem
all co-conspirators to have culpable knowledge of the
illegality of the Aegis system if just one of them had
such knowledge.
Finally, the defendants object to the district court’s
decision to admit evidence from the Illinois Attorney
Registration and Disciplinary Commission proceeding
that ultimately resulted in Bartoli’s disbarment in Illi-
nois. The defendants hold up the ARDC evidence as
a “glaring” example of the court’s willingness to permit
the government to cite third-party documents as
evidence that the defendants had notice of the illegality
of the Aegis system, without proof that any defendant
saw or knew about such documents. Defendants’ Joint
Br. 53. In the defendant’s view, the admission of such
evidence contravened Cheek’s mandate that the govern-
ment prove that each defendant had actual knowledge
that his conduct was illegal.
The ARDC filed a complaint against Bartoli in 1996
based on his alleged misconduct in connection with
both Heritage and Aegis. As amended, the complaint
was based in part on trust packages that Bartoli had sold
to (and prepared for) two couples: William and Mary
66 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
DiSomma, who purchased a Heritage multi-trust system
in March 1994 for $12,000, and Max and Linda
Alumbaugh, who purchased an Aegis or Aegis-like CBO
in August 1996 for $25,000.6 The DiSommas were later
told by an independent attorney that the trust system
would not withstand scrutiny by the IRS and would
not reduce their income tax liability as Bartoli had said
it would, causing them to dissolve the trusts. Their
request for a refund of the $12,000 they had paid to Heri-
tage for the trust system was ignored. The Alumbaughs
were audited by the IRS and informed that the CBO
would not achieve the tax benefits that Bartoli had
told them it would; they then dissolved the CBO. The
ARDC’s complaint alleged, inter alia, that Bartoli had
represented clients when the representation might be
limited by his responsibility to his own interests; that
he had engaged in conduct involving dishonesty, deceit, or
misrepresentation; that he had engaged in the unautho-
6
Bartoli sold the Alumbaughs the CBO pursuant to his affilia-
tion with the Athens Company (“Athens”), an Ohio firm
that marketed CBOs in much the same manner as Aegis.
Bartoli served as the legal director for Athens. There was a
separate count in the amended complaint based on Bartoli’s
activities with Aegis generally. The ARDC’s Hearing Board
ultimately dismissed that count of the complaint as moot
based on its findings with respect to the “nearly identical
allegations of misconduct” in the count dealing with Bartoli’s
sale of the Athens trust system to the Alumbaughs. Hearing
Board’s Report & Recommendation at 58-59, available at
http://www.iardc.org.
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 67
08-4320, 09-1864 & 09-2174
rized practice of law following his transfer to inactive
status in 1995; and that he had engaged in conduct
that was prejudicial to the administration of justice. As
we have noted Bartoli, Hopper, and Vallone were
deposed in the course of the ARDC proceeding. A three-
member Hearing Board conducted an evidentiary
hearing on the complaint in July and August 1999. Bartoli
was represented by counsel during the hearing, but he
did not appear in person at the hearing. He did
participate by telephone during some portions of the
hearing. Among the witnesses whose testimony was
presented to the Hearing Board was William Marutzky,
a certified public accountant and attorney with a back-
ground in both trusts and taxation. Essentially, Marutzky
opined that the trusts purveyed by Heritage and Athens
were not effective means of income and estate tax
minimization: he concluded that the system purchased
by the DiSommas would be disregarded in an IRS
audit, and that the CBO purchased by the Alumbaughs
provided no value whatsoever to them.
On February 17, 2000, the Hearing Board filed a Report
and Recommendation proposing that Bartoli be dis-
barred. After summarizing the evidence, the Hearing
Board set forth a series of findings. The Hearing Board
found, inter alia, that Bartoli had labored under a
conflict of interest in representing both Heritage
(which was interested in selling as many trust packages
as possible, and which paid Bartoli for each trust he
prepared) and Heritage members (i.e., clients like the
DiSommas), who were relying on Bartoli’s judgment and
68 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
advice as a lawyer that a trust was appropriate for their
needs. Report & Recommendation at 54-55, available
at www.iardc.org. Bartoli labored under a similar
conflict of interest when he sold the CBO to the
Alumbaughs on behalf of Athens. Id. at 72-73. It found
further that Bartoli’s conduct was prejudicial to the
administration of justice in that he had “created a
situation where his professional judgment could have been
clouded by the business interests of others and his own
interests.” Id. at 56, 69-70. It also found that Bartoli
had misrepresented the benefits of the trust system to
the DiSommas and the benefits of the CBO to the
Alumbaughs. Id. at 61-69, 74, 78.
On December 27, 2001, a Review Board rejected Bartoli’s
challenge to the Hearing Board’s Report and Recom-
mendation and affirmed the Hearing Board’s findings
and sustained the recommendation that Bartoli be dis-
barred. The Illinois Supreme Court ordered Bartoli dis-
barred on May 24, 2002.
Mary Robinson, who was the Administrator of the
ARDC throughout the time period during which the
proceeding against Bartoli was pending and who partici-
pated in the evidentiary hearing before the Hearing
Board, testified as a witness for the government in this
case. Robinson identified a variety of documents con-
nected with the ARDC proceeding which the court admit-
ted into evidence over the defendants’ objections, in-
cluding the ARDC’s complaint against Bartoli, the
Hearing Board’s Report and Recommendation, and the
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 69
08-4320, 09-1864 & 09-2174
Review Board’s own Report and Recommendation. She
also read various excerpts from these documents, including
portions of the Review Board’s summary of Marutzky’s
testimony.7 These included Marutzky’s testimony (as
summarized by the Hearing Board) that (a) the trust
documents that Bartoli provided to clients would not
reduce significantly the clients’ income tax liability as
had been promised to them; (b) the tax laws would not
permit the client to assign his future income to a trust;
(c) nor would they permit the client to deduct the
expenses incurred for his own housing and to educate
his children; and (d) in an audit, the IRS would disregard
the sort of trusts that Bartoli was providing to clients
pursuant to the Tax Court’s decision in Muhich, which
involved a trust system that had been created by
Bartoli and Heritage. The Hearing Board had relied
on Marutzky’s testimony in concluding that the
trusts that Bartoli had sold to the DiSommas and the
Alumbaughs were ineffective as a means of sub-
stantially reducing their income tax liability, and that
Bartoli, in creating the trusts and promoting them to
his clients, had engaged in conduct involving dis-
honesty, deceit, and misrepresentation that was
prejudicial to the administration of justice. Robinson
also read excerpts from other testimony and evidence
7
In the briefing, the defendants state that Robinson read from
Marutzky’s testimony, but what she actually read were
excerpts from the Hearing Board’s description of Marutzky’s
testimony.
70 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
presented during the ARDC proceeding, but it is the
excerpts from the Hearing Board’s summary of Marutzky’s
testimony to which the defendants have given par-
ticular emphasis.
The district court admitted the ARDC documents,
and permitted Robinson to read excerpts from them
during her testimony, for the purpose of showing that
the ARDC proceeding against Bartoli placed him and
other defendants on notice that the Aegis trust system
was not a legitimate means of tax avoidance; and
we conclude that the district court did not abuse its
discretion in so ruling. The ARDC proceeding was
relevant because it represented a direct challenge to the
legitimacy of the Aegis CBO and its predecessor, the
Heritage trust. See supra at 66 n.6. The Hearing Board’s
reasoning in finding Bartoli guilty of misconduct,
including the aspects of Marutzky’s testimony that it
relied upon, was particularly probative in that it
illustrated the ways in which the CBO system as
promoted by Bartoli was irreconcilable with basic trust
and tax principles. Bartoli himself was the respondent
in the ARDC proceeding, was given notice of the pro-
ceeding and its outcome, and was represented by
counsel throughout the proceeding. It is an entirely
plausible and permissible inference that he was aware of
the proceeding and what occurred in that proceeding
despite the fact that he did not appear in person
before the Hearing Board. Indeed, although Bartoli had
assumed inactive status with the Illinois bar by the time
the ARDC filed the complaint in 1996, Bartoli had an
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 71
08-4320, 09-1864 & 09-2174
incentive to both monitor the proceeding and to deny
the ARDC’s allegations, as the complaint called into
question the legitimacy of the trust system promoted by
Aegis, with which Bartoli remained involved long after
the ARDC filed its complaint in 1996. See supra at 66 n.6.
His co-defendants had similar reasons to be interested
in the outcome of the proceeding, and there were
multiple indicia that they were, in fact, aware of and
following the proceeding. Hopper and Vallone, as we
have noted, were both deposed in the course of the pro-
ceeding, and Robinson recalled that she also took a state-
ment from Dunn. Bartoli, Vallone, Hopper, and Dunn
were also plaintiffs in the May 1997 suit filed against
the ARDC, Robinson, and others alleging that the ARDC
was violating Bartoli’s First Amendment and due
process rights and was conspiring to deprive all four
plaintiffs of their Fourteenth Amendment liberty
interest in their business reputation. To say the least, that
suit displays an interest in the outcome of the ARDC
proceeding. Moreover, a copy of Marutzky’s testimony
was found in the Aegis office along with Hopper’s
critique of the testimony. Several volumes of additional
ARDC documents were also found in Aegis’s office.
Similar documents were found in Dunn’s office as well.
The district court advised the jury that the ARDC
evidence was admitted solely for notice purposes, R. 916
Tr. 2673, and the jury was obviously free to give the
evidence what weight it deemed appropriate as to the
state of mind of each defendant. Indeed, the court
noted that the defendants were free to question Robinson
72 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
in an effort to show that they were not necessarily
aware of the ARDC proceeding, and they exercised that
prerogative: Bartoli’s counsel established on cross-exami-
nation of Robinson that he was not present before
the Hearing Board, R. 916 Tr. 2727; and Dunn’s counsel
established that only Bartoli, as the sole named re-
spondent, would have been given formal notice of what
occurred during the ARDC proceeding, R. 916, Tr. 2757,
2764, 2769-70. In our view, however, given the
multiple indicia that Bartoli, Vallone, Hopper, and
Dunn were following the proceeding, this was highly
probative evidence that these four defendants, if not all
six, had reason to know as a result of the ARDC’s
actions that the Aegis trust system was illegitimate.
C. Count One
Count One of the superseding indictment charged
that the defendants violated 18 U.S.C. § 371 by con-
spiring to
(a) defraud the United States by impeding, impairing,
obstructing and defeating the lawful government
functions of the IRS of the Department of the Treasury,
an agency of the United States, in the ascertainment,
computation, assessment, and collection of revenues,
namely income taxes; and (b) commit offenses
against the United States, namely: to willfully aid
and assist in, and procure, counsel, and advise the
preparation and presentation, to the IRS, of returns
and claims on behalf of others which were fraudulent
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 73
08-4320, 09-1864 & 09-2174
and false as to various matters, in violation of Title 26,
United States Code, Section 7206(2).
R. 103 ¶ 2. The defendants moved to dismiss this count
as duplicitous, reasoning that it alleged two distinct
conspiracies and therefore two different crimes; but
the district court denied the motion. The defendants
contend that this was error, renewing their contention
that Count One on its faces alleges two different crimes.
We review the district court’s ruling on this point de
novo. E.g., United States v. Pansier, 576 F.3d 726, 734 (7th
Cir. 2009).
We agree with the district court that Count One is
not duplicitous. A duplicitous charge is not one
that simply alleges a single offense committed by
multiple means, e.g., United States v. Cephus, 684 F.3d
703, 706 (7th Cir. 2012); United States v. Davis, 471 F.3d
783, 790 (7th Cir. 2006), but rather one that joins two or
more distinct crimes in a single count, e.g., United States
v. Starks, 472 F.3d 466, 470-71 (7th Cir. 2006); see also
Worthington v. United States, 64 F.2d 936, 938-39 (7th Cir.
1933). Count One does not allege two different crimes.
Instead, it alleges a conspiracy with two goals—(1) to
defraud the United States by impeding the IRS’s efforts
to collect income taxes, and (2) to commit tax offenses,
namely the preparation of fraudulent tax returns. Such
a charge is permissible. As the Supreme Court explained
in Braverman v. United States, 317 U.S. 49, 54, 63 S. Ct. 99,
102 (1942), “A conspiracy is not the commission of the
crime which it contemplates, and neither violates nor
74 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
‘arises under’ the statute whose violation is its object. . . .
The single agreement is the prohibited conspiracy, and
however diverse its objects it violates but a single stat-
ute.” Following that reasoning, this court concluded in
United Sates v. Hughes, 310 F.3d 557, 560-61 (7th Cir.
2002), that a charge alleging a conspiracy with two illicit
objectives was not duplicitous. See also United States v.
Bradfield, 376 F. App’x 620, 623-24 (7th Cir. 2010) (non-
precedential decision) (same).
We see no reason to depart from our holding in
Hughes here. As the defendants point out, both objects of
the conspiracy charged in Hughes fell under the offense
prong of section 371 (i.e., conspiring to commit an
offense against the United States), whereas in this case
the charged conspiracy implicates both prongs of the
statute (i.e., conspiring to defraud the United States as
well as to commit an offense against it). But that distinc-
tion does not address Braverman’s essential point that
it is the illicit agreement that constitutes the crime of
conspiracy rather than the substantive crime or crimes
contemplated by that agreement. We acknowledge that
there is some division of authority on this point, as sum-
marized by the Third Circuit’s decision in United States
v. Rigas, 605 F.3d 194, 210-12 (3d Cir. 2010) (en banc).
However, we believe the better reasoned view is the
one adopted by the Rigas majority, which viewed a
charge akin to the one in this case as setting forth one
conspiracy with multiple goals rather than two distinct
crimes. Id. (Rigas addressed the issue in the context of a
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 75
08-4320, 09-1864 & 09-2174
double jeopardy claim rather than one of duplicity, but
that distinction is immaterial in terms of whether the
charge alleges one or two crimes.) The Rigas majority
opinion is consistent with our own reasoning in Hughes.
Finally, the principal vice of duplicity, as we noted
in Hughes, is that it presents the possibility that jury
members, although agreeing that there was a con-
spiracy, might not be unanimous as to what the object of
the conspiracy was. 310 F.3d at 561; see also Cephus, 684
F.3d at 706; Starks, 472 F.3d at 471. But the district
court instructed the jury in this case that it must unani-
mously agree on at least one of the alleged objectives of
the conspiracy. R. 925 at 7375. That takes care of the jury
unanimity concern, as Hughes and Starks acknowledge.
Hughes, 310 F.3d at 561; Starks, 472 F.3d at 471. There
are other concerns potentially implicated by duplicity,
including notice to the defendants. Cephus, 684 F.3d at
706. But no such concerns are raised here.
D. Jury Instructions
The defendants object to certain jury instructions given
at the request of the government and to the court’s
refusal to give certain instructions that the defendants
themselves proposed. They also argue more generally
that the instructions as given favored the government,
unduly prejudiced the defense, and exemplify the
court’s purported bias against the defendants, which we
take up in the next section of this opinion. To the extent a
76 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
particular jury instruction presents a legal question—for
example, whether it accurately states the law—our review
is de novo. E.g., United States v. Tanner, 628 F.3d 890, 904
(7th Cir. 2010) (citing United States v. DiSantis, 565 F.3d
354, 359 (7th Cir. 2009)), cert. denied, 132 S. Ct. 204 (2011).
Beyond that, we review the district court’s decision
whether or not to give a particular instruction for abuse
of discretion. Id. (citing United States v. Wilson, 134 F.3d
855, 868 (7th Cir. 1998)). We will reverse a conviction
only if the instructions, as a whole, so misled the jury
on the relevant principles as to have prejudiced the de-
fendant. E.g., United States v. Quintero, 618 F.3d 746, 753
(7th Cir. 2010). For the reasons set forth below, we con-
clude that the jury instructions as a whole accurately
summarized the law and did not interfere with the defen-
dants’ ability to pursue their Cheek defense, and that
the district court did not abuse its discretion either
in giving a challenged instruction proposed by the gov-
ernment or in refusing an instruction proposed by
the defense.
1. Instruction 27A: Income Assigned to Sham Trusts
Instruction 27A gave the jury an overview of how
income is assigned for tax purposes as between legal
entities such as trusts and corporations and the
individuals behind these entities and, in particular, the
circumstances under which a trust will be disregarded
for federal tax purposes. Among other points, the instruc-
tion advised the jury that:
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 77
08-4320, 09-1864 & 09-2174
• “[t]ax consequences flow from the substance
rather than the form of a transaction, and control
over property, rather than documentary title,
marks the real owner for federal tax purposes”;
• income is typically attributed to the person who
exercises dominion and control over that income
and its sources;
• ordinarily, the Tax Code will tax a legal entity like
a trust separately from its owner; but
• when a trust lacks economic substance or functions
as the alter ego of the individual taxpayer for
the purpose of evading his tax liability, federal
tax law will assign the tax burden to the
individual rather than the trust.
R. 925 Tr. 7379-80.
The defendants argue that this instruction was both
unnecessary, in that the court had barred the defense
from arguing that the Aegis trust system was legal, and
prejudicial, in that (as the defendants read the instruc-
tion) it effectively precluded them from showing that
they had a good faith belief in the legality of the Aegis
trust system. “Having prevented the Defendants from
presenting their belief in the legality of the system, the
court’s instruction now invited the jury to convict if it
found [the system] unlawful.” Defendants’ Joint Br. 62. Cf.
United States v. McKnight, 671 F.3d 664, 665 (7th Cir.)
(Posner, J., dissenting from denial of rehearing en banc)
(“[Gratuitous] instructions are apt to confuse jurors, and
78 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
when as in this case they are proposed by a party rather
than given on the initiative of the trial judge, they
may be intended to confuse, and in the present case to
undermine the efficacy of an instruction desired by the
opposing party and given by the judge.”), cert. denied,
132 S. Ct. 2756 (2012); United States v. Hill, 252
F.3d 919, 923 (7th Cir. 2001) (“Unless it is necessary to
give an instruction, it is necessary not to give it,
so that the important instructions stand out and are re-
membered.”).
We find no abuse of discretion in the district court’s
decision to give this instruction. The defendants
implicitly concede that it was an accurate statement of
the law. In order to assess the validity of the defendants’
Cheek defense, and to determine whether the de-
fendants had indeed willfully engaged in a scheme to
defraud the government of its tax revenues, the jury had
to understand the basic legal principles that the IRS
had relied on in deeming the Aegis trusts a sham. Only
then could the jury evaluate the plausibility of the de-
fendants’ contention that they had a good faith belief
in the legitimacy of the trusts notwithstanding these
principles, as well as the plausibility of the govern-
ment’s contrary contention that the defendants must,
in fact, have realized that the Aegis system was illegiti-
mate. The principles of tax and trust law are unfamiliar
to most jurors; and the district court could reasonably
have concluded that it was both reasonable and
necessary to apprise the jury of the basic principles in-
cluded in instruction 27A.
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 79
08-4320, 09-1864 & 09-2174
We reject the notion that this instruction somehow
impeded, let alone precluded, a Cheek defense. The in-
struction said nothing which would prevent the
defendants from claiming that they did not realize
the Aegis trusts were an illegal means of tax avoidance;
in fact, the instruction said nothing at all about the
legality of the Aegis trust system. The defendants were
free to, and did, argue that the Aegis trusts were
structured so as to comply with the law and to make
it plausible for them to believe in good faith that the
trusts were a legitimate means of tax avoidance. There
was, at the same time, a wealth of evidence supporting
the jury’s conclusion that the defendants were, in fact,
aware that the Aegis trust system was illegitimate. It
was that evidence that doomed the defendants’ Cheek
defense, not this instruction.
2. Rejected Defense Instruction Regarding IRS
Notice 97-24.
Although it did not cite the Aegis trust by name, IRS
Notice 97-24, issued in April 1997, expressed the opinion
of the IRS that trusts akin to the Aegis trusts were an
unlawful means of tax avoidance. As we noted in our
summary of the facts, there was evidence that the defen-
dants were very much aware of this IRS notice, and the
government, of course, cited the notice as one piece
of evidence that the defendants knew the Aegis system
was illegal. The defendants proposed an instruction
that would have advised the jury on the relative legal
80 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
weight of IRS regulations, revenue rulings, letter rulings,
and public notices, the last of which “have no force of
law.” R. 528 at 2; R. 940 Tr. 6770-72. The district
court declined to give the instruction. Without such an in-
struction, the defendants argue, the jury was left with
the impression that IRS Notice 97-24 was an authorita-
tive statement of the law, and that mistaken impression
undermined the defendants’ contention that they genu-
inely believed that the Aegis trusts were a permissible
means of tax avoidance.
Because reasonable minds might differ as to the propri-
ety of this instruction, we find no abuse of discretion in
the district court’s refusal to give it. The government
does not quarrel with the legal accuracy of the pro-
posed instruction, and one might argue that given the
government’s reliance on Notice 97-24 as proof that the
defendants knew that the Aegis system was unlawful,
it would be appropriate to inform the jury that the
Notice was not an authoritative statement of the law.
On the other hand, we are pointed to no evidence that
the government ever suggested that it was authoritative;
and an IRS agent accurately testified before the jury
that the Notice “expresses the IRS’s opinion of the law.”
R. 971 Tr. 4580-81. Even if we were persuaded that it
was an abuse of discretion for the court not to
give this instruction, any error in refusing to give it was
harmless, given the overwhelming evidence showing
that the defendants appreciated the illegality of their
conduct.
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 81
08-4320, 09-1864 & 09-2174
3. Pinkerton Instruction
The district court properly instructed the jury,
consistent with Seventh Circuit Pattern Criminal Jury
Instruction 5.09, that if it found a defendant guilty of the
conspiracy charged in Count One of the indictment, it
could hold that defendant accountable for any criminal
act foreseeably committed by a co-conspirator in fur-
therance of the conspiracy, including in particular the
substantive criminal acts alleged in Counts 2 through 34
of the superseding indictment. R. 925 Tr. 7381; see
generally Pinkerton v. United States, 328 U.S. 640, 647-48, 66
S. Ct. 1180, 1184 (1946). The defendants suggest that this
instruction “removed the intent to defraud and Cheek
issues from the jury’s consideration once it determined
that the Count [One] conspiracy had been proven and that
each defendant had been a member of the conspiracy,”
and “effectively eviscerated the government’s burden
of proving that defendants lacked a good faith belief
that the Aegis system was lawful and that they had the
intent to defraud . . . .” Defendants’ Joint Br. 65. This
particular contention was not made below, see R. 936
Tr. 6008-09, so our review is solely for plain error, Fed.
R. Crim. P. 30(d), 52(b); e.g., United States v. Johnson,
655 F.3d 594, 605 (7th Cir. 2011), and we find no such
error in the giving of this instruction.
The instruction was an accurate statement of the law,
and by no means did it “eviscerate” the government’s
burden with respect to the Cheek defense. As the gov-
ernment points out, the instructions with respect to
82 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
Count One required a finding of intent to defraud as to
the first prong of section 371 and willfulness as to the
second prong. R. 925 at 7375-77. Thus, neither the intent
to defraud nor the Cheek defense was removed from
the jury’s consideration: before convicting a defendant
on the conspiracy count, the jury would necessarily have
to find that a defendant harbored an intent to defraud
and/or lacked a good faith belief in the Aegis trust
system’s legality, and either finding is irreconcilable
with the defendants’ contention that they understood
the Aegis system of trusts to be a legitimate means of
tax minimization.
4. Conscious Avoidance Instruction
At the government’s request, and over the strong objec-
tions of the defendants, the court gave the jury an instruc-
tion on the conscious avoidance of knowledge (also
referred to colloquially as the “ostrich” instruction),
which advised the jury that it could infer a defendant’s
culpable knowledge from a combination of suspicion
and indifference to the truth. See Seventh Circuit
Pattern Criminal Jury Instruction No. 4.06 ¶ 2. The con-
scious avoidance instruction serves to alert the jury that
“a person may not escape criminal liability by pleading
ignorance if he knows or strongly suspects that he is
involved in criminal dealings but deliberately avoids
learning more exact information about the nature or
extent of those dealings.” United States v. Green, 648 F.3d
569, 582 (7th Cir. 2011). However, because this instruc-
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 83
08-4320, 09-1864 & 09-2174
tion poses a risk that a jury might improperly convict a
defendant on the basis that he should have known that
he was participating in wrongdoing, rather than on the
basis of his actual knowledge, United States v. Tanner,
supra, 628 F.3d at 904-05, the instruction “is to be
given ‘cautiously’ and only for ‘narrow’ uses,” United States
v. Malewicka, 664 F.3d 1099, 1108 (7th Cir. 2011) (quoting
United States v. Ciesiolka, 614 F.3d 347, 352-53 (7th Cir.
2010)). Specifically, the instruction should only be given
in cases “where (1) a defendant claims to lack guilty
knowledge, i.e., knowledge of her conduct’s illegality,
and (2) the government presents evidence from which
a jury could conclude that the defendant deliberately
avoided the truth.” Green, 648 F.3d at 582 (quoting United
States v. Garcia, 580 F.3d 528, 537 (7th Cir. 2009)).
As an example of the willful blindness that it believed
warranted the instruction in this case, the government
cited to the district court attorney Parker’s testimony as
to why he had remained involved with Aegis despite
his own doubts about the Aegis system. R. 1020 Tr. 5966-
67. Parker had acknowledged on redirect examination
by the government that during the period of his involve-
ment with Aegis from 1997 through 2000, he had harbored
suspicions that the Aegis system was not legitimate and
yet had pushed his doubts aside for fear of what he
might learn if he looked more closely at the state of the
law. R. 914 at 2272. He reiterated this point on re-cross
examination by the defense. When asked whether the
promotional materials distributed at Aegis seminars
84 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
(at which Parker had spoken for two years) did not
contain a wealth of citations to legal authorities
indicating that the trusts were, in fact, legal, Parker an-
swered, “I put my head in the sand. I put my fingers in
my ears.” Id. at 2282. The government said that Parker’s
testimony was just as true of the defendants who were
on trial. R. 1020 at 5967. For its part, the district court,
in agreeing to give the instruction, cited Vallone’s testi-
mony regarding what he did and did not do in ascer-
taining the legality of the Aegis system as suggestive
of deliberate indifference. R. 1020 Tr. 5968.
The defendants contend that the evidence did not
warrant such an instruction, because (a) however
willfully blind Parker may have been to the legal flaws
in the Aegis system, he was not on trial and it was thus
improper to attribute his own conscious avoidance to
the six defendants who were on trial; and (b) Vallone’s
testimony, rather than supporting an inference of de-
liberate indifference, actually reveals the “zealous care”
that he took to keep himself apprised of the state of the
law and to confirm that the Aegis trust system
complied with the law. Defendants’ Joint Br. 67-68.
The district court did not err in giving this instruction.
As we have noted, a conscious avoidance instruction
is appropriate when the defendant claims not to have
known that what he was doing was illegal and there is,
at the same time, evidence supporting an inference that
the defendant closed his eyes to the illegality of his con-
duct. Green, supra, 648 F.3d at 582. It was a fair infer-
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 85
08-4320, 09-1864 & 09-2174
ence, to say the least, that the defendants in this case
had deliberately blinded themselves to the variety of
warnings they had received as to the illegality of the
Aegis system. Parker’s testimony was relevant on this
point, despite his status as a witness for the govern-
ment, in that he was intimately involved in the promo-
tion of the Aegis system and yet conceded, in retrospect,
that he had essentially turned his head away from
the multiple clues (and his own suspicion) that the
system was illegal. And notwithstanding Vallone’s self-
serving testimony that he was diligent in following
and responding to the legal developments relevant to
the Aegis trusts, the jury nonetheless could infer that
he, like Parker, had really been burying his head in
the sand.
Take the following incident described by Parker.
Parker testified that in the summer of 1999, following the
Tax Court’s decision in Muhich, there was a meeting at
Aegis headquarters, in Vallone’s office. In addition to
Vallone and Parker, Dunn and Hopper were present, and
Bartoli participated by telephone. In the course of that
meeting, Bartoli reported that he was attempting to get
an opinion from an Atlanta law firm as to the legality of
the Aegis system. According to Parker, Vallone was
critical of that idea, both because it was likely to be
costly and because “there’s no guarantee as to what the
result of that opinion would be, whether it would be a
favorable opinion or a nonfavorable opinion or a neutral
opinion.” R. 913 Tr. 1954. Parker chimed in that the IRS
had a more economical process through which one
86 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
could seek an opinion ruling. Id. Vallone, according to
Parker, rejected that idea as “ridiculous” id., “because
we know what the answer will be and, therefore, why
bother?” id. Thereafter, Parker was asked to leave the
room. Dunn later told him that the group had discussed
the Audit Arsenal as a means to fend off looming
IRS audits of Aegis clients. Id. Tr. 1955-56.
One can readily infer from Parker’s description of
this meeting that the Aegis principals were deliberately
avoiding any independent advice as to the legality of
the Aegis trusts, realizing that the advice was likely to
be that the trusts were an ineffective means of tax avoid-
ance. The defendants were given many warning signs
to that effect over the life of the charged conspiracy,
from the ARDC complaint against Bartoli to the Tax
Court’s decision in Muhich to Judge Plunkett’s sanctions
decision, and yet they continued promoting the Aegis
system, opting to pursue obstructive tactics like the
Audit Arsenal rather than seeking out an independent
legal opinion as to the validity of that system.
We note that the Third Circuit’s decision in United
States v. Stadtmauer, 620 F.3d 238 (3d Cir. 2010), sustained
the giving of a conscious avoidance instruction based
on the defendant’s willful blindness to the legality of
various deductions fraudulently claimed on the tax
returns that had been filed on behalf of the limited part-
nerships that the defendant helped manage. (The defen-
dant was charged, inter alia, with aiding and abetting
these false or fraudulent tax returns, in violation of
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 87
08-4320, 09-1864 & 09-2174
26 U.S.C. § 7206(2).) The court rejected the argument that
such an instruction, to the extent it applies to the defen-
dant’s knowledge of the law, is irreconcilable with the
good-faith defense endorsed by Cheek. The justification
for the Cheek defense, the court explained, is that given
the complexity of the tax system, one may in good faith
err despite genuine efforts to ascertain and comply with
the law. However, “[b]y definition, one who inten-
tionally avoids learning of his tax obligations is not a
taxpayer who ‘earnestly wish[es] to follow the law,’ or
fails to do so as a result of an ‘innocent error[ ] made
despite the exercise of reasonable care.’ ” 620 F.3d at 256
(quoting Cheek, 498 U.S. at 205, 111 S. Ct. at 612) (emphasis
in Stadtmauer). “Rather, a person who deliberately
evades learning his legal duties has a subjectively culpable
state of mind that goes beyond mere negligence, a good
faith misunderstanding, or even recklessness.” Id. As
support for giving a willful blindness instruction, the
court cited, among other authorities, our own decision in
United States v. Hauert, 40 F.3d 197, 203 & n.7 (7th Cir.
1994), which affirmed the propriety of such an instruc-
tion in a tax-protester case. 620 F.3d at 256 n.21. The
circumstances supporting the instruction here were at
least as compelling, if not more so, than in those cases.
5. Caution and Great Care Instruction
The defendants object to a standard instruction admon-
ishing the jury to consider the testimony of David Jenkins,
a witness who was granted immunity from prosecution
88 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
by the government, “with caution and great care.” R. 925
Tr. 7369; Seventh Cir. Pattern Criminal Jury Instruction
No. 3.13. Jenkins, of course, testified on behalf of the gov-
ernment. But because the defendants found certain
aspects of Jenkins’ testimony to be helpful to their cause,
and because the district judge himself voiced skepticism
as to certain aspects of Jenkins’ testimony (more on
this below), the defendants believe that this instruction
all but invited the jury to discredit Jenkins’ testimony,
including the portions that were favorable to the de-
fense. We see no error in giving the instruction, how-
ever. Jenkins was the government’s witness, and as
such the admonishment to consider his testimony with
caution and great care applied to those portions of his
testimony that helped the government as well as those
that were helpful to the defense. Nothing in the instruc-
tion suggested to the jury that it should weigh his testi-
mony in any particular way, but rather that it evaluate
his testimony carefully. The instruction was unexcep-
tional and could not have unduly prejudiced the defense.
6. The Cheek Instruction and the Conspiracy Instruc-
tions
The defendants make a wholly undeveloped, two-
sentence argument which appears to suggest that the
district court’s instructions as to the conspiracy charge
undercut the pattern instruction on their Cheek defense.
The argument is so cursorily made as to be waived.
E.g., United States v. Thornton, 642 F.3d 599, 606 (7th Cir.
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 89
08-4320, 09-1864 & 09-2174
2011). We do take the opportunity to reiterate that the
conspiracy instructions did require the jury to find that
the defendants harbored an intent to defraud and/or
willfulness, and so in no way precluded or undercut the
defense contention under Cheek that they genuinely, if
mistakenly, believed that the Aegis trust system was
lawful.
E. Judicial Bias
A defendant has a fundamental right to a fair trial in
a fair tribunal, Bracy v. Gramley, 520 U.S. 899, 904-05, 117
S. Ct. 1793, 1797 (1997) (quoting Withrow v. Larkin, 421
U.S. 35, 46, 95 S. Ct. 1456, 1464 (1975)), and that fair-
ness requires absence of actual bias or prejudice on the
part of the judge, In re Murchison, 349 U.S. 133, 136, 75 S. Ct.
623, 625 (1955). However, impartiality does not imply
passivity: “[j]udges . . . are not wallflowers or potted
plants.” Tagatz v. Marquette Univ., 861 F.2d 1040, 1045 (7th
Cir. 1988). A judge may question and even challenge an
attorney, witness, or evidence without being said to have
abandoned his constitutionally mandated impartiality. See,
e.g., United States v. McCray, 437 F.3d 639, 643 (7th Cir.
2006) (“A district judge is free to interject during direct
or cross-examination to clarify an issue, to require an
attorney to lay a foundation, or to encourage an exam-
ining attorney to get to the point.”) (quoting United
States v. Washington, 417 F.3d 780, 784 (7th Cir. 2005));
Dugan v. R.J. Corman R.R. Co., 344 F.3d 662, 669-70 (7th Cir.
2003) (exclusion of evidence that was not objected to but
90 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
which judge found unreliable); United States v. Mohammad,
53 F.3d 1426, 1434 (7th Cir. 1995) (criticizing trial coun-
sel), overruled on other grounds by United States v. Sawyer, 521
F.3d 792 (7th Cir. 2008); United States v. Jackson, 983 F.2d
757, 762 (7th Cir. 1993) (same). But, a “judge who is so
hostile to a lawyer as to doom the client to defeat
deprives the client of the right to an impartial tribunal.”
Walberg v. Israel, 766 F.2d 1071, 1077 (7th Cir. 1985). “Even
when the biased judge neither is the trier of fact nor is
shown to have conveyed his bias to the jury that is the
trier of fact, there can be a violation of due process
which requires a reversal of the conviction.” Id. at 1076.
The defendants suggest that the trial judge, in a
variety of situations and in a variety of ways, exhibited
a bias against the defense that deprived them of a fair
trial. For the most part, their claim is not that the
court by its conduct communicated a disbelief of or
skepticism toward the defense to the jury, e.g., United
States v. Barnhart, 599 F.3d 737, 742 (7th Cir. 2010), but
rather that the judge was actually biased against the
defense, see 28 U.S.C. § 455(b)(1). Actual bias requires
evidence that the judge was burdened by a conflict of
interest or had some personal stake in the proceeding
sufficient to cause a reasonable person to believe that
the judge was incapable of ruling fairly, and thus to
demand that we set aside the usual presumption that the
judge has properly discharged his duties. See Liteky v.
United States, 510 U.S. 540, 555, 114 S. Ct. 1147, 1157 (1994);
United States v. Diekemper, 604 F.3d 345, 352 (7th Cir. 2010);
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 91
08-4320, 09-1864 & 09-2174
Collins v. Illinois, 554 F.3d 693, 697 (7th Cir. 2009); Harrison
v. McBride, 428 F.3d 652, 668 (7th Cir. 2005). Actual bias,
when shown, is the sort of structural defect that defies
harmless-error inquiry and compels reversal regardless
of how strong the government’s case against the de-
fendant was or whether the defendant is able to demon-
strate that the bias manifested itself in rulings that
actually prejudiced him. Arizona v. Fulminante, 499 U.S.
279, 309, 111 S. Ct. 1246, 1265 (1991); Bracy v. Schomig, 286
F.3d 406, 414 (7th Cir. 2002) (en banc); Cartalino v. Wash-
ington, 122 F.3d 8, 9-10 (7th Cir. 1997). However, mere
“expressions of impatience, dissatisfaction, annoyance,
and even anger that are within the bounds of what imper-
fect men and women, even after having been confirmed
as federal judges, sometimes display,” do not by them-
selves suffice to show actual bias. Liteky, 510 U.S. at 555-
56, 114 S. Ct. at 1157; see also United States v. Twomey, 806
F.2d 1136, 1140 (1st Cir. 1986) (citing Offutt v. United
States, 348 U.S. 11, 12, 75 S. Ct. 11, 12 (1954)).
We proceed to consider each of the actions that the
defendants cite as illustrative of the district judge’s bias
against them. For the reasons we articulate below, we
discern no proof of actual bias on the part of the judge.
Furthermore, the defendants have not shown that
anything the court did in the course of the trial conveyed
any prejudice against the defense to the jury or other-
wise deprived the defendants of a fair trial.
Appointment of substitute counsel when Vallone’s counsel
fell ill. On a morning relatively early in the trial, Vallone’s
92 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
counsel, Richard McLeese, informed the court by tele-
phone that he was ill with flu-like symptoms and could
not participate in the trial that day. Vallone informed
the court that Parker, the witness testifying on behalf of
the government at that time, was an important witness
and that he wanted his attorney present for his testi-
mony rather than relying on another defendant’s coun-
sel or a temporary replacement from the federal defender
program, two possibilities that the court had sug-
gested. The court recessed the trial for a day, but when
court reconvened the next day, McLeese, who was
still under the weather, was again absent. The court
reported that he had left the “lamest message one can
imagine receiving in terms of illness.” R. 1014 Tr. 1865.
Vallone again indicated to the court that he did not
wish to proceed in the absence of his attorney. Unwilling
to delay the trial any longer, the court, over the vigorous
objections of all parties, appointed an attorney from
the federal defender’s office—who himself objected,
noting that he had no familiarity with the case—to stand
in for McLeese as Vallone’s counsel. The court indicated
that it would reserve Vallone’s cross-examination of
Parker until McLeese returned. The jury was then sum-
moned into the courtroom, and the trial resumed with
the continuation of the government’s direct examination
of Parker. After Parker had given testimony spanning
approximately forty pages of the trial transcript, the
jury was excused when two senior members of the U.S.
Attorney’s office appeared in the courtroom. The deputy
chief of the criminal division expressed the govern-
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 93
08-4320, 09-1864 & 09-2174
ment’s “serious concern” about the court’s decision to
proceed in the absence of competent, prepared counsel
or a clear waiver from Vallone. Id. Tr. 1908. The court,
although still concerned with the pace and length of the
trial and the uncertainty as to when McLeese would be
well enough to resume work, nonetheless agreed to recess
the trial. When the trial resumed the following week
with all counsel present, the court offered to have the
government re-question Parker on the matters to which
he had testified in McLeese’s absence. But McLeese
declined the offer. “I have reviewed the transcript of
the proceedings that I missed, and I don’t see any need
to repeat that testimony.” R. 913 Tr. 1921. The court
then specifically inquired and confirmed that both
Vallone and his attorney wished to waive the option
of striking and re-presenting the testimony that Parker
had given in McLeese’s absence. Id. Tr. 1921-24.
We discern no evidence of bias in the course of action
that the court pursued and no prejudice to the defense. The
court was understandably and legitimately concerned
about the prospect of an open-ended delay in a lengthy
trial with a jury already empaneled. Nonetheless, Parker
was a key government witness whose testimony sub-
stantially incriminated Vallone. Vallone was entitled to
representation by an attorney who was knowledgeable
about the case and prepared to observe and respond
appropriately to Parker’s testimony. All parties agree, as
they did below, that the court erred in deciding to
proceed in the absence of appropriate representation
for Vallone. For present purposes, we may take it as a
94 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
given that the court’s decision to go forward was mis-
taken. Still, we see no way in which the decision reflected
a bias against Vallone in particular or the defendants
generally as opposed to a legitimate concern
about delaying the trial and inconveniencing the jury.
Moreover, the extent of the testimony that Parker gave
in McLeese’s absence was relatively minimal. McLeese
had the opportunity to review the transcript of Parker’s
testimony before the trial resumed, and both he and
Vallone waived the opportunity to have Parker repeat
that portion of his testimony. Vallone makes no argu-
ment that he was, in the end, concretely prejudiced by
what occurred in his counsel’s absence; and, indeed, other
than as an example of the court’s purported bias, Vallone
has not raised this as a stand-alone error that demands
a new trial. Within the overall context of a lengthy trial,
this was a discrete and ultimately harmless error.
Harsh interrogation when Vallone moved to dismiss indict-
ment on speedy trial grounds. The defendants next cite as
evidence of the district court’s bias its reaction to the
motion to dismiss the indictment that Vallone filed
shortly before the trial, invoking the Speedy Trial Act.
They contend that it is evident from the transcript of the
hearing on that motion that the court felt it had been
“sandbagged” by Vallone’s counsel and took personal
offense at the suggestion that it had deprived Vallone
(or any other defendant) of the right to a speedy trial
by granting the defendants’ own requests for continu-
ances. Defendants’ Joint Br. 72. The defendants contend
that the court castigated McLeese, questioned whether
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 95
08-4320, 09-1864 & 09-2174
the motion had been filed in good faith, and interrupted
McLeese repeatedly, evincing an animosity to the defense
that went well beyond the impatience that one might
otherwise expect in reaction to an eleventh-hour motion
of this sort.
Having reviewed the transcript of the hearing, we
disagree with the contention that the court’s reaction to
the motion bespeaks an anti-defense bias. The transcript
arguably does suggest that the court was annoyed with
the contention that Vallone had been deprived of his
right to a speedy trial, and the court did press Vallone’s
counsel to acknowledge that he had joined in the other
defendants’ requests for continuances. But we believe
that any annoyance on the part of the court was under-
standable. Vallone’s motion was brought on the eve of
trial after years of pre-trial litigation and multiple
requests for delay sought by the defendants them-
selves, agreed to by Vallone’s counsel, and granted in
some instances over the objection of the government. We
ourselves have observed that a record of delays sought
by the defendant will cast doubt on the validity of
his subsequent contention that he has been deprived of his
right to a speedy trial. United States v. Adams, supra, 625
F.3d at 379 (citing United States v. Larson, 417 F.3d 741, 746
(7th Cir. 2005); United States v. Baskin-Bey, 45 F.3d 200,
204 (7th Cir. 1995). To whatever degree the court may have
interrupted McLeese during the hearing and persisted in
extracting his acknowledgment that the complained-of
delays had been precipitated by the defendants, the
court nonetheless did hear both McLeese and the gov-
96 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
ernment’s counsel out before denying the motion to
dismiss. The motion, for the reasons we have already
explained, was not meritorious. And, as we have also
noted, expressions of impatience and annoyance—which
are to be expected with eleventh-hour motions complain-
ing of delays that the defendants themselves sought—are
not sufficient by themselves to establish actual bias on the
part of the judge. Liteky, 510 U.S. at 555-56, 114 S. Ct.
at 1157.
Skeptical reaction to Jenkins. The defendants assert
that “the court’s animosity towards defendants was
fully on display” during the testimony of David Jenkins.
Defendants’ Joint Br. 73. Recall that Jenkins was the
individual who helped set up offshore entities in Belize
for Aegis clients. As we have said, Jenkins testified
under a grant of immunity. And although he was
the government’s witness, some of what he said, princi-
pally during cross-examination by defense counsel, was
favorable to the defense. For example, Jenkins testified
that the backdating of documents was not prohibited
under Belizean law (R. 929 Tr. 1381; R. 967 Tr. 1517), that
the monetary transfers associated with demands on
promissory notes were not illegal (R. 929 Tr. 1385), and
that Jenkins understood Vallone to be attempting to
establish a system that complied with U.S. as well as
Belizean law (R. 929 Tr. 1402). There were times during
his testimony when the court interrupted Jenkins to
ask him if he understood the question that had been
posed and to repeat his answer. E.g., R. 929 Tr. 1381; R. 967
Tr. 1501, 1519-20. The defendants suggest that these
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 97
08-4320, 09-1864 & 09-2174
interruptions communicated the judge’s skepticism and
disbelief of Jenkins’ testimony to the jury. Again, we
conclude that the record does not bear the defendants’
assertion out.
Although the record does confirm that the judge peri-
odically interrupted Jenkins’ testimony, the interrup-
tions on the whole do not support the inference that
the judge was biased against the defense or conveyed a
disbelief of Jenkins’ testimony to the jury. “District judges
have broad discretion in conducting trials and may ques-
tion witnesses during direct or cross-examination.”
Barnhart, supra, 599 F.3d at 743. We note first that the
judge’s interruptions began well before Jenkins gave
testimony that the defendants perceive as helpful to them.
See, e.g., R. 929 Tr. 1310-11, 1367-69, 1390; R. 967 Tr. 1439,
1486. Indeed, our review of the record suggests that the
judge was an active questioner of witnesses, often inter-
jecting to ensure that the witness understood an ambigu-
ous question, to clarify an answer, or to have the wit-
ness expand on a point that the court was curious about.
This was just as true in the case of Jenkins’ testimony
as it was with other witnesses. And we note that a
number of the interruptions of Jenkins appear to have
been occasioned by the court’s legitimate concern that
Jenkins may have misunderstood a broad or poorly
worded question. E.g., R. 292 Tr. 1385; R. 967 Tr. 1501,
1514, 1519-20. At the same time, there were numerous
instances in which Jenkins gave a seemingly defense-
friendly answer with no interruption or remark by the
98 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
court. E.g., R. 929 Tr. 1382, 1388, 1401, 1402, 1403; R. 967
Tr. 1469-71, 1473, 1499, 1577.
In short, there is nothing in the record that suggests
the judge was disbelieving of Jenkins’ testimony, let
alone that he conveyed such skepticism to the jury. Of
course, our review is confined to a written record that
does not reveal the judge’s tone of voice or facial expres-
sion. And we must acknowledge the possibility that
the judge may have interrupted Jenkins in some
instances because it was surprised by the testimony that
Jenkins gave. Some of his answers were surprising to
us—that backdating documents is not prohibited by
Belizean law, for example. The material point, however,
is that the record does not reveal a one-sided or pros-
ecutorial bent to the questions posed by the judge.
The interruptions were within the bounds of judicial
discretion and do not suggest that the court conveyed
to the jury an inclination to disbelieve Jenkins’ testimony.
The defendants also complain that at the conclusion
of Jenkins’ testimony, the judge, with the jury still
present, asked Jenkins, “Could you step over here,
please?” R. 967 Tr. 1521. Presumably, the court intended
to confer with Jenkins in a sidebar conference. Then,
remarking that “there’s another way to do this,” the
court instead excused the jury from the courtroom.
With the jury gone, the judge then suggested to Jenkins
that he might wish to speak with his American counsel
before returning to Belize. Although the judge did not
make explicit why he thought Jenkins should promptly
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 99
08-4320, 09-1864 & 09-2174
confer with his attorney, we gather that the judge had
some concern that portions of Jenkins’ testimony may
have placed him in jeopardy. After Jenkins was
excused, the defendants objected to the fact that the
court, while the jury was still present, had summoned
Jenkins to the side. Defense counsel asserted that both
the wording and the “pointed” tone of the court’s
request had conveyed its disbelief of Jenkins’ testimony
to the jury and an intent to admonish Jenkins. The
court rejected the notion that the words it had used
signaled something negative to the jury and, after
having the court reporter’s audio recording played
back, likewise rejected that there was any such implica-
tion in its tone.
Nothing in the court’s request that Jenkins “step over
here, please” bespeaks bias on the part of the court or
demonstrates prejudice to the defendants. It is pure
speculation to suggest, even against the backdrop of
the judge’s interruptions of Jenkins, that the jury must
have inferred the judge’s disbelief of and unhappiness
with Jenkins’ testimony. The defendants read entirely
too much into this brief request of Jenkins.
Reaction to Cross-Examination of Parker and Special Agent
Smyros, and Direct Examination of Vallone. The defendants
next argue that the judge’s unwillingness to allow
Vallone’s counsel to pursue certain relevant lines of
inquiry during the cross-examination of two govern-
ment witnesses (Parker and Special Agent Andrew
Smyros), and its apparent impatience with the length
100 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
of time counsel spent on the direct examination of
Vallone, displayed bias. As to Parker and Smyros, the
court may have misunderstood the point that Vallone’s
counsel was attempting to explore; and as to Vallone,
the court appears to have been concerned about one line
of inquiry that his counsel was pursuing rather than
the overall length of Vallone’s direct examination. But
in none of these three instances do we discern evidence
of bias against Vallone, his counsel, or the defense gen-
erally.
The issue vis-à-vis Parker arose with respect to his
testimony concerning the Audit Arsenal letters he sent
to the IRS on behalf of Aegis clients who had received
notice that they would be audited by the IRS. Parker
prepared these letters based on a template that he had
been given by Vallone. The letters, among other things,
asserted to the IRS that the Aegis clients had various
constitutional rights as taxpayers and also posed a series
of questions to the IRS. R. 913, Tr. 1941-45. At bottom,
the letters were part of an effort to thwart IRS inquiry
into the Aegis trusts. On cross-examination, Vallone’s
counsel, McLeese, sought to elicit from Parker a con-
firmation that taxpayers do have certain rights with
respect to an IRS audit, including a Fifth Amendment
right not to incriminate themselves. See, e.g., United
States v. Argomaniz, 925 F.2d 1349, 1352-53 (11th Cir.
1991) (citing Kastigar v. United States, 406 U.S. 441, 445, 92
S. Ct. 1653, 1656 (1972)). However, the court, in the ap-
parent belief that McLeese was running afoul of its pretrial
ruling barring any effort to show that the federal tax laws
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 101
08-4320, 09-1864 & 09-2174
were unconstitutional, interrupted McLeese sua sponte
and at one point instructed the jury that the constitu-
tionality of the tax laws was not at issue. When
McLeese persisted in attempting to elicit an answer from
Parker on the right against self-incrimination, the
court summoned McLeese to a sidebar, and then, as
it had with Jenkins, decided instead to excuse the
jury from the courtroom, after which it reprimanded
McLeese for persisting in the inquiry notwithstanding the
court’s warnings. R. 947, Tr. 2044-52.
We are inclined to agree with the government that
this was an instance of the court misapprehending the
point that McLeese was trying to make with the wit-
ness. Eliciting Parker’s acknowledgment that taxpayers
do have a Fifth Amendment right against self-incrimina-
tion would not have called into question the constitu-
tionality of the Internal Revenue Code or the legitimacy
of the IRS audit notices. At the same time, it would
have been a legitimate way for the defense to point out
that the letters sent out by Parker were not wholly frivo-
lous in their content, and in turn to argue to the jury
that the letters were not, contrary to the government’s
view, simply a means of evading and obstructing the
IRS audits. Perhaps the court was misled on this point,
when, at an initial sidebar, McLeese remarked, “What
this has to do with is the constitutionality of the tax
laws, not of filing a tax return, but rather of asserting
your constitutional rights in response to an audit request.”
R. 947 Tr. 2045. We understand McLeese to have been
trying to distinguish the pretrial ruling which declared
102 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
the constitutionality of the tax laws off limits, but the
ambiguous wording of this remark may have simply
confirmed, in the court’s mind, that the constitutionality
of the tax laws was precisely what McLeese intended
to explore with the witness. In any case, Vallone makes
no argument that he was prejudiced by the ruling.
He argues only that the court’s repeated interrup-
tions and admonitions show bias at work. We view
it instead as an instance of miscommunication and mis-
understanding.
Much the same is true as to what occurred during
Special Agent Smyros’s testimony. Smyros was one
of the agents who participated in the March 7, 2003
search of Vallone’s home. On cross-examination, McLeese
sought to establish in some detail the context, chronology,
and thoroughness of the search. R. 931 Tr. 3010-22. The
government objected to the inquiry on the ground of
relevance. The court, by contrast, was concerned that
McLeese was attempting to suggest that the search was
improper in some way. Id. Tr. 3015. McLeese assured
the court that he agreed the search was lawful and
was not attempting to suggest otherwise. The court
then sustained the government’s relevance objection.
McLeese continued to pose questions of Smyros aimed
at eliciting the purpose and thoroughness of the
search. But the court, believing that McLeese’s questions
implicated the legality of the search, repeatedly inter-
rupted McLeese, saying it had already ruled on this
line of inquiry, and told him to move on.
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 103
08-4320, 09-1864 & 09-2174
Again, we believe that the court likely misunderstood
what McLeese hoped to show through this barred line
of questioning. We gather that what McLeese hoped
to establish is that despite what he expected Smyros
to say was a thorough search of Vallone’s home, the
agents did not discover any email or other document
in which Vallone in some way acknowledged (in
McLeese’s words), “I know what we’re doing doesn’t
comply with the requirements of the federal tax laws,
but I think we can get away with it anyway.” R. 931 Tr.
3022. Arguably this was an appropriate line of inquiry
given Vallone’s Cheek defense and the government’s
burden to prove his willfulness, and certainly it would
have in no way called into question the legality of the
search. But we see no sign that the court in limiting
this line of inquiry was motivated by bias rather than
a genuine misunderstanding of what McLeese hoped
to establish. And McLeese ultimately was able to
elicit Smyros’s acknowledgment that he did not recall
seeing any smoking gun admission along the lines that
McLeese posited, so there was no prejudice in the
limits imposed on him by the court.
Finally, the following brief exchange occurred during
Vallone’s first day on the witness stand. When
McLeese suggested that he had reached a point in his
examination of Vallone that would be convenient for the
lunch break, the court asked him how much longer
he expected to be with his direct examination. When
McLeese responded that he expected his examination
to continue into the following day, the court called for
104 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
a sidebar. McLeese, apparently anticipating that he was
about to be scolded, immediately pointed out that
the government’s first witness had been on the stand for
three days. The court admonished McLeese for making
such a statement in front of the jury. At the sidebar,
the court seemed to be primarily concerned with the
amount of time McLeese was spending on a particular
point rather than with the overall length of Vallone’s
testimony. See R. 920 Tr. 5137-38.
Although by now it should be clear that McLeese and
the court did not have an easy relationship, we see no
hint of any bias or unfairness in this exchange. Vallone
went on to testify for a total of five days, so there can be
no argument that the court imposed any undue limita-
tion on his testimony. The court, as we have said,
appears to have been primarily concerned with some-
thing other than the length of Vallone’s testimony.
We view the court’s decision to summon McLeese to a
sidebar, and the exchange that followed, as immaterial.
Court in Role of Prosecutor. The defendants contend
that the record is “replete” with instances in which the
court assumed a partisan role on behalf of the govern-
ment. Defendants’ Joint Br. 77. They cite three groups
of examples in support of their contention: (1) the
court’s interruptions during Jenkins’ testimony, which
we described earlier; (2) the court’s purported pattern
of prompting the government to make objections to
questions posed by the defense or making its own ob-
jections to such questions, and ultimately cutting off
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 105
08-4320, 09-1864 & 09-2174
defense questioning; and (3) the court’s purported “bol-
stering” of the credibility of Mary Robinson during her
testimony regarding the ARDC proceeding involving
Bartoli.
Having reviewed the examples that the defendants
have cited, we find no meaningful evidence of the court
assuming a prosecutorial role. We have thoroughly dis-
cussed Jenkins’ testimony and the reasons why the
court’s interruptions of Jenkins do not show bias; no
more need be said on that subject. As to the court’s pur-
ported proclivity to prompt objections by the govern-
ment and to sustain its own objections to defense ques-
tions, the defendants cite only a handful of examples,
which in the context of an eleven-week trial is insuf-
ficient to demonstrate anything approaching a pattern
raising an inference of bias. Our own impression from
the trial record is that the court consistently paid
close attention to the testimony and showed no reticence
to interrupt the government’s witnesses either. When
the court did interpose its own objections, it typically
had a neutral and legitimate reason to do so. Finally,
having reviewed Robinson’s testimony, we have found
no evidence that the court was in any way attempting
to bolster her credibility. Robinson’s role was to
identify and read from certain documents related to the
ARDC proceeding; as such, her credibility was largely
beside the point. Insofar as the court sustained objections
to certain questions posed by the defense, we believe
it had wholly legitimate grounds for doing so.
106 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
Evidentiary Rulings. The defendant’s next contention is
that the court “made numerous evidentiary rulings
which allowed the government to present nearly any
evidence it desired.” Defendants’ Joint Br. 78. In
examining the examples cited by the defendants, how-
ever, we see no sign that the court admitted evidence
improperly or in a one-sided manner.
(1) The first example is again one we have discussed:
the admission of evidence related to Bartoli’s ARDC
proceeding, including the Hearing Board’s summary of
Marutzky’s testimony that the Heritage/Aegis trusts
were ineffective as a means of tax avoidance. The defen-
dants’ argument in this instance is principally one of
asymmetry: they note that the court allowed the ARDC
evidence as proof of notice to Bartoli (as well as his co-
defendants) that the Aegis system was illegitimate, yet
improperly restricted the attempts of Bartoli’s counsel
to establish that Bartoli’s participation in the ARDC pro-
ceeding, and thus his familiarity with what occurred, was
minimal. The defendants posit that the probative worth
of the ARDC evidence as proof of notice to Bartoli (let
alone his co-defendants) was weak, in that (a) Bartoli
was not finally disbarred until May 2002, late in the life
of the conspiracy and years after Bartoli had left his
role as counsel to Aegis, and (b) the inference that
Bartoli and others were aware of what occurred in the
ARDC proceeding hinged on the mere discovery of
ARDC materials in Aegis’s Illinois office in 2000, again
well after Bartoli had retired to South Carolina. None-
theless, in allowing the government to present the
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 107
08-4320, 09-1864 & 09-2174
ARDC evidence, the court told Bartoli’s counsel that “[i]f
your position is that Mr. Bartoli never received notice [of
the ARDC proceeding] formally, informally, de facto, or
otherwise, whatever your claim may be, then you can
pursue that on cross-examination.” R. 916 Tr. 2663-64.
But when counsel attempted to ask Robinson on cross-
examination whether she knew whether Bartoli’s attor-
ney in the ARDC proceeding had ever communicated
to Bartoli the opinion Marutzky had given in that pro-
ceeding, the court sustained the government’s objection
to the question. R. 916 Tr. 2727. And when counsel asked
Robinson to confirm that Bartoli was not present in
person for the hearing before the ARDC’s Hearing
Board, and Robinson did so, the court interrupted and
remarked that the relevant notice was “notice of what
had occurred and the ultimate decision.” Id. Tr. 2728.
Finally, the defendants note that in addition to reading
excerpts from the ARDC proceeding, Robinson was
also permitted to read portions of the sanctions opinion
that Judge Plunkett entered in the lawsuit Bartoli and
others filed against the ARDC. They argue that the
relevant portion of Judge Plunkett’s opinion, which
addressed the legality of the Aegis system, was dicta,
because that point was not at issue in the proceeding
before him. They add that when Bartoli’s counsel at-
tempted to clarify certain points about what was alleged
in the lawsuit before Judge Plunkett by referencing the
complaint filed in that action, the court castigated
counsel for doing so, suggesting that he was attempting
108 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
to resurrect allegations that Judge Plunkett had deemed
frivolous. Id. Tr. 2737-42.
We have already explained why we believe that the
ARDC proceeding was fairly strong evidence of notice
that was relevant to the defendants’ Cheek defense and
willfulness. The defendants’ contention to the contrary
ignores both the sequence of events in the ARDC proceed-
ing and the extent to which the proceeding involved not
just Bartoli, but several of his co-defendants. Although
the final order of disbarment did not issue until
May 2002, the ARDC’s original complaint was filed in
November 1996 and was succeeded by an amended
complaint in September 1998. We have discussed the
reasons why Aegis and its principals would have an
interest in the proceeding, notwithstanding the fact that
Bartoli was the sole respondent. In fact, as we have
noted, Bartoli, Vallone, and Hopper were all deposed
in the course of the proceeding; and Robinson testified
that she recalled taking a statement from Dunn. Bartoli,
of course, regardless of his physical absence from the
evidentiary hearing before the Hearing Board, was repre-
sented by counsel throughout the proceeding. The
Hearing Board’s Report and Recommendation was
issued in February 2000, and a copy of that decision
along with other Aegis materials, including a copy of
Marutzky’s testimony, was found in the Aegis offices.
The alleged conspiracy was in full swing when the
ARDC filed its complaint against Bartoli, and it persisted
even after the Hearing Board’s decision issued in early
2000. And, of course, Bartoli remained involved with
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 109
08-4320, 09-1864 & 09-2174
Aegis long after his nominal retirement to South Carolina.
For all of these reasons, the evidence concerning the
ARDC proceeding was strong, not weak, evidence
of notice.
Robinson’s testimony about the lawsuit that four of
the defendants filed before Judge Plunkett was also
relevant as notice. Judge Plunkett’s decision to dismiss
the suit as frivolous, noting among other things that the
Aegis system was not “a legal means to avoid paying
taxes,” R. 916 Tr. 2695, whether dicta or not, was yet
another warning to the defendants that what they were
doing was illegal.
As for the court’s multiple interruptions of Bartoli’s
cross-examination of Robinson, we see nothing that
constituted an abuse of discretion or was so unusual or
unjustified as to suggest bias. Robinson, obviously, could
not speak to what Bartoli’s counsel did or did not tell
Bartoli about what occurred in the ARDC proceeding.
She could testify to whether Bartoli was physically
present for the evidentiary hearing, and she did confirm
that he was not. That the court interjected to clarify that
it had admitted the ARDC evidence as proof of notice
of what ultimately occurred in the proceeding, rather
than notice of every detail of the proceeding, arguably
was a legitimate effort to keep counsel as well as the
jury focused on the purpose for which the evidence was
offered. Finally, with respect to the lawsuit against the
ARDC, the court’s legitimate concern was that Bartoli’s
counsel might be trying to relitigate the validity of that
110 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
lawsuit. If there was another purpose to the inquiry,
counsel never made that clear.
(2) Counts 11 through 34 of the indictment charged
Bartoli, Vallone, Hopper, and Dunn with willfully aiding
and assisting, procuring, counseling, and advising the
preparation and presentation of the false and fraudulent
income tax returns filed by multiple Aegis clients, in
violation of 26 U.S.C. § 7206(2). The tax returns of Bruce
and Tammy Groen and John and Colleen McNinney,
were among the false and fraudulent returns under-
lying these charges. None of these four taxpayers
testified at the trial; Bruce Groen, in fact, was deceased
by that time. Instead, Internal Revenue Agent Michael
Welch was permitted to testify about various aspects
of their returns, including the reported income, claimed
deductions, and income tax paid, as well as the
substantial adjustment later made to those returns as a
result of the audits that the IRS conducted. In addition,
Welch testified that the returns appeared to have been
signed by taxpayers and their preparer, CPA Laura
Baxter. (Baxter was indicted separately for her role in
supporting the Aegis scheme as a tax preparer.)
The defendants contend that Welch’s testimony con-
cerning these tax returns was contrary to Crawford v.
Washington, 541 U.S. 36, 124 S. Ct. 1354 (2004), which
essentially disapproved the admission, for their truth,
of out-of-court testimonial statements that are not
subject to cross-examination. Welch’s testimony was
meant to show that the tax returns in question
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 111
08-4320, 09-1864 & 09-2174
fraudulently understated the taxpayers’ income and
that they had been signed by both the taxpayers (else-
where identified as Aegis clients) and their tax
preparer (elsewhere identified as an Aegis-approved
preparer). As such, his testimony was one piece of the
government’s case for the notion that Bartoli, Vallone,
Hopper, and Dunn had aided and abetted the prepara-
tion of these tax returns in violation of section
7206(2). But, as an IRS agent, Welch obviously had no
knowledge of any interactions that these taxpayers
might have had with the defendants, and thus could not
be cross-examined on any such interactions. In view of
that fact, the defendants contend that allowing Welch
to testify about the returns deprived them of their
Sixth Amendment right of confrontation.
To summarize the defendants’ argument is to see
how misguided it is. Welch did not recount any out-of-
court statements that the taxpayers in question may
have made about any contact they had with any of the
defendants. Welch instead testified as both a summary
witness, identifying the tax returns and describing
their contents, and as an expert, explaining the extent to
which the returns had understated the taxpayers’ actual
income. See United States v. Pree, 408 F.3d 855, 869 (7th Cir.
2005) (permissible for IRS agent to testify as an “expert
summary witness,” giving testimony that both sum-
marizes what the evidence shows and analyzing the
tax consequences of that evidence based on his own
expertise). Insofar as Welch’s testimony summarized
what the tax returns themselves declared, it did not
112 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
implicate the Confrontation Clause. As Crawford recog-
nizes, the Confrontation Clause only applies to testi-
monial statements. 541 U.S. at 68, 124 S. Ct. at 1374. To
describe what a taxpayer has claimed on a tax return is
not to recount a testimonial statement. See United States
v. Doughty, 460 F.2d 1360, 1363 n.2 (7th Cir. 1972) (testi-
mony as to contents of tax return is not hearsay, because
it is not offered for its truth but rather to show what
was declared); United States v. Garth, 540 F.3d 766, 778
(8th Cir. 2008) (testimony regarding tax returns filed
by non-testifying individuals not a Confrontation
Clause violation), abrogated on other grounds by United
States v. Villareal-Amarillas, 562 F.3d 892, 895-98 (8th
Cir. 2009); United States v. Jimenez, 513 F.3d 62, 81 (3d Cir.
2008) (admission of tax returns as filed does not
implicate Confrontation Clause when returns not ad-
mitted for truth); United States v. Solomon, 825 F.2d 1292,
1299-1300 (9th Cir. 1987) (testimony regarding tax
returns did not pose a Confrontation Clause problem,
as contents of returns were admitted not for their
truth but to show what deductions were claimed; no
need to cross-examine taxpayer, as deductions were
either claimed or not); United States v. Austin, 774 F.2d
99, 101-02 (5th Cir. 1985) (false tax returns were not
hearsay because they were not admitted for the truth of
what they asserted).
Internal Revenue Agent James Pogue gave testimony
regarding the investigation of an Aegis client, T. David
Ring, and certain documents related to Ring that were
recovered from defendant Cover’s office. Pogue was
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 113
08-4320, 09-1864 & 09-2174
involved in the civil audit that led to the Muhich
decision as well as the audits of other taxpayers who
were clients of Heritage and Aegis, including Ring.
Ring ultimately became a client of Aegis, but he was a
client of Heritage when he filed the 1993 income tax
return that Pogue was investigating. Pogue was permit-
ted, over objection, to read from a letter that Ring had
written to Jennifer Sodaro, an attorney for Aegis. That
letter related to the IRS investigation and a motion
to quash a summons (which Ring mislabeled a “motion
to squash”) issued in connection with the IRS’s investiga-
tion of his 1993 return. R. 949 Tr. 2813-15. The letter
also mentioned that “Mike” would be getting back to
Ring with a plan to eliminate his tax liability. The “Mike”
to whom Ring was referring could have been either
Michael Vallone or Michael Dowd. Id. Tr. 2833-35. Be-
cause Pogue could not clarify which “Mike” was being
referenced, see id. Tr. 2837, the defendants contend that
Pogue’s testimony posed a Crawford problem.
We disagree. The letter from Ring to Sodaro was
among the documents recovered from Cover’s office.
Pogue’s testimony about what the letter said was not
offered for its truth but rather to establish context for later
testimony concerning backdated trust documents that
Aegis personnel prepared for Ring. Id. Tr. 2817. Moreover,
the defendants have made no showing that they were
prejudiced by the letter’s ambiguous reference to “Mike.”
On cross-examination of Pogue, the defense made
clear that he had no idea who “Mike” was. Id. Tr. 2837.
114 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
IRS Special Agent Bernard Coleman led a team of
ten agents who searched the premises of a business in
Charleston, Illinois in March 2000.8 While cross-examining
Coleman, Dowd’s counsel began to ask the agent about
the steps he had taken to procure the warrant which
authorized the search. (For example: “Before you
obtained a search warrant, you went before a federal
magistrate, right?” R. 914 Tr. 2340.) The court had previ-
ously ruled on the legality of the search and evidently
became concerned that these questions were meant to
suggest some impropriety in the search. The court inter-
rupted the questioning to remind counsel that the
search had taken place pursuant to a lawful warrant,
and advised him that he could not question the agent
about anything that had occurred before the search war-
rant was issued. “You cannot bring to the attention of
the jury anything that preceded the issuance of the
order by the court.” R. 914 Tr. 2342. The court explained,
Once the court entered an order authorizing the
search and seizure, that was a lawful order of the
court and cannot be challenged indirectly by some
inquiry of the witness on the stand. That was an
order of the court. Now, if you have other questions
8
The business belonged to Kenton Tylman, who sold video-
tapes, among other items. The items seized from the business
included approximately 140 videotapes related to Aegis;
primarily these were recordings of Aegis promotional semi-
nars. Agent Priess had purchased some of these video-
tapes, and excerpts from these recordings were played at trial.
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 115
08-4320, 09-1864 & 09-2174
of this witness beyond the issue of the warrant,
go ahead.
Id. Tr. 2341. Counsel told the court he was not ques-
tioning the legality of the search warrant nor its
execution, but instead wanted to explore some of the
information contained in the affidavit submitted in
support of the application for the warrant.
The only question I would proffer to the witness is
that there was an affidavit, and the affidavit lists
the names of certain individuals who the Internal
Revenue Service is investigating. All I want to do
is explore that affidavit before the signing of the
search warrant, an affidavit that this agent prepared
and signed under oath.
Id. Tr. 2343. The court denied counsel’s request to
question Coleman about the affidavit, reasoning that the
affidavit was subsumed within the order of the court
authorizing the search and was thus off-limits. Counsel
clarified that he just wanted to inquire about the agent’s
knowledge. The court allowed counsel to ask Coleman if
he knew of Dowd at the time he sought the warrant;
Coleman replied that he was not sure. Counsel then
attempted to show Coleman the affidavit—presumably
to confirm that Dowd’s name was not mentioned—but
the court would not permit him to do so. The court indi-
cated it would allow additional questions as to what
Coleman knew at that time, and counsel was able to
establish that Coleman knew of some twenty individuals
whom he believed were involved with Aegis. But the
116 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
court would not permit counsel to establish that
Coleman’s affidavit named these twenty individuals and
that Dowd was not among them. The court also refused
counsel’s repeated requests for a sidebar so that he
could articulate what he was attempting to elicit
from Coleman. Ultimately, Dowd’s counsel gave up.
“Your Honor, I can’t proceed, respectfully, based on
the Court’s rulings. I would like to develop a point,
but I cannot.” Id. Tr. 2348. “Then that’s it,” the court
replied. Id.There is little to make of this exchange. It seems clear
that Dowd’s counsel wanted to extract an acknowledg-
ment from Coleman that Dowd was not one of the
twenty alleged participants in the Aegis conspiracy
who were named in the affidavit that Coleman
prepared and presented to the federal magistrate who
issued the search warrant. This was a minor point that
ultimately had little, if anything, to do with Dowd’s guilt
or innocence on the charges. If there is more that
Dowd’s attorney wished to establish with Coleman, the
defendants’ brief does not identify what that was. Rea-
sonable minds might differ as to whether the court
ought to have allowed the question that Dowd’s counsel
wanted to pose (which we agree did not appear to in
any way challenge the validity of the warrant and the
ensuing search) and as to whether the court ought to
have allowed counsel to clarify whatever point he
wanted to make at sidebar. But the point that counsel was
exploring was of such minimal relevance that it is
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 117
08-4320, 09-1864 & 09-2174
difficult to understand why this is an illustration of bias
on the part of the court.
Finally, the defendants contend that bias is evident
from the fact that the district court allowed the govern-
ment to cross-examine Vallone about the contents of
certain documents admitted into evidence for purposes
of showing that the defendants had notice of the
illegality of the Aegis trust system, but which Vallone
denied having seen. Vallone was asked, for example,
about two documents related to the ARDC proceeding
against his co-defendant Bartoli that had been dis-
covered in Aegis’s Illinois office. These included one of
the two complaints that the ARDC had filed against
Bartoli, as well as the eventual Report and Recommenda-
tion issued by the ARDC’s Hearing Board. Vallone ac-
knowledged that he was aware of the ARDC proceeding.
In fact, as we have pointed out, Vallone had been
deposed in the course of that proceeding. But when
questioned about the complaint and the Hearing
Board’s recommended decision, he said that he did not
recall having ever read the complaint and that he had not
read the Board’s Report and Recommendation. E.g., R. 954
Tr. 5454, 5456, 5458. Over the objection of defense
counsel, the government was allowed to press Vallone
on these documents, asking him several follow-up ques-
tions as to whether he was aware of certain statements
made in the complaint and the hearing board’s recom-
mended decision concerning the legality of the Aegis
system. Id. Tr. 5454-55, 5457-58, 5458-59. The defendants
contend that this was improper, and that the district
118 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
court in overruling their objections unfairly changed
the limited purpose for which it had admitted these
documents into evidence.
Again, we discern no impropriety that bespeaks bias
or prejudice on the part of the district court. As we read
the record, the district court allowed the government to
question Vallone on specific passages from these docu-
ments because Vallone was admittedly aware of the
ARDC proceedings and yet denied awareness of what
specifically the ARDC had alleged and what the ARDC’s
Hearing Board later found. The court reasoned that
questioning Vallone about the contents of these docu-
ments was an appropriate means of testing Vallone’s
credibility. Id. Tr. 5460-61. That rationale did not alter
the purpose for which the court had admitted these
documents into evidence. The court in fact reiterated
that the documents had been admitted for purposes of
notice. Id. Tr. 5461-62. We do not believe that the district
court abused its discretion in allowing the government
to ask Vallone whether or not he was aware of some
of the specific charges and findings reflected in these
documents. Copies of the documents were, after all,
found in Aegis’s headquarters, and it is reasonable to
surmise that they were present because the Aegis princi-
pals had an interest in the ARDC proceeding. As
we have discussed, the ARDC’s charges, which were
premised on the sham nature of the trusts marketed by
Heritage and Aegis, struck at the heart of the Aegis
scheme. The defendants, including Vallone, had every
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 119
08-4320, 09-1864 & 09-2174
reason to pay attention to the ARDC proceeding. Given
Vallone’s awareness of the proceeding—indeed, his
participation in that proceeding as a witness—one would
think that he would have some knowledge of what the
ARDC charged and what its Hearing Board later con-
cluded, even if he did not read those documents. (Vallone
conceded that he was aware of the contents of other
documents that the government relied on for notice
purposes, including IRS Notice 97-24.)
The fact that Vallone was one of the plaintiffs in the
suit against the ARDC makes this inference all the
more plausible. We add, as a last observation, that this
questioning was not nearly as belabored as the defense
suggests it was.
Cumulative Effect of Alleged Errors. Finally, the de-
fendants make a catch-all assertion that the cumulative
effect of all of the purported errors they have cited—which
they describe as an “avalanche of errors,”see United
States v. Santos, 201 F.3d 953, 965 (7th Cir. 2000)—deprived
them of a fair trial, even if those errors do not
demonstrate bias. As set forth above, we have disagreed
with the premise that many of these were errors, and
in any event we have concluded that none of them, indi-
vidually, deprived the defendants of a fair trial. We
reach the same conclusion with the respect to all of
these instances taken together.
120 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
III.
VALLONE
Vallone makes his own individual challenge to the
instruction on conscious avoidance of knowledge that
the court gave the jury over his objection (among oth-
ers). Our earlier discussion of the defendants’ joint chal-
lenge to this same instruction suffices to dispose of
Vallone’s challenge. We simply reiterate two points.
First, a defendant’s willful blindness to the law can
merit a conscious avoidance instruction just as his willful
blindness to the facts can. United States v. Stadtmauer, supra,
620 F.3d at 256-57. Second, there is ample evidence sup-
porting an inference that Vallone in particular willfully
blinded himself to the state of the law as to the validity
of the Aegis system, and this evidence confirms the
propriety of the instruction as to him. We have already
discussed much of this evidence. To cite just a few
salient examples: (1) After the Tax Court handed down
its decision in Muhich, and Bartoli raised the possibility
of soliciting a legal opinion from a law firm as to
the legality of the Aegis system, Vallone opposed the
proposal because he was not confident that the opinion
would be positive. (2) When Parker suggested soliciting
an opinion from the IRS, Vallone criticized that idea
as “ridiculous,” “because we know what the answer will
be.” R. 913 Tr. 1954. (3) At another meeting at the Aegis
office headquarters in the fall of 1999, at which Bartoli,
Vallone, Hopper, Parker, Dunn, and possibly Cover were
present, Vallone and Hopper became embroiled in an
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 121
08-4320, 09-1864 & 09-2174
argument over what actions Aegis clients should be
advised to take in response to the audit notices they
were receiving from the IRS. Hopper viewed the wave
of notices as a sign that the government was about to
bring an end to Aegis. “[I]t’s over,” Hopper told the
others. R. 913 Tr. 1957. “[W]e’re all going to jail.” Id.
Hopper argued that Aegis clients should be encouraged
to do what they thought best, including finding legal
representation. Vallone agreed that clients needed
counsel, but argued that clients should be advised to
consult only with attorneys approved by Aegis. Hopper,
on the other hand, thought that clients should be free
to act in their own interests. Their dispute grew more
heated, culminating in a pronouncement by Vallone
that “God will be the ultimate judge,” or words to that
effect. Id. Tr. 1959. Vallone’s disagreement with Hopper
signals his unwillingness to allow independent attorneys
to look at the Aegis system as well as his ongoing refusal
to acknowledge the government’s view that the Aegis
system was illegitimate. (4) Vallone spearheaded the
creation and promotion of the Aegis Arsenal, which as
we have said was essentially a means of obstructing any
IRS inquiry into the Aegis trusts. (Earlier we cited a
letter sent to the IRS by Parker on behalf of an Aegis
client as an example of the Arsenal.) (5) Vallone, as we
have mentioned, did not file income tax returns for a
number of years. In response to the IRS’s inquiry into
why he had not, Vallone wrote a letter to the IRS in
which he made a variety of baseless claims, including
the assertions that he enjoyed certain rights unique to
122 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
a “sovereign citizen” born in the United States; that he
was neither a citizen nor resident of the United States as
those terms are used in the Fourteenth Amendment or
26 C.F.R. § 1.1-1(a) - (c), the IRS regulation identifying
those persons who are subject to income tax by the
United States; and that the Declaration of Independence
and the Bill of Rights conferred to him an inalienable
right to his property, including his labor, which when
exchanged for income was not a gain that could lawfully
be taxed. R. 908 Tr. 5583. Vallone made these assertions,
which are emblematic of tax protestors and which re-
peatedly and unequivocally had already been deemed
frivolous by this court and others, e.g. United States v.
Hilgeford, 7 F.3d 1340, 1342 (7th Cir. 1993) (citing United
States v. Sloan, 939 F.2d 499, 501 (7th Cir. 1991)), without
conducting any research of his own into the validity of
his claims. R. 908 Tr. 5595-5600. This was in marked
contrast to the careful research he claimed to have done
on other matters related to Aegis. A jury could view the
frivolous content of Vallone’s letter as a sign that he
was intentionally turning his mind away from any
warning or effort that would have disclosed the Aegis
trusts as a sham. It was appropriate for the court to
give the conscious avoidance instruction.
COVER
Cover challenges only his 160-month sentence. He
makes no argument that the district court improperly
applied Sentencing Guidelines in calculating the ad-
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 123
08-4320, 09-1864 & 09-2174
visory Guidelines sentencing range, which was 210 to
262 months. His sole objection is to the substantive rea-
sonableness of the sentence that the court imposed.
Noting the court’s obligation to consider the sentencing
factors identified in 18 U.S.C. § 3553(a), Cover makes
two principal points. His first centers on the three-
point increase in his offense level based on the district
court’s finding that he played a managerial or super-
visory role in the offense by overseeing Dowd (whose
role he characterizes as little more than a paper pusher
and floor sweeper) and a number of tax preparers. See
U.S.S.G. § 3B1.1(b).9 Cover does not question the
propriety of this enhancement on appeal. What he does
contend is that any instruction or advice he gave to
Dowd and the tax preparers was minimal, and that in
real terms he was less culpable than all of the other de-
fendants but Dowd. Cover points out that he received
much less financial benefit from the fraud ($347,000)
than other defendants, was not a founder or principal
in the Aegis scheme, and, at age seventy-two, posed
little or no prospective danger to the public notwith-
standing whatever nominal supervision he had given
to others in furtherance of the scheme. His second point
is broader. Cover suggests that the district court in deter-
mining the sentence was driven solely by the immensity
of the fraud perpetrated by the defendants to the exclu-
9
Unless otherwise noted, all citations to the Guidelines in
this decision are to the November 2008 version of the Guide-
lines.
124 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
sion of other mitigating factors, including his age, his
college degree, his long-term marriage, his lengthy em-
ployment history, his involvement with his church, and
his contrition.
Assessing Cover’s sentence through the deferential
abuse-of-discretion lens, see Gall v. United States, 552
U.S. 38, 51, 128 S. Ct. 586, 597 (2007); United States v.
Bradley, 675 F.3d 1021, 1024 (7th Cir. 2012), we cannot say
that Cover’s sentence was unreasonable. The sentence
was fifty months below the low-end of the Guidelines
range (210 to 262 months), which represents a nearly
twenty-five percent reduction. It is also within—indeed,
near the bottom of—what the range would have been (155-
188 months) had the court not applied the three-point
leadership enhancement that Cover suggests was not “a
perfect fit” for his actual role in the offense. Cover Br. 8. It
is thus a presumptively reasonable sentence even under
the more charitable assessment of his culpability that
Cover advocates. See, e.g., United States v. Lucas, 670
F.3d 784, 789 (7th Cir. 2012) (sentence within Guidelines
range is presumed reasonable on appeal), petition for
cert. filed, 81 U.S.L.W. 3033 (U.S. June 25, 2012) (No. 11-
1536); United States v. Klug, 670 F.3d 797, 800 (7th Cir.
2012) (below-Guidelines sentence is also presumed rea-
sonable). Having reviewed the transcript of Cover’s
sentencing, we reject the notion that the court focused
on the scope of the fraud to the exclusion of other
pertinent circumstances. The court, with good reason,
gave considerable weight to the “monumental propor-
tion” of the fraud, R. 1036 at 37, which Cover does not
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 125
08-4320, 09-1864 & 09-2174
suggest he failed to appreciate. But the court considered
other pertinent factors as well, including in particular
Cover’s age, which the court expressly cited in choosing
a below-Guidelines sentence. Id. at 42. The court also
cited his remorse, the unlikely prospect that he might
recidivate, his difficult childhood (following his father’s
death, he was raised in a home for boys), his wife’s
health problems, and the favorable comments on his
character contained in letters to the court. Id. at 37-45.
Cover’s below-Guidelines sentence, although still lengthy
(as the district court itself acknowledged, id. at 44), ap-
propriately reflects his lesser degree of culpability.
DOWD
A. Sufficiency of Evidence
Dowd was found guilty of conspiracy, one count of
mail fraud, and four counts of filing a false tax return.
All three charges presume that Dowd knew the Aegis
trusts were not a lawful means of tax avoidance. Under
Cheek, his good faith belief in the legality of the trusts,
even if it was mistaken, would thus preclude a finding
that he conspired to defraud the United States and/or
to commit a tax offense against the United States (Count
One), that he used the U.S. mail in furtherance of a
scheme to defraud (Count Three), or that he willfully
made or subscribed to a false tax return (Counts Fifty-
Two through Fifty-Five). See United States v. Hills, supra,618 F.3d at 637 (conspiracy to defraud United States
by impeding functions of IRS requires proof, inter alia, of
126 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
agreement to accomplish illegal objective against United
States and intent to defraud United States); United States
v. Howard, 619 F.3d 723, 727 (7th Cir. 2010) (mail fraud
requires proof, inter alia, of intent to defraud, which
entails “a wilful act by the defendant with the specific
intent to deceive or cheat . . .”) (quoting United States
v. Britton, 289 F.3d 976, 981 (7th Cir. 2002)); United States
v. Kokenis, 662 F.3d 919, 930 (7th Cir. 2011) (“Willfulness
is an essential element of the tax evasion offenses
charged under 26 U.S.C. § 7206(1).”) (citing Hills, 618
F.3d at 634, 638-39).
Dowd contends that the government’s proof was insuf-
ficient to overcome his Cheek defense, and that the
district court therefore erred in denying his motions for
a judgment of acquittal pursuant to Fed. R. Crim. P. 29.
Dowd points out that he was just twenty-three years
old when he joined Aegis, armed with a degree in
business finance but no significant knowledge or experi-
ence with respect to trusts, estate planning, or taxes. He
had never before encountered a business trust, but
was told by both his father and Cover that it was
an effective tool. Dowd contends that he relied on his
superiors at Aegis (in addition to his father) regarding
the relevant trust and taxation principles, and they con-
sistently dispelled his doubts as to the legitimacy of
the Aegis trusts. Dowd represents that he was not privy
to meetings among the Aegis principals regarding
the structuring of Aegis and its product; he did not
draft letters to clients; he did not speak or lecture at
seminars; and he did not do legal research. With respect
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 127
08-4320, 09-1864 & 09-2174
to the tax return charges, Dowd acknowledges that his
returns did understate his income. But he adds that he
also filed tax returns for his asset management trusts
that included any income omitted from personal tax
returns. Moreover, he hired certified public accountant
Donald Todd to prepare his returns each year he was
at Aegis, and there is no evidence he told Todd to
omit items or falsely calculate his income. (Todd, by the
way, like Laura Baxter, was himself indicted in connec-
tion with his work on behalf of Aegis clients.) Nor, ac-
cording to Dowd, is there evidence that he tried to
conceal any assets or cover up sources of income.
We review the denial of Dowd’s Rule 29 motions
de novo. E.g., United States v. Hassebrock, 663 F.3d 906,
918 (7th Cir. 2011), cert. denied, 132 S. Ct. 2377 (2012). But
we will find the evidence insufficient only if the record
is devoid of evidence from which a reasonable jury
could find Dowd guilty beyond a reasonable doubt.
Cavazos v. Smith, 132 S. Ct. 2, 4 (2011) (per curiam). This is
an “onerous burden” for Dowd. Hills, 618 F.3d at 637.
In assessing the sufficiency of the evidence, we
consider the trial record in the light most favorable to
the government, granting it the benefit of all reasonable
inferences. E.g., id.The government presented ample evidence from
which a jury could conclude that Dowd lacked a good
faith belief in the legality of the Aegis trust system.
First, Dowd admitted that he saw various documents
that called into question the legitimacy of the Aegis trusts.
128 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
Among these were IRS Notice 97-24, R. 922 Tr. 6416-17,
6460-61, the Tax Court’s decision in Muhich, id. Tr. 6473-
80, 6490-99; a memorandum from the Aegis legal de-
partment summarizing what characteristics the IRS
looks at in assessing the legitimacy of a trust (e.g., the
deduction of personal expenses), id. Tr. 6467-69; and an
article in the W ALL S TREET JOURNAL, id. Tr. 6409-10.
He acknowledged that he read and understood these
items. R. 922 Tr. 6461-67, 6473-81, 6490-99.1 0 Dowd, in
fact, kept a cabinet drawer full of similar materials, in-
cluding a file labeled “Trusts—Attacks on.” R. 950, Tr.
3880-98; R. 922 Tr. 6459, 6467-68; Gov’t Ex. Aegis Office
68 Group Room 5. 1 1 He admitted that these materials
raised questions in his mind about Aegis; and although
he said that he relied on the assurances that Vallone
and Cover gave him that the Aegis system was
materially different from trusts that had been found to
be ineffective, he realized that neither Vallone nor Cover
was an attorney or accountant, and he never sought
independent advice. He also acknowledged that some
of what Vallone told him was “mumbo jumbo” that he
did not understand. R. 922 Tr. 6458. Dowd also knew
10
He marked up his copy of the Muhich decision, which of
course involved a trust prepared and marketed by Bartoli
and others Dowd was working with.
11
Among the additional items was a negative opinion as to
the Aegis CBO from an independent CPA, forwarded to Aegis
by a prospective client (R. 950 Tr. 3899+), and multiple
news articles regarding abusive trusts.
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 129
08-4320, 09-1864 & 09-2174
that large numbers of Aegis clients were facing inquiries
by the IRS; he compiled a list of some ninety clients
who were under inquiry as of March 15, 1999. R. 918 Tr.
4322-23; Gov’t Ex. Aegis Office Room 5 Computer 17.
Moreover, Dowd was present on a 1999 Aegis cruise
when trust “guru” Joe Izen warned participants that
“people are gonna get put in jail” for not reporting per-
sonal purchases paid for with foreign credit cards
drawing on funds they had placed in offshore trusts.
R. 917 Tr. 3514; Gov’t Ex. DVD Tr. 5 (Gov’t App. 150).
Izen, in fact, had a brief exchange with Dowd during
his presentation, which provides ample support for
the inference that Dowd heard Izen’s warning. R. 917
Tr. 3508-12; Gov’t Ex. Cruise DVD Tr. 4.1 2 Yet, Dowd
himself used a Swiss Americard linked to an offshore
trust to do precisely that. R. 922 Tr. 6536-37; R. 971
12
In an effort to defeat that inference, Dowd contended that it
was his brother to whom Izen was referring during this ex-
change. Dowd’s brother Paul evidently was on the same
cruise. However, after the cruise, Dowd wrote a letter to Izen
in which he mentioned Izen’s presentation and joked,
“I overheard both IRS agents in the audience telling each
other they didn’t get what they came for (just kidding).” R. 918,
Tr. 4311; Gov’t Ex. Aegis Office 5 Computer 3. It is at least
a fair inference that when Izen singled out “Dowd” during
his presentation, he was referring to the defendant
Dowd rather than his brother. That point aside, it is also a
fair inference from the letter that Dowd was present
for Izen’s presentation, even if Izen’s reference was to
Dowd’s brother.
130 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
Tr. 4534-42. Finally, he advised Aegis/Sigma client
Joseph Kelly that he could deduct the cost of vacation
travel so long as Kelly contemplated and actually made
a charitable donation to a local charity during the trip.
R. 967 Tr. 1576; R. 961 Tr. 1715-16. This was advice
which, although consistent with what other Aegis
clients were told, was dubious on its face. Collectively,
this sort of evidence is more than what this court found
sufficient to overcome the Cheek defense asserted in
Hills, 618 F.3d at 637-39.
The evidence was also more than sufficient to
establish Dowd’s guilt on the false tax return charges.
First, the amply-supported inference that Dowd under-
stood the Aegis system to be a sham in turn supports
an inference that he knew, as a consequence of his own
use of that system, that he was under-reporting his
income on his individual income tax returns. (There was
ample testimony, by the way, that Dowd did under-
report his income on his own tax returns. R. 971 Tr. 4522-
42; R. 939 Tr. 6558-63.) Second, Dowd—like other defen-
dants and Aegis clients generally—was not just under-
reporting his income but doing so to a patently ridiculous
degree. To cite one example, in 1999, Dowd had income
of $60,000, but he reported only $5,250 of that total on
his federal income tax return, an amount so low that
he (nominally) qualified for—and claimed—an earned
income tax credit. R. 939 Tr. 6559-60. Recall that
claiming that same tax credit is the very type of thing
that Hopper joked about at Aegis seminars. It is an
entirely reasonable inference that even a young, deferen-
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 131
08-4320, 09-1864 & 09-2174
tial, and purportedly naive individual would realize
that something was wrong with reporting less than
ten percent of his income to the government and claiming
a tax credit meant for the working poor.
B. Severance
Before the trial commenced, Dowd made an oral
motion to sever his own case from those of his co-defen-
dants after the district court announced it would allow
evidence regarding the Bartoli ARDC proceeding as
proof of notice to the defendants. Dowd’s counsel charac-
terized the ARDC evidence as a “bombshell” that would
have a prejudicial spillover effect on Dowd, who was
not a party to and was otherwise unaware of the ARDC
proceeding. R. 1046 at 28. The district court denied
the motion, reasoning that the danger of undue
prejudice due to the asserted spillover effect was insuf-
ficiently grave to warrant a separate trial. Id. at 29-30.
Dowd contends that the denial of his request was error,
particularly in light of the court’s rationale that notice
to one member of the conspiracy served as notice to all.
He adds that it was “impossible for the jury to
suppose that Mr. Dowd actually believed in the legality
of the Aegis system where they were flooded with evi-
dence of other’s [sic] knowledge of its illegality.” Dowd
Br. 32. We note that the district court invited
Dowd’s counsel to draft an appropriate limiting instruc-
tion to address the possibility of spillover prejudice
from the ARDC evidence. However, no such instruction
132 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
was ever tendered: Dowd contends that no such instruc-
tion could have remedied the problem.
Demonstrating prejudicial error in the district court’s
refusal to sever Dowd’s trial would be an uphill battle.
We would review that decision under the deferential
abuse-of-discretion standard. E.g., United States v. Del
Valle, 674 F.3d 696, 704 (7th Cir. 2012), petition for cert.
filed (U.S. Aug. 16, 2012) (No. 12-219). There is a
preference for the joint trial of defendants who are
charged together. United States v. Souffront, 338 F.3d
809, 828 (7th Cir. 2003) (citing Zafiro v. United States,
506 U.S. 534, 537, 113 S. Ct. 933, 937 (1993)). When
the defendants have been properly joined in a single
indictment pursuant to Federal Rule of Criminal
Procedure 8(b), as is conceded here, a court should grant
a severance only when “there is a serious risk that a
joint trial would compromise a specific trial right of one
of the defendants, or prevent the jury from making a
reliable judgment about guilt or innocence.” Id. (quoting
Zafiro, 506 U.S. at 539, 113 S. Ct. at 938). In challenging
the denial of his request for a severance, the defendant
must show that the refusal to sever resulted in “actual
prejudice” that deprived him of a fair trial. Id. (citing
United States v. Rollins, 301 F.3d 511, 518 (7th Cir. 2002)).
Relevant to the question of prejudice would be (a) the
district court’s instruction to the jury that it was to
consider each defendant individually (R. 925 Tr. 7389;
Seventh Circuit Pattern Criminal Jury Instruction
No. 4.05); (b) as we have discussed, the district court
never communicated its theory that notice of illegality
to one conspirator, or notice to the conspiracy generally,
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 133
08-4320, 09-1864 & 09-2174
constitutes notice to all members of the conspiracy; (c) the
government argued notice as an individual matter, and
each defendant was free to argue that he did not have
notice that the Aegis system was illegitimate; and
(d) despite the court’s express invitation, Dowd never
tendered a cautionary instruction as to the ARDC
evidence that he contends was so prejudicial.
However, Dowd’s failure to renew his motion to sever
at the close of evidence precludes us from reaching the
merits of his argument on appeal. As the government
points out, “[a] motion for severance is typically waived
if it is not renewed at the close of evidence, primarily
because it is then that any prejudice which may have
resulted from the joint trial is ascertainable.” United
States v. Williams, 553 F.3d 1073, 1079 (7th Cir. 2009)
(quoting United States v. Phillips, 239 F.3d 829, 838 (7th
Cir. 2001)); see also United States v. Ross, 510 F.3d 702,
711 (7th Cir. 2007) (coll. cases). Dowd, in his opening
brief, offered no explanation for his failure to renew the
motion. In his reply brief, he belatedly argues that
renewal of the motion would have been futile in light
of the court’s notice-to-one rationale. Whatever the
court’s thinking may have been as to notice, Dowd has
made no showing that the court was so close-minded
on the subject of severance that it would have been
futile for him to renew his motion at the close of evi-
dence. Renewing the motion at that time would have
given the court an opportunity to consider any specific
ways in which Dowd believed the joint trial had
134 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
resulted in actual prejudice to his defense. His failure
to renew the motion cannot be excused.
C. Minor Role Adjustment
The district court overruled Dowd’s objection to the
probation officer’s pre-sentence report (“PSR”), which
did not grant him a two-level reduction in his offense
level for being a minor participant in the offense. See
U.S.S.G. § 3B1.2(b). The court reasoned:
In terms of culpability or a hierarchy, [Dowd] certainly
did not play a role equal to that of Mr. Vallone, or yet
to be sentenced Mr. Dunn, or yet to be sentenced
Mr. Bartoli. But he was very actively engaged in
doing what he could to accomplish the conspiratorial
objectives and on a day-to-day basis, so he did not
play a minor role. . . . .
R. 1039 at 62-63.
Dowd contends that the court clearly erred in denying
him this reduction. See, e.g., United States v. Smith, 674 F.3d
722, 728 (7th Cir. 2012) (district court’s findings as to
defendants’ role in the offense are reviewed for clear
error), petition for cert. filed (U.S. Sept. 14, 2012) (No. 12-325).
Dowd argues that as an administrative assistant,
he occupied an entry level position in Aegis, for which
he was paid roughly $25,000 per year. As we have dis-
cussed, he represents that he was not sophisticated in
the laws governing trusts, taxation, or offshore banking
and that he did not comprehend the scope and nature
of the Aegis scheme; instead, he trusted his father,
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 135
08-4320, 09-1864 & 09-2174
Vallone, Bartoli and others who assured him that Aegis
was legitimate. The PSR acknowledged that Dowd did
not create the Aegis scheme, did not manage other par-
ticipants, and did not receive the largest share of profits
from the scheme. Dowd contends that he did not profit
from the scheme at all. Finally, he points out that he
was named in just ten of 114 overt acts listed in the in-
dictment.
Although we agree that Dowd played a lesser role in
the offense than other defendants, we are not left with
the definite and firm conviction that the court erred in
declining to treat him as a minor participant in the
offense. See Smith, 674 F.3d at 728. The commentary to
Guidelines section 3B1.2 defines a minor participant as
one who is substantially less culpable than the average
participant in the offense and who is less culpable than
most other participants, but whose role cannot be de-
scribed as minimal. § 3B1.2, comment. (n.5). In assessing
a defendant’s relative culpability, a court must consider
all of the individuals who participated in the offense,
not just those who have been convicted. See id. (n.1);
U.S.S.G. § 3B1.1, comment. (n.1). Dowd participated in
the Aegis scheme for a period of five years. He may
have started out as an administrative assistant, but his
role in the offense ultimately went far beyond that. The
district court found that Dowd “was very actively en-
gaged” “on a day-to-day basis” during that time
(R. 1039 at 62-63), and the evidence certainly supports
that finding. He had check-signing authority so that he
could pay Aegis’s bills. He was the primary person who
136 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
dealt with Jenkins in Belize to arrange for the requisite
documentation as to offshore companies and trusts for
Aegis clients and to ensure that clients made demands
on their promissory notes in the offshore system in
order to make those notes appear legitimate. Over time,
he came to provide certain trust management services
to clients. He occasionally gave clients advice about
operating their trusts—for example, on what deductions
they could take. E.g., R. 967 Tr. 1575-76; R. 961 Tr. 1715-16.
He signed a commission agreement, promoted Aegis
trusts to several clients, and actually sold trust packages
to three clients (although he denied playing any meaning-
ful role in recruiting these clients). In 2000, he was pro-
moted to “operations manager” of Aegis and Heritage,
and although that may have been more of an administra-
tive role than a managerial one, it supports the notion
that he was not a minor participant in the Aegis
scheme. He was subsequently named to the Aegis Advi-
sory Board, which consulted with Vallone on the opera-
tion of the Fortress Trust. Without question, Dowd was
less culpable than Vallone and Bartoli, as he argues,
but one must remember that they received organizer/
leader enhancements to their offense levels; and they
were not average participants in the offense. Dowd con-
tends that all of the facts we have cited, including his
titles, overstate his actual role in the offense, but suffice
it to say that it was not clearly erroneous for the court
to conclude that he was not substantially less culpable
than the average participant. (The average participant,
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 137
08-4320, 09-1864 & 09-2174
arguably, was the Aegis client—and several Aegis
clients went to jail.)
D. Reasonableness of Sentence
The district court ordered Dowd incarcerated for a
period of 120 months, which he contends was an unrea-
sonably harsh sentence given his degree of culpability
relative to the other defendants. Again, Dowd emphasizes
that he was neither the instigator nor a leader of the
Aegis scheme but rather someone who happened into
it by taking a job with Heritage at the suggestion of his
father and with no intent to become a felon. He likens
himself to the “accidental criminal” lured into the
scheme, as discussed in United States v. Nachamie, 121
F. Supp. 2d 285, 296 (S.D.N.Y. 2000), j. aff’d, 5 F. App’x
95 (2d Cir. 2001). Dowd also contends that the district
court failed to give meaningful consideration to the
sentencing factors identified in 18 U.S.C. § 3553(a). In
particular, Dowd contends that the court ignored the
fact that holding him responsible for a loss amount of
$50 million vastly overstated his culpability and re-
sulted in a Guidelines sentencing range that was “grossly
disproportional” to his relatively minor role in the of-
fense. Dowd Br. 40. In that respect, Dowd (like other
defendants) was put at a disadvantage by a 2008 change
in the Guidelines, which resulted in more punitive
offense levels for losses of this magnitude. At the same
time, he believes the court did not give serious consider-
ation to mitigating factors that included his strong
138 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
family ties, lack of criminal history, employment as an
airline pilot, and the prospect that he would lose his
pilot’s license as a result of his conviction. Dowd believes
that the unreasonableness of the 120-month sentence
imposed on him is evident from the fact that it is the
same length as the penalty imposed on Bartoli, who was
among the most culpable participants, and only forty
months less than that imposed on Cover, who was
also much more culpable.
The sentence imposed on Dowd, being one month
below the low end of the advisory Guidelines range, is one
that we presume to be reasonable, e.g., United States v.
Russell, 662 F.3d 831, 853 (7th Cir. 2011), cert. denied, 132
S. Ct. 1816 (2012), and Dowd has not succeeded in rebut-
ting that presumption. Dowd’s situation is sympathetic
in that his employment with Heritage and Aegis was
his first job after college, he was initially led astray as to
the legitimacy of the business trust by his father, of all
people, and he did not realize at the outset that he was
joining a criminal organization. Yet, he remained with
Heritage and Aegis for five years, took on an increasing
level of responsibility, and was actively involved in the
promotion and management of Aegis trusts, despite
multiple forms of notice that the Aegis trust was a sham.
As an employee at Aegis’s home office in Illinois, Dowd
knew that Aegis had hundreds of clients and thus was in
a position to appreciate the scope of the Aegis scheme. He
knew as of 1999 (two years before his departure) that
roughly ninety of those clients were under investigation by
the IRS. Moreover, as the government points out, Dowd
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 139
08-4320, 09-1864 & 09-2174
benefitted from certain breaks in the district court’s
Guidelines calculations: because the court held Dowd
responsible for a loss amount of $50 million rather than
$60 million based on the five years of his involvement,
R. 1039 at 67, Dowd faced a sentencing range of 121 to 151
months rather than 151 to 188 months; and the court
declined to apply an enhancement for obstruction of
justice despite its acknowledgment that the government
had a “very strong argument” that Dowd had committed
perjury while testifying in his own defense, id. at 57.
The court also took into consideration Dowd’s “rational-
ization” as opposed to willingness to accept responsi-
bility for his conduct. R. 1039 at 57. The comparable
length of the sentences imposed on Bartoli and Cover
were based on their respective ages and health.
We may assume that another judge might have
imposed a lesser sentence on Dowd. But for all of the
reasons we have cited, we cannot conclude that Judge
Norgle abused his discretion in concluding that a
sentence one month below the bottom of the range
advised by the Sentencing Guidelines was unreasonable.
See United States v. Tahzib, 513 F.3d 692, 695 (7th Cir.
2008) (below-Guidelines sentence will almost never be
unreasonable).
E. Ex Post Facto Clause
As we have indicated, a relatively recent change in
the Guidelines resulted in an increase to Dowd’s offense
level and the resulting Guidelines sentencing range. The
140 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
November 2000 version of the Guidelines in effect at the
time Dowd’s offense conduct ended specified a base
offense level of 25 for a $50 million dollar loss amount
(see U.S.S.G. § 2T4.1(T) (Nov. 2000)), whereas the Novem-
ber 2008 version of the Guidelines that the district court
applied at sentencing specified an offense level of 28
for that loss amount (see U.S.S.G. § 2T4.1(L) (Nov. 2008))—a
difference of three levels. Had the district court applied
the earlier version, the advisory sentencing range
would have been 87 to 108 months rather than 121 to
151 months. Dowd contends that relying on the later
version amounts to a violation of his rights under the
ex post facto clause of the Constitution. See U.S. C ONST.
Art. I, sec. 9, cl. 3
We have already rejected the ex post facto argument
that Dowd is making. See United States v. Demaree, 459
F.3d 791, 793-95 (7th Cir. 2006). Dowd invites us to re-
consider Demaree, but we have repeatedly declined
similar invitations. E.g., United States v. Wasson, supra,679 F.3d at 951.
HOPPER
A. Sufficiency of the Evidence
The jury convicted Hopper on all counts in which he
was charged. He moved pursuant to Rule 29 for a judg-
ment of acquittal both at the close of the government’s
case and after the jury returned its verdict. The district
court denied his motions, reasoning that “[a]t trial,
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 141
08-4320, 09-1864 & 09-2174
the government presented overwhelming evidence that
the tax shelters marketed by Aegis were unlawful
shams designed ‘to make life harder for the revenooers’
by transferring clients’ income to both domestic and
offshore trusts, so that clients could pretend they had
no income.” R. 650 at 11-12 (quoting United States v.
Patridge, supra, 507 F.3d at 1092). Hopper concedes that
the trial exposed the Aegis trust system as a sham, but
he contends that the court’s ruling failed to recognize
that the government never proved that he lacked a
good faith belief in the legality of the Aegis trust system.
As we noted with respect to Dowd, our review of the
sufficiency of the evidence is de novo, United States v.
Hassebrock, supra, 663 F.3d at 918, but we will reverse
only if, in considering the evidence in the light most
favorable to the government, no reasonable jury could
have found Hopper guilty beyond a reasonable doubt,
United States v. Hills, supra, 618 F.3d at 637.
Hopper’s position is that he had a much stronger Cheek
defense than his fellow defendants, and that the gov-
ernment failed to overcome it. He asserts that his good
faith in the legitimacy of the Aegis system is demon-
strated by the fact that when he eventually came to
realize that the system was a sham, he took steps to
separate himself from the conspiracy. Until the Tax Court
issued its June 1999 decision in Muhich, Hopper argues,
he genuinely believed that the Aegis system was legiti-
mate. Once that decision was issued, he began to have
doubts. He spoke with others at Aegis in an effort to
determine what, in fact, was lawful. And when Vallone
142 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
proposed the Audit Arsenal as a means of thwarting
IRS inquiry, Hopper opposed him. (Recall Parker’s testi-
mony regarding the fall 1999 showdown between
Vallone and Hopper.) When his efforts to pursue a more
constructive response to the IRS inquiries facing Aegis
clients proved unavailing, he resigned his position as
the Managing Director of Aegis in a letter to Vallone
dated January 17, 2000.1 3 He therefore ended his involve-
ment sooner than others, like Parker, who were more
educated and sophisticated than he was (Hopper had
only a high school diploma) and thus should have been
among the first to realize that the Aegis trust system
was a sham. That he extricated himself from Aegis rela-
tively soon after the Muchich decision confirms—in Hop-
per’s view—his good faith belief in the lawfulness
of the trust system until that time and precluded
a reasonable finding by the jury that he exhibited the
willfulness necessary to convict him on the charges
of conspiracy, mail fraud, or aiding and assisting in the
preparation of false or fraudulent tax returns.
Although Hopper’s Cheek defense was, in some superfi-
cial respects, more appealing than those of other defen-
dants, the record is by no means devoid of evidence
from which the jury could reasonably find that Hopper
13
Hopper’s involvement with Aegis did not end immediately.
He continued in a “consultant and support capacity” until
May 1, 2000. Then, on June 8, 2000, he wrote a letter severing
all ties with Vallone.
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 143
08-4320, 09-1864 & 09-2174
lacked a subjective good faith belief in the legality of
the Aegis system even prior to the Tax Court’s decision
in Muhich and his subsequent decision to resign from
Aegis. On the contrary. From the very beginning, the
Aegis trust system was obviously and incontrovertibly at
odds with the fundamental proposition that the tax
liability on income and assets rests with the individual
who controls those assets. The ways in which the Aegis
trusts were structured and used (for example, the
routine resignation of the nominally-independent Aegis
trustee and replacement with the client shortly after
each trust was formed, typically pursuant to paperwork
that was executed when the trust was created) would
make plain even to a non-lawyer and non-accountant
that the transfer of income and assets to the trusts
was in form only, and that the Aegis client never in fact
surrendered any control of those assets and income.
Hopper’s own words at a videotaped Aegis seminar—the
recording of which was offered for sale and, in fact, was
purchased by Agent Priess—suggest that he understood
full well that the purpose of the Aegis trusts was simply
to hide a client’s money from the IRS:
It’s, it’s taking it from one pocket and putting it in
the other and you know and then, and then
standing before your wife and saying, “See, I got no
money, see.” That’s, that’s what it amounts to. Uhh,
to the IRS. Okay.
Gov’t Ex. Priess Tr. 2 (Gov’t Supp. App. 246), Gov’t Ex.
Priess Video DVD. Hopper also told seminar attendees
144 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
in 1995 that he was taking tax deductions for obviously
personal expenses such as clothes, exercise equipment,
and cable television. Gov’t Ex. Coleman Tr. 2-5 (Gov’t
Supp. App. 93-96). He even boasted that his reported
income was so low that he qualified for an Earned
Income Tax Credit from the IRS and financial aid for his
daughters to attend college. Gov’t Ex. Coleman Tr. 6-7
(Gov’t Supp. App. 97-98). As outrageous as these state-
ments were, they were not simply exaggerations but
rather outright falsehoods, in the sense that Hopper
did not file any federal income tax returns at all from
1995 through 2002. Instead, he was periodically writing
to the IRS contending that he owed no taxes, even as
he was earning hundreds of thousands of dollars from
Aegis. (He earned a total of $701,000 from 1997 through
2000.) A jury might reasonably infer from these
facts that Hopper had not been led astray by his more
sophisticated co-defendants as to the legitimacy of the
Aegis system but understood all along that the system
was merely a shell game, and one that he eagerly
embraced and used to his own profit.
There is also evidence undermining Hopper’s conten-
tion that he was a true believer in the legitimacy of the
Aegis system until the Muhich decision set him straight.
Muhich, as the government points out, was not the
first warning of illegality that the defendants received.
IRS Notice 97-24, issued more than two years prior to the
Tax Court’s decision, specifically addressed abusive
trusts very much like the Aegis trusts and touched
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 145
08-4320, 09-1864 & 09-2174
upon such highly relevant points as the deductibility
of personal expenses:
Personal expenses are generally non-deductible. . . .
The courts have consistently held that non-deductible
personal expenses cannot be transformed into de-
ductible expenses by the use of trusts.
IRS Notice 97-24 at 3 (citing, inter alia, Schulz v. C.I.R., supra,
686 F.2d 490). And the ARDC complaint issued against
Bartoli in November 1996 asserted that Bartoli was de-
frauding Heritage and Aegis clients by representing to
them that the CBO and trust systems Aegis was
peddling would minimize, if not eliminate, their tax
liability, when, in reality, “applicable trust, tax and com-
mon law do not recognize the CBO, as employed by
Aegis[ ] and [Bartoli], as a viable entity formed for the
purpose of eliminating or reducing taxes.” R. 961 Tr. 2652;
Gov’t Ex. ARDC 1. As we noted earlier, the jury could
infer that Hopper, along with other defendants, was
aware of the ARDC proceeding given that he was one
of the witnesses deposed in the course of that proceed-
ing. Indeed, it was Hopper who prepared a summary of
the testimony that William Marutzky gave during that
proceeding in March 1999, opining that the Aegis
system would not legally provide the tax benefits to the
defendants that Aegis had advertised. R. 918 Tr. 4323-24;
Gov’t Ex. Aegis Office Hallway Computer 1.
Moreover, whatever distance Hopper eventually may
have put between himself and the other defendants in
2000 with respect to such aspects of the Aegis scheme
146 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
as the Fortress Trust and the Audit Arsenal, there is
also evidence that he was by no means averse to par-
ticipating in efforts to throw roadblocks in the path of
the government as it sought to expose and unwind the
defendants’ crimes. He was, after all, one of the plaintiffs
in the lawsuit against IRS auditor Pogue and the ARDC
in 1997 that Judge Plunkett later dismissed as frivolous
in November 1999, sanctioning the plaintiffs for their
“fictional claims.” Bartoli v. ARDC, supra, 1999 WL
1045210, at *3.
Finally, although Hopper now contends that it was
Muhich that caused him to see the light and to withdraw
from Aegis, his behavior subsequent to that June 1999
decision was not wholly consistent with that of a con-
vert. In November 1999, five months after the Muhich
decision, Hopper signed a corporate resolution con-
firming that he along with Vallone and Bartoli shared
equal management authority over Aegis. R. 950 Tr. 3838-
41; R. 910 Tr. 6226; Gov’t Ex. Aegis Office 80. And al-
though Hopper eventually did resign as the Managing
Director of Aegis in January 2000, he continued to
provide consulting services and support until May 2000
and did not formally break off his ties with Vallone
until June 2000 (more on that below). He continued to
receive money from Aegis until June 2000 and from Aegis
Management Company (which provided management
services to trust clients) until December 2000. See Gov’t
Ex. Hopper Income Summary.
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 147
08-4320, 09-1864 & 09-2174
We may assume for the sake of argument that a jury
could have been persuaded by Hopper’s Cheek defense. He
was neither an attorney nor an accountant, and he ulti-
mately did end his involvement in the Aegis scheme
somewhat sooner than other defendants. In the fall of
1999, he also voiced reservations to his co-conspirators
about the Audit Arsenal and argued that Aegis clients
ought to be encouraged to seek out legal representation
of their own. But as we have discussed, the jury
reasonably could infer from Hopper’s own words and
deeds that he understood the essentially fraudulent
nature of the Aegis system from the start, that he
continued his involvement in the defendants’
scheme—and continued to profit from it—long after he
and the other defendants received notice that the Aegis
system was not a valid means of tax minimization, and
that he joined the other defendants in seeking to block
exposure of the scheme. From all of this, the jury could
reasonably find that Hopper did not have a good faith
belief in the legality of the Aegis system and instead
willfully conspired and schemed to defraud the govern-
ment.14
14
We note that the jury was instructed, in the form proposed
by Hopper’s counsel, that following a defendant’s with-
drawal from a conspiracy, he could not be held liable for the
acts of his former co-conspirators. See Hopper Instruction 4;
R. 936 Tr. 6018-21; R. 925 Tr. 7381-82. Thus, if the jury was
persuaded by Hopper’s contention that he withdrew from
(continued...)
148 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
A few additional words are in order as to Hopper’s
convictions on the counts of the indictment charging him
(among others) with knowingly aiding and assisting the
preparation of false tax returns, in violation of section
7206(2).15 As we discuss below with respect to defendant
Dunn, infra at 179-80, the fact that Hopper did not
prepare returns for others does not preclude his liability
on these charges. Our decision in United States v. Hooks
recognizes that liability under section 7206(2) “ ‘extends
to all participants in a scheme which results in the filing
of a false return, whether or not those parties actually
prepare it.’ ” 848 F.2d 785, 791 (7th Cir. 1988), (quoting
United States v. Siegel, 472 F. Supp. 440, 444 (N.D. Ill. 1979),
judgment aff’d sub nom. United States v. Winograd, 656 F.2d
279 (7th Cir. 1981)). Hopper without doubt understood
that Aegis clients would be filing tax returns based on
their use of the Aegis trusts; and as we have discussed,
his appreciation that the trusts were not a lawful means
of tax avoidance meant that he also understood that
those returns would be fraudulently understating the
clients’ income. Thus, the jury had a more than sufficient
basis on which to find Hopper guilty under section 7206(2).
To the extent that Hopper suggests the government
14
(...continued)
the charged conspiracy in the wake of the Tax Court’s decision
in Muhich, the jury would have understood that it could
not convict Hopper based solely on what other members of
the conspiracy knew or did following Hopper’s withdrawal.
15
These include Counts 11 through 13, 15, 16, 18, 19, 24 and
25, and 27 through 34 of the Superseding Indictment.
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 149
08-4320, 09-1864 & 09-2174
did not adequately prove the identity of the taxpayers
whose returns formed the basis for these charges, our own
review of the record convinces us otherwise. E.g., R. 963
Tr. 4807-08, 4795-97; Gov’t Ex. Taxpayers A through O.
B. Loss Amount
Hopper contends that the district court clearly erred in
holding him responsible for a loss amount in excess of
$50 million, because that total included losses associated
with the 2000 tax year (i.e., tax returns filed in 2001 for
2000) despite his (purported) withdrawal from the con-
spiracy and scheme to defraud in early 2000.1 6 Hopper
notes that after the Muhich decision, he prepared a
detailed letter to Bartoli and Vallone suggesting ways
in which the Aegis system might be changed in order to
comply with the law. R. 762 at 99-108; Gov’t Ex. Aegis
Office 13. He also opposed Vallone’s decision to pursue
the Audit Arsenal in the fall of 1999, as Parker testified.
R. 913 Tr. 1954-58; R. 947 Tr. 2082-89. And he ultimately
resigned as a Managing Director of Aegis in January 2000,
16
The court assumed that the total loss amount would come to
at least $56 million even if losses for tax years after 2000 were
excluded from the loss calculation. Hopper’s counsel conceded
that the only way to get the loss amount below $50 million
(and thereby reduce the offense level) was to exclude losses
occurring after May 2000, when Hopper’s resignation took
effect, if not all losses that occurred in 2000. The court rejected
the contention that losses for any part of 2000 should be ex-
cluded. See R. 1085 Tr. 10-11, 17-22.
150 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
at which point he no longer had supervisory authority
at Aegis. By May 2000, he was out of the Aegis
picture altogether. In Hopper’s view, this marked his
withdrawal not only from Aegis but from the charged
conspiracy and scheme to defraud, and it terminated
his liability for losses that were incurred later. The
district court rejected that notion, reasoning that Hopper’s
resignation did not constitute a legally effective with-
drawal from the conspiracy and scheme. R. 1085 at 13-15.
The court’s finding as to Hopper’s withdrawal is a
factual finding that we review for clear error, see United
States v. Vaughn, 433 F.3d 917, 922-23 (7th Cir. 2006), as is
its determination of the loss amount for which Hopper
is responsible, e.g. United States v. Borrasi, 639 F.3d 774,
783 (7th Cir. 2011).
The court committed no clear error in concluding
that Hopper’s departure from Aegis in 2000 did not
constitute a legally effective withdrawal from the con-
spiracy. In addition to his resignation as Managing Di-
rector in January 2000, R. 761-1 at 3, Hopper relies on
a letter that he wrote to Vallone in June 2000 severing
his ties to Vallone, id. at 7. Bartoli and Parker were
copied on that letter. Hopper reasons that this con-
stituted an announcement sufficient to notify his co-
conspirators of his withdrawal. See United States v. Wilson,
supra, 134 F.3d at 863 (“The affirmative step required to
constitute withdrawal must be either a full confession by
the defendant to the authorities, or communication by
the defendant of the fact of his withdrawal in a manner
designed to reach his co-conspirators.”) (emphasis ours).
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 151
08-4320, 09-1864 & 09-2174
We may assume that the letter constituted adequate
notice to the other defendants that Hopper would no
longer be an active member of the conspiracy; but in
order to effectuate a legally meaningful withdrawal
from the conspiracy, the defendant’s announcement must
also “disavow[ ] the conspiracy and its criminal objec-
tives.” United States v. Morales, 655 F.3d 608, 640-41 (7th
Cir. 2011) (noting defendant never “renounced the goals
of the conspiracy”) (citing United States v. Emerson, 501
F.3d 804, 812 (7th Cir. 2007)), cert. denied, 132 S. Ct.
1121 (2012). Nothing in Hopper’s letter disavowed or
renounced the Aegis system. It expressed Hopper’s disap-
proval of certain actions Vallone had taken, including
what Hopper perceived as Vallone’s behind-the-scenes
efforts to undermine the audit representation that Parker
& Associates was attempting to provide to Aegis clients.
Hopper was of the view that Vallone’s attempts to avoid
IRS audits “in all probability will be looked upon by the
IRS as obstruction or interfering with the administration of
the Internal Revenue Laws.” R. 761-1 at 8. But it voiced
no disapproval of the Aegis system or of the validity of
the tax returns Aegis clients had been and would be
filing based on the use of Aegis trusts. Even as to
Vallone’s efforts with respect to the audits, Hopper
remarked, “I truly hope that you are successful in your
efforts. And I really mean that.” R. 761-1 at 8. This is not
the language of renunciation.
Because the facts support the district court’s finding
that Hopper did not withdraw from the conspiracy early
152 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
in 2000, it was appropriate to charge Hopper with the
additional tax losses that occurred in the 2000 tax year.
See U.S.S.G. § 1B1.3(a)(1)(A), (B) and (a)(3) (defendant’s
relevant conduct includes all harm resulting from his
own acts and all reasonably foreseeable acts of others
in furtherance of jointly undertaken criminal activity).
As there is no dispute that these additional losses
caused the total loss amount to exceed $50 million,
there was no error in the loss-amount calculation or
in the offense-level calculations that turned on the
loss amount.
C. Use of Guidelines in Effect at Time of Sentencing
In calculating Hopper’s offense level, the district court
used the 2008 Guidelines in effect at the time of his sen-
tencing rather than the November 2000 version in effect
in the waning days of the offense. As was true in
Dowd’s case, this worked to Hopper’s disadvantage, in
that the newer version of the Guidelines specified a
significantly higher offense level for losses in excess of
$50 million. Under the November 2000 Guidelines, Hop-
per’s adjusted offense level would have been five levels
lower than it was under the 2008 Guidelines (compare
U.S.S.G. § 2T4.1(T) (2000) (specifying a base offense level
of 25) with U.S.S.G. § 2T4.1(M) (2008) (specifying base
offense level of 30)), which would have resulted in
an advisory sentencing range of 135 to 168 months
rather than the range of 235 to 293 months that the
court referenced. Hopper contends that the court’s use
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 153
08-4320, 09-1864 & 09-2174
of the newer, and more punitive, version of the Guide-
lines constitutes a violation of the ex post facto clause
of the Constitution.
As Hopper acknowledges, our decision in United States
v. Demaree, supra, 459 F.3d at 794-95, forecloses his ex post
facto argument. Like Dowd, Hopper invites us to recon-
sider Demaree, but, as we have noted, we have already
rejected multiple invitations to do so. E.g., United States v.
Wasson, supra, 679 F.3d at 951.
D. Sentencing Manipulation
Finally, Hopper argues that the government boosted
the loss amount, and thus his Guidelines sentencing
range, by not acting sooner than it did to stop what the
defendants were doing. Hopper notes that Special Agent
Priess commenced his undercover investigation of the
Aegis CBO scheme in 1996, attended a series of Aegis
seminars in that year and the ensuing three years, and
(still in his undercover capacity) held conversations
with a number of the defendants, tax preparers
working with Aegis, and individual taxpayers during
that time. No later than 1998, Hopper reasons, the gov-
ernment had all of the information that it needed to
conclude that the Aegis system was a criminal tax-avoid-
ance system. Yet, not until March 2000, when it executed
the search warrant on Aegis’s headquarters did it begin
to signal to the defendants their criminal exposure, and
at no time prior to the indictment in 2004 did it seek
to enjoin the defendants’ activities. In effect, Hopper
154 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
suggests, the government engaged in sentencing manipu-
lation by allowing the tax losses resulting from the
scheme to continue mounting, exposing him to a much
longer sentence as a consequence of the delay.
A variation of Hopper’s argument could be made in
any number of cases, particularly those involving under-
cover investigations of large-scale criminal activity with
many participants. Typically, the government’s goal is
to build a strong evidentiary case that is likely to result in
the conviction not just of low-level players but also the
leaders and instigators of the scheme; and that takes
time. We know of no legal principle that requires the
government to intervene to stop ongoing non-violent
criminal activity as soon as it arguably has a sufficient
case to prosecute the defendants.
But the dispositive point is that this circuit does not
recognize sentencing manipulation. E.g., United States
v. Mandel, 647 F.3d 710, 720 n.3 (7th Cir. 2011); United
States v. Long, 639 F.3d 293, 300-01 (7th Cir. 2011). More-
over, to the extent Hopper is simply arguing that the
government’s delay in intervening to stop the scheme
constitutes a factor that should have been considered
in mitigation under section 3553(a), we repeat the ob-
servation that we made in United States v. Knox, 573
F.3d 441, 452 (7th Cir. 2009): “Although the agent’s
tactics had the effect of increasing [the defendant’s]
guidelines sentencing range, it also served the legitimate
purpose of investigating the full extent of [the defendant’s]
criminal activity . . . .” (citing United States v. Wagner,
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 155
08-4320, 09-1864 & 09-2174
467 F.3d 1085, 1090 (7th Cir. 2006) (“It is within the dis-
cretion of law enforcement to decide whether delaying
the arrest of the suspect will help ensnare co-con-
spirators, give law enforcement greater understanding
of the nature of the criminal enterprise, or allow the
suspect enough ‘rope to hang himself.’ ”)).
E. Organizer Enhancement
The district court increased Hopper’s offense level by
four points pursuant to section 3B1.1(a) of the Guide-
lines, deeming him an organizer or leader of a criminal
activity that involved five or more participants. The court
reasoned that Hopper had been the managing director
of Aegis, supervised the company’s employees, and ran
the day-to-day operations of the business. R. 1085 at 15-
16. Hopper concedes that “he was one of the founders
of Aegis, shared in monetary distributions[,] and at
least until 1998-99 was involved in day-to-day supervi-
sion of the staff.” Hopper Br. 37. On that basis, he agrees
that a three-level managerial enhancement would be
appropriate. See U.S.S.G. § 3B1.1(b). But he believes that
the more substantial organizer/leader enhancement
overstates his actual role in the offense. His role “was
much more subsidiary” than those of Vallone and
Cover, he posits, Hopper Br. 37: he did not write the
Aegis Directors’ Manual, he was not involved with
the backdating of trusts or other documents, he was
not responsible for the development of either the CBO
charitable trust or the foreign trust system, he did not
156 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
have the working relationship with David Jenkins in
Belize that Vallone and Cover did and had only minimal
involvement in the foreign trust operation, he had rela-
tively little contact with most Aegis customers, and his
role in supervising the staff was much more akin to that
of a mid-level manager. Hopper adds that his lesser
station in the Aegis power structure is demonstrated by
the fact that he was unable to prevail in his opposition
to the creation of the Audit Arsenal and the strategy
of obstructing IRS audits that Vallone championed.
Our review of the district court’s decision to
impose the organizer/leader enhancement rather than the
managerial enhancement is for clear error, e.g., United
States v. Smith, supra, 674 F.3d at 728, and the court did
not clearly err in choosing to apply the former. Factors
bearing on the appropriate label to give the defendant’s
role in the offense “include the exercise of decision
making authority, the nature of participation in the com-
mission of the offense, the recruitment of accomplices,
the claimed right to a larger share of the fruits of the
crime, the degree of participation in the planning or
organizing of the offense, the nature and scope of the
illegal activity, and the degree of control and authority
exercised over others.” § 3B1.1, comment. (n.4). “No
one of these factors is considered a prerequisite to the
enhancement, and, at the same time, the factors are not
necessarily entitled to equal weight.” United States v.
Wasz, 450 F.3d 720, 729 (7th Cir. 2006) (citing United
States v. Matthews, 222 F.3d 305, 307 (7th Cir. 2000)). “And
although the nature and purposes of the enhancement
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 157
08-4320, 09-1864 & 09-2174
certainly require the defendant to have played a leading
role in the offense, he need not literally have been the
boss of his cohorts in order to qualify for the enhance-
ment, for a leader can influence others through indirect
as well as direct means[.]” Id. at 729-30. Hopper was a
founder and, until 2000, the managing director of Aegis.
He held ownership interests in both Aegis and Aegis
Management Company. Along with Bartoli and Vallone,
he claimed a substantial share of the profits of Aegis,
earning over $1.6 million from Aegis and related compa-
nies from 1994 through 2000. Gov’t Ex. Hopper Income
Summary (Gov’t Supp. App. 200). Hopper and Vallone
certainly had their disagreements, and according to
Hopper it was ultimately his inability to stop Vallone
from attempting to obstruct IRS audits that caused him
to leave the company in 2000. But as we have pointed
out, as late as November 1999, a resolution adopted by
the Aegis Board of Directors (and signed by Hopper)
recognized that Hopper shared management authority
over the company equally with Vallone and Bartoli. At
least until 2000, then, Hopper was at the uppermost
echelon of Aegis’s leadership, oversaw the company’s
operations, enjoyed a greater share in the income
generated by Aegis than everyone but Vallone and
Bartoli, and possessed management authority on a level
with theirs. All of these facts support the district court’s
decision to deem him an organizer or leader of the
Aegis scheme rather than a manager.
158 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
F. Weight Given to Guidelines in Determining Sentence
In the wake of Booker, a district court in choosing a
reasonable sentence must not presume, as we may, that
a sentence within the range advised by the Guidelines is
reasonable. See Gall v. United States, supra, 552 U.S. at 50,
128 S. Ct. at 596-97; Rita v. United States, 551 U.S. 338,
351, 127 S. Ct. 2456, 2465 (2007). Instead, after ascer-
taining the Guidelines sentencing range, the court must
consult the statutory sentencing factors set forth in
section 3553(a) and determine independently what sen-
tence is reasonable. Gall, 552 U.S. at 49-50, 128 S. Ct. at 596;
e.g., United States v. Young, 590 F.3d 467, 473-74 (7th Cir.
2009); see also United States v. Robertson, 662 F.3d 871,
880 (7th Cir. 2011) (“A sentencing court need not compre-
hensively discuss each of the factors listed in 18 U.S.C.
§ 3553(a), but it must give the reasons for its sentencing
decision and address all of a defendant’s principal argu-
ments that ‘are not so weak as to not merit discussion.’ ”)
(quoting United States v. Cunningham, 429 F.3d 673, 679
(7th Cir. 2005)). Among other things, section 3553(a)
commands that the sentence must be sufficient but not
greater than necessary to serve the sentencing aims set
out in the statute. E.g., United States v. Pennington, 667
F.3d 953, 957 (7th Cir. 2012). Hopper contends that the
district court violated this so-called “parsimony” admoni-
tion here by giving too much weight to the advisory
Guidelines range, which in this case was driven to a
significant extent by the loss amount of more than
$50 million. The court acknowledged the set of mitigating
factors that supported a lower sentence, including
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 159
08-4320, 09-1864 & 09-2174
the abuse that Hopper had suffered as a child, his military
service in Vietnam, the injuries he incurred during
that service and the post-traumatic stress disorder he
continues to experience as a result of that service, the
physical ailments (including degenerative arthritis)
from which he suffers, his age (sixty-three at the time of
sentencing), his strong relationship with his wife and
children, his sincere remorse, and certain efforts he
made to rectify his criminal wrongdoing. R. 1085 at 45-48,
50-51, 52. And the court ultimately did impose a
sentence thirty-five months below the bottom of
the Guidelines range. But, according to Hopper, the
court believed itself constrained by the loss amount
from deviating too far from the Guidelines range absent
a compelling justification for doing so. The court thus
committed a legal error, in Hopper’s view, by treating the
Guidelines, and in particular the loss amount, as
limiting the extent to which it could impose a sen-
tence below the Guidelines sentencing range, even if
the mitigating factors otherwise weighed in favor of a
substantially below-Guidelines sentence. See, e.g., United
States v. Grigg, 442 F.3d 560, 565-66 (7th Cir. 2006).
We reject this argument. Our review of the sentencing
transcript convinces us that the district court merely
viewed the loss amount as a significant factor—in the
court’s words, “one of the heaviest factors”—that weighed
against a lower sentence, not one that tied the court’s
hands. R. 1085 at 44. The court expressly acknowledged
that it could not presume a sentence within the Guide-
lines range to be appropriate, see id. at 44-45, acknowl-
160 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
edged its duty to consider the section 3553(a) factors, id.
at 45, and proceeded to give careful attention to those
factors, see id. at 45-53. As Hopper acknowledges, the
court recognized and took into consideration the many
factors that weighed in Hopper’s favor, id. at 45-48, 50-51,
52, and in fact chose to impose a sentence that was
nearly three years below the minimum sentence of 235
months recommended by the Guidelines. The court
simply did not believe that an even lower sentence was
warranted given the scope of the loss resulting from
Hopper’s offense. The court did not misunderstand its
own authority nor did it commit any other form of error.
G. Reasonableness of the Sentence
Finally, Hopper challenges the reasonableness of the
sentence that the district court imposed on him. The court
ordered Hopper to serve a sentence of 200 months. Al-
though the sentence was 35 months below the low end
of the range advised by the Guidelines, Hopper none-
theless contends it was excessive and therefore unrea-
sonable. Hopper emphasizes the mitigating factors that
the district court itself acknowledged in arriving at the
sentence and which we have already mentioned. For a
man in his sixties, Hopper argues, a 200-month sentence
is a life sentence. In arriving at that sentence, Hopper
again argues, the district court was fixated on the loss
amount to the exclusion of the many mitigating factors
which demonstrate that a much lower sentence would
be reasonable.
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 161
08-4320, 09-1864 & 09-2174
As a below-Guidelines sentence, Hopper’s sentence
is presumptively reasonable, e.g., United States v. Russell,
supra, 662 F.3d at 853, and Hopper has not succeeded in
rebutting that presumption. We acknowledge that the
sentence will require Hopper to spend most, if not all, of
his remaining years in prison. See id. at 852-53. However,
his offense was one that took place over a substantial
period of time, enticed over six hundred taxpayers into
a fraudulent scheme of tax evasion, and resulted in tens
of millions of dollars of lost revenue to the government.
We have no reason to question the sincerity of the
remorse that Hopper expressed at sentencing, but Hop-
per’s offense evidenced much more than a fleeting lapse
in judgment: Beginning in 1994, Hopper knowingly
and willfully engaged in a scheme to defy the tax laws
and defraud the government; and he had continued to
perpetrate the scheme even as he was repeatedly put on
notice that what he and his co-defendants were doing
was illegal. Hopper, being at the head of the scheme
along with Bartoli and Vallone, was well situated to
appreciate the magnitude of the fraud he and his co-
defendants were perpetrating. Tax evasion has a long
and storied history in this country, and Hopper joins a
long list of practitioners that includes Al Capone, Spiro
Agnew, and Leona Helmsley. But the scheme that
Hopper and his partners perpetrated was particularly
insidious. Perhaps a different judge might have deemed
a more modest sentence sufficient to serve the aims of
sentencing set forth in section 3553(a)(2). But examining
Hopper’s sentence pursuant to the deferential, abuse-of-
162 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
discretion standard, see Gall, 552 U.S. at 51, 128 S. Ct.
at 597, we cannot say that it was unreasonable.
DUNN
A. Treatment of the Guidelines
Dunn’s opening contention is that the district court
committed legal error in treating the Guidelines as manda-
tory. As we have discussed, after Booker, the Guidelines
are advisory rather than mandatory. The district court’s
ultimate obligation is to impose a sentence that is rea-
sonable in light of the factors set forth in section 3553(a),
e.g., United States v. Young, supra, 590 F.3d at 473-74;
and although the court is obliged to properly apply the
Guidelines, Gall v. United States, supra, 552 U.S. at 49, 128
S. Ct. at 596, and to consider the resulting Guidelines
sentencing range in arriving at a reasonable sentence,
Freeman v. United States, 131 S. Ct. 2685, 2692 (2011) (“the
judge will use the Guidelines range as the starting point
in the analysis”), it must do so without placing a
“thumb on the scale favoring a guideline sentence,”
United States v. Sachsenmaier, 491 F.3d 680, 685 (7th Cir.
2007). Dunn contends that a thumb in favor of the Guide-
lines is evidenced in this case by the district court’s
remark that the base offense level resulting from a
$60 million loss “doesn’t give much latitude in terms of
the ultimate sentence in the case.” R. 1086 at 29. The
district court made that remark not long before it began
to go through the various section 3553(a) sentencing
factors, and Dunn suggests that the context of the
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 163
08-4320, 09-1864 & 09-2174
remark suggests that the district court had already de-
termined that it was effectively required to impose a
sentence consistent with what the Guidelines advised.
But we do not believe that the district court was op-
erating under any misconception that it was bound
by the Guidelines. Although the court’s use of the term
“leeway” is somewhat similar to the language of obliga-
tion that we have said is inconsistent with a court’s
duty after Booker to treat the Guidelines as a reference
point but not as a mandate, e.g., United States v. Penning-
ton, supra, 667 F.3d at 958 (court stated it must “follow”
the Guidelines), in context it is clear that the court in
no sense was treating the Guidelines as either binding
or presumptively correct as to the recommended sen-
tence. Much as it had with Hopper, the court noted that
the key factor in determining Dunn’s base offense
level under the Guidelines was the size of the tax loss, and
it was in view of the size of that loss that the court saw
little justification for imposing a sentence below the
Guidelines range. R. 1086 at 27-28, 29, 35. The balance
of the court’s sentencing remarks make clear that the
court was wholly aware that it had both the authority
to impose a non-Guidelines sentence as well as the duty
to determine a reasonable sentence independent of what
the Guidelines recommended. Id. at 30-31. The court
considered the full range of the factors that Dunn’s coun-
sel had cited in support of a below-Guidelines sen-
tence—including his challenging youth, his ethic of hard
work and self-improvement, his friendship and
generosity to others, and his reputation as a good and
164 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
honest man. Id. at 32-33. Still, the court believed that “the
nature and the circumstances of the offense,” id. at 32,
including the “extremely conservative figure” of the $60
million loss, id. at 28, outweighed these mitigating factors,
id. at 33. The court emphasized that “[t]his was not a
simple, one-time impulsive act,” id., and pointed out that
Dunn had shown no remorse, id. at 34. Ultimately, the
court found, in light of the statutory sentencing factors,
that the Guidelines range was “a fair range,” id. at 34, and
imposed a sentence at the bottom of that range.
B. Amount of Loss
As noted, the district court held Dunn responsible for
a loss amount of $60 million—i.e., the full amount of the
loss resulting from the Aegis scheme. Dunn challenges
the loss amount on two grounds. First, he questions
the accuracy of the method that the government used
to calculate the total loss, which loss the district court
cited as an “overriding consideration” in determining
his sentence. At trial, Agent Welch acknowledged that
he could not accurately calculate the actual tax loss for
every Aegis client, R. 963 Tr. 4851,1 7 and that “[r]easonable
people could differ” on the best way to calculate that
17
Welch could not do this because he did not have access to all
of the clients’ original tax returns, tax preparers’ files, and other
information (e.g., as to applicable deductions) that would
have permitted him to compute the actual tax loss as to
each Aegis client.
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 165
08-4320, 09-1864 & 09-2174
loss, R. 973 Tr. 5038. Welch had opted to estimate the
loss by multiplying each taxpayer’s income by twenty-
eight percent, the lowest of the federal income tax rates.
R. 963 Tr. 4851-52. As Dunn points out, this is not a
method that has been generally accepted in the ac-
counting profession or by the IRS, but one that Welch
nonetheless decided to follow in this case. R. 973 Tr. 4978-
80. Dunn also adds that in the case of one Aegis client,
the IRS ultimately accepted a settlement that was a
fraction of the tax loss that Welch himself had estimated.
R. 973 Tr. 5035-36. In Dunn’s view, all of this calls into
question the reliability of the method by which the
total tax loss in this case was arrived at. Second, the total
loss included tax losses incurred after Dunn left Aegis
in the spring of 2000. Dunn contends that his departure
constituted a withdrawal from the conspiracy and that
he should not be held liable for subsequent tax losses.
Had those later losses been excluded from the calcula-
tion, the total tax loss, according to Dunn, would have
come to less than $50 million and resulted in a lower
Guidelines offense level and thus a lower (advisory)
sentencing range. As Dunn acknowledges, neither of
these contentions was made in the district court, where
Dunn did not challenge the loss amount, so our review
of the loss calculation is for plain error alone. E.g.,
United States v. Jumah, 599 F.3d 799, 811 (7th Cir. 2010).
There was no such error here. The Guidelines them-
selves recommend use of the twenty-eight percent rate
in estimating the loss amount in tax fraud cases. U.S.S.G.
§ 2T1.1(c)(1)(A). Assuming that the income of each Aegis
166 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
client would have been taxed at a rate of twenty-eight
percent is, if anything, a conservative approach, as it is
entirely possible that the income of some clients would
have exceeded the twenty-eight percent tax bracket and
would therefore have been subject to a higher marginal
rate. Indeed, given the evidence that Aegis targeted high-
income individuals, this may be more of a likelihood
than a mere possibility. See R. 963 Tr. 4852-55. Thus,
even recognizing, as Welch himself did, that reasonable
people might differ as to the best way of determining
a tax loss in this case, it does not follow that there was
an obvious flaw in the approach that Welch followed.
See United States v. Julian, 427 F.3d 471, 482 (7th Cir.
2005) (plain error is one that is obvious in retrospect);
United States v. Mandel, supra, 647 F.3d at 722-23 (divergent
holdings among courts demonstrate that any error
district court may have committed was not plain). Nor
does the fact that the IRS in one case settled an audit for
a figure far less than the amount that Welch had
estimated as the loss call into question the reliability of
his calculations. As the government points out, the IRS
might choose to accept a settlement far below the
estimated tax due for any number of reasons. The record
as to this one case is insufficient to cast doubt on the
loss amount figure that the district court employed.
Second, although Dunn terminated his employment
with Aegis, he did not legally withdraw from the con-
spiracy. As we have already discussed with respect
to Hopper, a legally effective withdrawal requires
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 167
08-4320, 09-1864 & 09-2174
more than merely ceasing one’s active involvement; one
must also renounce the aims of the conspiracy. E.g.,
United States v. Morales, supra, 655 F.3d at 640-41. This
Dunn never did. Indeed, although Dunn indicated to
others (including Parker) in the spring and summer of
2000 that he would no longer be taking on new Aegis
clients, he also indicated that he would continue to
service existing clients. R. 947 Tr. 1995; R. 909 Tr. 5872-73,
5876. Consequently, Dunn is responsible for all harm
that was the result of his acts up to that point, see
U.S.S.G. § 1B1.3(a)(1)A) & (a)(3); and, at a minimum,
the filing of fraudulent tax returns for 2000 was
certainly both foreseeable to Dunn and in furtherance
of the criminal activity he had previously undertaken
with his co-conspirators, see 1B1.3(a)(1)(B). As we have
pointed out before, the filing of tax returns that
minimized or eliminated a taxpayer’s taxable income
was the entire point of the Aegis system that Dunn and
others marketed. It would thus have been entirely fore-
seeable to Dunn, as someone who sold Aegis trusts
and provided follow-up trust management services to
purchasers, that the clients of Aegis would be filing
fraudulent tax returns which were based on the
use of Aegis trusts. As with Hopper, even if the losses
associated with the 2001 and 2002 tax years are excluded,
the total loss still exceeded $50 million, which was
the threshold for the base offense level of 30 that the
district court referenced in this case. See U.S.S.G.
§ 2T4.1(M).
168 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
C. Role in the Offense
Pursuant to Guidelines section 3B1.1(b), the district
court enhanced Dunn’s offense level by three points
for being a manager or supervisor. R.1086 at 4-5, 29.
Dunn contends on appeal that the court clearly erred
in applying this enhancement, because he in fact played
no managerial or supervisory role in the Aegis scheme.
Dunn contends that he did not oversee any other par-
ticipant in the scheme, did not manage any Aegis assets
or activities, did not possess any decision-making
authority as to the scheme’s goals or means of attaining
those goals, and did not help to plan or organize the
offense. He was merely “a salesman following orders,”
Dunn Br. 16, playing a relatively minor role in a fairly
extensive organization. Our review is again one for clear
error. United States v. Smith, supra, 674 F.3d at 728.
The court did not clearly err in treating Dunn as a
manager or supervisor. The court appears to have
based the enhancement in part on a finding that Dunn
recruited attorney Parker into the scheme. R. 1086 at 4-5;
see § 3B1.1, comment. (n.4) (citing the recruitment of
accomplices as a relevant factor in determining whether
leadership enhancement appropriate); e.g., United States
v. Cerna, 676 F.3d 605, 608 (7th Cir. 2012). Dunn
contends that it is implausible to say that he recruited
Parker, given Parker’s acknowledgment at the trial that
it was his brother-in-law, Dennis Repka, a retired
judge, and not Dunn, who introduced him to the Aegis
system of trusts in June 1996. R. 913 Tr. 1939. But Dunn
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 169
08-4320, 09-1864 & 09-2174
omits the material fact that Parker did not actually
become involved in the conspiracy and scheme until
Dunn asked him in March 2007 if he would be interested
in creating CBO trusts for Aegis and offered to pay
him $1,000 for each Aegis closing that he handled. R. 961
Tr. 1832, 1836-37. Parker accepted the offer. Parker also
testified that he completed the paperwork for approxi-
mately fifteen closings for Dunn following the instructions
that Dunn gave him as to how the documents should
be dated. R. 961 Tr. 1839; R. 1014 Tr. 1879-80. The
district court therefore had a sound evidentiary basis
for finding that Dunn had in fact successfully recruited
Parker into the scheme. Moreover, as the government
points out, Dunn reaped some $1.5 million in income
from the scheme, which was a relatively large share of
the income generated by the conspiracy—on par with
Hopper’s share, for example. Gov’t Ex. Dunn Income
Summary (Gov’t Supp. App. 151); see § 3B1.1, comment.
(n.4) (citing claimed right to larger share of proceeds as
a hallmark of leadership role). And, in contrast to other
low-level players, Dunn did attend and participate in
some policy meetings with Vallone, Bartoli, and Hopper.
R. 913 Tr. 1951-59. These included the meetings (described
by Parker) that took place among the Aegis principals
in the summer and fall of 1999 to discuss how Aegis
should proceed in light of the Muhich decision. R. 913
Tr. 1951-59. This evidence defeats any contention that
it was clear error to recognize that Dunn played a more
culpable role in the conspiracy by deeming him a
manager or supervisor for sentencing purposes.
170 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
D. Reasonableness of the Sentence
The district court ordered Dunn to serve a prison term
of 210 months, a sentence at the bottom of the range
recommended by the Guidelines. Dunn contends that
the sentence is substantively unreasonable, because the
district court either failed to consider or did not give
appropriate weight to a number of the factors identified
as relevant by section 3553(a), including Dunn’s back-
ground and characteristics, the sentences imposed on
his co-defendants, and the nature and severity of his
offense. First, given his age at the time of sentencing (forty-
nine), Dunn argues that a sentence of seventeen years
is effectively a life sentence. By contrast, he notes, the
District of Columbia Circuit upheld a sentence of 108
months for an individual it characterized as possibly
“the largest tax evader in the history of the country.”
United States v. Anderson, 545 F.3d 1072, 1073-74 (D.C. Cir.
2008) (loss amount exceeding $100 million). Even that
sentence represented a substantial upward variance
from the high end of the range recommended by the
version of the Guidelines that the defendant argued was
applicable. Still, it is little more than half of the penalty
imposed on Dunn. Second, Dunn points out that the
defendants in this case faced basically the same set of
charges and all had the same lack of prior criminal
history, yet there are significant disparities in the sen-
tences they received. For example, Dunn’s sentence
was ten months longer than that of Hopper, who was
convicted of twenty-six counts to Dunn’s fifteen and
was one of the Aegis principals. Dunn was also ordered
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 171
08-4320, 09-1864 & 09-2174
to serve fifty more months than Cover; and his sentence
is almost twice as long as that of Bartoli, who con-
ceived of the scheme. Third, Dunn points out that the
district court held Dunn culpable for the full breadth
of the scheme and ignored his purported withdrawal
in 2000.
Dunn’s sentence is at the bottom of the Guidelines
range, which was properly calculated, so we presume
that it is reasonable, e.g., United States v. Fouse, 578 F.3d 643,
654-55 (7th Cir. 2009); and Dunn has not persuaded
us that it is otherwise when examined against the sen-
tencing factors identified in section 3553(a), see United
States v. Mykytiuk, 415 F.3d 606, 608 (7th Cir. 2005).
As to the sentences of his co-defendants: Bartoli and
Cover were each given significant reductions in their
sentences either because of their advanced age: Bartoli
was eighty years old when he was sentenced and
Cover was seventy-two. Even so, their sentences are
much more likely to be life sentences than Dunn’s is:
with credit for good time, Dunn will be in his mid-
sixties when he completes his sentence—younger than
either Bartoli or Cover were when they began serving
their terms. Hopper, although his sentence is still
slightly longer than Dunn’s, was also given a significant
reduction based on his military service and what the
court found to be his genuine remorse, as well as his age
(sixty-three). The disparities that Dunn cites are thus
the result of the district court’s legitimate and rea-
sonable attempt to recognize both the greater culpability
172 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
of Dunn’s co-defendants along with mitigating factors
that are not present in Dunn’s case.
Dunn’s observation that his sentence is nearly twice the
term imposed on the defendant in Anderson, the D.C.
Circuit case is explained by a number of distinctions,
including most prominently the fact that the 2000 version
of the Guidelines under which Anderson was sentenced
were significantly more lenient as to large-scale tax
frauds. That is why a number of Dunn’s co-defendants
have made ex post facto arguments with respect to the
district court’s use of the 2008 Guidelines in sen-
tencing them. The lesser sentence imposed (and sus-
tained) in Anderson thus does not call into question
the reasonableness of Dunn’s sentence.
Nor does the fact that the court in sentencing Dunn
held him to account for all of the consequences of the
conspiracy, including the total loss amount, give us
pause. Dunn contends that his liability should have
ended with his purported withdrawal in June 2000. But
as we discussed above, Dunn never legally withdrew.
He stopped selling Aegis trusts in June 2000 at the
request of his employer, the financial services firm
SunAmerica, but he continued to service existing cli-
ents. At the same time, he never took steps to renounce
the aims of the conspiracy.1 8 The fact that fraudulent
18
We note that, as in Hopper’s case, the loss amount would
have exceeded $50 million, and thus the offense level would
(continued...)
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 173
08-4320, 09-1864 & 09-2174
tax returns based on Aegis trusts would continue
to be filed after his involvement wound down was both
foreseeable to Dunn and, to a meaningful degree, the
natural consequence of his earlier acts in marketing
Aegis trusts and providing trust management services
to Aegis clients.
Dunn promoted and sold Aegis trusts, but that was
not the extent of his involvement in the Aegis scheme.
He also gave instructions to tax preparers as to how tax
returns should be prepared in light of the Aegis trusts.
He was one of the plaintiffs in the frivolous lawsuit
filed against the ARDC. He participated, as we have
noted, in Aegis policy meetings. As the district court
noted, Dunn, in contrast to Bartoli, Vallone, and Hopper,
already had successful employment with SunAmerica
when he became involved with Aegis and so, arguably,
should not have been as susceptible to a lucrative
fraud. Like other defendants, Dunn used the Aegis
system to dramatically under-report his taxable income:
he reported income of only $16,000 in 1997 and $9,000
in 1998, for example, when his actual income in those
years was roughly $400,000 and $600,000, respectively.
R. 1086 at 28; Gov’t Ex. Dunn Income Summary (Gov’t
Supp. App. 151). There were mitigating factors which
the district court noted and considered, including
18
(...continued)
have been the same, even if losses occurring after the 2000
tax year were excluded. See supra at 149 n.16.
174 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
Dunn’s financially difficult childhood, putting himself
through school, caring for his mother until her death
(Judge Norgle characterized Dunn as “an extremely
good son,” R. 1086 at 32), and his readiness to help
others. Yet, as the court noted, Dunn’s involvement in
this extensive crime was anything but a one-time, im-
pulsive act. We cannot characterize the sentence im-
posed on Dunn as unreasonable.
E. Fifth and Sixth Amendments and Notice-to-One
Dunn repeats and expands upon an argument that
the defendants made jointly: that the district court im-
properly treated notice of the trusts’ illegality received
by one defendant as notice to the conspiracy and thus
notice to all of the conspiracy’s members. Dunn con-
tends that the court’s erroneous ruling relieved the gov-
ernment of the burden to show that Dunn himself
realized that the Aegis trusts were a sham and yet partici-
pated in the conspiracy and marketed the trusts to
clients with that knowledge, and with the intent to
defraud the government and/or violate the tax laws. In
effect, Dunn posits, the court eliminated an element of
the government’s burden of proof and simultaneously
eliminated the presumption of innocence as to that ele-
ment, forcing Dunn to offer proof (e.g., by cross-exam-
ining government’s witnesses) that he did not
knowingly become a party to an unlawful agreement.
His conviction on the conspiracy charge, Dunn main-
tains, was obtained in violation of his Fifth Amendment
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 175
08-4320, 09-1864 & 09-2174
right to due process and his Sixth Amendment right
to a jury finding as to his guilt or innocence.
Our prior discussion of the defendants’ joint argument
on this point disposes of Dunn’s individual claim.
So far as we can determine, the district court voiced
its notice-to-the-conspiracy rationale solely to counsel
at sidebar in the context of admitting certain evidence:
neither Dunn nor the defendants collectively have
been able to point to any instance in which this rationale
was communicated to the jury. Consequently, the jury
was never erroneously informed, whether by way of a
formal instruction or otherwise, that it could presume
Dunn’s knowledge of the illegality of the Aegis scheme
based on evidence that Bartoli or Vallone knew that the
Aegis trusts were a sham, for example. And although
Dunn suggests that the court’s ruling relieved the gov-
ernment of the burden to show that Dunn became a
party to the conspiracy with knowledge that the Aegis
system was unlawful, there is no evidence that the gov-
ernment itself ever argued to the jury that simply
because another defendant had notice of the illegality
that Dunn necessarily did as well. Instead, as it did with
each of the six defendants, the government made a
case that Dunn himself knew, based on the facts sur-
rounding the trusts and on the notice that he individually
received, that the trusts were a sham and that he was
acting with an intent to defraud the government and
to violate the federal income tax laws. R. 923 Tr. 6808-24;
R. 911 Tr. 6827-71. Whatever possible misconceptions
the district court may have held and communicated to
176 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
counsel, the jury was properly instructed on the law (e.g.,
to give separate consideration both to each count and
to each defendant, R. 925 Tr. 7389) and on the govern-
ment’s burden of proof, and Dunn was not deprived of
his Fifth or Sixth Amendment rights.1 9
F. Denial of Severance
Dunn contends that the district court abused its discre-
tion in denying him a separate trial. Like Dowd, Dunn
sought to sever his own trial from that of his co-defen-
dants. R. 391. Dunn’s theory was that his defense was
antagonistic to his co-defendants in the sense that he
was an outsider vis-à-vis Aegis (in that he was an
outside salesperson rather than an employee or officer
of Aegis), did not truly believe in the Aegis trust
system, and lacked the history that his co-defendants
Bartoli, Vallone, and Hopper had of refusing to file any
tax returns. He also suggested that in a separate trial,
he could call Bartoli as a witness to testify that he had
relied in good faith on Bartoli’s representations as to
the legitimacy of the Aegis system. The court denied the
motion in advance of the trial and again when Dunn
renewed it during the direct examination of the govern-
ment’s final witness. But Dunn did not renew the
motion at the close of evidence. Dunn now contends
19
Dunn does not separately argue that the evidence was
otherwise insufficient to overcome his Cheek defense and
to establish his willfulness.
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 177
08-4320, 09-1864 & 09-2174
that the court’s refusal to grant him a separate trial,
coupled with the court’s erroneous notice-to-the-con-
spiracy rationale, deprived him of an individual assess-
ment of his knowledge of the illegality of the Aegis
scheme (and thus of his guilt or innocence) and a funda-
mentally fair trial.
However, as we noted earlier with respect to Dowd,
the failure of Dunn’s counsel to renew the motion to
sever at the close of evidence resulted in a waiver of
this issue that renders the district court’s ruling
unreviewable. United States v. Phillips, supra, 239 F.3d at
837-40. Dunn has made no attempt to show that it would
have been futile for him to renew his motion and his
arguments in support thereof at the close of evidence. In
any case, for the reasons we have already discussed,
the district court’s notice-to-one/notice-to-the-conspiracy
rationale, which is the principal if not sole basis on
which Dunn argues that the joint trial worked to his
substantial prejudice, did not in fact deprive Dunn or
any other defendant of a fair trial.
G. Sufficiency of the Evidence: Fraudulent Tax Returns
Finally, Dunn contends that the evidence was insuf-
ficient to establish his guilt on the charges that he
aided, counseled, or otherwise encouraged the prepara-
tion of false or fraudulent income tax returns in violation
of section 7206(2). Much like Hopper’s challenge on
this point, Dunn’s appeal presumes that the government
was required to show that he had some kind of personal
178 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
involvement in the preparation of the fraudulent
tax returns in order for him to be held liable under
section 7206(2). Dunn concedes that there was a
videotape of him remarking at an Aegis seminar that
he had to give direction to tax preparers, but he
contends that this has been taken out of context. He
emphasizes the lack of any evidence as to what he
might have said to any tax preparer, for example. No
such tax preparer ever testified; and, for that matter,
no Aegis client whose false returns Dunn was found
guilty of aiding or assisting ever testified that Dunn
was involved in the preparation of those returns. In
short, the jury could only speculate as to what role he
may have played in the preparation of any tax return
other than his own, and in Dunn’s view the evidence
thus was insufficient to support his convictions under
section 7206(2).20
20
Dunn separately suggests that the district court committed
legal error by denying his Rule 29 motions for a judgment of
acquittal without explanation. The argument is so cursorily
made, however, as to have been waived. E.g., United States v.
Adams, supra, 625 F.3d at 378. We would point out, however, that
the court in its post-trial opinion disposing of the defendants’
motions for judgments for acquittal and for a new trial did
address Dunn’s motions to the extent of noting that both
Dunn and Cover had raised many of the same issues that had
been argued by defendants Bartoli and Hopper (and which
the court had expressly addressed), and that the argu-
ments made in the motions were otherwise inadequately
(continued...)
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 179
08-4320, 09-1864 & 09-2174
That Dunn did not prepare any of the charged tax
returns himself does not preclude his convictions
under section 7206(2). United States v. Hooks, supra, 848
F.2d at 791. The plain language of the statute states
that a person need only knowingly assist or advise the
preparation or presentation of a false tax return in order
to be liable. United States v. Clark, 577 F.3d 273, 285 (5th
Cir. 2009). It is worth repeating Hooks’ observation that
“ ‘the scope of the statute extends to all participants of a
scheme which results in the filing of a false return,
whether or not those parties actually prepare it.’ ” 848 F.2d
at 791 (quoting United States v. Siegel, supra, 472 F. Supp.
at 444); see also United States v. Fletcher, 322 F.3d 508, 514-
15 (8th Cir. 2003) (coll. cases). This includes individuals
who help to promote a tax avoidance scheme, as the
Eighth Circuit concluded in Fletcher. The defendant in
that case had given a series of seminars to promote the
services of a tax consultation and preparation company,
James Otis & Company (“JO & C”), which advised its
clients in the use of trusts and other vehicles as a means
of allowing individual taxpayers to write off ordinary
personal expenditures as business expenses—a fraudulent
scheme not so different from the one that the de-
fendants promoted in this case. Although the defendant
had not actually prepared tax returns, the court none-
20
(...continued)
developed with citations to case law or other legal authori-
ties. R. 650 at 12.
180 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
theless sustained his convictions under section 7206(2)
based on the false tax returns that had been filed on behalf
of two individuals, James and Ginger McNair, that he had
successfully recruited as clients of the tax consulting
company at one of his seminars. “It was as a result of
attending Mr. Fletcher’s seminar in 1994 that the McNairs
retained JO & C to implement Mr. Fletcher’s tax strategy
of converting ordinary personal expenses into business
expenditures,” the court pointed out. Id. at 515. From
this fact, along with Fletcher’s efforts on one occasion
to allay the clients’ subsequent concerns as to the legiti-
macy of the scheme, the court found it reasonable for
the jury to conclude that he had willfully aided in,
assisted, procured, counseled, or advised the prepara-
tion of the false or fraudulent tax returns filed by
those clients. Id.The filing of false tax returns was, as the government
argues, the “essence” of the tax-avoidance scheme that
Dunn and the other defendants perpetrated. The Aegis
trusts were marketed to clients as a means through
which they could substantially reduce, if not eliminate,
their individual income tax liability. The filing of federal
income tax returns purporting to accomplish that end
was thus the natural, inevitable, and entirely foreseeable
result of what Dunn and his co-conspirators were doing.
Dunn, as a promoter of the Aegis system, regularly
spoke with prospective clients about the sorts of deduc-
tions they would be able to take on their tax returns by
making use of the Aegis trusts and the significantly
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 181
08-4320, 09-1864 & 09-2174
reduced taxes they would pay as a result. To cite one
example, Dunn client David Vermeulen testified that in
the fall of 1995, Dunn had told him that he would “pay
a lot less in taxes” by using the Aegis system and could
use the tax savings to buy a motorcycle, boat, or other
“toy[ ].” R. 915 Tr. 2472. Dunn also boasted to Agent
Priess, who posed as prospective client Mike Jordan,
that another client had saved $300,000 in taxes in just
one year by using the offshore version of the Aegis
system. R. 965 Tr. 289-90. In other (covertly recorded)
conversations, Dunn and Priess discussed the types of
deductions that Priess might take on his tax returns,
how much income Priess should report as salary
on his individual returns, how he might make use of a
charitable trust, and other issues related to the tax
returns that Priess would be filing once he began using
the Aegis system. R. 943 Tr. 221-23; R. 965 Tr. 338-39.
The sorts of conversations that Dunn had with Priess
were typical of the interactions that Dunn and his co-
conspirators had with existing and prospective Aegis
clients. E.g., R. 959 Tr. 931-32; R. 946 Tr. 1102, 1105;
R. 967 Tr. 1560, 1574-76.
Dunn also addressed similar topics at the Aegis promo-
tion seminars in which he participated. An excerpt from
one videotaped seminar was played for the jury at trial.
After speaking at length about how an Aegis client’s
tax return would look after taking various deductions,
exemptions, and so forth, Dunn concluded: “So how
much tax do we pay once we’re set up in this fash-
ion[?] How much tax do you wanna pay? (Audience
182 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
laughter.)” R. 914 Tr. 2315-16; Gov’t Ex. Coleman Tr. 17
(Gov’t Supp. App. 101). Evidence along these lines is
more than sufficient to support a finding that Dunn,
in marketing and managing Aegis trusts, not only envi-
sioned but promoted the fraudulent tax returns that Aegis
clients ultimately filed based on those trusts. The fact that
Dunn had the descriptor “Tax Engineering Services”
printed on his Aegis Management Company letterhead,
R. 965 Tr. 285; Gov’t Ex. Priess 6, is just one more indica-
tion that he knew full well that what he was providing
to Aegis clients was a means of reducing their tax liability.
In addition to the foregoing evidence, there was addi-
tional evidence that the defendants—including Dunn—had
at least some involvement in the preparation of tax
returns for Aegis clients. Recall that Aegis required its
clients to use a tax preparer pre-cleared by Aegis for
at least one year following their purchase of an
Aegis package. R. 965 Tr. 283; R. 944 Tr. 423; R. 918
Tr. 4312; R. 921 Tr. 5428-29. One could infer from
that requirement that the defendants were interested
in making sure that tax returns would be prepared by
preparers who were, shall we say, sympathetic to the
Aegis philosophy. Beyond that, there was evidence that
Dunn, among other defendants, regularly gave advice
to tax preparers and accountants as to how a client’s
income and expenses should be treated on tax returns.
Dunn himself remarked at a May 1997 seminar that
“because many accounting people are unfamiliar with
the process, we are getting to a point where we
almost have to become CPAs in addition to attorneys to
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 183
08-4320, 09-1864 & 09-2174
be able to teach them how to do the accounting work.”
R. 914 Tr. 2315; Gov’t Ex. Coleman Tr. 16 (Gov’t Supp.
App. 100). Dunn urges us not to put too much weight
on that particular remark. But even if we discard the
inference that Dunn himself was one of the individuals
advising others as to the way in which tax returns
should be prepared, Dunn’s remark at the seminar,
much like his recorded remarks to Priess about the de-
ductions Priess would be able to take, demonstrates
Dunn’s awareness that his own actions in promoting
and managing Aegis trusts would lead directly to the
preparation and filing of tax returns that reflected what
he was saying and doing in furtherance of the charged
conspiracy. Just as in Fletcher, the jury could reasonably
find, based on the steps that Dunn took to promote,
sell, and manage Aegis trusts, that Dunn willfully aided
in, assisted, procured, counseled, or advised the prepara-
tion of the false or fraudulent tax returns filed by the
clients he recruited and served.
H. Venue in the Northern District of Illinois
Dunn contends that as to six of the false tax return
counts in which he was charged, venue was not proper
in the Northern District of Illinois. Generally speaking, a
defendant is to be tried in the district where the alleged
offense was committed. U.S. Const. art. III, § 2, cl. 3; Fed. R.
Crim. P. 18. But an offense that involves multiple
steps or continues over a period of time may occur in
multiple districts. Venue as to that type of offense is
184 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
proper “in any district in which such offense was
begun, continued, or completed.” 18 U.S.C. § 3237(a). The
preparation of a false tax return can be a multi-district
offense, as the return may be prepared in one district,
subscribed to in another district, and filed in a third
district; venue would thus be appropriate in any of
these districts. United States v. Marrinson, 832 F.2d 1465,
1475 (7th Cir. 1987). Dunn acknowledges this point, but
contends that the government did not present evidence
sufficient to establish where the relevant acts underlying
a particular tax return took place.
Viewing the record in the light most favorable to
the government, e.g., United States v. Ochoa, 229 F.3d 631,
636 (7th Cir. 2000), we are satisfied that a preponderance
of the evidence, see id., confirms the propriety of venue
in the Northern District of Illinois as to each of the
counts in question. Counts 24 through 26 of the indict-
ment were based on the 1997-1999 tax returns filed for
Bruce and Tammy Groen, who were clients of Dunn.
Although, as Dunn reminds us, the Groens themselves
did not testify, the evidence admitted at trial showed
that all three returns were prepared and signed by
CPA Laura Baxter, as evidenced not only by the returns
themselves but also the recovery of many documents
related to those returns from Baxter’s office files,
and Baxter’s office was located in Frankfort, Illinois—a
municipality within the Northern District of Illinois. The
evidence thus readily supported the inference that all
three returns were prepared and subscribed to by their
preparer in the Northern District of Illinois. Counts 33
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 185
08-4320, 09-1864 & 09-2174
and 34 were based on the 1997 and 1998 tax returns
filed for Dunn clients John and Colleen McNinney. Like
the Groens’ returns, these returns were prepared
and signed by Baxter, as evidenced by the returns them-
selves as well as documentation recovered from
Baxter’s office in the Northern District of Illinois. Finally,
Counts 46 and 47 were based on Dunn’s own returns
for 1997 and 1998. Those returns were prepared and
signed by CPA Robert Clausing, as evidenced by his
signature on the returns as well as extensive documenta-
tion recovered from his office. Clausing’s office was in
Lansing, Illinois—again, within the Northern District.
The evidence was thus more than sufficient to establish
that each of these counts was based on acts which
took place within the Northern District of Illinois. Venue
was therefore proper in that district.
BARTOLI
A. Competency to Stand Trial
Bartoli contends that the district court erred in refusing
to appoint a defense expert to assess his competency to
stand trial and to conduct a proper competency hearing
before commencing with the trial. Although Bartoli was
examined by an expert agreed to by both Bartoli and the
government, and that expert concluded that Bartoli was
competent, Bartoli suggests that the court breached an
earlier promise to appoint a defense expert and, in any
case, should have conducted an evidentiary hearing
before declaring him competent to stand trial.
186 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
Bartoli’s counsel first sought a competency assess-
ment pursuant to 18 U.S.C. § 4241(a) in December
2007. Counsel had became concerned that Bartoli, then
seventy-eight years old, was exhibiting poor memory
and irrational beliefs about the Tax Code. He then
learned that Bartoli had been preliminarily diagnosed
with vascular dementia or early-stage Alzheimer’s Dis-
ease. R. 321. The court granted the request for an evalua-
tion, but, in the exercise of its authority under 18 U.S.C. §
4247(b), ordered that Bartoli be committed to the custody
of the Bureau of Prisons (“BOP”) for purposes of an
inpatient evaluation by a BOP physician. R. 324; see
United States v. Shawar, 865 F.2d 856, 860 n.4 (7th Cir.
1989). At the government’s suggestion, the court also
recommended that Bartoli be committed to the U.S.
Medical Center for Federal Prisoners in Springfield,
Missouri, for evaluation by Dr. Robert L. Denney, a
forensic psychologist and neuropsychologist. R. 324 at 2
¶ 7. The court advised Bartoli’s counsel that if the gov-
ernment’s physician deemed Bartoli competent, the court
would appoint another expert of defendant’s choosing
to conduct a second examination. R. 1042 at 14. Bartoli,
who was unwilling to be committed to a BOP facility for
purposes of the evaluation, moved for reconsideration,
R. 329, arguing that the government had not shown, and
the court had not found, that it was necessary for Bartoli
to be committed to BOP custody for purposes of the
evaluation. The court denied the request for reconsidera-
tion in relevant part. R. 336; R. 1044. Bartoli then appealed
the district court’s order to this court. R. 344. However,
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 187
08-4320, 09-1864 & 09-2174
that appeal was dismissed on the joint motion of the
parties, R. 358, after they reached an agreement for
Bartoli to be evaluated on an outpatient basis by Diana B.
Goldstein, Ph.D., Director of Neuropsychology with
the Isaac Ray Forensic Group in Chicago. On remand,
the district court acceded to the parties’ choice
of Dr. Goldstein. R. 362; R. 363; R. 1010. Dr. Goldstein
evaluated Bartoli and on February 14, 2008, issued a
detailed, fifteen-page report setting forth her determina-
tion that Bartoli was competent to stand trial. R. 1090-1.
Among her findings: Bartoli’s cognitive functioning was
not significantly impaired; medical tests revealed the
beginnings of small vessel disease that ultimately could
disrupt optimal brain function; Bartoli demonstrated
a full understanding of both the nature of the charges
against him and the court proceeding, and was able to
fully participate in that proceeding and collaborate
with his counsel; and although Bartoli exhibited some
fatigue and diminished ability to concentrate at the end
of the day, this should not interfere with his ability to
work with his attorney on his defense. Id. at 11-13.
On learning that Goldstein’s report would deem
Bartoli fit for trial, Bartoli’s counsel filed a motion re-
questing the appointment of two physicians so that a
second assessment could be performed. R. 412. The
motion also requested a continuance of the trial date
(February 19, 2008), to accommodate both the additional
assessment and, in the event that assessment reached
a different conclusion than the first, a competency
hearing before the court. The court denied the request.
188 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
R. 416. At the hearing on the motion, the court
observed preliminarily that Goldstein had been selected
“by agreement of counsel and as an alternative or as a
compromise to having Mr. Bartoli go to the Bureau of
Prisons.” R. 1051 at 69. The court then proceeded to
independently consider whether a second evaluation
was warranted and should be ordered in the exercise
of its discretion. See United States v. Andrews, 469 F.3d
1113, 1121 (7th Cir. 2006). The court remarked that
Goldstein’s report was comprehensive, “one of best
I have seen in a long time.” R. 1051 at 74; see also id. at 69,
72, 73. It noted that Goldstein’s assessment was based
on a substantial series of tests, and that much of the
material she had considered in evaluating Bartoli’s com-
petency had been provided by Bartoli’s counsel. Bartoli’s
counsel himself conceded that Goldstein’s examination
of his client “was comprehensive and thorough.” Id. at
77. Under these circumstances, the court saw no need
for a second evaluation:
So I think that’s the key here. If the Court were not
confronted with such a comprehensive in-depth
report, which involved testing by an eminently quali-
fied forensic group, I would be inclined to say a
second expert should be brought into the case.
***
And so the expert, Dr. Goldstein, has taken into ac-
count all of the submissions of Dr. Bartoli, and she
certainly has gone well beyond all of that in her analy-
sis and the testing procedures.
So the motion for a second testing is denied.
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 189
08-4320, 09-1864 & 09-2174
R. 1051 at 77. Subsequently, at the start of the trial, the
court expressly found Bartoli competent to stand trial,
taking into consideration Dr. Goldstein’s report as well
as everything that had been presented by Bartoli’s coun-
sel. R. 988 Tr. 7.
The decision whether or not to order a competency
examination is one that we review for abuse of discretion,
see Andrews, 469 F.3d at 1121, and the court in this
instance did not abuse its discretion by refusing the
appointment of additional physicians for purposes of a
second assessment. The premise for Bartoli’s contention
that the court was obliged to order a second evaluation
is not that there was some deficiency in Dr. Goldstein’s
evaluation, which Bartoli’s lawyer agreed was thorough
and comprehensive, but rather that the court had orig-
inally committed to the appointment of a second expert
and examination in the event that the first expert
found Bartoli competent. But the court made that com-
mitment in the context of ordering that Bartoli first
be examined by an expert of the government’s choosing
at a BOP facility. The context changed significantly
when, for purposes of resolving Bartoli’s appeal of the
court’s order, the parties agreed that Bartoli would be
examined by an expert—Dr. Goldstein—acceptable to
both of them. Thus, the district court’s understanding—
one that we share—was that Dr. Goldstein was not the
government’s expert, but an independent expert sub-
mitted to by agreement. Because Dr. Goldstein was ap-
pointed by agreement of the parties, fairness no
longer dictated that a second expert be permitted as
190 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
a matter of course in the event that Bartoli was
dissatisfied with the results of the first examination.
Once Dr. Goldstein concluded that Bartoli was com-
petent, the pertinent question vis-à-vis the need for a
second expert was whether there was some reason
to question the soundness of Dr. Goldstein’s examina-
tion and conclusion. No such deficiency was cited to
the district court and none has been cited to us. In
this context, the district court reasonably concluded
that a second evaluation was not necessary.
Bartoli also faults the court for not conducting an evi-
dentiary hearing before finding him competent, but
again we find no abuse of discretion in the court’s
decision to determine his competency without a hear-
ing. A hearing is required when there is reasonable cause
to believe that the defendant may be suffering
from a mental disease or defect that renders him unable
to understand the nature or consequences of the pro-
ceedings against him or to properly assist in his defense.
§ 4241(a); see United States v. Grimes, 173 F.3d 634, 635-36
(7th Cir. 1999) (coll. cases); United States v. Graves, 98 F.3d
258, 261-62 (7th Cir. 1996) (evidentiary hearing becomes
mandatory if, on preliminary inquiry, reasonable cause
to believe defendant may be incompetent persists). Cer-
tainly, based on the preliminary diagnosis of Bartoli’s
physician coupled with the concerns that Bartoli’s counsel
articulated, there was cause to order an examination
of Bartoli. But once a thorough evaluation had been
undertaken by an independent expert, and that expert
had concluded that Bartoli was competent to stand
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 191
08-4320, 09-1864 & 09-2174
trial, there was no longer reasonable cause to believe
that Bartoli was incompetent and thus no need for a
hearing. Dr. Goldstein’s report dispelled the initial
doubts which had triggered the inquiry into Bartoli’s
condition. Finally, we note that in finding Bartoli compe-
tent to stand trial, the court itself took into consideration
not only Goldstein’s report, but the materials Bartoli’s
counsel had submitted. So the court’s finding was based
not simply on the psychologist’s report, but all of the
circumstances that Bartoli’s counsel deemed relevant to
the competency determination. R. 988 Tr. 7. We find
no procedural flaw in the court’s finding.
B. Statutes of Limitations and Withdrawal
Bartoli and the other defendants were indicted in
2004, seven and one-half years after Bartoli retired as
Aegis’s in-house counsel in 1996 and moved to Myrtle
Beach, South Carolina. Given his retirement, Bartoli
contends that the governing statutes of limitations—the
longest of which is six years—preclude all of the charges
against him. Of course, the Aegis scheme continued
into 2002, many years after Bartoli’s retirement as
Aegis’s counsel; and each of the acts underlying the
charges of mail, wire, and tax fraud all occurred within
the relevant limitations period. But, in essence, Bartoli’s
theory is that his relocation marked his withdrawal
from the Aegis scheme and thus caused the limitations
clock to start running much sooner for him than it did
for his co-defendants. Notwithstanding his retirement,
192 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
Bartoli remained a director and part owner of Aegis,
and he continued to receive distributions of profits from
its operations until 2002. But he reasons that he was
not sufficiently involved in the operations of Aegis
after 1996 to render him liable for any acts of the charged
conspiracy—including the acts of mail fraud, wire fraud,
and aiding in the preparation of false or fraudulent tax
returns—which took place after his retirement and re-
location. He notes, for example, that he had no hand in
preparing any of the tax returns underlying the charges
filed under section 7206(2); in his view, the sole connec-
tion he had with those returns was that he came up
with the concept of using the business trust as a tax
avoidance vehicle five or six years before those returns
were filed. He adds that, at the time of his retirement,
it was still entirely plausible to view the Aegis system
as a lawful and legitimate means of tax reduction. Thus,
to the extent it was foreseeable to Bartoli in 1996 that
Aegis clients would be filing income tax returns in sub-
sequent years based on the Aegis trusts, he insists that
it was not foreseeable to him that those returns would
be deemed fraudulent. As he sees things, only after his
1996 retirement did the clues as to the illegality of the
system begin to emerge. The IRS did not issue Notice 97-
24 until April 1997, for example, and the Tax Court
did not issue its decision in Muhich (concerning the
legitimiacy of an Aegis-like trust system that Bartoli
had established) until 1999. And given how minimal
Bartoli’s involvement with Aegis purportedly was after
1996, he believes he cannot be held liable on charges
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 193
08-4320, 09-1864 & 09-2174
that were filed more than seven years after he retired
from Aegis. (He also notes, parenthetically, that changes
were made in the Aegis trust documents and systems
subsequent to his retirement.)
Plainly, Bartoli’s statute-of-limitations claim hinges
on the notion that he legally withdrew from the alleged
conspiracy (and any effort to defraud the government of
its tax income) in 1996. A defendant’s withdrawal from
a conspiracy does not, in itself, absolve him of criminal
liability for his (prior) membership in that conspiracy.
United States v. Nava-Salazar, 30 F.3d 788, 799 (7th Cir.
1994); see also United States v. Hughes, 191 F.3d 1317,
1323 (10th Cir. 1999); United States v. Grimmett, 150 F.3d
958, 961 (8th Cir. 1998). But it can foreclose such
liability when coupled with the statute of limitations. Nava-
Salazar, 30 F.3d at 799 (citing United States v. Read, 658
F.2d 1225, 1232-33 (7th Cir. 1981)). The pertinent question
is whether Bartoli’s retirement constituted a genuine
withdrawal from the conspiracy, such that he could
not be held liable for acts that occurred after that date.
As we have discussed, simply stopping one’s active
participation in a conspiracy does not constitute a
legally meaningful withdrawal from that conspiracy.
E.g., United States v. Julian, supra, 427 F.3d at 483.
You do not absolve yourself of guilt by walking
away from the ticking bomb. And similarly the law
will not let you wash your hands of a dangerous
scheme that you have set in motion and that can
continue to operate and cause great harm without
194 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
your continued participation. The courts hold that
for withdrawal to limit a conspirator’s liability . . .
“mere cessation of activity is not enough . . . there
must also be affirmative action, either the making of
a clean breast to the authorities, or communica-
tion of the abandonment in a manner calculated to
reach co-conspirators. And the burden of withdrawal
lies on the defendant.”
United States v. Patel, 879 F.2d 292, 294 (7th Cir. 1989)
(quoting United States v. Borelli, 336 F.2d 376, 388 (2d Cir.
1964) (Friendly, J.)); see also United States v. Schiro, 679
F.3d 521, 528-29 (7th Cir. 2012), petition for cert. filed (U.S.
July 30, 2012) (No. 12-5571); United States v. Paladino, 401
F.3d 471, 479-80 (7th Cir. 2005); United States v. Wilson,
supra, 134 F.3d at 863. In order to effectuate a genuine
withdrawal from a conspiracy, a defendant must “termi-
nate completely his active involvement in the conspiracy,
as well as take affirmative steps to defeat or disavow the
conspiracy’s purpose.” United States v. Hargrove, 508 F.3d
445, 449 (7th Cir. 2007) (emphasis supplied). By his own
admission, Bartoli did not completely end his active
involvement with Aegis, let alone take affirmative steps
to defeat or disavow use of the Aegis trusts. His
retirement and relocation to South Carolina may have
signaled a reduced role in the day-to-day operations
of Aegis (he no longer signed trust documents as
he had before, for example), but it did not constitute
a withdrawal from the charged conspiracy. See id. at
449 (“That [defendant] retired in March 2000 and moved
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 195
08-4320, 09-1864 & 09-2174
to Las Vegas does not by itself mean he withdrew from
the conspiracy.”)
On the contrary, there is significant evidence, some
of which Bartoli himself cites, that he remained involved
with Aegis, and took steps in furtherance of the charged
conspiracy, long after his 1996 retirement as Aegis’s
counsel. He still participated in Aegis seminars, which
pitched the Aegis trust system to prospective clients, as
late as May 1997. R. 954 Tr. 5463-64. Vallone and
Bartoli consulted regularly about various issues related
to Aegis, and this continued through 2001 and 2002.
R. 910 Tr. 6226-27. Bartoli participated in Aegis manage-
ment meetings in the summer and fall of 1999, R. 913
Tr. 1952-54; he tried to keep the peace between Vallone
and Hopper after their falling out over what they
should advise clients in the wake of the Muhich decision,
R. 913 Tr. 1958; R. 947 Tr. 2122; and on November 12, 1999,
he signed the resolution indicating that he, Vallone, and
Hopper shared equal management authority over
Aegis, R. 910 Tr. 6226. Bartoli was listed as one of three
managing directors of Aegis in a January 2000 letter
received by at least two Aegis clients, David Vermeulen
and Genevieve Riccordino, regarding IRS audits. R. 915
Tr. 2493; R. 930 Tr. 2882. In a February 11, 2001, email,
Bartoli noted that he was “still a director [of Aegis]
along with Michael Vallone. . . .” R. 971 Tr. 4354-55.
Bartoli, along with Vallone and Hopper, received periodic
distributions of profits from Aegis. R. 921 Tr. 5401-02.
He also received occasional checks for his consulting
services work for Aegis, R. 970 Tr. 3941-43; see also R. 921
196 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
Tr. 5399-5401, and he continued to receive these checks
as late as August 2002, R. 919 Tr. 4663-83; R. 910 Tr. 6226-
27. And the jury could infer that he was the moving
force behind the $565 billion class action suit filed by
Vallone in May 2001 against the IRS and three of
its agents. R. 971 Tr. 4354-55, 4357-61.
Bartoli thus did not withdraw from the conspiracy in
a way that might support his statute of limitations argu-
ment and preclude his liability for the acts of his co-
conspirators. The government has a point when it likens
Bartoli to the man walking away from the ticking
bomb that we referred to in Patel. Bartoli, after all, was
the one who pitched the idea of the business trusts to
his fellow defendants; in a May 15, 2001, email, he re-
minded Vallone that he (Bartoli) was “the old fart who
started it all” and that he “want[ed] Dustin Hoffman
to play [his] part in the movie.” R. 971 Tr. 4356-57. In
fact, however, Bartoli never walked away from Aegis.
He remained involved in the company and in the efforts
to defraud the government, and continued to profit, as
late as 2002. We remarked earlier with respect to
Hopper that it was clear from the start that the trust
system that Bartoli devised did not comply with certain
fundamental principles of trust and taxation law. Those
principles did not change over time. But whatever
Bartoli’s professed belief as to the legality of the Aegis
trust system may have been at the time of his retire-
ment as counsel to the firm, he continued his involve-
ment well after he and the other defendants had direct
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 197
08-4320, 09-1864 & 09-2174
and specific notice that the government regarded the
system as an unlawful means of tax evasion.
The jury was instructed on the concept of withdrawal
pursuant to an instruction proposed by defendant
Hopper and joined by Bartoli. R. 936 Tr. 6018; R. 925 Tr.
7381-82. There was little evidence to support the with-
drawal defense and much evidence supporting the
jury’s decision to reject it. The district court did not err
in denying Bartoli’s motion for a judgment of acquittal
insofar as it was based on the notion that his claimed
withdrawal from the conspiracy caused the statutes
of limitations to run on the charges against him.
We note finally that to the extent Bartoli, like Hopper
and Dunn, contends that he had no involvement with,
and thus cannot be held liable for, the preparation of
the false or fraudulent tax returns filed by Aegis clients,
his contention fails for the same reasons. See supra at 148-
49; 179-82; United States v. Hooks, supra, 848 F.2d at 791.
C. Admission of Evidence Concerning ARDC Pro-
ceedings Against Bartoli
Finally, Bartoli contends that the district court erred
in allowing evidence and argument as to the disbarment
proceedings against him. Bartoli notes that these pro-
ceedings were offered to establish his notice of the
illegality of the Aegis trust system, but the final order of
disbarment was not issued until May 2002, more
than two years after the March 2000 IRS raid on Aegis
198 Nos. 08-3690, 08-3759, 08-4076, 08-4246,
08-4320, 09-1864 & 09-2174
offices that signaled the beginning of the end of the
conspiracy; and even the Hearing Board’s recommended
decision was not issued until February 2000, a month
before that raid. Moreover, the court allowed the gov-
ernment to introduce into evidence long, prejudicial
excerpts from the ARDC hearing—including excerpts
from the Hearing Board’s summary of Marutzky’s testi-
mony—during Robinson’s testimony and during the cross-
examination of Vallone. But Bartoli was not physically
present at that hearing due to illness and had already
retired and taken inactive status; so he would not have
heard the Marutzky testimony or the other evidence
presented to the Hearing Board. In short, Bartoli views
this evidence as having little or no probative value in
terms of his notice as to the dubious legality of the
Aegis trust system. He believes the evidence served only
to inflame the jury and to suggest that Bartoli was a
bad person who must have committed the charged crimes.
As with the defendants’ joint challenge, we find no
abuse of discretion by the district court in admitting this
evidence as to Bartoli. Bartoli himself was the respondent
in the ARDC proceedings, and there is no dispute that he
was aware of the proceedings. The charges themselves
would have alerted Bartoli to the suspect nature of the
Aegis trusts. Moreover, although he was not present to
hear the evidence presented to the Hearing Board, he was
represented by counsel during the proceeding. A jury
could reasonably infer that his counsel would have ap-
prised him of the testimony, including that of Marutzky.
Alternatively, or additionally, a jury might infer that
Nos. 08-3690, 08-3759, 08-4076, 08-4246, 199
08-4320, 09-1864 & 09-2174
Bartoli’s ignorance of what occurred during the ARDC
proceedings, given his status as the respondent, repre-
sented a willful blindness to the illegality of the Aegis
system. Moreover, there was evidence that Bartoli, like
other defendants, remained active in the conspiracy as
late as 2002, so the fact that the opinion of the ARDC’s
Hearing Board did not issue until February 16, 2000, does
not undermine its relevance as notice evidence. (The
government did not, in fact, introduce or rely upon the
final disbarment order issued in May 2002.)
Bartoli points out that although the government
agreed to redact all references to disbarment from its
evidence concerning the ARDC proceedings, Dunn’s
counsel nonetheless characterized the proceedings as
disbarment proceedings twice during his opening state-
ment. R. 942 Tr. 128. However, the court instructed the
jury to disregard those references, R. 942 Tr. 136, and
given the overwhelming evidence of Bartoli’s guilt, we
believe it highly unlikely that those references had any
impact on the jury’s assessment of the evidence.
III.
For all of the reasons we have discussed, we A FFIRM
the defendants’ convictions and sentences.
9-28-12