United States v. Gary Lefkowitz ( 1997 )

United States Court of Appeals
FOR THE EIGHTH CIRCUIT
___________
Nos. 95-4206 and 96-1228
___________
United States of America, *
*
Plaintiff - Appellee, *
* Appeals from the United States
v. * District Court for the
* District of Minnesota.
Gary Lefkowitz, *
*
Defendant - Appellant. *
___________
Submitted: April 14, 1997
Filed: September 9, 1997
___________
Before RICHARD S. ARNOLD, Chief Judge, LOKEN and HANSEN, Circuit Judges.
___________
LOKEN, Circuit Judge.
Gary Lefkowitz appeals his forty-five-count conviction for mail and wire fraud, managing
a continuing financial crimes enterprise, defrauding an agency of the United States, aiding
in the preparation of false tax returns, making a false statement in connection with a bankruptcy case, and
obstruction of justice. He was sentenced to 293 months in prison for the
continuing financial crimes enterprise violation, and to lesser concurrent
terms on the other counts of conviction. Lefkowitz argues that the
evidence was insufficient to convict him of any crime, that a judge of this
court denied him due process by limiting his Criminal Justice Act award for
expert services to $169,000, and that the district court1 abused its
discretion in partially denying his third motion for a continuance. In No.
96-1228, Lefkowitz appeals a post-conviction order that he reimburse the
government for the costs of his defense. We reverse the convictions on one
wire fraud count and one mail fraud count but otherwise affirm.
I. Sufficiency of the Evidence.
In reviewing the sufficiency of the evidence, we view the evidence
in the light most favorable to the government and uphold the verdict “if
any interpretation of the evidence would allow a reasonable-minded jury to
conclude guilt beyond a reasonable doubt.” United States v. Hood, 51 F.3d
128, 129 (8th Cir. 1995).
A. The Core Scheme to Defraud.
From 1984 to 1994, Lefkowitz was President of Citi-Equity Group, Inc.
(CEG), a California corporation that formed real estate limited
partnerships to build low- and moderate-income housing. In 1987, CEG began
concentrating on projects that would qualify limited partners for low-
income housing tax credits under 26 U.S.C. § 42. To qualify, investors
must build, rehabilitate, or acquire buildings in which a prescribed
percentage of the apartment units are occupied by low-income tenants. The
federal government allocates tax credits to the States, with at least ten
percent reserved for ventures in which nonprofit organizations participate.
State and local housing agencies allocate the credits to specific projects.
1
The HONORABLE DAVID S. DOTY, United States District Judge for the
District of Minnesota.
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In a typical project, CEG would find land in a desirable location,
develop plans for an apartment complex, hire a builder, and apply to the
appropriate housing agency for tax credits. With credits allocated to the
project, CEG would form a limited partnership, with Lefkowitz and CEG as
general partners, and release a Private Placement Memorandum (PPM) to
securities broker-dealers who marketed the investment to prospective
limited partners. Money raised from limited partners was the project’s
equity, generally between one-quarter and one-third of the total project
cost. Upon completion of the building, CEG’s management company leased out
the apartments, the state housing agency released the allocated tax
credits, remaining debts to the builder were paid, and limited partners
began receiving their annual tax credits.
During the late 1980's, CEG’s builders obtained construction loans
to build the projects, while CEG obtained permanent financing to replace
the construction loan once a building was completed. Beginning in 1990,
with construction loans hard to obtain, CEG began marketing First Secured
Mortgages (FSMs) to individual investors. FSM investors made non-recourse
loans at construction loan interest rates to the limited partnerships that
owned one or more designated projects, with the expectation that CEG’s
permanent lenders would take out the FSM loans with long-term mortgages.
Fraud on Investors. When Lefkowitz left CEG in May of 1994,
properties in which limited partners and FSM investors had invested more
than $80,000,000 were unbuilt, unfinished, or lost in foreclosure. The
evidence demonstrates that Lefkowitz had managed CEG so as to defraud
investors. Funds from limited partners and FSM investors were first
deposited in an operating account for each particular investment. But
Lefkowitz and CEG as general partners immediately transferred all investor
funds to a central CEG account. From there, Lefkowitz personally
controlled all expenditures, and CEG employees had standing instructions
first to pay Lefkowitz’s personal bills, then CEG’s general operating
expenses, and finally expenses for the various ongoing projects. From
January 1990 to May 1994, $9,500,000 was used to pay Lefkowitz’s personal
expenses, including over $5,000,000 in deposits to Mrs.
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Lefkowitz’s bank account and $2,000,000 in American Express bills. CEG
employees referred to the resulting shortfall -- the difference between
money on hand and money needed to replace project funds spent elsewhere --
as the “black hole.” In 1990, the black hole was $3,000,000 to $4,000,000.
By January 1994, it had grown to $25,000,000 to $30,000,000. When CEG
employees expressed concern about the growing black hole, Lefkowitz replied
that he could always raise more money.
As the black hole grew, Lefkowitz increasingly relied on funds from
new projects to complete old projects. IRS agents traced new partnership
deposits that cleared negative balances in the central CEG account and then
were used to meet Lefkowitz’s personal needs and to fund older projects.
This practice was not disclosed to CEG investors, as each PPM included an
“Estimated Use of Proceeds” section that showed only a small portion of
the funds going to CEG for general partner expenses, salaries, and fees.
Lefkowitz denies that this was fraudulent, pointing to Article IX of the
PPM’s, which permitted CEG to lend money “on behalf of the Partnership to
others, including the General Partners and their Affiliates.” However,
while this provision would alert investors that idle limited partnership
funds might be loaned to other productive projects, it did not describe
Lefkowitz’s practice of repeatedly “lending” limited partners’ entire
investment to projects whose funds were exhausted.
There was evidence Lefkowitz intentionally concealed these internal
transfers from investors. Prior to one visit from a due diligence officer
representing broker-dealers, Lefkowitz asked an in-house accountant if
anything in the partnership tax returns might “hurt him.” The accountant
replied that pages reflecting the loans from the partnerships to CEG were
his biggest concern. Lefkowitz promptly ripped those pages out of the tax
returns. On another occasion, CEG’s securities counsel asked Lefkowitz
about his wholesale borrowing of investor funds. Lefkowitz replied that
it was limited to short-term loans on a few occasions when partnerships had
idle funds.
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Lefkowitz also misused FSM funds. FSM loan documents provided that
the borrowing partnership “shall not use or permit any related person” to
use the FSM loan “other than in connection with the construction and
development of the Property.” Numerous investor witnesses described
meetings and conversations in which Lefkowitz represented that monies
raised in FSM offerings were construction funds that would be used to build
specific projects, secured by mortgages on those projects, and that the
money would be held in escrow and drawn down as construction proceeded.
Notwithstanding these representations, FSM funds were transferred to the
central CEG account and spent at Lefkowitz’s discretion.
CEG’s real estate construction projects could not be marketed to
limited partners, FSM lender/investors, and builders without commitments
for permanent financing from long-term lenders. Indeed, by 1990, many
housing agencies required proof of permanent financing before allocating
tax credits to a proposed project. When CEG encountered difficulties in
obtaining permanent financing, Lefkowitz persuaded the presidents of two
lenders to provide commitment offers conditioned on CEG signing an
acceptance and paying a fee within a specified period. Lefkowitz told the
lenders that he would not use their letters, but he then referred to the
letters in investor PPMs, sent them to housing agencies as part of CEG’s
applications for tax credits (in one case even providing a copy of a bogus
check as evidence the commitment fee had been paid), and provided them to
builders who used the letters to obtain construction loans. As a result
of this deception, investors contributed money, housing agencies allocated
tax credits, and builders built projects that CEG could not close.
Fraud on Builders. Because it commingled project funds, CEG
sometimes failed to make progress payments to builders. When progress
payments were in arrears on a project for which CEG did not disclose a lack
of permanent financing, the result was devastating to the builder, who
could not pay employees and subcontractors and could not undertake new
projects because its capital was tied up in the CEG project. In these
situations, Lefkowitz coerced builders to extend their construction loans
and wait
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while CEG looked for permanent financing. If a builder became impatient,
Lefkowitz threatened legal action, and in some cases fabricated claims and
filed suit. In one such dispute, Lefkowitz testified that CEG was unable
to obtain permanent financing because the lender “found severe construction
defects, code violations and shoddy workmanship,” when in fact the lender’s
inspection revealed only minor defects that would not have prevented
permanent financing. These tactics forced several builders into
bankruptcy.
Fraud on Housing Agencies and the IRS. Lefkowitz’s scheme included
two different types of fraud on government agencies. First, CEG with
Lefkowitz’s personal approval represented to housing agencies that the
National Development Council (NDC) was a nonprofit general partner in
certain projects. In fact, NDC did not have a partnership agreement with
CEG, and in many cases was unaware that CEG was using its name on tax
credit applications. Based on those misrepresentations, nonprofit tax
credits were allocated to CEG projects and ultimately claimed by their
investors.
Second, to mollify investors when projects were late, Lefkowitz
instructed CEG employees to file tax returns claiming that buildings
finished late in the year had been completed and leased to tenants in
January. This misrepresentation permitted CEG to wrongfully claim and
distribute to investors tax credits for the entire year. There is ample
evidence that Lefkowitz knew the properties were unfinished and the claimed
credits unearned. He once told a CEG accountant not to worry about
claiming false completion dates because CEG had lots of property and
Lefkowitz could always claim he was confused. In addition, on several
occasions, Lefkowitz had CEG claim tax credits for periods during which CEG
was negotiating to purchase low-income housing projects built by others.
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B. Mail and Wire Fraud.
To sustain Lefkowitz’s convictions on seventeen counts of mail fraud
and thirteen counts of wire fraud in violation of 18 U.S.C. §§ 1341 and
1343, the evidence must establish a scheme to defraud, use of the mails or
interstate wires incident to the scheme, and intent to cause harm. See
Pereira v. United States, 347 U.S. 1, 8 (1954); United States v. Manzer,
69 F.3d 222, 226 (8th Cir. 1995); United States v. Nelson, 988 F.2d 798,
804 (8th Cir.), cert. denied, 510 U.S. 914 (1993). As we have explained,
there was abundant evidence that Lefkowitz used CEG to implement a single
massive scheme to defraud investors, lenders, builders, and governments.
Thus, the issue for each of these counts is whether the government proved
that a particular use of the mails or wires was “part of the execution of
the fraudulent scheme.” Schmuck v. United States, 489 U.S. 705, 712
(1989).
Counts nineteen, twenty-one, and twenty-seven concern the Paris Place
Apartments in Sauk Rapids, Minnesota. In the fall of 1991, construction
was completed, CEG took possession, and tenants moved in. But CEG had only
an illusory permanent financing commitment, so the partnership could not
make a final payment to the builder. When the builder demanded payment,
CEG sued the builder alleging failure to complete environmental studies.
To support that claim, Lefkowitz persuaded the purported permanent lender
to withdraw its commitment because of environmental problems and then
submitted an affidavit stating that the lender refused to fund the loan and
CEG had forfeited its commitment fee. The lender testified that CEG never
paid the commitment fee and never requested that a permanent loan be
funded.
Count nineteen is a letter from the builder to CEG demanding payment.
Count twenty-one is CEG’s reply, authorized by Lefkowitz after a month’s
delay, directing the builder to come to Los Angeles to pick up its check.
Count twenty-seven is the Lefkowitz affidavit. All were transmitted by
wire. Lefkowitz argues the government failed to prove he intended to harm
the builder in this contract dispute. However, the
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jury may properly infer intent from circumstantial evidence. See United
States v. Berndt, 86 F.3d 803, 809 (8th Cir. 1996). The evidence was
sufficient to permit a reasonable jury to infer that Lefkowitz intended to
harm the builder by providing an illusory permanent financing commitment
and then avoiding CEG’s obligations to the builder with a sham lawsuit
supported by Lefkowitz’s false affidavit. Each document was either a use
of the wires to further the scheme to defraud or, in the case of the
builder’s demand for payment, a reasonably foreseeable use of the mails or
wires by a third party. See United States v. Brewer, 807 F.2d 895, 898
(11th Cir.), cert. denied, 481 U.S. 1023 (1987). The convictions on these
counts must be affirmed.
Counts two, seven, eight, and eighteen relate to Lefkowitz’s on-going
deception of investors. Count two is a Lefkowitz-approved letter from CEG
to an investor in the Citi-Minnesota partnership falsely stating that
construction had been delayed by severe weather in Duluth but would be
completed on time. In fact, construction was never started. Counts seven
and eight were identical letters from Lefkowitz to two investors in the
Citi-Minneapolis IX partnership falsely stating that construction was
“moving forward” and enclosing a photograph falsely described as depicting
“a groundbreaking ceremony . . . on the site of the property owned by Citi-
Minneapolis Partners IX.” In fact, the Citi-Minneapolis IX project was
never begun. Count eighteen was a wire transfer of Citi-Elmcrest rental
income into CEG’s main account. That income had been dedicated to the
limited partners or to a reserve fund to cover unexpected maintenance
costs.
Lefkowitz argues that the evidence was insufficient to convict him
on these counts because the government failed to prove he embezzled
investor funds. But the evidence was sufficient to prove that the three
uses of the mails furthered the scheme to defraud by falsely assuring
investors their projects were proceeding. See United States v. Lane, 474
U.S. 438, 451-52 (1986). The wire transfer of rental income was part of
the core scheme to pool CEG project funds and use them without regard to
contrary promises in the PPMs and partnership agreements.
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Lefkowitz also argues that the government failed to prove use of the
mails in counts seven and eight because the recipients testified that the
letters arrived by mail but not “United States mail.” However, a rational
jury may conclude from such testimony that the items were delivered by the
United States Postal Service. See United States v. Fox, 69 F.3d 15, 18
(5th Cir. 1995); United States v. Griffith, 17 F.3d 865, 877 (6th Cir.),
cert. denied, 513 U.S. 850 (1994).
Counts nine and twenty-nine involve two letters concerning the extent
of a permanent lender’s prior dealings with CEG. Lefkowitz used the
letters to induce investors to contribute to FSM-VIII, falsely representing
the information contained in the lender’s letter. He argues that the
government failed to prove intent to deceive FSM-VIII investors because
investors were on notice that CEG did not have solid permanent financing
commitments. However, Lefkowitz used the letters to further his overall
scheme to defraud investors by obtaining FSM funds that were siphoned away
from the proposed projects to pay his personal expenses and CEG’s other
debts.
Counts fourteen to sixteen, twenty, and twenty-two to twenty-five
relate to FSM-VI. The first three counts involve interest checks mailed
to FSM investors at a time when FSM-VI’s funds were depleted and could not
be earning interest. These checks support a conviction for mail fraud
because they prevented investors from uncovering the fraud. See Lane, 474
U.S. at 451. The last four counts involve wire transfers of the original
investor funds into FSM-VI, unquestionably an integral part of the overall
scheme to defraud as these funds were moved into CEG’s main account and
spent on expenses unrelated to FSM-VI properties. Lefkowitz argues that
pooling investor funds and spending them at his discretion was not
inconsistent with the language in the various PPMs. We disagree, but in
any event the jury could reasonably find the overall scheme fraudulent, the
language of the PPMs notwithstanding. The documents at issue in these
counts clearly furthered that overall scheme.
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Counts twenty-six and twenty-eight concern Lefkowitz-approved letters
that CEG faxed to one of its broker-dealers. One letter falsely stated
that CEG was holding FSM-IV funds in escrow and releasing them to
contractors as work was completed, when in fact CEG had already spent most
of those funds on unrelated properties and was paying FSM-IV contractors
from its main account. The other letter falsely stated that CEG had almost
$1,500,000 of FSM-VI funds in a construction fund for the Aspen III
apartment building; in fact, most FSM-VI funds had been funneled into CEG’s
main account and spent elsewhere. Lefkowitz argues this evidence does not
prove intent to harm investors because the FSM-IV properties were built and
he always intended to build Aspen III. But both letters concealed CEG’s
use of investor funds so that the broker-dealer would continue encouraging
clients to invest in its projects. Intent to harm may be inferred from
this type of active concealment. See United States v. Stouffer, 986 F.2d
916, 923 (5th Cir.), cert. denied, 510 U.S. 837 (1993).
Count thirty concerns a telephone conversation in early February 1993
between Lefkowitz and a Minnesota broker-dealer concerning whether the FSM-
VI funds were still in escrow and available for construction. Lefkowitz
concedes that he lied about that but argues that the government presented
no evidence that this was an interstate telephone conversation. The
government responds, “There was no evidence that Lefkowitz, a California
businessman, was in Minnesota at the time.” Given the government’s burden
of proof, that response is totally inadequate.
Testifying for the government at trial, the broker-dealer related the
substance of the conversation but not whether it was an interstate call.
Lefkowitz testified at length for the defense but was not asked about this
conversation. A jury may reasonably infer from circumstantial evidence
that a telephone call was between the parties in different States. See
United States v. Galbraith, 20 F.3d 1054, 1056-57 (10th Cir.), cert.
denied, 513 U.S. 889 (1994); United States v. Griffith, 17 F.3d 865, 874
(6th Cir.), cert. denied, 513 U.S. 850 (1994). But our review of the
massive record on appeal has uncovered no circumstantial evidence from
which the jury could infer that Lefkowitz,
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who made many trips to Minnesota, was elsewhere at the time of this call.
Lacking help from the government on this issue, we agree with Lefkowitz
that the evidence is insufficient to prove the interstate element of
federal wire fraud. His conviction on count thirty must be reversed.
Counts three, four, and seventeen relate to tax credit applications.
Two counts involve letters advising CEG that the Minnesota Housing Finance
Agency (MHFA) had reserved nonprofit tax credits for projects after CEG
falsely listed NDC as a fifty-percent general partner. Lefkowitz argues
the evidence was insufficient to prove he knew of this misrepresentation.
However, a CEG employee testified that Lefkowitz instructed him to claim
NDC as a fifty-percent partner and specifically approved the fraudulent
applications. The third count involves a fraudulent permanent financing
commitment letter that CEG faxed to MHFA to satisfy its requirements for
tax credits. Lefkowitz argues that no non-profit tax credit application
was submitted for this project so the fax did not further an alleged scheme
to defraud. However, for-profit tax credits were allocated to the project
and claimed by CEG investors before the building was completed. Therefore,
the fax was an integral step in the overall scheme to defraud government
of low-income housing tax credits.2
Counts five, six, and ten to thirteen are IRS tax forms CEG mailed to
investors advising they were entitled to claim low-income housing tax
credits in a particular year. Five advised of non-profit tax credits for
projects on which CEG had falsely claimed NDC as a partner. Lefkowitz
argues he reasonably relied on his accountants to
2
Counts forty-two and forty-three charged Lefkowitz with violating 18
U.S.C. § 1001 (1990) by knowingly and willfully using false documents in a matter
within the jurisdiction of an agency of the United States (the IRS) when he caused
CEG to file false non-profit tax credit applications with MHFA. Though Lefkowitz
claims that he did not know the applications would list NDC as a project partner,
there was ample evidence permitting a reasonable jury to find knowing and willful
violations of § 1001. See United States v. Yeriman, 468 U.S. 63, 69 (1984).
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determine what credits investors could legitimately claim. However,
Lefkowitz caused the filing of false tax credit applications. Advising
investors to claim the resulting undeserved credits was a foreseeable and
necessary step in this part of the overall scheme to defraud. The sixth
tax form advised an investor to claim credits for all of 1990 on a project
that CEG did not purchase until December 31, 1990. Lefkowitz argues
insufficient proof of intent to defraud because CEG might have assumed the
benefits and burdens of ownership, and thus became entitled to the credits,
before signing the purchase agreement. However, the real estate broker
testified that he did not introduce Lefkowitz to the seller until late
December, sufficient evidence that the claim of tax credits for the entire
year was part of the overall scheme to defraud.
Count one involves a letter from Lefkowitz to a broker-dealer
enclosing Lefkowitz’s written response to a due diligence organization’s
inquiry as to why he had not disclosed his suspension from the practice of
law in California. Broker-dealers were concerned that the suspension
should be disclosed to CEG investors. Lefkowitz’s explanation was a
dishonest summary of the conduct that caused the suspension and the
California Supreme Court’s opinion in the matter. At trial, Lefkowitz
objected in chambers to any evidence of the California suspension as
irrelevant and unfairly prejudicial. The government proposed to limit its
evidence to a certified copy of the California Supreme Court opinion plus
Lefkowitz’s response to the broker-dealer inquiry, introduced with minimal
foundation from a broker-dealer recipient. The district court ruled that
the documents would be admitted on that basis. When trial resumed, the
witness testified that she received the letter and its enclosure but was
not asked on direct or cross exam if they were received by United States
mail. On appeal, Lefkowitz argues that the government failed to prove that
this letter was sent by United States mail.3 We agree that under the
governing mail fraud statute (§ 1341 has since
3
As to fifteen of the mail fraud counts, Lefkowitz generally argues that the
government failed to prove use of the mails, and the government responds that there
was testimony “for each mailing” but only provides three citations to the trial
record. When the record is as massive as in this case, we expect defense counsel
who raise an issue of this kind to cite the testimony and exhibits establishing each
failure of proof, and government counsel to respond with equal specificity. When
both sides fail in this regard, appellant cannot complain if we affirm. However, in
this case we have combed the record and found sufficient evidence as to use of the
mails for all mail fraud counts with the exception of count one.
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been amended to include delivery “by any private or commercial interstate
carrier”), the government’s proof as to use of the mails was insufficient.
See United States v. Hannigan, 27 F.3d 890, 895 (3d Cir. 1994); United
States v. Cady, 567 F.2d 771, 775 (8th Cir. 1977). Accordingly,
Lefkowitz’s conviction on count one must be reversed.
C. Continuing Financial Crimes Enterprise (Count Forty-Seven).
The manager of a continuing financial crimes enterprise (CFCE)
violates 18 U.S.C. § 225 if (i) he supervises a series of mail or wire
fraud transactions which affect a financial institution, (ii) receives at
least $5,000,000 in gross receipts from the criminal enterprise in a
twenty-four-month period, and (iii) acts in concert with at least three
other persons in executing the crimes.4 The jury found that Lefkowitz
violated
4
Section 225 provides:
(a) Whoever (1) organizes, manages, or supervises a continuing
financial crimes enterprise; and (2) receives $5,000,000 or more in
gross receipts from such enterprise during any 24-month period, shall
be fined not more than $10,000,000 if an individual, or $20,000,000 if
an organization, and imprisoned for a term of not less than 10 years
and which may be life.
(b) For purposes of subsection (a), the term “continuing financial
crimes enterprise” means a series of violations under section 215, 656,
657, 1005, 1006, 1007, 1014, 1032, or 1344 of this title, or section
1341 or 1343 affecting a financial institution, committed by at least 4
persons acting in concert.
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§ 225 when CEG raised more than $5,000,000 from FSM-VI and FSM-VIII
investors within a two-year period, because banks invested in those
offerings and at least three other persons acted in concert with Lefkowitz
in executing mail and wire frauds.
The evidence is clear that banks invested a total of $1,120,000 in
FSM-VI and FSM-VIII. Those offerings together grossed over $5,000,000.
Given CEG’s practice of making all invested funds available to Lefkowitz
personally, it is clear he received at least $5,000,000 from this part of
the CEG enterprise in a two-year period. Lefkowitz suggests that banks
investing in FSM-VIII were not “affected” by the fraud because Lefkowitz
used funds from later projects to repay FSM-VIII investors. However,
whatever the banks finally realized on their investments, they were
affected when deceived into investing funds that CEG then fraudulently
misused.
Lefkowitz primarily argues that the government failed to prove he
acted “in concert” with at least three other persons in defrauding
financial institutions. “[T]he plain meaning of the phrase ‘in concert’
signifies mutual agreement in a common plan or enterprise.” United States
v. Rutledge, 116 S. Ct. 1241, 1247 (1996). While acknowledging that
numerous CEG employees acted in concert with him in executing the overall
scheme to defraud, Lefkowitz argues that there was no knowing complicity
by his subordinates in the continuing FSM fraud against financial
institutions. The jury was carefully and properly instructed on this
issue:
In order to sustain its burden of proof for the crime of
managing a continuing financial crimes enterprise as charged
in Count Forty Seven of the indictment, the government must
prove the following:
One. The defendant committed three or more violations of
the mail fraud and/or the wire fraud statutes affecting
financial institutions;
* * * * *
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Four. The defendant organized managed or supervised these
three or more other persons in connection with this series of
violations . . . .
(Emphasis added.) We conclude that the evidence is sufficient to support
the jury’s finding that Lefkowitz violated 18 U.S.C. § 225.
D. False Tax Returns (Counts Thirty-Two To Forty-One).
Four of these counts concern low-income housing tax credits CEG
claimed for a project not yet completed. The other six relate to credits
based upon false placed-in-service dates. To sustain a conviction under
26 U.S.C. § 7206(2), the evidence must show that defendant willfully caused
the preparation of a materially false tax return. Lefkowitz first argues
that the government failed to prove willfullness because he only mistakenly
supplied incorrect information to his accountants. However, the trial
testimony of the various CEG accountants provided ample evidence that
Lefkowitz (i) instructed a CEG accountant to claim credits on a project he
knew was incomplete, and (ii) willfully provided false placed-in-service
dates to his accountants. That is sufficient proof of willfulness. See
United States v. Kouba, 822 F.2d 768, 773 (8th Cir. 1987).
Lefkowitz also argues that false placed-in-service dates will not
sustain these convictions because low-income housing tax credits also
require proof that a building is a “qualified low-income building.” 26
U.S.C. § 42(f)(1). Lefkowitz told his accountants that the projects were
pre-leased to qualified low-income tenants, so that CEG could begin taking
tax credits when the apartments were placed in service. Thus, Lefkowitz
knew when he provided false placed-in-service dates that his accountants
would wrongfully claim tax credits based on that information. That is
sufficient to sustain the § 7206(2) convictions.
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E. False Statement in a Bankruptcy Case (Count Forty-Six).
CEG was forced into Chapter 11 bankruptcy shortly after Lefkowitz left
the company in May 1994. Some weeks later, after Lefkowitz attempted to
sell a mortgage owned by a company he controlled but purchased with CEG
investor funds, CEG filed in its bankruptcy case an affidavit by a real
estate broker stating:
On approximately June 13, 1994, I received a telephone call from
Mr. Lefkowitz. During that phone call Mr. Lefkowitz asked me
if I would be interested in acting as a broker to sell a
mortgage which he holds on an apartment complex. I indicated
to Mr. Lefkowitz that until the City Equity Group problems were
resolved I would be unable to assist in this regard. Once I
indicated that I was unable to assist him the phone call
terminated rather abruptly.
Lefkowitz responded with an affidavit stating: “The conversation . . .
never occurred.” Based on Lefkowitz’s affidavit, the jury convicted him
of “knowingly and fraudulently mak[ing] a false declaration, certificate,
verification, or statement under penalty of perjury . . . in or in relation
to any case under title 11.” 18 U.S.C. §152(3).
Lefkowitz argues that this conviction must be overturned because his
statement was literally true. See Bronston v. United States, 409 U.S. 352,
362 (1973). The broker’s affidavit, Lefkowitz explains, gave the
impression that Lefkowitz was attempting to sell his own mortgage, rather
than one owned by a company he controlled. His affidavit simply denied
that the conversation as described had occurred. However, Lefkowitz’s
affidavit, read literally, asserts that the conversation never occurred,
not that it occurred but differently than the broker described it.
Moreover, his affidavit “must be considered in the context in which [it
was] given.” United States v. Robbins, 997 F.2d 390, 395 (8th Cir.), cert.
denied, 510 U.S. 948 (1993). The jury could reasonably find that Lefkowitz
lied to the bankruptcy court to cover up his effort to profit from the
prior embezzlement of CEG property.
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F. Obstruction of Justice (Count Forty-Four).
In early 1993, Lefkowitz received a letter informing him that he was
the target of a grand jury investigation. In October, he instructed a CEG
employee to remove all documents relating to two projects from CEG’s
offices. The employee gathered two boxes of documents and took them to her
home. When a government document subpoena in December included one of the
projects, the employee did not produce responsive documents at her home
with CEG’s response. She finally produced the documents in early 1994
after receiving a target letter and discussing the matter with her own
attorney. Based on this incident, Lefkowitz was convicted of violating 18
U.S.C. § 1503 by corruptly obstructing the grand jury’s investigation.
Lefkowitz argues that this conviction must be reversed because the
government did not prove a sufficient nexus between his instruction to
remove documents and an intent to impede the grand jury process. We
disagree. Lefkowitz knew of the grand jury investigation when he
instructed the employee to remove the documents. Based upon her testimony,
the jury could reasonably infer that Lefkowitz had intended her to hide
these documents from the government. He knew that CEG had raised money and
claimed tax credits for those two projects when the partnerships did not
own any property. Thus, whether the removed documents were in fact
incriminating is irrelevant because the jury could reasonably find that
Lefkowitz believed they would incriminate. Section 1503 is violated by
“endeavors” to obstruct justice, which include “where the defendant acts
with an intent to obstruct justice, and in a manner that is likely to
obstruct justice, but is foiled in some way.” United States v. Aguilar,
115 S. Ct. 2357, 2363 (1995).
II. Limiting Funding for Defense Experts.
Lefkowitz asserts that he was denied due process when a judge of this
court limited him to $169,000 in accountant expert fees under the Criminal
Justice Act
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(CJA), 18 U.S.C. § 3006A(e).5 Due process requires that the government
provide “the basic tools of an adequate defense.” Little v. Armontrout,
835 F.2d 1240, 1243 (8th Cir. 1987) (en banc) (quotation omitted), cert.
denied, 487 U.S. 1210 (1988). As we discuss in Part IV, there is good
reason to infer that Lefkowitz was not a financially unable defendant
entitled to any CJA funding. But in any event, we are satisfied that the
funds he received gave him the basic accounting tools for an adequate
defense. He retained the services of a nationally recognized accounting
expert who testified extensively at trial. We find nothing in the record
suggesting that this limitation on CJA fees resulted in an unfair trial.
III. The Third Continuance.
On May 1, 1995, after twice continuing the trial originally scheduled
for August 1994, the district court granted Lefkowitz a continuance of
three weeks, rather than the three months he requested. Lefkowitz argues
that the court erred in not granting a three-month continuance because his
case was especially complex, the records were voluminous, and the denial
of additional expert funding was an unforeseen hardship. “We will not
overturn a trial court’s denial of a continuance unless the trial court
clearly has abused its discretion, because continuances are not favored and
should be granted only when a compelling reason has been shown.” United
States v. Young, 943 F.2d 24, 25 (8th Cir. 1991) (quotation omitted), cert.
denied, 503 U.S. 964 (1992). There was no abuse of discretion in this
case. The district court specifically considered the case’s complexity and
its “unique circumstances” in granting the final three-week continuance.
5
The CJA provides a mechanism whereby “financially unable” defendants
may obtain expert services “necessary for adequate representation.” 18 U.S.C. §
3006A(e)(1). Fees in excess of $1,000 must be certified by the district court and
approved by an active circuit judge “as necessary to provide fair compensation for
services of an unusual character or duration.” § 3006A(e)(3). In this case, the
reviewing circuit judge reduced the amount approved by the district court.
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IV. The Recoupment Order.
Following his initial indictment, Lefkowitz requested appointed
counsel under the CJA. See 18 U.S.C. § 3006A(a). A hearing was held at
which Lefkowitz represented that he had no assets or income because his
wife owned their residences, cars, jewelry, and art work. The court
ordered Lefkowitz to submit, in camera, current financial statements for
himself and his wife. After some delay, he submitted a financial statement
showing a personal net worth of $18,600,000 on December 31, 1990. The
court then concluded he was able to pay his costs of defense and
conditioned appointment of counsel on Lefkowitz or his wife depositing
$250,000 with the Clerk of Court to cover those costs. When Lefkowitz
reneged on his promise to deposit such assets, the court discharged
appointed counsel. Lefkowitz challenged this ruling, falsely representing
that the court overseeing CEG’s bankruptcy had enjoined him from depositing
assets for his defense. Concerned that Lefkowitz be effectively
represented in the criminal case despite his intransigence, the district
court reappointed counsel, but reaffirmed that Lefkowitz was responsible
for his costs of defense and ordered the Federal Defender to pursue
collection if he did not comply with the court’s order. Lefkowitz never
deposited any funds with the court.
After conviction and prior to sentencing, the district court held a
hearing to determine whether Lefkowitz should be ordered to pay his costs
of defense. The government presented evidence that he had spent several
hundred thousand dollars on personal expenses and unrelated attorney’s fees
between June 1994 and February 1995, contrary to his repeated claims of
indigence. Lefkowitz admitted the expenditures but claimed that he had no
significant current assets and had been living off family loans for several
months prior to his July 1995 incarceration. Unpersuaded, the district
court concluded that Lefkowitz has funds available and ordered him to
reimburse the government $316,693.70 for his costs of defense. Such an
order is expressly authorized by 18 U.S.C. § 3006A(f).
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On appeal, Lefkowitz argues that the court’s finding that he currently
has funds available is clearly erroneous. We disagree. A defendant has
the burden of demonstrating that he is unable to afford counsel, especially
when a pretrial hearing casts doubt on his need for public assistance.
See, e.g., United States v. Anderson, 567 F.2d 839, 840 (8th Cir. 1977);
United States v. Harris, 707 F.2d 653, 661 (2nd Cir.), cert. denied, 464
U.S. 997 (1983). Because Lefkowitz never met that burden, every pretrial
order appointing counsel specified that he would ultimately bear the cost
of his own defense. After the trial, Lefkowitz was given an opportunity
to demonstrate that he is presently unable to reimburse the government for
his defense. He presented nothing more than his personal testimony. The
district court found that testimony to be entirely lacking in credibility,
as do we. Our earlier orders granting him leave to prosecute these appeals
in forma pauperis are not to the contrary.
V. Conclusion.
Lefkowitz’s convictions on count one and count thirty are reversed,
and the case is remanded for entry of an amended judgment and for
consideration of whether resentencing is necessary. The judgment appealed
in No. 95-4206 is in all other respects affirmed. The order appealed in
No. 96-1228 is affirmed. The concerns which led us to file portions of the
record in No. 96-1228 under seal appear to be no longer applicable.
Therefore, unless Lefkowitz files a motion objecting to this action within
the time allowed for a petition for rehearing, the Clerk is directed to
make the entire record in No. 96-1228 a public record.
A true copy.
Attest:
CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.
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