United States v. Michael Vallone

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 re

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