# Petition for Writ of Certiorari — Rosengarten v. United States

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385002_0543%3A1

## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 1989
- **Citation:** 488 U.S. 1011

## Text

am 7
IN THE DEC @> 1988

Supreme Court of the United States. +

OCTOBER TERM, 1988

—-

SAMUEL ROSENGARTEN, STANISLAW ORLICKI,
and LEONARD NACHTMAN,

Petitioners,
—V.—

UNITED STATES OF AMERICA,
Respondent.

PETITION FOR A WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

MINNA SCHRAG
Counsel of Record
~ LARRY M. LAVINSKY
MARTHA E. GIFFORD
KATHLEEN M. Woop
Proskauer Rose Goetz

& Mendelsohn
300 Park Avenue
Of Counsel: New York, New York 10022
RICHARD S. BERNE (212) 909-7000
305 Madison Avenue Counsel for Petitioners

New York, New York 10165

KENNETH I. SCHACTER
Solin & Breindel P.C.

501 Fifth Avenue

New York, New York 10017

QUESTION PRESENTED

Can conduct that occurs after the passage of a statute, but
ceases before its effective date, be criminally punished as a con-
spiracy to defraud the United States even though the conduct,
at the time it occurs, violates no law and does not defeat any
lawful function of the government?

TABLE OF CONTENTS

PAGE
OPINIONS BELOW |... o.ccsacane spn peewee Cees hee cans 1
JURISDICTION «4.404500 nce ere eee ee 1
CONSTITUTIONAL AND STATUTORY PROVI-

SIONS INVOLVED? occ cou x awe ne oe eee bees es eeas 1
STATEMENT OF THE CASE.......-.ccccee.ceeees 2
REASONS FOR GRANTING THE WRIT ........... 4

I. The Decision Is In Conflict With This Court’s

Prior Decisions Construing The Ex Post Facto
Clause .. oo oa cuddeeec ener eee 5

Il. The Decision Is In Conflict With Decisions By
Other Circuits And By The Second Circuit Itself 9

Ill. The Second Circuit’s Decision Permits Unlim-

ited Expansion Of The General Conspiracy Stat-

UWE ..ccucseeeue ke ba ee ee 11
CONCLUSION . «cadaver ees 15
APPENDIX :

Opinion Of The Court of Appeals ........... A-1

Opinion Of The District Court...........---. A-10

Order Denying Petition For Rehearing........ A-18

Indictment ..

UNITED STATES OF AMERICA,

Appellant,
—V.—

SAMUEL ROSENGARTEN, STANISLAW ORLICKI,
JAMES C. NICHOLAS, and LEONARD NACHTMAN,
* Defendants,
SAMUEL ROSENGARTEN, STANISLAW ORLICKI, and
LEONARD NACHTMAN,
Defendants-A ppellees.

Before:

VAN GRAAFEILAND, NEWMAN and WINTER,
Circuit Judges.

>

Appeal from an order of the United States District
Court for the Southern District of New York (Brieant,
C.J.) dismissing an indictment charging conspiracy to

A-l

defraud the United States (18 U.S.C. § 371) on the ground
that conviction on the charge would violate the prohibi-
tion against ex post facto laws. Reversed and remanded
with instructions to reinstate the indictment.

—

ELKAN ABRAMOWITZ, New York, N.Y.,
(Obermaier, Morvillo, Abramowitz &
Iason, P.C., and Alan J. Brudner, New
York, N.Y., of Counsel), for Defendant-
Appellee Leonard Nachtman.

(Kronish, Lieb, Weiner & Hellman, Alan
Levine and William J. Schwartz, New
York, N.Y., of Counsel), for Defendant-
Appellee Samuel Rosengarten.

(Solin & Breindel, P.C., and Kenneth I.
Schacter, New York, N.Y., of Coun-
sel), for Defendant-Appellee Stanislaw
Orlicki.

JOHN F. SAVARESE, Assistant United States
Attorney, Southern District of New York,
New York, N.Y. (Rudolph W. Giuliani,
United States Attorney, and Vincent L.
Briccetti, Assistant United States Attor-
ney, Southern District of New York, New
York, N.Y., of Counsel), for Appellant.

aad

VAN GRAAFEILAND, Circuit Judge:

The United States appeals from an order of the United
States District Court for the Southern District of New

A-2

York (Brieant, C.J.) which dismissed an indictment charg-
ing appellees Samuel Rosengarten, Stanislaw Orlicki and
Leonard Nachtman with conspiracy to defraud the United
States. 18 U.S.C. § 371. The district court dismissed on
the ground that conviction on the charge would violate the
Constitution’s ban on ex post facto laws. U.S. Const. art.
1, $3, 2. 3.

The indictment, filed on August 13, 1987, charged
appellees and one James Nicholas,’ with conspiracy to
defraud the United States by ‘‘impeding, impairing,
defeating, and obstructing the lawful governmental func-
tions of the Internal Revenue Service in the ascertainment,
evaluation, assessment, and collection of income taxes’’ in
violation of 18 U.S.C. § 371. The aim of the alleged con-
spiracy was to create false income tax deductions by back-
dating documents relating to a real estate tax shelter
investment, thus frustrating the ascertainment and collec-
tion of taxes in accordance with section 501 of the Tax
Reform Act of 1986, 26 U.S.C. § 469. Relying solely on
dictum in United States v. Binder, 453 F.2d 805 (2d Cir.
1971), cert. denied, 407 U.S. 920 (1972), the district court
granted appellees’ motion to dismiss because the indict-
ment alleged no overt act occurring after January 1, 1987,
the effective date of section 501. For the reasons that fol-
low, we reverse.

Congress enacted the Tax Reform Act of 1986 on Octo-
ber 22, 1986. Section SOl(a) of the Act, 26 U.S.C.
§ 469(a), substantially eliminated the deductibility of
losses arising out of traditional tax shelter investments.
This section no longer permits taxpayers to deduct losses
or credits generated by ‘‘passive’’ activities—those busi-
ness activities in which the taxpayer does not personally

| Nicholas pleaded guilty and is not a party to this appeal.

A-3

participate on a substantial, regular, and continuc.s
basis—from income generated by salary, interest, divi-
dends, and active business income. It eliminates the finan-
cial incentive of many taxpayers for investing in
traditional tax shelter programs.

Although enacted on October 22, 1986, the Act did-not
become effective until the taxable years beginning after
December 31, 1986. Tax Reform Act of 1986, Pub. L. No.
99-514, § SOl(c), 100 Stat. 2085, 2241. To ameliorate the
effect of the Act, Congress provided favorable tax treat-
ment for those taxpayers already holding investments in
tax shelters on the date of enactment by gradually phasing
in the passive activity loss rules for such investments.
Under the phase-in provisions, any interests in activities
acquired after the date of enactment were made fully sub-
ject to the passive activity loss rules. For investments made
before the date of enactment, up to 65 percent of passive
activity losses or credits was allowed for the 1987 taxable
year, and decreasing amounts were allowed thereafter
until 1991, when all allowances would cease. U.S.C. 26
§ 469(m).

The facts alleged by the Government, as hereinafter set
forth, are accepted as true for purposes of this appeal.
United States v. Pacione, 738 F.2d 567, 568 (2d Cir. 1984).
In 1986, Rosengarten operated a tax shelter sales organiza-
tion in Armonk, New York. Orlicki and Nicholas were
salesmen in the organization. After the Tax Reform Act
was enacted on October 22, 1986, Rosengarten and Orlicki
met with a Special Agent (Agent 1) of the Internal Reve-
nue Service, who was working undercover as one of
Rosengarten’s salesmen. At that meeting, Rosengarten
and Orlicki indicated a willingness to backdate subsequent
sales of interests in a limited partnership, tax shelter pro-

A-4

gram syndicated by the Island Planning Corporation of
America, so that purchasers could take advantage of the
phase-in allowances. Appellee Nachtman, a principal of
Island Planning, was privy to the proposed arrangement.

Later that evening, Orlicki and Agent 1 met with a sec-
ond undercover Special Agent (Agent 2), who was posing
as the representative of three prospective investors. At this
meeting, Orlicki made a sales pitch concerning the Island
Planning program and offered to backdate the sale of a
$150,000 one-half unit interest in the limited partnership.
In several telephone conversations that followed, Orlicki
informed Agent 2 that the Island Planning deal still was
available and that subscription documents could be back-
dated. Agent 2 was told that his check would be ‘‘time and
date stamped”’ and that Island Planning would provide a
notary public to notarize the subscription document’s exe-
cution to a date preceding October 22, 1986.

Pursuant to instructions received from Orlicki and
Nicholas at a December 8 meeting, Agent 2 met with
Nachtman on December 9, 1986. At that meeting, Nacht-
man told Agent 2 that all documents would be backdated
to October 18, 1986 in order to create the scenario that the
parties had come into Island Planning’s offices on a Satur-
day to sign the documents. Nachtman also told Agent 2
that the notary was ‘‘in place’’ and that ‘‘we never had this
conversation.’’ The arrests of the several defendants fol-
lowed.

DISCUSSION
In pertinent part, the general federal conspiracy statute,

18 U.S.C. § 371, proscribes conspiracies ‘‘to defraud the
United States, or any agency thereof in any manner or for

A-5

any purpose... .’’ The term ‘‘defraud’’ when used in
section 371 is interpreted much more broadly than when it
is used in the mail and wire fraud statutes, 18 U.S.C.
§§ 1341 and 1343. To be guilty of violating the latter stat-
utes, a defendant must have used fraud or deception to
deprive another of a property right. McNally v. United
States, 107 S. Ct. 2875 (1987). Violation of the former
may be predicated upon a conspiracy to impair, obstruct
or defeat the lawful function of any governmental depart-
ment. Dennis v. United States, 384 U.S. 855, 860-61
(1966); Hammerschmidt v. United States, 265 U.S. 182,
188 (1924); Haas v. Henkel, 216 U.S. 462, 479 (1910).
Moreover, the impairment or obstruction of a governmen-
tal function contemplated by section 371’s ban on conspir-
acies to defraud need not involve the violation of a
separate statute. Haas v. Henkel, supra, 216 U.S. at 479-
81; United States v. Brasco, 516 F.2d 816, 817-18 (2d
Cir.), cert. denied, 423 U.S. 860 (1975); United States v.
Peltz, 433 F.2d 48, 51 (2d Cir. 1970), cert. denied, 401
U.S. 955 (1971); Falter v. United States, 23 F.2d 420, 423
(2d Cir.), cert. denied, 277 U.S. 590 (1928). Although an
indictment charging a section 371 conspiracy to defraud
the United States may aver the breach of a specific statute,
such breach usually is treated as ‘‘a way of consummating
the conspiracy and. . . like the use of a gun to effect a
conspiracy to murder, is purely ancillary to the substantive
offense.’’ Glasser v. United States, 315 U.S. 60, 67 (1942)
(quoting United States v. Manton, 107 F.2d 834, 839 (2d
Cir. 1939), cert. denied, 309 U.S. 664 (1940)).

A conspiracy to frustrate or obstruct the IRS’s function
of ascertaining and collecting income taxes falls clearly
within the ban of section 371. United States v. Klein, 247
F.2d 908, 915-18 (2d Cir. 1957), cert. denied, 355 U.S. 924
(1958); United States v. Everett, 692 F.2d 596, 599 (9th

A-6

——— rt C”t~“SOTSTSS

Cir. 1982), cert. denied, 460 U.S. 1051 (1983). This is so
even though the contemplated substantive acts, standing
alone, would not constitute a federal offense. United
States v. Turkish, 623 F.2d 769, 771 (2d Cir. 1980), cert.
denied, 449 U.S. 1077 (1981). ‘‘[A] conspiracy to defraud
the government, though it may be directed to the revenue
as its object, is punishable by the general law against all
conspiracies, and can hardly be said, in any just sense, to
arise under the revenue laws.’’ United States v. Hirsch,
100 U.S. 33, 35 (1879). Indeed, to be actionable, a conspir-
acy need not be carried to a successful conclusion, United
States v. Ingredient Technology Corp., 698 F.2d 88, 98 (2d
Cir.), cert. denied, 462 U.S. 1131 (1983); it is complete
when any of the coconspirators commits an overt act.
Hyde v. Shine, 199 U.S. 862, 76 (1905).

Application of the foregoing well-accepted principles
makes it clear that the effective date of section 501 of the
Tax Reform Act was not determinative of whether appel-
lees committed the crime of conspiring to defraud the
United States. Appellees were not charged with violating
section 501. They were charged with a section 371 conspir-
acy to defraud the Government by impeding and obstruc-
tion the functions of the IRS in the ascertainment and
collection of income taxes.

The indictment did not violate the Constitution’s pro-
scription against ex post facto laws. Article I, section 9, of
the Constitution provides that ‘‘[nJo Bill of Attainder or
ex post facto Law shall be passed.’’ This clause prohibits
any prosecution by the Government for conduct that was
innocent when performed. United States v. Gibbs, 813
F.2d 596, 602 (3d Cir. 1987). It is based on the principle
that ‘‘persons have a right to fair warning of that conduct
which will give rise to criminal penalties. . . .’’ Marks v.

A-7

United States, 430 U.S. 188, 191 (1977); see also Casillas
v. Scully, 769 F.2d 60, 65 (2d Cir. 1985). Nothing about
appellees’ indictment violates this principle. As the district
court observed:

[Defendants were painfully aware of the enactment

- of Sec. 501 of the Tax Reform Act of 1986, and its
effect on their livelihood as promoters of real estate
tax shelters. Their plans to backdate documents in
order to take illegal advantage of the phase-in provi-
sion of the new law was in direct response to the terms
of the law itself.

The ex post facto clause did not preclude the Govern-
ment from protecting itself against appellees, who would
have prevented the IRS from properly administering its
affairs by conspiring to violate an already-enacted revenue
statute prior to its effective date.

This Court’s opinion in United States v. Binder, supra,
does not require a different result. In Binder, the defen-
dants allegedly conspired to defraud the United States by
participating in transactions designed to evade a new
excise tax, the Interest Equalization Tax (‘‘I.E.T.’’),
imposed on certain types of stock transactions. The I.E.T.
statute, which was enacted on September 2, 1964, imposed
the I.E.T. retroactively on all affected transactions from
July 19, 1963, the date on which the President proposed
the tax to Congress. Binder and his coconspirators
engaged in transactions both before and after the statute
was enacted which were designed to evade the I.E.T. They
argued on appeal that their convictions violated the ex
post facto clause because the Government was permitted
to prove what the defendants had done prior to the pas-
sage of the Act. We affirmed, holding that ‘‘appellants’
action prior to the enactment of the I.E.T. did not provide

A-8

the basis for their convictions, but was admitted to prove
the existence of the conspiracy and its purpose.’’ 453 F.2d
at 808. We concluded that the convictions were constitu-
tional because they were based entirely on post-enactment
conduct. It is possible to read the opinion as conveying the
negative implication that any pre-enactment conduct
could not have been the basis for a valid conviction. If
such an implication was made, it was dictum, since the
conduct alleged to be unlawful all occurred post-
enactment. We need not decide whether such dictum is or
ought to be the law of this Circuit because the pending
indictment does not allege any conduct occurring prior to
enactment of the Tax Reform Act. Appellants are con-
tending that the ex post facto clause insulates them from
conviction for conduct designed to defraud the Govern-
ment occurring after enactment but prior to the start of
the first tax year to which the statute applies. Neither the
holding nor the arguably inferrable dictum in Binder lends
any support to that claim.

The order of the district court is reversed and the matter
is remanded to the district court with instructions to rein-
state the indictment.

MEMORANDUM AND ORDER

87 Cr. 662 (CLB) FILED: Nov. 25, 1987
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

>

UNITED STATES OF AMERICA
—against—

SAMUEL ROSENGARTEN, STANISLAW ORLICKI,
JAMES C. NICHOLAS and LEONARD NACHTMAN,

Defendants.

Brieant, Chief Judge

By indictment filed on August 13, 1987, defendants
Rosengarten, Orlicki, Nicholas and Nachtman were charged
with conspiring to defraud the United States. The indictment
cites the general conspiracy statute, 18 U.S.C. Sec. 371.

The Grand Jury charged that the defendants ‘‘unlawfully,
wilfully, and knowingly did combine, conspire, confederate,
and agree together with others to defraud the United States of
America and the Internal Revenue Service by impeding, impair-
ing, defeating, and obstructing the lawful governmental func-
tions of the Internal Revenue Service in the ascertainment,
evaluation, assessment, and collection of income taxes.’’ The
indictment describes the goal of the conspiracy as to create false
federal income tax deductions for other persons not named, by
backdating documents relating to a real estate tax shelter invest-
ment so as to circumvent and defeat the provisions of the Tax

A-10

Reform Act of 1986. Eight overt acts are pleaded as allegedly
committed by the defendants in furtherance of the conspiracy.

Defendant Nicholas pled guilty to the one count indictment
on October 13, 1987, and proposes to testify for the Govern-
ment. By motion heard and fully submitted on November 10,
1987, all remaining defendants move to dismiss the indictment
under Fed. R. Crim. P. 12 on two grounds. First, they assert
that the indictment fails to allege any overt act independent of
the alleged agreement itself, and is therefore insufficient. Sec-
ond, they contend that this prosecution is barred by the ex post
facto clause of the United States Constitution, which states
that: ‘‘No Bill of Attainder or ex post facto law shall be
passed.’’ Const., Art I, Sec. 9. Following dictum of the Second
Circuit in United States v. Binder, 453 F.2d 805 (2d Cir. 1971),
cert. denied, 407 U.S. 920 (1972), the Court concludes that the
indictment violated the ex post facto clause since it alleges no
overt act occurring after the effective date of the tax statute,
and therefore, the motion to dismiss the indictment on that
ground is granted.

There is no disputed issue of fact. Rosengarten operated a tax
shelter investment sales organization from his home in
Armonk, New York, in this district, where Orlicki and Nicholas
worked as tax shelter investment salesmen. One of the tax shel-
ter program syndicators with which they did business was
Island Planning Corporation of America (‘‘Island Planning’’).
Nachtman was a principal of Island Planning.

During the summer and fall of 1986, the defendants, being in
the business of tax shelter sales, followed closely the progress in
Congress of the pending so-called tax reform legislation. With
much public fanfare, Section 501 of the Tax Reform Act of
1986, codified at 26 U.S.C. Sec. 469, was enacted on October
22, 1986. This statute expressly provided that it would become
effective as to taxable years beginning after December 31, 1986.

Sec. 501 provides essentially that losses and credits from cer-
tain ‘‘passive’’ business activities amenable to tax shelter invest-
ments generally can no longer be deducted from unrelated
business income such as salary, interest and dividends. The

A-11

intention is to limit drastically the deductibility of losses gener-
ated by traditional limited partnership tax shelter programs.
Congress, however, provided for a phase-in period for the limi-
tations as to the deductibility of passive losses for investments
or enterprises held on or before the date of enactment, October
22, 1986. Accordingly, for taxable years beginning in 1987
through 1990, a taxpayer who entered into a tax shelter transac-
tion on or before October 22, 1986, is eligible to take limited
deductions against unrelated income for passive income losses
generated thereby. See 26 U.S.C. Sec. 469 (/).

The Government contends that the defendants conspired to
take advantage of the phase-in rule by fraudulent means. The
defendants’ scheme as presented by the Government on this
motion, and assumed by the Court to be true, is that on Octo-
ber 23, 1986, the day after the enactment of the so-called Tax
Reform Act of 1986, Rosengarten and Orlicki met with an
undercover IRS agent (Agent 1), who was posing as an associate
investment salesman, to review a sales pitch for a real estate tax
shelter program syndicated by Island Planning. At this meeting
they discussed the need to backdate documents relating to the
sale of interests in real estate tax shelters in order to take advan-
tage of the phase-in provision of the new tax bill and thereby
make the deal more attractive to potential investors. Later that
evening, Orlicki, accompanied by Agent 1, traveled to Newark,
New Jersey, and made the sales pitch to another undercover
IRS agent (Agent 2), who was posing as a representative of
three prospective tax shelter customers. As part of the sales
pitch, Orlicki offered to backdate the sale documents, explain-
ing to the investors the illegal benefits which could be obtained
thereby.

Over a month later, on December 5, 1986, Agent 2 had tele-
phone conversations with both Orlicki and Nicholas. Orlicki
assured him that the real estate offering syndicated by Island
Planning was still available, and that subscription documents
still could be backdated since a paperwork back-up at Island
Planning would prevent anyone from discovering when the fal-
sified documents had been submitted. Nicholas told Agent 2

A-12

that he could get his check time and date stamped, emphasizing
the importance of making it appear as if he had committed to
the deal prior to October 22, 1986.

A few days later, on December 8, 1986, Agent 2 met with
Orlicki and Nicholas at their office to discuss how to consum-
mate the sale. At the meeting Nicholas telephoned Nachtman at
Island Planning, and discussed the scheme with him. Nachtman
directed that the customer should backdate his check to Satur-
day, October 18th, since he was an out-of-town customer, and
such customers often came into the office on weekends. Nacht-
man also said that Island Planning would arrange for a notary
public to notarize all the backdated documents, so that they
would appear genuine. Nicholas and Orlicki then instructed
Agent 2 to take the subscription documents to Nachtman’s
offices the next day.

Agent 2 met with Nachtman on December 9, 1986. Nachtman
explained that the notary public was in place, and that he
picked the October 18th date because it was a Saturday, thus
making it easy to explain why no one ever saw him in the
offices. This was their last meeting. The backdated sale was
never consummated.

One ground upon which the defendants move for dismissal of
the indictment is that it fails to allege an overt act in furtherance
of the conspiracy. They contend that all eight acts in the indict-
ment amount to nothing more than conversations effecting the
formation, reiteration or refinement of the illegal agreement,
and not acts in furtherance of it. The defendants motion for
dismissal on this ground is denied.

It is a well established principle that an indictment returned
by a legally constituted grand jury, if valid on its face, is enough
to call for trial of the charges on the merits. Costello v. United
States, 350 U.S. 359, 363 (1956); see e.g., United States v.
Calandra, 414 U.S. 338, 345 (1974); United States v. Contreras,
776 F.2d 51, 54 (2d Cir. 1985); United States v. Ciambrone, 601
F.2d 616, 623 (2d Cir. 1979). A facially valid indictment ‘‘need
do little more than track the language of the statute charged and
state the time and place (in approximate terms) of the alleged

A-13

crime, although in the case of conspiracy. . . at least one overt
act must be set forth.’’ United States v. Tramunti, 513 F.2d
1087, 1113 (2d Cir.), cert. denied, 423 U.S. 832 (1975).

The indictment alleged eight overt acts in furtherance of the
conspiracy. At oral argument on the defendants’ motion to dis-
miss the indictment, the Government conceded that the act des-
ignated ‘‘(a)’’ in the indictment, the October 23rd meeting
between Agent 1 and Orlicki and Rosengarten to discuss the
backdating of documents, was part of the formation of the
agreement, and therefore, not an overt act. The Government
argued, however, that the remaining acts alleged would satisfy
the statutory requirement for an overt act.

The remaining overt acts are sufficient to make the indict-
ment facially valid, and therefore, call for a trial on the merits.
While none of the acts involved the backdating or signing of tax
shelter subscription documents, a telephone call or conversa-
tion alone can amount to an overt act in furtherance of a con-
spiracy. See, e.g., Melia v. United States, 667 F.2d 300, 304 &
n.4 (2d Cir. 1981) (telephone call); United States v. Armone,
363 F.2d 385, 401 (2d Cir.), cert. denied, 385 U.S. 957 (1966)
(conversation). The various telephone calls and conversations
within the indictment appear to be more than a refinement or
reiteration of an illegal agreement. They amounted to specific
acts taken in furtherance of the agreement. For example, act (h)
in the indictment alleges that: ‘‘On or about December 9, 1986,
in New York, New York, LEONARD NACHTMAN, the defen-
dant, told U/C that he (NACHTMAN) would arrange to notarize
U/C’s signature on backdated documents.’’ The transcript of
the tape of this meeting, which I assume to be valid for the pur-
poses of this motion, reveals that Nachtman had already made
arrangements to get the documents notarized. He stated that he
had already put a notary public in place. We conclude that this
act amounts to more than refinement of an agreement.

The motion to dismiss the indictment on the ground that it
alleges no sufficient overt act, therefore, is denied.

The defendants, however, also move to dismiss the indict-
ment because its application of Section 501 of the Tax Reform

A-14

Act of 1986 violates the ex post facto clause of the United States
Constitution. They argue the alleged overt acts included in the
indictment for conspiracy all occurred between October 23 and
December 9, 1986, prior to the Act becoming effective, which is
with regard to taxable years beginning after December 31, 1986,
26 U.S.C. Sec. 469, and therefore, the agreement and acts were
not criminal at the time they were done.

The ex post facto clause prohibits Congress from enacting
any law which imposes a punishment for an act which was not
punishable at the time it was committed. Weaver v. Graham,
450 U.S. 24, 28 (1981). The Supreme Court first considered the
scope of the ex post facto prohibition in Calder v. Bull, 3 Dall.
386, 390 (1798), and the current Court’s understanding of the
clause is largely derived from that case. Miller v. Florida, 55
U.S.L.W. 4814, 4815 (1987). Justice Chase in Calder v. Bull
explained that the meaning of ex post facto included: ‘‘1st.
Every law that makes an action done before the passing of the
law, and which was innocent when done, criminal; and pun-
ishes such action.’’ Calder, 3 Dall. at 390. More recently, the
Supreme Court has explained that the principle upon which the
clause is based is ‘‘the notion that persons have a right to fair
warning of that conduct which will give rise to criminal penal-
ties.’’ Marks v. United States, 430 U.S. 188, 191 (1977); see also
Weaver, 450 U.S. at 28.

The principles behind the ex post facto clause have not been
violated or offended by the defendants’ indictment for conspir-
acy to defraud the United States under 18 U.S.C. Sec. 371. That
statute prohibiting such conspiracies has been in effect for
many years. Furthermore, defendants were painfully aware of
the enactment of Sec. 501 of the Tax Reform Act of 1986, and
its effect on their livelihood as promoters of real estate tax shel-
ters. Their plans to backdate documents in order to take illegal
advantage of the phase-in provision of the new law was in direct
response to the terms of the law itself. There is, therefore, no
concern here of the sort foreseen by the founding fathers, that
the defendants were committing innocent acts with no notice or
fair warning that what they were doing would later be made

A-15

criminal by the Legislative power. That is the abuse, well
known in early English history, which the ex post facto clause
seeks to prevent. Calder, 3 Dall. at 389 (Chase, J.)

While this Court recognizes the policy behind the ex post
facto clause is not disturbed by the defendants’ indictment, we
may not ignore the Second Circuit’s dictum in United States v.
Binder, 453 F.2d 805 (1971), cert. denied, 407 U.S. 920 (1972),
which appears to require us to grant the defendants’ motion.

In Binder, the defendants were convicted under 18 U.S.C.
Sec. 371 for conspiring to defraud the United States by evading
the recently enacted interest equalization tax (‘‘IET’’), 26
U.S.C. Sec. 4911. The IET was originally proposed by Presi-
dent Kennedy in a speech on July 19, 1963, in order to correct a
perceived undesirable flow of short-term fixed yield investment
funds from the United States. Binder 453 F.2d at 806. The stat-
ute levied an excise tax of up to 15% on the acquisition of
foreign-issue stock by United States citizens from non-citizens.
Id. The IET statute became effective on the date of its enact-
ment, September 2, 1964, but applied retroactively to transac-
tions entered into after the speech by President Kennedy. Jd. In
the months prior to the enactment of the statute, and as its pas-
sage began to appear likely, American-owned foreign stock sold
to American citizens commanded a premium since no IET
would become due on those sales. Jd.

The defendants in Binder developed a fraudulent scheme to
take illegal advantage of this arbitrage opportunity. Beginning
in March, 1964, prior to the effective date of the statute, they
set up dummy corporations to sell foreign-owned foreign stock
at American-owned foreign stock, thereby selling the stock at a
premium. Jd. After passage of the statute, from September,
1964 until March, 1965, the defendants used an American citi-
zen iiving in Canada to sign the necessary papers and serve as a
front to sell foreign-owned stock as American owned. Jd.

The Court of Appeals in Binder determined that the defen-
dants’ convictions of conspiracy did not violate the ex post
facto clause. Id. at 808. The panel upheld the conviction, find-
ing that it was based only on attempts to evade the tax after it

A-16

became due. Jd. The court emphasized that the acts which took
place prior to the enactment date did not provide the basis of
the conviction, but were properly admitted to prove the exist-
ence and purpose of the conspiracy, and the wilfulness of their
evasion. Id.

We note that the original intent or policy behind the ex post
facto clause is not implicated in this case, as in Binder since the
defendants’ activities were in direct response to the imminent
passage of the statute. The surplus language in Binder, how-
ever, indicates that in this Circuit the indictment must allege
some act in furtherance of the conspiracy occurring after the
effective date of the statute, in order not to violate the ex post
facto clause. See 453 F.2d at 808 (especially fn. 4). Despite
doubts concerning the sense of such a rule, this Court can not
disregard such a clear expression of legal opinion when to do so
would cause the defendants to submit to the agony of a trial of
an indictment to which they have no defense.

The defendants’ motion to dismiss the indictment as an
unconstitutional violation of the ex post facto clause is there-
fore granted, based solely on the dictum of the Court of
Appeals in Binder.

So ordered.

White Plains, New York -
November 25, 1987

CHARLES L. BRIEANT
Chief Judge

UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT

+

At a stated Term of the United States Court of Appeals for
the Second Circuit, held at the United States Courthouse in the
City of New York, on the sixth day of October one thousand
nine hundred and eighty-eight.

Present: Hon. ELLSWORTH A. VANGRAAFEILAND,
HON. JON O. NEWMAN,
HON. RALPH K. WINTER,
Circuit Judges,

Filed: Oct. 6, 1988 Elaine B. Goldsmith, Clerk
Docket No. 88-1002

i

UNITED STATES OF AMERICA,
Appellant,
V
SAMUEL ROSENGARTEN, STANISLAW ORLICKI,

JAMES C. NICHOLAS, and LEONARD NACHTMAN,
Defendants,

SAMUEL ROSENGARTEN, STANISLAW ORLICKI, and

LEONARD NACHTMAN,

Defendants Appellees.

A-18

A petition for a rehearing having been filed herein by
Defendants-Appellants SAMUEL ROSENGARTEN, STANISLAW
ORLICKI and LEONARD NACHTMAN,

Upon consideration thereof, it is

Ordered that said petition be and it hereby is DENIED.

Elaine B. Goldsmith,
Clerk

by: Fred Cassidy
Chief Deputy Clerk

A-19

INDICTMENT

87 Cr. 662 Filed: Aug. 13, 1987

~

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

>

UNITED STATES OF AMERICA

—_vV—

SAMUEL ROSENGARTEN, STANISLAW ORLICKI,
JAMES C. NICHOLAS and LEONARD NACHTMAN,

Defendants.

The Grand Jury charges:

1. From on or about October 1, 1986, through the filing
of this Indictment, in the Southern District of New York
and elsewhere, SAMUEL ROSENGARTEN, STANISLAW ORLICKI,
JAMES C. NICHOLAS, and LEONARD NACHTMAN, the defen-
dants, and others known and unknown to the Grand Jury,
unlawfully, wilfully, and knowingly did combine, conspire,
confederate, and agree together and with others to defraud the
United States of America and the Internal Revenue Service by
impeding, impairing, defeating, and obstructing the lawful gov-
ernment functions of the Internal Revenue Service in the ascer-
tainment, evaluation, assessment, and collection of income
taxes.

A-20

2. It was a goal of the conspiracy that the conspirators would
create false federal income tax deductions by backdating docu-
ments relating to a real estate tax shelter investment so as to cir-
cumvent and defeat the provisions of the Tax Reform Act of
1986.

OVERT ACTS

3. In furtherance of the conspiracy, and to effect its objects,
the defendants and their co-conspirators committed the follow-
ing overt acts, among others, in the Southern District of New
York and elsewhere:

(a) On October 23, 1986, SAMUEL ROSENGARTEN and
STANISLAW ORLICKI, the defendants, met in Armonk, New
York, and discussed the backdating of sales of a real estate tax
shelter investment.

(b) On or about October 23, 1986, STANISLAW ORLICKI, the
defendant, traveled from Armonk, New York, to Newark, New
Jersey.

(c) On or about October 23, 1986, in Newark, New Jersey,
STANISLAW ORLICKI, the defendant, offered to an undercover
agent of the Internal Revenue Service (‘‘U/C’’) to backdate the
sale of an interest in a real estate iax shelter investment.

(d) On or about December 5, 1986, in Armonk, New York,
JAMES C. NICHOLAS, the defendant, made a telephone call to
the promoters of the real estate tax shelter investment.

(e) On or about December 8, 1986, STANISLAW ORLICKI and
JAMES C. NICHOLAS met with U/C in Armonk, New York, and
discussed how to backdate documents related to U/C’s proposed
purchase of an interest in a real estate tax shelter investment.

(f) On or about December 8, 1986, in Armonk, New York,
JAMES C. NICHOLAS, the defendant, placed a telephone call to
and spoke to LEONARD NACHTMAN, the defendant.

A-21

(g) On or about December 8, 1986, in Armonk, New York,
STANISLAW ORLICKI and JAMES C. NICHOLAS, the defen-
dants, told U/C to meet LEONARD NACHTMAN in New York,
New York, on December 9, 1986.

(h) On or about December 9, 1986, in New York, New York,
LEONARD NACHTMAN, the defendant, told U/C that he
(NACHTMAN) would arrange to notarize U/C’s signature on
backdated documents.

(Title 18, United States Code, Section 371.)

FOREMAN RUDOLPH W. GIULIANI
United States Attorney

A-22

CONSTITUTIONAL PROVISION

Article I, Section 9, Clause 3:

No Bill of Attainder or ex post facto Law shall be passed.

STATUTES

Section 501 of Public Law 99-514 provides in pertinent part:

(c)(1) In general.—The amendments made by this section shall
apply to taxable years beginning after December 31,
1986.

Title 26, U.S.C. § 469 provides in pertinent part:

§ 469. Passive activity losses and credits limited
(a) Disallowance.—

(1) In general.—If for any taxable year the taxpayer is
described in paragraph (2), neither—

(A) the passive activity loss, nor
(B) the passive activity credit,
for the taxable year shall be allowed.

(2) Persons described.—The following are described in
this paragraph:
(A) any individual, estate, or trust,
(B) any closely held C corporation, and
(C) any personal service corporation.

(b) Disallowed loss or credit carried to next year.—Except as
otherwise provided in this section, any loss or credit from an
activity which is disallowed under subsection (a) shall be treated
as a deduction or credit allocable to such activity in the next tax-
able year.

A-23

(c) Passive activity defined.—For purposes of this section—

(1) In general.—The term ‘“‘passive activity’’ means any
activity—

(A) which involves the conduct of any trade or
business, and

(B) in which the taxpayer does not materially par-
ticipate.

(2) Passive activity includes any rental activity.—The
term ‘‘passive activity’’ includes any rental activity.

(3) Working interests in oil and gas property.—

(A) In general.—The term ‘‘passive activity’’ shall
not include any working interest in any oil or gas
property which the taxpayer holds directly or through
an entity which does not limit the liability of the tax-
payer with respect to such interest.

(B) Income in subsequent years.—If any taxpayer
has any loss for any taxable year from a working
interest in any oil or gas property which is treated as a
loss which is not from a passive activity, then any net
income from such property (or any property the basis
of which is determined in whole or in part by refer-
ence to the basis of such property) for any succeeding
taxable year shall be treated as income of the tax-
payer which is not from a passive activity.

(4) Material participation not required for paragraphs
(2) and (3).—Paragraphs (2) and (3) shall be applied with-
out regard to whether or not the taxpayer méterially par-
ticipates in the activity.

(5S) Trade or business includes research and experimen-
tation activity.k—For purposes of paragraph (1)(A), the
term ‘‘trade or business’’ includes any activity involving
research or experimentation (within the meaning of section
174).

A-24

nm

(6) Activity in connection with trade or business or pro-
duction of income.—To the extent provided in regula-
tions, for purposes of paragraph (1)(A), the term “‘trade
or business’’ includes—

(A) any activity in connection with a trade or busi-
ness, or

(B) any activity with respect to which expenses are
allowable as a deduction under section 212.

~ ~ ~

(m) Phase-in of disallowance of losses and credits fer inter-
ests held before date of enactment.—

(1) In general.—In the case of any passive activity loss
or credit for any taxable year beginning in calendar years
1987 through 1990 which—

(A) is attributable to a pre-enactment interest, but

(B) is not attributable to a carryforward to such tax-
able year of any loss or credit which was disallowed
under this section for a preceding taxable year,

there shall be disallowed under subsection (a) only the
applicable percentage of the amount which (but for this
subsection) would have been disallowed under subsection
(a) for such taxable year.

(2) Applicable percentage.—For purposes of this sub-
section, the applicable percentage shall be determined in
accordance with the following table:

A-25

In the case of taxable The applicable

years beginning in: percentage is:
MT AON a Kee ab sddebe cane babe ake 35
POPC Te eT eee Ce Tee ee ee CT eT ee SE 60
| MEE Pee CUC EP EE eT TT CTR OT RCC rr ere 80
SE ke 44 hes hence saek eS kona ukeseencues 90*
~ ~ ~

Title 18, U.S.C. § 371:
Conspiracy to commit offense or to defraud United States

If two or more persons conspire either to commit any offense
against the United States, or to defraud the United States, or
any agency thereof in any manner or for any purpose, and one
or more of such persons do any act to effect the object of the
conspiracy, each shall be fined not more than $10,000 or
imprisoned not more than five years, or both.

If, however, the offense, the commission of which is the
object of the conspiracy, is a misdemeanor only, the punish-
ment for such conspiracy shall not exceed the maximum punish-

ment provided for such misdemeanor. June 25, 1948, c. 645, 62
Stat. 701.

° The remainder of (m) has been omitted.

A-26

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385002_0543%3A1. Public record. Not legal advice.