Petition — Natelli v. United States

Supreme Coum U

» U.S,

c~ 7 té 6 &

MICHAEL RODAK. jp CLERK |

IN THE

Supreme Court of the United States

OCTOBER TERM, 1976

76-1497

ANTHONY M. NATELLI,

Petitioner,

UNITED STATES OF AMERICA

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

PHILIP A. LACOVARA

Hughes Hubbard & Reed

1660 L Street, N.W.

Washington, D.C. 20036

JOHN S. MARTIN, JR.

Martin, Obermaier & Morviilo

1290 Avenue of the Americas

New York, New York 10019

Attorneys for Petitioner

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Washington, D.C. © CLE PUBLISHERS’ © LAW PRINTING CO. » (202) 393-0625

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D.

REASONS FOR GRANTING THE WRIT

(i)

TABLE OF CONTENTS

The Offense Charged And The Proceedings

St Gavtusekbaseneeodenecos as

Proceedings On Direct Appeal ..........

Proceedings On Motion For Collateral Relief

A. THE DECISION BELOW IS IN DIRECT

CONFLICT WITH THIS COURT'S DE-

CISION IN SANDERS v. UNITED STATES,

373 US. 1 (1963), AND OTHER CASES

ON THE AVAILABILITY OF COL-

LATERAL RELIEF .... ccc ccccccees

THE ENDS OF JUSTICE WARRANT CON-

SIDERATION OF THE MERITS OF

PETITIONER’S CLAIM ...............

IN SUMMARILY RESOLVING CONTESTED

FACTUAL ASSERTIONS AGAINST PETI-

TIONER, THE COURTS BELOW REFUSED

TO FOLLOW THE PLAIN LANGUAGE OF 28

U.S.C. §2255, THIS COURT’S DECISIONS,

AND DECISIONS IN OTHER CIRCUITS

CONCLUSION

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(ii)

TABLE OF AUTHORITIES

Cases: Page

Alcorta v. Texas, 355 U.S. 28 (1957) ............... 23

Anderson v. United States, 443 F.2d 1226 (10th

PIC ovecldunwkudhateade 0G mar eueoes< 25

Castellana v. United States, 378 F.2d 231 (2d Cir

EE ‘ebcuscbeieddtideuuibehehecs . x auue 18

Daugherty v. United States, 426 F.2d 263 (6th Cir

8 ee ae SR Seer a te 25

Davis v. United States, 417 U.S. 333 (1974) ....... 15,17,19

Douglas v. Buder, 412 U.S. 430 (1973) (per curiam) ..... 19

Fay v. Noia, 372 U.S. 391 (1963) .................. 15

Fontaine v. United States, 411 U.S. 213 (1973) ...... 24,26

Hill v. United States, 368 U.S. 424 (1962) .......... 15,19

Jack v. United States, 435 F.2d 317 (th Cir.

1970), cert. denied, 402 U.S. 933 (1971) .......... 17

Kaufman v. United States, 394 U.S. 217 (1969) ........ 16

Laughlin v. United States, 154 U.S. App. D.C. 196,

474 F.2d 444 (1972), cert. denied, 412 US.

DPE Nudwadaddeesaccadkwibeedeccuces 17

Machibroda v. United States, 368 U.S. 487 (1962) ... 24-25,26

Miller v. Pate, 386 U.S. 1 (1967) ................. 23,25

Pike v. United States, 409 F.2d 499 (Sth Cir. 1969) ..... 25

Reagor v. United States, 488 F.2d 515 (Sth Cir.

EN ShGGeuN eS cKaWadeldwedédebinecce 25

Ring v. United States, 419 U.S. 18 (1974) (per

TE ie ree i ae re 25,27

Robson v. United States, 526 F.2d 1145 (ist Cir.

DD estukéucuvécuncekaseaudedso.. 20

Salinger v. Loisel, 265 U.S. 224 (1924) .............. 15

Sanders v. United States, 373 U.S. 1 (1963) ... 15,16-17,24,26

Schneckloth v. Bustamonte, 412 U.S. 218 (1973) ....16,19-20

(iii)

Page -

Stein v. United States, 390 F.2d 625 (9th Cir.

Se PES budsee eee kb eee sewveeteces 18

Stephens v. United States, 341 F.2d 100 (10th Cir.

NT eee ccc e cei sekeenn seen neaxees 18

Sunal v. Large, 332 U.S. 174 (1947) .......0-00000e 16,18

Sykes v. United States, 341 F.2d 104 (8th Cir.

EE ee errr rrTT re 18

Tannehill v. Fitzharris, 451 F.2d 1322 (th Cir.

EE ee eee addi cieadesacntes 17-18

Thompson v. Louisville, 362 U.S. 199 (1960) ..........- 19

United States v. Agurs, 427 U.S. 97 (1976) ........--- 25

United States v. Hayman, 342 U.S. 205 (1952) .......-. 15

United States v. Liguori, 438 F.2d 663 (2d Cir.

es ag Rar ae ee 20

United States v. Loschiavo, 531 F.2d 659 (2d Cir.

OAR en ee 20

United States v. Malde, 513 F.2d 97 (Ist Cir. 1975) ..... 20

United States v. Natelli, 527 F.2d 311 (2d Cir.

1975), cert. denied, 425 U.S. 934 (1976) ........ 2,5,8,9

United States v. Travers, 514 F.2d 1171 (2d Cir.

ee ee eee egieeeeees 20

Vachon v. New Hampshire, 414 U.S. 478 (1974) ........ 19

Zurita v. United States, 410 F.2d 477 (7th Cir.

ee, Oa eevee teeceeness 25

Statutes

Judicial Code

I ds ac naeesestdestesetes 2

TT cc cvkkdcereccesseceeeets 1,2,3,4,10

Securities Exchange Act of 1934 14,19,24,25,27

Section 32(a), 15 U.S.C. §78ff .........22-2e ees 3,4

Rules:

Federal Rules of Criminal Procedure

te oi. i ie te ewe etaseenonee 3,10,14

(iv)

APPENDICES

Appendix A (Opinion Of Court Of Appeals

Affirming Denial Of Petitioner's Motion For

New Trial Or Relief Pursuant To 28 USC.

BABES) wc cccccvccccccnceseseseeeseces

Appendix B (Judgment Of Court Of Appeals

Affirming Denial Of Petitioner’s Motion For

New Trial Or Relief Pursuant To 28 U.S.C.

GESTS) co ccccccveveseesesesesepeseoues

Appendix C (Memorandum And Order Of District

Court Denying Petitioner's Motion for New

Trial Or Relief Pursuant To 28 U.S.C. §2255) ....

Appendix D (Opinion Of Court Of Appeals

Affirming Petitioner’s Conviction) ................

Appendix E (Opinion Of Court Of Appeals Re-

instating Conviction Of Petitioner’s Code-

RRND .ccccvedsseceseseaeeenseree

Appendix F (Opinion Of Court Of Appeals Grant-

ing Motion For Rehearing Of Petitioner’s

COUN. oc ccccecesecseseasueenenn

Appendix G (Statutory Provisions) .............

IN THE

Supreme Court of the United States

OCTOBER TERM, 1976

ANTHONY M. NATELLI,

Petitioner,

UNITED STATES OF AMERICA

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Petitioner Anthony M. Natelli respectfully petitions

for a writ of certiorari to review the judgment of the

United States Court of Appeals for the Second Circuit

affirming the denial of his motion for relief pursuant to

28 U.S.C. §2255.

OPINIONS BELOW

The opinions of the court of appeals and of the

district court denying relief under 28 U.S.C. §2255 are

set forth in Appendices A and C, respectively. Those

2

opinions are not yet reported. The opinion of the court

of appeals affirming petitioner's conviction, set forth in

Appendix D of this petition, is reported at 527 F.2d

311 (2d Cir. 1975)."

JURISDICTION

The judgment of the court of appeals affirming the

denial of petitioner's §2255 motion was entered on

March 28, 1977. No petition for rehearing has been

filed. The jurisdiction of this Court is invoked pursuant

to 28 U.S.C. §1254(1).

STATUTES INVOLVED

The pertinent portions of 28 U.S.C. §2255 and

section 32(a) of the Securities Exchange Act of 1934,

15 U.S.C. §78ff, are set forth in Appendix G, infra.

QUESTIONS PRESENTED

1. Whether the court of appeals erred in holding

that, absent an intervening change of law, a collateral

proceeding under 28 U.S.C. §2255 is barred once the

issue raised has been decided adversely to the defendant

on direct appeal.

2. Whether the court of appeals erred in affirming

the denial of petitioner's §2255 motion by relying on

'This Court denied a petition for writ of certiorari, No.

75-808, seeking review of that decision. 425 U.S. 934 (1976).

3

its assessment of credibility, where the district court

had failed to hold a hearing on the issues.

STATEMENT

A. Introduction

This case presents important questions concerning the

availability of collateral relief under 28 U.S.C. §2255.

Petitioner, a certified public accountant, was convicted

of a single count charging him with willfully and

knowingly submitting a materially false financial state-

ment to the SEC in violation of section 32(a) of the

Securities Exchange Act of 1934, 15 US.C. §78ff.

Following petitioner's unsuccessful efforts to obtain

relief on direct appeal, he moved in the district court

for a new trial pursuant to Fed. R. Crim. P. 33 or, in

the alternative, for relief pursuant to 28 U.S.C. §2255

on the grounds that (1) the government failed to prove

an essential element of the offense (the falsity of the

statement) and (2) critical factual assertions made by

the prosecutor at petitioner's trial were erroneous.

The district court denied petitioner's motion without

holding an evidentiary hearing. In affirming the district

court, the court of appeals did not reach the merits of

the first issue presented because it held that collateral

relief under §2255 is barred whenever the issue raised

has been litigated on direct appeal and there has been

no intervening change of law. This determination

conflicts with previous decisions of this Court and

places an unjustifiable restriction on the availability of

habeas corpus to protect against fundamental defects in

the truth-finding process. The court of appeals also

4

affirmed the district court on the second issue even

though, in violation of the explicit command of §2255,

there had been neither an evidentiary hearing in the

district court nor a finding—which could not have been

made—that the files and records of the case conclusively

showed that petitioner was entitled to no relief.

B. The Offense Charged And The Proceedings At

Trial.

In an indictment returned in the United States

District Court for the Southern District of New York,

petitioner Anthony M. Natelli, then a partner in the

international accounting firm of Peat, Marwick, Mitchell

& Co. (PMM), was charged together with a PMM

accountant working under petitioner's general direction

(Joseph Scansaroli) and five officers of National

Student Marketing Corporation (NSMC) with violating

section 32(a) of the Securities Exchange Act of 1934.

It was alleged that the defendants had knowingly and

willfully made false or misleading statements with

respect to material facts in a proxy statement issued by

NSMC and filed with the SEC in September 1969.

The single count of the indictment naming petitioner

charged that the proxy statement was false in two

respects. The first specification of falsity was directed

to the audited financial statements of NSMC for the

year ended August 31, 1968, which were included in

restated form in the proxy statement filed with the

SEC in September 1969. The first specification is not

involved in these collateral proceedings. Since the jury

returned only a general verdict, any defect in the

second specification would entitle petitioner to a new

5

trial. Indeed, the court of appeals so held in this case in

reversing the conviction of petitioner's co-defendant.

See 527 F.2d at 325 (App. D, p. 27d).

The second specification of falsity involved NSMC’s

unaudited financials for the first nine months of fiscal

1969, which were also included in the proxy statement.

The indictment charged that the unaudited nine-month

earnings statement was false and misleading in that it

reported net sales of $11,313,569 and net earnings as

$702,270 when, “as the defendants well knew at the

time the proxy statement was filed, ‘net sales’ for that

period were less than $10,500,000 and NSMC had no

earnings at all.” (Indictment, Count 2, 44).

The government's bill of particulars identified 17

contracts totalling more than $800,000 in sales whose

inclusion was alleged to have rendered the nine-month

earnings statement false and misleading. One of the

seventeen contracts, involving a commitment from

Eastern Airlines, accounted for more than $500,000 of

the alleged $800,000° overstatement of net sales.

Revenues on those contracts, as with other fixed-fee

contracts of NSMC for its development and implemen-

tation of marketing programs directed at the youth

market, were accrued according to the “percentage-of-

completion” method of accounting. Under that

method, NSMC accrued as income a proportion of total

revenues from the contract, based on the percentage of

performance by the account executive rendered during

the fiscal period in relation to his total anticipated

performance.

The Eastern contract, which was the core of the

second ‘specification and was so treated by the court of

appeals, see 527 F.2d at 320, 322, 329 (App. D, pp.

15d, 20d; App. F, p. 5f}, and the government on direct

6

appeal, was booked by NSMC after the close of the

nine-month period on the basis of a written commit-

ment letter dated August 14, 1969. The letter stated that

it was confirming an oral agreement reached during the

nine-month period ended May 31, 1969. Revenue

attributable to that contract was included in the

nine-month earnings statement after petitioner had

required NSMC to delete revenues attributed to a $1.2

million Pontiac sale from the nine-month statement

because NSMC had failed to obtain a binding written

commitment from Pontiac.’ Petitioner had repeatedly

cautioned NSMC officers that he would not permit the

company to book fixed-fee contracts without a binding

written commitment letter. The final decision to delete

the Pontiac contract was made late at night during the

mid-August 1969 review session with NSMC’s officers

at the offices of the printer preparing the proxy

statement, when it became evident that a written

commitment in the proper form would not be

forthcoming in time to meet the schedule then

contemplated for filing the proxy with the SEC.

At the session, NSMC’s president, Cortes W. Randell,

indicated that a commitment letter in the proper

form recently had been received from Eastern, and

suggested that the Eastern contract be substituted for

the Pontiac commitment. Approximately one week

later, after examining the Eastern commitment letter

and reviewing the work records of an NSMC account

executive showing that he had spent more than 100

? Almost $1 million in oral commitments that had been

included in the audited 1968 financial statements had later been

written off when it turned out that $700,000 in purported sales

had been fabricated by a sales executive (promptly fired by

NSMC) and that others were not being implemented.

a a tne

7

hours on the Eastern program during the nine-month

period, petitioner permitted the inclusion of the Eastern

contract. The figures in the proxy statement were

revised to reflect the $400,000 decrease in net sales

attributable to the elimination of the Pontiac sale and

the inclusion of the Eastern contract.

Petitioner testified at trial that he had no reason to

question the Eastern contract, since (1) NSMC’s

president had mentioned prior to the August review

session at the printer’s that an Eastern commitment

letter was expected; (2) the commitment letter in the

proper form on Eastern Airlines stationery signed by

Eastern’s Manager of Special Markets was received by

NSMC and stated that it was confirming an oral

commitment given by Eastern in May 1969; (3) NSMC’s

written proposal was produced for petitioner's inspec-

tion and showed on its face that it had been submitted

to Eastern in May; (4) NSMC records confirmed that a

substantial amount of time had been expended on the

Eastern proposal during the pertinent nine-month period;

and (5) petitioner understood that NSMC had successful

dealings with Eastern in prior years.

At trial, the government contended that the Eastern

_contract was “phony” and that its inclusion in the

nine-month unaudited earnings statement rendered the

proxy statement false. (Tr. 56, 65, 2269, 2295).°

The government at first attempted to establish that

the Eastern commitment was fraudulent by offering to

prove through two witnesses that NSMC had written off

*References in the form “Tr.” are to the stenographic

transcript of petitioner's trial.

the Eastern contract several months after the filing of

the proxy statement. On voir dire, the trial judge

rejected the proffered testimony because the reason for

the subsequent write-off, the breakdown in NSMC’s

campus representative division in early 1970, did not in

any way reflect upon the genuineness of the Eastern

commitment when petitioner included it in the nine-

month earnings statement in August 1969, and there

was no indication that petitioner should have known

that the marketing system would later be abandoned.

There was no other evidence offered to show what, if

anything, was false about the contract that on its face

and in light of NSMC’s internal records was genuine.

After several requests from the jury for additional

instructions on whether recklessness would be sufficient

to find that the defendants had acted “knowingly” and

(after initially reporting itself deadlocked) being advised

that recklessness would suffice, petitioner and his

co-defendant were convicted. Petitioner was fined

$10,000 and sentenced to imprisonment for one year,

all but 60 days of which were suspended.‘

C. Proceedings On Direct Appeal.

On appeal the Court of Appeals for the Second

Circuit affirmed petitioner's conviction but reversed

Scansaroli’s. 527 F.2d 311 (App. D). The Court held

that Scansaroli had been improperly convicted because

the evidence was insufficient as a matter of law to

*Following the denial of his motion for collateral relief

petitioner served his prison term. He is presently serving the

probationary portion of his sentence.

9

establish that he acted with criminal intent in permit-

ting the inclusion of the Eastern contract. /d. at 322

(App. D, p. 20d). Since the jury was instructed to

convict if it found that the proxy statement was

materia'ly false in either of two respects specified in the

indictment, the court concluded that the government’s

failure of proof on the Eastern specification required

seversal of Scansaroli’s conviction. /d. at 324-25 (App.

D, pp. 25d-27d).§

*The Second Circuit held that Scansaroli had not “acted in

reckless disregard of the facts” because he bore no duty “to be

suspicious of the Eastern commitment and to pursue the matter

further.” Jd at 322 (App. D, p. 20d). Petitioner, however was

found to have had such a duty. /d. at 320, 322 (App. D, pp.

17d, 20d). Although acknowledging that petitioner was dealing

with an unaudited statement to which a duty of inquiry does not

normally attach, the court held that, in view of the “suspicious”

circumstances surrounding the Eastern contract, petitioner was

obliged “to go beyond the usual scope of an accountant’s review

and insist upon some independent verification.” /d. at 320 (App.

D, p. 16d). It was petitioner's failure to take the step of “seeking

verification from Eastern” that, in the court’s view, made it

appropriate to affirm his conviction on a “reckless disregard”

theory. /d. at 320, 323 (App. D, pp. 16d, 23d). (However, when a

PMM staff accountant later sought written verification of the

Eastern contract, Eastern’s Manager of Special Markets confirmed

the validity of the contract).

The Second Circuit later reinstated Scansaroli’s conviction on

the government’s motion for rehearing (see Appendix E infra)

and then again vacated the conviction on Scansaroli’s petition for

rehearing (see Appendix F infra). /d. at 328-30. Those proceedings

dealt with whether Scansaroli’s counsel had adequately framed his

objection to the lack of evidence. There is no question here about

the sufficiency of petitioner's objection.

10

In his petition for a writ of certiorari, No. 75-808,

petitioner argued, inter alia, that he was denied a fair

trial because, as shown by evidence that had come to

light after his conviction and appeal, the government

had made erroneous statements to the jury on critical

issues—the circumstances surrounding the Eastern com-

mitment letter—and perhaps had done so knowingly.

With respect to this issue, the Solicitor General stated

in opposition to the petition:

“Whatever the merits of petitioner’s allegations

of prosecutorial misconduct, they obviously are

not suited for resolution by this Court in the first

instance. The proper procedure is for petitioner to

present his contentions to the district court in a

motion for a new trial under Rule 33, Fed. R.

Crim. P., or a motion to vacate his sentence under

28 U.S.C. §2255. A denial of certiorari would not

preclude his following either of those paths.” (Brief

for the United States in Opposition, Nafelli v.

United States, No. 75-808, p. 30).

This Court denied certiorari on April 19, 1976. 425

U.S. 934 (1976).

D. Proceedings On Motion for Collateral Relief.

Four days later, on April 23, 1976, petitioner filed a

motion for a new trial pursuant to Rule 33 or, in the

alternative, for relief pursuant to 28 U.S.C. §2255, as

suggested by the Solicitor General. The motion ad-

vanced two grounds for relief. Petitioner contended that

his conviction must be set aside because the government

failed to introduce any evidence of the falsity of the

Eastern Airlines contract, an essential part of the

offense charged under the specification involving the

unaudited nine-month earnings statement. Although the

government repeatedly argued at trial that the Eastern

contract was a “complete phony,” petitioner’s jury was

never given any evidence that the Eastern commitment

letter was anything other than the binding contract it

appeared to be.

Petitioner also sought relief on a second ground: the

government’s misstatements concerning the Eastern

contract to petitioner’s jury. At the trial, the govern-

ment repeatedly characterized the Eastern commitment

letter on which petitioner relied in withholding any

objection to the unaudited financials as a document

that had been concocted out of thin air at a supposedly

sinister meeting at the printer’s office. According to the

prosecutor, the Eastern commitment had been “hatched

at three o’clock in the morning at the printer’s” (Tr.

65) and the petitioner knew that NSMC’s chief officers

were “making these things up” (Tr. 2296). By

reiterating its theme that the whole Eastern commit-

ment had been fabricated in the dark of night with

petitioner looking on, the government urged the jury to

reject petitioner’s testimony that he had heard of an

Eastern commitment prior to the session at the printer

and had acted in good faith in permitting its inclusion

in the unaudited nine-month earnings statement.

This version of events, repeatedly purveyed to

petitioner's jury not only in the prosecutor’s opening

and closing arguments but in his examination of

witnesses as well, was contradicted by the testimony of

a government witness in trials that began after

petitioner’s conviction had been affirmed by the court of

appeals. The witness’ testimony at each of these sub-

sequent trials had been foreshadowed by the govern-

ment’s opening statement and elicited from the witness

on direct examination by the prosecutor. This later

version of the events surrounding the Eastern contract

supported petitioner’s defense at his own trial.

12

Testifying as a government witness in the commercial

bribery and perjury prosecutions of Thomas Mullen, the

Eastern Airlines executive who signed the Eastern

commitment letter, NSMC’s former president Cortes

Randall dispelled any impression that the Eastern

contract had been concocted at the printer’s. Instead,

he testified, Mullen had in fact worked with an NSMC

account executive for several months prior to the end

of the relevant nine-month period in May 1969, Mullen

had made an oral commitment at that time, and Mullen

had signed the written commitment letter shown to

petitioner on August 15 — precisely as represented in

the letter upon which petitioner relied.

The Mullen trial testimony showed a possible

infirmity in the Eastern contract but one which was

never placed before petitioner's jury, and would have

supported petitioner’s defense if it had been. Mullen, it

developed, may have jacked actual authority to commit

Eastern to a program of the size of this particular

commitment in advance of the preparation of the

company’s budget. (His apparent authority to commit

Eastern, however, had never been questioned even in

later audits of NSMC conducted by accountants the

government acknowledged to be “honest.’’)

Also, before signing the commitment letter, Mullen

had demanded and received from Randell a side letter

rendering the Eastern commitment cancellable upon

thirty-days written notice. (The government concedes

that the existence of that side letter was concealed

*Mullen was indicted both for commercial bribery, United

States v. Mullen, 75 Cr. 335 (S.D.N.Y., indictment filed April |,

1975) and for perjury, United States v. Mullen, 75 Cr. 179

(S.D.N.Y., indictment filed February 21, 1975).

13

from petitioner when the commitment letter was

provided to him.) Neither any restriction on Mullen’s

actual authority nor the critical side letter was ever

alluded to at petitioner’s trial. Had these facts been

placed before petitioner’s jury, they could only have

shown that petitioner was defrauded by Randell and

Mullen, rather than that, as the government was urging,

he had engaged in “willful connivance” with Randell

and others to defraud the public.’

Without holding an evidentiary hearing to inquire

into the prosecutor’s knowledge, prior to petitioner’s

trial, of the events revealed at the Mullen trials, the

district court denied petitioner's motion. App. C, pp.

2c-4c. The court of appeals affirmed, holding that

petitioner was foreclosed from raising collaterally

his contention under the Due Process Clause that a

conviction lacking any evidence of an essential element

of the crime cannot stand. The court concluded that

such an issue may be raised only where the failure of

proof becomes clear as the result of an intervening

change of law. On the second issue, the court refused

to “assume” that Randell’s testimony at the Mullen

trials “was accurate’ and, despite the absence of an

evidentiary hearing on the question, assumed that it was

not. App. A, pp. 4a-Sa. The Court did not address the

"Randell had pleaded guilty to various charges prior to

petitioner's trial, but was not called as a witness. In April 1976,

Randell testified at a deposition in the civil proceeding

commenced by the SEC that, prior to petitioner’s trial, he had told

the prosecutor the true background of the Eastern centract.

Deposition of Cortes W. Randell, April 30, 1976, pp. 325-333,

filed in Jn re National Student Marketing Litigation (D.D.C. Misc.

134-72) (M.D.L. Docket No. 105).

14

argument that the government’s presentation of a false

version of the facts to petitioner’s jury — perhaps

knowingly — entitled him to relief under §2255,

reasoning that petitioner was on notice of the true facts

and thus could not claim “newly discovered evidence”

entitling him to relief under Rule 33. App. A, p. Sa.®

REASONS FOR GRANTING THE WRIT

I.

A.THE DECISION BELOW IS IN DIRECT

CONFLICT WITH THIS COURT’S DECI-

SION IN SANDERS v. UNITED STATES,

373 U.S. 1 (1963), AND OTHER CASES ON

THE AVAILABILITY OF COLLATERAL

RELIEF.

The Second Circuit rejected petitioner’s challenge to

his conviction without reaching the merits of his

contention that the government failed to introduce

evidence of an essential element of the offense — the

specified falsity of the proxy statement filed with the

SEC. The court held that “once a matter has been

decided adversely to a defendant on direct appeal it

®The court asserted that Randell’s later testimony in any

event fortified the government’s position that the Eastern

commitment was “totally fraudulent” because it had been

“produced by reason of bribes to Mullen.” App. A, p. Sa. In

fact, however, the trial judge at Mullen’s bribery trial directed a

verdict of acquittal, holding that the government had failed to

make out even a prima facie case that Mullen had signed the

commitment letter as a result of a bribe or for any other corrupt

motive. United States v. Mullen, 75 Cr. 335, (S.D.N.Y.) Trial Tr.

pp. 23849.

15

cannot be relitigated in a collateral attack under Section

2255,” except where there is “an intervening change of

law.” App. A, p. 3a.’ The decision below conflicts

directly with this Court's decision in Sanders v. United

States, 373 U.S. 1 (1963), and related cases. The Court

has repeatedly emphasized that the doctrine of res

judicata is inapplicable in habeas corpus proceedings.

See, ¢.g., Sanders v. United States, supra, 373 US. at

7-8; Fay v. Noia, 372 U.S. 391, 423 (1963); Salinger v.

Loisel, 265 U.S. 224, 230 (1924)."° As the Court

explained in Sanders:

“Conventional notions of finality of litigation

have no place where life or liberty is at stake and

infringement of constitutional rights is alleged. If

government... [is] always [to] be accountable to

the judiciary for a man’s imprisonment,’ Fay vy.

Noia, supra (372 U.S. at 402), access to the courts

on habeas must not be thus impeded. The

inapplicability of res judicata to habeas corpus,

then, is inherent in the very role and function of

the writ.” 373 U.S. at 8.

The decision below, although not expressly invoking

the doctrine of res judicata, adopted a similar rule

equally inconsistent with the role of collateral relief as

*The government's argument below that the Second Circuit

had expressly considered and rejected the claim on direct appeal

rests on a single, ambiguous sentence contained in the court's

statement of the case. The absence of any explicit finding by any

court regarding how the alleged falsity of the Eastern contract

was in fact proved leaves no proper room here for even a

discretionary refusal to “reconsider” the issue.

it is well established that Ҥ2255 was intended to afford

federal prisoners a remedy identical in scope to federal habeas

corpus.

" Davis v. United States, 417 U.S. 333, 343 (1974), see Hill

v. United States, 368 US. 424, 427 (1962); United States vy.

Hayman, 342 U.S. 205, 219 (1952).

16

a safeguard against unjust criminal convictions. The

nearly absolute prohibition on the re-examination of

erroneous decisions announced by the Second Circuit in

this case “exalts the value of finality in criminal

judgments at the expense of the interest of each

prisoner in the vindication of his constitutional rights.

Such regard for the benefits of finality runs contrary to

the most basic precepts of our system of post-

conviction relief.” Kaufman v. United States, 394 US.

217, 228 (1969).

While a prior adverse determination on direct appeal

may properly be accorded weight by a court consider-

ing a §2255 motion, the prior determination in itself

cannot bar consideration of the merits where “the need

for the remedy afforded by the writ of habeas corpus is

apparent.” Sunal v. Large, 332 U.S. 174, 180 (1947)

quoting Bowen v. Johnston, 306 U.S. 19, 27 (1939).

The contrary rule embraced by the court below is

fundamentally inconsistent with the historic function of

habeas corpus as a “means...of redressing an unjust

incarceration.” Schneckloth v. Bustamonte, 412 US.

218, 257-58 (1973) (Powell, J., concurring).

In Sanders, the court held that, even in a second or

successive application for collateral relief:

“Controlling weight may be given to denial of a

prior adjudication for federal habeas corpus or

52255 relief only if (1) the same ground presented

in the subsequent application was determined

adversely to the applicant on the prior application

(2) the prior determination was on the meri merits, and

(3) the ends of justice would not be served by

reaching the merits of the subsequent application.”

373 US. 1, 15 (footnote omitted) (emphasis

added).

The Court then expressly rejected the notion that only

“an intervening change in the law” would suffice to

17

show that the ends of justice warranted reexamination

o_o Suma quntenty fees co Ge ante, Of of

It follows a fortiori that an applicant's first plea for

collateral relief cannot be lightly rejected solely on the

ground of adjudication on direct appeal. This Court has

so recognized by applying the standards announced in

Sanders to hold that an initial §2255 motion was not

barred by a prior determination on direct appeal. Davis

v. United States, 417 US. 333 (1974). See also

Laughlin v. United States, 154 U.S. App. D.C. 196, 474

F.2d 444 (1972) cert. denied, 412 U.S. 941 (1973); Jack

v. United States, 435 F.2d 317 (9th Cir. 1970) cert.

denied, 402 U.S. 933 (1971). Although Davis actually

involved a situation in which there had been an inter-

vening change in the law, the court in no way suggested

that this factor was indispensable to the availability of

collateral relief.

The holding below that a prior determination of an

issue bars its reconsideration on collateral attack absent

an intervening change of law also conflicts with

decisions of other courts of appeals which have

followed Sanders. In Laughlin v. United States, supra,

154 U.S. App. D.C. at 204, 474 F.2d at 452, the

finds in the exercise of his sound discretion “that the

‘ends of justice’ would be served thereby.”"' Similarly,

the Ninth Circuit has concluded that “[i]f the district

court dismisses a petition on the basis of a prior

adjudication, it must make a specific finding that the

ends of justice would not be served by reaching the

"Virtually all of the issues raised by the appellant in

been previously raised, argued, and decided at trial, on

at all three

merits.” Tannehill v. Fitzharris, 451 F.2d 1322, 1324

(9th Cir. 1971). Accord Stephens v. United States, 341

F.2d 100 (10th Cir. 1965)."*

The Solicitor General has previously acknowledged in

his brief in the Davis case that the fact of prior

adjudication does not affect the availability of relief

under §2255.

“We agree with petitioner that he may be

in no worse position for having raised the

by this Court in Sanders, is representative of serious confusion

This situation illustrates the continuing validity of Justice

more systematic consideration than it has thus far received.”

Sunal v. Large, 332 US. 174, 184 (1947) (dissenting opinion).

Review in this case is warranted to clarify the standards governing

relitigation of issues in §2255 proceedings.

19

Although the court below did not address the pivotal

question identified by the Solicitor General, the issue

raised by petitioner — the failure of the government to

introduce proof of a critical element of the offense —

concerns a fundamental defect cognizable in a §2255

proceeding.

B. THE ENDS OF JUSTICE WARRANT CON-

SIDERATION OF THE MERITS OF PETI-

TIONER’S CLAIM.

Petitioner sought relief pursuant to 28 U.S.C. §2255

in part on the ground that the government failed to

introduce any relevant evidence establishing the falsity

of the proxy statement as specified in the indictment —

an essential element of the offense of knowingly

submitting to the SEC a proxy statement containing a

false statement in violation of section 32(a) of the

Securities Exchange Act of 1934, 15 U.S.C. §78ff. It is

hard to imagine an issue that, if well founded, more

clearly poses “a fundamental defect which inherently

results in complete miscarriage of justice,” Davis vy.

United States, supra, 417 U.S. at 346 quoting Hill v.

United States, supra, 368 U.S. at 428. As this Court has

repeatedly held, “‘a conviction based on a record

lacking any relevant evidence as to a critical element of

the offense charged ...violate{[s}] due process.’”

Vachon v. New Hampshire, 414 U.S. 478, 480 (1974)

(per curiam), quoting Harris v. United States, 404 US.

1232, 1233 (1971) (Douglas, J., in chambers); see, eg,

Douglas v. Buder, 412 US. 430, 432 (1973) (per

curiam); Thompson yv. Louisville, 362 U.S. 199, 204

(1960). Petitioner's claim thus goes to “the central

20

reason” for the existence of collateral attack — “remedy-

ing injustice to the individual.” Schneckloth v. Busta-

monte, 412 U.S. 218, 257 (1973) (Powell, J., concur-

ring).

Courts often have held that failure to introduce

relevant proof regarding a critical element of the

offense charged constitutes a fundamental defect justi-

fying the granting of relief on a §2255 motion. See,

e.g., United States v. Loschiavo, 53\ F.2d 659, 666-67

(2d Cir. 1976); Robson v. United States, 526 F.2d

1145 (ist Cir. 1975); United States v. Travers, 514

F.2d 1171, 1175-77 (2d Cir. 1974); United States v.

Liguori, 438 F.2d 663, 669 (2d Cir. 1971).'* While most

of these cases have involved an intervening change of law,

the fundamental defect warranting the granting of relief

under §2255 in all the cases is the essential unfairness

of preserving a judgment of conviction, with its grave

attendant consequences, on a record devoid of evidence

of guilt of the offense charged. Indeed, since it is

conceded even by the court below that a defendant can

collaterally relitigate the absence of critical proof as

defined by an intervening change in law, is it not at

least equally just to afford a remedy to a defendant

'3Contrary to the Second Circuit’s characterization (App. A, p.

3a), Robson did not involve an intervening change of law.

Relying on a 1943 decision of this Court, the First Circuit held

that Robson’s conviction had to be set aside as a violation of due

process because the government failed to introduce an essential

item of proof. 526 F.2d at 1148-49. Although the First Circuit

had rendered a relevant decision on the issue after Robson’s

direct appeal, that case was consistent with, rather than a change

in, the existing case law. See United States v. Malde, 513 F.2d

97, 99-100 (ist Cir. 1975).

21

who, like petitioner, was wrongly convicted in the first

instance?

IN SUMMARILY RESOLVING CONTESTED

FACTUAL ASSERTIONS AGAINST PETI-

TIONER, THE COURTS BELOW REFUSED

TO FOLLOW THE PLAIN LANGUAGE OF

28 U.S.C. §2255, THIS COURT'S DE-

CISIONS, AND DECISIONS IN OTHER

COURTS.

Petitioner's motion sought relief on the further

ground that the prosecutor had, perhaps knowingly,

made materially misleading assertions to the jury

concerning critical events surrounding the Eastern

commitment letter. Throughout petitioner’s trial, the

prosecutor repeatedly referred to the Eastern commit-

ment letter in language indicative of fabrication and

forgery: a document “hatched” at three o'clock in the

morning, a “complete phony,” which had appeared “by

magic” at that supposedly sinister hour. Six times

during his opening statement, five times during summa-

tion, and on numerous occasions during examination of

witnesses, the prosecutor reminded the jury that the

Eastern contract was being discussed at three o'clock in

the morning. The theme of an alleged 3 A.M.

fabrication was played and replayed in an effort to

persuade the jury that the letter lacked any legitimate

basis in NSMC’s prior activities, and that petitioner

must have known the letter to be a fake when it

appeared.

22

A far different version of the critical events emerged

from the testimony by the key government witness,

former NSMC president Randell, in two related trials

that did not commence until after petitioner's convic-

tion had been affirmed on direct review. His account, as

forecast in the prosecutor’s opening arguments in the

Mullen trials and elicited on direct examination,

contradicted the prosecutor's version of events at

petitioner’s trial and instead supported petitioner's

defense. Rather than a 3 A.M. fabrication, the Eastern

commitment letter was in fact signed by Eastern’s

Manager of Special Markets and was the culmination of

extensive efforts by NSMC with Eastern — precisely the

understanding which petitioner had testified had been

conveyed to him and formed the basis for his decision

not to object to NSMC’s inclusion of accrued revenues

attributable to the Eastern commitment in the com-

pany’s unaudited financials.'*

'*Had the government introduced at petitioner's trial the “side

agreement” with Mullen, it might have strengthened its case on

one essential element of the offense — the actual falsity of the

Eastern contract — but would have virtually destroyed its case on

another equally essential element: petitioner’s knowledge of any

infirmity in the Eastern contract. Proof of the side agreement

would have shown that petitioner was the victim of a fraud, not

a participant in it. The government’s failure to introduce the side

letter at petitioner's trial is therefore hardly understandable except

as a matter of litigation tactics.

The point is, however, that the government was not entitled

both to disregard this evidence and to urge upon the jury

assertions contrary to actual fact and flatly contradicted by

evidence that was not introduced.

23

It is settled law that a defendant is denied a fair trial

when the prosecutor misstates the truth in argument to

the jury, Miller v. Pate, 386 U.S. 1 (1967) or purveys a

“false impression,” Alcorta v. Texas, 355 U.S. 28, 31

(1957). Petitioner's §2255 motion showed a blatant

contradiction of the prosecutor’s remarks with the later

sworn testimony of the key government witness in

related prosecutions and with the government’s own

arguments in those cases. Petitioner argued in the courts

below that, since the prosecutor in the Mullen bribery

trial had forecast Randell’s testimony in his opening

statement and had urged the jury to believe Randell’s

testimony despite his own earlier transgressions, the

existing record clearly establishes his right to a new

trial. Alternatively, however, petitioner sought an

evidentiary hearing to resolve any contested factual

issues relating to the accuracy of Randell’s testimony

and the prosecutor’s awareness of the truth at the time

of petitioner’s trial.'*

The district court denied petitioner's motion without

a hearing, and the court of appeals affirmed stating that

it could not “assume” that Randell’s version of the

crucial events, rather than the version the prosecutor

‘Petitioner brought to the attention of the court below

Randell’s recent deposition testimony that, prior to petitioner's

trial, he had discussed the background to the Eastern Commit-

ment with the Assistant United States Attorney who prosecuted

petitioner. Petitioner suggested that the amount of information

in the government’s possession prior to trial bearing upon the

prosecutor's statements should at least be explored further. The

government resisted this suggestion and the court below did not

address it.

24

urged upon petitioner’s jury, was accurate. App. A, p.

Sa. This summary disposition was clear error, however,

for the law does not allow resolution of contested

factual assertions against a §2255 movant in the

absence of an evidentiary hearing. The statute explicitly

states:

“Unless the motion and the files and records of

the case conclusively show that the prisoner is

entitled to no relief, the court shail grant a prompt

hearing thereon, determine the issues and make

findings of fact and conclusions of law with

respect thereto.”

28 U.S.C. §2255 (emphasis added).

_ This language establishes an exacting standard for

summary disposition of a §2255 motion, one which

cannot be satisfied simply by examination of the trial

record and assuming away the credibility of extra-

record information. As this Court has consistently held,

where a §2255 motion presents material outside the

trial record, it is improper to look only to the trial

record and resolve any doubts in favor of the fairness

and regularity of the reported proceedings. Instead, the

court must examine the movant’s supplementary ma-

terials and resolve any contested factual issues only

after conducting an evidentiary hearing. See e.g.,

Fontaine v. United States, 411 U.S. 213 (1973);

Sanders v. United States, supra, 373 US. at 20;

Machibroda v. United States, 368 U.S. 487, 494-495

(1962). Indeed, even if the allegations presented on a

§2255 motion appear “improbable and unbelievable” in

contrast to the existing record, summary disposition of

the motion is improper. Machibroda v. United States,

25

supra, 368 U.S. at 495.'* Other courts of appeals have

followed the statutory command and this Court’s

implementation of it, recognizing that an evidentiary

hearing must be granted whenever the motion sets forth

facts which, if accepted as true, would warrant relief.

See e.g., Anderson v. United States, 443 F.2d 1226

(10th Cir. 1971); Pike v. United States, 409 F.2d 499

(Sth Cir. 1969); Zurita v. United States, 410 F.2d 477

(7th Cir. 1969); Reagor v. United States, 488 F.2d 515

(Sth Cir. 1973); Daugherty v. United States, 426 F.2d

263 (6th Cir. 1970).

Petitioner's §2255 motion asserted that his convic-

tion was procured by misstatements made to his jury,

an assertion which, if accepted as true, clearly entitled

him to relief.’ In stark contrast to the even “improb-

able and unbelievable” allegations which, this Court has

'°The rules which this Court has promulgated for the conduct

of §2255 proceedings in the district courts reflect the necessity

for resolution of disputed factual assertions and provide, inter

alia, for discovery by leave of court which may obviate the need

for an evidentiary hearing. (See Rules 6, 7, 8). Those rules were

not in effect at the time petitioner's §2255 motion was before

the district court, and the government opposed defense efforts to

learn what information about the Eastern commitment was in

the government’s possession prior to petitioner’s trial.

"It is of no consequence that, as the court below observed

“[t}here is no claim here of suppression of evidence by the

government or perjury by government witnesses.” App. A, p. 6a.

The oe constitutional rights are violated as much by

prosecu misstatement as by suppression or jury. See

United States v. Agurs, 427 U.S. 97, 103-104 (1976), Ring v.

United States, 419 U.S. 18, 19 (1974) (per curiam); Miller v. Pate,

386 U.S. | (1967). Similarly irrelevant is the observation by the

court below, almost as an afterthought, that petitioner would not

be entitled to a new trial merely to “produce the testimony of

Randell.” (App. A, p. 6a). Petitioner is not seeking to have a new

trial in which Randell’s testimony is produced, but simply one in

which the prosecutor refrains from stating as fact critical assertions

which are untrue.

26

held, cannot be rejected summarily, Machibroda v.

United States, 368 U.S. at 494-495, petitioner’s

assertions are supported by the sworn testimony of a

government witness in related subsequent prosecutions.

The court below stated that it was unwilling to

“assume” the accuracy of Randell’s sworn testimony,

but the flaw in that comment is that the courts below

were forbidden to “assume” his testimony was not true.

That is why a hearing was mandatory.

The court below gave only one reason for its

willingness to indulge the converse assumption that the

prosecutor’s statements were accurate: Randell’s

criminal record ‘which purportedly made him a “hos-

tile’ witness. App. A, p. 5a. The criminal record of a

witness, however, supports no irrebutable presumption

that his sworn testimony is untrue; the government,

indeed, expressly supported Randell’s credibility at the

trials in which it called him.'* The bare affidavit of a

criminal defendant is sufficient to create a controverted

factual issue requiring an evidentiary hearing, Fontaine

vy. United States, supra; Sanders v. United States, supra;

Machibroda v. United States, supra. \t follows a fortiori

that the sworn testimony of a government witness in later

judicial proceedings, at variance with the prosecutor’s

statements in the first case, is a compelling basis for an

evidentiary hearing under §2255. It was clear error,

therefore, for the court below to resolve the controversy

summarily in the government’s favor.

'SWhile acknowledging Randell’s guilty plea to securities fraud

charges and characterizing him as “no friend of the government,”

the prosecutor at the Mullen perjury trial urged the jury not to

discredit Randell’s testimony solely because of his prior

conviction. (Tr. 348).

27

If the government was to be allowed to argue that its

own witness had not told the truth, the district court

was obliged to make its own assessment after an

adequate evidentiary hearing.'? That was the procedure

expressly contemplated when the Solicitor General, in

direct review, opposed a summary remand of the case

pursuant to Ring v. United States, supra. See p. 10,

supra. This Court was previously led to believe that the

procedures required by §2255 and by its own decisions

would be observed if it denied certiorari instead of

remanding for a hearing. Unfortunately, it is now

necessary for this Court to grant review and to

command that observance.

CONCLUSION

This petition for a writ of certiorari should be

granted.

Respectfully submitted,

PHILIP A. LACOVARA,

Hughes Hubbard & Reed

JOHN S. MARTIN, JR.,

Martin, Obermaier &

Morvillo

April 27, 1977

The district judge who summarily denied relief under §2255

had not been the trial judge either at petitioner’s trial or at the

Mullen trials. Thus, he had no personal basis for assessing

credibility without a hearing.

la

APPENDIX A

UNITED STATES COURT OF APPEALS

For the Second Circuit

No. 920 — September Term 1976

Argued March 9, 1977 Decided March 28, 1977

Docket No. 76-1494

UNITED STATES OF AMERICA,

Appellee,

~against-

ANTHONY M. NATELLI,

Defendant-Appellant.

Before SMITH, FEINBERG and MULLIGAN, Circuit

Judges.

Appeal from an order of the United States District

Court for the Southern District of New York, Hon.

Richard Owen, Judge, denying a motion for a new trial

pursuant to Fed. R. Crim. P. 33, or alternatively for

relief pursuant to 28 U.S.C. §2255.

Affirmed

JED S. RAKOFF, Assistant United States Attor-

ney (Robert B. Fiske, Jr., United States Attorney

for the Southern District of New York, Lawrence

B. Pedowitz, Assistant United States Attorney, of

Counsel), for Appellee.

PHILIZT A. LACOVARA, Washington, D.C.

(Hughes Hubbard & Reed, Washington, D.C., Jay

K. Wright, Ronald A. Stern, John S. Martin, Jr.,

2a

of Counsel; Martin, Obermaier & Morvillo, New

York, New York, on the brief), for Defenéant-

Appellant.

(Victor M. Earle, Ill, New York, New York, and

Cahill Gordon & Reindel, New York, New York;

Howard J. Krongard, William F. Hegarty, Mathias

E. Mone, George Wailand, of Counsel), for Peat,

Marwick, Mitchell & Co., Amicus Curiae.

PER CURIAM:

The appellant Anthony M. Natelli is an accountant

who was convicted in the United States District Court

for the Southern District of New York of making false

and misleading financial statements in a proxy state-

ment of National Student Marketing Corporation

(NSMC) in violation of section 32 of the Securities

Exchange Act of 1934, 15 U.S.C. §78ff, as well as

aiding and abetting those violations, 18 U.S.C. § 2.

Joseph Scanscaroli, an accountant who worked under

Natelli’s direction, was a co-defendant. Both were

convicted on November 14, 1974 after a four-week jury

trial before Hon. Harold R. Tyler, Jr., then a United

States District Judge. While Natelli’s conviction was

affirmed on appeal, Scansaroli’s conviction was initially

reversed, then later reinstated on the government's

petition for rehearing. On Scansaroli’s petition for a

rehearing the original reversal and remand for a retrial

was reinstated. The opinions of this court fully setting

forth the facts and the law were authored by Judge

Gurfein and are reported at 527 F.2d 311 (1975), cert.

denied, 425 U.S. 934 (1976). Natelli then moved for a

new trial pursuant to Fed. R. Crim. P. 33, or in the

alternative for relief pursuant to 28 U.S.C. §2255. On

3a

October 20, 1976 Hon. Richard Owen, United States

District Judge for the Southern District of New York,

denied the relief sought in a five-page opinion. This

appeal followed.

Natelli argues that there was insufficient evidence to

support his conviction. Specifically, he urges that the

United States failed to establish that a letter signed by

Thomas Mullen, an executive of Eastern Airlines,

“committing” his company to purchase NSMC services

was false and misleading and known to be such by

Natelli. This collateral attack must be rejected. As

found by Judge Owen, the precise issue was raised by

Natelli on a motion for acquittal at the conclusion of

the government's case and on a motion for a new trial

after the verdict in the district court, on his appeal to

this court, on his motion for rehearing as well as on the

petition for a writ of certiorari. The issue was

specifically considered and rejected by Judge Gurfein in

his opinion for this court, 527 F.2d at 318-2).

Appellant does not dispute this but argues that the rule

barring a collateral attack on the disposition of issues

previously litigated should yield in the interests of

justice. However, the authorities relied upon such as

United States v. Loschiavo, 531 F.2d 659 (2d Cir.

1976) and Robson v. United States, $26 F.2d 1145 (\st

Cir. 1975) involve situations where there was an

intervening change of law after the initial decision was

reached. See Davis v. United States, 417 U.S. 333

(1974). There is no such circumstance here and we find

no reason to depart from the case law that once a

matter has been decided adversely to a defendant on

direct appeal it cannot be relitigated in a collateral

attack under section 2255. Meyers v. United States, 446

4a

F.2d 37, 38 (2d Cir. 1971); United States v. Granello,

403 F.2d 337, 338 (2d Cir. 1968), cert. denied, 393

U.S. 1095 (1969).

Appellant’s second argument is equally unpersuasive

and is analyzed in Judge Owen's opinion below. Natelli

claims that the government presented an “erroneous

version” of the facts to the jury in arguing that one of

commitment was phony or fraudulent was its sudden

production at 3 a.m. on the morning of August 15,

1969 in the office of a printer when Natelli deleted the

Pontiac commitment and substituted Eastern in the

nine-months earnings statement. The incident and its

patently irregular circumstances are fully discussed in

Judge Gurfein’s opinion under the heading “B. The

False Nine-Months Earnings Statement,” 527 F.2d at

317-18. Some eleven months after Natelli’s trial, Cortes

W. Randell, former president of NSMC, testified as a

witness in criminal proceedings brought against Thomas

E. Mullen, the author of the Eastern commitment letter

in issue. Randell testified that NSMC had made a

proposal to Eastern prior to the end of May 1969 and

that Mullen, having expressed a desire to proceed with

the program, followed up with the letter upon which

Natelli allegedly relied. Natelli argues that since Randell

was a government witness in the Mullen trial, the

United States must have known the facts and therefore

its position at the Natelli trial that the letter was

“phony” was misleading. It is urged this new evidence

justified a new trial.

The argument is without merit. In the first place, it

can hardly be considered new evidence under Rule 33.

It is basic that a defendant seeking a new trial must

establish that the newly discovered evidence could not

Sa

with due diligence have been discovered at or before

trial. United States v. Stofsky, 527 F.2d 237, 244 (2d

Cir. 1975), cert. denied, 97 S. Ct. 65, 66 (1976). The

fact is that Natelli testified at his own trial that he had

advised Randell previous to August 15, 1969 that the

Pontiac commitment would be disallowed and that

Randell made mention of the fact that Eastern had

made an oral commitment prior to the expiration of

the nine-month period involved in the audit. The

evidence cannot now be claimed to be new. If Natelli

wished to obtain the corroboration of his version of the

facts, he could have called Randell as a witness. In fact,

his counsel admittedly made a tactical decision not to

call Randell. Hence it cannot be deemed to be new

evidence. There was no obligation on the part of the

United States to call Randell as a witness to support

Natelli’s version of the facts.

Nor is there any merit to the contention that on the

basis of this subsequent testimony the government's

version of the Eastern Airlines retroactive inclusion of

expected earnings was erroneous. This assumes, of

course, that Randell’s testimony was accurate. He was

an admitted swindler and briber who was a hostile

witness in the subsequent proceedings. As we have

indicated, he was never called to corroborate the

defense’s version at Natelli’s trial. His later admissions,

if anything, fortify the position of the government that

the Eastern commitment was in fact totally fraudulent.

It was produced by reason of bribes to Mullen and was

accompanied by a “side agreement” permitting Eastern

to cancel on 30 days notice prior to December 31,

1969. Randell in fact pleaded guilty to conspiracy and

fraud prior to Natelli’s trial and, as the court found

below, the transcripts of the allocutions of Randell and

6a

Kelly (a co-defendant) were available to Natelli on trial.

These transcripts disclosed the existence of the “side

agreement,” making Natelli’s argument that both he and

his jury were unaware of this possible flaw in the

Eastern commitment ring hollow. There is no claim

here of suppression of evidence by the government or

perjury by government witnesses. Upon analysis,

Natelli’s argument is reduced to the claim that he is

entitled to a new trial to produce the testimony of

Randell which in our view is at best questionable, was

previously available and in any event would not be of

any significant assistance to Natelli. The order below is

therefore affirmed.

Ib

APPENDIX B

Cinited States Court of Avorals

roe" UNTTZD STALES COURT OF APPEALS

SECOND CiRacuiT SLCOND CIRCUIT

“ _. PILED MARCH 28

ee A. DANIEL VUSARO, CLERK

At » slated Term of the Uniied Sisivs Court of Appoals for the Se

- : RA, 3% > Seco

Cireuit, hold at the United Siates Courthouse in the City of New York, a ne

<n etek ek day of i-aech

one thousand nine hundred and seventy-seven.

Present: POM. J. SOSte sorry

iOS. VELIPRD Pee:

HOM. WILLIAM FR, MULLICAN

Circuit Judges,

United States of Auerica,

Plaintiff-aAppellee

v

Cortes W. Randell, Robert C. Bushnekl,

John G. Davies, Dennis M. Kelly, Bernard

J. ’ mM, 1 .

Kure | nema Natelli, Joseph '

Defendants 76-1494

Anthony M. Natelli,

Defendant-Appel lant.

eee eee

Appeal from the United States District Court for the gouthe

District of New York. -

This cause came on to be heard on the transcript of record from the

United States District Court for the District of

lew York , and was argued by ERERIE™

ON CONSIDERA HEREOF, it is now hereby ordered, adjudged

and decreed that the of said District

Court be and ithereby is affirmed in accordance with the opinion of

this court.

A. DANITY ttrrw9

Clerk

by

Arthur Weller

Deputy Clerk

Ic

APPENDIX C

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF NEW YORK

UNITED STATES OF AMERICA, ) 74 Cr. 43

-against- ) MEMORANDUM

ANTHONY M. NATELLI, ) AND ORDER

Defendant. )

OWEN, District Judge

Before me are two motions by defendant Anthony

M. Natelli convicted by a jury in 1974 of preparing

false and misleading financial statements in a proxy

statement required to be filed with the Securities and

Exchange Commission in violation of Title 15, United

States Code, §§77ff and 78n and Title 18, United

States Code, §2. He was sentenced by Judge Harold R.

Tyler to serve 60 days of a one year term, the balance

to be served on unsupervised probation, and fined

$10,000. This conviction was affirmed on appeal.

Natelli now moves for a new trial on the basis of newly

discovered evidence pursuant to Rule 33 of the Federal

Rules of Criminal Procedure and also for an order

reducing the sentence imposed to probation pursuant to

Rule 34. Both motions are denied.

2c

L.

Motion to Reduce Sentence.

It is clear from reading the sentencing minutes that

Judge Tyler agonized over his decision to impose the

term of incarceration that he did. The only new factor,

not considered by Judge Tyler, which Natelli urges

upon me is that family tragedies which have occurred

since imposition of sentence make it appropriate for me

to reduce his sentence. | am aware and distressed that it

is often the families who suffer most in these situations.

However, nothing which has been presented to me

persuades me that Judge Tyler’s carefully considered

sentence should be disturbed.

Il.

Motion for a New Trial.

The basis for Natelli’s claim that he is entitled to a

new trial is prosecutorial “misstatements” during the

trial and summation that are allegedly contradicted by

testimony of codefendant Cortes Randell, former

president of National Student Marketing Corp., given

some eleven months later as a witness at the trial of

Thomas E. Mullen, the Eastern Airlines executive who

wrote the phony commitment letter. This letter,

presented by Randell to Natelli as a substitute for the

rejected Pontiac “commitment” the night at Pandick

Press, was the basis of including the Eastern ““commit-

ment” in the proxy statement.

3¢

No real contradictions appear, however, since it had

been brought out at Natelli’s trial both that Natelli had,

prior to that night at Pandick Press intimated that the

Pontiac “commitment” would not be allowed and

further that Natelli had heard about the Eastern “sale”

prior to that night. Defendant builds a house of cards

which, under sharp scrutiny, falls.

The government does not vouch for everything a

witness it calls may volunteer, see Rule 607, Fed.R.

Evid., and certainly did not vouch for Randell, whom it

considered a hostile witness at the Mullen trial. The

government further had no obligation to call Randell or

any other witness at the Natelli trial.

All this is immaterial, however, since

{ijt must be remembered that ‘a defendant

seeking a new trial under any theory must satisfy

the district court that the material asserted to be

newly discovered is in fact such and could not

with due diligence have been discovered before or

at latest, at trial.’ ”’

United States v. Stofsky, 527 F.2d 237, 244 (2d Cir.

1975), quoting United States v. Costello, 255 F.2d 876,

879 (2d Cir.), cert. denied, 357 U.S. 937 (1958).

Natelli, when he took the stand at his trial, testified

that he had told Randell and others prior to the night

at Pandick Press that he would not allow the Pontiac

“contract” and also that he had heard about the

Eastern proposal sometime “right prior to” the night at

Pandick. These two facts, testified to by Natelli and

others, are the substance of the “newly discovered

_ evidence.”” That Randell may have corroborated that

testimony does not make the evidence newly dis-

covered. Natelli was present at some of the conversa-

tions with Randell. Further, Natelli had the transcripts of

4c

the allocutions of Randell’s and Kelly’s (another co-

defendant) guilty pleas. Natelli argued on appeal — this

prior to the Mullen trial — and in his petition for

rehearing that the government deliberately chose not to

call Randell, whose testimony would have exculpated

him. The “evidence” is hardly newly discovered.

While, as was his right, Randell refused to speak with

defendants’ counsel prior to trial, Natelli was still free to

call him as a witness. He could also have interviewed and

called other codefendants who had pled guilty. He chose

not to as a tactical decision. Natelli has failed to meet his

due diligence burden. See United States v. Tramunti, 500

F.2d 1334, 1349 (2d Cir. 1974); United States v.

Ruggiero, 472 F.2d 599, 604-05 (2d Cir.), cert. denied,

412 U.S. 939 (1973); United States v. Brawer, 367 F.

Supp. 156, 174 (S.D.N.Y. 1973), aff'd, 496 F.2d 703 (2d

Cir. 1974).

Natelli’s final point is that the government has failed to

prove the falsity of the Eastern contract, an essential

element of the crime. This point has been argued and

rejected as without merit by the trial court, the jury and

the Court of Appeals. From a review of the evidence in

this area, the argument has not gained merit in the

ensuing months.

For the foregoing reasons, defendant’s motions are

denied.

So Ordered.

/s/ [illegible]

October 20, 1976. United States District Judge

Id

APPENDIX D

UNITED STATES COURT OF APPEALS

For tur Secoxp Cmevuit

-—_ =

Nos. 10235 & 1036-— September Term, 1974.

(Argued April 10, 1975 Decided July Zs, 1975.)

Docket Nos. 75-1004, 75-1008

a a ae

Usirep States or Amenica,

A pp ily UP

against

Axruoxy M. Naretaa and Josern ScANSARODA,

Defendauts Appellants,

4-6 -- —____

Before:

Hlavs, Metaioanx and Grerers,

Cir wil Duda Ss.

sell, citeumaaind

Appeal from judgments of conviction entered after a

jury verdict in the United States Distriet Court for the

Southern District of New York, Harold Ro Tyler, J.. tind

Ing appellants, two accountants, guilty on a single count

of violating 15 U.S.C. S 7Sif(a) by making materially fale

statements ina proxy statement filed with the Sevurities

Exchange Commission.

Held: As to Natelli, the evidence was <uflieient to Support

the conviction and no errors of law were made. AS te

Scansaroli, the evidence with regard te one of the two spee

ifieations in the count was insaflicient to show that he had

failed to fulfill a duty arising from his position.

Affirmed in part; reversed and remanded in part,

-—_ =

ee -

2d

Jonun S. Marny, Jr., New York, N.Y. (Martin,

Obermaier & Morvillo, Philip A. Lacovara

and Betty J. Santangelo, New York, N.Y.,

and Hughes, Hubbard & Reed, Washington,

D.C., of counsel), for Defendant-A ppellant

Natelli.

Cuariers A. Stitpmax, New York, N.Y. (Mor-

rison, Paul, Stilhnan & Beiley, Peter H.

Morrison, Benjamin Zelerniyver and Edward

D. Tanenhaus, New York, N.Y., of counsel),

for Defendaat-Appellant Scansaroli.

Fraxkuy B. Vewie, Assistant United States At-

torney, New York, N.Y. (Paul J. Curran,

United States Attorney, and Jed S. Rakoff,

Audrey Strauss and John D. Gordan, ITI,

Assistant United States Attorneys, of coun-

sel), for Appellee.

Vicror M. Earte, IIT and Caum. Gorvox &

Rerxpex (Ioward J. Krongard, William E.

Ilegarty, Mathias E, Mone, George Wai-

land, of counsel), for Peat, Marwick, Mitch-

ell & Co. as Amicus Curiae.

Cravatn, Swaine & Moore, New York, N.Y.

(John R. IIupper, Robert Rosenman and

J. Barclay Collins, New York, N.Y., of

counsel), for American Institute of Certi-

fied Publie Accountants as Amicus Curiae.

2

Gunreiy, Circuit Judge:

Anthony M. Natelli and Joseph Seansaroli appeal from

judgments of conviction entered in the United States Dis-

trict Court for the Southern District of New York on

3d

December 27, 1974 after a four week trial kefuve the Ilon.

Harold R. Tyler and a jury. Judge Tybee immporneed a ~~

vear sentence and a ¥10,000 fine upon Natelli, “sip

all but 60 days of imprisonment. annul a et gh re

and a #2.500 fine upon Seansarolt, susp nding all bu

days of the imypri-ontment, | | i

Both appellants are ecrtified jmablie oo. :

was the partner in charge of the V —. oh :

of Peat, Marwick, Mitchell & Co. ("Peat"). a seiner

pendent firm of ac litors, and the emeaecment coos nee

respect to Peat’s anedit emacs Fe: corp * :

Marketing Corporation (* Marketing” ). neme-gng age

employee of Peat, assigned as audit supervicor en the

nyeacement. es

gre vere charged ane tri D cotly = a At

of a multi count imlictment against other defemdants~ «

nweeted with Marketing. vid |

Count Two of the indictment charged that. in span

ot Seetionns Mla) of the Securities rexchanne Net of - '

9 USC. ° OTsffia).! four of Marketing's epodiids aed the

appellants, as in ependent aiedicons, “witfully oe a

ingly made and caused to be muinele fallow ated Mts | : a

sahemeute with restweet oo rriseteriaal caghls = rT) om “or

ment for Marketing dated Neopet ectnaloery ~. # isms aan fi " oe .

the Securities Exchonge Corns shoo (Fe ) in vecoredanes

with Section 14 of the 1904 Net. 1a ES asm,

! Sertion 52 provides im felevont port: ,

‘\ on whe willietty aed leowomagly males, er cause

“Any person. . e « ; f

fo bee mde. anu statement in ang Ap cate, report, /

0” te ve . ’ —_ ', ‘ re “a eo?

. ! ta le / od unde th ow pte yo . 4 '

0 wi-ticutiom «* tet nf

thee re orele e ot ome wrdertobhing cn olinan ® gi | Ae tr

a pilewss fem d wf s¢ tiem Tee of this tith

Bs perers ieee > eet fa avg watered

statement was false on te xte my ome OH ' sien’ of om

t berth porte eeettt tien ter i Ll wet mete thom oF!

jar “ . i”’ ‘ ‘

blows hisent~ deb ! ’

veure .

pet aneetee A het more than two ve

*

“~

4d

The proxy statement was issued by Marketing in connec-

tion with a special meeting of its stockholders to consider

inter alia a charter amendment inereasing its anthorized

capital stock and the merger of six companies, includ-

ing Interstate National Corporation (“Interstate”) into

Marketing.

Count Two of the indictment further charged that appel-

lants, in attempting to reconcile net sales and carnings as

originally reported in the annual report for the fiscal year

ending August 31, 1968 with the amounts shown in the

statement of earnings in the proxy statement, filed less

than a year later, created an explanatory footnote that was

materially false and misleading.’ It was alleged that “as

the defendants well knew but failed to disclose . . . (a)

approximately one million dollars, or more than 20%, of

the 1968 ‘net sales originally reported’ had proven to be

nonexistent by the time the proxy statement was filed and

had been written off on [Marketing’s] own internal books

of account; (b) net sales and profits of ‘pooled companies

reflected retroactively’ were substantially understated; and

(c) net sales and profits of [Marketing] were substantially

overstated.”

2 The footnote read in relevant part:

“Net sales and earnincs 9s originally reported to stockholders in

the annual report [for the year 1968] and the amewmts as shown

im the statement of earnings in this proxy -tatement are reconciled

as follows:

Net sales 1"68

Originally reported = $ 4104106

Pouled companies reflected retroactively 6.552.449

Per statement of carnings | STIS eOS

——

Net earnings

Originally reported gO

Pooled companies reflected retroactively 385,121

Per statement of carnings tiéiHSC‘R DDT”

—_—_———

Sd

Count Two charged further that the proxy statement

also contained an unawaited statement of earning: fer t

” u* » Sete a me , teri i} fa oes

j onths ended May 31, vw hieh was te ‘ en

pose | pet sales” as eet eo.

talendime im that if -tai :

pa sr as the ebefen-

and “net earnings” as S702 270, when. in fart, ws

dants well knew, “net sales” for the gers tend were bes than

$10,500,000 ane Marketing bal we earns at all.

In order to umderstiame the theary at ti erst ay ‘ =

case, We must retrace our step te the Vvecetoanebins oot b rhe _

engagement at Marketing. Th inary could perinis-ibly have

found the following facts.

Marketing was formed in & | or

provided te major eerpoeratec seen isa the era itind np

product< to the south market a eliversadte Lramge of advert

° , ,

-4 Vie "Ss «¢,¢°* * Thee tte

an ee W. Beatle dl. It

ep Be of

fixing, promot ere amet tomarketing wee 6 sae

reach the youth merket. fn Sperid 1s roast nie - -

first amd only public offeriwg of <tack. Peat was bet its

auditer at the time, AN: is

Pent tock on the engagement to Nec) oes - ebge-eK

ing with the previetts congeliteors laced thete: Truck Tee cte te

~—

, . - , i] spree’ doped. NateTh. the

profes~ienl disagreement with me

* _* ~ - 1-

* * . , es tT ont hte, . ’ A

partner in charge of Peat. Washington oth ' t :

the emuagement te sopnedit Qoe: Cancetne taal taetetee tet of ,

| ae e-tast of Srerctsst 220, O74, sted Net

tet ieee For the fincal yar emed sat =H, ,

antectiend Segrsarol ‘o serve as stb ey eet cote Diter eta caer

ment.

Vy OX tae PMS tafter te eten:

° 5 ,

ion am VW

> ter! rial ~ 06 °o'S. i

In beste September eres

of the fixe! year, Slevtnebe TE cram -_

iets Comptroller, pet oy thy baotha genet Sroeeal - VF cet teces

thee meet heed of aeconntine’ ghost) Vetere ht * " i

with respect te fixed! fee preccrams. fn thas nadie | st

eram, Marketing wookd develop overall mark ee " -

om for the elient te reach te youth mereket bs J |

a combination of qlaee vorcedtivece=. poems fet canter er ee

| BEST COPY AVALABLE

ing services offered by Marketing. Randell explained that

Marketing and the client agreed upon a fixed fee to be

charged for participating in the various programs. Randell

stated that the company believed that it was proper to

recognize income on these fixed-fee contracts at the time

the clients committed themselves to participate in the pro-

grams presented to them by the account executives, and

that this was the accounting method that had been used

in preparing the financial statements for the period ended

May 31, 1968, which had been distributed to stockholders.

After considering alternative methods of accounting,

Natelli concluded that he would use a pereentage-of-com-

pletion approach to the recognition of income on these

commitments, pursuant to which the company would accrue

that percentage of the gross income and related costs on

a client's “commitment” that was equal to the proportion

of the time spent by the account exceutive on the project

before August 31, 1968 to the total time it was estimated

he would have to spend te complete the project.

The difficulty immediately encountered was that the “com-

mitments” had not been booked during the fiscal year, and

were not in writing. The Marketing stock which had ini-

tially been sold at $6 per share was selling in the market

by September 1968 for $80, an increase of $74 in five

months. A refusal to book the oral “commitments” would

have resulted in Marketing’s showing a large loss for the

fiseal year—according to Kurck’s computations, a loss of

$232,000.

Scansaroli, upon Natelli’s order, attempted to verify

the “commitments,” the sales not previously included in

the company records, in a rather haphazard manner by

telephone to representatives of companies which had pur-

portedly indicated some intent to use Marketing’s services.

Pursuant to Randell’s urging, Seansaroli did not seck any

7d

written verifications. Te accepted a -chedale prepared by

Kurck which showed about $1.7 millon in purperted “com-

mitmenis.” He also received from the account executives

forms indicating estimates of the gross amount of the

client's commitment, the printing and distribution costs te

be incurred on the program, and the account excentive's

estimate of the percentage of completion of the prograin,

On the basis of the above, Natelli decided not only to ree-

oznze Tneome on a porecutage-of corrpletion bests, but to

permit adjustment to he made en the hooks after the close

of the fiseal vear in the amount of $1.7 millon for such

“unbilled sccounts reecivable.” This adjustment turned the

loss for the vear inte a handsome profit of FRAT, ~how-

ing an apparent doubling of the profit of the prier youn.

Anpellants were net charged with a criminal vielation

with respect to this decision, It may be obrerved, how-

ever, that in the footnote to the eudited financial -tate-.

ment for 1963 explaining this methed of accounting for

“Contracts in Progress,” no indiextion is given of the

flimsy nature of the evidence that such client “ecnmit-

rnents” actually existed.

After the 168 andit bad been given a full certifieate

by the guditers on November 14, 1858. Natelli in Deeswher

1Gs tokd the officers of Macketing thet in the fecure Pout

woukl ¢llew income te be recorded only en written com.

mitments, suyperted by ec ut omperanceus legs kent by

the aecount exeentives with r spect to each coutract. A

form letter wes drafted to spell out a Lindine ec stractast

commitment to be signed by eack client,

In the meentime, followirg the issuanee ef the sl

awlited annual report and lefere the Reptenshor 190

proxy statement, seven companies were acquired larecly

in exchange for Morketing stock, in relience on the T9658

annual report.

Things began to happen with respect to the $1.7 million

of “sales” that had been recorded as income after fiscal

year end. Within five months of publication of the annual

report, by May 1969, Marketing had written off over $1

million of the $1.7 million in “sales” which the auditors

had permitted to be booked.

Of the total $1 million written off, $748,762 was attrib-

utable to “sales” purportedly made by one Ronald

Michacls, an account executive who was fired for taking

kickbacks and who was said to be dishonest, The other

quarter of a million dollars of sales written off had noth-

ing to do with Michaels. When accrued costs were taken

into account, the effect of the write-off of the Michaels

contracts was to: reduce 1968 income by $209,750. It ap-

peared that of the $1 million of sales requiring retroactive

write-off, $550,000 had already been written off by the

company by subtracting these “sales” from 1969 current

year figures. An additional $678,000 was to be written

off sales for the prior year 1968, and appellants were

asked to design the write-off. The write-off suggested by

appellants was accepted and entered in the general ledger

as a journal voucher entry sometime in late April or

early May.

That entry wrote off the $678,000 retroactively as « de-

duction from 1968 sales. Instead of reducing 1968 carn-

ings commensurately, however, no such reduction was

made, Appellants were informed by tax accountants in

Peat’s employ that a certain deferred tax item should be

reversed, resulting in a tax eredit that happened to be

approximately the same amount as the profit to be written

off. Scansaroli “netted” this extraordinary item (the tax

credit) with an unrelated ordinary item (the write-off of

sales and profits). By this procedure he helped to con-

ceal on the bocks the actual write-off of profits, further

9d

using the device of rounding off the tax item to make it

conform exactly to the write-off! The effect of the netting

procedure was to bury the retroactive adjustinent which

should have shown a material decrease in earnings for

the fiseal vear ended August 31, 1968,

The Proxy Statement

A. The Footuote

As part of the proxy statement, appellants set about to

draft a footnote purporting to reconcile the Company’s

prior reported net sales and carnings from the 1968 re-

port with restated amounts resulting from pooled com:

panies reflected retroactively, The earnings summary in

the proxy statement included companies acquired after

fiseal 1968 and their pooled earnings, The footnote was

the only place in the proxy statement which would have

permitted an interested investor to see what Marketing's

performance had been in its preceding fiseal year 1968,

as retroactively adjusted, separate from the earnings and

sales of the companies it had acquired in fiseal 1969."

At Natelli’s direction, Scansaroli subtracted the written-

off Marketing sales from the 1968 sales figures for the

seven later acquired pooled companies without showing

This procedure wis appreved by Natelli, for in the first printed draft

of the proxy statement he prepared a footnote Which humped contract

losses for 168 and the tan seljoetment, stating that “the net effect of

the retrenctive adjustment was a $21,000 decrease in net earnings for

the year 168."

4 A vigilont and knewledgealle stockholder who hast waved his 1968

financial report could have discovered, hw tmeceteleings it with the | alance

sheet in the proxy statement, tht untitled rervivalies for the vear ended

August 31, 1s were now $1,015,250 as a tamet $1,763,908 in the earlier

document, but he would not know why there was a difference. Footnote

ve” read: "Pigures for 1968 have been restated in certain instances to

make their presentetion consistent with current) aecounting prertiven,

There was no material effect as a result of such restatement,

any retroactive adjustment for Marketing’s own fiseal

1968 figures. There was no disclosure in the footnote

that over $1 million of previously reported 1968 sales of ©

Marketing had been written off. All narrative disclosure

in the footnote was stricken by Natelli. This was a viola-

tion of Accounting Principles Board Opinion Number 9,

which requires disclosure of prior adjustments which af-

fect the net income of prior periods.’

B. The False Nine Mouths Earnings Statement

The proxy statement also required an unaudited state-

went of nine months earnings through May %1, 1969. This

was prepared by the Company, with the assistance of

Pest on the same percentage of completion basis as in

the 1968 audited statement. A commitment from Pontiae

Division of General Motors amounting to $1,200,000 was

swodueed two months after the end of the fiseal period.

It was dated April 28, 1969.

The proxy statement was to be printed at the Pandick

Press in New York on August 15, 1969. At about 3 A.M.

on that day, Natelli informed Randell that the “sale” to

the Poutiae Division for more than $1 million could not

be treated as a valid commitment because the letter from

5 Accounting Trinciples Board Opinion Number 9, issued December,

1906, reads in relevant port:

"26. When prior period wiljistments ore recorded, the resulting

effects (both cross and net of erplieatde income tax) on the net

income Of prior periods should be disclosed in the annual report

for the vear in which the adjustments are mole. [The Bewrd ree

ommeteds divelosare, in addition. In interim renerts issued diving

that year subsequent te the date of recording the sed pertinent, |

When financial statements for a single poriod Only pe presented,

this disclosure shoukd indicate the effects of sah restatecont on the

halanee of retained earninys at the beginning of the period and on

the net income of the immediately preseding periad.”

APR Avcounti g Urineiples: Origioal Prenommeements, Vol 2. p. e5eg

(1909).

11d

Pontiac was not a legally binding obligation. Randell

responded at once that he had a “commitment from East-

ern Airlines” in a somewhat comparable amount attribn-

table to the nine months fiscal period (which lad ended

more than two months earlier), Welly, ao salesman for

Marketing. arrived at the printing plant) several hours

later with a commitment letter from Rastern Airlines,

dated August 14, 19609, purperting te confirn an Ss20,000

commitment ostensibly entered inte on May 14. just be-

fore the end of the nine-month tiseal period of Septeriher

1, 168 thromeh May 1, 16 When the proxy statencent

was printed in final form, the Prevnetisne “*sarbe’® Vind Tveen

deleted, but the astern “somitinent bal Taeem inserted

in its place.

Soon after the incident at Panmdick Press, A a ee

lander. an accountant at Peat assicmed by Natelli te. re-

view Marketing's aecounts, discovered SITTOW werth of

“had” contracts from: PGs whoch vere hivewn fess. “uenredl

in Mav. as denbifal, but whieh hard not heen ritten eff

itieciandve se cesta ten Warped: that thyersee eeottiined = cotned

others dinewnting fewer mite ja cededitiows ta the

=) oilPon in laced cantycnets paren jens ds tlixtursend ofl le

written off. Kurek o« areilted Sacruecteli, whe after ean

wulting with Natedli, cheetebed penlpst the snggested write

olf.

The proxy statenent Wir filed with the SEC on Mego

ferperdoeg SO, DEN Pere wate te disclosure that Marketing

had written off st onillion ef its Tes sales (ower Lae )

ane over =! 1" hie of thy er ri tleen aT arrbeidbead =] -

Veevesdcerel tne DEMOS cetneh DEM Vo true disclosure, whieh was

ret porsvele, World Psave steven that Witheont these be tbe

receivables, Marketing lisvel tee poreetit im othe first) otinme

ronths of ToGo.

12d

ach appellant contends that the evidence was insuffi-

cient to support his conviction. We shall consider each

appellant separately.

I

Natelli—Suficiency of Evidence

It ix hard to probe the intent of a defendant. Cirewm-

~tantial evidence, particularly with proof of motive, where

available, is often sufficient to convince a reasonable man

of criminal intent beyond a reasonable doubt. When we

deal with a defendant who is a professional accountant,

it is even harder, at times, to distinguish between ~imple

errors of judgment and errors made with sufficient eriminal

Intent to suppert a conviction, especially when there is no

financial gain to the accountant other than his legitimate

fee.

Natelli argues that there is insufficient evidence to estab-

lish that he knowingly assisted in filing a proxy statement

i Natelli contends that a later incident reveals his lack of intent to

eevive, Tn September 1969, John Johnston, « staff accountant with

Peat, was assigned te prepare the audit of Marketing's hooks for the

fixeal year ened August 31, 1969 He discovered the uneollectibile con.

tracts fool by Oberlander in August and reported them to his superior,

William Colona, who had replaced S:ansaroli as andit supervisor when

Seansareli joined Marketing as am employee in October, Later in Octo-

her, Peat was asked to prepare a “comfort letter” in connection with

Marketin. = sequisition ef Tuterstate National Cor oration, to assure

Toterstate that ne adverse information concerning the unaudited state

ments for the period ended May 31, 1969 had Leen discovered since the

aequirition contract had heen signed in Ancust. Colona and Johnston

drafted a “comfort letter” noting adjustments which completely wiped

out Marketing's first three quarter carnings for 1960 of #700000 a. they

hel been carried in the proxy statement. Natelli acquies-cd The draft

‘semfort letter” did net deter Tnterstate from closing the tron<a ‘tion,

smd Peat decided. at the suggestion of Natelli, te semd the letter te the

other companies being aequired, whieh had failed te require such a

“comfort letter” in their contracts, Natelli urged this at trial as proof

of his good faith, and the trial judge fairly stated to the jury his

contention in that regard.

13d

which was materially false. After searching consideration,

we are constrained to find that there was sufficient evidence

for his conviction.

The arguments Natelli moro im this court as evidence

of his innocent intent were made to the jury and presented

fairly. There is no contention that Judge Tyler improperly

excluded any factual evidence offered, While there is sub-

stanee to some of Natelli's factual contentions for jury

consideration, we cannot find, on the totality of the evi-

denee, that he was improperly convicted.

The original action of Natelli in permitting the hooking

of unbilled sales after the close of the fiscal period in an

amount -ufficient to convert a loss into a profit was con-

trary to sound accounting practice, particularly when the

cost of sales based on time spent by account executives in

the fixeal period was a mere guess. When the uncollect-

ibility, and imleed, the non-existence of these large re-

celvabies was established in 1969, the revelation <teod to

cause Natelli <evere critici-m and possible liability. Te

had a motive, therefore, intentionally to conceal the write-

offs that had to he made.

Whether or wot the deferred tax item was properly con-

verted to a tax eredit, the jury had a right to infer that

“vetting” the extraordinary item against erdinary earn-

ings on the hook~ in a special journal entry was, in the

cireum-tances, motivated by a desire to conceal.

With this hackeronnd of motive, the jury could asse<s

what Natelli did with rezard to (1) the footnote and (2)

the Bastern commitment and the Oberlander “had” con.

tracts.

A. The Footnote

Honesty should have impelled appellant to disclose in the

footnote whieh annotated their own andited statement for

~——

— ee

14d

fiscal 1968 that substantial write-offs had been taken, after

year end, to reflect a loss for the year. A simple desire to

right the wrong that had been perpetrated on the stock-

holders and others by the false audited financial statement

should have dictated that course. The failure to inake open

disclosure could hardly have been inadvertent, or a jury

at least could so find, for appellants were themselves in-

volved in determining the write-offs and their accounting

treatment. The concealment of the retroactive adjustments

to Marketing's 1968 year revenues and earnings could prop-

erly have heen found to have been intentional for the very

purpose of hiding earlier errors.’ There was evidence that

Natelli himself changed the footnote to its final form .

That the proxy Statement did not contain a formal re-

audit of fiseal 1968 is not determinative. The accountant

has a duty to correct the earlier financial statement which

he had andited himself and upon which he had issued his

certificate, when he discovers “that the figures in the annual

report were substantially false and misleading,” and he

has a chance to correct them. See Fischer v. Kletz, 266 F.

Supp. 180, 183 (S.D.N.Y. 1967) (Tyler, J.). See also Gold

v. DCL Ine., 1973 CCL Fed. See. L. Rep. $94,036 at p.

94.168 (Frankel, J.). The accountant owes a duty to the

public not to assert a privilege of silence until the next

andited annual statement comes arowndl in due time. Since

companies were being acquired by Marketing for its shares

in this period, Natelli had to know ‘that the 1968 audited

statement was being used continuously.

7 Natelli contends that the write-offs were of sales of Michacls, an

allegedly corrupt selesman, and that since Michacls had heen fired, the

problem was net likely to recur, But the Government proved that at

a mecting on June 9, 1969 at which Natelli was present, the Controller

produced charts showing that of the $1.5 millicn of 1968 sales analyzed,

about $900,000 had heen written off. Of there, about $700,000 were

sales of Michaels, $200,000 of another salesman, Ganis. (Tn addition,

a third salesman had accounted for #213,000 of the 1968 sales, not a

dollar of which nad yet been billed).

15d

The argument that the di-closure was not material is

weak, since applying write-offs only against pooled carn-

ings, without further explanation, conceals the effect of the

write-oifs on the prior reported earnings of the principal

company. It is the disclosure of the true operating results

of Marketing for 1968, now come to light, that was material.

Materiality is an objective matter, not necessarily limited

by the accountant’s own uncontroiled subjective estimate of

materiality, see United States vy. Simon, 425 F.2d 796, 806

(2 Cir. 1969), cert. denied, 807 U.S, 1006 (1970). In any

event, the Court charged that the carnings figures would

have to be “known to be false in a material way"—a sub-

jective test.

B. The Eastern Commitinent and the Nine-Mouth

Karnings Stateneut

The Eastern contract was a matter for deep suspicion

heeause it was substituted so rapidly for the Pontiae con-

tract to which Natelli had objected, and whieh had, it-elf,

heen produced after the end of the fiseal period, though

dated earlier, It was still acether unbilled counmitment

produced by Marketing lows after the close of the fseal

period, Its spectacular grrearence, as Natelli Iuuself

noted at the time, made its reploe seent of the Pentine

contract “weird.” *’ The Eestern “commitment” was not

only in substitution for the challenged Pontiac “counmit-

went” but strangely close enough in amount to leave the

projected earnings figures for the vroxy statement rela-

tively intact. Marketing had only time logs of a sales-

man relating te the making of the proposals but no record

f Natelli’s explenation that only the sngzestion of Randell for comp’ te

replacement of the Pontiae eoutract without chanaiaan the faures at all,

wae “weird” is ner couvineim’. Certainly the jury coukd fled otherwise.

r *

16d

of expenditures on the Eastern “commitment,” no record

of having ever billed Fastern for services on this “sale,”

and not one serap of paper from Eastern other than the

suddenly-produced letter. Nevertheless, it was hooked

as if more than $500,000 of it had already been carned,

Natelli contends that he had no duty to verify the East-

ern “commitment” because the carnings statement within

which it was included was “unaudited.”

This raises the issue of the duty of the CPA in rela-

tion to an unaudited financial statement contained within

a proxy statement where the fieures are reviewed and to

some extent supplied by the anditors. It is common

cround that the. auditors were “associated” with the

statement and were required to object to anything they

actually “knew” to be materially false. In the ordinary

case involving an unaudited statement, the auditor would

not he chargeable simply because he failed to discover

the invalidity of hooked accounts reeeivable, inasmuch as

he had not undertaken an audit with verification. In this

case, however, Natelli “knew” the history of post-period

bookings and the dismal consequences later diseovered,

Was he under a duty in these circumstances to object or

to go bevond the usual scope of an aeccountant’s re-

view and insist upon some independent verification? The

American Institute of Certified Public Accountants, State-

ment of Auditing Standards No, 1--Codifieation of Audit-

ing Standards and Procedures (1972), 1 CCHE ATCPA

Professional Standards £516.00, recognizes that “if the

certified public accountant concludes in the basis of facets

known to him that unaudited financial statements with

which he may become associated are not in conformity

with generally accepted accounting principles, which in-

17d

clude adequate disclosure, he -hould insist... upon appre

priate revision... ~ (enplinsi~ ached),

We do not think this means. in terms ef profesional

standards, that the accountant may shut bis eyes in reek

less disregard of his knewbedee that bichly sae) teiens

figures, known to him to he suspicions, were bein ine uded

in the unandited earnings ficures with whieh le wos “ne

sociated” in the proxy statennent,

The auditor's duty ix net as restricted as apyeelhunts

urge where, as here, the auditors, rather thom the comenainy,

controlled the figures, as is evidenerd by Nantel dis reject ton

of the Pontiae contract as one he week not geeeget fer thee

subseqient audited finaneial statement for Te ae dots

the errencous figures had pres tensty been eect Ata te

firm. @'f. Piseher wo Wlets. sera “iti Fo Spee at Pes. ds

CSNY, 1067). We reject the argument of Sy ctor eetpers

as to Natelli, whe eould have pevlnetend cout thee erreer cof Tyee

previous eerl ication aed ehedi’s pills ly forthe | te chee

funetion beta Viesited te detemeciimg Nae * hye the

was suffietent for weptoven) <= leone fee thee jaw, FO, .

ame = . er.

Sino, sapere, VW Rete at et Wa bieelel that ' \

discuss the objections te the el ore helew,

There are polot in faver eft Nati, tue be

these Were presented: te tye jary aed pepeeted 1

penebopefeed, wothe theta eeetter sate ‘is

PPoonet ine coonertenttomemt Cw ithe cebestitution af thie Blas

tract); bis licens <tom of the Peotmete woth les sty

Loon Guki.s withent fall ch cNewttre foe OMKies of hho

evant factors): his ineistenee on diss mento oat tle

fort hotter (Sou tote i) thereat bis farhure te bins lene

brane post w rite offs of Marketing re-alting rh) fee pele

eas , ‘ ‘ “

1S or tine rereotet tes cof PEMth)

[ees ——_

TE

18d

Scvansaroli—Suficiency of Evidence

The cluim of Seansaroli with respeet to insufficiency of

the evidenee is somewhat more diffieunlt. As Judge Tyler

neted after both sides had rested, “It is a close question,

I think frankly as to Seansaroli, as I see it. Certainly if I

were the factfinder, I would be more troubled with his case

for a variety of reasons.”

Scansaroli contends that there was insufficient evidence

to prove heyond a reasonable doubt that (1) he participated

in a criminal act with respeet to the footnote or (2) that

he taade an secounting judgment permitting Marketing to

include in sales certain contracts-in-progress with the req-

nisite eriminal intent. We hold that there was cnongh

evidence to establizh the former, but not the latter. For

reasons relating to the form of the charge, we will reverse

and remand for a new trial,

A. The Footnote

The essence of Sean-vroli’s argument on his conviction

with respect to the false footnote is that he was really

convicted fer hix conduct during the 1968 audit, for which

he was not indicted, This misses the thrust of the Gov-

ermment’s cliim. The unjustifiable manner of treating the

unbiiled commitments in the 1968 andit here upon the il-

leva! wets connected with the 1969 proxy statement in two

ways: (a) it created a motive to conceal the accounting

errors made in the 1968 andit; and (b) the 1968 andited

-tatement was part of the 1969 proxy statement and was

not disclosed therein to have been wrong in the light of

the subseqrent known write-offs. In view of the estab-

lished motive to coneeal, the jury could properly fine, as

we have seen, that both the netting of the tax eredit against

earnings and the subsequent <ubtracting of the write-offs

from the pooled carnings ‘n the footnote without further

explanation were dene ‘in order toe coneval the true ret roae-

tive deerease in the Marketing earnings for fixeal 1968.

There is some merit to Scan<aroli’s point that he was

simply carrying out the judgments of his superior Natetli.

The defense of obedience to higher authority has always

been troublesome. There ix no sire yardstick to measure

criminal responsibility exeept by measurement of the

degree of awareness on the part of a defendant that he

is participating in a criminal act, in the ab-ence of phys.

ical coercion such ax a -oldier might face. Mere the moti-

vation to conceal unlormines S-ansaroli’s argument that

he was merely implementing Netelli's instructions, at least

with respect to coneeshwont of matters that wer with.n

his own ken.

We think the jury could properly have found him «nilty

on the <pecification relating ty the footnote, Scan-areli

himself wrote the joucnal entry in Marketing's hook< which

improperly netted the tay eredit with earnings, the trae

effect never being pointed ont in ihe financial statement.

This, with the backgrown! of Seansareli’s implication in

preparation of the T2GS stetcment, corld be found to have

heen motivated by intent te coscer! the T1968 everstat ment

of carnings.

Sean<aroli participated in the decision to subtract in the

proxy statement footnete S€75.000 of written-off Market.

ing sales from the Caures for leter-nequired poo. com-

panies instend of from its own figures, withont further

disclosure. Even if Sean-areli did not write the footnote,

he supplied the misleading computations and subtroections

though he was conscious of the true facts.

B. The Eastern Commitment

Having concluded that there was sufficient evidence to

conviet beth appellants on the footnote specification, we

turn to the nine-months earnings statement which, in turn,

included two items, the Eastern contract and the doubtful

conmmitments discovered by Oberlander. We put aside the

decision to ignere Oherlander’s questioning of certain com-

mitments on the ground that, if it steed alone, the evidence

would have been too equiveeal to support proof beyond

a reasonable doubt that this was not a mere error of

judement.

With respect to the major item, the Eastern commit-

ment. we think Seansareli stands in a position different

from that of Natelli. Natelli was his superior. He was the

man to make the judement whether er not te object to the

lastaninute inclusion of a new “commitment” in the nine-

month statement. There is insufficient evidence that Sean-

saroeli engaged in any conversations about the Fastern

commitment at the Pandick Press or that he was a partici-

pant with Natclli in any check on its authenticity. Since

in the hierarchy of the accounting firm it was not his

responsibility te decide whether te hook the Eastern con-

tract. his mere adjustment of the figures to reflect it under

orde.s Was net a matter for his discretion. As we have

seen, Natelli hore a duty in the cireumstanees to be suspi-

cious of the Eastern commitment and to pursue the matter

further. Seansareli may also have been suspicions, but

rejection of the Eastern contraet was not within his sphere

of responsibility. Absent such duty, he cannot he held to

have acted in reckless disregard of the facts.

III

Appellants contend that the trial court erroneously

instructed the jury on the issue of knowledge. We do not

agree.

21d

The thrust of appellant’s argument, as we understand

it, is that the judge charged that each appellant could be

convicted “if [his] failure to discover the falsity of [Mar-

keting’s] financial statements was the result of some form

of gross negligence.” We do not read the charge that

way. It followed the charge of Judge Mansfield which

was sustained in United States v. Simon, supra.’

It was a balanced charge which made it clear that negli-

gence or mistake would be insufficient to constitute guilty

knowledge. See Cuited States v. Bright, F.2d .

Slip Op. 3625 (2 Cir, May 21, 1975). Judge Tyler also

carefully instructed the jury that “goed faith, an honest

belief in the truth of the data set forth in the footnote

and entries in the proxy statement would constitute a

complete defense here.” On the other hand, “Congress

equally could not have intended that men helding them-

selves out as members of these ancient professions [law

and accounting) should be able to escape criminal liabil-

ity on a plea of ignorance when they have shut their eyes

9 Judge Trler charged. in pertinent port, as follows:

“While T have «tated that necligence or mistake do not constitut:

guilty knewkhdive or mitent, nevertheless, ladies amd genthrmen, ven

are entitled te con-ider in determining whether a defemlant o ted

with seh intent if he @eiiherstely closed bis eves te the el view:

or to the facts that certainly would be eleerved of ascertained in

the course of his accounting work eo: whether he reck’es-ly stated

as facts matters of which he knew he was ignerant,

If vou find such reckless deliberate indifference to or disregard

for troth of falsity on the part of a given defendant, the lew

entithd vou te infer te iu from that that defreolant wilfully and

knowingly filed ar enused te be filed false finwncial informotion of

a material nature with the SEC.

Rut such an infercnee, of course, must depend upon the vei tet

and credibility extended te the evidence of reckless ond indifferent,

comluct, if any.

I repeat: Ordinary or simple negligence oF mistake alone weuld

he insufficient to sappert a filing ef guilty Knewledee on wilted

ness or intent.”

zs

22d

to what was plainly to be seen or have represented a

knowledge they knew they did not possess.” United States

v. Benjamin, 328 F.2d 854, 863 (2 Cir.) cert. denied, sub

nom. Howard v. United States, 377 U.S. 953 (1964); and

see United States v. Brawer, 482 F.2d 117, 128-29 (2 Cir.

1973).

One of the bases for attack on the charge is that in

charging “reckless disregard for the truth or falsity” or

“closing his eyes,” there must also be an instruction like

“and with a conscious purpose to avoid learning the

truth.”

It is true that we have favored this charge in false

statement cases, (‘nited States v. Sarrautos, 455 F.2d 877,

880-82 (2 Cir. 1972), while noting that both phrases “mean

essentially the same thing,” id. at 882; and in cases in-

volving knowledge that goods were stolen, United States

v. Brawer, supra, 482 F.2d at 128-29 (2 Cir. 1972); United

States v. Jacobs, 475 F.2d 270, 287 (2 Cir.), cert. denied,

414 U.S. 821 (1973). The dual instruction is not necessar-

ily required, however, when the defendant is under a spe-

cifie duty to discover the true facts, the facts tendered

are suspect, and he does nothing to correct them. In

United States v. Benjamin, supra, 328 F.2d at 862, this

court said, regarding an accountant, that “the Govern-

ment can meet its burden by proving that a defendant

deliberately closed his eyes to facts he had a duty to see.”

And United States v. Simon, supra, which affirmed the

conviction of an accountant, as we have scen, sustained

a charge in the very language Judge Tyler tracked.

While the facts in each case are not precisely the same,

we think this appeal quite analogous to Simon, supra, be-

cause Natelli was suspicions enough of the Fastern con-

tract to check it with Kelly, the account executive in house,

but not to take the next step of seeking verification from

23d

Eastern, despite his obvious doubt that it could he booked

as a true commitment. And with respect to the footnote,

we think the language of this court in Simon to he quite

pertinent, “The jury could reasonably have wonderod tio

accountants who were really seeking to tell the truth

could have constructed a footnete se well designed to con

eval the shocking facts.” 425 F.2d at Sso7.

Appellants argue strenuously, however, that (. 8. y,

Simon, supra, involved an audited statement while the pone

months statement here involved was an unaudited state:

ment, and, that hence, the dutics of appollants here wore

different from those enunciated in Siwen, They urge as

a corollary that the District Court failed te instruct the

jury on the difference, and that his failure to do so was

reversible error,

It is true that the point on appeal mieht heave leon

eliminated if the judge bad charged on the dithercmess in

the abstract. But in the eireunistanees te was not peatne:

to do so, As we have Seen, supra, Point To the dats of

Natelli, given this set of facts, was not se dideront fron

the duty of an acconntant pon an wmdit as to penuin

sharply different treatment of that duty in the charge te

the jury.

We agree with Judge ‘Tyler when he charged the fur:

that they could find Natelli "knew" of the falsely meteria!

fact if he veted in. “reckless disregard” or deliheratels

closed his eves to the obvious. The issne on this appent

ix not what an anditer is a were! under a duty te de

with respect to an unaudited statement, but what these

defendants had a duty te de in these waasmal and toahty

suspicions circumstances, CT Caited States vo Soars

pra, 425 F.2d at 806-07, Nor was a proper charge

quested,

24d

The duly requested supplemental charge on Natelli’s

duty with respect to the unaudited earnings statement was

properly denied. It read:

“The defendants’ only responsibility as to this

statement [unaudited statement of earnings for the

nine months ended May 31, 1969] was to be satisfied

that, as far as they knew, the statement contained

no misstatement of material facts.” (emphasis added).

This requested charge was not correct, for even on an

unandited statement with which Natelli was “associated”

und where there were suspicious circumstances, his duty

went further, as we have seen, As the Court correctly

charged, Natelli was culpable if he acted in “reckless dis-

regard” of the facts or if he “deliberately closed his eyes.”

We expound no rule, to be sure, that an accountant in

reviewing an unaudited company statement is bound, with-

out more, to seck verification and to apply auditing pro-

cedures, We lay no extra burden on the normal activities

of accountants, nor do we assume the role of an Account-

ing Principles Board. We deal only with such deviations

as fairly come within the common understanding of dis-

honest conduct which jurors bring into the hox as applied

to the particular conduct prohibited by the particular

statute,

It was not for Judge Tyler in his instructions to deal

with the abstract question of an accountant’s responsibility

for unaudited statements, for that was not the issue. So

long as we find that the Judge explieated the proper test

applicable to the facts of this ease, the duty inherent in

the circumstances, and we do, we must also find that ‘he

gave the appellants a fair charge.

25d

IV

The Charge on “Unanimity”

The trial judge charged as follows:

“Now, I instruct you that if you find that the proxy

statement was false in cither one of these two re-

spects that is sufficient to support a conviction.”

As we have seen, there were two specifications of falsity

in Count II, namely, the footnote and the earnings state-

ment. The defense requested that the court advise the

jury that in order to convict, they must be unanimous

on which, if either, of the two specifications had heen

proven materially false beyond a reasonable doubt.” This

request was refused, and the court did not charge ace-

cordingly.

Appellants now contend that the charge wiven left the

jury free to convict if only six of them believed the proxy

statement to be materially false in one respect but the

other six believed the proxy statement to be materially

false in the other respect. Appellants conclude that even if

the evidence was sufficient to warrant the submission of

each of the allegedly false statements to the jury, the con-

viction still cannot stand, sinee it cannot be determined

whether the jury did in faci unanimonsly agree on a single

specification of falsity. Appellants cite no authority «i-

rectly in point. The government cites no direct authority

in this cirenit, but cites two eases in the Ninth Cireuit,

Uwited States v. Friedman, 445 F.2d 1076, 1085-84, cert.

dAcnicd. sub nom. United States v. Jacobs, 404 U.S. 8

(1971) and Vitello v. United States, supra, 425 F.2d at

$22.93. as directly in point. Tlowever, these cases are

distinguishable.

10 This was not a request for a spevial verdict. Cf. United States v.

Spock, 416 F.2d 165, 150-85 (1 Cir, 1969); and see U.S. ¥. Adcock, 447

F.2d 1187 (2 Cir. 1971).

EE Se

—__ Eee ee eee Te

_ LEE a 8 ee

26d

In Frivdman, the indictment alleged a conspiracy to

Violate several substantive statutes. The jury found ap-

pellants guilty of the conspiracy and of acts charged in

particular substantive counts, thus indicating which vio-

lations in the conspiracy count the jury had found unan-

imously.

litvllo turned largely on the failure of counsel to ob-

ject at trial. The court noted, however, that it would have

had to follow Yates v. United States, 354 U.S. 298, 311-12

(157) if “there was insufficient evidence to be submitted

to the jury on any one or more of the specifications of

falsity’, 425 F.2d at 419.

The charge given by Judge Tyler is a charge generally

siven in this cireuit. It is assumed that a general instrue-

tion on the requirement of unanimity suffices to instruct

the jury that they must be unanimous on whatever spe-

cifientions they find to be the predicate of the guilty ver-

dict. We do not say it would be wrong for a trial judge

to zive the charge requested, but it is not error to refuse

it." And we do not change that rule.

The court properly charged that the jury needed only

te find a defendant guilty on either of the two specifica-

tions in order to conviet. Inasmuch as the evidence was

~uflicient to support Natelli’s conviction on either specifi-

eI Tn reaching this result, we believe that we are following (nited States

v. Rem vaten, 191 Pld 246, 250 (2 Cir. 1951) (L. Mand, A. Hand &

Svan, J/.). There the defendant was convicted of perjury in falsely

testifving lefere the Grand Jury that he had never been a member of

the Communist Party. He had requested a charge that “all jurors must 7

he convineed that the accused was a member of the Party ‘at a par.

tievlar time and place, and if some thought he was at one time only

uml some another, they could not convict him.” Judge Swan agreed that

“that request was right and should be given if there is a new trial”

hut he refused to label it reversitle error to refuse the charge “since

the substance of it was probably covered, thongh not so explicitly, by

the charge that the jury must be unanimous.”

27d

cation, the charge given presents no preblem to afirmance

as to him.

A difficulty does arise, however, if it is found as a mat-

ter of law that there should have been a directed verdict

for a defendant on one of the specifications for imsufli-

ciency of evidence. The verdict then becomes ambircuous,

for the jury could have rejected the specification which

the appellate court holds sufficiently proved, and have

convicted orly on the specification held to he insufficiently

proved, In that event, there seens to he no alternative to

remand for a new trial, That is the general principle.

Yates v. United States, supra; Stromberg xv, California,

=} U.S. ei), oe OS (1951). See United States Vx Jac obs,

supra, 475 Fold at 283 amd ceases cited therem,

It ix true, of course, that sometimes, as in eonspiraey

to violate two different substantive statutes, the same

evidence may suppert conviction of conspiracy to violate

either or both. Sce e.g. Jacehs, supra, 470 Fld at 285-84.

When there is more than ene svecifieation as a pred-

ieate for guilt, each dependent on particular evidence

which is vurelated te the other, it would be sewnd prae-

tice to instruet the jury that they miuet be unanimous on

2 particular specification to ecuviet. Since that was net

dene here and since we hase fenmd that Seansareli wa.

not culpable on the eornimes stetement speeifeation, the

essence of whieh was the ivelasion of the Mastern com

mitment, We must reverse bis convic.ion and remand for

trial on the footnete spectiiention alone, We realize that

we are reversing a conviction invelvine only 10 days of

jail time. Whether it is ievoriant enome: for the United

States to retry him in the civeanuietanees is a motter for

decision by the United States Attorney on which we

eannot pass judement.

28d

\

Appellants contend that Count IT of the indictment

should be dismissed for lack of proper venue. Prior to

trial, appellants had jointly moved to dismiss Count IT on

the ground that proper venue lay only where the proxy

statement had been filed with the Securities and Exchange

Commission, the Distriet of Columbia, The trial court de-

nied the motion. We must consider the issue with the

recognition that venue in eriminal cases may raise “deep

issues of publie policy’. See United States v. Johnson,

m2 US, 273, 276 (1944).

Section 27 of the Securities Exchange Act, 15 U.S.C.

'7Saa, provides that eriminal proeeedings for violations of

the Act are to be brought in a distriet where “any act or

transaction constituting the violation oceurred.” Appel-

lints contend that the only critical act here was the filing

of the proxy statement containing the false statements in

the District of Columbia where it was delivered to the

(‘ommission, which is also where appellants’ and Market-

ines principal offices were, The government contends that

there is venue for a charge of violation of section 32 of

the 1934 Aet, 15 U.S.C. 6 78ff,"* in the Southern District of

New York as well. The government asserts that it has

proved that the false footnote and the false nine months

earnings statement were prepared in Manhattan, and that

this suffices.”

In denying the pre-trial motion, the District Court held

that the ¢ravemen of the violation under Section 32 was

the making of the false statement, not the filing, the words

of the statute “reqnired to he filed” merely describing a

category of documents rather than the essence of the of-

12 See note 1, supra.

13 Appellants do not seriously contend that there was no preparation

in the Southern District as a matter of fact.

29d

fense. The government, in support, notes the general venne

provision for continuing offenses."*

Appellants retort that Section 27 of the 1934 Act stands

apart from the continuing offense statute, arguing that

it comes within the exception used when Congress has

specifically provided for alternate venue, Appellants find

support in Traris v. United States, 564 U.S. 631 (1961)

which held that the proper venue for an offense under 18

U.S.C. £ 1001, the False Statements Act, was not the dis-

trict in which the false statement was made, but only the

district where the affidavit had to be filed, the District of

(Columbia. The rationale of the decision, as we read it,

was that section 1001 proscribes false statements “in any

matters within the jurisdiction of any department or ageney

of the United States” and that the National Labor Rela-

tions Board had no such “juri-cdiction” under Section 0(h)

of the National Labor Relations Act as amended,’® until

the non-Communist affidavit required by the statute as a

precondition to N.L.R.B. investigation was actually filed

in Washington, D.C."*

The majority opinion in Traris was careful to note that

“(t}he decisions are discrete, each looking to the nature

of the erime charged.” 364 U.S. at 635. And this court has

i4 IS VS.C, 6 3237(a) reads:

(a) Except as otherwise expressly provided by enactment of Con-

gress, any offense against the United States begun in one district

and completed in another, or committed in more than one district,

may le inquired of and pres ceuted in any distriet in which such

offense was begun, cominued. or completed,

15 GD Stat. 126, 146, amended, 6 164), 65 Stat. 691, GO2, repeated, 6 20)

(4d) of the Labor Management Reporting and Disclosure Act of 1059,

73 Stat. 519, 525.

16 If the “jurisdiction of the aceney” exists where the false statement

is made, however, the continuing offense statute is applicable to venne

even in section 1001 eases, United States ¥. Candcla, 487 P.2d 1223

(2 Cin, 17S), ect, domed, AG US. 977 (1974).

30d

annotated Travis by stating that “the decision surely was

meant to be coufined to the faets based on the unusual stat-

ute involved.” See United States v. Slutsky, 487 F.2d 832,

S30 us (2 Cir. 1973), cert. denied, 416 U.S. 937 (1974).

Nec also Uuited States v. Ruehrup, 333 F.2d 641, 643 (7

Cir.), cert, denied, 379 U.S. 903 (1964); Imperial Meat Co,

v. Uuited States, 316 F.2d 435, 440 (10 Cir.), cert. denied,

S70 ULS. S20 (1968).

Appellant secks to come within the Travis holding by

arguing that just as in Travis where the filing of the non-

Comuunnist affidavit was simply a prerequisite to future

conduct, resort to NLRB processes, so the filing of a proxy

~tatement is merely the prerequisite to future conduet, the

solicitation of proxies, The argument is unsound,

In Travis, the labor board had no jurisdiction to make

an investigation of labor practices “unless there is on file

with the Board” a non-Communist affidavit. Here the

filing of the proxy statement is part of the continuous

process of the solicitation of proxies. Proxy statements are

filed only at such time as the persons filing require proxies

for some corporate purpose."’ The filing and solicitations

are part of the same process. We hold that there was venue

in the Southern Distriet of New York.

We have considered the other arguments raised by ap-

pellants and find them without merit. Judgment affirmed

as to appellant Natelli; as to appellant Seansaroli judg-

ment reversed and remanded for a new trial.

7 We may note, that paradoxically, in most eases arising under the 1934

Act. the defendants would presumably contend that they wished to be

tried in their home distriets rather than in the District of Columbia.

Here the appellants happen to live and work in the District of Columbia

and have heen tried elsewhere, a rather unusual situation.

UNITED STATS COURT OF APPEALS

For trr Sxcoxp Cinevir

—

Nos. 1085 & 10°C—“ontember Term, 1974.

(Decide “inser C, 2975.

Docket Nov, “7-2004, 77-29

Uwnirep Se vere or Ayvrr'ra,

Appellee,

v.

Astnoxy M. Nateunr ord Joss Scansarez,

“ee endentis./ rvellants.

Before:

Mays, Meiurcan and Crreery,

Cirewit Judges.

+o o-

Ow Prririon ron rveantne ny Usrrrp States

on

Guurrin, Circuit Judge:

The United States petit'ons for re*enring of that nor-

tion of our decision, filed ov'y 28, 1975, © 'n op. 5105, wien

reversed the conviction «" Seansaro’: and remancec for

a new trial as to him.

Natelli an’ Seansaro’: were tried and convictec on a

sing'e coun’ of wilful’y mn'ting and causing to »¢ made

“alse and m's'encing winter's! statements in a nroxr *iate-

| = _ ee -

om - = -

2e

ment. The single count specified two false statements: the

“footnote” and the “nine-mont!:s earnings statement.” This

court found sufficient evidence on each specification to sus-

tain Natelli’s conviction but held as to Seansaroli that

there was insufficient evicence to go to the jury on the

second specification. Or tat basis, we concluded that as

to Seansaroli the jury m'eht have convicted only on the

spevifieation held to be insnieiently proved. Slip op. at

5191. We accordingly remanded for a new trial.

The government cals our attention to cases in tis

cireuit whieh heve helc that a general motion to dismcs

a count with several specifications is insufficient to pre-

serve on anpen’ the po.nt that where one of the speci *es-

tions is insu™c‘ently proved the conviction on the ent're

count must '« reversed. These cases hold that, to preserve

the point on apnea!, a epecifie motion must be made ir

the trial court to withdraw the particular specification

from jury consiceration. United States v. Maseuch, 111

F.2d 602, GOS (2 Cir.), cert. denied, 311 U.S. 650 (1940):

United States v. Goldstein, 168 F.2d 666, 671 (2 Cir. 1948).

No separate motion was made by Seansaroli to withdraw

the earnings statement enecification from consideration by

the jury. TTe Cid move to strike evidence concerning the

Eastern Airlines affair and also asked for an instruction

that the jury had to be unanimous on cach specification,

but he did not move to dismiss the specification for in-

sufciency. The failure to move may have ben dictated by

tactical considerations on the theory of his able counsel

that it is easier to attack a weak snecifcation in the hone

of spillover to the stronger one. Re ‘hat as it may, we

“ee! bound to follow the J/asewch-Goldstein rule, particu-

larly in view of its eminent sutbors’:».

Accordingly, we are consirs'secd te grant the govern-

ment’s vetition for rebecrina, and, apes rehearing, we

3e

withdraw our former determination and afirm the convie-

tion of Seansaroli as wel! a< Natelli,

We might suggest that in view of the turn Seansaro!:’s

ease has taken and the s':ort sentence he reecived from

Judge Tyler, the District “udee who inherits the ense

ought exreful!y ‘o consider 1 Rule 35 application to s::s-

pend the 10 cays of jai! time imposed.

If

APPENDIX F

UNITED STATES COURT OF APPEALS

For tHe Secoxp Circuit

soo

Nos, 1035 & 1036—September Term, 1975.

(Decided December 4, 1975.)

Docket Nos. 75-1004, 75-1008

soo

Unitrep States or AMERICA,

Appellee,

Vv.

Awtuoxy M. Nateco and Joserpn Scansarout,

Defendants- Appellants.

oo

Before:

Ilays, Muuiiman and Gurerery,

Circuit Judges.

~oo

On SCANSAROLI’s Petition for Rehearing

toe

Greereiw, Circuit Judge:

This matter comes before the panel again on Scansaroli’s

petition for rehearing pursuant to our grant of permission.

(i the original appeal we had reversed appellant’s con-

viction and remanded for a new trial."

The single count charging violation of 15 U.S.C. § 78ff(a)

upon which he was convicted involved the making of a

1 This opinion assumes knowledge of our original opinion, —— F 2d

—, Slip Op. 5165 (July 28, 1975).

2f

false proxy statement which specified two false items

therein: the “footnote” and the “nine-months earnings

statement.” We held that there was insufficient evidence

to convict Sean-aroli on the latter specification. See main

opinion, Docket Nos. 75-1004, 75-1008, slip op. 5165, 5184,

decided July 28, 1975.

We then granted a rehearing on the government's peti-

tion ane held that under an old doctrine in this cireuit we

were constrained to decide that the failure of appellant

-pecifically to ask the trial court to withdraw one of two

specifications in a single count on the ground that it was

insufliciently proved preelnded appellate consideration.

Ly ted States ¥. Mascuch, 111 F.2d 602, GOS (2 Cir.), cert.

denied, DVL US. G50 (1940): LT nited States vy. Goldstem,

168 F.2d 666, 671 (2 Cir. 1948).

We accordingly reversed ourselves on the decision to

vrant a new trial to Seansaroli. We now withdraw our

opinion on rehearing and reconsider this difficult question

of appealability de novo,

We start with the proposition that there are many

criminal cases where the failure to object has resulted in

affirmance under Rule 30 as applied in Rule 52(a). Ap-

pellant’s rather strident cries that our decision against

him is unprecedented is hardly impressive. Many convie-

tions are denied appellate review for failure to call the

alleged error to the attention of the trial court so as to

enable it to consider correction before verdict. Otherwise

appellate review would become a game of hindsight.

I

We recognize, nevertheless, that even under the Mascuch-

Goldstein line of eases, a proper request to the trial court

won'd save the point. See, ¢.4., United States vy. Adcock,

$47 F.2d 1227. 1238-29 (2 Cir.). cert. denied, 404 U.S. 939

3f

(1971);° United States vy, Pollak, 474 F.2d 828 (2 Cir.

1973). And see also Warszower v. United States, 312 U.S.

342, 345 (1941). As we indicated in our original opinion,

that is heeause Yates vy. United States, 354 U.S. 298, 311-12

(1957),' and Stromberg vy. California, 283 U.S. 359, 367-68

(1931), can be read as covering the situation where a jury

may have convicted on the very specification which is

insufficiently proved to make out an offense.

That is true, especially, when the specifications in the

single eount relate to two distinet incidents or fact pat-

terns, see United States vy. Gulerma, 281 F.2d 742, 747

(2 Cir.), cert. denied, 364 U.S. 871 (1960), rather than

heing merely « charge of alternate ways of violating a

statute stated in the conjunctive. Cf. United States v.

Astolas, 487 F.2d 275, 280 (2 Cir. 1973), cert. denied, 416

U.S. 955 (1974).

Assuming, ax we have already in our original opinion,

that reversal of the conviction of Scansaroli is required

if counsel aclequately raised the point helow, we turn to

the question of how mach must be done by defense counse!|

to protect the record.

———_—

2 In Adcock, we reversed a conviction which charged the making of a

false statement in violation of 18 U.S.C. 61001 where the count ulti

mately reversed contained three assignments of falsity, two of whieh

were sufficiently supported bw the evidence. The government conceded

on appeal that a proper motion te strike had been made pursuant te

the Mascuch Goldstein rule, but argued that appellant should, in addi

tion, have moved for a special verdiet. We held in Adcock that a special

verdiet would have Leen improper and hence a motion for such a verdict

was unnecessary.

3 There the defendant had moved to strike from the record or exclude

from the consideration of the jury each of the four alleged false

statements.

4 In Yates it is not clear what protective measures appellant had taken

helow, The Cort of Appeals hod noted that many motions had heen

made. 225 F.2d 146, 149 (9 Cir. 1955).

4f

II

The Federal Rules of Criminal Proeedure cast no light

on the matter. Rule 29(a) simply provides for a motion

for judgment of aequittal “of one or more offenses charged

in the indictment or information after the evidence on

vither side is closed if the evidence is insufficient to sustain

a conviction of such offense or offenses.” No provision is

nade for a motion to withdraw one of two specifications

in a single count on the ground of insufficiency. There

may be an implication in Rule 30 that the failure to ob-

ject toa particular specification is fatal heeanse it amounts

to a failure to object to an “omission” from the charge.

but that is net elear. Finally, there is nothing in Rule

S2(b) that tells us that the failure of the trial court to

withdraw the particular specification without request is

“plain error.”

Il

We must also consider the matter in practical terms,

not only from the point of view of the particular defen.

dant, but alse in consideration of the requirements of the

criminal justice process, Rule 7(¢)(1) provides that “[i]t

may be alleged in a single count that... he [the defen.

dant] committed it [the offense] by one or more specified

means.” The government treats the separate incidents of

“the footnote” and the “nine-months statement” as speei-

fied means for committing the single crime. See original

opinion, slip op. at 5167-69. And no one doubts that for

pleading purposes the prosecution is right.

The government has argued from this that if our eric’

nal ruling stands, it would compel the government in anv

false statement case, simply out of cantion, to allege each

incident constituting the “means” of committing the of

fense in a xe prrate count or risk the reversal of a convie-

Sf

tion based on afterthoughts on appellate review. We be-

lieve that this might be the better practice in cases like

this where the incident charged as in violation of a stat.

ute are discrete, On the other hand, when that is not done,

appellate review is not generally available when the par-

ticular insufficiency has not in some way been called to

the attention of the trial judge. We do not believe that

Yates, supra, in spite of its broad language, dictates a

contrary result. Cf. Turner v. United States, 396 U.S. 398,

420 & n. 42 (1970).

What prompts our present consideration of Seansaroli’s

petition for rehearing is his argument that he did make

it sufficiently clear to the trial judge that he wanted a

judgment of acquittal or some equivalent on the “nine-

months earnings statement” specification. On reconsidera-

tion, we agree that the arguments of counsel for Scansa-

roli with respect to the sufficiency of the evidence, his

motion to strike the evidence relating to the Eastern com-

mitment (an essential part of the “nine-months earnings

statement” specification) and the co-defendant’s specific

iootion to withdraw the specification on the nine-months

earnings statement make this a close question.’ Cf. United

States v. Lefkowitr, 284 F.2d 310, 313 ni (2 Cir. 1960).

Ax the Supreme Court has recently intimated in Ander-

sow Vv. Uvited States, 417 U.S. 211, 223 n.12 (1974), we

may, in our diseretion, consider a “sufficiency-of-the-

evidence claim” even though the question arose below

“only with resneet to the admissibility of [certain] testi-

mony.” While Auderson also involved the question of

whether the partienlar statute was wnaconstifutionally

vague, and all the eases cited by Mr. Justice Marshall

5 We reeagnize that we cannot find fault with the distinguished District

Judge. Mareld Tyler, for not recognizing the various motions as a single

request. We treat them, however, as sutficient to permit review in the

interests of justice.

of

involved similar constitutional questions, we have con-

cluded that we have sufficient discretion to adopt the rea-

soning in Anderson on this appeal.

Accordingly, we do not purport to lay down a firm rule

to govern the precise action required below for appeal-

ability where a single count contains more than one speci-

fication. Indeed, we could hardly do so without the em-

panneling of an en bane court. We decide simply, on

further consideration, that appellant in this case did

enough below to satisfy the spirit of the Mascuch-Goldstein

rule. We accordingly withdraw our opinion on the gov-

ernment’s petition and reinstate our original opinion as

to Seansaroli in all respects. Cf. United States v. Love.

472 F.2d 490, 496. (5 Cir. 1973). ,

lg

APPENDIX G

1. Section 32(a) of the Securities Exchange Act of

1934. 1S U.S.C. $7811. provides in pertinent part:

(a) Any person who... willfully and knowingly

makes. or causes to be made. any statement in any

application, report. or document required to be

filed under this chapter...which statement was

false or misleading with respect to any material

fact. shall upon conviction be fined not more than

$10,000. or imprisoned not more than two years,

or both, except that when such person is an

exchange. a fine not exceeding $500,000 may be

imposed: but no person shall be subject to

imprisonment under this section for the violation

of any rule or regulation if he proves that he had

no knowledge of such rule or regulation.

> Section 2255 of Tithk 28 of the United States Code

provides in pertinent part:

A prisoner in custody under sentence of a court

established by Act of Congress claiming the right

to be released upon the ground that the sentence

wus imposed in violation of the Constitution or

laws of the United States, or that the court was

without jurisdiction to impose such sentence, or

that the sentence was in excess of the maximum

authorized by law. or is otherwise subject to

collateral attack. may move the court which

imposed the sentence to vacate, set aside or

correct the sentence.

A motion for such relief may be made at any

time.

Unless the motion and the files and records of

the case conclusively show that the prisoner ts

entitked to no relief. the court shall cause notice

thereof to be served upon the United States

attorney, grant a prompt hearing thereon, deter-

mine the issues and make findings of fact and

2g

conclusions of law with respect thereto. If the

court finds that the judgment was rendered

without jurisdiction, or that the sentence imposed

was not authorized by law or otherwise open to

collateral attack, or that there has been such a

denial or infringement of the constitutional rights

of the prisoner as to render the judgment

vulnerable to collateral attack. the court shall

vacate and set the judgment aside and shall

discharge the prisoner or resentence him or grant a

new trial or correct the sentence as may appear

appropriate.

* a *

An appeal may be taken to the court of appeals

from the ordef entered on the motion as from a

final judgment on application for a writ of habeas

corpus.

* o *