# Petition — Natelli v. United States > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_1778%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Petition - **Published:** January 1, 1977 - **Citation:** 434 U.S. 819 ## Text 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 EEO ee Washington, D.C. © CLE PUBLISHERS’ © LAW PRINTING CO. » (202) 393-0625 =. 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 “ee © ®e *@eeeeee eeeeee* * “ee eoeweeeeneee e#eeeeeeee #£ *# # * @ “ee ee eevee e#eeeeee *# ee eee ese *# © © * *@ “eee ee eee eeeeee © *# @ * “ee eee eeeeeeeee # * Ns ee ee eee a ie we (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 Seco Cireuit, hold at the United Siates Courthouse in the City of New York, a ne 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 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 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 * --- Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385004_1778%3A1. Public record. Not legal advice.