Appendix — Weiner v. United States

— Court, Uf

FILED

AUG 25 i978

IN THF

MICRAEL ROBAK, JRCLERK J

SUPREME COURT OF THE UNITED ; al

October Term, 1978

No. 78=284

MARVIN A. LICHTIG,

Petitioner,

vs.

UNITED STATES OF AMERICA,

Responcent.

APPENDIX TO PETITION FOR

WRIT OF CERTIORARI

TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

LAW OFFICES OF RICHARD A. DeSANTIS

RICHARD A. DeSANTIS

Attorneys for Petitioner

MARVIN A. LICHTIG

1901 Avenue of The Stars

Suite 790

Los Angeles, California 90067

Uf

pie : ak

IN THE

SUPREME COURT OF THE UNITED STATES

October Term, 1978

No. 78-284

MARVIN LICHTIG,

Petitioner,

vs.

UNITED STATES OF AMERICA,

Respondent.

APPENDIX TO PETITION FOR

WRIT OF CERTIORARI

TO THE

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

LAW OFFICES OF RICHARD A. DeSANTIS

RICHARD A. DeSANTIS

Attorneys for Petitioner

MARVIN A. LICHTIG

1901 Avenue of the Stars

Suite 700

_Los Angeles, California 90067

INDEX TO APPENDICES

APPENDIX A

APPENDIX B

Opinion of United States

Court of Appeals for the

Ninth Circuit, filed

May 15, 1978

Order of the Ninth Circuit

denying the Petition for

Rehearing En Banc, filed

July 21, 1978

i Dnt emgat nesoed ene

UNITED STATES COURT OF APPEALS

FOR THE NINTH DISTRICT

FILED

MAY 15, 1978

EMIL E. MELFI, UR.

CLERK, U.S. COURT

OF APPEALS

UNITED STATES OF AMERICA, )

NO.

Appellee, yeni

Vv. )

JULIAN S. H. WEINER, MARVIN ?

AL LICHTIG; AND SOLOMON Bock,"

Appellants. )

Appeal from the United States

District Court for the Central District

of California

Before: CHOY and GOODWIN, Circuit

Judges, and THOMPSON,* District Judge.

PER CURIAM: **

*The Honorable Bruce R. Thompson, United

States District Judge for the District

of Nevada, sitting by designation

**Al1 three members of the panel shared

equally in the writing of this decision.

i Julian Weiner, Marvin Lichtig, and

Solomon Block appeal their respective

convictions for securities fraud aris-

ing out of their employment as auditors

of Equity Funding Corporation of America

(Equity Funding) during the time cover-

ed by the indictment.

Equity Funding was incorporated in

1960 to sell life insurance, mutual

funds, and "equity funding" programs.

Thejcompany operated legitimately and

profitably until 1964, when, the govern-

ment proved, it began to publish in-

accurate and false financial statements.

Equity Funding was accused of massive

fraud in overstating its income and

claiming nonexistent assets in order to

‘increase the market value of its stock.

Wolfson, Weiner, Ratoff, and Lapin

were the independent public accountants

for Equity Funding from 1961 until 1971.

In early 1972, the Los Angeles branch

of the Wolfson, Weiner firm joined with

the accounting firm of Seidman & Seid-

man. The combined firm served as Equity

Funding's independent public accountant

1/582

Jis83

until the exposure of the fraud in 1973.

Julian Weiner was the Wolfson, Wein-

er partner in charge of the audits of

Equity Funding from 1961 to 1973. He

was convicted of six counts of secur-

ities fraud, 15 U.S.C. §§ 77x, 77q(a),

for accounting practices which fraud-

ulently overstated the income and assets

of Equity Funding and of four counts of

willfully making untrue statements to

the Securities Exchange Commission

(SEC) and the New York or Pacific Coast

Stock Exchanges, in violation of

18 U.S.C. $8 7?x, 77E, 7BEt, Sm.

Marvin Lichtig, as an employee and

later as a junior partner of Wolfson,

Weiner, supervised the audit field work

of Equity Funding for the audits between

1963 and 1968. He reported directly to

Julian Weiner. From 1968 until 1973,

Lichtig served as an officer of Equity

Funding and signed registration state-

ments as the principal accounting

officer of the company. Lichtig was

convicted of the same six counts of

securities fraud as Weiner.

ai

Lichtig was also convicted of seven

counts of filing false statements with

the SEC and the New York or Pacific

Coast Stock Exchange in violation of

15 U.S.C. §§ 77x, 77f£, 78ff£, 781,78m.

Solomon Block was employed by Wolf-

son, Weiner in 1968 and replaced Lich-

tig as the supervisor of field audits.

Block served as supervisor for the 1969

through 1972 audits. Block was charged

with the same six counts of securities

fraud as Weiner and Lichtig, but Block

was convicted of only five of the

counts. Block was convicted of two

counts of making false statements to

the SEC and the New York or Pacific

Coast Stock Exchanges in violation of

15 U.S.C. §§ 77x, 77£, 7BfL, 78m.

A. UNANIMOUS VERDICT

Defendants argue that the convic-

tions must be reversed because the jury

verdict was not unanimous. This chal-'

lenge is based on juror affidavits.

The jury returned a verdict of

guilty, and each member of the panel

was polled. The judge asked "please

s64

indicate by answering if the verdicts

just read are your verdicts," and each

juror responded individually in the

affirmative. The verdicts were receiv-

ed and the jury was discharged. Half

an hour later, a juror went to the

judge's chambers and said that she had

never voted "guilty", but rather had

voted "guilty with reservation" during

the jury's deliberations. She further

stated that she understood that the

jury's verdict was eleven "guilty" and

one "guilty with reservation", and was

confused by the events in the courtroom

when she responded affirmatively that

the verdict rendered was her verdict.

Two other jurors made affidavits to

support this juror's statementjthat she

had always qualified her "guilty" vote

"with reservation".

The defendants moved for a new trial,

based on the affidavits of the three

jurors. The district judge denied the

motion, holding that the affidavits

were not admissible to impeach the

verdicts.

The district court followed estab-

lished law. Jurors may not impeach

their own verdict. McDonald v. Pless,

238 U.S. 264 (1915). This rule, with

narrow exceptions, is codified in Fed.

R. Evid. 606(b).

Defendants argue that they are not

seeking to impeach the verdict. They

contend that the verdict rendered in

court was not the true verdict of the

jury and the affidavits should be ad-

missible to prove this fact. “They cite

Fox v. United States, 417 F.2d 84 (5th

Cir. 1969). In that case, a juror re-

mained silent when polled, and other

jurors by affidavit said they thought a

verdict by a majority was sufficient.

The court held that there was no legal

verdict. But here there was a verdict,

and upon a poll of each juror in open

court it was unanimous. Even if the

defendants were able to prove that one

juror had consistently voted "guilty

with reservation", the only purpose of

such testimony would be to impeach the

verdict. The meaning of "with reser-

vation" would thus be left to the in-

6.

genuity of counsel and the vagaries of

social behavior in every case.

The juror answered in the affirma-

tive when asked if "guilty" was her ver-

dict. Many jurors have some second

thoughts about their verdicts. "Beyond

a reasonable doubt" need not exclude

all doubt. To permit this juror to

contradict this verdict by an explana-

tion that her vote was "guilty with

reservation" would sanction the im-

peachment of any verdict in which a jur-

or could be found who was willing to

repudiate the answer he gave when pol-

led.*

jurors and jury tampering would abound.

Opportunities for harassment of

Such a burden on the jury system could

not long be tolerated.

B. THE "ALLEN CHARGE"

The defendants also argue that the

jury was coerced by the giving of the

Allen charge. After 5 days of delib-

erations the foreman of the jury not-

ified the judge that "one of the mem-

bers of our jury feels unable to par-

ticipate in deliberations with the rest

7.

of us." After ascertaining that the

juror was not suffering from a physical

or mental disability, the judge gave a

modified Allen instruction substantially

as set out in E. Devitt & C. Blackmar,

Federal Jury Practice and Instructions

§ 18.14 2d ed., (1970). (This instruc-

tion is §18.14 in the Third Edition,

1977.)

This court has consistently upheld

this form of the Allen charge. Sulli-

van v. United States 414 F.2d 714 (9th

Cir. 1969). The cases which discuss

the assumed effect of the Allen charge

are all appealed by defendants who were

convicted. Defendants who have been

acquitted after the giving of the charge

have not complained. Upon review of all

the circumstances of the case, we|hold ses

that the supplemental instruction was

not coercive.

C. PREJUDICIAL COMMUNICATIONS

During the trial, the prosecutor

learned that two jurors had been on an

elevator during a conversation between

a government attorney and a government

witness. The prosecutor notified the

trial judge, who called a conference in

chambers with all parties to the con-

versation plus defense counsel. The

judge determined that nothing prejud-

icial had been said. There was no mo-

tion for a mistrial. Defense counsel

now assert that there was something

Sinister about the event. The record,

however, reveals no reason for disturb-

ing the trial court's descretion in

handling the matter.

The same juror who had expressed her

reservations in the jury room and later

in a posttrial affidavit also stated in

her affidavit that during the deliber-

ations she had initiated a conversation

with the bailiff by asking whether the

judge expected a verdict. She said the

bailiff told her that he didn't know,

but he assumed that the judge would

"like" a verdict. The bailiff, by

affidavit, denied the conversation. In

any event, the defendants fail to show

how such a conversation, if it occurred,

could have prejudiced anyone. Since

the alleged conversation occurred, if

9.

it occurred at all, nearly a week after

the judge had given the Allen charge

earlier complained of, it should have

been apparent to even the most obtuse

juror that a verdict would be a wel-

comed development. We find no basis for

charging the trial judge with an abuse

of discretion for refusing to grant a

new trial upon this sort of clutching

at straws. It was a long trial, and

such trials frequently produce a number

of imperfections. It is to the credit

of the experienced trial judge that this

is the sort of assignment of error to

which the appellants apparently must

look in their search for reversible

error.

D. ALLEGED MISCONDUCT BY

PROSECUTOR

Appellant Lichtig claims that the

prosecutor made an impermissible ref-

erence in final argument to his and

Block's failure to take the stand.

Block's attorney, in his part of the

summation, had made a reference to cer-

tain evidence thought to be exculpatory

of Block. The prosecutor in his final

10.

Be

Lisge

argument referred to "Julian Weiner's

exculpatory testimony" and the absence

of other testimony on the point. None

of these comments trespassed upon the

rule agaxnst calling attention to fail-

ure to testify. The jury knew very well

that neither Block nor Lichtig had

testified, and, if this failure left

some unanswered questions in the minds

of jurors, that was a risk that had

been assumed long before final argument.

The government took no unfair advantage

of the situation, and there was no er-

ror in refusing a new trial on this

score. The trial court carefully in-

structed the jury about the presumption

of innocence, the burden of proof, and

the right of the defendant to refrain

from testifying.

L Lichtig and Block also complain

about the exploitation by the prosecutor

of the term "reciprocal income"> during

the course of the trial. The point is

frivolous. "Reciprocal income" and

"reciprocals" were terms commonly used

in the reporting of inflated or non-

existing assets. The trial court

ll.

carefully instructed the jury that there

was nothing illegal about reciprocal

income. The illegal conduct consisted

of making false or exaggerated reports

about “reciprocal” and other kinds of

income.

E. ALLEGED IMPERMISSIBLE

RESTRICTION OF CROSS-

EXAMINATION OF WITNESS

LOWELL

The interrogation of Samuel Lowell,

one of the government's principal wit-

nesses, commenced in the afternoon of

Friday, February 21, 1975. At the close

of that session the trial was continued

to 9:30 a.m. on Tuesday, February 25,

1975. The direct examination continued

through Tuesday and for a very short

time Wednesday morning, when the case

was continued to Thursday on motion of

defense counsel. Cross-examination by

Mr. Abeles for defendant Weiner lasted

all day Thursday and all day Friday.

Mr. DeSantis, representing defendant

Lichtig, commenced cross-examination

late Friday afternoon. On adjournment,

the trial was continued to Tuesday,

March ll. Mr. DeSantis cross-examined

12.

Lowell all day Tuesday, and half of

Wednesday morning. Mr. Markowitz, rep-

resenting defendant Block, then took

over and completed his questioning in

the middle of the afternoon.

In addition, during the government's

case, the court permitted defense coun-

sel to recall Mr. Lowell for further

cross-interrogation on March 20, 1975.

During cross-examination there were

numerous and repetitive attacks upon the

credibility of the witness. Counsel

probed Lowell on extramarital relation-

ships and participation in fraudulent

conduct not charged in the indictment.

It will serve no useful purpose to de-

tail the specific instances in which

defendants claim that cross-examination

was improperly curtailed or restricted.

With respect to each such assignment of

error, the impeaching information came

to the attention of the jury. The

attack is only upon the court's refusal

to permit counsel unrestricted license

to exhaust the details of the particular

circumstance or transaction. There was

i3.

no error.

The scope and extent of cross-exam-

ination is within the discretion of the

trial court, and the court's limitation

of cross-examination will not result in

reversal unless it is clear that a def-

endant was thereby denied his consti-

tutional right to confrontation. Smith

v. Illinois, 390 U.D. 129, 132 (1968);

United States v. Haili, 443 F.2d 1295,

1299 (9th Cir. 1971); Enciso v. United

States, 370 F.2d 749 (9th Cir. 1967).

The court in its discretion may

limit cross-examination in order to pre-

clude repetitive questioning, upon det-

ermining that a particular subject has

been exhausted, or to avoid extensive

and time-wasting exploration of col-

lateral matters. See e.g. United States

v. Zane, 495 F.2d 683, 695 (2d Cir.

1973); United States v. Miller, 473 F.2d

600 (lst Cir. 1972).

The trial court: has a duty to con-

trol cross-examination to prevent it

from unduly burdening the record with

i cumulative or irrelevant matter. Alford

14.

L587

v. United States, 282 U.S. 687, 694

(1931); United States v. Carrion, 463

F.2d 704, 707 (9th Cir. 1972). This

duty includes a specific duty to pre-

vent counsel from confusing the jury

with a proliferation of details on col-

lateral matters. United States v.

Carrion, 463 F.2d at 707. See also Fed.

R. Evid. 403 and 608(b).

F. ACCESS TO AND ADMISSIBILITY

OF EXCULPATORY EVIDENCE

Apparently two pages of notes made

by prosecutor Rathje of an interview

with Fred Levin, a government witness,

were supplied to the defense and used

by the defense in cross-examination.

The government then offered the notes as

evidence. Defendants objected. They

wanted the notes to be censored before

submission to the jury. Later the

government withdrew the offer. The ex-

hibit was never reoffered by defense

counsel. The alleged error was not pre-

served for appellate review. This is

certainly not a situation, as suggested

by defense counsel, where the govern-

ment has withheld or suppressed ex-

15.

culpatory material as was the case in

Brady v. Maryland, 373 U.S. 83, 86-88

(1963). See United States v. Agurs, 421

U.S. 97, 107-14 (1976).

Appellant Lichtig says his consti-

tutional rights were infringed by the

government's failure to disclose a pre-

trial agreement (in a companion civil

action) between the trustee in reorgan-

ization and the previously mentioned

Lowell which allegedly absolved Lowell

of civil liability in the Equity Funding

litigation. Here, the verdict of the

jury was returned on May 20, 1975, def-

endants were sentenced on July 14, 1975,

and appeals were taken on July 25, 1975.

Lichtig's present claim of error is

based on an application for a continu-

ance made on May 7, 1976, in the civil

litigation, for the purpose of consum-

mating a settlement with respect to

Lowell. Obviously, none of this is part

of whe record on appeal. Since the

agreement Lichtig would have had the

government disclose was not made until

a year after trial, it was hardly sus-

ceptible of nondisclosure during the

16.

trial. There was no infringement of a

right to exculpatory material.

Lichtig also complains of the den-

ial of his oral motion during the trial

for an order requiring the government

to lodge all SEC transcripts and state-

ments and interviews with witnesses by

the Federal Bureau of Investigation,

the postal service, or anyone else that

were in possession of the United States

Attorney, for the court's examination

to ferret out possible Brady material.

As the Supreme Court noted in United

States v. Agurs, 427 U.S. at 106, a re-

quest “for ‘all Brady meterial' or for

‘anything exculpatory'" is equivalent

to no request at all. The trial judge

need not accord the slightest heed to

such a shotgun approach. This attempt

to create error has as little merit as

the one preceding it.

G. DISQUALIFICATION OF U.S.

ATTORNEY'S OFFICE

Appellant Block asserts error in the

refusal of the trial judge to disqualify

the United States Attorney's office from

prosecuting the case. An attorney em-

i 7.

ployed by the law firm of Nelson, Liker

& Merrifield while that firm represented

Weiner and Block in connection with

matters arising out of the Equity Fund-

ing fraud left the firm and went to work

for the SEC.

i Appellant suggests, but the record

does not confirm, close cooperation be-

tween the SEC and the Department of

Justice in the management of this pro-

secution,.

In order to disqualify the U.S.

Attorney's office, the court would first

have to impute to the former private

attorney knowledge of the Equity Fund-

ing litigation possessed by other mem-

bers of his former law firm. Second,

the court would have to impute this same

knowledge to the other attorneys at the

SEC. And third, the court would have to

impute all SEC knowledge to the office

of the United States Attorney by virtue

of the alleged cooperation between the

Department of Justice and the SEC.

The first step of the exercise may

be possible (see Lasky Brothers v. War-

18.

Lisee

Wiis es

ner Brothers Pictures, Inc., 224 F.2d

824, 826-27 (2d Cir. 1955)), but the

logic thereafter become tenuous. Prob-

lems concerning the imputation of know-

ledge to government attorneys are sui

generis. A free flow of information

may be assumed to exist within a law

partnership, but the size and diversity

of many government agencies makes sim-

ilar assumptions about agencies wholly

unrealistic. See United States v. Stan-

dard Oil Co., 136 F. Supp. 345, 360-63

(S.D.N.Y. 1955). There is nothing in

the record before us to support a find-

ing that the named employee of the SEC

ever investigated or passed upon the

subject matter of the instant case, or

that information pertaining to this cdse

ever reached him. Cf. General Motors

Corp. v. City of New York, 501 F.2d 639,

651 (2d Cir. 1974). As this court noted

in Gas-a-tron of Arizona v. Union Oil

Co., 534 F.2d 1322, 1325 (9th Cir. 1976),

we will not disturb the district court's

exercise of its discretion in dealing

with challenges’ to government attorneys

as long as the record reveals no sound

19.

basis for disqualification. The record

in this case supports the district

court's refusal to disqualify the United

States Attorney's office.

H, COCONSPIRATOR HEARSAY

EXCEPTION

The government originally charged

twenty-two defendants on 105 counts.

Twenty-two of those counts involved

Weiner, Lichtig and Block. Count 1 al-

leged a conspiracy between Weiner, Lich-

tig, Block and some of the other

defendants.

Two counts involving Weiner, Lichtig

and Block were dismissed after presen-

tation of the prosecution's case in

chief. At the close of all the evid-

ence, the government withdrew two other

counts - the conspiracy charge and a

mail-fraud charge (Counts 1 and 2).

The court dismissed those counts, leav-

ing sixteen counts (Counts 6, 10-14,

and 75-84) for presentation to the jury.

At the time the conspiracy count was

withdrawn, the defendants moved to

strike all testimony admitted under the

20

Lises

coconspirator exception to the hearsay

rule. Previous timely exceptions had

been made to the admission of the test-

imony. The motions were denied. Appel-

lants now contend that the dismissal of

the conspiracy count by the court made

inadmissible all statements previously

received under the exception. Alternat-

ively, they claim that even if there was

no absolute bar to the testimony, it was

inadmissible because the standards of

admissibility under the exception had

not been met since there was insuffic-

ient proof aliunde of the conspiracy and

and defendants' connection with it.°

i Defendants' first contention, that

the mere dismissal of the conspiracy

count mandated striking all testimony

previously admitted under the hearsay

exception, is frivolous. The eventual

submission of the charge does not det-

ermine the admissibility of the evidence.

This circuit has established that

coconspirator hearsay is admissible only

when a foundation is laid to show that:

(1) the declaration was in furtherance

21.

of the conspiracy, (2) it was made dur-

ing the pendency of the conspiracy, and

(3) there is independent proof of the

existence of the conspiracy and of the

connection of the declarant and the def-

endant to it. United States v. Snow,

521 F.2a4 730, 733 (9th Cir. 1975),

cert, denied, 423 U.S. 1090 (1976). See

also United States v. Testa, 548 F,2d

847, 852 (9th Cir. 1977); United States

v. Calaway, 524 F,2d 609, 612 (9th Cir.

1975), cert. denied, 424 U.S. 967 (1976);

Carbo v. United States, 314 F.2d 718

(9th Cir. 1963), cert. denied, 377 U.S.

953 (1964). It is not necessary for a

charge of conspiracy to have been brou-

ght in order for coconspirator hearsay

to become admissible, Dutton v. Evans,

400 U.S. 74 (1970); United States v.

Williams, 435 F,2da 642 (9th Cir. 1970),

cert. denied, 401 U.S. 995 (1971); Lee

Dip v. United States, 92 F.2d 802, 803

(9th Cir, 1937), cert. denied, 303 U.S.

638 (1938). Nor is the exception limit-

ed to trials where coconspirators are

also codefendants. United States v.

Randall. 491 F.2d 1317 (9th Cir. 1974);

22,

United States v. Williams, supra.

The trial judge initially decides

whether the declarations of coconspira-

tors are admissible. There is no set

Order of proof. The admission of the

evidence subject to a motion to strike

because of the insufficiency of proof

of the necessary preliminary facts is

well within the trial judge's discretion.

United States v. Testa, 548 F.2d at 852;

United States v. Knight, 416 F.2d 1181,

1185 (9th Cir. 1969).

In this case the disputed statements

were Clearly made during and in further-

ance of the conspiracy. The only ques-

tion is whether-there was sufficient

independent evidence of a conspiracy and

the defendants' connection to it.

The quantum of independent proof

necessary for the application of the co-

conspirator heresay exception is suf-

ficient, substantial evidence to estab-

lish a prima facie case that the con-

spiracy existed and that the defendant

was a part of it. Glasser v. United

States, 312 U.S. 60 (1942); United

23.

States v. Testa, 548 F.2d at 853; United

States v. Calaway, 524 F2d at 612;

United States v. Svanos. 462 F.2d 1012

(9th Cir. 1972): Carbo v. United States.

suora.

Once the existence of a conspiracy

has been established, independent ev-

idence is necessary to show prima facie

the defendant's connection with the con-

Spiracy, even if the connection is

,

slight.’ United States v. Freie, 545

P.2d 1217, 1221-22 (9th Cir. 1976), cert.

denied, 430 U.S. 966 (1977); United

States v. Knight, supra.

4 Several officers and officials of

Equity Funding who had pleaded guilty,

including Jerome Evans, Treasurer until

1968, the earlier-mentioned Samuel

Lowell, Controller, and Michael Sultan,

Assistant Controller, testified for the

prosecution. Other Equity Funding em-

ployees, and auditors and SEC examiners

who had reviewed the company's financ-

ial records after discovery of the

fraud also testified.

It is undisputed that the financial

24,

LIsio

records of Equity Funding did not ac-

curately reflect the financial condition

of the company and its subsidiaries.

Testimony about particular fraudulent

financial transactions and recordkeep-

ing abounds in the record. For example,

both Sultan and Lowell testified about

the purchase of Investors Planning Corp-

Oration of America (Investors Planning)

in 1969. The total cost of the acquisi-

tion was approximately $10 million, $2

million assigned to book value and ap-

proximately $8 million to excess cost

that included the value of the sales

force acquired and of the contractual

plans acquired. °

Thereafter, because of a shortfall

in the Funded Loans and Receivables

Account, the prime source of the com-

pany's paper profit, it was decided to

revalue the future premiums due under an

account entitled "Clients Contractual

Receivables," which allegedly represen-

ted the trail commissions” due on the

Investors Planning programs. In order

to substantiate the transaction, Stanley

Goldblum, the president of Equity Fund-

25.

ing, wrote a letter to the auditors in-

forming them that a sale was in process

and that he would personally guarantee

a purchase of the trail commissions for

close to the amount of the recorded

value. After debits for commissions

payable, Equity Funding increased its

paper income by over $13 million by this

accounting treatment of the contractual

commissions. No real sale was anticipa-

ted. Lowell and Sultan testified that

$2 million in funds from Equity Funding

was routed through two shell corpora-

tions in Europe and then paid back to

Equity Funding as the supposed down pay-

ment on the purchase. Thus, Equity

Funding paid itself, and the value re-

corded was never received.

Other improprieties testified to by

various Equity Funding employees includ-

ed falsification of confirmations for

various assets claimed by Equity Fund-

int. Another example was the insertion

of a $2 million plug in the total of the

detail?

Receivable portion of the Funded Loans

making up the Funded Loans

and Accounts Receivable account. The

26.

$2 million did not appear on the com-

puter printouts of the detail, but only

in the total. In later years the detail

sheets substantiated the total, but the

full account numbers were not given and

Lisa jaccounts were randomly duplicated with-

in the detail until the desired sum was

reached. In addition, various notes re-

ceivable were created with shell corp-

Orations, some of which continued on the

books at full value even after the date

of maturity despite non-payment.

The testimony of the various Equity

Funding officials about their personal

participation in and knowledge of the

_various schemes showed an obvious com-

mon purpose and practice intended to

inflate falsely the reported value of

Equity Funding. Auditors and examiners

who reviewed the financial records under

the direction of the company's receiver

and the SEC confirmed the testimony of

the employees...

The existence of a conspiracy to

provide false information to the public

and to the SEC is firmly established.

ry

Defendants’ second contention, that

there was insufficient independent ev-

idence of the connection of each def-

endant to the conspiracy, also fails.

The record again supplies ample evidence

upon which the trial judge could have

determined that prima facie proof ex-

isted to establish the necessary con-

nection of each defendant with the con-

spiracy.

The lack of agreement between the

financial statements and the actual fin-

ances of Equity Funding is relevant be-

cause each defendant, Weiner, Lichtig,

and Block, was involved in at least one

of the audits as an independent auditor.

Weiner and Lichtig were responsible for

the 1968 audit, and Weiner and Block

were responsible for the audits pre-

pared for 1969, 1970 and 1971. Lichtig

became Treasurer of Equity Funding dur-

ing the 1968 audit. Lichtig had bought

shares of Equity Funding while still

acting as an independent auditor. Def-

endants each had several meetings with

Equity Funding officials involved in the

financial manipulations. Frank West, a

28.

CPA employed by Wolfson, Weiner, Rat-

off and Lapin, who worked on audits of

Equity Funding from 1969 through 1972,

and Samuel Lowell both testified to

conversations with defendants about

questionable transactions.

The workpapers of defendants did not

reveal requests for confirmation of the

amount of collateral being used as sec-

urity for outstanding funded loan pro-

grams, and for the amount of internally

held funding programs. Various arith-

metical calculations that were incorrect

in the original worksheets or Equity

Funding calculations were not corrected,

even in one case where the worksheets

revealed that the auditors were aware

of the mistake. There was much give and

take between Weiner, and later Block,

and the Equity Funding officials in at-

tempts to develop auditing methods that

would show income in amounts the company

felt was desirable.

The responsibilities of defendants

were also established by testimony re-

garding their own statements and actions.

29.

Extrajudicial declarations made by def-

endants themselves are not hearsay, but

qualify as independent evidence.

United States v. Calaway, 524 F.2d at

613; Klein v. United States, 472 F.2d

847 (9th Cir. 1973). Such evidence in-

cluded (1) Block directing auditors

working under him not to pursue certain

areas that involved fraudulent or fals-

ified information despite the auditor's

requests for further information, and

(2) Weiner suggesting accounting pro-

cedures that obscured Equity Funding's

true financial situation.

Independent evidence to connect de-

fendants with the conspiracy for the

purpose of admitting the hearsay decla-

rations was abundant. Some of thejev-

idence is circumstantial; but circum-

stantial evidence can provide the nec-

essary quantum of proof. United States

v. Calaway, 524 F.2d at 612. Once the

judge determines that the hearsay ev-

idence is admissible, the weight to be

given that evidence becomes a question

for the jury. United States v. Ragland,

375 F.2d 471 (2d Cir. 1967), cert. de-

30 -

nied, 390 U.S. 925 (1968); Carbo v.

United States, 314 F.2d at 737.

We hold that the evidence heard un-

der the coconspirator hearsay exception

to the hearsay rule was properly ad-

mitted. A prima facie case was made for

the existence of a conspiracy and the

involvement of the particular defendants

in it.

Defendants further contend that the

testimony of Lowell, Sultan, John Tem-

pleton (who served as Controller of

Equity Funding from 1968 to 1969), and

others concerning extrajudicial declar-

ations by Goldblum violated their right

of confrontation because the prosecution

never called Goldblum as a witness.

Goldblum was called by the defense

but refused to testify after asserting

his Fifth Amendment right against self-

incrimination. Goldblum's extrajudicial

statements were admissible as discussed

above under the coconspirator exception.

The admissibility of evidence under

the coconspirator exception, however,

an°

does not automatically demonstrate com-

pliance with the confrontation clause.

United States v. Snow, 521 F.2d 730,

734 (9th Cir. 1975), cert. denied, 423

U.S. 1090 (1976); United States v. Bax-

ter, 492 F.2d 150 (9th Cir. 1973), cert.

denied, 416 U.S. 940 (1974).

In Dutton v. Evans, supra, the Sup-

reme Court dealt with a situation where

a third party testified to a conversa-

tion with Evans's codefendant, Williams,

who was tried separately. Williams did

not testify at Evans's trial. The

Court did not indicate whether Williams

was available to testify, and did not

address the issue. In dealing with the

relationship between the coconspirator

hearsay exception and the Sixth Amend-

ment, the Court acknowledged that the

confrontation clause does not bar the

admission of all hearsay. 400 U.S. at

80. Although the hearsay rule and the

confrontation clause have a similar ba-

sis, the two do not precisely overlap.

400 U.S. at 82, quoting from California

v. Green, 399 U.S. 149, 155-56 (1970).

Under Dutton an analysis must be made

32.

to determine whether there are sufficient

indicia of reliability to permit the in-

troduction of the hearsay declarations in

spite of the lack of opportunity for the

defendant to cross-examine the declarant.

United States v. Snow, supra, is in-

structive in this case. Snow contended

that testimony by a DEZ agent regarding

declarations of a coconspirator denied

his right of confrontation. The govern-

ment argued that the defendant had been

equally free to subpoena the declarant.

We held that the testimony contained suf-

ficient indicia of reliability to meet

the Dutton v. Evans standards and that:

"While it is unquestioned

that the government has the bur-

den of producing evidence showing

the guilt of the accused beyond

a reasonable doubt, it does not

have the burden of calling every

witness whose testimony would

support a verdict of guilty, and

it need not call a witness, eq-

ually available to both sides,

merely because cross-examination

of such a witness might prove

jis43 jLhelpful to the defense case.’

: United States v. Snow 521 F.2d

at 7/736.

Goldblum was equally available to both

33.

sides during the trial, and was in fact

called by the defense. He chose to as-

sert his constitutional right against

self-incrimination, and his testimony

thus became

unavailable to both sides?

The failure of the prosecution to call

Goldblum as

ute grounds

its witness did not constit-

for reversal. =?

Once Goldblum's refusal to testify

and his resulting unavailability are

established and cross-examination is

thus precluded, the next question is

whether there are sufficient indicia of

reliability to permit introduction of

his declarations without violating the

Sixth Amendment.

"* * * The relevant factual

inquiry is whether, under the

Circumstances, the unavailability

of the declarant for cross-exam-

ination deprived the jury of a

satisfactory basis for evaluating

the truth of the extrajudicial

declaration.* * *" United States

v. Adams, 446 F.2d 682, 683

(9th Cir.) cert. denied, 404 U.S.

943 (1971).

Mancusi v. Stubbs, 408 U.S. 204 (1972);

Dutton v. Evans, supra; United States

34.

v. Baxter, 492 F.2d at 177.

Among the factors to be considered

in determining the reliability of the

hearsay declarations is whether the wit-

ness testifying would have had knowledge

of the roles and identities of others

within the conspiracy. Also significant

is whether the witness's recollection

of the declarant's statements is likely

to be accurate and whether the declarant

would have had any reason to have lied

to the witness. The court must deter-

mine whether cross-examination of the

declarant would be likely to show that

the declarant's statements were un-

13 Another important deter-

reliable.

mination is whether the evidence is

"crucial" or "devastating" to the de-

fense. Dutton v. Evans, 400 U.S. at 87;

United States v. King, 552 F.2d 833

(9th Cir. 1976). cert. denied, 430 U.S.

966 (1977); United States v. Snow, 521

F.2d at 735; United States v. Adams,

446 F.2d at 684.

Employing the Dutton approach, + 4we

hold that Goldblum's declarations con-

35.

tained sufficient indicia of reliability

and were properly admitted. Each of the

witnesses testifying about Goldblum's

extrajudicial declarations was involved

in the day-to-day running of the com-

pany. They were officers and employees

of Equity Funding, and the conversations

to which they testified were directed

to the operation of the corporation and

the maintenance of its financial records.

The witnesses were talking from personal

knowledge. Because of their fositions

within the company and, in some cases,

within thejconspiracy, it is unlikely

that Goldblum would have been lying to

them. The testimony of Lowell, Evans,

and others who were among the original

persons charged also contained state-

ments against their own penal interests,

a further badge of reliability.

Finally, none of the declarations

was "crucial" or "devastating". There

was abundant evidence regarding the man-

ipulation of Equity Funding's financial

recordkeeping, and the conversations

with Goldblum were not a major compon-

ent of proof against the defendants.

36.

Lists

Wiabepeni a

In fact, so substantial was the other

evidence that, even if error, the ad-

mission of Goldblum's declarations would

have been error harmless beyond a reas-

Oonable doubt. Chapman v. California,

386 U.S. 18 (1967); United States v.

Adams, 446 F.2d at 684.

I. ADMISSIBILITY OF LICHTIG

WORKPAPERS

Appellant Lichtig alleges error in

the receipt in evidence of workpapers

produced by Lichtig in 1968. He cites

Gallego v. United States, 276 F.2d 914

(9th Cir. 1960). Nothing in Gallego

supports this assignment of error.

Lichtig contends that the chain of

custody of the workpapers between 1968

and the trial was incomplete and that

the workpapers themselves were incom-

plete. Assuming these insufficiencies,

the trial judge has discretion to admit

the workpapers into evidence if he "is

satisfied that in reasonable probability

** *[they have] not been changed in im-

portant respects"; the jury is free to

weigh the evidence according to its own

37.

evaluation of its authenticity. Gal-

lego v. United States, 276 F.2d at 917;

Williams v. United States, 381 F.2d 20

(9th Cir. 1967). This court said, in

United States v. King:

"It is the function of the

trial court to determine whether

proffered evidence has enough

prima facie trustworthiness to

warrant its consideration by the

jury, and generally the suffic-

iency of a showing of authenti-

city of a writing sought to be

introduced into evidence is a

matter within the discretion of

the trial judge.* * * * 472 F.2d

at 7.

In this case, there was substantial

testimony from witnesses who had used

the workpapers or who knew the hand-

writing, identifying and authenticating

the workpapers. The court did not abuse

its discretion. See United States v.

Brown, 482 F.2d 1226 (8th Cir. 1973).

J. ALLEGED ERROR IN QUASHING

SUBPOENA FOR THE "PARKER

REPORT"

Appellant Weiner alleges error in

the court's suppression of a subpoena

duces tecum for the Parker Report. The

Parker Report resulted from an invest-

38.

igation made for the guidance and in-

formation of the attorneys retained by

the accounting firm of Seidman & Seid-

man to defend numerous civil actions

filed as a consequence of the Equity

Funding fraud. Parker was a partner of

Seidman & Seidman. Weiner, as noted

earlier, was a partner of Seidman &

Seidman at the time the report was pre-

pared. Block also joined Seidman &

Seidman in the merger with Wolfson,

Weiner.

Block's attorney caused a subpoena

duces tecum to be issued to the att-

orneys for Seidman & Seidman for a copy

of the Parker Report. The Seidman &

Seidman attorneys moved to quash or sup-

press the subpoena claiming attorney-

client and work-product privileges. The

motion to suppress Block's subpeona was

granted. With respect to Weiner, who

jisos passigns the error on appeal, the sub-

poena was never ruled upon. Action on

the motion was withheld or suspended at

Weiner's request, and the motion was

never thereafter properly brought be-

fore the court for action. There is no

39.

basis for an assignment of error.

In the reply brief Weiner states:

"Weiner had every reason to believe that

the 'Parker' report contained totally

exonerating information regarding his

personal absence from all of the audit-

ing functions at * * * [Equity Funding] ."

This speculation is unsupported by any-

thing in the record. In the same brief,

Weiner seeks to rely on United States

v. Agusr, supra, and Brady v. Maryland,

supra, to support this assignment of

error. How prosecutorial misconduct in

a Brady context can be inferred in this

situation is not demonstrated.

K. DENIAL OF BLOCK'S MOTION

TO SUPPRESS HIS TESTIMONY

BEFORE THE SEC

Block contends that he was deprived

of his right to counsel during his var-

ious appearances at investigative hear-

ings before the SEC. More specifically,

Block asserts that counsel who appeared

with him during his testimony before the

SEC, and upon whose advice he decided to

testify, had a conflict of interest be-

cause the attorneys' law firm represent-

40.

ed certain accounting firms of which

Block was a present or past employee at

the same time the attorneys were appear-

ing with Block. The trial court denied

Block's motion to suppress his testimony

before the SEC, after finding that

Block had not been deprived of his right

to counsel and that he had voluntarily

waived his right to be represented by

his own attorney

It is firmly established that a

party compelled to appear before an in-

vestigation by the SEC has a right to

retain counsel. The Administrative

Procedure Act, 5 U.S.D. §555(b), pro-

vides in pertinent part:

"A person compelled to

appear in person before an

agency or representative there-

of is entitled to be accompanied,

represented, and advised by

counsel or, if permitted by the

agency, by other qualified rep-

resentative. A party is entitled

to appear in person or by or

with counsel or other duly

qualified representative in an

agency proceeding* * *,"

This right to have an independent coun-

sel can, however, be waived. See United

41.

States v. Kutas, 542 F.2d 527, 530 (9th

Cir. 1976); United States v. Frame, 454

F.2d 1136, 1138 (9th Cir. 1972); Kaplan

v. United States, 375 F.2d 895 (9th Cir.

1967). Here, the finding of waiver by

the trial judge is amply supported by

evidence.

L. DENIAL OF SUPPRESSION OF

BLOCK'S BANKRUPTCY

TESTIMONY

Block personally was adjudicated a

bankrupt on November 14, 1973. He

testified at the first meeting of his

creditors on December ll, 1973, which

was continued on January 7, 1974, and

June 24, 1974. On January 7, 1974,

Block refused to answer certain ques-

tions on Fifth Amendment grounds. The

district court held Block to be in con-

tempt. To purge himself of contempt, he

then answered the questions.

Prior to trial, Block moved for sup-

pression of any evidence obtained by

the government from the testimony given

by him at those first meetings of his

creditors. He based his motion on

section 7(a) (10) of the Bankruptcy Act,

42,

disses £11 0.S.C. § 25(a) (1), which in pertinent

part provides that the bankrupt shall:

"* * * [A]t the first meeting

of his creditors, at the hearing

upon objections, if any, to his

discharge and at such other times

as the court shall order, submit

to an examination concerning the

conducting of his business, the

cause of his bankruptcy, his

dealings with his creditors and

other persons, the amount, kind,

and whereabouts of his property,

and, in addition, all matters

which may affect the administration

and settlement of his estate or

the granting of his discharge;

but no testimony, or any evidence

which is directly or indirectly

derived from such testimony,

given by him shall be offered in

evidence against him in any crim-

inal proceeding, except such

testimony as may be given by him

in the hearing upon objections

to his discharge * * *,"

This immunity cast on the government the

heavy burden of affirmatively showing

that the evidence it intended to present

was derived from a legitimate source

wholly independent from Block's bank-

ruptcy testimony. Kastigar v. United

States, 406 U.S.441, 461-62 (1972);

Block v. Consino, 535 F.2d i165, 1169

43.

(9th Cir. 1976).

The trial court denied Block's meot-

ion to suppress, ruling that the govern-

ment's affidavits and testimony met the

burden. Prior to its ruling, the court

offered to allow Block to call addition-

al witnesses in support of his motion if

he presented a written summary showing

how his testimony before the sEct® dif-

fered from his bankruptcy testimony, and

if he represented that those witnesses

could give competent and relevant test-

imony. Otherwise, the court thought,

there was nothing in the bankruptcy pro-

ceedings which was not covered before

the SEC. Block's counsel said a com-

parison of the SEC and the bankruptcy

testimonies would be attempted. How-

ever, nothing was done to comply with

the court's suggestion, and Block did

not raise the subject again.

Block now contends that the district

court improperly put the burden upon

him to prove that the government's ey-

idence was tainted by use of his bank-

ruptcy testimony. However, the record

44,

ao

Lise

iL

shows that the court first required the

government to prove by affidavits and

testimony that no government attorneys

Or personnel connected with them in this

case had seen, read, or used Block's

bankruptcy testimony, directly or in-

directly, before denying the motion to

suppress.

We have reviewed the pertinent por-

tions of the record in this appeal, and

agree with the district court that the

government met its burden under Kasti-

gar. The court properly denied Block's

motion to suppress.

M. PROPRIETY OF PROTECTIVE

ORDER ISSUED IN BANKRUPTCY

PROCEEDINGS.

While Block's bankruptcy was in

progress during the pendency of this

criminal case in the district court,

Equity Funding was also undergoing Chap-

ter X bankruptcy proceedings in the same

district court. Block's bankruptcy was

before Bankruptcy Judge Russell Seymour,

and Equity Funding's bankruptcy was be-

fore Bankruptcy Judge James Moriarty.

Block obtained bankruptcy subpoenas

45>

from Judge Seymour under Rule 205, Rules

of Bankruptcy, to examine 61 witnesses.

Block's acknowledged purpose in obtain-

ing those subpoenas was to prepare for

his criminal trial. Because two of

those witnesses were located in Washing-

ton, D.C., Block initiated an ancillary

proceeding in the bankruptcy court of

that federal district pursuant to order

of Judge Seymour, and subpoenas were

issued there. Meanwhile, the trustee

in reorganization for Equity Funding

filed an application for a protective

order to prevent the examination of the

two District of Columbia witnesses, who

had been lawyers for Equity Funding in

connection with SEC matters. The trus-

tee's reason (among others) was that

examination of those witnesses would

unduly disrupt the reorganization pro-

ceedings. On recommendation of Judge

Moriarty, the district court issued the

protective order enjoining the enforce-

ment of the District of Columbia bank-

ruptcy subpoenas.

Block contends that the protective

order deprived him of his right to pre-

46.

pare adequately for trial and his right

to effective assistance of counsel. The

district judge characterized this argu-

ment as frivolous.

Bankruptcy Rule 205(d) provides:

"The examination under subdivisions (a)

and (b) of the rule may relate only to

the acts, corduct, or property of the

bankrupt, or to any matter which may

affect the administration of the bank-

rupt's estate, or to his right to dis-

charge." The rule pertains to prepar-

ation for bankruptcy proceedings only -

not to preparation for defense of a

criminal action, which was Block's avow-

ed purpose.

The protective order did not purport

to limit any right Block had under Fed.

R. Crim. P.15, 16, and 17 to use sub-

poenas, have discovery, and take dep-

ositions in connection with his crimin-

al trial. We agree with the district

judge that Block's contention is friv-

olous.

47.

N. PROPRIETY OF CERTAIN

COUNTS ON WHICH APPELLANTS

WERE CONVICTED.

Lichtig contends that, as a matter

of law, he could not have been convic-

ted on Counts 6 and 10 through 14 be-

cause these six counts reallege by ref-

erence portions of Counts 1 and 2, which

were dismissed before the case was sub-

mitted to the jury.2/ Block and Weiner

adopt this argument as to the relevant

counts on which each of them was con-

victed.

Count 1 charged Lichtig, Weiner,

Block and nineteen others with conspir-

acy to commit securities fraud by mail,

in violation of 18 U.S.C. § 371. Count

2 charged all twenty-two defendants with

securities fraud in violation of 15

U.S.C. §§ 77q(a) and 77x. Count 2 in-

corporated by reference certain infor-

mational paragraphs of Count l. The

Six counts each consisted of two para-

graphs, the first of which incorporated

by reference all thejallegations of ysis

Count 2 (except the last paragraph of

Count 2, which pertained only to defen-

48,

dant Evans), and the second paragraph of

which related a particular transaction

wherein certain defendants, other than

Lichtig, Weiner, and Block, used the

mails. From these facts, Lichtig argues,

reversal is required on the six counts

because the first paragraph of each

count merely realleges Counts 1 and 2,

which no longer exist, and the second

Paragraph does not even refer to him.

Lichtig overlooks the following:

(1) Fed. R. Crim. P. 7(c) (1), which

provides, "Allegations made in one

count may be incorporated by reference

in another count"; (2) settled law that

the dismissal of one count of an indict-

ment which is referred to in the remain-

ing counts where, as here, the refer-

ence is’ sufficiently full to incorporate

the matter from the dismissed count

(Crain y, United States, 162 U.S. 625,

653 (1896); United States v. Shavin,

287 F.2d 647, 650 (7th Cir. 1961);

Barnard v. United States, 16 F.2d 451,

453 (9th Cir. 1926)); (3) settled law

that one of several defendants may be

charged with and convicted of a sub-

49.

stantive offense when, as here, the

evidence shows that he joined the con-

spiracy and that the substantive offense

was committed in furtherance of the con-

Spiracy, even if that defendant did not

do and was not specifically aware of

all the acts constituting the offense

(Pinkerton v. United States, 328 U.S.

640 (1946); see also United States v.

Janelli, 461 F.2d 483, 486 (2d Cir.

1972); United States v. Roselli, 432

F.2d 879, 894-95 (9th Cir. 1970)).

O. SUFFICIENCY OF THE

EVIDENCE

Defendants contend that there was

insufficient evidence to sustain their

convictions. In our review we must take

the evidence in "the light most favor-

able to the verdict." United States v.

Nelson, 419 F.2d 1237, 1241 (9th Cir.

1969); Glasser v. United States, 315

U.S. at 80; United States v. Hood, 493

F.2d 677, 680 (9th Cir.), cert. denied,

419 U.S. 852 (1974).

Weiner was convicted of ten counts,

Lichtig of thirteen, and Block of seven.

Each defendant was sentenced to con-

50.

current sentences on all counts. We

need only find evidence sufficient to

support conviction on one count for

each defendant in order to sustain the

verdicts under the concurrent-sentence

doctrine. United States v. Valdovinos,

558 P.24 531, 534 (9th Cir. 1977);

United States v. Moore, 552 F.2d 860,

865 (9th Cir. 1977); United States v.

Rodriguez, 546 F.2d 302, 308 (9th Cir.

1976). We will, however, consider more

than one count as to each defendant, be-

cause of the nature and complexity of

the case.

The counts under consideration may

be divided into two groups. Counts 75,

78, 80, and 84 allege that one or more

of the defendants "willfully made or

caused to be made untrue statements of

material fact" in various registration

statements filed with the Securities

and Exchange Commission. The allegedly

false statements were that the firm of

Wolfson, Weiner, Ratoff and Lapin? had

audited the financial statements of

Equity Funding and its subsidiaries

Lissa using generallyjaccepted auditing stan-

Sl.

dards (GAAS) and had found them to be

in conformity with generally accepted

accounting principles (GAAP).

The second group, Counts 76, 77, 79,

81, 82 and 83 charge Lichtig, and others

not tried here, with willfully making

and causing to be made untrue or false

and misleading statements of material

fact or willfully omitting or causing

to be omitted statements of material

fact about specific accounts contained

in the financial statements included in

the registration statements filed with

the SEC. These counts deal with errors

in the actual amounts reported.

These two groups of counts were

treated together by the judge as the

"false filing charges". In his instruc-

tions to the jury he stated the three

necessary elements that the prosecution

must establish in order to warrant a

conviction:

"The first element is that

the defendant under consideration

in the specific document named

in the count made or caused to

be made a false statement of

material fact, or, where alleged

52.

omitted or caused to be omitted

a material fact required to be

stated therein or necessary to

make the statements therein not

misleading.

"Counts 76, 77, 79 and 81

allege both false statements and

omissions to make certain dis-

closures. The other counts

allege only false statements.

"The second element is that

the document named in each res-

pective count has been filed

with one or more of the bodies

named in the count.

"The third element is that

the defendant under consideration

acted wilfully and, with respects

to Counts 82, 83 and 84 that he

additionally acted knowingly."

As previously stated, it is undis-

puted that the financial statements of

Equity Funding failed to reflect the

actual condition of the company. Thus,

the first element is satisfied because

the financial statements contained false

statements of accounts. The connection

of the defendants with the statements

was shown by their individual responsi~

bilities in relation to the audits.

Each had a managerial role and had re-

53.

sponsibilities for the overall audit

and the final reports. Lichtig's con-

nection, when he was an officer of

Equity Funding, was shown by his sig-

nature on each registration statement as

the Executive Vice President with fin-

ancial responsibilities. The second

element is also easily shown, as each

document in question bears proof on its

face of filing with the SEC.

The remaining inquiry is whether -

defendants approved of and concurred in

the grossly misstated reports in the

good faith belief that the statements

were accurate representations or wheth-

Ler they knowingly and willfully ac- jleco

quiesced in the dissemination of false

statements. See United States v. Col-

asurdo, 453 F.2d 585, 594 (2d Cir. 1971)

cert. denied, 406 U.S. 917 (1972);

United States v. Simon, 425 F.2d 796

(2d Cir. 1969), cert. denied, 397 U.S.

1006 (1970). In our discussion of in-

tent in United States v. Kaplan, 554

F.2d 958 (9th Cir.), cert. denied,

U.S. (1977), we stated:

54.

et aa —

"Credibility was for the

jury. The jury had to resolve

evidentiary conflicts and draw

reasonable inferences therefrom.

* * * An inference of criminal

intent can be drawn from cir-

Cumstantial evidence. * * *"

554 F.2d at 964. (Citations

Omitted. )

As we discuss below, there was suffic-

ient evidence from which the jury could

find that defendants willfully and know-

ingly produced the documents containing

erroneous information.

1. Sufficiency - An Overview

Each group of counts charged sim-

ilar acts in different years. An er-

roneously recorded transaction in one

year often persisted into the following

years. Our count-by-count analysis is

chronological, but in order to under-

stand the full impact of particular ac-

tions a general examination is helpful.

Equity Funding's unorthodox book-

keeping began in the early 60's. Ev-

idence of the manipulation before 1968

was presented to the jury. By 1968 a

pattern had emerged in which the Funded

55.

Loans and Accounts Receivable asset ac-

count (FLAR) was being used as an um-

brella account for numerous and varying

false entries. Other accounts, both

assets and liabilities, were inflated

or created as needed to present the de-

sired picture of a healthy, growing

corporation. Weiner and Lichtig had

audited the company since the early

sixties. After Lichtig became Equity

Funding's Executive Vice President,

Block became the audit manager. They

were thus involved with the company's

financial history almost from its in-

ception. Weiner and Lichtig also help-

ed engineer many of the “innovative”

accounting techniques utilized over the

years.

Various Equity Funding officials

testified to the falsity of the figures

that appeared on the financial state-

ments and to the fact that in many in-

stances no backup papers supported the

entries. Therefore, if the auditors

had attempted to confirm the informa-

tion given to them they would have been

unable to do so. The lack of backup

56.

and supporting schedules would have

been a clear indication that something

was wrong. Since such backup often was

not even fabricated, the jury could in-

fer that the auditors either completely

failed to audit the areas, in disregard

of GAAS, or consciously failed to audit

in "cooperation" with the Equity Funding

officials, thus purposely avoiding the

false entries. If the questionable

areas had been audited and no backup

found, the failure of the auditors to

reflect that fact in their report would

have clearly contravened GAAS and the

purpose of an independent audit.

After the fraud was discovered in

1973, Touche, Ross & Co. was appointed

‘to audit the financial statements of

Equity Funding in accordance with GAAS

and GAAP. Touche, Ross & Co. made sub-

stantial adjustments after finding it

impossible to confirm properly many of

the recorded transactions or upon find-

ing that mathematical calculations were

erroneous. Many of the adjustments re-

lated to transactions that occurred

years before. The total final adjust-

37.

ment tojthe FLAR account alone was a Lisoi

deduction of $62,305,353 to eliminate

the items related to false or improper

entries. The remaining valid balance

was approximately $44,000,000.

The testimony of William Simpson, an

SEC accountant, further supported the

Findings of the auditors from Touche,

Ross & Co., as did the testimony of the

Equity Funding employees regarding the

development of nonexistent assets. The

sheer magnitude of the adjustment, and

the length of time over which Weiner,

Lichtig, and Block were involved with

the company, warrants at first consid-

eration a strong inference that the

defendant auditors either were totally

inept or, more likely, were at least

partly aware of the false inflation of

Equity Funding's accounts. Our dis-

cussion of the FLAR and other accounts

in the financial statement for 1968

through 1971 will detail the particular

treatment of several items later found

to be false.

58.

2. The Audits

a. 1968

At the beginning of the 1968 audit,

Jerome Evans, Treasurer of Equity Fund-

ing, disappeared. The company's books

also vanished. John Templeton was ap-

pointed controller and, with the co-

operation of Equity Funding employees

and the auditors, attempted a recon-

struction of the books. Starting from

the unaudited third-quarter statement,

they developed a yearly statement. The

FLAR account showed a balance of

$36,311,037. The opposite liabilities

account, Notes Payable and Funded Loans

and Accounts Receivable, totaled

$15,564,629.29. The Consolidated

Statement of Financial Condition that

appeared in registration statements

filed with the SEC on April 22, 1969,

and December 31, 1969, contained these

figures.

Count 75 of the indictment alleges

that defendants Weiner and Lichtig

"willfully made and caused to be made

untrue statements of material fact" in

59.

the April registration statement. The

untrue statements were in the Account-

ant's Report submitted to the SEC with

the registration statement. The untrue

facts and omissions were the erroneous

reporting of various specific accounts

contained in the financial statement

and incomplete descriptions of certain

accounts.

There is no question about the in-

accuracy of the figures contained in

the financial statements. The nec-

essary determination is whether there.

was sufficient evidenct to support the

jury's verdict and the underlying find-

ing that defendants had acted willfully

and with knowledge in filing the incor-

rect financial data and certifying its

reliability.

The FLAR and Notes Payable Accounts

contain references to footnote 4 in the

Notes to the Consolidated Financial

Statement?°, which states:

"Under the method of oper-

ations of the companyy™ this rep-

resents, in the aggregate, the

amount that clients owe as a

60.

result of the various 'funding

programs' offered by the com-

pany, together with loans and/or

receivables where’ 'funding

programs' have terminated and

where the respective shares

have not been liquidated as of

December 31, 1968.

"The Funded Loans and

Accounts Receivable are offset,

in part, by the Contra Notes

Payable in Funded Loans and

Accounts Receivable. The dif-

ference, in the amount of

$20,746,408 is held by Equity

a FundingLCorporation of America

or one of its subsidiaries."

Contrary to the footnote, the FLAR was

not composed only of sums related to the

funding programs. Templeton had been

unable to support the estimated figure

for the FLAR with.detail from funding

programs in his original work and had

been told that the discrepancy was due

to the fact that $13,500,000 included

in the account represented reciprocal

¢1 he SEC had

previously ruled that brokers were for-

commissions (recip).

bidden to pay such commissions. There

was, however, no constraint on Equity

Punding's right to receive such money.

61.

At Templeton's insistence, Weiner

and Lichtig were informed of the in-

clusion of "recip" in the FLAR account.

They were told it was necessary to place

the item in the account because probl-

ems could arise if there were an open

reporting of the funds. lLichtig and

Weiner agreed to the inclusion of the

amount without any confirmation.

The inclusion of the "recip” in the

FLAR account was misleading. The foot-

note for the account contains no in-

dication that it represents any money

other than that related to the various

funding programs. There is a material

difference in representing that the

$13,500,000 was a receivable resulting

from the sale of the product the co- |

mpany offered rather than a one-time

collection of monies due.

A second error in the FLAR balance

demonstrated that the independent aud-

itors failed properly to check the

company's financial statements. Temp-

leton testified that he had determined

that the "collateral held by EFCA" on

62.

funded loans that had terminated was

worth $6,672,337. He arrived at the

figure by looking at approximately 390

funding programs and finding that seven

for which Equity Funding still held the

collateral had terminated. He computed

this as a termination rate of 18 per-

cent, and multiplied that figure by the

estimated total collateral held by

Equity Funding to reach the $6 million

figure. In fact, the percentage was

properly 1.8 percent, and the figure

should have been only $667,233.70

William Simpson testified that the work-

papers contained a notation nent to the

inflated figure: "To be revised." In

parentheses on another sheet, the lower

percentage: had been used to arrive at

the correct, lower figure. The revis-

ion was never included in the final

trial balance or the completed finan-

cial statements.

Other evidence tending to show the

lack of application of GAAS and GAAP

included the fact that the footnote

showed no figure for the total amount of

collateral supposedly held by Equity

63.

Funding for the funded loans. Auditors

examining the records after discovery

of the fraud found confirmation of the

internally held programs of their col-

lateral. Other mathematical duplica-

tions in various accounts went uncor-

rected. Detail work for the portion of

the FLAR arising out of the actual pro-

grams was not fully confirmed.

Thus, in 1968 the FLAR was riddled

with mathematical errors, incorrectly

described in the relevant footnote, and

contained items that were not and often

could not be confirmed. Weiner was the

managing partner for the audit, and

Lichtig was the field manager. Temp-

leton testified that Lichtig had in-

formed himjithat the inclusion of Lleo3

"recip" in the FLAR account was accept-

able, and there would be no confirmation.

Lichtig was in constant contact with

Templeton and was aware of Templeton's

frequent questions about various pro-

cedures. He was also responsible for

reviewing the workpapers of the aud-

itors working below him. Templeton

testified that Lichtig told him he

64.

would not confirm the accounts receiv-

able, and that Lichtig refused to per-

mit Templeton to see the audit work-

papers from previous years to aid in

the reconstruction of the records.

Finally, Lichtig was responsible for

the note describing the FLAR and Contra

Notes Payable accounts.

There was clearly sufficient evid-

ence to support the jury's conviction

of Lichtig on Count 75. Since Count 76

dealt with a registration statement

containing the same financial statement,

that conviction was also supported by

the evidence. Lichtig had become an

officer of Equity Funding by the time

of the filing of the second statement,

and his signature appears at the end of

the statement in his official capacity.

As an auditor he had known about the

falsehoods in the financial statement,

and as an officer of the corporation he

continued to misrepresent the fact that

the statement did not accurately refl-

ect Equity Funding's financial status.

The evidence as to Weiner is not as

65.

clear as to Count 75. The major rele-

vant testimony is Templeton's descrip-

tion of Lichtig's representations re-

garding "recip" after the meeting with

Weiner and Goldblum. Were this the

only evidence and the only count against

Weiner, his conviction might be diff-

icult to sustain. In light of the

testimony regarding his participation

in later years, his position of res-

ponsibility, and the enormity of the

misstatements, however, it was possible

for the jury to infer his knowing and

willful participation in the prepar-

ation of the false statements. In any

. event, we need not consider the ques-

tion further because there is ample ev-

idence to sustain his conviction under

other counts.

b. 1969

Counts 77 and 82 repeat the basic

allegation contained in Count 76, and

Count 78 repeats the basic allegation

contained in Count 75. Counts 77 and

82 relate to a registration statement

filed with the SEC on December 9, 1970;

66.

Count 78 relates to one filed on August

20, 1970. lLichtig is charged in

Counts 77 and 82 with making or causing

to be made untrue statements about ac-

counts listed in the financial state-

ments contained in the registration

statements, and Weiner and Block are

charged with making or causing to be

made untrue statements or omitting mat-

erial facts in the accountants' report

in Count 78. Weiner and Lichtig were

convicted on these counts; Block was not.

Each registration statement contain-

ed an audited Consolidated Statement of

Financial Condition as of December 3l,

1969. The “Report of Independent Cer-

tified Public Accounts" signed by

Wolfson, Weiner, Ratoff and Lapin, and

included with the financial statements,

represents that an independent audit

had been made, that the examination was

"made in accordance with generally ac-

cepted auditing standards", and that

the financial statement was in conform-

ity with GAAP.

The FLAR account is recorded at

67.

$51,188,199, up almost $15 million from

the year before. Contra Notes Payable

equaled $21,703,967, and Note 4, the

referenced footnote, states that the

difference of $29,484,151 is held by

EquityjFunding and its subsidiaries.

The note essentially duplicates that

written for the 1968 statement, except

for the figures and the insertion of

the words "and net contracts receivable"

in the first paragraph. *”

Sultan testified that the first

trial balance during the audit for 1969 -

had a FLAR balance of $33 million, which

was too low. After discussions with

others in the company it was decided

that other assets would be added to the

FLAR account and the detail would be

padded on the basic funded loans asset.

The Investors Planning acquisition

previously discussed took place in 1969,

and the creation of the Client Contract-

ual Receivable Account significantly in-

creased the FLAR balance. The final

amount booked in the Clients Contract-

ual Receivable Account in which the

68.

Lisor

Investors Planning manipulations were

_ reflected was $17,847,290, with com-

missions payable of $4,638,473, fora

total of around $13 million in income

recorded. According to West, the CPA

from Wolfson, Weiner, Ratoff and Lapin

who worked on the audits from 1969

through 1972, a final adjustment of

$1,500,000 was made in the account after

Block indicated that the company needed

more income.

Norman Grossman, a partner in

Touche, Ross & Co., testified that the

accounting treatment of the trail com-

missions was contrary to GAAP. Normal-

ly, when a company makes an acquisition

the assigned value cannot exceed the

purchase price. The purchase price here

was $10 million, but an additional $17

million value was assigned to the trail

commissions. The value of the $10 mil-

lion acquisition was thus inflated in

the financial statement to approximately

$27,8000,000. It was also contrary to

GAAP to accrue these commissions in the

year of purchase and to record excess

value.

69.

Once the establishment of the Cli-

ents Contractual Account had been agreed

to, Goldblum promised to write a letter

to Weiner guaranteeing the purchase of

the commissions should the planned sale

not go through. Block then wrote a

footnote to the financial statement ac-

curately describing the transaction.

Lowell testified that he, Weiner, and

Goldblum found the footnote totally un-

acceptable. With Weiner's participa-

tion, they compromised on inserting the

phrase “and net contracts receivable."

It was inserted in the middle of an un-

related sequence in order to avoid

arousing interest. According to Lowell,

Weiner was aware that if Block's foot-

note had been used the company would

have shown a decrease in earnings, while

the use of the compromise footnote and

the addition of the Clients Contractual

Receivable to the FLAR account created

an increase.

A deliberate arithmetical error was

introduced to the final detail infor-

mation on the funded loans asset to in-

crease its paper value. Lowell met

70.

with Weiner and told him that if he

dLjeos did not have thelLdetail added up, the

company could take care of the shortfall.

This was done by inserting a $2 million

"plug", which appeared in the total but

not in the detail lists. Lowell showed

the computer card containing the "plug”

to Lichtig. Lloyd Edens former direc-~-

tor of financial services of Equity

Funding and Treasurer of Equity Funding

Life, in his testimony, confirmed the

use of the device.

Fred Levin, Executive Vice President

of Equity Funding and President of the

life insurance subsidiary, Equity Fund-

ing Life Insurance Company (Equity Fund-

ing Life), confirmed that meetings had

taken place between Weiner and Lowell

‘regarding the treatment of the Inves-

tors Planning commissions. West test-

ified that he and other coworkers on

the audit had questioned Block about

the recording of the Client Contractual

Account on the 1969 audit because they

felt it was an unorthodox treatment.

Block told them he would discuss it

with Weiner, and later said that on

5

Weiner's direction it would be allowed

to stand.

There was ample evidence to show

Weiner's knowledge of the improper han-

dling of the FLAR account. The modif-

ied footnote that he helped draft con-

cealed the true condition and operations

of the company. According to Lowell,

Weiner was aware of the misleading ef-

fect of the presentation used. In add-

ition, Grosman and others testified

about the failure to adhere to GAAP and

GAAS. This evidence, and evidence of

failures to confirm major assets claim-

ed or to check the information supplied

by the company, supports the jury's

finding that Weiner knowingly and will-

fully made or caused to be made false

and misleading statements in the aud-

itor's report. Weiner's position as

managing partner and his active part-

icipation in developing ways of present-

ing only advantageous descriptions of

the company's financial condition also

support his conviction on Count 78.

Lichtig's involvement was shown in

72.

a number of ways. He was originally in

charge of presenting the figures to the

auditors in the beginning of 1969.79

He was a participant in meetings with

Goldblum, Weiner, and Lowell where the

accounting treatment of the trail com-

missions was determined. He was shown

the card with the "plug". His signature

appears on the SEC statement as Execu-

tive Vice President and Treasurer. He

knew of the inflation in the FLAR ac-

count from previous years. This and

other evidence demonstrated his general

knowledge of the purposeful false in-

flation of FLAR and other accounts on

the financial statement. The jury had

sufficient evidence to convict him on

Counts 77 and 82.

c. 1970 and 1971

Count 79 charges Lichtig with acts

similar to those charged in Count 76

with regard to a registration statement

filed with the SEC on December 7, 1971.

Count 80 charges Weiner and Block with

the same violation as charged in Count

75 with regard to the 1971 registration

73.

statement, which contained the audited

statements for 1970. All three defen-

dants were convicted.

In 1970, the Investors Planning

trail commission sale was made. There

was no confirmation of the sale in the

workpapers, and West testified he saw

no attempts to verify the collectibility

of the balance of the receivable after

the initial down payment by checking on

theLpurchaser's financial condition.

There was testimony that this was con-

trary to GAAS. Other significant events

in 1970 included the discovery of a

$10 million plug in the total for the

Funded Loans Receivable asset. Edens

testified that he had helped manufacture

the plug by running a special total

sheet that was given to the auditors.

The plug was found when West added a

few sample pages of the detail, multip-

lied it by the total number of pages,

and found the result greatly inadequate.

Lichtig alerted Lowell to the problen,

and a meeting was held among Lowell,

Lichtig, Edens, and another Equity Fund-

ing employee, Bill Mercudo. Edens was

74.

Liece

directed to prepare a reconciliation,

which he then gave to Block. Edens

testified that he manufactured backup

for the information given to Block, and

that a check of the schedules supplied

would have revealed the falsity of the

claimed assets.

The general ledger contained: many

entries that showed simultaneous in-

creases and transfers in round numbers

in accounts that normally are unrelated.

Grosman, Benjamin Karchin, an SEC ex-

aminer, and West all confirmed the im-

propriety of the entries. Block never

questioned the methodology underlying

the entries, and there was no evidence

found in the workpapers that any checks

on the various transfers and inflations

had taken place. Sultan testified that

the entries were purely fictitious and

no backup or schedules supporting them

had been prepared.

Block was also specifically aware of

the reclassification of Selling, General

and Administrative costs into Commission

expenses. The two accounts were un-

75.

related, so the reclassification was

Suspicious on its face. Block did not

follow up on the reclassification to

determine the justification for it. The

change was in fact an improper manipu-

lation of the accounts. Block also

never questioned the inclusion of ex-

ploration costs on the books of Equity

Funding. Such costs normally would be

reflected on the books of the company

actually doing the exploration, i.e.,

the appropriate subsidiary, rather than

on the books of the parent corporation.

Lowell testified that in 1971, dur-

ing the course of the 1970 audit, Block

told him that he knew about "recip".?>

The statement came up during a conver-

sation about notes receivable. The

notes did not exist as a true receiv-

able, but supposedly represented a col-

lection of "recip" that Equity Funding

did not want to reveal. Block asked

for confirmation, and a confirmation

was arranged through someone in Italy.

Weiner directed Lowell to get confir-

mation for Block, despite Lowell's pro-

tests. This was only one of several

76.

jiso7

times that Lowell had confirmations

manufactured at Weiner's request. Block

indicated knowledge of the questionable

nature of some of these false confir-

mations when he pointed out to Lowell

that envelopes bearing the confirmations

had unlikely postmarks.

Lowell testified that Block had

questioned some of the procedures dur-

ing the first part of the audit. Lowell

with concurrence of other participants

in the scheme, offered Block a trip to

Rome if he would cooperate. After this

conversation, the reconciliation to ex-

plain the $10 million gap in the funded

loans asset was given to Block, and he

was told tolLhandle it himself. No

further questions were raised by him

about the asset, and, as stated, appar-

ently no inquiry into backup was made.

Block's suspicions were aroused in 1969.

The jury chose not to convict him for

his activities then. Their finding

that by 1971, during the audit for 1970,

Block had the requisite willfulness and

knowledge is supported by the record.

Although he may not have known the mag-

77.

nitude of the fraud or many of its de-

tails, his awareness of the manipula-

tions used and his willingness to co-

Operate and not fully investigate sus-

picious areas suffice to sustain his

conviction on Count 80.

During the 1970 audit Weiner knew

that two confirmations, one for an ac-

count at Banco Union and another for

Banque Jordan, were prepared at Lowell's

direction. Weiner received one by mail

and one from Lowell personally. At the

least, he knew that the explanation for

the accounts was that they concealed

"recip" income, and he nonetheless co-

operated in falsifying the confirmations.

The confirmations showed the accounts to

be cash deposits subject to withdrawal

by check with no interest shown as pay-

able. This was never questioned even

though the accounts were listed as in-

vestment accounts in the financial

statements. Weiner also knew that cer-

tain notes receivable were not what they

purported to be. During the 1970 audit

he participated in developing a cover-

up of a mistake made in the 1969 record-

78.

ing of an investment. The account was

reclassified with Weiner's knowledge,

and a note was attached to the journal

entries dealing with the reclassifica-

tion which stated: "all transactions

verified by JW - WWR & L -- no adjust-

ments necessary." Lowell prepared the

schedule and note and sent a copy to

Weiner and Block. Weiner's continuing

involvement with various misleading

practices was sufficiently proved to

sustain his conviction on Count 80.

Lichtig participated in the dis-

cussions of how to cover up the $10

million plug discovered by West. His

continued role as an officer of Equity

Funding involved in its financial af-

fairs, combined with his previous know-

ledge of the falsification in the ac-

count, supplied sufficient evidence to

sustain his conviction on Count 79,

Counts 81 and 93, charging Lichtig,

and 84, charging Block and Weiner, are

the same counts for the 1971 audit based

on SEC registration statements filed on

September 8,1972, and April 5, 1972,

79.

which contained audited financial

statements for the year 1971. The in-

volvement of each defendant was contin-

uing. They each held the same position

as in the years before. Block's furth-

er knowledge of the falsity of the fin-

ancial statements was demonstrated by

events such as a conversation with

Lowell in the summer of 1971 wherein he

described, hypothetically, a transaction

exactly like that which had been set up

for the purported sale of the Investors

Planning Client Contractual receivable.

He also made requests to Lowell and

Goldblum for a job with Equity Funding,

thus bringing his independence sharply

into question. Sultan testified that

the earnings-per-share figure released

in a press release turned out to be a

penny off, and that he had discussed

the problem with Block. Sultan changed

the figures showing the number of out-

standing shares, and Block was aware

that the change to an erroneous figure

was made.

In general, inflations of accounts

continued in 1971, and earlier incorrect

80.

figures were carried froward even though

in some instances there was a prima

facie indication that something was

jicecs wronglwith the accounts. In one in-

stance an account that would not nor-

mally have been static had the same be-

ginning and ending balance, and there

was no investigation to determine the

reason for such an unusual situation.

Also, no payment was received on -var-

ious notes receivable; yet the notes

were not discounted or written off but

were carried at full value. Thus, suf-

ficient evidence existed to support

defendants' convictions on each of the

applicable counts for the audits for

the years 1970 and 1971.

In view of the sufficiency of the

evidence on the foregoing counts, the

concurrent sentence doctrine makes it

unnecessary to review in detail the

evidence on Counts 6 and 10 through 14.

Summation.

Defendants have contended that they

were victims of the fraud perpetrated

by the officers of Equity Funding, and

81,

that, although they might have been to

some degree negligent or they might have

erred in their judgment as auditors,

their criminal participation was not

proved. More accurate is the following

comment of the trial judge made during

the proceedings relating to defendant's

motion for new trial:

"The evidence, I think, does

not show that the defendants were

aware of the fraud in its early

stages. I think they were the

victims of the fraud for some

period of time. * * * Even

though the evidence is not al-

together direct, it is largely

circumstantial, it is overwhelm-

ing to the point where I cannot

escape the conclusion that the

defendants must have known and

must have come to a point where

they knew of the fraud, and that

they thereafter did acts in

furtherance of the fraud."

The Equity Funding account was a

large part of the business of Wolfson,

Weiner, Ratoff and Lapin. Weiner and

Block had worked with Equity Funding

almost from its inception. Weiner's

participation in financial decision-

making at critical stages was establish-

82.

ed. Lichtig moved into an executive

position. By 1971, Block was also at-

tempting to gain employment with Equity

Funding. There is no question that a

purposeful fraud was perpetrated by the

officers of Equity Funding. The over-

whelming scope of the fraud, its often

complex but sometimes very simple mech-

anisms, and the failure of the auditors

to find in any of the suspicious pro-

cedures cause to dig further into Equity

Funding's financial records system all

lead to the inescapable conclusion that

defendants were involved. Even if they

did not initially know or indeed learn

the step-by-step fictitious entries and

improper manipulations, their consistent

failure to apply GAAS and GAAP after

they knew some kind of a major fraud was

afoot provided a basis from which the

jury could reasonably infer defendants'

knowing and willful participation in the

fraud.

"* * *Generally accepted

accounting principles instruct

an accountant what to do in the

usual case where he has no reason

to doubt that the affairs of the

83.

corporation are being honestly

conducted. Once he has reason

to believe that this basic as-

sumption is false, an entirely

different situation confronts

him.* * *." United States v.

Simon, 425 F.2d at 806.

P, JURY INSTRUCTIONS DEALING

WITH INTENT

We next dispose of defendants' con-

tentions regarding certain jury instruc-

tions: those related to the question

of the sufficiency of the evidence.

ja. Compliance with GAAS and GAAP

Defendants first challenge the

court's instruction on the rule of

generally accepted auditing standards

and generally accepted accounting

principles in the jury's deliberations.

The instruction is reproduced in the

margin. °°

We have not previously ruled on the

propriety of instructions which state

that compliance or noncompliance with

GAAS or GAAP is relevant to the deter-

Mination of a defendant's intent. The

Second Circuit has dealt with similar

instructions in United States v. Simon,

84,

L 609

25 F.2d 796 (2d Cir. 1969), and United

States v. Natelli, 527 F.2d 3ll, 318-24

(2d Cir. 1975), cert. denied, 425 U.S.

934 (1976). In Simon three accountants

appealed from their convictions on three

counts arising out of their drawing up

and certifying a misleading and false

financial statement. The jury was in-

structed that the primary determination

was whether the financial statements

accurately reflected the company's con-

dition, and, if not, whether the def-

endants acted in good faith. Proof of

complaince with GAAS was deemed "ev-

idence which may be very persuasive but

not necessarily conclusive that he act-

ed in good faith.” 425 F.2d at 805

See United States v. Natelli, 527 F.2d

at 318-24; United States v. Colasurdo,

453 F.2d at 594.

The prosecution introduced into ev-

idence the Statement on Auditing Stan-

dards (1973) issued by the Committee on

Auditing Procedure, American Institute

of Certified Public Accountants. The

Statement outlines the general purpose

of the independent audit, */ and

85.

L§ 110.05 explains the responsibilities Lisio

of the individual auditor who finds

fraud in the entity whose records are

being examined:

"In making the ordinary

examination, the independent

auditor is aware of the poss-

ibility that fraud may exist

* * *. However, the ordinary

examination directed to the

expression of an opinion on

financial statements is not

primarily or specifically de-

signed and cannot be relied

upon, to disclose defalcation

and other similar irregularities,

although their discovery may

result * * *. The responsibility

of the independent auditor for

failure to detect fraud (which

responsibility differs as to

clients and others) arises only

when such failure clearly results

from failure to comply with

generally accepted auditing

standards."

Under these standards the auditor is not

"responsible" for fraud that has gone

undetected despite his utilization of

generally accepted auditing standards.

In our case, failure to apply generally

accepted auditing standards is relevant

to the issue of knowledge and willful-

86.

ness.

Sufficient evidence was introduced

to raise the issue of conformity with

GAAS and GAAP. During the trial sev-

eral witnesses testified that many of

the practices under consideration were

not in conformance with GAAS and GAAP.

Generally, no audit manual was prepared

for each year's audit, no checks on in-

ternal controls were made, and basic

standards for confirming accounts were

not followed. The witnesses included

Norman Grosman, a partner in Touche,

Ross & Co.; Frank West, who worked on

the audits from 1969 through 1972; and

William Simpson and Benjamin Karchin,

SEC employees who reviewed Equity Fund-

ing's books. The jury had evidence from

which it could determine whether GAAS

and GAAP were properly utilized and

whether the failure to utilize them was

such as to lead to a reasonable infer-

ence of criminal intent.

The judge's instruction, which

stated that evidence regarding com- |

pliance with GAAS and GAAP was not con-

87.

clusive but was relevant, was a proper

statement. The weight to be given the

evidence was for the jury's determin-

ation.

b. "“Willfulness"

Defendants also assert that the

court erred in instructing the jury on

the issue of knowledge. The jury was

instructed that proof of negligence was

insufficient to support a conviction,

and that proof of good faith constitu-

ted a complete defense to the charges.

The court went on to instruct the jury

that, in determining intent, the jury

could consider whether defendants acted

in "reckless, deliberate indifference

to or disregard for truth or falsity"

and could infer from proof of such acts

that defendants acted willfully and

knowingly. 2°

L The instruction was given before

our decision in United States v. Jewell,

532 F.2d 697 (9th Cir.) (en banc),

cert. denied, 426 U.S. 951 (1976),

where we held:

"ke &*€ * To act "knowingly,'

88 .

Liet

therefore, is not necessarily

to act only with positive

knowledge, but also to act with

an awareness of the high prob-

ability of the existence of

the fact in question. When

such awareness is present,

"positive" knowledge is not

required." 532 F.2d at 700

United States v. Valle-Valdez, 554 F.2d

911, 913-14 (9th Cir. 1977). The trial

court's instruction in the present case

followed closely the instruction app-

roved by the Second Circuit in United

States v. Natelli, 527 F.2d at 322-23.

There the trial court had instructed the

jury that, on proof of "reckless de-

liberate indifference to or disregard

for truth or falsity," the jury could

infer the defendants' willful and

knowing participation in the filing of

false financial information with the

SEC. The defendants contended that the

instruction erroneously failed to state

also that there must be a concurrent,

"conscious purpose to avoid learning

the truth." 527 F.2d at 323. The

court approved the instruction and

stated:

89.

"x * *The dual instruction

is not necessarily required, how-

ever, when the defendant is under

a specific duty to discover the

true facts, the facts tendered

are suspect, and he does nothing

to correct them." 527 F.2d

at 323

The court properly instructed the

jury on the need to find both deliber-

ate avoidance and an awareness of im-

propriety. Defendants here, as audit-

ors, had a duty carefully to investi-

gate and review the information pre-

sented. Because the instruction stated

that good faith constituted a complete

defense, it was implicit in the instruc-

tion that, coupled with a finding of

deliberate avoidance of knowledge, the

jury also had to find bad faith.

As the Second Circuit stated in

United States v. Simon:

"x * * 'while there is no

allowable inference of knowledge

from thejmere fact of falsity,

there are many cases where from

the actor's special situation

and continuity of conduct an

inference that he did know the

untruth of what he said or wrote

may legitimately be dsaum.** * *

Evidence that defendants knowingly

90 .

jiei2

suppressed one fact permitted,

although it surely did not

compel, an inference that their

suppression of another was like-

wise knowing and willful."

425 F.2d at 809, quoting from

Bentel v. United States, 13 F.2d

327, 329 (2d Cir.), cert. denied,

4273 U.8. 713 (1926.

In view of the defendants' duty because

of their roles as auditors and financial

officer of the company, the jury in-

struction was proper.

Q. JURY INSTRUCTIONS ON

UNANIMITY

Lichtig, joined by Block and Weiner,

contends that the court failed to in-

struct the jury properly on the unanim-

ity requirements for a finding of guilt

On Count 6 and Counts 10 through -14. 7?

These counts charged mail-fraud viol-

ations, and incorporated Count 2 and a

portion of Count 1 which detailed

specific wrongfu. acts. lLichtig argues

that Counts 1 and 2 alleged acts oc-

curring both while he was an auditor

and while he was an executive of Equity

Funding, that two distinct time periods

were thus established, and that the jury

91.

should have been instructed that is had

to be unanimous as to at least one time

period. ?° Appellants also argue that

there was a failure to instruct on the

need for unanimity as to individual

"acts or specifications" in a single

count.

A reading of the jury instructions

shows that the court separated out the

six mail-fraud counts and instructed

the jury that it had to find three

elements in order to convict. The first

two elements were the participation of

the particular defendant in the offer-

ing or sale of securities where use was

made of some manner of transportation

in interstate commerce or of the mails.

The third element contained three al-

ternative subparts. As to this element

the jury was instructed it also had to

find that the defendant (1) willfully

and knowingly employed any device,

scheme, or artifice to defraud, or (2)

willfully obtained money or property

by utilizing untrue statements of mat-

erial fact or by omitting statements of

material fact which were necessary to

92.

jiei?

make the statement accurate, or (3) will-

fully and knowingly engaged in a trans-

action, practice, or course of business

which operated as a fraud or deceit

upon a purchaser. Immediately following

this instruction, the court continued;

"Although it is necessary

to prove only one of the three

different subparts I have just

mentioned, if you find one or

more of such subparts has been

proved, you must agree unanimously

upon at least one of such subparts

before you can convict for such

offense."

The instruction outlined the ele-

ments, and, for the one portion where

alternate findings were possible, clear-

ly emphasized the necessity of unanim-

ity. Unlike United States v. Natelli,

‘327 F.2d 311 (2d Cir. 1975), cert. de-

nied, 425 U.S. 394 (1976) ;, Street v.

New York, 394 U.S. 547 (1969); and

Yates v. United States, 354 U.S. 298

(1957), the jury here was properly in-

structed on unanimity and the various

alternate bases were supported by the

evidence. (See discussion on suffic-

iency of the evidence, Part 0, supra.)

93.

As to the necessity of instructing

the jury that it had to agree unanimous-

ly in its verdicts on the individual

acts specified in a given charge:

"xe * *(T)he defendants

confuse the scheme to defraud,

which is the gist of the offense,

with the means adopted to effect-

uate that scheme.* * *" Simons v.

United States, 119 F.2d 539, 549

(9th Cir.), cert. denied, 314 U.S.

616 (1941).

See United States v. Amrep Corp., 560

F.2d 539 (2d Cir. 1977). The charges

against the defendants involved schemes

to defraud, and the particular acts al-

leged were the means for carrying the

general schemes into effect. The court

sufficiently instructed the jury on the

need for unanimity.

|

R. FAILURE TO HAVE CERTAIN

PROCEEDINGS RECORDED

Defendants contend that the trial

court erred in failing to have three

portions of the trial reported pursuant

to the mandate of the Court Reporter

Act, 28 U.S.C. § 753(b), that "all

proceedings in criminal cases had in

94.

open court" be recorded verbatim. The

proceedings that went unreported were:

(1) the judge's action in ascertaining

that the presence of two jurors on an

elevator during a conversation between

a government attorney and witness was

harmless; (2) part of the discussion

regarding the proposed jury instruc-

tions; and (3) a portion of the jury

voir dire.

The first event has been dealt with

in our discussion of alleged prejudic-

ial communications, Part C, supra, where

we find no significant basis for over-

ruling the trial court. We further

note that no explicit request for a

court reporter was made by defendants

at the time of the incident. See |

United States v. Piascik, 559 F.2d 545,

550 (9th Cir. 1977), cert. denied,

U.S. (1978). There was no error

in the court's handling of the situation.

As to the second incident, at the

commencement of the discussion on the

jury instructions the court stated,

"It seems to me that we should let the

95.

reporter go, because I don't plan on

making any rulings." No objection was

made and the reporter was dismissed.

Thereafter, Markowitz, attorney for

Block, requested the presence of the

reporter. A discussion on the record

ensued and the judge informed counsel

that he was willing to keep the report-

er there, but that the "free discussion"

they had been having would have to

cease and each attorney would have to

speak from the podium. The court as-

sured counsel that they would be given

an opportunity to make timely object-

ions on the record. Markowitz agreed

that if the making of a timely objec-

tion was shown on the record, there was

no need for the reporter. “The reporter

was again excused. No objection was

made by any counsel.

Defendants now contend that they

are prejudiced because all of their

arguments regarding the instructions

are not available for review. As

promised by the judge, their objections

were reported in detail after a deter-

96.

Liet+

mination had been made as to what in-

structions were to be given. Defendants

point to no objectionl|that went unre-

ported; they point only to unreported

arguments in support of their objec-

tions. The objections were adequately

preserved for our review, and no counsel

has been bound merely to restating the

arguments made below; they have in fact

expanded on their arguments on appeal.

Trial courts frequently discuss in-

structions in chambers before a record

is made.

In addition, although this court

has held that compliance with 28 U.S.C.

§ 753(b) is mandatory, we have also

held that a waiver without personal

consent of the defendant is permissible.

United States v. Piascik, 559 F.2d at

549-50. Counsel here withdrew the ob-

jection to the reporter's absence and

cannot now reassert it.

The last disputed incident involved

the trial court's preliminary "admin-

istrative" voir dire of the prospective

jurors. Before the case was formally

97.

called, the judge informed the array

of jurors that those who wished to be

excused should approach the bench in-

dividually, and he would then rule on

the sufficiency of each excuse present-

ed. See 28 U.S.C. § 1866(c). The in-

dividual excuses were not reported.

When the case was called, defendants ob-

jected to the array and requested a

new array in its stead. The objection

was overruled, and regular voir dire

was conducted.

Although we believe that the better

orocedure is to report everything said

in the courtroom, a reversal is not

necessary. Defendants allege no pre-

judice. The court's administrative

transactions with jurors who had per-

sonal excuses preceded the calling of

the case and the formal commencement

of the proceedings. The preliminary

screening of the array here, prior to

the calling of the case for trial, pre-

sents no different situation than if

the jurors had telephoned or written

their requests. If something prejudi-

cial to the case occurred, counsel

98.

could be depended upon to tell us what

it was. There has been no hint of any

irregularity. In United States v.

Piascik, decided after the trial in

this case, we stated:

"* * "In the exercise of

Our supervisory powers, we

Suggest that court reporters

be required to record (but not

transcribe unless requested for

appellate purposes) the voir dire

examination of jurors* * * when

requested by the court or counsel.

* * *#" 559 F.2d at 550 (Emphasis

added).

S. CONCLUSION

While it was not necessary to not-

ice and discuss every point made by the

appellants in their lengthy briefs, we

have considered them all. Lichtig makes

several other charges of improper tac-

tics by’ government counsel which, when

examined in the context of the trial,

evaporate into harmless error, if in-

deed there was error at all. We do

notice, however, Lichtig's point about

the alleged failure of the government

to comply with 18 U.S.C. §3504,. This

section requires the government in

99.

certain situations to admit or deny

certain types of surveillance. The

standards for such disclaimers are ad-

equately covered in United States v.

See, 505 F.2d 845, 856 (9th Cir. 1974),

cert. denied, 420 U.S. 992 (1975);

United States v. Vielguth, 502 F.2d

1257, 1260 (9th Cir. 1974); United

States v. Alter, 482 F.2d 1016, 1027

(9th Cir. 1973). We are satisfied, as

was the trial court, that the affida-

vits of the prosecutor sufficiently an-

swered all otf Lichtig's checklist as-

sertions of improper surveillance. The

charges of misconduct leveled against

Lthe prosecutor, not unlike some of the Lieis

other assignments of error, have been

magnified in the hope that some pellet

from the shotgun might fall upon a vul-

nerable spot. It is to the consider-

able credit of the judge who tried this

complex case that the record is not

only free from reversible error, but is

remarkably clean in terms of the minor

imperfections that creep into a long

and involved trial.

Affirmed.

100.

UNITED STATES v. WEINER

No. 75-2973

FOOTNOTES :

1

In “equity funding" or "life fund-

ing" programs, a participant purchases

mutual funds for cash; at the same time,

the participant purchases life insur-

ance with funds borrowed from the com-

pany by pledging the mutual funds as

security.

In United States v. Lustig, 555

F.2d 751 (9th Cir. 1977), we said:

“Lustig would have a valid objection if

one or more jury members expressed some

uncertainty as to the verdict." But we

were speaking of the expression of the

uncertainty at the time of the poll,

not after the jurors had been excused

and subjected to out-of-court cultiva-

tion.

Allen v. United States, 164 U.S.

492 (1896).

4i¥e have recently held that giving

the instruction a second time is er-

roneous per se, United States v. Sea-

well, 550 F.2d 1159 (9th Cir. 1977).

> "Reciptocal income" was a term

used to describe a practice by brokers,

until it was discontinued, of sharing

commissions on market transactions with

the insurance producers.

The trial took place prior to the

effective date of Pub.L. 93-595, § l,

88 Stat. 1932 (1975), which created the

codified Federal Rules of Evidence,

Prior law is therefore applicable.

Cf. United States v. Dunn, 564

F.2d 348, 357 (9th Cir. 1977) (dis-

cussing the slight evidence rule in the

context of sufficiency of the evidence).

Investors Planning sold contract-

ual plans for the purchase of mutual

funds. These plans did not involve an

actual contractual agreement, but

-b-

merely denoted programs where commiss-

ions on the sale of mutual funds were

collected in such a manner that up to

50 percent of the commissions were col-

lected in the first year and the balance

of the commissions were spread out over

the remainder of the period of acquisi-

tions, an average of 12-1/2 years. The

actual amount of commissions collected

on a completed program was approximately

equivalent to that collected under

other kinds of payment plans. Purchas-

ers of mutual funds were under no ob-

ligation to complete the plan and could

withdraw at any time, thus relieving

themselves of any future commission

obligation as well.

Trail commissions represent com-

missions not yet collected but expected

as future sales under the programs are

made.

10 Detail is the term for the in-

dividual components of an account.

-Cc-

11 Coconspirator hearsay admissib-

ility does not depend upon the declar-

ant's unavailability. 4 J. Weinstein

& M. Berger, Weinstein's Evidence

qu 800 [04], 804(a) [01]; Fed. R. Evid.

804.

The defendants’ contention that

the government was obliged to grant

immunity to Goldblum so that he might

testify on their behalf is also merit-

less. The Sixth Amendment contains no

such requirement. United States v.

Bautista, 509 F.2d 675, 677 (9th Cir.),

cert. denied, 421 U.S. 976 (1975).

— ee ee ee ee ee ee ee ee ee ee re ee ee ee ee ee ee ee

13

United States v. Baxter, 492

F.2d 150, 177 (9th Cir. 1973), cert.

denied, 416 U.S. 940 (1974).

14

See also Mancusi v. Stubbs, 408

U.S. 204, 213 (1972), where the Court

reemphasizes the significance of the

reliability of the offered evidence.

t3 This statutory grant of "use

plus derivative use" immunity is co-

extensive with the Fifth Amendment

privilege against self-incrimination.

Kastigar v. United States, 406 U.S. 441

462 (1971). See Goldberg v. Weiner,

480 F.2d 1067, 1070 (9th Cir. 1972).

16

In Part K we discuss an aspect

of the proceeding before the SEC,

Block testified before the SEC on May

21, 22, and 30, 1973, and on September

24, 1973. He first testified in his

bankruptcy case on December 1l, 1973.

a7 The trial judge was careful to

summarize the charges in the six counts

for the jury, including the portions

of Counts 1 and 2 which were incorpor-

ated by reference, and to admonish the

jury to consider only the counts sub-

mitted to it and not the counts which

had been dismissed.

-e>-

a\

an

18 The accounting firm of which all

three defendants were a part was orig-

inally called Wolfson and Weiner. It

expanded to Wolfson, Weiner, Ratoff and

Lapin, and then merged with Seidman and

Seidman in 1971.

19 The relevant portion of the text

which appears in each of these counts

is as follows:

"* * * [T]he firm of Wolfson,

Weiner, Ratoff and Lapin (Seid-

man and Seidman), certified

public accountants, had examined

the consolidated statements of

financial condition of EFCA and

its subsidiaries as of December

31, 1968 (1969-1971), and the

related consolidated statements

of earnings and retained earn-

ings and the consolidated state-

ments of additional paid-in

capital for the five years then

ended, in accordance with general-

ly accepted auditing standards,

and that, in the opinion of

Wolfson, Weiner, Ratoff and

Lapin (Seidman and Seidman), the

aforesaid financial statements

presented fairly the consolidated

financial position of EFCA and

its subsidiaries as of December

31, 1968 (1969-1971), and the

consolidated results of operations

afe

orate Se

for the five years then ended,

in conformity with generally

accepted accounting principles

applied on a consistent basis."

20

2 1 s . . .

“Reciprocal commissions’ is the

term used for the portion of commiss-

ions earned by various brokerage houses

on securities transactions involving

Equity Funding that was returned to

Equity Funding.

ae The revised portion of the note,

with the addition underlined, reads:

"Under the Company's

method of operations, this

represents, in the aggregate,

the amount that clients owe as

a result of the various "Equity

Funding Programs' offered by

the Company, and net contracts

receivable together with loan

and/or receivables where ‘Equity

Funding Programs' have terminated."

23

Referring to our earlier dis-

=

cussion of the transaction, we note

that the valuation placed on the Clients

Contractual Accounts and the creation

of the account were concurred in by

Weiner, who participated in developing

the accounting treatment.

24 He made an error that Goldblum

feared would invite close scrutiny of

the financial statements, and was then

replaced in this role by Lowell.

? Because covering up the receipt

of "recip" was one of the reasons

given for many questionable recording

practices, the jury could logically

infer that Block's statement showed

knowledge of at least some of these

practices.

ae The instruction reads, in per-

tinent part:

"One circumstance you are en-

titled to consider and weigh in

determining whether the defen-

dants Weiner, Lichtig, and Block

acted willfully and knowingly

oh=

while in their capacities as

independent accountants in

relation to Equity Funding is

whether they followed or deviated

from generally accepted auditing

standards or accounting principles

in effect at the times here

pertinent.

"For example, in this case,

you may recall evidence of cer-

tain accounting principles or

auditing standards which were

talked about.

"The government points to

evidence which they say estab-

lishes that, at various times

each of the defendants deviated

from sound accounting principles

and auditing standards.

"Evidence on this issue is

not conclusive, however, on the

overriding issue of the defen-

dant's [sic] knowledge and intent.

The weight and credibility to be

extended by you to such proof

must depend among other things,

on the weight you give to the

opinion evidence offered by the

Governments! [sic] witnesses,

"Generally, when a certified

public accountant is engaged to

perform an independent audit for

a corporation such as Equity

Funding, he represents and warrants

that he will perform the audit

and other accounting work in

-i-

accordance with generally accept-

ed auditing standards and general-

ly accepted accounting principles

and that he will render an opinion

as to whether the financial state-

ment of the company fairly rep-

resents its financial position

and the results of its business

operation.

"Proof, if any, that any of

these defendants departed from

such standards of auditing and

accounting as were then applicable

or participated in the preparation

or approval of an audited finan-

cial statement that did not

fairly present Equity Funding's

financial position is evidence,

though not necessarily conclusive

evidence, that the individual

defendant involved did not act

honestly or in good faith, and

that the financial statement

prepared contrary to such stan-

dards may have been materially

false or misleading."

F "The objective of the ordinary

examination of financial state-

ments by the independent auditor

is the expression of an opinion

on the fairness with which they

present financial position in

conformity with generally accepted

accounting principles. The audit-

or's report is the medium through

which he expresses his opinion or,

if circumstances require, dis-

-j-

claims an opinion. In either case,

he states whether his examina-

tion has been made in accordance

with generally accepted auditing

Standards." Committee on Auditing

Procedure, American Institute of

Certified Public Accountants,

Statement on Auditing Standards

§ 110.01 (1973).

” The instruction reads, in per-

tinent part:

"It is not enough, of course,

merely to establish that a given

defendant acted negligently or

through error or mistake. Under

our system of laws men are not

punished criminally for mere mis-

takes in judgment, mismanagement,

carelessness, negligence, or

errors of judgment. They are

punished only for intentional

wrongdoing. The defendants are

not on trial here for errors of

judgment or mistakes or mismanage-

ment or negligence, but are on

trial for a criminal offense, and

an essential element of that

offense is an evil or criminal

intent, which it is incumbent

upon the government to prove to

your satisfaction and beyond a

reasonable doubt before you will

be warranted in returning a

verdict of guilty.

"The defendants argue that

wo) «

they acted in good faith in

their activities relating to

Equity Funding. Good faith,

that is to say, an honest belief

in the truth of the statement

made, would constitute a complete

defense here.

"Tf the evidence in the case

leaves you with a reasonable

doubt as to whether the accused

in good faith believed the finan-

cial statements, auditors’

certificates, and other written

statements to be true at the

time they were made, then you

should acquit the accused.

"While I have stated that

negligence or mistake does not

constitute guilty knowledge or

intent, nevertheless, ladies and

gentlemen, you are entitled to

consider in determining whether

a defendant acted with such

intent if he deliberately closed

his eyes to the obvious or to the

facts that certainly would be

observed or ascertained in the

course of his portion of the

accounting works, or whether he

recklessly states as facts

matters of which he knew he was

ignorant.

"If you find such a reckless,

deliberate indifference to or dis-

regard for truth or falsity on the

part of a given defendant when

considered in the light of all

other evidence relating to intent,

aja

you may, but you need not

necessarily, infer therefrom that

such defendant acted willfully

and knowingly. Such an

inference, of course, depends upon

the weight and credibility ex-

tended to the evidence of

reckless and indifferent conduct,

if any."

29 Block and Weiner also raise this

issue in regard to Counts 80 and 84.

30 Block's and Weiner's incorpora-

tion of this argument is clearly merit-

less since Lichtig's argument is pre-

mised on his change in position.

-Ili-

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

Fiheo

JUL 21 1978

EMIL E. MELFI, JR.

CLERK, U.S. COURT

OF APPEALS

UNITED STATES OF AMERICA )

Appellee,

v.

)

)

) No. 75-2973

JULIAN S. H. WEINER;

)

)

)

MARVIN AL LICHTIG: ORDER

and SOLOMON BLOCK,

Appellants.

Appeal from the United States District

Court for the Central District of

California

Before: CHOY and GOODWIN, Circuit Judges,

and THOMPSON*, District Judge.

On May 26, 1978, appellants Weiner and

Block filed a petition for rehearing with

a suggestion for rehearing en banc.

On May 30, 1978, appellant Lichtig

filed a petition for rehearing.

° The Honorable Bruce R. Thompson,

United States District Judge for the

District of Nevada, sitting by designation.

B-l.

, The panel as constituted in this case

has voted to amend the opinion filed

May 15, 1978, in the following particulars:

At page 10, line 5, of the

typewritten opinion (page 1587 of

the printed slip opinion, top of

right-hand column), starting with

"Lichtig's present claim", delete

the remainder of the paragraph and

substitute the following language:

Lichtig claims he discovered

the existence of the agree-

ment on May 7, 1976, almost

a year after the conclusion

of the trial. However, the

record on appeal does not

contain any evidence of the

agreement or of the govern-

ment's knowledge that such

an agreement existed. The

issue is therefore not pro-

perly before us.

At page 35, line 20,. of the type-

written opinion (page 1601 of the

printed slip opinion, line 10,

right-hand column), delete the

period after the word "statement"

and insert before "The untrue"

the following language:

which stated that an indepen-

dent audit of the financial

B-2.

statement using GAAS had

found it to reflect truth-

fully the financial condi-

tion of the company and its

operations and to have been

prepared according to GAAP.

Count 76 charges that

Lichtig and another defen-

dant “wilfully made and

caused to be made untrue

statements of material fact"

or "wilfully omitted and

caused to be omitted state-

ments of material fact" in

the December registration

statement.

At page 36, lines 15-18, of

the typewritten opinion (page

1602 of the printed slip opinion,

lines 12-16, left hand column),

delete the two sentences begin-

ning "The SEC had previously

ruled" and ending "to receive

such money."

At page 48, line 1l, of the

typewritten opinion (page 1608

of the printed slip opinion,

line 4, right-hand column),

substitute "Lichtig" for

"Block".

With the opinion so amended, the

panel has voted to deny the petitions

B-3.

for rehearing and to reject the sugges-

tion for rehearing en banc. The full

court has been advised of the proposed

amendments, and of the suggestion for

rehearing en banc, and no judge has

requested a vote on the suggestion for

rehearing en banc. Fed. R. App. P.

35(b).

It is ordered that the opinion in

this case is amended as set forth above;

the petition for rehearing filed by

appellant Lichtig is denied; and the

petition for rehearing filed by appel-

lants Weiner and Block is denied and

their suggestion for rehearing en banc

is rejected.

AFFIDAVIT OF SERVICE IN COMPLIANCE

WITH SUPREME COURT RULE 33(3) (c)

STATE OF CALIFORNIA )

) ss.

COUNTY OF LOS ANGELES )

I am a citizen of the United States and

a resident of the county aforesaid; I am over

the age of eighteen years and not a party to

the within entitled action; my business address

is 1901 Avenue of the Stars, Suite 700, Los

Angeles, California 90067.

On August 24, 1978, I served the within

APPENDIX TO PETITION FOR WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS FOR THE NINTH

CIRCUIT on the parties in this action pursuant

to Supreme Court Rule 33(1) and (2) (a) by placing

three true copies thereof in an envelope addressed

as follows:

Solicitor General U.S. Attorney's Office

Department of Justice 312 North Spring Street

Washington, D.C. 20530 Los Angeles, California 900

Abeles and Markowitz

315 S. Beverly Drive

Beverly Hills, California 90212

and by then sealing said envelope and depositing

same, with postage thereon fully prepaid, in the

United States mail at 1901 Avenue of the Stars,

Level "A", Los Angeles, California 90067.

Co Lanz

Subscribed and Sworn to before CRrevr w. Smit

me this 24th day of August, 1978

/

\empalig ie f - a :

cS ALLA Wh

Notary Public in and va the

State of California, unty of

Los Angeles