Petition — LUFTIG v. UNITED STATES (No. 79-1125)

IN THE

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Supreme Court of the United States

October Term, 1979

PAUL LUFTIG,

Petitioner,

—_

UNITED STATES OF AMERICA,

Respondent.

—— ———_—

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT, AND APPENDIX

HAROLD R. TYLER, JR.

Patterson, Belknap, Webb & Tyler

30 Rockefeller Plaza

New York, New York 10020

Counsel for Petitioner

January 18, 1980

TABLE OF CONTENTS

I tnt 20e gee to

a. haw cen

Questions Presented ................. ey eres

Constitutional Provision and Rule Involved a ee eer

2. The Charge to the Jury ......../..:......:

3. Jury Selection Sy ae ee eae nee

Reasons for Granting the Writ ..................

1. The Trial Court’s Charge on Circumstantial

Evidence Suggested the Petitioner’s Guilt and

Allowed Conviction on Inferred Facts Not

Proved Beyond a Reasonable Doubt. It Raises

the Question of Whether All Elements of a

Charge Must Be Consistent With the Constitu-

tionally Required Instruction That Guilt Must

Be Proved Beyond a Reasonable Doubt—A

Substantial and Important Question Both of

Constitutional Law and Concerning the Ad-

ministration of Criminal Justice ...........

. The Decision Below Upholding the Grant of

an Additional Peremptory Challenge to the

Government, In Violation of Rule 24, Fed. R.

Crim. P., Raises a Substantial and Important

Question Concerning the Administration of

Re ee ae ee ee

CONCLUSION ........ SA Sy ee pe Cae eee

il

APPENDIX:

Opinion of Mansfield, Circuit Judge .......... la

Judgment of the Court of Appeals ........... 49a

CITATIONS

Cases:

Bollenbach v. United States, 326 U.S. 607 (1946) .. 11

Cool v. Unite? States, 409 U.S. 100 (1972) ........ 11

Cupp v. Naughten, 414 U.S. 141 (1973) ........ 11,12

Harrison v. United States, 163 U.S. 140 (1896) .... 18

Holland v. United States, 348 U.S. 121 (1954) ..... 8

Jackson v. Virginia, — US. —, 99 S. Ct. 2781

os on te Wane eek ke tne ean 8, 10

Lewis v. United States, 146 U.S. 370 (1892) ....... 13

Pointer v. United States, 151 U.S. 396 (1894) ..... 13

Splawn v. California, 431 U.S. 595 (1977) ........ 12

Swain v. Alabama, 380 U.S. 202 (1965) .......... 13

United States v. Park, 421 U.S. 658 (1975) ....... 12

United States v. Projansky, 465 F.2d 123 (2d Cir.),

cert. denied, 409 U.S. 1006 (1972) .......... 7

In re Winship, 397 U.S. 358 (1970) ............. 8,11

Rules:

See Ue. Ue ee I Be iwc cc pwanecvnvews 12

gk eee re ne er ee 13

IN THE

Supreme Court of the United States

October Term, 1979

tee

PAUL LUFTIG,

Petitioner,

| pn

UNITED STATES OF AMERICA,

Respondent.

PETITION FOR A WRIT OF CERTIORARI TO

THE UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT, AND APPENDIX

The petitioner Paul Luftig respectfully prays that a

writ of certiorari issue to review the judgment and opin-

ion of the United States Court of Appeals for the Second

Circuit entered in this proceeding on December 19, 1979.

Opinion Below

The opinion of the Court of Appeals, not yet reported,

appears in the Appendix.

Jurisdiction

The judgment of the Court of Appeals for the Second

Circuit was entered on December 19, 1979. This petition

for certiorari was filed within 30 days of that date. This

Court’s jurisdiction is invoked under 28 U.S.C. § 1254(1).

2

Questions Presented

1. Whether all elements of a charge must be con-

sistent with the constitutionally required instruction that

guilt must be proved beyond a reasonable doubt?

2. Whether the granting of additional peremptory

challenges to the Government can be justified under Rule

24(b), Fed. R. Crim. P., or otherwise?

Constitutional Provision and Rule Involved

U.S. Constitution, Amendment 5:

No person ... Shall... be deprived of life, liberty,

or property, without due process of law.

Rule 24(b), Fed. R. Crim. P.:

(b) Peremptory Challenges. If the offense

charged is punishable by death, each side is en-

titled to 20 peremptory challenges. If the offense

charged is punishable by imprisonment for more

than one year, the government is entitled to 6

peremptory challenges and the defendant or de-

fendants jointly to 10 peremptory challenges. If

the offense charged is punishable by imprisonment

for not more than one year or by fine or both, each

side is entitled to 3 peremptory challenges. If there

is more than one defendant, the court may allow

the defendants additional peremptory challenges

and permit them to be exercised separately or

jointly.

Statement of the Case

1. The Indictment and the Evidence

The indictment charged that the defendants, officers of

Franklin National Bank, including its president petitioner

Luftig, participated in a conspiracy to conceal losses in

3

Franklin’s securities trading accounts and in its foreign

exchange transactions. The case against Luftig was based

on the testimony of one witness, Howard Crosse, who pro-

vided the only direct evidence against Luftig, and on

circumstantial evidence, which the Government argued

supported Crosse’s testimony. Crosse testified that Luftig

told him at the end of March 1974 to lie to the bank’s

accountants by telling them that Luftig had instructed

Crosse on March 8 to transfer certain securities from a

trading account to an investment account. That alleged

falsehood permitted the securities in question to be trans-

ferred as of the earlier date, with the result that de-

preciation in those securities between the beginning of

March and the end of March was not deducted from the

bank’s income, as it should have been pursuant to the

bank’s accounting rules. No evidence was introduced con-

necting Luftig with the foreign exchange transactions,

but the Government argued Luftig was nonetheless re-

sponsible for those as a co-conspirator.

Luftig testified he had in fact told Crosse to make the

transfer on March 8, and argued that other circumstan-

tial evidence supported him.*

As the Circuit Court noted, “the trial of the case

boiled down to a battle of credibility between each of the

three defendants, on the one hand, and the Government

witnesses, including accomplices, on the other, who gave

diametrically opposed testimony. .. .” (A 12-18).** In

particular, as to Luftig, the case rested squarely on a

* Luftig was charged also with testifying falsely to a grand

jury, but the alleged false testimony consisted entirely of his

statement that he had in fact told Crosse to make the transfer

on March 8 and his denial that he had told Crosse to lie to the

accountants.

** “A” refers to the Appendix to this petition; “R” refers to

the trial record; “Tr. Nov. 27, 1978” refers to the transcript of

pre-trial proceedings on November 27, 1978, which was separately

numbered; “GX” refers to a Government exhibit at trial.

4

credibility contest between Luftig and Crosse, a contest

the jury could resolve only on the basis of circumstantial

evidence, as the Government’s arguments at trial indi-

cated. (R 5713-5731). For example, the jury would have

weighed the significance, on the one hand, of a series of

daily reports sent to Luftig which, if examined carefully,

would have disclosed to Luftig that the securities at issue

had not been transferred immediately as he said he in-

structed Crosse (GX 6B), supporting an inference that

Luftig did not so instruct Crosse since he did not notice

his instructions had been disobeyed, against the signifi-

cance, on the other hand, of testimony by a bank officer

named Simon confirming that on March 11, three days

after Luftig said he had told Crosse to transfer the securi-

ties from the trading account to the portfolio account,

Luftig answered Simon’s query about the trading account

with the statement “that he had settled that account,”

(R 3079-3080), supporting an inference that Luftig had

in fact instructed Crosse to act on March 8, as he testified.

2. The Charge to the Jury

The trial court conceded, and instructed the jury, that

the examples of direct evidence in the case “were very

few.” (R. 5972). Therefore, the court pointed out, the

lawyers had argued substantially on the basis of circum-

stantial evidence, and “a most important nart” of the

jury’s deliberations would involve such evidence, deciding

“what can reasonably and logically be inferred, and what

cannot reasonably and logically be inferred.” (R. 5973).

Further, the trial court offered several examples of

what conclusions the jury could draw from circumstantial

evidence, including not only state of mind—“what some-

one knew, what somebody intended,” but also “whether

conversations were held, what was said at conversations,

what actions were taken, what actions were not taken.

The whole range of issues in a case such as this—on the

whole range of issues you should consider what the cir-

5

cumstances or the circumstantial evidence does or does

not cause you to reasonably and logically infer.” (R.

5974).

Having primed the jury on the importance of cir-

cumstantial evidence in this case, and the breadth of the

issues that such evidence might resolve, the trial court

defined and illustrated circumstantial evidence as follows:

“Sometimes judges give illustrations to jurors

about the use of circumstantial evidence. A famil-

iar one is the one where if you look out the window

and see a lot of people with umbrellas, you can

infer it’s raining. I never know how that is hel)-

ful to a jury. You are not really trying to decide

whether some weather condition exists, at least I

don’t know that that’s a major problem in this

case. But the point is that I think if you thought

for a minute you would realize that this is not a

novel or unusual or super human kind of process

that the lawyers and that the Court have asked

you to give consideration to. Frequently in our

everyday life, without calling it circumstantial

evidence, we draw conclusions about what people

must have done, must have thought, and must have

said.

Here is a little illustration that may show you

that this is a matter which can well be accom-

plished by the use of common sense and common

good judgment and experience. This is an illus-

tration that quite obviously has nothing to do with

the present case. Let assume that you attend a

football game. You see the players and the teams

performing certain plays. You observe on the

field many details about how well or how poorly

the teams perform, whether there are a lot of

passes or a lot of runs, whether there are many

penalties or few penalties, whether there are many

injuries or few injuries, whatever details go on

before you.

6

Now, on the basis of common experience and

common sense, and on the basis of whatever in-

formation you know about football and about your

observing this game, you can logically and reason-

ably infer some things about what people did and

said and thought before that game and in prepara-

tion for that game, although you were not present

in the locker room or on the training field and

although no witnesses come to tell you what went

on. You can infer that—there are some things

that you will be able to infer about whether the

coach gave good or bad training, what instructions

he gave, what he must have said in substance, what

acts were done by the coach and the players in

preparation for that game. There will be some

things that a person in the audience could reason-

ably and logically infer and know beyond any

doubt; there will be some things that they could

not reasonably and logically infer beyond a doubt.

But that kind of thought process, if anybody went

through it, would be something which would not

be a super human effort or bizarre or unusual.

Now, you’re being asked in this case to not only

evaluate the direct evidence but to determine what

the circumstantial evidence shows as to what vari-

ous people did, said, and thought. The question

for you is: What you can infer and what you

cannot reasonably infer” (A 13-14)

3. Jury Selection

At the opening of the trial but prior to the examina-

tion of the prosecutive jurors, the District Court granted

two additional peremptory challenges to the three defend-

ants, to be exercised jointly. The prosecution immediately

seized upon this and asked that its number of peremptory

challenges be increased “proportionately”. (Tr. Nov. 27,

1978, 47).

7

Defense counsel objected to granting additional per-

emptory challenges to the prosecution on the ground that

there is no authority in the Federal Rules of Criminal

Procedure or elsewhere to do so. (Tr. Nov. 27, 1978, 48).

After reviewing the text of Rule 24(b), the District

Court agreed that it had no express authority to grant

the prosecution any additional peremptory challenges. It

nevertheless granted the prosecution an additional chal-

lenge on the theory that the entire matter of jury chal-

lenges was within its discreton irrespective of the clear

language of Rule 24. (Tr. Nov. 27, 1978, 49-50). The

District Court did not adjourn to review the case authority

in United States v. Projansky, 465 F.2d 123 (2d Cir.),

cert. denied, 409 U.S. 1006 (1972), which had been cited

to it by defense counsel (Tr. Nov. 27, 1978, 48), and

which indicates that there is no authority for granting

additional challenges to the prosecution.

The prosecution exercised its seventh challenge against

prospective juror George W. Dickens whom the prosecu-

tion apparently found unacceptable. Mr. Dickens was

replaced by prospective juror Kathleen Barrett who be-

came Juror No. 11 of the jury which returned the verdict

of guilty. (Stipulation dated June 21, 1979, incorporated

in record on appeal).

8

Reasons for Granting the Writ

1. The Trial Court’s Charge on Circumstantial Evi-

dence Suggesied the Petitioner's Guilt and Al-

lowed Conviction on Inferred Facts Not Proved

Beyond a Reasonable Doubt. It Raises the Ques-

tion of Whether All Elements of a Charge Must

Be Consistent With the Constitutionally Re-

quired Instruction that Guilt Must Be Proved

Beyond a Reasonable Doubt—A Substantial and

Important Question Both of Constitutional Law

and Concerning the Administration of Criminal

Justice.

The Government’s constitutionally imposed burden in

a criminal case is to prove guilt beyond a reasonable doubt.

In re Winship, 397 U.S. 358, 364 (1970). To apply that

standard of proof, a jury obviously must be properly in-

structed. The intended effect of such instruction on the

jury’s collective mind has been described by the Court as

follows: “impressing upon the factfinder the need to reach

a subjective state of near certitude of the guilt of the

accused. . ...” Jackson v. Virginia, — U.S. —, 99 S. Ct.

2781, 2787 (1979).

Although it is clear from Holland v. United States,

348 U.S. 121 (1954), that a jury need not be in instructed

that when the Government’s evidence is circumstantial it

must be such as to exclude every reasonable hypothesis

other than that of guilt, 348 U.S. at 139-140, that holding

specifically presupposes a jury “properly instructed on the

standard for reasonable doubt.” 348 U.S. at 139.

Thus, the question arises whether a proper instruction

that a defendant may be convicted only on proof beyond a

reasonable doubt, as was concededly given here (R 5902-

5903), may be subverted totally by a blatantly erroneous

instruction on circumstantial evidence in which the jury

9

was told one could draw legally sufficient conclusions from

circumstantial evidence in a criminal case just the way

one might draw conclusions from watching a football

game—the plays (“a lot of passes or a lot of runs”), the

penalties (“many . . . or few”), even the injuries (again,

“many . . . or few”)—as to what people had said and done

to prepare for the game, what instructions the coach gave,

even “whether the coach gave good or bad training.” This

was the only concrete illustration of any legal principle in

the court’s entire 100-page charge.

The error in that instruction arises from two sources:

First, of course, it is a totally invalid rendering of any-

thing properly describable as a logical and reasonable

process of inference. One might watch a football game

and speculate, as fans and announcers delight in doing,

about what people said and did “in the locker room or on

the training field,” what the coach’s instructions were

and “whether the coach gave good or bad training.” (A

14). But as the court below conceded, “It hardly re-

quires an expert to appreciate that some ‘plays,’ ‘passes,’

‘runs,’ ‘penalties’ and ‘injuries’ . . . may arise from cir-

cumstances unrelated to a coach’s training or instruc-

tions, such as a quarterback’s inspiration of the moment

or sheer luck or happenstance.” (A 15) And having

chosen n example heavy with imponderables and con-

tradictory possibilities, the trial judge then compounded

the error by directing the jury to only one of many con-

clusions: players do what and as they are told. However

profound one’s insight into the intricacies of football, and

however forcefully held one’s opinions on the matters re-

ferred to by the trial court, it is simply fatuous to sug-

gest, as the trial court did, that those conclusions gener-

ally arise from a logical and reasonable certainty sufficient

to sustain a criminal conviction. The example was par-

ticularly unfortunate because it posed a situation with

limitless speculation arising from a broad range of facts.

A jury so instructed is not one impressed with “the need

10

to reach a subjective state of near certitude of the guilt

of the accused. ...” Jackson v. Virginia, supra.

But beyond that, the illustration, notwithstanding the

trial court’s disclaimers,* virtually drew its own analogy

to the case on trial. The defendants on trial, including

Luftig, who was the president and chief operating officer

of Franklin, were the “coaches.” The jury had heard

repeatedly of crimes committed by the “players”——Crosse

and other alleged co-conspirators. The jury was then in-

structed by the trial court that if crimes were committed

at Franklin by the “players” one might logically and rea-

sonably conclude as a matter of circumstantial evidence

that those crimes were committed at the direction of the

“coaches.”

A jury instruction .with these deficiencies is incon-

sistent with the constitutionally mandated standard of

proof beyond a reasonable doubt. Yet the Circuit Court

brushed off those concerns. It reasoned optimistically

that when the jury is “told to use ‘common sense,’ ‘com-

mon experience’ and ‘common good judgment’ in draw-

ing inferences from facts found by them and that infer-

ences depended on the jury’s acting ‘logically and reason-

ably,’” then “it would be denigrating the intelligence of

the average jury to conclude that it would forsake its own

common sense and experience for the suggestions implied

in the court’s ill-conceived ‘example.’” (A 16). By that

logic, once a jury is told to use its common sense, the

more violently at war with common sense a trial court’s

instructions, the greater the likelihood the jury will de-

cline to follow them and thus the stronger the argument

* Although the trial court introduced the example by stating

it had nothing to do with the present case, he had just told the

jury that the umbrella illustration was not helpful because, -

“[y]lou are not really trying to decide whether some weather

condition exists, at least I don’t know that that’s a major prob-

lem in this case.” ( 14)

11

for affirming a conviction. The fallacy in such reasoning

was exposed long ago when this Court refused to rest a

conviction “on an equivocal direction to the jury on a

basic issue,” and rejected the Government’s claim that

because the instruction made no sense, it must have been

disregarded:

“The Government’s suggestion really implies that,

although it is the judge’s special business to guide

the jury by appropriate legal criteria through the

maze of facts before it, we can say that the lay

jury will know enough to disregard the judge’s

bad law if in fact he misguides them. To do so

would transfer to the jury the judge’s function in

giving the law and transfer to the appellate court

the jury’s function of measuring the evidence by:

appropriate legal yardsticks.” Bollenbach v. United

States, 326 U.S. 607, 613-14 (1946).

This Court has held that an instruction on the stand-

ard to be applied to a defense witness’ testimony may be

so seriously incorrect as to have “the effect of substan-

tially reducing the Government’s burden of proof” and

thus violate the constitutional requirement of proof be-

yond a reasonable doubt articulated in In re Winship.

supra; Cool v. United States, 409 U.S. 100, 104 (1972)

(per curiam). Of course, “a single instruction to a jury

may not be judged in artificial isolation, but must be

viewed in the context of the overall charge,” Cupp V.

Naughten, 414 U.S. 141, 147 (1973), and “the process of

instruction itself is but one of several components of the

trial which may result in the judgment of conviction.”

Ibid. But this Court has not treated the problem pre-

sented when a particular instruction, such as the one here

relating to circumstantial evidence, is central to a case, ’

involves the only concrete illustration of a legal principle

in the entire charge, and is, even in the view of the

appellate court that affirmed the conviction, “ill-con-

ee ee —

12

ceived . . . and inappropriate.”* (A 15). The issue

is all the more pointed because, as this Court noted in

Cupp v. Naughten, supra, and reiterated in Splawn v.

California, 431 U.S. 595, 599 (1977), its authority to

review such errors in federal cases such as the one at

bar is broader than in habeas corpus challenges to state-

court convictions such as Cupp and Splawn, supra. Con-

sidering both the importance of the constitutional guaran-

tee involved and the logic applied by the Circuit Court,

this issue is a substantial and important one both of con-

stitutional law and of administration of criminal justice;

guidance from this Court for federal trial judges would

be especially welcome. Cf. United States v. Park, 421

U.S. 658, 674-675 (1975).

2. The Decision Below Upholding the Grant of an

Additional Peremptory Challenge to the Gov-

ernment, In Violation of Rule 24, Fed. R. Crim.

P., Raises a Substantial and Important Question

Concerning the Administration of Criminal Jus-

tice.

Over defense objections, the trial court granted the

Government an additional peremptory challenge which

the Government exercised to change the composition of

the jury that subsequently convicted the petitioner. The

Circuit Court acknowledged that that grant was “im-

proper in the absence of defense counsel’s consent,” (A

48) but declined to reverse “in the absence of prejudice

to the defendants.” Ibid.

The effect of that ruling is, first, to sanction an ad-

mitted violation of Rule 24(b), Fed. R. Crim. P., which

authorizes additional peremptory challenges at the court’s

*The Second Circuit also found the instruction “confusing,”

(A 15), a view we do not share to the extent, in light of the facts

of the case, it was painfully clear in its prejudicial implications.

13

discretion in multi-defendant cases only for the defend-

ants, and makes no such authorization for the prosecu-

tion. But more significantly, by requiring a showing of

prejudice before reversal is warranted, that decision as-

sures there can be no redress for any such violation, since

a showing of prejudice is impossible of achievement in

such a situation. Indeed, the only way to make such a

showing would be to require the potential jurors excused

by the Government through the use of impermissible per-

emptory challenges to hear the evidence, and then deter-

mine how they would have voted, assuming of course that

such an exercise could factor in as well the effect of con-

sultation with their fellow jurors. This exercise is not

only absurd but is precluded by. Fed. R. Evid. 606(b).

The holding that a showing of prejudice is required

defies logic, as the Circuit Court itself once recognized

on a prior occasion when it acknowledged that prejudice

from interference with the exercise of peremptory chal-

lenges is “impossible to determine on an appellate

record... .” United States v. Toliver, 541 F.2d 958, 964

(2d Cir. 1976).

The Court has recognized that the exercise of peremp-

tory challenges is “one of the most important of the

rights secured to the accused,” Pointer v. United States;

151 U.S. 396, 408 (1894), the denial or impairment of

which “is reversible error without a showing of preju-

dice.” Swain v. Alabama, 380 U.S. 202, 219 (1965),

citing Lewis v. United States, 146 U.S. 370, 376 (1892)

and Harrison v. United States, 163 U.S. 140 (1896). The

decision of the Circuit Court is flatly inconsistent with

that ruling.

The Circuit Court’s placement beyond redress of vio-

lations of Rule 24(b), Fed. R. Crim. P., raises a substan-

tial and important question concerning the administration

of criminal justice that should be addressed by this Court.

14

We have been advised by counsel for J. Michael

Carter, a co-defendant in this case whose time to petition

for certiorari has been extended, that he will treat this

issue more extensively in his petition. Rather than bur-

den the Court with a more extensive presentation in this

petition, we respectfully refer the Court to the petition

to be filed on behalf of Carter and request the benefit of

its arguments insofar as they are applicable to the peti-

tioner Luftig.

CONCLUSION

For these reasons, a writ of certiorari should

issue to review the judgment and opinion of the

Court of Appeals for the Second Circuit.

Respectfully submitted,

HAROLD R. TYLER, JR.

Patterson, Belknap, Webb & Tyler

30 Rockefeller Plaza

New York, New York 10020

Counsel for Petitioner

January 1°, 1980

APPENDIX

la

Opinion by Mansfield, Circuit Judge

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

Nos. 125, 126, 187—September Term, 1979.

(Argued October 9, 1979 Decided December 19, 1979.)

Docket Nos. 79-1147, 79-1151, 79-1208

i

UNITED STATES OF AMERICA,

' Appellee,

—against—

HAROLD V. GLEASON, PAUL LUFTIG

and J. MICHAEL CARTER,

Defendants-A ppellants.

rr pr

Before:

LUMBARD, MANSFIELD and MESKILL,

Circuit Judges.

—_—_—EeEE

Appeals from judgments of conviction entered on

March 27, 1979, by Judge Thomas P. Griesa in the

District Court for the Southern District of New York

convicting appellants, officers of the Franklin National

Bank of (1) making false entries in the bank’s records

for the first quarter of 1974 in order to show earnings

of $79,000 when the bank had suffered a loss of over $7

million, resulting in frauds upon the federal government,

The Manufacturers Hanover Trust Company, and stock-

holders of the bank, in violation of 18 U.S.C. §§ 1105,

1014 and §$10(b) of the Securities Exchange Act, 15

U.S.C. $ 78j(b), and of (2) conspiracy to perpetrate the

foregoing frauds, 18 U.S.C. § 371. The charge against

appellant Carter of falsification of the bank’s records

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Opinion by Mansfield, Circuit Judge

through fictitious foreign exchange contracts (Count

Three) was dismissed by the district court.

The convictions are affirmed.

Oe

STANLEY §. ARKIN, Esq., New York, NY

(Mark §S. Arisohn, Esq., Arthur T. Cam-

bouris, Esq., Stanley Neustadter, Esq., Arkin

& Arisohn, P.C., New York, NY, of counsel),

for Appellant Gleason.

HAROLD R. TYLER, JR., Esq., New York, NY

(Michael B. Mukasey, Esq., Kenneth A.

Caruso, Esq., Marjorie T. Coleman, Esq.,

Mark R. Hellerer, Esq., Patterson, Belknap,

Webb & Tyler, New York, NY, of counsel),

for Appellant Luftig.

OTTO G. OBERMAIER, New York, NY, (Martin

L. Perschetz, Esq., Obermaier, Morvillo,

Abramowitz & Fitzpatrick, New York, NY,

of counsel), for Appellant Carter.

JOHN J. KENNEY, Assistant United States At-

torney, New York, NY (Robert B. Fiske, Jr.,

United States Attorney for the Southern

District of New York, Mary Ellen Kris,

Charles M. Carberry, Richard D. Weinberg,

Assistant United States Attorneys, New

York, NY, of counsel), for Appellee.

MOoRE BERSON LIFFLANDER & MEWHINNEY, New

York, NY (Earle K. Moore, Esq., Matthew

L. Lifflander, Esq., New York, NY of coun-

sel), for Amici Curiae Group of Bankers.

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3a

Opinion by Mansfield, Circuit Judge

Harold V. Gleason, former Chairman of the Board of

the Franklin National Bank (FNB), Paul Luftig, its

former president and chief administrative officer, and

J. Michael Carter, its former senior vice president in

charge of its Investment Division, appeal from judgments

of the District Court of the Southern District of New

York, entered on March 27, 1979, by Judge Thomas P.

Griesa after an eight-week jury trial, convicting them

(except for dismissal of charges in Count Three against

Carter) of (1) making false entries in the bank’s records

on or about Mareh 31, 1974, by false evaluation of securi-

ties with intent to defraud, thereby concealing operating

losses in excess of $5 million and making it appear that

FNB had a profit of $79,000, for the first quarter of 1974,

all in violation of 18 U.S.C. § 1005* (Count Two), (2)

making false entries in the bank’s records on or about

March 31, 1974, with intent to defraud, by causing FNB

to enter into fictitious foreign exchange contracts showing

a non-existent profit in excess of $2 million, which falsely

made the bank appear to have a profit for the first quarter

of 1974 when in fact it had suffered heavy losses, also in

violation of 18 U.S.C. $1005 (Count Three) ,* (3) making

false statements to the Manufacturers Hanover Trust

Company on or about April 18, 1974, to influence its

‘Title 18 U.S.C. § 1005 provides in pertinent part:

“Whoever makes any false entry in any book, report, or

statement of such bank with intent to injure or defraud such

bank, or any other company, body politic or corporate, or

any individual person, or to deceive any officer of such bank,

or the Comptroller of the Currency, or the Federal Deposit

Insurance Corporation, or any agent or examiner appointed

to examine the affairs of such bank, or the Board of Gov-

ernors of the Federal Reserve System—

“Shall be fined not more than $5,000 or imprisonment

not more than five years, or both.”

* The charge in Count Three against Carter was dismissed by

the court at the end of the Government’s case.

da

Opinion by Mansfield, Circuit Judge

action in fulfilling a $35 million loan commitment pre-

viously made to FNB, by submitting to Manufacturers

Hanover a consolidated income statement for the first

quarter of 1974, ending March 31, showing a profit of

$79,000 when in fact the bank had suffered losses of over

$7 million, in violation of 18 U.S.C. $1014* (Count

Four), (4) employing a manipulative scheme or device

during March 1974 and on various dates in April and

May 1974, in connection with the purchase and sale of

FNB stock by using the foregoing falsifications of bank

records to make it appear that the bank had realized a

profit for the first quarter of 1974, when in fact it had

suffered heavy losses, in violation of 15 U.S.C. $$ 78j(b)

and 78ff* (Counts Five through Fourteen), and (5)

* Title 18 U.S.C. § 1014 provides in pertinent part:

“Whoever knowingly makes any false statement or re-

port, or willfully overvalues any land, property or security,

for the purpose of influencing in any way the action of...

any bank the deposits of which are insured by the Federal

Deposit Insurance Corporation, any member of the Federal

Home Loan Bank System, the Federal Deposit Insurance

Corporation, the Federal Savings and Loan Insurance Cor-

poration, or the Administrator of the National Credit Union

Administration, upon any application, advance, discount,

purchase, purchase agreement, repurchase agreement com-

mitment, or loan, or any change or extension of any of the

same, by renewal, deferment of action or otherwise, or the

acceptance, release, or substitution of security therefor,

shall be fined not more than $5,000 or imprisoned not more

than two years, or both.”

* Title 15 U.S.C. £ 78j(b) provides:

“It shall be unlawful for any person, directly or in-

directly, by the use of any means or instrumentality of in-

terstate commerce or of the mails.

% * *% * %

“(b) To use or employ, in connection with the purchase

or sale of any security registered on a national securities

exchange or any security not so registered, any manipula-

[Footnote continued on following page]

5a

Opinion by Mansfield, Circuit Judge

conspiracy to commit each of the foregoing crimes, in vio-

lation of 18 U.S.C. § 371 (Count One). In addition, Luftig

alone was convicted of making false material declarations

on or about March 15, 1977, with respect to some of the

matters that are the subject of the foregoing charges in

his testimony before a grand jury in violation of 28

U.S.C. § 1623 (Count Fifteen). Appellants claim that

numerous errors were committed in the trial of the case.

After careful consideration of each of these contentions

we affirm the convictions.

The evidence, viewed favorably to the Government

(as it must be at this stage, Glasser v. United States,

315 U.S. 60, 80 (1942)), shows that, although FNB

suffered an operating loss in excess of $7 million during

the three-month period ending March 31, 1974, it issued

a financial statement on April 18, 1974, for the same first

quarter of 1974 falsely representing that it had realized

earnings of approximately $79,000. The financial state-

ment was of special significance to FNB because of its

anticipated influence in obtaining Government approval

of a proposed FNB merger with Talcott National Cor-

poration, a factoring and finance company, and in bor-

rowing some $385 million from Manufacturers Hanover

to be used by FNB for the purchase from Michele Sindona,

tive or deceptive device or contrivance in contravention of

such rules and regulations as the Commission may prescribe

as necessary or appropriate in the public interest or for the

protection of investors.”

Title 15 U.S.C. § 78ff provides:

“{AJ|ny person who willfully and knowingly makes, or causes

to be made any statement in any application, report, or

document required to be filed under this chapter or any rule

or regulation thereunder . . . which statement was false or

misleading with respect to any material fact, shall upon

conviction be fined not more than $10,000, or imprisoned

not more than two years, or both... .”

6a

Opinion by Mansfield, Circuit Judge

the principal stockholder of FNB, of his interest in

Talcott.°

NB had begun to suffer substantial losses during

the first three months of 1974, partly due to a decline in

the market value of government securities, which had

been acquired with a view to realization of a profit when

interest rates declined, but which then fell in value when

interest rates increased. By the end of March those losses

together with others had swelled to approximately $7 mil-

lion. The loss was concealed to the extent of about $5

million by falsely showing FNB-owned securities as worth

more than the prices at which they should have been

carried. The balance of the loss was concealed by having

FNB engage in four fictitious foreign exchange trans-

actions with European banks controlled by Sindona and

his colleague Carlo Bordoni, who at Sindona’s request

had served as a director of the holding company Franklin

New York Corporation, which controlled FNB. These

bogus transactions made it appear, by using fictitious

exchange rates, that FNB had a $2.2 million unrealized

profit when in fact its foreign exchange department had

suffered a loss.

The false evaluation of securities was accomplished

in part by backdating two transfers of government bonds

from FNB’s bond trading account to its investment ac-

° FNB, with deposits at the end of 1973 of $3.7 billion and

assets of $5 billion, was a subsidiary of Franklin New York Cor-

poration, registered with the Federal Reserve Bank of New York

as a bank holding company. In 1972 Sindona purchased 21.6%

of the holding company’s outstanding stock for $40 million. In

the spring of 1973 Sindona, through a company controlled by him

(Fasco) purchased 1.6 million shares of Talcott for $27 million,

which he later offered to sell to FNB for a price equal to his cost

plus expenses and interest, subject to approval of the Board of

Governors of the Federal Reserve Bank pursuant to the Bank

Holding Company Act of 1956.

7a.

Opinion by Mansfield, Circuit Judge

count at inflated prices and by one such transfer of

municipal and corporate securities at prices which had not

been reduced to show losses in value. Securities in the

bank’s trading account, having been acquired for resale,

were required to be carried at the lower of cost or market

value, which was computed by determining the value of

each security so held at the end of each month. Securities

held in FNB’s investment or portfolio account, on the

other hand, were carried at cost with a straight line

adjustment to amortize premiums or discounts. Upon

transfer of a security from the bank’s trading to its

investment account, the bank was required to value the

security at the lower of cost or market value on the date

of transfer.

On March 26, 1974, Luftig, FNB’s President, faced

with mounting losses on the part of the bank, learned

this evaluation rule from John Sadlik, FNB’s chief finan-

cial officer, and asked Sadlik whether such a transfer

could be backdated if instructions previously given to

make the transfer had not been executed. After checking

with Cornell Wright of Ernst & Ernst, FNB’s indepen-

dent certified public accountants, Sadlik responded that

backdating was permissible if there was documentary

verification of the earlier instructions. Luftig then advised

Sadlik that he had documentation showing that instruc-

tions had been given on March 8, 1974, to transfer $100

million in United States Treasury certificates from the

bank’s trading to its investment account. The market

value of these securities on March 11, 1974, the next

business day after March 8th, had been approximately

$2 million higher than their value on March 26. Sadlik

thereupon arranged for Wright to visit the bank on

March 27 in order to verify the documentation of the

March 8th instruction which Luftig represented he had

given,

8a

Opinion by Mansfield, Circuit Judge

On March 27, 1974, according to the testimony of

Howard D. Crosse, the bank’s Vice-Chairman in charge

of its Investment Division, Luftig advised Crosse that if

Ernst & Ernst could be convinced that the claimed in-

struction to transfer the securities had been given on

March 8th it would not object to the bank’s evaluating

the securities as of March 11, 1974, and asked Crosse in

substance to assist in making this possible and falsely to

tell Wright that the instruction had been given. As

Crosse left the room, he first noticed Gleason standing in

the doorway. Gleason patted him on the shoulder and

said, “Good luck.” At a meeting with Wright and Sadlik

later the same day, after initial documentation proved

unacceptable to Ernst & Ernst, Luftig falsely stated to

Wright that the instruction had been given by him earlier

in March and prepared a confirmatory memorandum.

On the following day, March 28, at a meeting with

Sadlik, Wright and a more senior Ernst & Ernst partner,

James Russell, Crosse corroborated Luftig’s fraudulent

representation by falsely confirming that he had been in-

structed by Luftig in early March to make the transfer

and had relayed the instruction to Carter. The failure

to carry out the instruction was then explained to Wright

and Russell by J. Michael Carter, the bank’s Senior Vice-

President in charge of its Investment Division, who falsely

told them that the transfer had not been made because

he had in effect misunderstood the earlier instruction as

one to liquidate rather than to make a transfer between

accounts. Crosse added support to this explanation by

furnishing to Ernst & Ernst his own handwritten memo-

randum falsely summarizing directions supposedly given

to him by Luftig in early March and stating that the

failure to execute them had only just been discovered.

° Even assuming that an order to liquidate had been made by

Luftig, Carter at trial testified it was not made until March 18,

1974.

9a

Opinion by Mansfield, Circuit Judge

Relying upon these false representations Ernst &

Ernst did not object to the bank’s March 29 transfer of

the $100 million in Government securities to its invest-

ment account at March 11 market values, which enabled

FNB to conceal a loss of about $2 million.

In the meantime, on March 27, 1974, Carter directed

employees of the bank to transfer $62.5 million in USS.

Treasury and government agency bonds from the bank’s

trading account to its investment account at cost rather

than at lower market prices in response to his false repre-

sentation in writing that the securities had been pur-

chased by traders without his consent when he had been

instructed to keep security trading positions as low as

possible. In fact, as Carter later conceded, the purchases

had been authorized by him and he had not received any

such instructions to the contrary prior to March 20, 1974.

The effect of the transfer of $62.5 million of Government

securities at cost was to conceal approximately $2 million

in losses suffered by the bank during the first quarter of

1974.

The third transfer, which concealed a loss of approxi-

mately another $1 million during the first quarter, was

made after Crosse, on or about April 12, 1974, was ad-

vised by Carter that municipal and corporate securities

in the trading account had not been “marked to market”

(i.e., evaluated at the lower of cost or market) at the end

of March as was required. This information was passed

on by Crosse to Luftig who told Crosse to “transfer them

to portfolio [investment account] as best you can.” Crosse

thereupon directed Carter to transfer the securities to the

bank’s investment account at March 1] market values,

thus concealing an intervening decline in market value of

approximately $1 million that had occurred by March 31.

; The generation of approximately $2.2 million in ficti-

tious profits from contrived foreign exchange transactions

aoa cae

10a

Opinion by Mansfield, Circuit Judge

for the quarter ending March 31, 1974, was arranged by

Gleason and Peter R. Shaddick, Executive Senior Vice-

President of FNB and director of Franklin New York

Corp., who was in charge of its International Division.

Following a conference with Sindona in London on March

26, 1974, Gleason returned to New York where he advised

Shaddick on March 27, 1974, that unless the foreign ex-

change department showed a $700,000 profit for the month

of March the bank would have a loss for the quarter.

After advising Gleason that the department would actu-

ally have a loss for the month of March Shaddick, upon

learning from Andrew N. Garofalo, the head of the bank’s

foreign exchange department, that the loss would be from

$1 million to $1! million, told Garofalo that they would

probably have to “pass an entry” with Bordoni that would

wipe out the loss and create an apparent profit of

$700,000. The term “pass an entry” meant entering into

a fictitious foreign exchange contract with a European

bank controlled by Sindona and Bordoni, showing a pur-

chase or sale of foreign currencies for future delivery at

prices that would permit the bank to show a profit on the

bank’s earning statement.

Shaddick thereupon revealed to Gleason the loss and

the steps that would be taken to reflect the fictitious

$700,000 profit, receiving the latter’s thanks. On March

28, after Bordoni was advised by Gleason of the foreign

exchange department’s predicament and agreed to help,

Shaddick and Bordoni arranged for the FNB to “pass a

contract” with the Amincor Bank in Zurich. Gleason was

informed of the arrangement by Shaddick. Thereupon,

pursuant to instructions from Shaddick, Garofalo en-

tered into four contracts for future delivery of foreign

exchange, two with the Amincor Bank and two with

Banca Unione in Milan, a bank controlled by Sindona, of

which Bordoni was managing director. The contracts

were made at fictitiously high exchange rates unrelated

lla

Opinion by Mansfield, Circuit Judge

to market prices, enabling the bank’s foreign exchange

department to show an unrealized profit of $2.2 million

on the transactions and a $700,000 profit for the quarter.

The foregoing falsifications enabled FNB and its hold-

ing company to show a profit of $79,000 in their quarterly

statement published and sent on April 18, 1974, to the

bank’s stockholders and to Manufacturers Hanover Trust

Company, whereas in fact FNB had suffered a loss of

over $7 million. In the meantime on April 3, 1974, FNB

received from Manufacturers Hanover $30 million of the

$35 million loan which the latter had obligated itself. to

make to FNB.

At trial the Government presented its case principally

through accomplices (Crosse, Shaddick, Bordoni, Garo-

falo), various FNB employees, Ernst & Ernst partners

Wright and Russell, Government agents, and documentary

proof. Each of the three appellants testified in his own

defense. Luftig denied knowledge of or participation in

the making of any of the alleged false entries. He testi-

fied that on March 8, 1974, he had directed Crosse to

transfer the $100 million in Government securities from

the bank’s trading to its investment account, ordering a

liquidation of the trading account, and that when he

found out on March 26 from Sadlik that the direction

for the transfer had not been carried out he asked Sadlik

to review the matter with Ernst & Ernst, furnishing a

memorandum confirming his earlier instruction and later

learning that Ernst & Ernst did not object to the transfer

as of the date when the transfer order had been given.

Luftig did acknowledge that on April 11, 1974, he had

been advised by Crosse that a trader had failed to mark

some securities to market.

Carter testified that after the bank had with his ap-

proval increased its trading position in government secu-

rities by purchasing up to $100 million in December,

12a

Opinion by Mansfield, Circuit Judge

1973, he was authorized by Luftig on March 18, 1974,

to liquidate these securities at a loss, which he undertook

to do over the following weeks; that on March 27 he was

instructed by Crosse to transfer all but $100 million of

the securities from the trading account to the investment

account at cost, with a memorandum noting that the

securities being transferred had been purchased without

Carter’s knowledge and consent at a time when he had

been instructed to keep the bank’s trading accounts as low

as possible; that he gave the instruction and he signed

the memorandum knowing it to be false but did it be-

cause ordered ; that with respect to the March 28 meeting

with Sadlik, Crosse, Russell and Wright, he could only

recall stating in response to an inquiry that he had heard

of a bank transferring securities from its trading account

to its investment account but that this had not been done

at the Chase Manhattan Bank where he had previously

worked; that thereafter at Crosse’s directions he had

transferrea the $100 million in Government securities at

March 11th prices; and that in the first week of April

under Crosse’s orders he directed that municipal and cor-

porate bonds be transferred to the investment account at

cost although they had depreciated in value by $1 million

and had not been marked to market at the end of March.

Gleason testified that his duties as Chairman were

principally of a customer and public relations nature and

that he did not involve himself in the day-to-day opera-

tions of the bank. He denied discussing the bank’s earn-

ings or the proposed Talcott merger with Sindona at their

March 26, 1974, meeting in London, denied asking Shad-

dick to create a false profit through fictitious foreign ex-

change transactions or having any conversations about

the matter, and denied having known that the bank’s

financial statement for the first quarter of 1974 was false.

Thus, the trial of the case boiled down to a battle of

credibility between each of the three defendants, on the

13a

Opinion by Mansfield, Circuit Judge

one hand, and the Government witnesses, including ac-

complices, on the other, who gave diametrically opposed

testimony with respect to material aspects of each of the

alleged dishonest transactions forming the basis of the

indictment.

DISCUSSION

Since certain errors claimed by appellants to have

been committed during the trial apply to all and some

to only specific appellants, we initially consider the jointly-

shared arguments. The first of these relates to the trial

judge’s instructions to the jury, which, including post-

instruction discussions with counsel, cover some 157 trial]

transcript pages and were discussed extensively by the

judge with counsel before the charge was given.

THE INSTRUCTIONS

(1) Circumstantial Evidence and Credibility

Appellants contend that they were irreparably prej-

udiced by a portion of the trial judge’s charge in which

he sought to illustrate the nature of circumstantial evi-

dence and the drawing of inferences by reference to a

football game. The pertinent portion of the instruction is

footnoted.’ Briefly summarized, it advised the jury that

r “Sometimes judges give illustrations to jurors about the

use of circumstantial evidence. A familiar one is the one

where if you look out the window and see a lot of people

with umbrellas, you can infer it’s raining. I never know

how that is helpful to a jury. You are not really trying to

decide whether some weather condition exists, at least I

don’t know that that’s a major problem in this case. But

the point is that I think if you thought for a minute you

would realize that this is not a novel or unusual or super

human kind of process that the lawyers and that the Court

have asked you to give consideration to. Frequently in our

every-day life, without calling it circumstantial] evidence,

we draw conclusions about what people must have done,

must have thought, and must have said.

{Footnote continued on following page]

14a

Opinion by Mansfield, Circuit Judge

on the basis of common sense and experience a jury could

infer from a team’s performance on the field what pre-

vious instructions and training had been given by the

coach and what had been done by the players in prepara-

tion for the game, even though the jury had not been

“Here is a little illustration that may show you that this

is a matter which can well be accomplished by the use of

common sense and common good judgment and experience.

This is an illustration that quite obviously has nothing to

do with the present case. Let’s assume that you attend a

football game. You see the players and the teams perform-

ing certain plays. You observe on the field many details

about how well or how poorly the teams perform, whether

there are a lot of passes or a lot of runs, whether there are

many penalties or few penalties, whether there are many

injuries or few injuries, whatever details go on before you.

“Now, on the basis of common experience and common

sense, and on the basis of whatever information you know

about football and about your observing this game, you can

logically and reasonably infer some things about what people

did and said and thought before that game and in prepara-

tion f6t that game, although you were not present in the

locker room or on the training field and although no wit-

nesses come to tell you what went on. You can infer that-—

there are some things that you will be able to infer about

whether the coach gave good or bad training, what instruc-

tions he gave, what he must have said in substance, what

acts were done by the coach and the players in preparation

for that game. Tifere will be some things that a person in

the audience could reasonably and logically infer and know

beyond any doubt; there will be some things that they could

not reasonably and logically infer beyond a doubt. But that

kind of thought process, if anybody went through it, would

be something which would not be a super human effort or

bizarre or unusual.

“Now, you’re being asked in this case to not only evalu-

ate the direct evidence but to determine what the circum-

stantial evidence shows as to what various people did, said,

and thought. The question for you is: What you can infer

and what you cannot reasonably infer”

15a

Opinion by Mansfield, Circuit Judge

present in the locker room or on the training field and

hence had not witnessed the instructions and training.

Unquestionably the example used in the instruction

was ill-conceived, confusing and inappropriate. Since the

three defendants were top officers of the FNB, the exam-

ple exposed them to the risk that the jury might interpret

it'as implying that they could be considered to have played

the role of “football coaches” who had from behind the

scenes directed bank officials or employees on the “team”

(e.g., Crosse, Shaddick, Garofalo, ete.) to commit the

alleged crimes. As we thought we had made clear in

United States v. Dizdar, 581 F.2d 1031 (2d Cir. 1978),

the choice of an exainple too close or analogous to the

facts of the case on trial is likely to be more prejudicial

than “helpful” and is quite unnecessary when other clearly

non-prejudicial examples are available.

Moreover, the example was inaccurate. Experience

demonstrates that one cannot logically or reasonably infer

that players’ actions on a football field are necessarily

or even probably the result of a coach’s directions or

training. It hardly requires an expert to appreciate that

some “plays,” “passes,” “runs,” “penalties” and “in-

juries,” see n.7 supra, may arise from circumstances

unrelated to a coach’s training or instructions, such as a

quarterback’s inspiration of the moment or sheer luck

or happenstance. Well-trained and coached teams have

been known to perform poorly and vice-versa. In effect,

therefore, the example could be viewed as an invitation

to speculate rather than to use logic and reason in draw-

ing inferences from circumstantial evidence.

Notwithstanding these weaknesses in the example, we

are not persuaded that it calls for a reversal in this

case. When the entire charge on the subject is viewed in

context, as it must be, see United States v. Hanlon, 548

F.2d 1096, 1101 (2d Cir. 1977); United States v. Guill-

16a

Opinion by Mansfield, Circuit Judge

ette, 547 F.2d 743, 750 (2d Cir. 1976), cert. denied, 434

U.S. 839 (1977) ; United States v. Gentile, 530 F.2d 461,

469 (2d Cir.), cert. denied, 426 U.S. 936 (1976), we do

not view the example as having any serious prejudicial

effect. The jury was adequately advised of the nature

of circumstantial evidence. It was repeatedly told to use

“common sense,” “common experience” and “common good

judgment” in drawing inferences from facts found by

them and that inferences depended on the jury’s acting

“logically and reasonably.” Moreover, before launching

into the “football coach” example the court carefully

stated “This is an illustration that quite obviously has

nothing to do with the present case.” We believe it

would be denigrating the intelligence of the average jury

to conclude that it would forsake its own common sense

and experience for the suggestions implied in the court’s

ill-conceived “example.”

Turning to the court’s instructions on the subject of

credibility, we recognize that the witnesses’ credibility was

a central issue and played a decisive role in the case, in

view of the diametrically conflicting testimony of the

Government’s witnesses, on the one hand, and the defend-

ants, on the other, with respect to crucial materia] facts.

Appellants contend that with this background the court’s

charge precluded a balanced assessment of the witnesses’

credibility because it failed adequately to warn of the

inherently suspect nature of the testimony of the accom-

plices called by the Government, some of whom had admit-

ted to a series of frauds, perjury and other criminal acts,

and others of whom had pleaded guilty pursuant to plea

bargains and were awaiting sentence, and because it exag-

gerated the reasons for distrusting a defendant’s testi-

mony. We disagree.

Unquestionably, it is the court’s duty, in instructing

a jury on the subject of witnesses’ credibility, to give

balanced instructions. Where the court points out that

<< -

17a

Opinion by Mansfield, Circuit Judge

testimony of certain types of witnesses may be suspect

and should therefore be scrutinized and weighed with

care, such as that of accomplices or co-conspirators, e.g.,

United States v. Santana, 503 F.2d 710, 715-16 (2d

Cir.), cert. denied, 419 U.S. 1053 (1974), those who have

made plea bargains or are awaiting sentence, see, e.g.,

United States v. Corcione, 592 F.2d 111, 116-17 (2d Cir.),

cert. denied, 99 S.Ct. 1545 (1979); United States v.

Projansky, 465 F.2d 128, 186 (2d Cir.), cert. denied,

409 U.S. 1006 (1972); Good v. United States, 410 F.2d

1217, 1221 (5th Cir. 1969), cert. denied, 397 U.S. 1002

(1970), those who have been granted immunity, United

States v. DeLoach, 5380 F.2d 990, 994 & n.5 (D.C. Cir.

1975), cert. denied, 426 U.S. 909 (1976), and defendants,

United States v. Rucker, 586 F.2d 899, 903-04 (2d Cir.

1978) ; United States v. Martin, 525 F.2d 703, 707 &

n.3 (2d Cir. 1975), it must also direct the jury’s attention

to the fact that it may well find these witnesses to be

truthful, in whole or in part. United States v. Vera, 589

F.2d 1147, 1154 (2d Cir. 1978). In short, the court

should not emphasize the suspect nature of the testimony

of certain witnesses without pointing out that they may be

believed. Although a trial judge has the right to com-

ment on credibility of specific witnesses, this right is

limited and its exercise is appropriate only when necessary

to assist the jury. Quercia v. United States, 289 U.S.

466, 469-71 (1933). Confidence in our jury system leads

us to leave credibility solely to the jury which, as the

conscience of the community, is expected to act with sound

judgment.

Applying these basic principles here we conclude that

Judge Griesa’s credibility charge, viewed in its entirety,

satisfied all legal requirements and was neither unfair

to the appellants nor weighted in favor of the Govern-

ment’s witnesses. The court pointed out that the Gov-

ernment is frequently out of necessity required to rely

18a

Opinion by Mansfield, Circuit Judge

on participants, accomplices, and persons who have com-

mitted crimes, including perjury, as witnesses and that

“you must view these witnesses with particular caution

and scrutinize them with particular care.” Similarly,

although Judge Griesa noted that a defendant “has a

deep personal interest in the result of this prosecution”

and “the greatest kind of stake in its outcome’ which

“creates, at least potentially, a motive for false testi-

mony” and “is of a character possessed by no other wit-

ness,” which has been the standard language used by

district judges for many years, he continued with the

same boiler-plate language to the effect that “it by no

means follows that simply because a person has a vital

interest in the end result of a case he is not capable of

telling a truthful, candid, and straight-forward story”

and that it was for the jury, after weighing these fac-

tors, and giving “the most careful and fair consideration

to the testimony of each defendant and to the factors

which . . . could weigh for or against its credibility” to

determine its credibility. Thus the instructions were

balanced and did not preclude the jurors from making a

fair assessment of the credibility of the witnesses who

had appeared before them.

(2) Conspiracy

Appellants contend that since the alleged conspiracy

was one to engage in fraudulent falsification of entries

(in violation of 18 U.S.C. §§ 1005, 1014 and 15 U.S.C.

$§ 78) (b), 78ff) by means of two distinct types of trans-

actions (i.e., false evaluation of securities and fictitious

foreign exchange transactions), the trial judge was not

only required to instruct the jury regarding the entire

alleged plan or scheme, including all means to be used

to effectuate it, but to advise the jury that no defendant

could be convicted unless he comprehended its full scope

and knew of every means which the jury found to have

been employed in furtherance of the conspiracy. They

19a

Opinion by Mansfield, Circuit Judge

cite United States v. Peoni, 100 F.2d 401, 408 (2d Cir.

1938), for this proposition. Failure to give such a

charge, they claim, allowed the jury to convict defend-

ants who may not have been knowing parties to the

entire scheme.

The scope of the conspiracy alleged in the present

case, while rather broad and encompassing conduct that

would violate several laws, was by the time ‘of trial

sufficiently defined to be clearly comprehensible and, if

proven, to warrant a conviction for violation of 18 U.S.C.

§ 371.

The objective of the alleged conspiracy was to falsify

FNB’s operating statement for the first quarter of 1974

so that the bank would appear to have made a profit

when in fact it had suffered a loss of over $7 million, and

thereby to deceive anybody who might normally be ex-

pected to rely on the statement (e.g., federal authorities,

lenders, stockholders, etc.) as an honest and accurate

representation of the bank’s operations for the quarter.

The alleged motives, which were relevant but not ele-

ments of the crime and need not be proven, included

the desire to gain approval of the proposed Talcott merger

by Federal bank authorities. Two principal means were

allegedly used to accomplish the goal of the conspiracy:

(1) false evaluation of securities, and (2) fictitious

foreign exchange transactions.

Review of a few basic principles of conspiracy law

is essential to determine whether the charge here was

sufficient. To be convicted as a member of a conspiracy,

a defendant need not know every objective of the con-

spiracy, United States v. DiGeronimo, 598 F.2d 746, 755

(2d Cir. 1979); United States v. Bernstein, 583 F.2d

775, 793-94 & n.12 (2d Cir.), cert. denied, 429 U.S. 998

(1976) ; United States v. Papadakis, 510 F.2d 287, 297

(2d Cir.), cert. denied, 421 U.S. 950 (1975), every detail

20a

Opinion by Mansfield, Circuit Judge

of its operation or means employed to achieve the agreed-

upon criminal objective, Blumenthal v. United States,

332 U.S. 539, 557 (1947); United States v. Rosenblatt,

554 F.2d 36, 38 (2d Cir. 1977 ), or even the identity of

every co-conspirator, United States v. Sperling, supra,

506 F.2d at 1340; United States v. Sisca, 503 F.2d 1387,

1345 (2d Cir.), cert. denied, 419 U.S. 1008 (1974),

There must, however, be agreement on the “essential

nature of the plan,” Blumenthal v. United States, supra,

and on the “kind of criminal conduct .. . in fact con-

templated.” United States v. Gallishaw, 428 U.S. 760,

763 n.1 (2d Cir. 1970). See also United States v. Rosen-

blatt, supra, 554 F.2d at 38-39. In addition

“a person may be held to intend that which is the

anticipated consequence of a particular action to

which he agrees, when that action is unreasonable

in view of that consequence.”

Developments in the Law—Conspiracy, 72 Harv. L. Rev.

920, 982 (1959). See also 1 Wharton’s Criminal Law

and Procedure § 90, at 197 (1957). In short, the con-

spirator must agree to and participate in a scheme which

he knows to have an illegal objective. If, in the course

of the conspiracy, there occur other illegal acts not

specifically contemplated by an individual conspirator

but reasonably akin to the anticipated illegality and in

furtherance or in consequence of the scheme, the con-

Spirator may not on that account escape liability for

participation in the conspiracy.

With these principles in mind we are satisfied that

Judge Griesa’s conspiracy charge was sufficiently clear

to provide the jury with the basic legal principles it

needed to determine whether there was a conspiracy in

violation of 18 U.S.C. § 371 and whether each defendant

joined it with knowledge of its illegal objective. At the

outset he accurately summarized Count One as charging

21a

Opinion by Mansfield, Circuit Judge

generally that the three defendants “conspired to falsify

the first-quarter 1974 financial statement of the Franklin

National Bank, for various purposes.” Having thus de-

scribed the general goal, Judge Griesa described the

various federal offenses which were alleged to have been

committed in the course of the conspiracy and correctly

noted that in order to convict a defendant the jury need

not find that he “conspired to achieve all of the objects

alleged or to violate all of the statutes or rules referred

to.” (A.67).

The court’s next step, stated as being in the interest

of simplicity, was to select one‘of the alleged objects of

the conspiracy—violation of 18 U.S.C. § 1005, which

makes it a crime for an officer or director of a national

bank to make a false entry in a report or statement of

the bank with the intent to defraud—as the vehicle for

explaining the basic elements that must be proved beyond

a reasonable doubt to establish the alleged conspiracy.

The court properly instructed that there must be proof

of an agreement between two or more persons “to make

a false entry, namely, the $79,000 net income item in

the statement of earnings of the Franklin National Bank

for the first quarter of 1974, with the purpose of de-

frauding or deceiving;” that “the particular defendant

you are considering, knowingly joined in the conspiracy;

and “that at least one of the conspirators committed at

least one overt act charged in the indictment.” The jury

was then accurately instructed that the FNB was a na-

tional bank within the meaning of § 1005 and that the

$79,000 item .in its first quarter statement of earnings

was an “entry,” as were the other figures in the quarterly

statement including the earnings figures of $1,301,000

for the trading account and $2,454,000 for the foreign

exchange trading account,

After defining accurately the term “false entry,”

“defraud,” and “intent to deceive” as used in the statute

and indictment, the district judge focused on the two

22a

Opinion by Mansfield, Circuit Judge

means charged in Paragraphs 5 and 6 of Count One of

the indictment as those whereby the conspiracy was

allegedly to be effectuated, i.e., by concealment of depre-

ciation in the value of securities in the trading account

and by fictitious foreign exchange contracts to create

the false appearance of profits, pointing out that the

jury was not required to find that both means had been

used in order to convict the defendants, and that it

might convict all three defendants if it found they had

conspired to falsify the financial statement and used

either or both means. This instruction was qualified by

the statement that Carter could not be found guilty if

the jury found that the conspiracy was solely to faisify

through foreign exchange contracts. The reason for this

qualification and the court’s dismissal of the Count Three

charge (fictitious foreign exchange contracts) against

Carter was that there was no evidence that he had any-

thing to do with such contracts. Lastly, the court prop-

erly charged the jury that to convict on the conspiracy

count it must find a single conspiracy of the type alleged.

It also advised the jury that if it found two separate

independent conspiracies it must acquit.*

Thus the conspiracy instructions were adequate and

conformed to basic principles of conspiracy law as they

evolved. As long as the jury found one conspiracy to

falsify the bank’s books in order to produce a false

income statement for the first quarter of 1974 and that

each defendant played a part in that conspiracy it was

unnecessary for the Government to establish that each

defendant agreed to each of unlawful acts or means that

might be used to achieve that goal.

® This instruction was more favorable to the defendants than

the law required, since it is subject to the qualification that where

there is proof of the conspiracy charged in an indictment, a find-

ing of other conspiracies would not mandate acquittal. United

States v. Tramunti, 513 F.2d 1087, 1108 (2d Cir.), cert. denied,

423 U.S. 832 (1975).

23a

Opinion by Mansfield, Circuit Judge

It hardly necessitated any great mental gymnastics

for any reasonable person logically to conclude in the

present case that when a bank officer participated in

the falsification of bank entries designed to hide a huge

depreciation in the value of the bank’s assets he did so

for the purpose of enabling the bank to falsify its quar-

terly financial statement, not for his own edification or

to alter the bank’s internal bookkeeping system but to

mislead others who would normally rely upon the state-

ment as a true representation of the bank’s financial

picture. Any major participant aware of the ultimate

objective and its achievement through one type of false

entry could also reasonably foresee that other types of

entry falsification, such as fictitious foreign exchange

transactions, might well be used to achieve that goal.

There was an abundance of evidence from which the jury

could infer that each of the appellants agreed to the

general objective of fraudulently falsifying FNB’s first

quarter 1974 earnings statement.

Our earlier decisions in United States v. Peoni, supra,

and United States v. Falcone, 109 F.2d 579 (2d Cir.

1939), affd., 311 U.S. 205. (1940), relied upon by appel-

lants, do not require a contrary conclusion. In each of

those cases there was simply no evidence from which

a jury could infer an agreement to which the defendant

could have been a party or that he willfully or knowingly

participated in the alleged conspiracy. Here, on the

other hand, there was ample evidence to permit a jury

to infer a general agreement on the part of FNB’s top

officials to falsify its financial statement for the first

quarter of 1974 and that each played some part in it.

No defendant here was held liable beyond “the fair

import of the concerted purpose or agreement as he

understands it.” United States v. Peoni, supra, 100 F.2d

at 403. The appellants would have us read this broadly,

to mean that to be a conspirator, one must have full

24a

Opinion by Mansfield, Circuit Judge

knowledge of each facet of the conspiracy. We have,

however, read Peoni and Falcone more narrowly than

this, see, e.g., United States v. Calabro, 467 F.2d 978,

981 (2d Cir. 1972), cert. denied, 410 U.S. 926 (1973) ;

United States v. Tramaglino, 197 F.2d 928, 930 (2d

Cir.), cert. denied, 344 U.S. 864 (1952), and we do not

believe they contradict our statement above of the legal

principles involved here.

Luftig contends that the court erred in failing to

instruct the jury, as it did with respect to Carter, that

if the jury found a conspiracy to falsify FNB’s quarterly

earnings statement solely by fictitious, foreign exchange

transactions it should not convict him. We doubt that

Carter, who did not participate in or know of the foreign

exchange transactions, was entitled to this instruction,

since there was evidence of his participation in the broad

conspiracy to falsify FNB’s quarterly earnings statement

and, as we stated above, it was unnecessary for the

Government to prove that he knew of each means used

to carry it out. Moreover, even if there was error in

denying Luftig the charge, the error was harmless. Since

the jury convicted Carter, it had to have found that the

conspiracy was not carried out solely by fictitious foreign

exchange transactions. Thus, Luftig’s conviction could

not have been based on a conspiracy carried out solely

by that means.

In any event, the jury found all defendants guilty of

falsification by concealment of the depreciation in value

of the securities in its trading account (Count Two)

and Luftig guilty of perjuring himself before the grand

jury when he swore that he had in early March ordered

the transfer of the $100 million from the bank’s trading

account to its investment account. Thus there was ample

evidence to support a finding of conspiracy to falsify

the bank’s earnings statement in which Luftig played

a major part.

25a

Opinion by Mansfield, Circuit Judge

(3) Pinkerton Charge

The Supreme Court in Pinkerton v. United States,

328 U.S. 640 (1946), held that a conspirator may be

found guilty of a substantive offense committed by a

co-conspirator in furtherance of and as part of an

alleged conspiracy even though he personally did not

commit the acts constituting the substantive crime itself.

In accordance with Pinkerton Judge Griesa instructed

the jury that if it found th~: a defendant was a member

of the conspiracy alleged in Count One but did not

commit the acts constituting one of the alleged substan-

tive crimes (e.g., violation of 18 U.S.C. §§ 1005 (Count

Two), 1014 (Count Three), or §10(b) of the Securities

Exchange Act), it might nevertheless find him guilty of

a substantive crime committed by a co-conspirator in

furtherance of the conspiracy and as part of it, provided

the conduct “was within the scope of the conspiracy and

a forseeable consequence of it,” since the defendant com-

mitting the substantive crime, like a partner, might then

be treated as an agent of the other members of the con-

spiracy.

Appellants contend that this instruction was erro-

neous. First they argue that no Pinkerton charge at all

should have been given because there was _ insufficient

evidence of the existence of a general conspiracy, in

furtherance of which the substantive offenses were com-

mitted, to warrant such a charge, cf. United States v.

Sperling, supra, 506 F.2d at 1341-42. We disagree.

There was ample evidence independent of the sub-

stantive crimes themselves from which the jury could

find beyond a reasonable doubt that the top officers of

FNB joined in a plan to falsify its first quarter earnings

statements so that it would appear to show a profit and

that to accomplish the unlawful objective some engaged

in criminal acts that were either known or should have

been reasonably foreseeable to the others. Although there

26a

Opinion by Mansfield, Circuit Judge

was little evidence of Luftig’s knowledge of or partici-

pation in the fictitious foreign exchange transactions or

of Gleason’s participation in the false evaluation of the

bank’s trading account securities, there was ample proof,

crediting as we must the testimony of Crosse and Shad-

dick, that each defendant in his own way joined in a

scheme to falsify the bank’s earnings statement. This

was sufficient to permit the giving of a Pinkerton charge

with respect to the reasonably foreseeable crimes that

might be committed by fellow conspirators in furtherance

of that scheme. Indeed, the obvious purpose of falsifying

the bank’s earnings statement was to commit frauds.’

Appellants’ second objection is that the court’s

Pinkerton charge permitted the jury to find them guilty

of substantive crimes which were not part of the con-

spiracy. We disagree.

When Judge Griesa explained the conspiracy count

to the jury, he used the § 1005 violation, which was

one of the alleged objectives of the conspiracy, as an

example. He did not go through the $1014 and Rule

10b-5 counts at that time; rather he stated that he had

not stricken the others, but was trying to simplify his

explanation. However, when it came time to explain the

Pinkerton rule, the court said:

“And remembering that the conspiracy count

relates to 1005, and of course some of these sub-

stantive counts relate to other statutes—1014,

* Altiiough the court dismissed Count Three against Carter on

the ground that he had not personally participated in the foreign

exchange transactions, this was not required since, upon the evi-

dence before it, the jury could find that Carter joined the con-

spiracy to falsify FNB’s first quarter 1974 financial statement and

could reasonably anticipate that his partners in crime might com-

mit other criminal acts, including use of fictitious foreign exchange

transactions, to misrepresent the bank’s earnings.

27a

Opinion by Mansfield, Circuit Judge

Section 10(b) of the Exchange Act, and so forth—

but nevertheless, if you have found any defendant

guilty under Count one [the conspiracy count],

then you are obliged to reconsider his guilt on

the substantive count you are considering.”

Appellants argue that this statement permitted the jury,

once it found a conspiracy to violate one statutory pro-

vision, to use Pinkerton to hold a conspirator liable for

violations of other provisions not among the objects of

the conspiracy and not done in furthrance of the con-

spiracy.

A diligent reading of the charge, however, reveals

that Judge Griesa properly instructed the jury. He

followed the passage quoted above with the instruction

that in order to convict:

“You must find that the crime charged in [a] sub-

stantive count was committed by [a] co-conspirator

and that it was committed during and in further-

ance of the conspiracy charged in the conspiracy

count. You must find that the crime charged in

the substantive count was within the scope of the

conspiracy and a foreseeable consequence of the

unlawful agreement.”

As already noted, he had previously instructed the jury

that the alleged objective of the conspiracy was to falsify

FNB’s first quarter 1974 financial statement by making

a false entry to the effect that it had a net income of

$79,000 when it had in fact suffered losses, all with a

view to defrauding others. Thus the court’s Pinkerton

charge was in accordance with the principles enunciated

by the Supreme Court, see Nye & Nissen v. United

States, 336 U.S. 618, 618 (1949), and by this court, see

United States v. Molina, 581 F.2d 56, 60-61 (2d Cir.

1978). The instruction was therefore sufficient, and

there was ample evidence from which the jury could

— <a

28a

Opinion by Mansfield, Circuit Judge

have concluded that the substantive violations were com-

mitted in furtherance of the conspiracy charged, if indeed

the jury found it necessary to reach the question of

Pinkerton liability at all.

(4) Aiding and Abetting

The indictment charged and the court gave instruc-

tions regarding liability of the defendants for “aiding

and abetting” or “causing” the various crimes, pursuant

to 18 U.S.C. § 2.*° Appellants argue that the court erred

in failing to instruct the jury that before it might find

any defendant guilty as an aider and abettor the princi-

pal must be identified, or in failing to identify the

principal himself.

We have held that under 18 U.S.C. § 2(a) a person

charged as an aider and abettor “cannot be found guilty

. unless a principal whom he has aided and abetted

committed the criminal act.” United States v. Bernstein,

533 F.2d 775, 799 (2d Cir. 1976). See also United States

v. Erb, 543 F.2d 438, 446 (2d Cir.), cert. denied, 429

U.S. 981 (1976). Under 18 U.S.C. § 2(b) a person who

causes an innocent party to commit an act which, if done

with the requisite intent, would constitute an offense

may be found guilty as a principal even though he

personally did not commit the criminal act."

18 U.S.C. § 2 provides:

“(a) Whoever commits an offense against the United

States or aids, abets, counsels, commands, induces or pro-

cures its commission, is punishable as a principal.

“(b) Whoever wilfully causes an act to be done which

if directly performed by him or another would be an offense

against the United States, is punishable as a principal.”

‘! We are not confronted here with a case where any defendant

was legally incapable of committing an alleged offense. See United

States v. Ruffin, Dkt. No. 78-1361 (2d Cir.); United States v.

Lestre, 363 F.2d 68, 72-73 (6th Cir. 1966), cert. denied, 385 U.S.

1002 (1967).

29a

Opinion by Mansfield, Circuit Judge

In the present case there was sufficient evidence to

permit the jury to find that at least one defendant or

co-conspirator participated in each of the alleged criminal

acts, either as a principal, an aider and abettor, or under

Pinkerton as a co-conspirator who could reasonably forsee

that the substantive crimes might be committed by fellow

conspirators in furtherance of the conspiracy.

Absent some indication that there was a failure to

prove that a defendant committed one of the alleged

criminal acts or participated knowingly in the commis-

sion of such an act by another, we believe that the court’s

refusal to require the jury first:to identify the principals

and then to identify the aiders and abettors was proper.

Several other circuits have held that there is no such

requirement, see United States v. Staten, 581 F.2d 878,

887 (D.C. Cir. 1978) ; United States v. Bryan, 483 F.2d

88, 93-94 (3d Cir. 1973) (en banc); United States v.

Austin, 462 F.2d 724, 731 (10th Cir.), cert. denied, 409

U.S. 1048 (1972); Feldstein v. United States, 429 F.2d

1092, 1095 (9th Cir.), cert. denied, 400 U.S. 920 (1970),

and we agree. It is sufficient that the court instruct

the jury that in order to convict under 18 U.S.C. § 2

the acts must have been committed by someone. Judge

Griesa’s charge was entirely adequate in this respect,

and there was sufficient evidence to permit the jury to

find that at least one defendant or co-conspirator acted

as principal in the commission of each of the crimes

charged.”

(5) Potential Adverse Effect on

Bank Depositor-Jurors

Appellants contend that by implying in his charge

that bank depositors were victims of the crimes alleged,

12'We are not here confronted with a case where a possible

principal was acquitted. See United States v. Ruffin, Dkt. No.

78-1361 (2d Cir.) ; United States v. Standefer, F.2d

(8d Cir. Dkt. No. 78-1909, Aug. 10, 1979).

a a oS a ae

30a

Opinion by Mansfield, Circuit Judge

Judge Griesa destroyed appellants’ Sixth Amendment

right to an impartial jury, since most of the jurors were

undoubtedly bank depositors and one had been a deposit-

or in FNB. The claim is so speculative as to border on

the frivolous.

In the first place, the record gives no indication that

any Juror had been an FNB depositor. Regardless of

this side-issue, the court’s instruction did not suggest

that depositors were victimized. Judge Griesa quite

properly stated that the term “any other company or

body politic or corporate or any individual person,” as

used in $1005, “obviously includes persons who are

depositors and other customers of the bank, borrowers

from the bank; it also includes other banks which lend

money to the particular bank.”

We find nothing inflammatory or unfair about this

accurate description of the type of persons whom the

statute was designed to protect. Nor is there any indi-

cation that any defendant was prejudiced or likely to

have been prejudiced by the description, which must be

shown for reversal. Mikus v. United States, 483 F.2d

719, 724 (2d Cir. 1970). Cf. Irvin v. Dowd, 366 U.S.

717, 723 (1961); United States v. Tramunti, 513 F.2d

1087, 1114 (2d Cir.), cert. denied, 423 U.S. 832 (1975).

EVIDENTARY RULINGS

(1) Prior Similar Conduct by Crosse

Luftig contends that the district court erred in refus-

ing to permit him to offer certain evidence tending to

establish his innocence of any false evaluation of FNB’s

securities and unduly restricted his cross-examination of

Crosse on the same subject. We disagree.

As evidence of Luftig’s participation in the false

evaluation of bank securities by backdating the transfer

of some from the bank’s trading to its investment account

3la

Opinion by Mansfield, Circuit Judge

in March, 1974, and by failing to “mark to market”

other securities in the trading account, the Government

introduced Crosse’s testimony regarding Luftig’s instruc-

tions. In his defense Luftig sought to introduce a series

of eight items, including evidence that during the period

1971-74 Crosse, both prior to and after Luftig’s jaining

FNB, had without Luftig’s knowledge repeatedly trans-

ferred securities from the bank’s trading to its invest-

ment account without proper evaluation and had failed

to reevaluate or “mark to market” securities in the

trading account or establish adequate depreciation re-

serves, thus concealing hundreds of thousands of dollars

of depreciation. The purpose of the offer, of course, was

to try to show that in March, 1974, as on prior occasions,

Crosse had acted on his own without Luftig’s knowledge

and that Crosse’s testimony implicating Luftig was

incredible.

Judge Griesa restricted Luftig to two items, one a

transfer at Crosse’s discretion on September 20, 1973,

of $37.85 million of securities at cost from FNB’s trad-

ing to its investment account, which allegedly concealed

more than $695,000 of depreciation and the other a

failure in July, 1973, to “mark to market” securities in

four trading accounts or to establish adequate reserves

for some $3 million in losses, which were concealed from

Crosse’s superiors. Evidence regarding the other six

items was excluded on the ground that whatever proba-

tive value the evidence might have was outweighed by

the danger of confusing the jury regarding the issues on

trial by diverting its attention to coliateral issues.

Upon this review the propriety of the district court’s

ruling must be tested by the standard of whether the ex-

clusion of the evidence constituted a clear abuse of dis-

cretion. Hamling v. United States, 418 U.S. 87, 124-25

(1974) ; United States v. Corr, 543 F.2d 1042, 1051 (2d

Cir. 1976). Given the circumstances before the trial

judge, we find no such abuse.

32a

Opinion by Mansfield, Circuit Judge

A clear showing that Crosse had engaged in prior

similar misconduct without Luftig’s knowledge would

have some probative value (though far from conclusive)

on the issue of whether he later acted under Luftig’s

directions in March and April 1974. See, e.g., United

States v. Matot, 146 F.2d 197, 198 (2d Cir. 1944) (ex-

clusion of evidence of offer by one charged with fraud

based on overdrafts to make good on deficiencies held

error); United States v. Platt, 485 F.2d 789, 793 (2d

Cir. 1970). Crosse’s engagement in earlier wrongdoing,

on the other hand, would not preclude a finding that

Luftig and he joined together in the later misconduct,

with Luftig willing to take the lead for obvious reasons.

Moreover, where such proof, though of some relevance,

may lead to confusing and time-consuming disputes with

respect to collateral issues the trial judge may properly

reject or limit it. United States v. King, 560 F.2d 122,

134 (2d Cir.), cert. denied, 484 U.S. 925 (1977) ; Fed. R.

Evid. 403. This appears to have been the situation con-

fronting the district court in this case.

Even with respect to the September 20, 1973, transfer

of securities, serious collateral issues were raised regard-

ing the extent of Crosse’s involvement in the transfer and

whether it was made by lesser employees (possibly by

mistake), possibly without his knowledge. Moreover, the

Government contended that some purchases of securities

ostensibly for the bank’s trading account were in fact

made from the outset for the investment account, which

had no traders of its own, using trading account traders

and then transferring acquisitions to the investment ac-

count. If this were established, the transfer from trad-

ing to investment at cost might have been justified or

excused as a mistake. Lastly, Carter vigorously opposed

introduction of evidence as to the earlier security trans-

fers and failures to “mark to market” since they might

reflect upon his honesty as vice-president in charge.

33a

Opinion by Mansfield, Circuit Judge

Faced with these complexities, which could lead to

“trials within the trial,” Judge Griesa—sensibly. in our

view—limited Luftig to two of the earlier examples, per-

mitting evidence as to the September, 1973, transfer on

the ground that the matter had been opened up by the

Government on its examination of Crosse."* We find no.

abuse of discretion in this ruling. 3

(2) The May 12 Press Release

Luftig next argues that the court erred in refusing

to permit him to testify that on May 12, 1974, several

weeks after the principal fraudulent conduct which was

the subject of the indictment, he opposed the issuance by |

FNB of a press release, favored by Sindona, which failed

to disclose certain hidden foreign exchange transactions

concededly “unrelated” to the transactions that were the.

subject of the indictment. We find no abuse of discretion

in this ruling which properly avoided getting into more

complicated collateral issues with respect to other differ-

ences that developed later between Luftig and Sindona,

leading to the former’s being asked to resign. At most

the evidence would show a disagreement between the two

having nothing to do with the criminal conduct alleged

in the indictment. Further evidence of Luftig’s differ-

ences with Sindona over unrelated matters would be of

doubtful probative value with respect to the issues on

trial and could confuse the jury."

*S Even as to the September, 1973, transfer the record discus-

sion regarding the side issues created by its introduction covered

almost 50 pages of transcript.

‘* Luftig was permitted to testify that beginning on May 6,

1974, despite Sindona’s strong opposition, he actively supported

a merger of FNB with Manufacturers Hanover, and that he

(Luftig) requested an FBI investigation into the bank’s non-

disclosure of certain unrelated foreign exchange transactions.

34a

Opinion by Mansfield, Circuit Judge

(3) Cross-Examination of Crosse

Similarly we find no merit in Luftig’s claim that it

was error to bar him from bringing out that Crosse had

vigorously opposed before FNB’s board of directors a

management proposal to disband the bank’s municipal

dealer department. Luftig argues that the evidence in-

dicates unlikelihood that Crosse would have done Luftig’s

bidding to falsely value $100 million of the bank’s secu-

rities by backdating to March 11, 1974, their transfer

from its trading to its investment account. Here again,

aside from the tenuousness of the inference sought to be

drawn and the fact that the subject was beyond the scope

of cross-examination, since it had not been opened up on

direct, see Fed.R.Evid. 611(b), to permit such questions

could open up a flood of evidence regarding a possibly con-

fusing collateral issue, with the Government seeking to

establish dissimilarities or reasons why Crosse would act

differently under one circumstance than under the other.

We find no abuse of discretion in the judge’s precluding

cross-examination of Crosse on this subject matter. See

United States v. Carr, 584 F.2d 612, 617 (2d Cir. 1978).

(4) Testimony Challenged as Hearsay

Appellant Luftig argues that the court erred in ad-

mitting testimony by Cornell Wright, an Ernst & Ernst

partner, that on May 17, 1974, he was told by Carter that

the March 27, 1974, transfer at cost of $62.5 million of

U.S. Government agency securities had been “ordered by

someone superior to Howard Crosse.” Luftig contends

that the statement was post-conspiracy, narrative hearsay

as to him, see United States v. Birnbaum, 337 F.2d 490,

494-95 (2d Cir. 1964). We disagree.

There was sufficient independent evidence to justify

a finding by the triai judge that the conspiracy was still

alive on May 17 and that Luftig and Carter were par-

ticipants. Carter’s quoted statement was therefore ad-

35a

Opinion by Mansfield, Circuit Judge

missible against Luftig under Fed. R. Evid. 801(d) (2)

(E) as a statement in furtherance of it designed to allay

suspicion on Wright’s part regarding the propriety of

the March transfer. United States v. Ruggiero, 472 F.2d

599, 607 (2d Cir.), cert. denied, 412 U.S. 939 (1973);

United States v. Geaney, 417 F.2d 1136 (2d Cir. 1969),

cert. denied, 397 U.S. 1028 (1970).

The testimony of John Sadlik, the bank’s chief finan-

cial officer, to the effect that after Luftig had left FNB

Sadlik had ordered Carter to reverse the March, 1974,

transfer from the bank’s trading to its investment ac-

count and to revise the March 31 quarterly financial

statement is also objected to by Luftig as hearsay. How-

ever, the underlying corporate memorandum and entry

confirming the instruction was properly admitted as a

record made in the regular course of business, Fed.R.

Evid. 803(6), and Sadlik’s testimony was admissible to

explain the background of the document. In any event,

assuming the admission of the memorandum was error,

it was harmless.

CLAIMS OF PROSECUTORIAL MISCONDUCT

(1) Alleged Violation of F.R.Cr.P. 16(a) by

Non-Disclosure of Statements

Appellant Gleason, formerly FNB’s chief executive

officer, argues that the Government violated F.R.Cr.P.

16(a) (1) (A) by failing to disclose before trial a letter

written by him on August 30, 1965, to FNB’s then Chair-

man, years before the events here in issue, and notations

in his handwriting on various financial statements and

agenda of FNB board meetings during the period from

December 20, 1978, to March 28, 1974, after Gleason had

himself become Chairman. We disagree.

The issue arose when the Government sought to use

the foregoing material in its cross-examination of Glea-

36a

Opinion by Mansfield, Circuit Judge

son, who had testified on direct that following the crea-

tion in November, 1973, of the “Office of Chairman” at

the bank (consisting of himself, Shaddick and Luftig) he

(Gleason) ceased to be involved in the day-to-day activ-

ities of the bank. He testified that thereafter he devoted

himself primarily to public relations activities on behalf

of FNB, visiting important domestic customers and cul-

tivating its foreign relationships with a view to improving

its image, while Shaddick supervised the bank’s interna-

tional operations and Luftig its domestic operations. He

denied being privy to any instructions by Luftig to Crosse

to falsify the value of the bank’s securities by backdating

their transfer and denied asking Shaddick to create false

profits by fictitious foreign exchange transactions. Thus,

Gleason sought to divorce himself from sufficient respon-

sibility for the bank’s earnings’ statements to have been

involved in the falsification of its earnings’ report for the

first quarter of 1974.

On cross-examination the Government, in an effort

to impeach Gleason’s denials and his posture of igno-

rance, confronted him with the August 1965 letter in

which, in advocating himself for the presidency of the

bank, he had urged that the bank’s head should closely

follow its earnings. He was also faced with his various

handwritten notations on FNB Board agendas and

earnings statements in early 1974 to indicate that he

had been keeping himself advised of the bank’s finan-

cial operations in some detail at the very time when,

according to his direct testimony, he had been ignorant

of these essential financial facts.

Rule 16(a) obligates the Government upon request to

permit a defendant to inspect “any relevant written or

recorded statements made by the defendant, or copies

thereof, within the possession, custody or control of

the government, the existence of which is known, or by

the exercise of due diligence may become known, to

37a

Opinion by Mansfield, Circuit Judge

the attorney for the government.” The rule, of course,

is intended to enable a defendant to obtain prior to

trial any of his own statements relevant to the crime

charged against him so that he will be able to prepare

properly to face the evidence that may be introduced

against him at trial.

Gleason’s 1965 letter, which predated by almost 10

years the events in issue, and his mere notations on

agenda and financial statements, were hardly “rele-

vant” to the crimes charged against him; they did not

tend to show that he had participated in any falsifica-

tion of the bank’s earnings statement for the first quar-

ter of 1974. The fact that a bank officer once believed

that its president should follow its earnings statements

does not implicate him in any dishonest underlying

transaction that is not in the bank’s earnings reports.

The Government was not therefore required by Rule

16(a) to disclose the documents because they were not

“relevant . . . statements” within the meaning of that

Rule. The documents became relevant for impeachment

purposes only after Gleason testified on direct that he

did not personally keep acquainted with the bank’s day-

to-day operations, thus seeking to corroborate his de-

nials of involvement in the transactions at issue. See

United States v. Hodges, 480 F.2d 229, 232-33 (10th

Cir. 1973); United States v. Skillman, 442 F.2d 542,

550 (8th Cir.), cert. denied, 404 U.S. 833 (1971).

The Government’s failure to turn over the docu-

ments prior to trial, moreover, did not prevent Gleason

from preparing to meet the charges against him. The

documents were at all times in the custody of the

Federal Deposit Insurance Corporation (FDIC) as liqui-

dator of FNB and were as available to Gleason as they

were to the Government, which obtained them on the

eve of trial, approximately November 27, 1978. Al-

though the FNB records in custody of the FDIC were

38a

Opinion by Mansfield, Circuit Judge

voluminous,"* Gleason had long before trial been pro-

vided with an inventory of them and in preparing a

strategy of ignorance should have known that Board

minutes and earnings statements to which he might

have been exposed would be important and should,

with the aid of the inventory, have been extracted from

the mass for examination.

The Government is not obligated by Rule 16(a) to

anticipate every possible defense, assume what the

defendant’s trial testimony (if he decides to testify) will

be, and then furnish him with otherwise irrelevant

material that might conflict with his testimony. With

respect to such material, if any obligation to disclose

existed under Rule 16(a) it was satisfied by making the

underlying files available to the defendant prior to

trial. United States v. Haldeman, 559 F.2d 31, 74 n.80,

76 n.93 (D.C. Cir. 1976), cert. denied, 431 U.S. 933

(1977) (White House files) ; United States v. Cirillo, 499

F.2d 872, 882 (2d Cir.), cert. denied, 419 U.S. 1056

(1974) (wiretaps). From that point on it was Gleason’s

task to prepare his defense.

Lastly, Gleason has failed to show any legally cogni-

zable prejudice as a result of the failure to have the

documents in advance of trial. It is not suggested that

if he had received them he would have decided not to

testify. Indeed, no request was made for a continuance

to permit preparation of a more plausible reconciliation

between the documents and his direct testimony.

(2) Alleged Improper Rebuttal Summation

Gleason argues that he was denied a fair trial be-

cause the prosecutor, in his rebuttal summation pur-

'° Gleason’s counsel did visit the FDIC depository, but only

once, and may have attended a deposition in a civil suit. In re

Franklin National Bank & Securities Litigation, MDL 196 (E.D.

N.Y.), at which the documents may have been used in the exam-

ination of Gleason.

39a

Opinion by Mansfield, Circuit Judge

suant to F.R.Cr.P. 29.1, introduced prejudicial new

matter and the court refused to give a curative instruc-

tion.

The controversy arose out of the apparent absence

from the record of any explanation or basis for the

$700,000 profit figure which Gleason told Shaddick

that the bank’s foreign exchange department must

have for the month of March, 1974, if FNB' was to

avoid showing a loss for the first quarter. During his

main summation the prosecutor commented sardoni-

cally that the defendants would probably claim the

$700,000 figure was dreamt up by Shaddick on the

beaches of Acapulco. Accepting this suggestion,

Gleason’s counsel in his summation then argued that

the figure was indeed the product of Shaddick’s imagi-

nation. The prosecutor responded in his rebuttal sum-

mation with an adding machine tape which totalled

losses from the liquidation of government securities

during the period March 15-27, 1974, at $699,431.86,

almost precisely the same as the figure of $700,000

that had been used by Gleason in stating the profit

needs of the foreign exchange department.

Gleason contends that it was unfair and improper to

introduce such new material in a reply summation,

citing Moore v. United States, 344 F.2d 558, 560 (D.C.

Cir. 1965), and United States v. Rubinson, 548 F.2d

951, 946-66 (2d Cir.), cert. denied, 429 U.S. 850

(1976), to which the Government replies that the

material was not new but a response, based entirely

on exhibits already in evidence, negating Gleason’s

claim in his counsel’s summation that Shaddick invented

the $700,000 figure.

Had Gleason’s summation been the first occasion

for the latter argument, the Government’s reply

might be persuasive, because it could then argue that

40a

Opinion by Mansfield, Circuit Judge

it had no intention of referring to the computation

unless and until Gleason challenged the source of the

$700,000 figure. Fairness would dictate that a copy

be furnished to Gleason well enough in advance of

its use to permit a reply rather than confront him

with a new theory (albeit based on record evidence)

at almost literally the last minute of a long trial. See

1975 House Judiciary Committee Report regarding

proposed F.R.Cr.P. 29.1 (H.R. Rep. No. 94-247) .*

Since the argument of this appeal, however, the Gov-

ernment has represented in writing that only after

Gleason’s summation did it for the first time calcu-

late the total losses and discover that they totalled

approximately $700,000, which led to its use of the

tabulation in its rebuttal summation.

Had no action been taken by the court after the

Government’s surprise reply summation, a_ reversal

might be required. But Judge Griesa, recognizing the

eleventh-hour unfairness and surprise, offered Gleason

and the other defendants the opportunity to respond

by way. of a surrebuttal summation after they had

sufficient time to confer and review the trial transcript

and exhibits forming the basis of the Government’s

computation. This in our view adequately protected the

defendants against any prejudice. For reasons best

known. to themselves, possibly their inability to find

any material errors in the Government’s computation,

defense counsel refused the court’s offer and instead

‘©The House Judiciary Committee commented:

“The Committee believes that ... fair and effective admin-

istration of justice is best served if the defendant knows

the arguments actually made by the prosecution in behalf

of conviction before the defendant is faced with the decision

whether to reply and what to reply.”

4la

Opinion by Mansfield, Circuit Judge

asked for a curative instruction.’ Absent proof that

the Government’s computation was erroneous, the trial

judge did not abuse his discretion in refusing a cau-

tionary instruction.

(3) Alleged Suppression of Exculputory Evidence

Gleason charges that the Government suppressed ex-

culpatory evidence and permitted witnesses to give ma-

terially false testimony, thereby depriving him of a fair

trial. The record reveals these charges to be both base-

less and irresponsible.

Specifically Gleason contends that the Government

withheld from the jury evidence supporting multi-

count indictments, filed on September 29, 1975, Janu-

ary 95, 1977, and March 19, 1979, against Sindona,

Shaddick and Bordoni in the Southern District of New

York, charging that prior to the falsification of FNB’s

March 1974 statement those three men, without

Gleason’s knowledge, had falsified every single monthly

foreign exchange profit and loss report beginning with

the month of January, 1973, yet permitted Shaddick to

testify that he had engaged in falsifying the bank’s

books on only three occasions during this period and

Bordoni to testify that he had participated in only six

such transactions. In addition, Gleason argues that the

‘7 We disagree with Gleason’s argument that additional sum-

mations which might result in introduction of the Government’s

computation, could not resolve the problem because they would

only serve to magnify the unfair impact of the prosecutor’s re-

buttal. If the computation, based on evidence already in the

record, was accurate, the jury was entitled to have the. summary

as an aid in analyzing the complex proof before it rather than

be forced to the laborious task of making its own computation.

The situation here is clearly distinguishable from that in cases

relied upon by Gleason where the Government improperly referred

to matter not in the record. See, e.g., Moore v. United States,

supra; United States v. Robinson, supra, 543 F.2d at 966.

42a

Opinion by Mansfield, Circuit Judge

Superseding indictment filed against Sindona and Bor-

doni on March 19, 1979, after Gleason had been con-

victed, contains a paragraph" revealing that the

Government had evidence that Bordoni and Sindona

were involved in the misevaluation of securities in FNB’s

bank trading account.

The fallacy of Gleason’s claims with respect to the

1973-74 false foreign exchange transactions lies in his

failure to distinguish between a fraudulent transaction

and a false financial statement. Although the fraudu-

lent transactions during this period of time were rela-

tively few, they were reflected in subsequent monthly

and quarterly financial statements, which were many.

Since each one of the financial statements could pro-

perly be charged in a separate count, see United States

v. Huber, 603 F.2d 387, 398-99 (2d Cir. 1979), and

some statements were also charged as violations of

federal mail and wire fraud statutes, the number of

counts in the superseding indictment far exceeded the

number of fraudulent transactions. There is thus no

proof that the Government knowingly allowed false

testimony.

Were Gleason’s counsel unaware of this differentia-

tion, his specious charges might be pardonable. But the

earlier superseded indictments (one filed on Sept. 29,

1975, and another on Jan. 5, 1977), which contain

basically the same allegations with respect to the 1973-

74 foreign exchange transactions, were made available

to defense counsel before the trial of the present case,

were used extensively by Gleason’s counsel on his cross-

*6“On or about March 31, 1974, Sindona and Bordoni, the de-

fendants, and other co-conspirators caused the Franklin National

Bank to hide losses in the bond trading operation by misvaluing

secufities held in bond trading account.” Indictment S75 Cr. 948,

count I, Par. 54 (S.D.N.Y. March 19, 1979).

43a

Opinion by Mansfield, Circuit Judge

examination of Bordoni and Shaddick, and could have

been used to reveal the supposed perjury on their part.

Under the circumstances, Gleason is wholly unjustified

in labelling the Government’s conduct, as he does in his

brief on appeal, as “prosecutorial misconduct,” “sup-

pression of evidence,” “knowing use of false testimony,”

failure “to correct false testimony,” silence “in the face

of their witnesses’ perjury,” “foul conduct,” and resort

to “slippery and less than thoroughly upright conduct.” ™

As for the allegation in the last superseding indict-

ment that on March 31, 1974, Sindona and Bordoni

caused FNB to conceal losses-in its bond trading ac-

count by misvaluing securities, the simple and com-

plete answer is that it does not refer to their personal

participation in the false security evaluation but

merely to acts committed by their co-conspirators in

furtherance of the conspiracy to falsify the bank’s earn-

ings statement for the first quarter of 1974, for which

they could be held criminally responsible under Pinker-

ton v. United States, supra.

GOVERNMENT’S REFUSAL TO CONFER IMMUNITY

ON SINDONA

Gleason contends that his due process rights were

violated by the Government’s failure to accede to his

request that use immunity (i.e., immunity from the use

of his testimony and evidence derived from it in subse-

quent prosecution) be extended to an alleged principal

accomplice and co-conspirator, Sindona, who was at the

time and remains a defendant named in a separate

*° These scurrilous statements, which indicate a reckless dis-

regard by counsel for the facts of record, exceed the bounds

of responsible advocacy in our adversarial system and merit

consideration by the Bar Association Grievance Committee for

appropriate action. ABA Code of Professional Responsibility.

DR 7-102(A) (1), (2). .

44a

Opinion by Mansfield, Circuit Judge

indictment, 75 Cr. 948, charging him and Bordoni with

participation in the same false foreign exchange trans-

actions as those forming a major part of the case against

Gleason. We disagree.

As we pointed out in United States v. Lang, 589 F.2d

92, 95-96 (2d Cir. 1978), the law is

“well settled that the power of the Executive

Branch to grant immunity to a witness is discre-

tionary and no obligation exists on the part of the

United States Attorney to seek such immunity.

United States v. Bautista, 509 F.2d 675, 677 (9th

Cir.), cert. denied sub nom. Monsivais v. United

States, 421 U.S. 976, 95 S.Ct. 1976, 44 L.Ed.2d

467 (1975); United States v. Ramsey, 503 F.2d

528, 532-33 (7th Cir. 1974), cert. denied, 420 US.

932, 95 S.Ct. 1136, 43 L.Ed.2d 405 (1975) ; United

States v. Berrigan, 482 F.2d 171, 190 (3d Cir

1973) ; Earl v. United States, 124 US. App. D.C.

77, 80, 361 F.2d 531, 534 (1966) (Burger, J.),

cert. denied, 388 U.S. 921 87 S.Ct. 2121, 18 L.Ed.

2d 1370 (1967); People v. Sapia, 41 N.Y.2d 160,

166, 391 N.Y.S.2d 98, 359 N.E.2d 688 (1976 ), cert.

denied, 434 U.S. 828, 98 S.Ct. 68, 54 L.Ed.2d 80

(1977).

* * * * *

“We note that this court has held that the govern-

ment is not obligated to grant immunity to wit-

nesses so that they may be made available to tes-

tify on behalf of the defendant. United States v.

Stofsky, 527 F.2d 237, 249 (2d Cir. 1975), cert.

denied, 429 U.S. 819, 97 S.Ct. 66, 50 L.Ed.2d 80

(1976).”

Moreover, there was no representation that if granted

immunity Sindona would furnish specific exculpatory evi-

dence unobtainable from any other source. The most that

was suggested through Sindona’s counsel, who refused to

45a

Opinion by Mansfield, Circuit Judge

permit Sindona to talk with Gleason, was that Sindona

“would deny any wrongdoing or conversations in further-

ance of any wrongdoing with Gleason,” which would at

best be merely cumulative of Gleason’s testimony and

from an obviously interested witness who would be sub-

ject to intensive cross-examination that might well destro

his credibility. =

Nor is this a case where the Government deliberately:

manipulated grants of immunity to gain an unfair advan-

tage over any defendant, United States v. Lang, supra,

589 F.2d at 96-97. The major accomplices who testified

(Crosse, Shaddick, Bordoni and Garofalo) were not

granted immunity. Only two lesser figures, Thomas Mur-

phy and Bruce Carlton, were promised by the United

States Attorney that their statements to him would not

be used against them. No sound reason exists, therefore,

for departing from the general rule that the Government

may refuse to grant immunity. |

THE ALLEGED INSUFFICIENCY OF THE CHARGES AND PROOF

OF USE OF DECEPTIVE DEVICES IN CONNECTION WITH

THE SALE OF SECURITIES

Gleason contends that Counts 5-14, which allege that

the defendants, in violation of §10(v) of the Securities

Exchange Act, 15 U.S.C. § 78j(b) and Rule 10b-5, used

interstate commerce and the mails to employ manipulative

and deceptive devices in connection with the purchase and

sale of FNB’s stock, which was purchased by 12 identified

persons on specified dates after the issuance of the false

FNB financial statement for the first quarter of 1974,

are insufficient for failure to contain specific allegations

of misconduct and to set forth all of the elements of a

crime. The contention must be rejected for the reason

that each count of the indictment followed the precise

language of $10(b), thus alleging all of the essential

elements of the crime charged, see Hamling v. United

46a

Opinion by Mansfield, Circuit Judge

States, 418 U.S. 87, 117 (1974); United States v. Carr,

582 F.2d 242, 244 (2d Cir. 1978). Moreover, by incor-

porating by reference paragraphs 6-8 of Count Om2 into

Counts Four through Fourteen the Government specified

the nature of the alleged criminal conduct in sufficient

detail to enable the defendants to prepare their defenses

and to plead an acquittal or conviction in bar of any

future prosecution for the same offense.

Gleason’s further contention that the counts should

have been dismissed for the Government’s failure to

prove any reliance by the specified purchasers of FNB

shares upon the bank’s false financial statement for the

first quarter of 1974 must also be rejected. Despite

contrary suggestions in earlier decisions relied on by

appellants, the law is settled that the Government need

only prove that the false representation is one that a

reasonable stockholder would rely on in purchasing or

selling the relevant corporate shares, SEC v. Texas Gulf

Sulphur Co., 401 F.2d 833, 860 (2d Cir. 1968) (en banc),

cert. denied, 394 U.S. 976 (1969); ef. TSC Indus. v.

Northway Inc., 426 U.S. 488, 449 ( 1976), and Judge

Griesa so instructed the jury. It is also settled that the

same standards apply to civil and criminal liability under

the securities law. United States v. Peltz, 433 F.2d 48,

53 (2d Cir. 1970), cert denied, 401 U.S. 955 (1971).

THE CLAIM THAT THE RECORDS OF THE FRAUDULENT

FOREIGN EXCHANGE TRANSATIONS ARE Not “FALSE

ENTRIES” WITHIN THE MEANING OF 18 U.S.C. § 1005

Gleason’s last contention, derived principally from Cof-

fin v. United States, 156 U.S. 432, 462-63 (1895), is that

those counts of the indictment based on the four deceptive

foreign exchange transactions which showed FNB as

earning a profit must be dismissed because the transac-

tions took place and were reflected in the bank’s books,

thus precluding a claim that they were “false entries”

within the meaning of § 1005. The argument disregards

ik gama aie

47a

Opinion by Mansfield, Circuit Judge

the indictment and later authority controlling the inter-

pretation of the term “false entry.”

The indictment (e.g., Count Three) alleges that the

defendants caused a false entry to be made in the bank’s

books and earnings statement by representing in its finan-

cial statement that the bank had earned a profit of

$79,000 for the first quarter of 1974 when in fact it had

suffered a loss of over $7 million and that this had been

accomplished “by means of fictitious and false foreign

exchange contracts between said bank and Amincor Bank,

Zurich, Switzerland, and Banca Unione, Milan, Italy,

which reflected a fictitious profit. in the foreign exchange

operations of approximately $2,000,000.”

It is true that in Coffin the Court stated that a crime

of making a false entry is not committed if the trans-

action entered on the books actually took place and was

entered as it occurred. 156 U.S. at 468. However, this

was modified by Agnew v. United States, 165 U.S. 36,

52-54 (1897), holding that a false entry statute may be

violated by entering on the books a transaction known

to be fraudulent, even though the entry might be accu-

rate. See United States v. Darby, 289 U.S. 224, 226-27

(1933) ; United States v. Huber, 603 F.2d 387, 397-98

(2d Cir. 1979). While an entry is not false merely be-

cause the underlying transaction is illegal, see United

States v. Manderson, 511 F.2d 179, 180-81 (5th Cir.

1975), here the profit shown on the record of the foreign

exchange transactions was known by the defendants to

be false and fictitious, concocted for the very purpose of

distorting the financial statement. The result was a vio-

lation of 18 U.S.C. § 1005. See Billingsley v. United

States, 178 Fed. 653, 663 (8th Cir. 1910).

We find no merit in appellants’ remaining conten-

tions, which require little or no discussion. The district

court’s grant of one extra peremptory challenge to the

48a

Opinion by Mansfield, Circuit Judge

Government without the defendants’ consent after grant-

ing three peremptories to the defendants, while not in

compliance with F.R.Cr.P. 24(b),”° is not shown to have

resulted in the selection of a jury that was unrepresenta-

tive of the community, or biased in any other way. Nor

is any prejudice to appellants shown. The proportional

advantage accorded defendants by Rule 24(b) (10 per-

emptories as against 6 for the Government) was approxi-

mately maintained. While the court’s action was im-

proper in the absence of defense counsels’ consent; we do

not believe that reversal is warranted in the absence of

prejudice to the defendants.

The judgments of conviction are affirmed.

7° Although F.R.Cr.P. 24(b) does not authorize the granting

of additional peremptories to the Government, it is not uncommon

for the court to condition the grant of a defendant’s request for

additional peremptories on his consent to a proportionate increase

being accorded to the Government.

49a

Judgment

UNITED STATES COURT OF APPEALS

FOR THE SECOND CIRCUIT

—_—_—_——EE ae

At a stated Term of the United States Court of Ap-

peals for the Second Circuit, held at the United States

Courthouse in the City of New York, on the nineteenth

day of December, one thousand nine hundred and seventy-

nine.

Present: Hon. J. EDWARD LUMBARD

HON. WALTER R. MANSFIELD

HON. THOMAS J. MESKILL

Circuit Judges,

79-1147, 79-1115, 79-1208

_——_—_——EE ae

UNITED STATES OF AMERICA,

Plaintiff-A ppellee,

—

HAROLD V. GLEASON, PAUL LUFTIG

and J. MICHAEL CARTER,

Defendants-A ppellants.

EE ee

Appeal from the United States District Court for the

Southern District of New York.

This cause came on to be heard on the transcript of

record from the United States District Court for the

Southern District of New York, and was argued by

counsel.

ON CONSIDERATION WHEREOF, it is now hereby ordered,

adjudged, and decreed that the judgments of said District

Court be and they hereby are affirmed in accordance with

the opinion of this court.

A. DANIEL FUSARO,

Clerk.

By: ARTHUR HELLER,

Deputy Clerk.