Opposition Brief — Lustig v. United States

Questions presented

Statute and Executive Order involved

Statement:

The indictment

The currency deposits in 1945

The genesis of the prosecution

Petitioners’ version of their ‘“‘disclosure’’ activities

The credibility of E. Allan Lustig

The contradiction of E. Allan Lustig’s testimony

Petitioners’ motion to suppress

Trial, verdict, and appellate proceedings

CITATIONS

Cases:

Botany Mills v. United States, 278 U. S. 282

Cohen v. United States, 291 Fed. 368

Cooper v. United States, 9 F. 2d 216

Delaney v. United States, 263 U.S. 586

Denny v. United States, 151 F. 2d 828

Ford v. United States, 273 U. 8S. 593

Gila Valley Ry. Co. v. Hall, 232 U. 8. 94

Gladstone v. United States, 248 Fed. 117, certiorari denied,

247 U.S. 521

Goldman v. United States, 316 U. 8S. 129

Lisenba v. California, 314 U. 8. 219

Lyons v. Oklahoma, 322 U. 8. 596

McAffee v. United States, 105 F. 2d 21

Nardone v. United States, 308 U. 8S. 338

Steele v. United States, 267 U.S. 505

United States v. Blaisdell, 3 Ben. 132, Fed. Case No. 14,608-

United States v. Johnson, 319 U. 8. 503

United States v. McCormick, 67 F. 2d 867, certiorari denied,

United States v. Morgan, 222 U. 8. 274

weeny Cone, 00.0.6. O06... 5... <2 scence. Hoe ere sen 29

Wilson v. United States, 162 U. 8. 613__...---------- in 31

(I)

760560—47——1

Ynthe Supreme Court of the Wnited States

OctoBeR TERM, 1947

No. 279

Henry Lustic, E. ALLAN LUSTIG AND JOSEPH.

SOBEL, PETITIONERS

Vv.

UnItTeD StaTEs OF AMERICA

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES CIRCUIT COURT OF APPEALS FOR THE SECOND

CIRCUIT

BRIEF FOR THE UNITED STATES IN OPPOSITION

OPINIONS BELOW

The District Court rendered no opinion. The

opinion of the Circuit Court of Appeals (R.

2193-2201) has not yet been reported.

JURISDICTION

The judgment of the Circuit Court of Appeals

was entered on July 21, 1947 (R. 2201). The

petition for a writ of certiorari was filed on

August 19, 1947. The jurisdiction of this Court

is invoked under Section 240 (a) of the Judicial

Code, as amended by the Act of February 13,

(1)

nek: neve Saas MED n eran aeentetimanieemmeanenies |

2

1925. See also Rules 37 (b) (2) and 45 (a),

F. R. Crim. P.

QUESTIONS PRESENTED

1. Whether the petitioners were denied their

constitutional rights by withdrawal of the alleged

voluntary disclosure from the jury’s consideration

except insofar as it might be relevant to the ele-

ment of wilfulness in connection with the filing

of admittedly false returns.

2. Whether the petitioners were denied their

constitutional rights by the trial court’s admission

of certain corporate records allegedly obtained

by the Government as the result of a promise of

immunity.

3. Whether the alleged disclosure effected a

compromise within the meaning of Section 3761

of the Internal Revenue Code.

STATUTE AND EXECUTIVE ORDER INVOLVED

Internal Revenue Code:

Sec. 3761. CoMPROMISES.

(a) Authorization—The Commissioner,

with the approval of the Secretary, or of the

Under Secretary of the Treasury, or of an

Assistant Secretary of the Treasury, may

compromise any civil or criminal case aris-

ing under the internal revenue laws prior

to reference to the Department of Justice

for prosecution or defense; and the Attor-

ney General may compromise any such case

after reference to the Department of Jus-

tice for prosecution or defense.

3

(b) Record.—Whenever a compromise is

made by the Commissioner in any case there

shall be placed on file in the office of the

Commissioner the opinion of the General

Counsel for the Department of the Treas-

ury, or of the officer acting as such, with

his reasons therefor, with a statement of—

(1) The amount of tax assessed,

(2) The amount of additional tax or

penalty imposed by law in consequence of

the neglect or delinquency of the person

against whom the tax is assessed, and

(3) ‘The amount actually paid in accord-

ance with the terms of the compromise.

(26 U. 8. C. 3761.)

Executive Order No. 6166, June 10, 1933 (5

U.S. C., See. 124 et seq.) :

Sec. 5. Claims by or against the United

States

The functions of prosecuting in the courts

of the United States claims and demands

by, and offenses against, the Government of

the United States and of defending claims

and demands against the Government, and

of supervising the work of United States

attorneys, marshals, and clerks in connec-

tion therewith, now exercised by any agency

or officer, are transferred to the Department

of Justice.

As to any case referred to the Depart-

ment of Justice for prosecution or defense

in the courts, the function of decision

whether and in what manner to prosecute, _

or to defend, or to compromise, or to ap-

4

peal, or to abandon prosecution or defense,

now exercised by any agency or officer, is

transferred to the Department of Justice.

For the exercise of such of his functions

as are not transferred to the Department

of Justice by the foregoing two paragraphs,

the Solicitor of the Treasury is transferred

from the Department of Justice to the

Treasury Department.

Nothing in this section shall be construed

to affect the function of any agency or offi-

cer with respect to cases at any stage prior

to reference to the Department of Justice

for prosecution or defense.

STATEMENT

The indictment.—The petitioners were indicted

on December 6, 1945 in the Southern District of

New York on twenty-three separate counts (R. 1).

The first twenty-two counts charged them with

wilfully attempting to defeat and evade, by the

filing of false and fraudulent returns, for fiscal

and calendar years ending during the years 1940

to 1944, inclusive, substantial amounts of taxes

owing by seven corporations owned by Henry

Lustig (R. 11-57). The indictment charged that

these returns understated net income by a total

of $3,455,755.41 and the resultant tax liability by

a total of $2,872,766.62 (R. 723, 2172; Ex. 306, R.

2026). The twenty-third count charged that the

petitioners conspired to commit all of the substan-

tive offenses, in pursuance of which the following

overt acts, inter alia, were committed: the over-

aay =

5

statement of purchases by $2,000,000; the under-

statement of sales by $1,800,000; the receipt by-

Henry Lustig of a substantial part of coat and

hat check gratuities; the maintenance by Henry

Lustig of a safe deposit box to hide currency

(R. 53-57).

The defendants.——Henry Lustig was the owner

of all of the stock of Henry Lustig Co., Inc. (Ex.

114, R. 1962), which in turn owned all of the stock

ef Restaurants & Patisseries Longchamps, Inc.

(Ex. 98, R. 1958). The latter corporation in turn

owned all of the stock of 253 Broadway Corpora-

tion, 624 Madison Avenue Corporation, Broadway

and 41st Street Corporation, Lexington Long-

champs, Inc., and Fifth Empire, Inc. (Exs. 251,

232, 184, 159, 207, R. 1999, 1994, 1981, 1974, 1987).

Henry Lustig was the president and treasurer of

all these corporations. E. Allan Lustig, Henry

Lustig’s nephew, was secretary and general man-

ager of all the corporations. (R. 394.) Joseph

Sobel, a certified public accountant, acted as chief

accountant for the corporations (R. 395).

Martin Platt, office manager and cashier at the

main office of all the corporations, and Wallace

Platt, his brother, acted as bookkeepers for the

Lustig corporations (R. 291, 393-394). The

Platts entered pleas of guilty (R. 235-237) and

testified for the Government (R. 290-392, 392-429,

492-656).

The fraud.—In the early part of 1941, Wallace

Platt prepared a trial balance for Restaurants &

oo

4

Patisseries Longchamps, Inc., for the year 1940

and submitted it to Joseph Sobel for final ap-

proval (R. 294). Sobel instructed him to over-

state purchases (R. 295). Platt informed Sobel

that it was ‘‘the wrong thing to do’’, to which

Sobel replied (R, 296) :

I got . Tot more to worry about than you.

IamaCPA. I am telling you what to do.

If you don’t feel like doing it there is

somebody else who will.

Wallace Platt was given a period. of grace to

make a decision; he complied with Sobel’s in-

structions (R. 296). Sobel furnished him with

a memorandum itemizing the amounts by which

purchases were to be increased (R. 295), in-

structed him to erase correct monthly totals on the

ledger sheets and to substitute new and higher

figures (R. 298, 304). Platt was instructed to

use a pen knife rather than an eraser because

figures erased with a pen knife would be less

conspicuous and because with a pen knife it would

be possible to make erasures without crossing the

accounting lines (R. 313). Eventually, however,

Sobel permitted Wallace Platt to use an eraser in

order to save time (R. 314). The same system

was used to falsify the records of earnings of

Restaurants & Patisseries Longchamps, Inc., for

subsequent years, as well as the records for the

other corporations (R. 305).

In 1943, Sobel informed Wallace Platt that the

profits of the corporations were enormous and

7

that the excess profits tax would ‘‘take away most

of the profits’? (R. 331, 333). He instructed

Platt to falsify sales as well as purchase figures,

, the former by a pre-determined amount daily

(R. 331, 339). Wallace Platt protested that

‘“‘suckers’’ like himself have to pay taxes and

that Henry Lustig decided “‘for himself how much

he wants to pay’’ (R. 331-332).

Henry Lustig Co., Inc., the top holding company,

was engaged in the wholesale produce business (R.

435), catering both to independent. customers and

to its subsidiaries. Restaurants & Patisseries

Longchamps, Inc., the intermediate holding com-

pany, owned and operated a number of restaurants

in the City of New York and each of its subsidi-

aries owned and operated a restaurant in the City

of New York. Several of these restaurants paid

as rent a percentage of their receipts (R. 330-

331). In order to allay the suspicions of the les-

sors, true statements of the sales were furnished

to them and the proper percentage paid (R.

333), while special books were kept for income

tax purposes (R. 334). Complicated adjustments

were necessary to reconcile the true and the fraud-

ulent set of books; for income tax purposes the

true rent paid could not be revealed, lest it fur-

nish a clue to the actual income from sales (R. 334).

The bookkeeping phase of the scheme had be-

come so complicated that a special office was built

in which Wallace Platt could attend to his manip-

760560—47——-2

— eS Oe at NRT TRO a ee ey

ulations without being observed by the rest of the

office staff (R. 343-344). The manipulation of the

books of Henry Lustig Co., Inc., was performed

by one Morris Brown until 1943; illness forced him

to retire (R. 484, 436-445). Thereafter, Martin

Platt took charge of making false entries (R. 505,

507). |

The daily receipts of the restaurants were regu-

larly deposited in various corporate bank accounts

(R. 398). To obviate the disparity between the

bank accounts and the manipulated books, the ex-

cess funds on deposit were withdrawn. Checks

were drawn on check blanks extracted from the

back of corporate check books, made payable eitker

to the order of Henry Lustig, personally, or to

cash. (R. 405-406, 413.) Some of these checks

were deposited in Henry Lustig’s personal bank

accounts in New York City, Miami, Florida, and

Lexington, Kentucky (R. 413, 414, 418). Most of

the checks were simply cashed and the money was

delivered to Henry Lustig (R. 405-407, 416), who

secreted a large part of it in the vault at the

County Safe Deposit Company in the City of New

York (R. 548-549). The checks were drawn pur-

suant to general instructions given by Joseph

Sobel to Martin Platt (R. 405-406). Martin

Platt received the schedule of the amounts to be

withdrawn weekly | from every corporation

(R. 406), which amounts were not to be

recorded on the check stubs (R. 405). Ini-

9

tially, these checks, together with slips of

paper giving essential data about each (R.

405-406), were presented. to Henry Lustig -

for signature (R. 406). After signing each

check, Henry Lustig retained the paper slip per-

taining to it (R. 406). The check was given to

Martin Platt to be eashed at the bank on which

it was drawn (R. 406). The first time Martin

Platt cashed one of these checks he received $100

bills from the bank and gave them to Henry Lus-

tig (R. 406). Lustig instructed him to get at

least $500 or $1,000 bills the next time (R. 406).

After a few such transactions, Henry Lustig

instructed Martin Platt to have the checks signed

by E. Allan Lustig (R. 406-407). Martin Platt

conveyed these instructions to Allan and from

then on the latter signed the checks and kept the

accompanying slips of paper (R. 407). The cash

in every instance was given to Henry Lustig (R.

407, 416). This withdrawal of cash began in

February, 1943, and continued until the middle

of December, 1944 (R. 405, 416). The amounts

withdrawn weekly gradually increased from about

$8,000 to about $40,000 (R. 423). Approximately

$2,200,000 was withdrawn by checks made payable

to cash and about $600,000 more was withdrawn by

checks made payable to Henry Lustig (R. 423-424).

Fictitious banks loans were entered on the cor-

porate books and fictitious interest was withdrawn

10

(R. 313, 441). Substantial payments for Henry

Lustig’s personal expenses were made from cor-

porate funds (R. 660-690).

The books of the corporations contained no

trace of any part of the proceeds from hat check

stands in the various restaurants. These pro-

ceeds were delivered once a month in cash to

Henry Lustig personally; he directed that only a

small part be deposited to the various corporate ac-

counts and he retained the major portion (R. 398.)

Martin Platt estimated that the hat check tip money

averaged approximately $7,000 to $8,000 per

month (R. 399) and that approximately 15% to

20% of it was deposited (R. 400).

False corporate returns were prepared by Wal-

lace Platt under the direction of Joseph Sobel

(R. 294-305). They were signed by Henry or

E. Allan Lustig and in a few instances by one

Kal C. Lustig.. All of the returns also carried the

‘signatures of Joseph Sobel and Wallace Platt.

(Exs. 1-45, R. 1925-1939.) The total net income

understated by the seven corporations in the tax -

returns covered by the first twe1ity-two counts of the

indictment was proved to be the amount charged

in the indictment, namely, the total sum of

$3,455,755.41, and the resultant understatement

of tax liability was established as the total sum

of $2,872,766.62 (R. 723, 2172; Ex. 306, R. 2026).

This calculation does not include the hat check

money for which no precise figures are available.

11

The currency deposits in 1945—Early in 1945

there were widely current and published rumors

that bills in large denominations might be re-

called, their owners made to account for them (R.

1275, 1318, 2172), and that safe deposit boxes

might be ‘‘frozen’’ (R. 1281).

Beginning on February 28, 1945, and continuing

until March 28, 1945, the petitioners removed, at

various times, $1,815,000 in bills of large de-

nominations ($500 and $1,000) from the vault

in which they had been hidden and deposited that

money in eight banks, to more than twenty-five

bank accounts, some of them corporate, some of

them personal and belonging to Henry Lustig

(R. 554-564, 2102-2108). Fifty-seven deposits

were made (R. 1191), only a few of them at the

Lawyers Trust Company, which was the bank

located directly above the safe deposit company

in which the currency had been secreted (R.

1198). Many new accounts were opened during

this period to receive some of the deposits (R. 645).

The amounts deposited bore no relationship to the

corporate funds diverted; two corporations re-

ceived no deposits (R. 1198) and Henry Lusti«’s

personal accounts received $808,000 (R.1199). No

entry on the corporate books was made relating to

any of these deposits until the end of April (R.

654-655).

During that period in which the money was be-

ing deposited, the hat check receipts continued to

be handled in- the usual way. Approximately

12

20% was deposited on March 27, 1945, and re-

ported on the books, and the balance of approxi-

mately $5,000 was given to Henry Lustig in cash.

(R. 401-402.) *

The last returns which are the subject. matter

of the indictment were not filed until March 15,

1945 ( Exs. 10, 11, 44, 45, R. 1928, 1939). One under-

stated the tax due by $687,866.95 and the other by

$19,026.81 (R. 2178; Ex. 306, R. 2026). Both were

signed by Henry Lustig and Joseph Sobel ( Exs. 10,

11, 44, 45, R. 1928, 1939). The instructions to fal-

sify the books of the two corporations for which

these returns were filed were given during the two-

week period preceding the filing of the returns on

March 15, 1945, when, after receiving financial

statements of the amounts of profit of Restaurants

& Patisseries Longchamps, Inc., and of Henry

Lustig Co., Inc., as shown by the books, which had

already been subjected to false daily entries, Sobel

directed further overstatement of purchases in the

amount of $475,000 for one corporation and

$36,000 for the other (R. 354-355, 508). He or-

‘dered that this should be done by making new ledger

sheets rather than by erasures ‘“‘because it would

*The April and May hat check collections were likewise

not deposited in full. When Martin Platt delivered the

balance to Henry Lustig at the end of April he was told to

see Sobel. who advised him that he would show him how to

treat it (R. 402-403). Meanwhile, the April and May hat

check collections were kept in the office safe (R. 403). The

April, May and June collections were finally deposited in the

corporate accounts on July 14, 1945 (R. 403, 404).

13

show’’ (R. 508-509). The original sheets were to

be destroyed (R. 509).

On February 19, 1945, E. Allen Lustig, on be-

half of Broadway and Forty-first Street Corpora-

tion, signed and filed with the revenue agent’s

office a Form 874 consenting to an additional as-

sessment of $604.28 for the fiscal year ending

March 31, 1944, the true deficiency for that year

being $206,461.92 (R. 1189; Ex. 319, R. 2028). On

April 6, 1945, a similar form was filed concerning

the tax liability of 253 Broadway Corporation, pro-

viding for an additional assessment of $59.02 for

the fiscal year ending June 30, 1944, the true defi-

ciency for that year being $44,774.67 (R. 1207-

1207 ; Ex. 323, R. 2036).

The genesis of the prosecution.—Between March

3 and 13, 1945, the Foreign Funds Control Depart-

ment of the Federal Reserve Bank in the City of

New York received reports (R. 1332, 2056) from,

various member banks that large sums of money

were being deposited to the accounts of Henry

Lustig and those of his corporations. These re-

ports, which contained the numbers of the bills

deposited, were referred for investigation to

Joseph A. Sarno, a Federal Reserve Bank em-

ployee. Both Henry Lustig and the varivus

named corporations were checked for possible

Axis involvements, but no connection with any

foreign country was found. (R. 1332.)

On March 15, 1945, Sarno wrote a memorandum

addressed to Norman P. Davis, in charge of the

14

Foreign Funds Control Department, setting forth

a list of the currency involved (R. 2054, 1332).

The memorandum was handed to Davis on the

afternoon of March 15, 1945. On the morning of

March 16, 1945, Davis went to Washington and

transmitted the memorandum to L. C. Ahrens,

Assistant General Counsel of the Treasury De-

partment (R. 1336).

On March 24, 1945, Joseph J. O’Connell, Gen-

eral Counsel of the Treasury Department, gave the

memorandum to W. H. Woolf, Chief of the Intel-

ligence Unit of the Bureau of Internal Revenue

(R. 2076). On March 24, 1945, Commissioner

of Internal Revenue Joseph D. Nunan, Jr., con-

ferred in New York City with Hugh McQuillan,

Special Agent in Charge of the New York office

of the Intelligence Unit, and gave the latter di-

rections concerning Lustig and his enterprises

(R. 1348). On the same day, March 24, 1945,

Woolf also spoke on the telephone with McQuillan

(R. 1343-1344) and thereupon forwarded a let-

ter to McQuillan, dated March 24, 1945, referring

to the ‘‘telephone conversation of even date’’ and

enclosing the memorandum of Davis concerning

the cash deposits made by Lustig and his corpora-

tion (R. 2076). This letter was received by Mc-

Quillan on March 26, 1945 (R. 1344).

On March 26, 1945, McQuillan and Nunan vis-

ited the Federal Reserve Bank in New York City

and conferred with its president, Mr. Sproull, and

15

its vice-president, Mr. Rounds (R. 1347). On

the same day, McQuillan called Revenue Agent in

Charge Krigbaum ‘“‘into the investigation’ (R.

1353). He arranged with Krigbaum to select

one of his best agents (R. 1354). On March 26

or 27, 1945, McQuillan assigned special agents to

the investigation of Lustig and his companies

(R. 1348). On March 27, as a result of Woolf’s

letter and his conversations, McQuillan requested

various tax returns pertaining to the case (R. 1347,

2080).

McQuillan was in daily contact with Krigbaum

(R. 1353, 1376), with the special agents (R. 1348)

and with his superiors in Washington (R. 1378,

1382). Periodic reports of the progress of the

case were sent to Woolf in Washington (E. g.,

R. 2082, 2087).

On April 18, 1945, one Donald C. Diehl, an in-

ternal revenue agent, was assigned to the Lustig

matter. On April 39, 1945, he telephoned Sobel

for an appointment to examine the records per-

taining to the income tax returns of Henry Lustig

for the year 1944. Sobel declined to make an

appointment immediately, promised to call Diehl

back, but failed to do so (R. 701). When Diehl

called him again on April 23, 1945, an appoint-

ment was made for April 30. Counsel for Henry

Lustig requested a further postponement until

May 2, and because Diehl was then taken ill, it

was not until May 14, 1945, that he appeared at

760560—47——_3

tie eee

16

the offices of the Lustig companies and started an

examination of their books. (R. 702.)

Meanwhile, on April 25, 1945, the petitioners

filed letters (Ex. BB, R. 2123-2125) with the Collec-

tor of Internal Revenue William J. Pedrick indicat-

ing that the tax returns of the corporations ‘‘under-

stated’’ the tax liability, without disclosing the

amounts or the years (R. 1427).

- Counsel for the petitioners were at once re-

ferred to McQuillan (R. 1429), who informed

them on April 26, 1945, that they were too late

because the investigation had been under way

“‘for some weeks’”’ (R. 1357-1358).

Petitioners’ version of their “disclosure’’ ac-

tivities—The petitioners’ version of the events

preceding the filing of the letters is contained

largely in the testimony of E. Allan Lustig, the

only one of the petitioners who gave evidence.

Allan testified that Henry Lustig told him some-

time in January, 1945, that Sobel, in December,

1944, had said that the income tax returns of the

various companies were ‘‘wrong.’’ Henry Lustig

allegedly stated that as soon as he returned from a

trip to Florida he would ‘‘redeposit’’ the money

that had been accumulated in the company vault

and that he would ‘‘make a disclosure’’ of the fact

that incorrect returns had been filed (R. 1084).

On February 27, Henry Lustig returned from

Florida (R. 1089). Beginning February 28, cash

deposits were made in various accounts by the

17

Lustigs (R. 1089, 2102-2108). E. Allan Lustig

denied that these deposits were in any way con-

nected with the reports then widely current that

the Treasury was about to call in bills of large

denominations and would make their possessors

account for them (R. 1182-1183, 1184).

Between March 3 and 9, 1945, E. Allan Lustig

observed bank tellers making notations ‘‘of the

bills.” He asked why that was being done (R.

1090) and was told that it was for “the record”

(R. 1091). This was news to him (R. 1089-1094)

and he allegedly reported his observation to Henry

Lustig (R. 1091).

After some deposits had been made, E. Allan

Lustig was informed by two bank officers that the

currency deposits might have to be reported to

the Government sometime in the future (R. 1095,

1098). He then had a conversation with Henry

Lustig and Joseph Sobel (R. 1099) and he then

allegedly endeavored to get in touch with William

J. Pedrick, the Collector of Internal Revenue.

He testified that he tried to reach Pedrick by

telephone, that he tried to visit him, and that when

he was unsuccessful, he requested an appointment

by letter (R. 1100), of which Exhibit SS, (R.

2140) was an alleged carbon copy retained in the

Lustig files. The carbon copy was dated March

24, 1945, and allegedly Pedrick called E. Allan

Lustig on March 26, 1945, and made an appoint-

ment to see him-at the 59th Street Longchamps

18

Restaurant at twelve o’clock of the same day

(R. 1106-1107). Allan informed him at the

Inncheon that he wanted to discuss tax returns

with him and suggested a later meeting at the

Custom House. There followed a second tele-

phone call and a later meeting was allegedly ar-

ranged for four o’clock of the same day at the

Custom House. (R. 1108.) Allan fixed the hour

_ of this alleged meeting definitely ‘‘around four

o’elock”’ and testified that he had a “‘long and

cordial conversation’? with Pedrick (R. 1203)

whom he left at about five o’clock (R. 1206).

EK. Allan Lustig further testified that he told

Pedrick at that time that wrong returns had been

filed, that large amounts of money had been ac-

cumulated in a bank vault, and that this money

was then being redeposited. Pedrick allegedly

stated that he would look into this and check

with Krigbaum’s office. (R. 1109.)

On April 10, E. Allen Lustig allegedly saw

Pedrick and at that time Pedrick allegedly told

him that he had checked both Krigbaum and

McQuillan and could ‘‘find nothing there against

us”? (R. 1115).

On April 19 and 20, 1945, E. Allan Lustig

allegedly attempted to reach Pedrick and finally

managed to see him on April 20 (R. 1116, 1134).

He denied that his activity in trying to locate

Pedrick had anything to do with the fact that

Agent Diehl had called Sobel on April 19 (R.

19

1135). He stated that when he did) see Pedrick

he mentioned that Diehl had called and that in

reply Pedrick told him that there was nothing to

worry about (R. 1117).

In the afternoon of April 20, the Lustigs and

Sobel saw one Oe6cestreicher, a tax consultant.

(R. 1117.)

Allegedly, another meeting between E. Allan

Lustig and Pedrick. took..place on April 24, at

which Pedrick requested E, Allan Lustig not to

mention in the letters then being prepared that

the Lustigs had made a disclosure to him for the

reason that his failure to notify others at once

about the disclosure might cost him his job

(R. 1118-1120).

On April 24, Oestreicher called Commissioner

Nunan and stated, without disclosing the name of

his client, that he wanted to make a voluntary

disclosure. Commissioner Nunan referred him

to Pedrick. (R. 926.) A meeting took place in

Pedrick’s office on April 25, 1945, at which letters

stating that taxes of the Lustig companies had

been understated were turned over to Pedrick

(R. 928-930). Both Oestreicher and E. Allan

Lustig testified that Pedrick on that occasion

stated that E. Allan Lustig had been to see Ped-

rick before about the matter (R. 930, 1123).

The credibility of E. Allan Lustig—K. Allan

Lustig testified at the trial that he had signed

checks to the order of cash, totalling about

20

$40,000 weekly, without having any idea about

what the cash was to be used for (R. 1175) ; that

although he determined what prices were to be

charged in the restaurants (R. 1163-1164), he did

not know whether his price policy caused profits

or losses (R. 1165-1168); that he had signed

several of the false corporate returns (Exs. 16, 17,

20, 21, 28, 29, 36, 37, R. 1930-1931, 1934, 1936-1937) ;

and that during four years, on his own income tax

returns, he claimed his mother-in-law as a depend-

ent although she had been dead for some time (R.

1147-1149).

The contradiction of E. Allan Lustig’s testi-

mony.—Collector Pedrick testified that he had_

two meetings with E. Allan Lustig on April 10,

1945, and that he had not seen him for more than

a year prior to that date (R. 1417). At the first

meeting they discussed matters other than tax

matters (R. 1418-1419). Later in the day E.

Allan Lustig asked him whether he knew who the

person was who had been referred to in a news-

paper column as being a restaurateur under in-

vestigation for income tax evasion (R. 1419).

Collector Pedrick informed E. Allan Lustig that

he did not know (R. 1419, 2173-2174).

Pedrick, corroborated by his diary, denied that

he had met E. Allan Lustig at all on March 26

(R. 1482). One Glick, then an O. P. A. cfficial,

on the basis of his diary, testified that he and

not E. Allan Lustig lunched with Pedrick that

day (R. 1487-1488). Concerning the later meet-

21

ing on the same day, which allegedly took place at

four o’clock and lasted for about an hour, the

following citizens of New York testified that

Pedrick, as a matter of fact, had been with them

between four and five-thirty of that day and

consequently could not have been at the Custom

House with E. Allan Lustig: Charles C. Lock-

wood, Justice of the Supreme Court of the State

of New York (R. 1485-1486) ; Jonah J. Goldstein,

Judge of General Sessions of the City of New

York (R. 1486-1487) ; Robert Moses, head of the

New York City and New York State Park

Systems, head of the Triboro and Tunnel Au-

thority, Member of the New York City Planning

Commission and coordinator of construction in

New York City (R. 1515-1517); John A. Cole-

man, Chairman of the Board of the New York

Stock Exchange (R. 1544-1546); Howard Cull-

man, Chairman of the Port Authority (R. 1546-

1547) ; George R. VanNamee, former Public Serv-

ice Commissioner and Secretary to former Gov-

ernor Alfred E. Smith (R. 1547-1548) ; Herbert

Bayard Swope, associate member of the United

States Atomic Bomb Commission (R. 1548-1549) ;

Eugene F. Moran, vice-chairman of the Governor

Smith Memorial Fund (R. 1550).

Concerning Exhibit SS, an alleged carbon copy

of a letter with which the crucial appointment

for March 26 was made, a handwriting expert

testified that stenographic notes from which

22

Exhibit S3 was supposed to have been copied,

could not have been written on March 24, as they

purported to be, but were added to the note book

at some date after April 3, 1945 (R. 1537).

Moreover, neither the appellants nor their at-

torneys referred to any purported disclosure prior

to that of April 25, 1945, until the afternoon of

August 17, 1945 (R. 1551-1552; R. 1476-1478),

although numerous occasions called for it. For

instance, no reference to such disclosures was

made to Agent Diehl when he telephoned Sobel

on April 19 and April 23, 1945 (R. 701-702),

or in Oestreicher’s telephone conversation with

Commissioner Nunan on April 24 (R. 926), or in

the letters of April 25 (Ex, BB, R. 2123-2125,

see R. 134); nor did Oestreicher refer to the

earlier date when McQuillan on April 26, and

Seanlon on May 15, pointed out to him that his

disclosure was too late (R. 1357-1358; Ex. 338,

R. 2090).

On May 25, Oestreicher admittedly learned that

the Treasury Department did not consider the

disclosure as having been timely made (R. 1232),

and appreciated that the date became important

(R. 1232). Nevertheless in Oestreicher’s letter of

June 1, to the Commissioner (Ex. 326, R. 2038-

2041), in which he stated that he was setting forth

a “‘chronological outline of the steps taken by the

taxpayer in order to effect such disclosure’’, no

reference is made to March 26, other than to point

out that it was on this date that Mr. Lustig called

at Oestreicher’s office for an appointment; the

only claim of an earlier disclosure is the conten-

tion that the large bank deposits were the first

affirmative step in making a voluntary disclosure.

’ Nor did any of the following events elicit from

Oestreicher any reference to the alleged dis-

closure on March 26, 1945: the Commissioner’s

letter of June 7, 1945 (Ex. 327, R. 2046) pointing

out that there was no voluntary disclosure; the

knowledge that on June 5 the Department of Jus-

tice was interested in the case by reason of the

service of a subpoena (R. 1022); or conferences

with Commissioner Nunan, Mr. Wenchel, Chief

Counsel of the Bureau of Internal Revenue and

others on August 15, 1945, and again on the

morning of August 17, 1945 (R. 1551-1552).

Appellants’ answer to the charge of recent

contrivance is that Pedrick had pledged Allan to

secrecy on the ground that his failure to notify

others at once about the disclosure might cost

him the collectorship (R. 1120), and that secrecy

about this matter was first abandoned on August

17, 1945.

Petitioners’ motion to suppress——Prior to trial

the petitioners, together with Henry Lustig Co.,

Inc., Restaurants & Patisseries Longchamps, Inc.,

Fifth Empire, Inc., Lexington Longchamps, Inc.,

624 Madison Avenue Corporation, Broadway and

Forty-first Street Corporation and 253 Broadway

24

Corporation, moved for an order suppressing the

use of certain corporate books and records al-

legedly illegally obtained. by the Government

through promise of immunity contingent upon a

voluntary disclosure (R. 94-140).2 The motion

was denied with leave to renew at trial (R. 158).

The motion was renewed at trial and was dis-

posed of at the conclusion of the trial, the court

denying the motion to suppress in its entirety

(R. 2180-2181). In connection with its disposi-

tion of the motion to suppress, the District Court

made detailed and specific findings of fact (R.

2171-2178), which are more fully discussed in the

Argument, infra, pp. 26-28.

Trial, verdict, and appellate proceedings.—At

trial, the court charged that as a matter of law

prosecution was not barred by the petitioners’ al-

legel compliance with the Treasury Department’s

voluntary disclosure policy (R. 1861-1862). Nev-

ertheless, the court specifically reserved for the

jury’s consideration, on the question of the ex-

istence of intent to commit the crimes charged,

all of the evidence pertaining to the alleged dis-

closure (R. 1872-1879).

The petitioners were convicted by a jury on

all counts (R. 1897) and were thereafter sentenced

? The so-called voluntary disclosure policy of the Treasury

Department provides generally that in cases in which tax-

payers make voluntary disclosures of intentional evasions

before investigation, no criminal prosecution will be recom-

mended by the Treasury Department to the Department of

Justice.

~ 25

substantially as follows: Henry Lustig, four years’

imprisonment and a $115,000 fine; E. Allan Lustig,

three years’ imprisonment; Joseph Sobel, two

years’ imprisonment (R. 1915-1916).

By stipulation the Circuit Court of Appeals ap-

proved the consolidation, inter alia, of appeals

(1) by the petitioners from the judgment of con-

viction (R. 2184-2185) and (2) by the petitioners

and the aforementioned corporations from the or-

der (R. 2180-2181) denying the application for the

suppression and return of evidence (R. 2186-2187).

Upon appeal, the Cireuit Court.of Appeals for the

Second Circuit found, inter alia, that the investi-

gation began at the latest on March 24, 1945 (R.

2197-2198) ; that it was ‘‘fantastic’’ to suppose that

the making of deposits with the funds withdrawn

from the safe deposit box amounted to a voluntary

disclosure (R. 2196) ; that there was no disclosure

of tax deficiencies until April 25, 1945 (R. 2197) ;

that the proffer of corporate records was in no

sense the result of any promise of immunity (R.

2198); that the petitioners’ constitutional privi-

leges were not invaded (R. 2199); that the peti-

tioners received no immunity under the compro-

mise statute (R. 2199). Accordingly it affirmed

the judgment of conviction (R. 2201).

‘ARGUMENT

The petition in this case presents arguments

resting and depending on an assumption which is

entirely hypothetical, viz. that petitioners made a

26

voluntary disclosure amounting to a confession

which was induced by a promise of immunity.

That assumption is quite without support on the

present record, in consequence of which the ques-

tions sought to be presented are never reached.

1. The District Court found as a fact that “‘ At

no time between February 28, 1945 and April 25,

1945 was any act of the defendants or of the cor-

porate taxpayers prompted or brought about by

any inducement held out to them by any person

in authority or any person connected with the

government”’ (Fdg. 19, R. 2176), and that “‘at no

time’’ during those dates ‘“‘were the defendants or

the corporate taxpayers coerced or compelled or

induced, either with or without process, to make

ineriminatory disclosures’’ (Fdg. 20, R. 2177).

The District Court likewise found as a fact

that the March currency redeposits ‘‘were

prompted by the belief that currency in bills of

large denominations might in effect become contra-

band and not by any desire or intention voluntarily

to disclose frauds on the revenue’”’ (Fdg. 19, R.

2176), and that the filing of two additional fraudu-

‘lent tax returns «efter substantial redeposits of cur-

rency had been made ‘‘conclusively establish[es]

that the redeposit of currency was no evidence

of any intention on the part of the defendants or

the corporate taxpayers to make voluntary dis-

closure of the frauds theretofore practiced,’’ and

“that said redeposits had no connection with or

27

bearing upon crimes against the revenue’’ (Fdg.

24, R. 2178). The Cireuit Court of Appeals char-

acterized the contention that the making of these

deposits amounted to a voluntary disclosure in

response to a promise of immunity as ‘‘fantastic”’

(R. 2196).

The District Court further found that ‘Neither

the defendants nor the corporate taxpayers at any

time prior to April 25, 1945 disclosed the fraudu-

lent practices of the corporate taxpayers to any

government official’ (Fdg. 18, R. 2176), and also

specifically found that statements submitted in

affidavits to the effect that ‘‘voluntary disclosure”’

was discussed between E. Allan Lustig and Col-

lector Pedrick on March 26, April 10, 20, and 24,

were false. (Ibid.). The Cireuit Court of Ap-

peals thought it ‘‘clear’’ that ‘‘the investigation

began at the latest on March 24, 1945”’ (R. 2197-

2198).

The first disclosure was that contained in the

letters of April 25, 1945 (R. 2123-2124; see also

R. 134), which contained an invitation to examine

the corporate taxpayers’ books. Those letters,

the District Court found, ‘‘were not frank and

full disclosures, were not voluntarily made, and

were delivered at a time when the defendants well

knew that an. investigation of their affairs and

those of the corporate taxpayers had actually been

initiated”? (Fdg. 22, R. 2177-2178). ‘On April

25, 1945, the extent of the frauds practiced by the

28

corporate taxpayers was not disclosed” (Fdg. 14,

R. 2175). These ‘belated and partial revela-

tions’? (Fdg. 23, R. 2178) were ‘‘prompted solely

by the fact that the defendants and the corporate

taxpayers knew that an investigation of \their

affairs had begun and that an Internal Revenue

Agent had made an appointment, deferred at the

request of the defendants and of the corporate tax-

payers, to commence an examination of the books

of the defendant Henry Lustig on April 23, 1945”

(Fdg. 19, R. 2176-2177). The subsequent investi-

gation of the books of the corporate taxpayers,

between May and August 1945, “‘was invited by

the defendants and by the corporate taxpayers

with full knowledge that an investigation had

been commenced which would lead to the discovery

of fraudulent entries in the books of the corporate

taxpayers, and with full knowledge of the fact

that said investigation could be commenced and

continued with or without the consent of the de-

fendants or the corporate taxpayers’’ (Fdg. 21,

R. 2177).

The Cireuit Court of Appeals likewise noted

**that the corporate records were in no sense the

result of any promise of immunity. They were

furnished long after the government investigation

had begun’’ (R. 2198).

These concurrent findings, accurately reflecting

the record (see Statement, supra, pp. 13-23), need

not be independently reviewed here. Goldman v.

United States, 316 U. S. 129, 135; ef. United

States v. Johnson, 319 U. S. 503, 518; Delaney v.

United States, 263 U. 8. 586, 589-590. They make

it abundantly clear that the questions suggested by

the petition are academic, without actual relation-

ship to the present record. Those questions hap-

pen to be without any substantive merit,’ though

that is now beside the point. But it may be

noted in leaving this aspect of the ease that, con-

sidering all the circumstances, petitioners’ refer-

ence to their April 25 letters as ‘‘confessions,

unique for frankness and completeness” (Pet.

27), involves not so much hyperbole as irony.

* Even if petitioners had made full disclosure, it is clear,

as charged by the trial court, that prosecution would not be

foreclosed. Whiskey Cases, 99 U. S. 594; United States v.

Blaisdell, 3 Ben. 132, Fed. Case No. 14,608 (S. D.N. Y.); ef.

Gladstone v. United States, 248 Fed. 117 (C. C. A. 9), cer-

tiorari denied, 247 U. S. 521; United States v. McCormick,

67 F. 2d 867 (C. C. A. 2), certiorari denied, 291 U. S. 662.

The most authoritative formulation of the voluntary dis-

closure policy merely implies a self-imposed administrative

limitation by the Treasury Department not to refer cases to

the Department of Justice for prosecution. Actually, it

would seem that there would be nothing to prevent an indict-

ment without referral. Cf. United States v. Morgan, 222

U, S. 274. Here there is no suggestion that the Department

of Justice effected a compromise after indictment, see Exe-

cutive Order No. 6166 (supra, pp. 3-4), and the suggestion

that there was any earlier compromise by the Treasury De-

partment under Section 3761 of the Internal Revenue Code

(supra, pp. 2-8), was correctly characterized by the court

below as “illusory” (R. 2199), on the authority of Botany

Mills v. United States, 278 U.S. 282.

2. Petitioners insist (Pet. 17, 23-29) that their

constitutional rights were violated because the

district court itself determined as a fact whether

the disclosure preceded the investigation and was

made under a promise of immunity, and did not

submit that question to the jury. The contention

is untenable, for a number of reasons.

(a) It is firmly settled that the determination

of preliminary questions of fact in connection

with the admissibility of evidence is within .the

exclusive province of the trial judge. Ford v.

United States, 273 U. S. 598, 605; Steele v. United

States, 267 U.S. 505; Gila Valley Ry. Co. v. Hall,

232 U. S. 94, 103; see Nardone v. United States,

308 U. S. 338, 341. His determination will not be

reviewed here after it has been concurred in on

appeal (see Goldman v. United States, 316 U. S.

129, 135), particularly when, as in this case, it is

so clearly supported by the evidence.

_(b) The evidence in question consisted, not of

personal records of the present petitioners, but

of the books, records, and papers of corporations

which were not defendants in the criminal prose-

cution. This evidence could have been obtained

through the use of legal process, independently

of any proffer on petitioners’ part, and could have

been used against them regardless of their consent

or objection. . Internal Revenue Code, Sec. 3614

(26 U. 8S. C. 3614); ef. Cooper v. United States,

31

9 F. 2d 216 (C. C. A. 8). Consequently the dis-

cussion throughout the petition of principles gov-

erning individual confessions is wide of the mark.

Moreover, the cases relied upon as establishing

a conflict, in this Court* and in other circuits,’

are not in any sense inconsistent with the decision

below. ;

(c) Finally, the trial judge here did not fore-

close the jury’s consideration of the issue of

voluntary disclosure. He explicitly enjoined the

jury to consider all of the transactions touching

the alleged disclosure for the purpose of deter-

mining whether in view thereof the pétitioners

had the requisite intent to commit the crimes

charged. With particular reference to the filing

of returns in 1945, practically contemporaneously _

* Lyons v. Oklahoma, 322 U. S. 596, and Lisenba v. Cali-

fornia, 314 U. S. 219, were appeals from state courts; there,

under the local practice involved, juries were required to pass

upon the admissibility of confessions already admitted by

the trial judge. Wélson v. United States, 162 U. S. 613, as

the court below noted (R. 2199), contains at the most a dictum

that the question of the admissibility of a confession may

(not must) be submitted to a jury.

* Cohen v. United States, 291 Fed. 368 (C. C. A. 7), simply

holds that the trial judge must make a preliminary deter-

mination of the voluntariness of an individual confession

before submitting it to the jury ; there it was submitted with-

out any such determination. McAffee v. Uvited States, 105

F. 2d 21 (App. D. C.), and Denny v. United States, 151 F. 2d

828 (C. C. A. 4), discuss the instructions to be given a jury

as to the probative value of an individual confession already

admitted in evidence following the judge’s preliminary

determination.

with the alleged disclosure, the court charged

(R. 1872) : |

A man can’t intend to defraud and at the

same time have an honest intention to dis-

close past irregularities in connection with

income taxes. At least I don’t think so.

Further, the jury was not restricted in its weigh-

ing of the ‘‘disclosure’’ testimony to the offenses

committed in 1945. They were given unusual

latitude to go ‘‘so far back as you may care to

to go or as far ahead as you may care to go, on

these returns that they filed within or reasonably

near that period’’ (R. 1873). Under the charge

given, it would seem reasonable to assume that

if the jury believed that petitioners entertained

an honest intent to make voluntary disclosure of

their past frauds, the jury would have acquitted

at least on count fourteen (R. 35-37), charging

tax evasion on February 15, 1945, and on counts

five (R. 18-20) and twenty-two (R. 51-53), which

charged tax evasion on March 15, 1945.

3. It seems appropriat2 to note that petitioners

do not question here (Pet. 6), nor did they below

(R. 2195), that there was a willful attempt on

their part to evade the payment of taxes and a

conspiracy to accomplish that result.

CONCLUSION

The decision below is obviously correct, there

is no conflict of decisions, and the questions sought

to be raised by the petition for a writ of certiorari

33

are never reached on the present record. The

petition should therefore be denied.

Respectfully submitted.

/ Pui B. PERLMAN,

Solicitor General.

THERON LAMAR CAUDLE,

/ Assistant Attorney General.

/ FREDERICK BERNAYS WIENER,

Exuis N, Suack,

Meyer RotrHwacks,

Special Assistants to the Attorney General.

SEPTEMBER 1947,

US .OVER EMO NT PRINTING OFFICE: 1947