# Opposition Brief — Lustig v. United States

> Briefs, arguments, decisions, and more.

URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386416_1314%3A3

## Record

- **Collection:** Supreme Court brief
- **Document type:** Opposition Brief
- **Published:** January 1, 1947
- **Citation:** 332 U.S. 775

## Text

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

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386416_1314%3A3. Public record. Not legal advice.