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United States v. Siegel - 717 F.2d 9 (2d Cir. 1983)

Rule:

The mail fraud or the wire fraud statute, 18 U.S.C.S § 1343 or § 1341, is violated when a fiduciary fails to disclose material information which he is under a duty to disclose to another under circumstances where the non-disclosure could or does result in harm to the other. While the prosecution must show that some harm or injury was contemplated by the scheme, it need not show that direct, tangible economic loss resulted to the scheme's intended victims.

Facts:

Among other offenses, defendants Leonard S. Siegel and Martin B. Abrams were charged with wire fraud, in violation of 18 U.S.C.S. §§ 1343 and 2, and of endeavoring to obstruct federal investigators, in violation of 18 U.S.C.S. §§ 1510 and 2. The fraudulent scheme underlying the charges involved unrecorded cash sales of Mego International, Inc.'s merchandise, which had either been closed out and marked down for clearance or returned because of damage or defect. These cash sales, which defendants conducted themselves, were not recorded on Mego's books. The indictment charged that defendants used the cash for bribery and self-enrichment. The Government called several witnesses who, in addition to testifying to the unrecorded cash transactions, recounted their knowledge of the uses to which the money was put. After a jury trial in federal district court, both defendants were convicted of wire fraud. Moreover, Abrams was convicted of obstruction of endeavoring to obstruct federal investigators because he reduced the amount owed by one merchandise buyer who had threatened to inform the Securities and Exchange Commission ("SEC") about Abrams' fraudulent transactions. Defendants appealed, contending that the evidence was insufficient to support the convictions and that certain evidence was improperly admitted at trial.

Issue:

(1) Was Abrams' conviction under 18 U.S.C.S. § 1510 proper? (2) Did the evidence support defendants' convictions under 18 U.S.C.S. § 1343?

Answer:

(1) No; (2) Yes.

Conclusion:

The court of appeals reversed Abrams' conviction under 18 U.S.C.S. § 1510, holding that  § 1510 could not be stretched to encompass Abrams' conduct, which was merely a response to an informant's threat to instigate a federal investigation. According to the court, where there was no federal investigation either being conducted or contemplated, where there was no particular federal criminal investigator about to receive information, where the payment was solicited by the "informant," and where a defendant's sole knowledge of the possibility of the communication of information to federal authorities was derived from a threat by a customer that if he did not get a credit on goods purchased he would go to the SEC, § 1510 was not violated.

On the other hand, the court affirmed defendants' wire fraud convictions. The court held that § 1343 was violated when a fiduciary failed to disclose material information that he was under a duty to disclose to another under circumstances where the non-disclosure could or did result in harm to the other. According to the court, there was sufficient evidence from which the jury could have reasonably concluded that defendants received cash proceeds and used them for non-corporate purposes in breach of their fiduciary duties to act in the best interest of Mego and to disclose material information to Mego and its stockholders. The also ruled that there was no abuse of discretion in the admission of evidence about certain bribes and documentation. Evidence of a bribe paid to facilitate peaceful labor relations was not so prejudicial as to deny defendants a fair trial, and the bribe money was sufficiently linked to the fraud funds. A corporate director's memo documenting the fraud was properly admitted because the jury was presumed to be capable of following a charge excluding the memo from consideration in the wire fraud charges.

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