Court: Court of Appeals for the Second Circuit; December 28, 2000; Federal Appellate Court
Gerald J. Petrillo was convicted by the United States District Court for the Southern District of New York for conspiracy to defraud the IRS, filing false tax returns, tax evasion, and mail fraud. Following a jury trial, he received a 27-month prison sentence, two years of supervised release, and was ordered to pay restitution of $81,231.41 along with special assessments totaling $450.
From April 1992 to August 1994, while working as a securities trader for A.F. Braun, Petrillo engaged in 'soft dollar' arrangements with brokerage firms, which allowed Braun to receive rebates on trading commissions. However, he improperly used these soft dollar funds to pay personal expenses, a practice sanctioned by Braun. Petrillo collaborated with broker Ed Cohn, who facilitated the concealment of these payments from the IRS by not issuing required tax forms. After leaving Braun, Petrillo continued to misuse soft dollar proceeds at Chelsey Capital, without his supervisor's knowledge, leading to his mail fraud convictions. The appellate court affirmed the convictions but remanded for re-sentencing to group the tax and mail fraud convictions according to U.S.S.G. 3D1.2(d).
Petrillo failed to report $200,000 in soft dollar payments as income on his tax returns for 1992-1994 and improperly claimed personal expenses as business deductions, even though those expenses were covered by soft dollar funds. In spring 1994, upon learning of a government investigation into soft dollar practices, he amended his tax returns for 1992, 1993, and later 1994 to include the payments. At trial, Petrillo was convicted of conspiracy to defraud the IRS, filing false tax returns, and committing mail fraud related to unauthorized soft dollar fund use. The government supported the conspiracy charge with plea allocutions from co-defendants Killeen and Bock, which Petrillo challenged as violating his Sixth Amendment rights under the Confrontation Clause. He argued that the allocutions did not meet the standards set in Supreme Court cases, including Ohio v. Roberts and Lilly v. Virginia. While the court noted that it had not previously ruled on the status of statements against penal interest as a firmly-rooted hearsay exception, it ultimately upheld the district court's decision to admit the allocutions, asserting they had sufficient guarantees of trustworthiness to negate the need for cross-examination. Petrillo's subsequent motion for a new trial based on newly discovered evidence was denied, as was his request to group his tax and mail fraud convictions for sentencing purposes. He appealed the admission of the plea allocutions, the denial of the new trial motion, and the sentencing grouping decision.
Petrillo claims the guilty plea allocutions are untrustworthy due to the power imbalance between the government and co-defendants, Killeen and Bock, who had incentives to deliver inculpatory statements while negotiating pleas for both the current and separate securities fraud indictments. Despite concerns about potential coercion or misrepresentation, the district court did not abuse its discretion in admitting the allocutions, which met the trustworthiness criteria outlined in United States v. Moskowitz. The district court confirmed that the allocutions were made under oath in open court, with the presence of legal counsel, and posed risks to the declarants' penal interests. Additionally, jurors were instructed on the limited use of this evidence.
Petrillo also argues that the district court mistakenly denied his motion for a new trial based on newly discovered evidence that Stuart Feldman, a prosecution witness, had provided false testimony regarding his knowledge of soft dollar practices. Feldman claimed he informed Petrillo that such arrangements were not economically viable and denied any awareness of Petrillo using soft dollars for personal expenses. However, post-trial investigations revealed evidence contradicting Feldman's statements, including soft dollar payments made to him or his company and testimony from Maria Kleinberg indicating Feldman had anticipated soft dollar payments after Petrillo's hiring. Petrillo asserts that this new evidence warrants a hearing to evaluate its impact on the credibility of Feldman's testimony.
A motion for a new trial due to newly discovered evidence is rarely granted, requiring extraordinary circumstances. A district court must ensure that the evidence is material to the verdict, could not have been discovered with due diligence before or during trial, and is not cumulative. Specifically, if the government was unaware of perjured testimony at trial, a defendant must prove that without the perjured testimony, it is likely they would not have been convicted. In the case at hand, the district court's denial of Petrillo's motion for a new trial without a hearing is reviewed for abuse of discretion.
The judge concluded that the new evidence regarding soft dollar payments was cumulative and that Petrillo had prior knowledge of these payments from pre-trial discovery. Furthermore, the evidence did not convincingly demonstrate that Feldman had perjured himself; counsel acknowledged that the testimony was misleading but not definitively false. The ambiguity in Feldman's testimony was not sufficiently misleading to warrant a new trial, and any equivocations could have been addressed during cross-examination. Additionally, the new evidence was unlikely to change the jury’s verdict on the mail fraud charges, as it did not establish that Feldman had authorized the use of soft dollars for personal expenses, which was central to those charges.
Regarding sentencing, the district court chose not to group Petrillo's mail fraud and tax evasion counts for calculating the overall offense level. Grouping would have resulted in a lower offense level and corresponding sentence. Petrillo argued that since both charges are similar and based on total harm or loss, they should be grouped. The government has since changed its stance and now agrees to re-sentencing in light of a relevant precedent.
Under U.S.S.G. 3D1.2, counts involving substantially the same harm are to be grouped into a single category. Subsection (d) specifies that such counts include those where the offense level is largely determined by the total amount of harm or loss. Application Note 6 clarifies that grouping applies when offenses are of the same general type and meet the necessary criteria. The court has not previously ruled on the grouping of tax evasion and mail fraud counts but has addressed similar issues regarding money laundering and fraud, concluding that they should not be grouped since the money laundering offense level is not primarily based on the amount of money involved.
In contrast, tax evasion and mail fraud offenses have comparable offense level increments based on loss amounts, are both categorized as frauds, constitute a continuous course of criminal activity, and involve the same funds. Although the offenses target different victims, this fact alone does not preclude grouping, as emphasized in Application Note 6. Consequently, the court agrees that the mail fraud and tax evasion counts should be grouped, leading to an adjustment in Petrillo's sentence.
The court affirms Petrillo's convictions on all counts, vacates the current sentence, and remands the case to the district court for re-sentencing consistent with this opinion. The district court indicated a potential sentence of 21 months if the counts are grouped, but the final decision is left to the district court for determination.
