787 F.3d 116
2d Cir.2015Background
- McGinn and Smith ran McGinn, Smith & Company, a broker‑dealer that raised investor funds through three primary offerings: receivables‑securitization trusts (including Firstline trusts), a bridge‑financing vehicle (MSTF), and four pooled funds (the Four Funds).
- The indictment alleged they diverted millions from trust escrows and other accounts for personal use and to cover shortfalls, concealed bankruptcies (Firstline), falsified accounting entries, and lied to FINRA investigators.
- A jury convicted both defendants of conspiracy to commit mail and wire fraud, multiple counts of mail/wire/securities fraud, and filing false tax returns; McGinn faced additional mail/wire fraud convictions. Sentences: McGinn 180 months, Smith 120 months. Restitution and forfeiture orders were entered.
- On appeal, defendants mainly challenged sufficiency of intent evidence, the district court’s tax‑willfulness jury charge, admission/use of portions of a 1999 letter authored by Smith, McGinn’s sentence, and Smith’s restitution/forfeiture amounts. The government cross‑appealed regarding restitution offsets under the MVRA.
- The Second Circuit affirmed convictions and sentences, found the district court erred in allowing portions of the 1999 letter on cross‑examination but deemed that error harmless, rejected constructive amendment/variance claims, upheld tax instructions as a whole, affirmed sentencing, and remanded only to correct the written judgments to conform restitution offsets to the MVRA.
Issues
| Issue | Plaintiff's Argument (Gov’t) | Defendant's Argument | Held |
|---|---|---|---|
| Sufficiency of intent for fraud convictions | Evidence (diversions, false accounting, concealments, altered entries, false FINRA statements) proves knowing intent | McGinn/Smith claimed lack of knowledge, believed payments were loans/fees, or relied on good‑faith belief everything would work out | Affirmed: evidence sufficient for mail/wire/securities/tax convictions; jury could infer willfulness and conspiracy |
| Jury instruction on tax counts (good‑faith/willfulness) | Overall charge made clear willfulness required; no reversible error despite one incorrect statement that good faith was inapplicable | Defendants argued the court misstated law and foreclosed good‑faith defense | Affirmed: error not plain when viewed in context; instruction otherwise conveyed that good faith would preclude conviction and evidence was overwhelming |
| Use of Smith’s 1999 letter at trial | Government used limited excerpts on cross to impeach after defendants opened the door; letter probative of knowledge/intent | Defendants argued admission was manifestly erroneous, prejudicial, and amounted to constructive amendment/variance | Court: reading portions was manifestly erroneous but harmless given strength and cumulative evidence; no constructive amendment/variance; convictions stand |
| Restitution offset and MVRA compliance (gov’t cross‑appeal) | Restitution judgments must clarify that only actual distributions to victims (not mere collections by Receiver) offset restitution | Defendants argued inclusion of post‑bankruptcy Firstline losses was improper because of acquittals on some counts | Affirmed convictions; remanded limitedly to correct judgments so only Receiver’s actual distributions offset restitution per MVRA |
Key Cases Cited
- United States v. Lane, 474 U.S. 438 (1986) (mailings after fraud may be in furtherance if they lull victims)
- Cheek v. United States, 498 U.S. 192 (1991) (good‑faith belief about tax law negates willfulness element)
- United States v. Pomponio, 429 U.S. 10 (1976) (willfulness instruction in tax cases can be framed similarly)
- United States v. Guadagna, 183 F.3d 122 (2d Cir. 1999) (fraud requires conscious, knowing intent to defraud)
- United States v. Cassese, 428 F.3d 92 (2d Cir. 2005) (definition of willfulness under securities laws)
- United States v. Groysman, 766 F.3d 147 (2d Cir. 2014) (harmless‑error framework for improperly admitted evidence)