*1 America, STATES UNITED Appellee, Joseph
Anthony M. NATELLI
Scansaroli, Defendants-Appellants. 75-1004, 1035, 1036, Dockets
Nos.
75-1008. Appeals, States Court
United Circuit. Second 10, 1975.
Argued April July 1975.
Decided 4, 1975. Rehearing Oct. 7 and Dec.
On April Denied
Certiorari 96 S.Ct.
See *3 City Martin, Jr., York New John S. Morvillo, New
(Martin, Obermaier Lacovara, Wash- Philip City, A. York Santangelo, New C., Betty J. ington, D. & Hubbard Hughes, City, York counsel), C., Reed, Washington, D. Natelli. defendant-appellant Stillman, City York New A. Charles Paul, Beiley, Peter & (Morrison, Stillman Morrison, Zelermyer Benjamin H. City, Tanenhaus, New York D. Edward defendant-appellant counsel), Scansaroli. Atty., Yelie, U. B. Asst. S. Franklin Curran, (Paul U. S. City J.
New York em- Rakoff, Audrey Strauss (“Marketing”). S. Scansaroli Atty., and Jed Peat, Gordan, III, super- as audit assigned Asst. U. S. ployee D. and John engagement. counsel), appellee. on visor Attys., Earle, III, Cahill Gordon Victor M. and tried Appellants Krongard, William (Howard J. & Reindel in- a multi-count Two of Count Mone, George Mathias E. Hegarty, E. con- defendants against other dictment counsel), for City, Wailand, York New Marketing. nected amicus Marwick, & Co. as Peat, Mitchell Count Two of the indictment charged curiae. that, in violation of 32(a) of the Section Moore, York New Cravath, & Swaine Securities Exchange Act of 1934, 15 Rosenman Hupper, Robert (John R. City 78ff(a),1 U.S.C. § four of Marketing’s of City, Collins, York New Barclay and J. ficers and the appellants, independent counsel), American Institute auditors, “wilfully and knowingly made *4 as amicus Accountants Certified Public and caused to be made false and mis curiae. leading statements respect with to mate HAYS, and GUR- MULLIGAN Before rial facts” in a proxy statement for Mar FEIN, Judges. Circuit keting dated September 1969 and filed with the Securities and Exchange GURFEIN, Judge: Circuit (SEC) Commission in accordance with Joseph Anthony M. Natelli and Scan- Section 14 of Act, the 1934 15 U.S.C. judgments of convic- appeal from saroli 78n. § Dis- in the States tion entered United by issued proxy statement District of for the Southern trict Court special with a Marketing in connection 27, 1974 after a December York on New to consider its stockholders meeting of Harold the Hon. trial before four week increas- a charter amendment inter alia im- Judge Tyler jury. a R. and Tyler and the capital stock authorized ing its $10,000 a year sentence and posed a one including Inter- companies, merger of six Natelli, all but suspending upon fine (“Interstate”) Corporation National state year and a one days imprisonment, of Marketing. into $2,500 upon a fine Scansa- and sentence days all roli, suspending Count Two of the indictment further imprisonment. charged appellants, attempting to public ac- are certified earnings Both net as origi reconcile sales and partner Natelli was nally reported report countants. in the annual office Washington, D. C. charge year ending August the fiscal Marwick, Peat, Mitchell & Co. of (“Peat”), in the with the amounts shown state au- large independent firm of earnings proxy statement, ment of ditors, engagement partner with later, and the a year filed less than created engagement respect explanatory materially to Peat’s audit that was footnote Marketing Corporation misleading.2 National Student false and It was alleged part: part: 32(a) provides The footnote read in relevant in relevant 1. Section originally earnings willfully reported as “Any person sales and and "Net . who . . [for 1968] year In the annual report stockholders made, any makes, knowingly or to be causes statement of earn- the amounts shown in and application, report, any doc- or statement ings reconciled follows: statement are proxy chapter required to be under this filed ument sales Net any regulation any or or thereunder rule or Originally 4,989,446 reported.............. $ registration undertaking contained companies Pooled reflected (d) provided in subsection statement 6,552,449 retroactively................. title, statement 78o of this section earnings $11,541,895 ....... Per statement respect misleading or was false fact, upon’conviction fined material shall earnings Net $10,000, imprisoned not than or not more Originally 388,031 ............. reported $ (Emphasis years, . . than two more companies Pooled reflected added.) 385,121 retroactively ................ 773,152" ...... Per statement $ that “as the defendants well knew but and discussed method of accounting (a) approxi- failed disclose ... Marketing using had been with re- dollars, mately one million or more than spect programs. to fixed-fee In the 20%, originally of the 1968 ‘net sales re- program, fixed-fee Marketing would de- ported’ proven by nonexistent velop marketing programs overall the time the statement was filed youth the client to reach the market by been written off and had utilizing a combination of mailings, [Market- account; ing’s] (b) own internal books of posters advertising and other services of- profits ‘pooled compa- net sales and by Marketing. fered explained Randell retroactively’ nies reflected were sub- agreed and the client' understated; stantially (c) upon and net sales fixed fee to be for par- profits [Marketing] ticipating substan- programs. in the various Ran- tially overstated.” dell company stated that believed proper it recognize income charged further Two Count on these fixed-fee contracts at the time an unau- also contained the clients committed themselves par- earnings for the nine dited ticipate in programs presented May 1969 which was months ended executives, them the account and that misleading in that it materially false this was the accounting method that had $11,313,569 sales” as “net stated preparing been used in the financial $702,270,when, fact, earnings” as “net period statements for the May ended knew, “net well sales” as the defendants *5 1968, which had been distributed to $10,500,000 less than period were for the stockholders. Marketing had no at all. and considering After alternative methods theory the of to understand In order of accounting, Natelli concluded that he case, we must retrace government’s the would use a percentage-of-completion steps beginning to the of the Peat our approach recognition to the of income on Marketing. engagement at commitments, pursuant these to which permissibly could have found the follow- company percent- the age accrue that would ing facts. gross of the income and related costs by Marketing was formed in 1966 on a client’s “commitment” that was major provided It to W. Randell. Cortes equal proportion of the spent time range of corporate accounts a diversified by the project account executive on the promotional marketing and advertising, August 1968 to the before total time designed youth to reach the services it was spend estimated he would have to Marketing April had its market. complete to project. the only public offering first and of stock. immediately encoun- difficulty was not its at the time. Peat auditor had “commitments” the was that tered engagement in Au- Peat took on year, the fiscal during been booked not checking previ- with the gust 1968 after Marketing writing. were not and pro- that there had been no ous auditors initially been sold $6 which had stock manage- disagreement with fessional by selling in the market per share Natelli, partner charge of ment. $80, of an increase September 1968 office, Washington undertook the Peat’s to book A refusal months. in five $74 engagement to audit the financial state- have re- would “commitments” the oral year ments of for the fiscal large showing Marketing’s sulted 31, 1968, August and Natelli as- ended Ku- to year according fiscal for the loss — signed supervisor to serve as Scansaroli $232,000. loss of computations, rek’s engagement. on the early September order, In late or October Scansaroli, upon Natelli’s at- (after year), the fiscal “commitments,” the close of tempted verify Kurek, Marketing’s Randell and Bernard included in the previously the sales not Comptroller, records, met with both company haphazard in a rather representatives by telephone stock, ing
manner reliance on the 1968 annual indi- companies purportedly report. which had Marketing’s intent to use cated some Things began happen respect urging, Pursuant to Randell’s services. million of “sales” that had $1.7 any written veri- did not seek Scansaroli year as income after fiscal been recorded accepted pre- He a schedule fications. publication five end. Within months of which showed about pared by $1.7 Kurek report, by May of the annual Mar- purported “commitments.” million in keting had written off over million of $1 from the account execu- He also received million in “sales” which the $1.7 au- indicating estimates tives forms permitted to ditors had be booked. commit- gross amount of the client’s off, Of the written $1 total million ment, printing distribution costs $748,762 pur- was attributable to “sales” program, on the and the to be incurred portedly by Michaels, one made Ronald per- estimate account executive’s an account executive who was fired for program. centage completion taking kickbacks who was said to be above, basis of Natelli de- On the other quarter dishonest. The of a mil- income on a recognize cided not lion dollars of sales written off had noth- basis, but percentage-of-eompletion ing Michaels. to do with When accrued adjustment made permit account, costs into were taken the effect year fiscal the close of the books after of the write-off of the Michaels con- million for such “un- the amount $1.7 by tracts was to reduce 1968 income adjust- This billed accounts receivable.” $209,750. appeared It that of the mil- $1 year ment turned the loss for into a requiring lion of sales retroactive write- $388,031, profit showing handsome off, $350,000 already been written profit doubling apparent company by subtracting off these prior year. year figures. “sales” from current Appellants $678,000 with a An additional was to be written respect criminal violation with to this de- prior year sales for off. appellants observed, may however, cision. It design were asked to *6 that in the footnote to the audited finan- suggested write-off. by The write-off explaining cial statement for 1968 this accepted was and entered in accounting “Contracts in general ledger journal method of for as a voucher given Progress,” entry no indication is April in late or early sometime that such flimsy of the evidence May. nature actually existed. client “commitments” That entry $678,000 wrote off the ret- given had been a After the audit roactively a deduction from 1968 by on No- full certificate the auditors sales. Instead of reducing 1968 earnings 14, 1968, in December vember Natelli commensurately, however, no such re- Marketing 1968 told officers of duction Appellants was made. were in- allow income to
in the future Peat would by formed tax accountants in Peat’s em- be recorded on written commit- ploy that a certain deferred tax item ments, supported by contemporaneous reversed, should be resulting in a tax logs by the executives with kept account credit happened approximate- to be each A form letter respect to contract. ly the same amount as profit binding a spell out con- drafted written off. Scansaroli “netted” this ex- signed by tractual commitment traordinary (the credit) item tax with an each client. unrelated ordinary (the item write-off of meantime, following sales profits). In the the is- By procedure report helped the 1968 annual suance of audited to conceal on the books the actual proxy September profits, and before the write-off using further statement, companies seven were ac- device rounding off tax item to quired largely for exchange Market- make it conform exactly to The effect of the written write-off.3 off. All netting narrative disclosure in procedure bury was to by retroactive the footnote was stricken Natelli. adjustment which should have This Accounting shown a was a violation of Prin earnings decrease in ciples material the fis Opinion Board Number ended year August cal 1968. requires prior adjustments disclosure of
which affect the net prior income of Proxy periods.5 The Statement Footnote The
A. Earnings Nine-Months B. The False statement, part the proxy appel As Statement set a pur lants about to draft footnote required an statement also proxy Company’s porting prior to reconcile the months of nine unaudited reported earnings net sales and from the This May 1969. earnings through report with restated amounts re with the Company, prepared pooled companies sulting from reflected percent- same Peat on the assistance of age retroactively. earnings summary in the 1968 basis as in completion proxy companies statement included n A from commitment audited statement. after acquired fiscal 1968 and their Motors of General Pontiac Division earnings. pooled The footnote was the produced $1,200,000 was amounting to only place in the statement which the fiscal after end of two months permitted would have an interested in 28, 1969. April was dated period. It Marketing’s perform vestor to see what printed was to be preceding ance had been in its fiscal York on Press in New the Pandick retroactively adjusted, year sep A.M. on At August about arate from the and sales of the Randell that informed day, Natelli companies acquired it had in fiscal 1969.4 the Pontiac Division the “sale” to treat- not be million could more than direction, $1 At Natelli’s sub- Scansaroli because valid commitment ed Marketing tracted written-off sales legally Pontiac was not letter from figures the 1968sales the seven from responded binding obligation. Randell acquired pooled companies without later from had “commitment adjustment at once that he showing retroactive compa- in a somewhat Marketing’s figures. Eastern Airlines” own fiscal nine attributable rable amount was no There disclosure footnote ended (which had period months previously report- fiscal over million of $1 earlier). Kelly, a two months more than 1968 sales of had been ed *7 Natelli, approved procedure Accounting Principles 5. Opinion This 3. Board Num- proxy 9, printed December, of the state- draft 1966, first ber the issued in in reads relevant lumped part: which prepared a footnote ment adjust- the tax 1968 and losses for contract ment, stating prior period adjustments are re- “26. When of the retro- net effect that “the corded, resulting (both gross and effects $21,000 adjustment decrease was a active applicable tax) net of income the net in- on year earnings 1968.” for the net prior periods come of should be disclosed knowledgeable vigilant stockholder report A and year 4. the annual in which report adjustments financial had saved his 1968 could who are made. Board recom- [The discovered, by matching disclosure, addition, it with bal- mends in interim re- statement, proxy ports during subsequent sheet un- year ance issued year August recording adjustments.] receivables for the ended billed date $1,015,230 31, against single peri- 1968 were now When financial statements $1,763,992 document, presented, in the earlier but he od should are this disclosure why would not know there was a difference. the effects of on indicate such restatement “Figures “c” earnings Footnote read: for 1968 have the balance of retained at the be- ginning period been restated in instances certain to make net income on the presentation immediately with preceding period.” their consistent current accounting practices. no Accounting Principles: Original There was material APB Pro- nouncements, 2, a result p. (1969). effect as of such restatement.” Vol. Marketing, appellant arrived at the Each salesman contends that the evi hours later dence printing plant several with a was insufficient to support his commitment letter from Eastern Air- conviction. We shall consider ap each lines, 1969, 14, pellant August purporting dated separately.6 $820,000 to confirm an tensibly commitment os- 14, May just on entered into I
before the end of the nine-month fiscal Sufficiency of Evidence 1, period September. through Natelli — May 1969. When state- probe It is hard to the intent of a printed form, ment was in final the Pon- evidence, defendant. Circumstantial deleted, tiac “sale” had been motive, particularly proof where Eastern had “commitment” been insert- available, sufficient to convince often place. ed in its intent a reasonable man of criminal be we yond Soon after a reasonable doubt. When deal incident at Pandick Press, Oberlander, Douglas professional an account- who is a with a defendant accountant, harder, assigned by times, ant at Peat Natelli to review it is even accounts, $177,- Marketing’s distinguish simple discovered between errors of 547 worth of “bad” contracts from 1968 errors made judgment and with suffi which were known to May support Scansaroli in intent to cient criminal tion, a convic doubtful, but which especially had not been when there is no financial suggested written off. gain Oberlander the accountant other than his Kurek that these legitimate contracts and others fee. amounting $320,000, to over in addition argues that Natelli there is insuffi- previ- to the million in bad $1 contracts cient evidence to establish that he know- of, ously disposed be written off. Kurek ingly filing proxy assisted in Scansaroli, who,
consulted after consult- materially which was false. After Natelli, ing with against decided consideration, searching we are con- suggested write-off. strained to find that there was sufficient evidence for his conviction. statement was filed with arguments (cid:127)The Natelli makes in this September the SEC 1969. There court as evidence of his innocent intent was no disclosure that had presented made to written off million of its 1968 sales $1 fairly. There is no contention (over 20%) and over million of the $2 improperly excluded Judge Tyler million in unbilled sales booked in $3.3 disclosure, factual evidence offered. While there is 1968 and 1969. A true made, substance to some of Natelli’s factual was not would have shown that consideration, receivables, contentions for we without these unbilled Mar- find, totality cannot dence, of the evi- keting profit had no in the first nine improperly that he was convicted. of 1969. months May that a later incident reveals Natelli contends ended 1969 had been discovered since September acquisition intent to deceive. signed his lack of contract had been Johnston, August. accountant with John a staff Colona Johnston drafted a “com- Peat, assigned prepare noting adjustments audit of fort letter” which com- Marketing’s year pletely wiped Marketing’s for the ended three-quar- books fiscal out first August $700,000 they the uncollec- 1969. He discovered ter for 1969 of *8 by August in tible contracts found Oberlander been carried in the statement. Natelli superior, reported acquiesced. them to his William Co- and The draft did “comfort letter” not lona, transaction, replaced closing su- who had Scansaroli as audit deter Interstate from pervisor joined Marketing decided, Natelli, suggestion when Scansaroli and Peat at the October, employee companies being in October. Later in to send the letter an to the other prepare acquired, require letter” Peat was asked to a “comfort which had failed to such a Marketing’s acquisition of in connection with “comfort letter” their contracts. Natelli Corporation, urged faith, proof good In- National to assure Interstate this at trial as of his judge fairly concern- terstate that no adverse information and the trial stated to the his period ing regard. the unaudited statements contention in that
319 roactive adjustments to Marketing’s per- Natelli in 1968 action of original year revenues and earnings could proper sales af- of unbilled booking mitting ly have been found to have been an inten period fiscal close of ter tional for very purpose of hiding a loss into a ear to convert sufficient amount lier errors.7 There was accounting evidence sound contrary to profit Natelli himself changed the the cost of footnote when particularly practice, its final form. by account ex- spent on time sales based was a mere period the fiscal écutives That the statement did uncollectibility, and in- guess. When reaudit of fiscal contain a formal large of these deed, the non-existence is not determinative. account 1968 1969, the was established receivables duty to correct the earlier fi ant has a severe Natelli to cause stood revelation nancial statement which he had audited liability. He had possible criticism and motive, upon his himself and which he had issued therefore, intentionally certificate, “that the when he discovers had to be the write-offs conceal figures report were annual sub made. stantially misleading,” false and and he tax item the deferred or not Whether has a chance to correct them. See Fisch credit, to a tax properly converted Kletz, (S.D.N. F.Supp. 266 183 er v. that “net- right to infer jury had a Y.1967) J.). (Tyler, also Gold v. See against or- extraordinary item ting” the Inc., (S.D.N.Y. F.Supp. DCL 399 1123 special in a the books earnings on dinary 1973) (Frankel, J.). The accountant circumstances, was, in the journal entry duty assert a public owes a not to tó conceal. by a desire motivated the next audit privilege of silence until motive, the background With this around in ed annual statement comes did what Natelli assess jury could being were companies due time. Since (2) the (1) the footnote regard to acquired by Marketing for its shares the Oberlander Eastern commitment that the period, had to know Natelli “bad” contracts. being used audited statement was 1968 continuously. A. The Footnote Honesty impelled appel- should have argument disclosure lants to in the footnote which disclose weak, applying was not material is since annotated their own audited statement against pooled earnings, write-offs for fiscal 1968that substantial write-offs explanation, without further conceals the end, taken, year had been after to re- prior effect of the write-offs on the re flect a year. simple loss for the A desire ported earnings principal compa right wrong perpe- that had been ny. oper It is the disclosure of the true by trated on the stockholders others ating results of now the false audited financial statement light, come to that was material. Mate should have dictated that course. The matter, riality objective anis not neces open failure to make disclosure could sarily limited own the accountant’s inadvertent, hardly been or subjective uncontrolled estimate of ma find, least could so Simon, teriality, 425 see United States were determining themselves involved in 1969), denied, 806 cert. F.2d accounting write-offs and their 90 S.Ct. L.Ed.2d U.S. event, treatment. The concealment of the ret- (1970). the court $1-5 million of were of 7. Natelli contends that the write-offs analyzed, sales about $900,000 Michaels, allegedly corrupt sales- been sales of written these, off. Of $700,000 fired, about man, Michaels had been Michaels; and that since sales of $200,- problem likely were of salesman, to recur. But the was not another (In Ganis. ad- dition, proved meeting a third at a on June Govemment salesman had accounted $213,000 9, 1969, present, sales, at which Natelli was the Con- not a dollar *9 yet which had produced showing billed). of the trailer charts that been cause he earnings figures the failed to would discover the invalidity of receivable, booked to accounts have to be “known be false in a mate- inasmuch as he had way” subjective rial not test. undertaken an audit with —a case, verification. In however, Na- B. The Eastern Commitment and the telli “knew” history the of post-period Earnings Nine-Months Statement bookings and the dismal consequences la- ter The Eastern discovered. contract was a Was he matter under a duty in deep these suspicion object because it was circumstances to substituted go or to beyond rapidly so the scope the Pontiac usual contract to an account- ant’s review objected, which Natelli and upon had insist and which some inde- pendent had, itself, produced been after the verification? end American In- though of the fiscal stitute period, dated Accountants, earlier. Certified Public It Statement was still another unbilled of Auditing commitment Standards No. produced by Marketing long 1—Codification of Auditing after the Standards and period. (1972), close of the fiscal Procedures spectacular Its 1 CCH AICPA appearance, as Professional 516.00, Natelli himself noted at Standards recog- § time, nizes replacement made its “if the public of the the. certified ac- countant Pontiac contract “weird.” concludes The Eastern the basis of facts known to only “commitment” was not him that substitu unaudited financial challenged tion for the statements with Pontiac “commit which may he become associated strangely ment” are enough close not in conformity with generally accepted amount to projected leave the earnings accounting principles, figures which proxy adequate for the include statement disclosure, relative ly should insist intact. . . only upon . logs appropriate time ” revision relating of a salesman . . . making (emphasis added). proposals the but no expendi record of means, We do not think this in terms “commitment,” tures on the Eastern no standards, professional the ac- having record of ever billed Eastern for may countant eyes shut his in reckless “sale,” scrap services on this and one disregard knowledge of his that highly of paper from Eastern other than the suspicious figures, to him known suddenly-produced Nevertheless, letter. suspicious, being were included the $500,000 it was booked as if than more earnings figures unaudited with which already of it had been earned. he was “associated” state- duty ment. no he had contends Natelli be- “commitment” Eastern verify the to duty is not as restricted auditor’s within statement the cause where, here, urge the “unaudited.” included it auditors, company, rather than con- duty figures, by issue as is evidenced trolled This raises an unaudited rejection Natelli’s the Pontiac con- in relation the CPA within accept contained tract as one he would not for the statement financial figures are subsequent audited financial statement where by supplied fig- extent where the some erroneous reviewed ground common previously It ures had been certified his auditors. Kletz, “associated’’ supra, firm. Cf. Fischer auditors object required F.Supp. (S.D.N.Y.1967). and were at be ma actually “knew” they reject argument insufficiency anything ordinary case in Natelli, terially pointed false. who could have out statement, au volving previous an unaudited error of his certification simply be- chargeable so, not be deliberately would failed to do our ditor all, suggestion explanation that convincing. 8. Natelli’s was “weird” is not Certain- complete replacement ly of Randell could find otherwise. contract, changing figures Pontiac without *10 being determining to This misses the thrust of the Govern- limited function unjustifiable manner the evidence was sufficient for ment’s claim. The whether unbilled jury. treating the United States v. of the commitments to submission Simon, upon illegal at We hold the audit bore the acts supra, F.2d objections the the 1969 proxy was. We discuss connected with that it (a) ways: in two it created a motive to charge to below. the accounting conceal made in the errors Natelli, points of to There are in favor audit; (b) the 1968 the 1968 audited sure, presented the be but these were to of part statement was the 1969 included, rejected. These with jury and was not therein statement and disclosed rejection counterbalance: his their wrong in the light to have the of been (with commitment substitution .Pontiac subsequent In view known write-offs. contract); of Eastern his discussion the conceal, motive to the established superior, of the footnote with his Leon find, properly could as we have (without to Otkiss full disclosure Otkiss seen, netting that the of the tax both factors); of relevant his all insistence against credit the subse- (See dissemination of the comfort letter quent subtracting the of write-offs from 6) (but his to note failure disclose pooled earnings in the footnote with- past huge write-offs of result- out explanation further were done in or- profit or nine months ing in no for 1968 der to true de- conceal the retroactive 1969). Marketing earnings crease for fis- cal 1968. II There some merit to is Scansaroli’s . Sufficiency of Evidence Scansaroli— point simply carrying was out that he respect with to The claim of Scansaroli judgments superior of his Natelli. evidence some- insufficiency of the higher au- defense of obedience to Judge Tyler As more difficult. what thority always has been troublesome. rested, “It is a after both sides noted yardstick There measure is no sure frankly I question, think close Scansaroli, responsibility except by criminal meas- Certainly as I see it. if I degree urement awareness on factfinder, were the I would more part partic- of a defendant that he is variety with his for a
troubled case act, ipating in a criminal in the absence reasons.” physical coercion such as a soldier might face. Here the motivation to contends there Scansaroli argu- conceal undermines Scansaroli’s prove insufficient evidence be implementing ment merely that he was (1) yond par a reasonable he doubt instructions, Natelli’s least with re- act with ticipated respect in a criminal spect to concealment of matters he (2) footnote or made his own ken. within accounting judgment permitting Market properly could think ing to include in sales certain contracts- specification found re- guilty him requisite with criminal in-progress lating him- to the footnote. Scansaroli enough We hold that there intent. journal entry self in Market- former, wrote but not evidence establish ing’s improperly netted the books which relating latter. For reasons to the earnings, tax with the true effect credit charge, will form of the we reverse and being pointed never out in the financial new remand for a trial. This, background statement. A. Footnote implication preparation Scansaroli’s statement, the 1968 could be found argument essence of Scansaroli’s have been motivated intent to conceal respect on his conviction with earnings. the 1968 overstatement of footnote is he was really false con- during victed for his participated conduct Scansaroli decision audit, for which was not foot- indicted. to subtract in the *11 $678,000
note written-off tract, of adjustment his mere figures of the figures later-acquired sales from the to reflect it under orders was not a mat- pooled companies instead of from its ter for his seen, discretion. As we have figures, own without further disclosure. duty Natelli bore a in the circumstances Even if not write Scansaroli did to be suspicious of the Eastern commit- footnote, misleading supplied he ment pursue and to the matter further. computations though and subtractions may Scansaroli suspicious, also have been was conscious of the true facts. rejection but of the Eastern contract was not sphere within his responsibili- of B. The Eastern Commitment ty. Absent duty, such he cannot be held to have disregard acted in reckless Having concluded that there was suf- facts. appel- to convict both ficient evidence specification, we the footnote lants on earnings state- turn to the nine-months Ill which, turn, items, included two ment in Appellants contend that the trial and the doubtful the Eastern contract erroneously court instructed on commitments discovered Oberlander. knowledge. the issue of We do not put ignore the decision to aside Ob- agree. questioning erlander’s of certain commit- appellants’ argument, The thrust of that, ground ments on the alone, if it stood it, judge we understand is that the evidence would been too appellant could be that each support proof beyond equivocal to a rea- convicted “if to discover the failure [his] that this was not a mere sonable doubt [Marketing’s] financial state falsity of judgment. error of result of some form of ments was the item, respect major With to the not read the gross negligence.” We do commitment, Eastern we think Scansaro- charge charge way. It followed position
li from stands in a different Judge which was sustained Mansfield superior. was his of Natelli. Natelli Simon, supra9 in United States v. judgment He the man to make object whether or not to last-min- It was a charge balanced which made “commitment” in ute inclusion of a new it clear that negligence or mistake would is in- the nine-months statement. There be insufficient guilty constitute en- sufficient evidence Scansaroli knowledge. See United Bright, States v. gaged any about conversations 1975). F.2d 584 Judge Tyler the Pandick Eastern commitment at also carefully instructed the participant he was a Press or that faith, “good say, is to honest authenticity. its Natelli in cheek on belief in the truth data set forth hierarchy accounting Since in the statement, footnote entries in the de- responsibility firm it was not his complete would a constitute book the Eastern con- hand, cide whether to here.” defense On the other “Con- Tyler Judge charged, pertinent part, part given defendant, of a the law en- you follows: titles to infer therefrom that that de- wilfully knowingly fendant filed or negligence “While I have stated that or caused to be filed false financial information guilty knowledge mistake do not constitute of a material nature with the SEC. intent, nevertheless, gentlemen, or ladies and inference, course, But such an must de- you determining are entitled to consider pend upon weight credibility extend- whether defendant acted with such intent ed to ent, conduct, evidence of reckless and indiffer- deliberately eyes if he closed his to the obvi- any. if certainly ous or to the facts that would be repeat: Ordinary simple negligence I or or observed or ascertained in the course of his sup- mistake alone would be insufficient accounting recklessly work or whether he port finding guilty knowledge or wilful- stated as matters of facts which he knew he ness or intent.” ignorant. you deliberate indif- If reckless find such disregard falsity ference or for truth or gress equally could not have Kelly, intended to check it with Eastern contract holding house, that men themselves out the account executive step seeking members of these ancient next professions to take the verifica- Eastern, and accounting] despite his should be from obvious [law able to tion escape liability plea criminal that it could be booked as a true on a doubt ig they respect norance when have shut And with eyes their commitment. footnote, language what was plainly to be we think seen or have represented quite pertinent, knowledge they court Simon knew they *12 possess.” reasonably did not have won- jury “The could United States v. Ben 854, really jamin, (2 Cir.), 863 cert. accountants who were 328 F.2d dered how denied the truth could have con- seeking sub nom. to tell Howard v. United States, 953, designed 377 a footnote so well to 1631, U.S. 84 structed S.Ct. 12 L.Ed.2d (1964); shocking 497 facts.” 425 F.2d at and see conceal United Brawer, States v. 117, (2 482 F.2d 128-29 1973). Cir. Appellants argue strenuously, how- ever, Simon, One of supra, the bases that v. for attack on United States charge charging is that in “reckless dis- involved an audited statement while the regard for the truth falsity” or or here “clos- nine months statement involved ing eyes,” his statement, there must also that, be an in- was an unaudited struction like “and with a pur- hence, conscious the duties of here were pose to learning avoid the truth.” from those different Si- enunciated corollary They urge mon. as a that the favored we have true It is instruct District Court failed to cases, statement in false charge this difference, his failure to Sarrantos, F.2d v. United States reversible error. do so was noting that 1972), while (2 Cir. 880-82 point appeal true that It is on essentially the same “mean phrases both judge if the been eliminated might have 882; involving cases and in at thing,” id. charged on the differences in the stolen, Unit goods knowledge that But in the circumstances he abstract. Brawer, F.2d at supra, 482 v. ed States required to do so. As we have was not seen, v. 1973); States United (2 128-29 I, duty Natelli, supra, Point Cir.), cert. Jacobs, F.2d facts, this set of was not so differ- given 821, 94 denied, S.Ct. 414 U.S. duty an upon from the accountant ent dual (1973). The instruction L.Ed.2d sharply require as to an audit different however, necessarily required, is not duty charge of that in the treatment specific a is under defendant when the jury. facts, the facts the true discover duty to agree Judge with Tyler noth and he does suspect, are tendered ing they when he v. In United States them. correct “knew” find Natelli of the falsely could at this supra, 328 F.2d Benjamin, accountant, fact if he acted in material “reckless dis said, an regarding court deliberately or closed by regard” eyes his its burden meet can Government “the The issue on deliberately appeal the obvious. a defendant proving generally an auditor is duty to not what under had a facts he eyes to his closed Simon, respect do with to an duty to unaudited States And United see.” statement, but what these the conviction defendants affirmed supra, seen, duty to do in these had a unusual sus accountant, we have as suspicious highly language circumstances. very Cf. charge tained Simon, supra, United States v. 425 F.2d tracked. Judge Tyler proper 806-07. Nor was a charge re not case are in each the facts While quested. appeal same, think this we precisely duly Simon, requested supra, supplemental because analogous quite charge duty enough respect Natelli’s with suspicious was Natelli was statement unaudited either one of these two respects that is read: It denied.
properly
support
sufficient to
a conviction.”
only responsibility
“The defendants’
As we
seen,
have
there were
specifi
two
state-
statement
to this
[unaudited
cations of falsity in
II,
Count
namely,
months
the nine
earnings for
ment
the footnote and the earnings statement.
to be satis-
was
May
1969]
ended
The defense requested that the court ad
knew, the
that,
they
far
fied
vise
that,
the jury
in order
convict,
no misstatement
contained
they must be unanimous on which, if
added).
(emphasis
facts.”
of material
either, of the
specifications
two
had been
proven
correct,
materially
charge
beyond
was
false
requested
This
reason
able
doubt.10
request
This
an unaudited
refused,
even on
and and the
“associated”
court
did not charge
which Natelli
accordingly.
suspicious circumstanc-
there were
where
es,
Appellants now contend that
further,
as we
went
duty
his
charge given
jury free
left the
to convict
correctly charged,
court
As the
seen.
if
six of them believed the
*13
acted in “reck-
if he
culpable
Natelli
materially
to be
false in one
if he “de-
facts or
disregard” of the
less
respect but the other six believed the
eyes.”
liberately closed his
materially
statement to be
false in
sure,
rule,
that
expound
We
no
respect. Appellants
the other
conclude
reviewing an unaudited
in
an accountant
that even if the evidence was sufficient
bound, without
is
company statement
to warrant the submission of each of the
apply
and to
more,
verification
to seek
allegedly
jury,
false statements to the
lay no extra
auditing procedures.
stand,
the conviction still cannot
since it
of ac-
activities
the normal
burden on
jury
cannot be determined whether the
the role of
countants,
we assume
nor do
unanimously agree
did in fact
gle specification
on a sin
Board. We
Principles
Accounting
falsity. Appellants
fairly
as
only with such deviations
deal
authority directly
point.
cite no
in
The
understanding
the common
come within
government
authority
cites no direct
bring
jurors
conduct
of dishonest
circuit,
this
but cites two cases in the
particular
applied
into the box
Circuit,
Ninth
United
States
v.
stat-
particular
prohibited
conduct
1076,
Friedman,
1083-84,
445 F.2d
cert.
ute.
Jacobs,
denied sub nom. United States v.
in his in-
Judge Tyler
for
It was not
958,
326,
404
92
U.S.
S.Ct.
326
Exchange
Act,
the Securities
27 of
was not the district in
Section
Statements
78aa,
that
provides
made,
Act,
§
U.S.C.
which the false statement was
15
violations
proceedings
only the district where the affidavit had
criminal
where
a district
in
brought
filed,
to be
the District of Columbia.
are
to be
Act
constituting the
decision,
or transaction
the
we
act
The rationale of
read
“any
contend
Appellants
it,
proscribes
occurred.”
was that section 1001
false
violation
the
here was
act
only critical
within the
statements “in
matter
that
containing
jurisdiction
any department
agency
of
or
filing of
of
the District
statements
and that the Na
false
of
United States”
to the
delivered
it was
where
Relations Board
tional Labor
had no
Columbia
appel
where
is also
Commission,
9(h)
“jurisdiction” under
such
Section
offices
principal
Marketing’s
Act,
the National Labor Relations
lants’
contends
government
amended,15
The
until the
af
were.
non-Communist
violation
charge of
required by
pre
venue
fidavit
the statute as a
there
Act, 15 U.S.C.
1934
32 of
investigation
condition to NLRB
ac
Section
of New
District
78ff,12 the
Southern
tually
Washington,
D. C.16
filed
§
asserts
government
well.
York
majority opinion
in Travis was
false footnote
proved
it has
careful to note that
discrete,
are
decisions
“[t]he
nine-months
false
looking
each
nature
Manhattan,
prepared
charged.”
635,
the crime
364
81
U.S.
suffices.13
at 361. And this court
S.Ct.
has anno
motion, the
pre-trial
denying
by stating
tated Travis
that “the deci
gravamen
held
Court
surely
sion
was meant
District
to be confined to
was the
32
section
under
violation
facts based on the unusual
statute
statement,
the false
making of
Slutsky,
involved.”
United
See
States v.
“required
the statute
832,
(2
1973),
the words
487 F.2d
filing,
839 n.8 Cir.
cert.
category
describing a
merely
denied,
filed”
U.S.
S.Ct.
the essence
than
rather
(1974).
L.Ed.2d 287
documents
See also United
sup
government,
Ruehrup,
offense.
States v.
333 F.2d
provision
venue
general
denied,
Cir.),
*15
States,
435,
Meat Co. v. United
316 F.2d
27 of
retort
that Section
Appellants
(10 Cir.),
denied,
820,
440
cert.
375 U.S.
con-
apart from the
1934 Act stands
the
57,
(1963).
84 S.Ct.
ing pursuant
grant
to
our
so as
en-
of the trial court
to
attention
original
we had reversed
appeal
theOn
correction before ver-
able it to consider
and remanded for
appellant’s conviction
appellate review
dict. Otherwise
would
a
trial.1
new
game
hindsight.
become a
violation
charging
single count
I
he was
upon which
78ff(a)
§
15 U.S.C.
aof
false
making
involved
convicted
recognize, nevertheless,
We
two
specified
even under the
Mascuch-Goldstein line
the “footnote”
therein:
false items
cases,
proper request
a
trial court
statement.”
the “nine-months
See,
g.,
e.
point.
would save the
United
evi-
was insufficient
there
We held
Adcock,
1337,
v.
447 F.2d
1338-39
States
the latter
on
Scansaroli
convict
dence
denied,
939,
(2 Cir.),
92
cert.
404 U.S.
opinion, 527
main
See
specification.
278,
(1971);2
329
purposes
prosecu-
Astolas,
275,
pleading
(2
v.
487 F.2d
280
States
denied,
955,
right.
1973),
is
cert.
94 tion
Cir.
U.S.
(1974).
L.Ed.2d 305
S.Ct.
government
argued
has
Assuming,
already
as we have
in our
original ruling
from this that
stands,
if our
original opinion, that reversal of the con-
compel
it
government
would
required
viction of Scansaroli is
if coun-
case,
simply
false statement
out
below,
adequately
point
sel
raised the
we
caution,
allege
each incident consti
question
turn to the
of how much must
tuting
committing
the “means” of
by
protect
counsel
be done
defense
separate
offense in a
count or risk the
the record.
reversal of a conviction based on after
thoughts
appellate
review. We be
"II
might
prac
lieve that this
be the better
The Federal Rules of Criminal Proce-
like this where the incidents
tice in cases
light
cast no
on the
dure
matter. Rule
charged as in violation of a statute are
29(a) simply provides for a motion for
hand,
discrete.
the other
On
when that
judgment
acquittal
“of one or more
done, appellate
is
gen
not
review is not
charged in the
offenses
indictment or in-
erally
particular
available when the
in
formation after the evidence on either
sufficiency has
way
not in some
been
side is closed if the evidence is insuffi-
called to the attention of the
judge.
trial
cient
sustain
conviction of such of-
Yates,
not
supra,
We do
believe that
provision
fense or
No
offenses.”
is made
spite
language,
of its broad
dictates a
for a motion to withdraw one of two
contrary result.
Turner v.
Cf.
United
specifications
single
in a
count on the
n.42,
States,
420 &
396 U.S.
ground
insufficiency.
may
There
(1970).
S.Ct.
the cases questions, similar constitutional involved we have suffi- concluded we have reasoning in adopt the cient discretion appeal. Anderson lay purport we do
Accordingly, precise govern rule a firm
down appealability required below action more than contains single count
where Indeed, we could specification. one empaneling of without hardly do so simply, on We decide banc court. an en consideration, appellant in
further satisfy the enough below did this case rule. the Mascuch-Goldstein
spirit of opinion on our accordingly withdraw and reinstate petition government’s as to Scansaroli opinion original our Love, v. respects. Cf. United States all 1973). (5 Cir.
472 F.2d America, STATES of
UNITED
Plaintiff-Appellant, OGILVIE,
Laurie Ann
Defendant-Appellee. 74-3487.
No. Mueller, Asst. U. Atty. (ar- S. James of Appeals, United States Court gued), Tucson, Ariz., for plaintiff-appel- Ninth Circuit. lant. Sept. Mark B. (argued), Raven Tucson, Ariz., for defendant-appellee.
OPINION
MOORE,*
DUNIWAY
Before
WRIGHT,
Judges.
Circuit
*
Moore,
The Honorable Leonard P.
Judge
Senior United States Circuit
Circuit,
for the Second
sitting by designation.
notes
cert.
port,
U.S.
S.Ct.
offenses.14
continuing
(1964); Imperial