But My Frivvin' Financial Files Failed To Fool The Feds!

[The Observer]

UNITED STATES OF AMERICA
v.
DAVID MOLESKI,
Appellant

Release Date: JANUARY 20, 2016


NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

ON APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEW JERSEY

(Crim. Action No. 3-12-cr-00811-001)
District Judge: Honorable Freda L. Wolfson

Submitted Under Third Circuit L.A.R. 34.1(a)
January 19, 2016

Before: JORDAN, HARDIMAN, and GREENAWAY, JR., Circuit Judges.

(Filed: January 20, 2016)

OPINION/*/

JORDAN, Circuit Judge.

David Moleski appeals twelve of the nineteen counts of his conviction following a jury trial in the United States District Court for the District of New Jersey. The prosecution was the result of a fraud scheme that targeted the United States Department of the Treasury ("Treasury"), the Internal Revenue Service ("IRS"), the Treasury Inspector General for Tax Administration ("TIGTA"), the State of New Jersey, private creditors, and a credit agency. We will affirm.

I. Background 1

From February 2008 to June 2009, Moleski mailed a number of fake financial instruments and letters to the Treasury, the IRS, the TIGTA, and private parties, in an attempt to discharge tax and consumer debts. First, in early 2008, he sent the Treasury two bogus documents titled "Private Offset Discharging and Indemnity Bond" and "Bonded Registered Bill of Exchange in Accord with HJR-192," by which he purported to open accounts for his personal use. (J.A. at 791, 796.) Over the next year, he sent through the mail additional fake financial instruments styled as "secured promissory notes" to the Treasury, the TIGTA, and several private banks, attempting to draw upon the nonexistent Treasury accounts to satisfy his obligations. Those mailings were lengthy, complex, and rife with arcane legal language. Moleski also sent letters to a credit reporting agency, claiming that the instruments he sent to the Treasury and his creditors had eliminated his debts. Based on the foregoing, on January 31, 2013, a nineteen-count superseding indictment charged Moleski with, inter alia, 2 twelve counts of mail fraud in violation of 18 U.S.C. section 1341 and 2.

At trial, the government's evidence included the fraudulent documents, as well as several witnesses' testimony about the documents. The government's financial instruments expert, William Kerr, testified that, even though Moleski "ha[d] no authority to obligate the Treasury to open an account for him," (J.A. at 263), the instruments he mailed contained "criteria of . . . legitimate financial instrument[s]," (J.A. at 262), and were of "high quality" (J.A. at 267.) He further testified that he "spent some hours going over them because they g[a]ve the appearance of being genuine documents. . . ." (J.A. at 356.)

The government also presented witnesses to testify about how the recipients of Moleski's mailings would process them. Juliette Anne Anderson, a former quality and compliance manager for Advanta Bank, agreed that, when mailings such as Moleski's arrived at the bank, an employee would "try to determine whether [they] had any value." (J.A. at 228.) Similarly, Shauna Henline of the IRS Frivolous Return Program testified that it was her office's procedure to review each document received to make sure it was "truly frivolous" because even documents with "frivolous rhetoric" sometimes "contained a legitimate request." (J.A. at 549-50.)

After the parties rested, the Court properly instructed the jury that, in order to convict Moleski of mail fraud, the jury had to find that the government had proven beyond a reasonable doubt that he "knowingly devised a scheme to defraud or to obtain money or property by materially false or fraudulent pretenses, representations or promises; . . . that [he] acted with the intent to defraud; and . . . that in advancing, furthering, or carrying out the scheme, [he] used the mails or caused the mails to be used." (J.A. at 675.) The Court went on to instruct the jury that "[t]he false or fraudulent representation must relate to a material fact or matter" and, further, that "[a] material fact is one which would reasonably be expected to be of concern to a reasonable and prudent person in relying upon the representation or statement in making a decision" or "one that a reasonable person might have considered important in making his or her decision." (J.A. at 677.) Finally, the Court instructed the jury that "it is not necessary that the government prove that . . . Moleski actually realized any gain from the scheme or that any intended victim actually suffered any loss." (J.A. at 678.)

The jury found Moleski guilty of all nineteen counts, and the Court sentenced him to four and a half years' imprisonment and five years of supervised release. This timely appeal followed.

II. Discussion 3

On appeal, Moleski challenges his mail fraud convictions on Counts One through Twelve, arguing that the government's evidence of materiality was insufficient for the jury to find him guilty. A challenge to the sufficiency of evidence supporting a conviction places on the defendant a burden that is "extremely high." United States v. Wright, 665 F.3d 560, 567 (3d Cir. 2012) (internal quotation marks omitted). The verdict will stand "so long as there is substantial evidence that, when viewed in the light most favorable to the government, would allow a rational trier of fact to convict." Id. (internal quotations marks omitted). Thus, in a prosecution for mail fraud, we will affirm when the government was able to provide substantial evidence at trial that the defendant participated in "a scheme or artifice to defraud by means of a materially false or fraudulent pretense . . . ." United States v. Bryant, 655 F.3d 232, 248 (3d Cir. 2011).

Moleski makes two arguments to challenge the sufficiency of the government's evidence of materiality. He first contends that "[t]he government presented insufficient evidence of 'materiality'. . ., given that no one was deceived . . . by [his] representations. . . ." (Opening Br. at 22.) Proving successful deception, however, is not required to demonstrate materiality. Neder v. United States, 527 U.S. 1, 25 (1999). Requiring the government to show successful deception "would clearly be inconsistent" with the mail fraud statute, because the statute "prohibit[s] the 'scheme to defraud,' rather than the completed fraud. . . ." Id. Thus, in a fraud prosecution, "it is not a defense that the intended victim was too smart to be taken in." United States v. Coffman, 94 F.3d 330, 333 (7th Cir. 1996). "To hold otherwise would lead to the illogical result that the legality of a defendant's conduct would depend on his fortuitous choice of a gullible victim." United States v. Pollack, 534 F.2d 964, 971 (D.C. Cir. 1976); cf. United States v. Coyle, 63 F.3d 1239, 1244 (3d Cir. 1995) ("The negligence of the victim in failing to discover a fraudulent scheme is not a defense to criminal conduct.").

Second, Moleski argues that the government presented insufficient evidence of materiality because, not only was no one actually deceived, "no one . . . could have been" deceived by his representations. (Opening Br. at 22.) Moleski is correct that materiality requires a showing that the misrepresentation or omission in question "has a natural tendency to influence, or is capable of influencing, the decision of the decision-making body to which it was addressed." Neder, 527 U.S at 16 (internal quotation marks and brackets omitted). 4 Thus, "[t]here may be attempts so feeble . . . that the attempter is entitled to be acquitted, as a harmless fool." Coffman, 94 F.3d at 333-34.

Moleski's scheme, however, was not so feeble that it could not possibly have harmed anyone. Even if the demands in his documents were ultimately baseless, by obscuring them in obtuse legalese he could have confused the busy employees of financial institutions and the government who had to review them. The government presented substantial evidence from which a reasonable jury could (and apparently did) conclude that Moleski's misrepresentations had the tendency or ability to influence decisionmakers at the target organizations to disburse funds, clear debts, recognize debts as repaid, or take other action. The jury had the opportunity to examine Moleski's documents, which were long, complex, and official-looking. A documents expert testified that Moleski's instruments bore marks of legitimacy and required careful examination to understand their worthlessness. Finally, the jury heard from the documents' recipients, who likewise testified that they had to expend time and energy in determining the documents' validity and what course of action to take with them. Considering this evidence in the light most favorable to the prosecution, the jury could rationally determine that the documents could deceive their recipients. There was thus sufficient evidence of materiality to find Moleski guilty of the mail fraud charges he has appealed.

III. Conclusion

For the foregoing reasons, we will affirm.

//*//

This disposition is not an opinion of the full Court and, pursuant to I.O.P. 5.7, does not constitute binding precedent.

FOOTNOTES:

/1/ Moleski only appeals his mail fraud convictions for Counts One through Twelve, so we will review only the facts relating to those counts.

/2/ The indictment also charged Moleski with two additional counts of mail fraud, one count of wire fraud (in violation of 18 U.S.C. section 1343 and 2), one count of "corruptly endeavoring to impair and impede the due administration of the Internal Revenue Code" (in violation of 26 U.S.C. section 7212(a)), and three counts of filing "false, fictitious, and fraudulent claims" with the IRS (in violation of 18 U.S.C. section 287 and 2). As already noted, supra note 1, Moleski does not appeal his conviction on those charges.

/3/ The District Court had jurisdiction under 18 U.S.C. section 3231. We have appellate jurisdiction pursuant to 28 U.S.C. section 1291. The parties disagree as to whether plain error or plenary review applies to this appeal. We conclude that the convictions stand under either standard, so we will frame our analysis in terms of plenary review.

/4/ The Neder Court also endorsed the Restatement's clarification that a matter is material if:

(a) a reasonable man would attach importance to its
existence or nonexistence in determining his choice
of action in the transaction in question; or (b)
the maker of the representation knows or has reason
to know that its recipient regards or is likely to
regard the matter as important in determining his
choice of action, although a reasonable man would
not so regard it."

/5/ (quoting Restatement (Second) of Torts section 538 (1977)) (internal quotation marks omitted).

[Famspear]

.....Moleski ..... first contends that "[t]he government presented insufficient evidence of 'materiality'. . ., given that no one was deceived . . . by [his] representations. . . ."

[ . . . ]

Second, Moleski argues that the government presented insufficient evidence of materiality because, not only was no one actually deceived, "no one . . . could have been" deceived by his representations.......

We've seen this before. I cannot remember seeing a case where these arguments have worked. There might be such a case somewhere......

[Dr. Caligari]

We've seen this before. I cannot remember seeing a case where these arguments have worked. There might be such a case somewhere......

I seem to recall a case (but don't have the time or inclination to hunt for it) in which a TP claimed 3 billion dependents on his tax return, and a court said that it was immaterial because no one could have possibly believed it. But I may be remembering that wrong.

[The Observer]

Second, Moleski argues that the government presented insufficient evidence of materiality because, not only was no one actually deceived, "no one . . . could have been" deceived by his representations.......

Well, someone was deceived - and it was Moleski, because he obviously thought this stuff was going to work when he sent it in.

[fortinbras]

I seem to recall a case (but don't have the time or inclination to hunt for it) in which a TP claimed 3 billion dependents on his tax return, and a court said that it was immaterial because no one could have possibly believed it. But I may be remembering that wrong.

I don't know that case specifically, but the IRS instructs employers that if the employee fills out a W-2, claiming dependents and exemptions which appear fictional or dubious, the employer is to MAXIMIZE the payroll deductions (i.e. as if there were zero dependents & exemptions), and then the employee can prove they exist when he applies for a tax refund.

[.]

(...) if the employee fills out a W-2 (...)

Hmm. I'd guess that you meant W-4. Employers complete W-2s and provide copies to employees.

But, you're quite right, put bogus stuff on a W-4 and refuse to correct it as an employee and you get zero anything and maximum withholding, that's the clear instruction to employers. Sort it out with the IRS later, it ain't my problem as an employer.

Some employers have probably caused unnecessary problems for themselves by not being willing to put their foot down and flat-out tell the moron TP employee to complete an accurate W-4.

(...) then the employee can prove they exist when he applies for a tax refund.

More like when he/she files his/her return, resulting in an amount due or to be refunded.

I suppose an amount to be refunded could be considered an "application" for a refund, but I've always considered it to be just the amount that I overpaid and which is due to me, based on the accurate return I filed to the best of my knowledge under oath, I'm not some supplicant looking for approval from some bureaucrat.

Unless the IRS has some good reason to believe the amount is incorrect they're gonna pay it. If there are any reasons to argue about it later, then we'll do that.

[The Observer]

Internal Revenue Manual 5.19.11.1 (11-01-2008)
Withholding Compliance Program

The mission of the Withholding Compliance program (WHC) is to ensure taxpayers who have serious under-withholding problems are brought into compliance with federal income tax withholding requirements. The program uses Form W-2, Wage and Tax Statement, information to identify taxpayers with insufficient withholding.

The goal is to correct withholding to ensure that taxpayers have enough income tax withheld to meet their withholding tax obligations.

5.19.11.1.1 (03-15-2012)
Authority Under the Internal Revenue Code (IRC) and Regulations

Internal Revenue Code (IRC) Section 3402 and IRC Section 3403 provide the legal authority for the withholding of federal income tax from wages and other forms of income. IRC Section 3402 specifies the general form and content of withholding allowance certificates and outlines the basis for claiming withholding allowances or exemption from withholding.

Regulations in 26 CFR Part 31, Employment Taxes and Collection of Income Tax at Source, provide guidance for implementation of IRC Section 3402.

Section 31.3402(f)(2)–1(a) requires each employee to furnish his or her employer with a signed withholding exemption certificate on or before starting employment. The maximum number of withholding allowances to which an employee is entitled depends upon the following:

Marital status

Filing status

Number of dependents

Number of allowances claimed by a spouse (if any) on a Form W-4

Estimated itemized deductions, tax credits, and certain other deductions from income

The requirement for employers to routinely submit copies of questionable Form W-4 , Employee's Withholding Allowance Certificate to the IRS has been eliminated. Regulations, as set forth in Section 31.3402(f)(2)–1(g), require employers to submit copies of any currently effective withholding exemption certificates only if directed to do so in a written notice to the employer or if directed to do so under any published guidance.

An employer must honor a valid withholding allowance certificate furnished by an employee until the Service provides the employer with written notice to disregard it (a lock-in letter). The IRS may issue such a notice after it determines that an employee's withholding claim is unjustified based on IRS records without first obtaining a copy of the Form W-4 from the employer.

The employer is required to withhold at the status and number of allowances specified in our notice. However, if the status and allowances claimed on the employee's current Form W-4 or a new Form W-4 will result in MORE income tax withholding than at the status and allowances specified in our notice, the employer must honor the Form W-4.

If an employee disagrees with our determination, he or she must contact the Withholding Compliance Unit and provide information supporting a change to the status and allowances specified in our notice.

Section 31.3402(m)–1 of the Employment Tax Regulations specifies items used to compute withholding allowances. Estimated amounts of deductions, losses, and credits used to compute withholding allowances may not be more than:

The amount claimed on the prior year tax return (or, if not yet filed, the tax return for the preceding taxable year) which the employee reasonably expects to show on the current year tax return, plus

Additional amounts that are demonstrably attributable to identifiable events.

An employee may claim exempt from withholding by furnishing the employer with a valid exempt Form W-4 certifying that he/she:

Had no tax liability for the preceding taxable year, and

Expects no tax liability for the current taxable year.

Exempt W-4 forms , generally expire on February 15th of the year after they were furnished by the employee. If an employee fails to furnish a new W–4, the employer is required to withhold as if no valid W–4 was in effect, "single" status with "zero" withholding allowances. If, however, a prior Form W-4 is in effect for the employee, the employer must continue to withhold based on the prior Form W-4. Refer to Publication 15, (Circular E), Employer's Tax Guide, for additional guidance.

IRC Section 6682 and the related tax regulations allow the assessment of a $500 civil penalty on an individual for furnishing a false W–4 if:

The statement made on the Form W-4 results in less income tax withheld than would have been withheld if the Form W-4 had been correctly completed, and

There was no reasonable basis for such a statement at the time that the statement was made.

IRC Section 3403 makes an employer liable for tax imposed under IRC Section 3402 and the related tax regulations:

The employer is liable for the appropriate amount of withholding whether or not it is actually deducted from the employee’s pay. This liability includes tax computed according to the withholding instructions we give the employer in a lock-in letter.

Assessments under IRC Section 3403 are made by Employment tax examiners in the Technical Support function and by Revenue Agents in Examination.