Currently pending before the Court is the Motion of Defendant Vincent J. Fumo, and the Joinder of Defendant Ruth Arnao, for Judgments of Acquittal or a New Trial. For the reasons set forth below, the Motion is denied in its entirety as to both Defendants.
On February 6, 2007, the Government filed a superseding indictment ("the Indictment"), which contained 141 counts charging Defendants Vincent J. Fumo, Ruth Arnao, Leonard Luchko, and Mark Eister in connection with five areas of wrongdoing: (1) fraud and conspiracy to defraud the Pennsylvania Senate; (2) fraud and conspiracy to defraud Citizens Alliance for Better Neighborhoods ("Citizens Alliance"); (3) conspiracy to defraud the United States Internal Revenue Service ("IRS"); (4) fraud related to the Independence Seaport Museum ("ISM"); and (4) obstruction of justice and conspiracy to obstruct justice. Defendants Luchko and Eister pled guilty, leaving only Defendants Fumo and Arnao to stand trial. The trial commenced on October 22, 2008, and lasted approximately five months. On March 16, 2009, a jury found Fumo guilty of 137 of the original 139 counts against him, and Defendant Arnao guilty of all forty-five counts against her.
The present Motion by Defendant Fumo, and joined by Defendant Arnao, comes before the Court on the heels of those convictions and seeks both: (1) a judgment of acquittal, on the basis of sufficiency of the evidence, as to Counts 1 to 108; and (2) a new trial on eight grounds challenging closing arguments, jury instructions, evidentiary rulings, and other Court decisions. Defendants' legal argument setting forth the basis for these claims encompasses a mere fourteen pages. Notwithstanding the cursory nature of the arguments, with their virtually non-existent citations to the record or legal authority, the Court has carefully considered each claim, together with the Government's Response, under the pertinent jurisprudence as well as the standard of review, set forth below.
A. Motion for Judgment of Acquittal
Federal Rule of Criminal Procedure 29(a) provides, in pertinent part: "[t]he court on motion of a defendant or of its own motion shall order the entry of judgment of acquittal . . . if the evidence is insufficient to sustain a conviction of such offense or offenses." FED. R. CRIM. P. 29(a). A motion for judgment of acquittal under Rule 29 may only be granted where the evidence is insufficient to sustain the conviction. United States v. Gonzales, 918 F.2d 1129, 1132 (3d Cir. 1990). The court must therefore inquire whether the Government has adduced "substantial evidence to support the jury's guilty verdict."United States v. Wexler, 838 F.2d 88, 90 (3d Cir. 1988).
The burden on the moving defendant, however, is substantial. To deny such a motion, the district court need only determine that any rational trier of fact could have found proof of guilt beyond a reasonable doubt based upon the available evidence presented. United States v. Smith, 294 F.3d 473, 476-77 (3d Cir. 2002). In deciding whether a jury verdict rests on legally sufficient evidence, the court is not permitted to weigh the evidence or determine the credibility of witnesses. "[A]ll issues of credibility within the province of the jury must be viewed in the light most favorable to the government." Gonzales, 918 F.2d at 1132. "Courts must be ever vigilant in the context of Fed. R. Crim. P. 29 not to usurp the role of the jury by weighing credibility and assigning weight to the evidence, or by substituting its judgment for that of the jury." United States v. Brodie, 403 F.3d 123, 133 (3d Cir. 2005). Further, to sustain the jury's verdict, "the evidence does not need to be inconsistent with every conclusion save that of guilt." Gonzales, 918 F.2d at 1132. A finding of insufficient evidence to convict should be confined to cases where the prosecution's failure is clear. Id. Viewing the evidence in its entirety and in the light most favorable to the government, a judgment of acquittal is warranted only if no reasonable juror could accept the evidence as sufficient to support the conclusion of the defendant's guilt beyond a reasonable doubt. United States v. Coleman, 811 F.2d 804, 807 (3d Cir. 1987).
Federal Rule of Criminal Procedure 33(a) provides, in pertinent part: "Upon the defendant's motion, the court may vacate any judgment and grant a new trial if the interest of justice so requires." FED. R. CRIM. P. 33(a). "Whether to grant a Rule 33 motion lies within the district court's sound discretion." United States v. Pellitory, Crim. A. No. 97-383, 1998 WL 634921, at *4 (E.D. Pa. Sept. 16, 1998) (citing United States v. Maestro, 570 F. Supp. 1388, 1390 (E.D. Pa. 1983)).
As a general rule, the court may grant a Rule 33 motion on one of two bases. First, the court may grant the motion if, after weighing the evidence, it determines that there has been a miscarriage of justice" -- that is, an innocent person has been convicted. United States v. Brennan, 326 F.3d 176, 188 (3d Cir. 2003) (quotations omitted); see also United States v. Telingo, Crim. A. No. 99-525, 2001 WL 474407, at *1 (E.D. Pa. April 30, 2001). Unlike a motion for judgment of acquittal, a motion for new trial based upon the weight of the evidence allows the court to weigh the evidence and consider the credibility of witnesses. SeeUnited States v. Smith, 619 F. Supp. 1441, 1443 (M.D. Pa. 1985). "Motions for a new trial based on the weight of the evidence [however] are not favored. Such motions are to be granted sparingly and only in exceptional cases." Brennan, 326 F.3d at 188 (quoting Gov't of V.I. v. Derricks, 810 F.2d 50, 55 (3d Cir. 1987)).
Second, the court must grant a new trial if errors occurred during trial and it is reasonably possible that such errors or a combination of errors had a substantial influence on the verdict. United States v. Thornton, 1 F.3d 149, 156 (3d Cir. 1993). The defendant bears the burden of proving that a new trial ought to be granted. United States v. Sass, 59 F.3d 341, 350 (2d Cir.1995); 3 CHARLES ALAN WRIGHT & ARTHURR. MILLER, FEDERAL PRACTICE AND PROCEDURE: CRIMINAL 2D § 551 (1982). "The decision whether to grant a motion for a new trial under Rule 33 is committed to the sound discretion of the trial court." United States v. Daniels, Crim. A. No. 95-369, 1996 WL 311444, at *4 (E.D. Pa. June 6, 1996).
III. MOTION FOR JUDGMENT OF ACQUITTAL
A. Scheme to Defraud the Pennsylvania Senate (Defendant Fumo)
Defendant Fumo's first challenge to his conviction asserts that the evidence presented at trial was insufficient for any reasonable jury to convict him on the alleged scheme to defraud the Pennsylvania Senate. Specifically, Counts one to sixty-four of the Indictment charge mail and wire fraud on the Pennsylvania Senate. The mail fraud statute, 18 U.S.C. § 1341, provides:
Whoever, having devised or intending to devise any scheme or artifice to defraud, or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises . . . for the purpose of executing such scheme or artifice or attempting so to do, places in any post office or authorized depository for mail matter, any matter or thing whatever to be sent or delivered by the Postal Service, or deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier . . . or knowingly causes to be delivered by mail or such carrier according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing, shall be fined under this title or imprisoned not more than 20 years or both.
18 U.S.C. § 1343. Similarly, the wire fraud statue, 18 U.S.C. § 1343, states:
Whoever, having devised or intending to devise any scheme or artifice to defraud or for obtaining money or property by means of false or fraudulent pretenses, representations, or promises, transmits or causes to be transmitted by means of wire, radio, or television communication in interstate or foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing such scheme or artifice, shall be fined under this title or imprisoned nor more than 20 years, or both.
A conviction under either of these statutes requires proof beyond a reasonable doubt of three elements: (1) a scheme to defraud; (2) the use of the mails or wires for the purpose of executing the scheme; and (3) participation by the defendant in the scheme with the intent to defraud. United States v. Pharis, 298 F.3d 228, 234 (3d Cir. 2002). The Third Circuit has broadly defined a scheme to defraud as involving any effort at deceit which aims, in part, to deprive another of money or property.*fn1 United States v. Hedaithy, 392 F.3d 580, 590-91 (3d Cir. 2004). In evaluating whether there is a "scheme" to defraud, the Third Circuit has not required a scheme to be "fraudulent on its face"; rather, it "must involve some sort of fraudulent misrepresentations or omissions reasonably calculated to deceive persons of ordinary prudence and comprehension." Brokerage Concepts, Inc. v. U.S. Healthcare, Inc., 140 F.3d 494, 528 (3d Cir. 1998) (quoting Kehl Packages, Inc. v. Fidelcor, 926 F.2d 1406, 1415 (3d Cir. 1991)). Moreover, the defendant must have the specific intent to defraud, which "may be found from a material misstatement of fact made with reckless disregard for the truth." United States v. Coyle, 63 F.3d 1239, 1243 (3d Cir. 1995) (quoting United States v. Hannigan, 27 F.3d 890, 892 n.1 (3d Cir. 1994)).
As to Counts 1-64, Fumo makes four arguments in support of his Motion for Judgment of Acquittal. First, he asserts the evidence did not show beyond a reasonable doubt that Senator Fumo devised, or intended to devise, any "scheme or artifice to defraud" the Senate of any of its "money or property" by means of "false or fraudulent pretenses" or by concealment of material facts. More precisely, Fumo contends that the Government failed to prove that any fact that was "misrepresented" or concealed was "material," either as properly defined or as defined in the Court's instructions. Second, he claims that as to the charges of mail fraud (Counts 7-17, 19-20, 22-26, 28, and 30-33), the FedEx packages at issue were not shown to have been sent interstate, as required by 18 U.S.C. § 1341. Third, as to the charges of wire fraud (Counts 34, 37, 38, 41, 47, 55-58, and 61-63), he asserts that the e-mails were not shown to have been sent interstate, as required by 18 U.S.C. § 1343. Finally, with respect to the Government's voluntarily dismissed Counts 36 and 38, Defendant Fumo seeks a judgment of acquittal rather than mere dismissal. The Court addresses each contention individually.
1. Whether the Government Proved that Any Fact that Was "Misrepresented" or "Concealed" Was Material
In support of his first basis for judgment of acquittal, Defendant Fumo makes a sole argument: "[t]he testimony of Pennsylvania Senate Clerk Faber, taken with all the other pertinent evidence, showed that the Senate would not have done anything different with respect to Senator Fumo's committee budget, his payroll, his assignment of duties to employees, or his contracting authority had each and every fact made known through the evidence at trial been openly disclosed at the time." (Defs.' Mem. Supp. Mot. for Judg. of Acquittal and for New Trial ("Defs.' Mem.") 2.) He goes on to conclude that "no cognizable 'fraud' existed because no concealment or 'misrepresentation' was legally material." (Id. at 3.)
This argument disregards the wealth of evidence presented by the Government setting forth Fumo's scheme to defraud the Senate, which consisted of at least four components: (1) payment of Senate employees for doing personal or political work for Defendant Fumo during time compensated by the Senate; (2) Fumo's false classification of Senate employees' duties to assure that his loyal Senate employees obtained better-paying positions than their Senate duties justified; (3) Fumo's use of independent contractors, compensated by the Senate, for personal or political services; and (4) Fumo's use of Senate resources, such as computer equipment, for personal and political campaign benefit. As to each of these components, the Government offered more than sufficient evidence on which a jury could find Defendant Fumo guilty beyond a reasonable doubt.
First, as to Fumo's use of his Senate-paid staff for personal and political work,*fn2 the Government presented multiple witnesses. Senate employee, Jamie Spagna, revealed that during the time period between 2001-2003, she spent the majority of her time organizing Fumo fundraisers, handling political mailings, paying Fumo's personal bills, and handling the campaign account of a city councilman who was Fumo's ally -- all during regular Senate business hours. Aide Lisa Costello, paid $31,000 a year by the Senate, cleaned Fumo's Philadelphia mansion on a weekly basis. Assistant Christian Marrone, while performing some ministerial Senate tasks during his first eighteen months on task, spent the majority of his Senate-compensated time as the "project manager" for the renovation of Fumo's Philadelphia mansion. The three drivers on Fumo's Senate payroll testified to running personal errands for Fumo and driving the cars to Martha's Vineyard for Fumo's annual vacation, while Fumo traveled by private plane. Senate employees working in Fumo's Harrisburg office, Gerald Sabol, Charles Sholders, and Sue Skotnicki, spent extensive time, during Senate-compensated hours, performing various tasks at Fumo's Harrisburg farm.
Second, as to Fumo's false classification of loyal employees to assure that they obtained better compensation from the Senate, the Government presented substantial evidence that Fumo, with the assistance of his chief aide, Paul Dlugolecki, submitted multiple false job descriptions to the Clerk of the Senate to justify the employees' salaries, even though those jobs were not actually performed by them. For example, Roseann Pauciello was classified as "chief of staff," despite the fact that Fumo already had a chief of staff. Working in that purported position in 2005, she earned a salary of over $106,000. (Govt. Ex. 144.) Several witnesses indicated that while Ms. Pauciello would assist certain influential constituents who came to the senator's district office, her primary duties involved handling many of Fumo's personal affairs. Similarly, Jamie Spagna's job description indicated that, for the requested $30,000 per year, she would "[a]ssist with constituent services. Review and prepare correspondence. Attend meetings with Senator. Research legislation." (Govt. Ex. 104, 5.) As noted above, however, Ms. Spagna testified that the majority of her time was spent on non-Senate-related tasks. Similar evidence was presented for numerous other employees, such as Lisa Costello, Christian Marrone, Gina Novelli, and Gerald Sabol.
Third, the Government offered sufficient evidence for a jury to conclude, beyond a reasonable doubt, that Fumo used Senate, and thus taxpayer, funds to hire "independent contractors" for improper purposes. Although these contractors were purportedly hired for Senate-related tasks, in actuality, they mainly performed only personal or political work for Fumo. In an example identified by the Government, Frank Wallace was hired as an investigator for the Senate Democratic Appropriations Committee, chaired by Fumo, for issues relevant to pending legislation. While Wallace performed some of these duties, he was also paid with Senate money to act as Fumo's private investigator, trailing his former wife and girlfriends, and researching damaging information on Fumo's political rivals. Likewise, Fumo also gave state contracts to Howard Cain at over $80,000 per year, and Philip Press, at over $42,000, both of whom spent the majority of their time assisting with Fumo's political races. Finally, Fumo gave state contracts to both Michael Palermo, at $45,000 per year, and Mitchell Rubin, at $30,000 per year, for virtually no work other than political tasks or providing some assistance at the Harrisburg farm.
Finally, the evidence was more than satisfactory for a jury to find that Fumo used many other Senate resources for his own benefit. He gave laptop computers to non-Senate employees, including family and personal aides. Further, Fumo directed that Senate computer personnel assist these non-Senate employees in the use of the computers.
The Motion for Judgment of Acquittal does not attempt to undermine the evidence establishing the above-described actions by Fumo -- using Senate employees, contractors, and resources for his personal and political benefit, while representing to the Senate that they were actually performing purely Senate-related tasks. Nor does Fumo currently claim, as he did at trial, that these expenditures were justified because they allowed him to spend more time being an effective Senator -- an argument properly rejected by the jury upon becoming privy to evidence that Fumo spent more than four months a year on vacation during which time he continued to seek services from his Senate employees. Finally, Fumo does not argue, as he did at trial, that the employees each devoted a full 37.5 hour workweek to Senate duties, and whatever personal or campaign work that was performed was done as "after-hours favors" by the employees or independent contractors. At this juncture of the case, Fumo appears to have abandoned these defenses.
Instead, Defendant Fumo now contends that none of these actions, with their accompanying false representations in contracts and employment forms submitted to the Senate, constitute "material" misrepresentations as defined in the law. To support this claim, he argues that the testimony of Chief Clerk of the Pennsylvania Senate, W. Russell Faber, taken with "other pertinent evidence," showed that the Senate would not have done anything different as to Fumo's expenditures even if all facts at trial had been known. (Defs.' Mem. 2.)
The Court must disagree. In general, a false statement is "material" if it has "a natural tendency to influence, or [is] capable of influencing, the decision of the decisionmaking body to which it was addressed." Neder v. United States, 527 U.S. 1, 16 (1999) (quotations omitted). The Third Circuit has interpreted this definition broadly, acknowledging that although "a false statement that actually affects or is capable of affecting a specific decision by an agency makes for an easier materiality determination, . . . both the language of the materiality standard and the decisions applying that standard require only that the false statement at issue be of a type capable of influencing a reasonable decisionmaker." United States v. McBane, 433 F.3d 344, 351 (3d Cir. 2005). Whether or not the decisionmaker was actually influenced by the statement is immaterial. Id. Rather, the Court identified the relevant inquiry as "whether the falsehood was of a type that one would normally predict would influence the given decisionmaking body." Id.
A reasonable jury was clearly capable of finding that the misrepresentations by Fumo were capable of influencing a reasonable decisionmaker -- in this case, the Pennsylvania Senate. Contrary to Defendant Fumo's unsupported argument, Chief Clerk Faber testified that although a senator has discretion in delegating and directing staff to do things, there is an unofficial or unwritten rule that these assignments must serve a legislative purpose or involve conducting legislative activities. (N.T. Faber 76-77, Oct. 22, 2008.) A senator does not have unlimited discretion to use funds and delegate employees. Further, in order for a Senate employee to be paid, (1) the appropriate purpose for hiring the employee must exist under the pay management plan, (2) the employee must be classified on a job classification report, and (3) the employee must specifically perform those tasks. (Id. at 25-26.) The Senate would not pay for an employee to perform personal tasks on behalf of a senator because they are not legislative duties; and, if Faber saw a job classification report indicating that someone was going to be hired for doing personal duties, he would not approve it. (Id. at 27-28.) Similarly, an independent contractor may be legitimately hired by the Senate only to perform legislative duties relating to the hiring member's position as a member or a chairman of a committee. (Id.) Finally, Faber would question personal tasks done during private time, but on Senate property. (Id. at 31-32.) He explained that under the Pennsylvania Ethics Act, a public official cannot use his position for private pecuniary gain, and a senator's hiring of an employee to do personal tasks on a regular basis violates that provision. (Id. at 29-31.)
Following this testimony, the prosecutor then listed a series of tasks and asked Faber whether the Senate would approve payment for either an employee or independent contractor regularly performing these tasks on Senate time or paid for with Senate funds. These tasks included: cleaning a senator's house; doing weekly grocery shopping; ordering personal goods for a senator and waiting at a senator's house during the workday for the items; arranging for the senator's home repairs; regularly picking up the senator's dry cleaning; driving the senator's children to and from school; using a Senate-paid private investigator to investigate family members or political rivals; taking care of personal automobiles including maintenance, repairs and purchasing; handling a senator's personal finances and banking; managing a rental business and dealing with tenants; managing a farm; handling private legal matters; operating a charitable organization; and driving vehicles and luggage to another state to facilitate a senator's vacation. (Id. at 32-43.) As to each task, Faber unequivocally answered that the Senate would not pay for the performance of such duties on any type of regular basis.*fn3 (Id.) Moreover, Faber was emphatic that the Senate would not pay for laptops or computer equipment to be given to a senator's family and friends, or for Senate employees to provide technical assistance for such equipment on Senate time. (Id. at 40.) When asked about claims that a senator's use of employees for personal tasks enables him/her to be a more effective senator, Faber commented that such use of Senate funds would be impermissible because it would allow the senator to realize an inappropriate financial relief of charges that he might otherwise have to incur. (Id. at 38.) Ultimately, Faber concluded that, contrary to Defendant Fumo's theory, a senator does not have unlimited discretion to use funds and delegate employees to do things to help out a senator in a personal nature. (Id. at 43.)
Viewing such testimony in the light most favorable to the Government, the Court finds that a reasonable jury could conclude that Fumo's representations to the Senate, including his misstatements on job classification reports and contracts for independent contractors, were misleading and material. Faber testified that the Senate would not have approved employee hirings or independent contracts for such individuals. Fumo, through his staff, nonetheless submitted job classification reports and sought payment for independent contractors, indicating that the employees and/or contractors were going to be performing legislative functions, when, in reality, they were going to be regularly performing personal and political tasks for Fumo. Fumo does not, at this juncture, contest that such statements were false. A jury could conclude, beyond a reasonable doubt, that such misrepresentations were material, as they resulted in the Senate's approval and payment of these employees and independent contractors. A jury could further infer that the simple fact that Fumo chose to make these misrepresentations reflected an awareness of the falsehoods on his part and an intent to advance his scheme to defraud the Senate. As such, the Court denies the Motion on this ground.
2. Whether the Mail Fraud Statute Requires Proof that the Mailings Were Sent Interstate
Defendant Fumo's second challenge to the conviction for his scheme to defraud the Pennsylvania Senate asserts that, as to the mail fraud charges in Counts 7-17, 19-20, 22-26, 28, and 30-33, the FedEx shipments at issue were sent from one address in Pennsylvania to another. As noted above, section 1341 of Title 18 of the United States Code states, in pertinent part,
Whoever, having devised or intending to devise any scheme or artifice to defraud . . . deposits or causes to be deposited any matter or thing whatever to be sent or delivered by any private or commercial interstate carrier, or takes or receives therefrom, any such matter or thing, or knowingly causes to be delivered by mail or such carrier according to the direction thereon, or at the place at which it is directed to be delivered by the person to whom it is addressed, any such matter or thing, shall be fined under this title or imprisoned not more than 20 years, or both.
Id. Citing to United States v. Lopez, 514 U.S. 549, 562 (1995), Defendant Fumo contends that to avoid constitutional questions under the Commerce Clause, this provision must be construed "as reaching only interstate shipments, and not to cover all shipments sent by the use of a 'private or commercial' company which happens to operate in interstate commerce." (Defs.' Mem. 3.) Because the mailings were sent by a private/commercial carrier and were not "interstate" shipments, as required by 18 U.S.C. § 1341, Defendant Fumo contends that a judgment of acquittal must be entered on those counts.
Defendant's argument is flawed on several grounds. First, the plain language of the statute only refers to use of "any private or commercial interstate carrier." It requires solely that the carrier generally operate on an interstate basis. The statute imposes no requirement that the actual mailing be interstate.
Second, in Lopez, the United States Supreme Court expressly recognized three broad categories of activity that Congress may regulate under this commerce power: (1) "Congress may regulate the use of the channels of interstate commerce"; (2) "Congress is empowered to regulate and protect the instrumentalities of interstate commerce, or persons or things in interstate commerce, even though the threat may come only from intrastate activities"; and (3) "Congress' commerce authority includes the power to regulate those activities having a substantial relation to interstate commerce." Id. at 558-59 (emphasis added). Hence, the Supreme Court expressly acknowledged that Congress maintains the authority to regulate instrumentalities of interstate commerce, such as commercial mail carriers like FedEx and UPS, even if the activities that are part of the mail fraud are purely intrastate.
Finally, this Court's review of the relevant jurisprudence reveals that, seemingly without exception, every Court of Appeals facing Defendant's precise argument has rejected it. See United States v. Gil, 297 F.3d 93, 100 (2d Cir. 2002) ("[A]pplication of the mail fraud statute to intrastate mailings sent or delivered by private or commercial interstate carriers, is a permissible exercise of Congress's power."); United States v. Photogrammetric Data Servs., Inc., 259 F.3d 229, 249-52 (4th Cir. 2001) (concluding that private and commercial interstate carriers are instrumentalities of interstate commerce, which Congress can regulate and protect from harm, even where the conduct at issue was intrastate), abrogated on other grounds, 541 U.S. 36 (2004); United States v. Hasner, 340 F.3d 1261, 1270 (11th Cir. 2003) (finding that the jurisdictional requirement of the mail fraud statute was satisfied where payment was sent to defendant via private interstate carrier, even though only intrastate delivery was involved).
In short, this Court finds no jurisprudential basis for Defendant's argument that, in order to maintain a conviction under 18 U.S.C. § 1341, the Government was required to prove that the FedEx shipments at issue were sent interstate. It suffices that the Government proved that Defendant Fumo used commercial interstate carriers in furtherance of his scheme to defraud.
3. Whether the Wire Fraud Statute Requires Proof that the E-mails at Issue Were Sent Interstate
Defendant Fumo similarly challenges the wire fraud convictions (Counts 34, 37, 39, 41, 47, 55-99, and 61-63), on the grounds that the e-mails were sent from one person in Pennsylvania to another. As the wire fraud statute is limited to communications in interstate or foreign commerce, Defendant argues that he is entitled to a judgment of acquittal on these counts.*fn4
As noted above, under Lopez, Congress may regulate the instrumentalities of interstate commerce and those activities having a substantial relation to interstate commerce, even though the threat only comes from interstate activities. Id. at 558-59. Interpreting this regulatory authority, the Third Circuit, in United States v. MacEwan, 445 F.3d 237 (3d Cir. 2006), found that the transmission of child pornography images over the Internet clearly fell within the confines of at least the first two Lopez categories. Id. at 244. In that case, the defendant downloaded child pornography images from the Internet and was subsequently charged with a violation of 18 U.S.C. § 2252(a)(2)(B), which, like the wire fraud statute, applied to "any material that contains child pornography that has been mailed, or shipped or transported in interstate or foreign commerce by any means, including by computer. . . ." Id. at 243. The Third Circuit noted that nothing in the statute required that the images crossed state lines; rather it mandated only that the material had been mailed, shipped, or transported in interstate commerce by any means. Id. at 243-44. Crediting the government's expert witness, the court found that "[b]ecause of fluctuations in the volume of Internet traffic and determinations by the systems as to what line constitutes the 'Shortest Path First,' a website connection request can travel entirely intrastate or partially intrastate." Id. at 244. As both the means to engage in commerce and the method by which transactions occur, "the Internet is an instrumentality and channel of interstate commerce." Id. at 245. Ultimately, the court held that it "does not matter whether [defendant] downloaded the images from a server located within Pennsylvania or whether those images were transmitted across state lines. It is sufficient that [defendant] downloaded those images from the Internet, a system that is inexorably intertwined with interstate commerce." Id. at 245; see also United States v. Schade, Crim. A. No. 08-2388, 2009 WL 808308, at *3 (3d Cir. Mar. 30, 2009) (reaffirming MacEwan). Other courts have similarly found that use of the Internet for transmission of images or messages satisfies the requirement of interstate commerce. See, e.g., United States v. Carroll, 105 F.3d 740, 742 (1st Cir. 1997) ("Transmission of photographs by means of the Internet is tantamount to moving photographs across state lines and thus constitutes transportation in interstate commerce."); United States v. Pomerico, Crim. A. No. 06-113, 2008 WL 4469465, at *3 (E.D.N.Y. Oct. 30, 2008) ("use of the Internet satisfies the interstate commerce element of [the child pornography statute],18 U.S.C. § 2252A(a)(2)(B).").
Accepting the Third Circuit's definition of "interstate commerce," as this Court is bound to do, a judgment of acquittal on the challenged wire fraud counts is inappropriate. As noted above, the Internet, standing alone, is an instrumentality of interstate commerce. Undisputedly, the e-mails at issue were sent via the Internet. Regardless of whether an e-mail is sent and received within the same state, "fluctuations in internet traffic" could result in the e-mail actually crossing state lines prior to reaching is final destination.*fn5 Because such a determination is impossible, it is legally sufficient for purposes of the "interstate commerce" requirement that the e-mails at issue were sent and received through the Internet. To hold otherwise would "conflat[e] 'interstate commerce' with 'interstate transmission' and confuse the nature of the jurisdictional basis for [the] charged offense." MacEwan, 445 F.3d at 243. As Congress may regulate both the use of the channels of interstate commerce and instrumentalities of interstate commerce, even if the threat may come only from intrastate activities, the Court finds that Defendant Fumo's use of the Internet to send the charged e-mails satisfies the "interstate commerce" element of the wire fraud statute.
4. Whether Defendant Fumo is Entitled to a Judgment of Acquittal in Lieu of a Dismissal of Counts 36 and 38
Defendant Fumo's final challenge to the counts involving the conspiracy to defraud the Pennsylvania Senate seeks a judgment of acquittal on Counts 36 and 38. Specifically, on February 16, 2009, the Government filed a motion to dismiss the two counts, stating that "[t]he basis for this motion is that the government did not present evidence during the trial of this matter to sustain a conviction on either of these two counts. Therefore, for this reason, the United States of America respectfully requests that Counts 36 and 38 be dismissed with prejudice." (Government's Motion to Dismiss, U.S. v. Fumo, Crim. A. No. 06-319, 2-3 (Feb. 16, 2009).) Defendant Fumo made no objection to this motion at the time, and the Court did not submit the counts to the jury. Defendant Fumo now contends that he is entitled to an acquittal on these counts to avoid being placed in double jeopardy within the meaning of the Fifth Amendment.
Defendant's argument is misplaced. Federal Rule of Criminal Procedure 48(a) states that, "[t]he government may, with leave of court, dismiss an indictment, information, or complaint.
The government may not dismiss the prosecution during trial without the defendant's consent." FED. R. CRIM. P. 48. "The primary purpose of this requirement is 'to prevent harassment of a defendant by charging, dismissing and recharging without placing a defendant in jeopardy.'" United States v. Welborn, 849 F.2d 980, 983 (5th Cir. 1988) (quotations omitted). A dismissal with prejudice, however, constitutes an adjudication barring another prosecution for the same offense, thereby foreclosing this risk. As Defendant Fumo did not timely oppose the Government's motion, the Court grants the Government's Motion to Dismiss Counts 36 and 38 and dismisses those Counts with prejudice. Given this, Defendant's request for acquittal on these Counts is moot.
B. Scheme to Defraud Citizens Alliance (Defendants Fumo and Arnao)
Defendants Fumo and Arnao jointly seek a Judgment of Acquittal on Counts 65-98 of the Superseding Indictment, which allege that both Defendants conspired to knowingly devise a scheme to defraud the non-profit organization Citizens Alliance of money and property by means of false and fraudulent pretenses and representations, and to use the U.S. mails, commercial interstate carriers, and interstate wire communications to further the scheme to defraud, in violation of 18 U.S.C. §§ 1341 and 1343. Challenging the sufficiency of the evidence, Defendants contend that: (1) "the Government did not show beyond a reasonable doubt that any facts were misrepresented by Senator Fumo to [Citizens Alliance] or concealed from [Citizens Alliance], as would be required to prove any mail or wire fraud scheme" and (2) the e-mails at issue in the wire fraud counts were not shown to have been sent interstate as required by 18 U.S.C. § 1343. (Defs.' Mem. 4-5.) As the Court has already dismissed the latter contention above, we focus solely on the first point.
Defendants' entire argument regarding this claim states as follows: All material facts were known to Ms. Arnao, whom the Board of Directors had appointed as Executive Director. She had day-to-day authority to act on behalf of [Citizens Alliance], and all expenditures charged in the indictment were within the scope of her discretion to approve. (Id. at 4.) Accordingly, Defendants seek judgments of acquittal on Counts 65-98.
As noted above, in order to obtain a conviction based on mail or wire fraud, the Government must prove, beyond a reasonable doubt: (1) a scheme to defraud; (2) the use of the mails or wires for the purpose of executing the scheme; and (3) participation by the defendant in the scheme with the intent to defraud. Pharis, 298 F.3d at 234. A scheme must involve "a departure from fundamental honesty, moral uprightedness, or fair play and candid dealings in the general light of the community." United States v. Dobson, 419 F.3d 231, 239 (3d Cir. 2003). "The government need not, of course, prove that the scheme was successful in order to sustain a conviction for mail fraud." United States v. Zauber, 857 F.2d 137, 142 (3d Cir. 1988). "[O]nce a property right is found to exist, section 1341's language 'any scheme or artifice to defraud' is to be interpreted broadly." United States v. Wallach, 935 F.2d 445, 464 (2d Cir. 1991) (quoting United States v. Evans, 844 F.2d 36, 40 (2d Cir. 1988)).
At trial, the Government proved that both Fumo and Arnao repeatedly and persistently used Citizens Alliance's financial assets and property for their personal benefit, causing a loss of more than one million dollars to the organization. The evidence reflected that Fumo and his Philadelphia staff first established Citizens Alliance under a different name in 1991. The original intent of the organization was the betterment of neighborhoods in Philadelphia by renovating properties, cleaning streets, clearing snow, supporting charter schools, and other public works.
As demonstrated at trial, however, Fumo and Arnao treated Citizens Alliance's bank accounts as their own. For example, Citizens Alliance purchased multiple expensive vehicles, which were fully loaded with navigation systems and radar detectors, for personal use by Fumo and his staff; it paid to furnish Fumo's Philadelphia Senate and campaign office with items such as lavish office furniture, a Sub-Zero refrigerator, and mahogany doors; it provided money for cell phones and pagers for members of Fumo's Senate staff and Fumo's daughter; Citizens Alliance employees performed multiple personal services for Arnao's shore house and for Fumo at his shore house, Philadelphia mansion, and Harrisburg farm, including picking up trash, power washing decks, moving hot tubs and furniture, and delivering personal items; Citizens Alliance purchased a tractor, dump truck, and ATV for use at Fumo's farm; Citizen's Alliance money was used to fund $250,000 in political polling and for the services of a private investigator to assist a 2002 gubernatorial campaign; Citizens Alliance helped fund a grassroots effort to stop construction of dunes at the Jersey shore that would block Fumo's ocean view from his home; it paid for Fumo's travel, with five friends, to Cuba; and it paid for Fumo's and Arnao's shopping sprees to purchase goods for their homes, such as vacuum cleaners and home improvement materials.
Defendants do not now challenge the sufficiency of evidence to prove that such events and actions occurred, effectively abandoning the pre-trial defense that Fumo received nothing from Citizens Alliance. Nor does Fumo pursue his trial defense that the items were "gifts" or "compensation." Rather, Defendants rest solely on the claim that all of these expenditures were lawful because Arnao, as Executive Director of Citizens Alliance, appropriately utilized her authority to approve such expenditures.
This argument is untenable. A general requirement exists that an officer or director of a corporation "shall perform his duties as an officer in good faith, in a manner he reasonably believes to be in the best interests of the corporation and with such care, including reasonable inquiry, to be in the best interests of the corporation and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances." 15 PA. CONS. STAT. § 512(c). An officer or director of a corporation must avoid committing ultra vires acts. Gearhart Indus., Inc. v. Smith Int'l, 741 F.3d 707, 719 (5th Cir. 1984). Ultra vires acts are defined as those acts that exceed the scope of the powers of a corporation as defined by its charter or the state. Id.; see also 7A W. FLETCHER, CYCLOPEDIA § 3399 (1989) (An ultra vires act is one that is beyond the powers of a corporation as defined by its charter, its by-laws, and the law). Further, "[o]fficers and directors of a corporation stand in a fiduciary relationship to that corporation and even in close, family owned corporations, directors are liable if they act in such a way as to profit their individual and other corporate enterprises at the expense of the corporation." In re Truco, Inc., 110 B.R. 150, 152-53 (Bankr. M.D. Pa. 1989).
In this case, the evidence at trial revealed that Defendant Arnao's actions exceeded the bounds of her authority as Executive Director of Citizens Alliance in two different manners. First, the Government introduced into evidence the Articles of Incorporation for Citizens Alliance, which declared that the purposes of the corporation were:
To promote public health, housing, safety and education in the City and County of Philadelphia. Such purposes shall be accomplished, in part, by contributing to the improvement, maintenance and control of appropriate sanitation and other conditions that could endanger public health and safety. Such purposes shall be accomplished, in part, through the acquisition of real estate and/or equipment to be used in the provision of housing, the provision of educational facilities or to be used directly in the furnishing of services. Such purposes shall be accomplished, in part, through the performance of activities which m[a]y include, but are not limited to, investigation, research, examination, training, demonstrations and direct provision of services. (Govt. Ex. 900, 9.)
The above actions, however, clearly overstepped that purpose. Many of the expenditures occurred outside of Citizens Alliance's defined territory of Philadelphia. Moreover, the Government demonstrated that the Citizens Alliance-funded shopping sprees for improvements and supplies at Fumo's and Arnao's residences, and use of Citizens Alliance employees and assets to perform personal services at these residences did not fall within the established corporate purpose of "promot[ing] public health, housing, safety and education."
Second, the Articles of Incorporation expressly state that "[t]he following limitations shall apply to the organization and operation of the corporation and to its members and board of trustees":
A. Notwithstanding any other provision of these articles, the corporation is organized exclusively for one or more of the purposes as specified in Section 501(c)(3) of the Internal Revenue Code of 1986, and shall not carry on any activities not permitted to be carried on by a corporation exempt from Federal Income tax under Internal Revenue code Section 501(c)(3) or corresponding provisions of any subsequent Federal tax laws.
B. No part of the net earnings of the corporation shall inure to the benefit of any member, trustee, director, officer, or any private individual (except that reasonable compensation may be paid for services rendered to or on behalf of the corporation), and no member, trustee, director, officer of the corporation, or any private individual shall be entitled to share in the distribution of any of the corporate assets upon dissolution of the corporation.
(Id. (emphasis added).) Similarly, the By-laws of Citizens Alliance clearly indicate that "[n]o part of the net earnings of the Corporation shall inure to the benefit of, or be distributable to, its members, trustees, directors, officers, or other private persons . . ." (Govt. Ex. 900, 20 (emphasis added).) Such Articles and By-laws fully comport with Section 501(c)(3) of the Internal Revenue Code, which indicate that "[i]n order to qualify for a § 501(c)(3) exemption, 'no part of an organization's net earnings may inure to the benefit of any private shareholder or individual.'" Presbyterian and Reformed Publ'g. Co. v. C.I.R., 743 F.2d 148, 153 (3d Cir. 1984) (quoting 26 U.S.C. § 501(c)(3)). "'Private shareholder or individual' is broadly defined as any person 'having a personal and private interest in the activities of the organization.'" Id. (quoting 26 C.F.R. § 1.501(a)-1(c) (1984)).
Without repeating the extensive list of actions at issue, the Court notes that a reasonable jury could have readily found that Arnao's approval of the various expenditures inured to the benefit of both herself and Defendant Fumo, in direct violation of the above provisions. Indeed, Defendants do not now suggest that such expenditures had any purpose other than to personally enrich Fumo and Arnao. As both Defendants fall within the regulations' broad brush definition of an "individual," such actions were expressly prohibited by the Articles of Incorporation, the By-laws, and the federal tax law, which granted Citizens Alliance its tax-exempt status.*fn6
As Arnao was unable to legally authorize any of the payments and expenditures described in detail above, a reasonable jury could infer from the very fact of those expenditures that she, together with Fumo, engaged in a scheme to defraud Citizens Alliance of its money and property. Arnao's liability is clear, as she was the corporate officer who made the questioned decisions to expend Citizens Alliance funds for the benefit of Fumo and herself.
As to Defendant Fumo, the United States Supreme Court has held that one who aids or abets the commission of an offense is equally liable as a principal, so long as the aider and abettor associates himself with the unlawful venture and participates in it with the intent that its illegal objective be attained. United States v. Pearlstein, 576 F.2d 531, 546 (3d Cir. 1978). "Such an awareness can be inferred from evidence of collaboration between the defendants and the principals but it must be established that the defendants facilitated the principals' crime with the intent to do so." Id. at 546. The evidence at trial demonstrated that while Arnao was the titular Executive Director of Citizen's Alliance, Fumo exercised ultimate control over both Arnao, who was also a member of his Senate staff, and Citizens Alliance itself. Fumo testified that he "viewed [Citizens Alliance] as [his] entity, [his] baby. Gave it birth and nursed it along, got involved more with strategy and ideas" and that he "ran it out of [his Senate] office." (N.T. Fumo 18-19, Feb. 10, 2009.) He indicated that he maintained "substantial influence over the organization," directed the expenditure of various funds on items for his personal use, had significant influence on Arnao's receipt of a salary, and dictated the hiring of the organization's outside legal services. (N.T. Fumo 21, 26-27, 43, 47, Feb. 17, 2009.) Repeatedly, the testimony revealed that Fumo conspired with Arnao, and aided and abetted her efforts to fraudulently use Citizens Alliance's assets in order to obtain personal vehicles, cell phones for his family, improvement and repair services at his various residences, farm equipment, political polling, a trip to Cuba, and shopping trips for personal supplies.
In short, taking the evidence in the light most favorable to the Government, the Court finds that neither Defendant is entitled to a judgment of acquittal on these Counts.*fn7 Accordingly, Defendants' joint motion is denied.
C. Scheme to Defraud the United States and to File False Returns in Relation to the Taxation of Citizens Alliance (Defendants Fumo and Arnao)
Defendants Fumo and Arnao next contest their convictions as to the scheme to defraud the United States in relation to the tax treatment of Citizens Alliance by the Internal Revenue Service ("IRS") (Counts 99-103)*fn8 . The sum and substance of these Counts charged the two Defendants with conspiring to cause false tax returns to be filed with the IRS on behalf of Citizens Alliance, which would conceal from the IRS activities by Defendants that jeopardized Citizens Alliance's tax-exempt status. To support their Motion for Judgment of Acquittal on these Counts, the Defendants put forth several arguments, with no further elaboration. First, they claim that the evidence did not prove, beyond a reasonable doubt, that either Defendant agreed with any other person to defraud the United States. Second, Fumo and Arnao separately claim that the evidence did not show, beyond a reasonable doubt, that either Defendant intended to violate any known legal duty under the Internal Revenue Code. Third, Defendant Fumo challenges Counts 101 and 103 on the grounds that the evidence failed to prove, beyond a reasonable doubt, that he committed any act that aided, assisted, solicited, facilitated, or encouraged the filing of a false tax return for Citizens Alliance by any other person, as required to convict him. Finally, both Defendants contend that the evidence was insufficient to show that either individual knew that the statements on the tax return, which are the subject of Counts 100 to 103, were "false," in the pertinent sense. The Court addresses each claim individually.
1. Whether the Evidence Was Sufficient to Establish, Beyond a Reasonable Doubt, that the Defendants Agreed With Each Other or With Another Person to Violate a Known Legal Duty Under the Internal Revenue Code
Defendants' first two arguments contend that the evidence at trial did not show, beyond a reasonable doubt, any agreement between Fumo or Arnao, or between either Defendant and any other person to violate any known legal duty under federal tax law. In the absence of any such agreement, Defendants assert that no conspiracy was shown and an acquittal must be entered. The Court disagrees.
The Counts at issue are charged as violations of 18 U.S.C. § 371, which states: If two or more persons conspire either to commit any offense against the United States, or to defraud the United States, or any agency thereof in any manner or for any purpose, and one or more of such persons do any act to effect the object of the conspiracy, each shall be fined under this title or imprisoned not more than five years, or both. 18 U.S.C. § 371. This section encompasses two types of conspiracies: (1) a conspiracy to commit a substantive offense under a separate criminal statute; and (2) a conspiracy to defraud the United States, without reference to another criminal statute. United States v. Alston, 77 F.3d 713, 718 (3d Cir. 1996).
The Counts at issue in this case fall within the second of the two categories, as they allege a conspiracy to defraud the IRS. A conspiracy to frustrate the lawful information-gathering function of the IRS is commonly referred to as a "Klein conspiracy," named after the Second Circuit's landmark decision in United States v. Klein, 247 F.2d 908 (2d Cir. 1957). "A Klein conspiracy consists of three elements: (1) existence of an agreement to accomplish an illegal or unlawful objective against the United States; (2) commission of an overt act by conspirators in furtherance of conspiracy; and (3) intent by the defendant to agree to the conspiracy and to defraud the United States." United States v. Gambone, 125 F. Supp. 2d 128, 131 (E.D. Pa. 2000). "While many conspiracies are by their nature complex, a Klein conspiracy does not require a particular level of complexity." Id. at 132. It is sufficient simply for all three elements to be present. Id.
Defendants' initial challenges to their convictions on grounds of tax fraud focus on the first and third elements of a Klein conspiracy -- the existence of an agreement and an intent to violate a known legal duty. To prove a defendant's participation in a conspiracy, the government must first establish an agreement between the alleged conspirators. United States v. McKee, 506 F.3d 225, 238 (3d Cir. 2007). Direct evidence of the agreement is not required. Id. "Rather, a conspiratorial agreement can be proven circumstantially based upon reasonable inferences drawn from actions and statements of the conspirators or from the circumstances surrounding the scheme." Id.; see also United States v. Smith, 294 F.3d 473, 478 (3d Cir. 2002) (finding that a reasonable juror could certainly conclude that a tacit agreement exists amongst a group of people when they engage in "so many unusual acts."). Indeed, as recognized by the Third Circuit, "common sense suggests, and experience confirms, that illegal agreements are rarely, if ever, reduced to writing or verbalized with the precision that is characteristic of a written contract. Rather, the illegal agreement can be, and almost always is, an implicit agreement among the parties to the conspiracy." McKee, 506 F.3d at 238.
Moreover, the government must establish that the conspirators shared "a 'unity of purpose,' the intent to achieve a common goal and an agreement to work together toward the goal." United States v. Wexler, 838 F.2d 88, 90-91 (3d Cir. 1988). For a Klein conspiracy, that common goal must involve an agreed upon objective to impede the IRS. United States v. Gricco, 277 F.3d 339, 348 (3d Cir. 2002). "This need not be the sole or even a major objective of the conspiracy." Id. "In addition, impeding the IRS need not be an objective that is sought as an end in itself: an intent to hide unlawful income from the IRS in order to conceal an underlying crime is enough." Id. "[A]s in other conspiracy prosecutions, the objectives of the conspiracy may sometimes be inferred from the conduct of the participants." Id. "In the end, however, the evidence must be sufficient to prove beyond a reasonable doubt that impeding the IRS was one of the conspiracy's objects and not merely a foreseeable consequence or collateral effect." Id.
As noted above, the Indictment alleged that the agreed-upon objective for the conspiracy between Arnao and Fumo was their desire to have false tax filings submitted to the IRS, on behalf of Citizens Alliance, to prevent the IRS from discovering that Citizens Alliance was not qualified for tax-exempt status. Due to the complexity of this charge, some fundamental understanding of the Tax Code is necessary. To qualify for a section 501(c)(3) tax exemption, an organization must meet four requirements: (1) the organization must "engage primarily in activities which accomplish one or more of the exempt purposes specified in § 501(c)(3);" (2) "the organization's net earnings may not inure to the benefit of private shareholders or individuals;" (3) the organization must not engage in substantial political or lobbying activities; and (4) the organization "must serve a valid public purpose and confer a public benefit." Church of Scientology v. C.I.R., 823 F.2d 1310, 1315 (9th Cir. 1987) (citations omitted). As noted above, the Third Circuit has particularly emphasized that "no part of an organization's net earnings may inure to the benefit of any private shareholder or individual.'" Presbyterian and Reformed Publ'g. Co., 743 F.2d at 153 (quoting 26 U.S.C. § 501(c)(3)). "Treasury regulations apply this rule to define an organization as 'not operated exclusively for one or more exempt purposes if its net earnings inure in whole or in part to the benefit of private shareholders or individuals.'" Id. (quoting 26 C.F.R. § 1.501(c)(3)-1(c)(2) (1984)). "'Private shareholder or individual' is broadly defined as any person 'having a personal and private interest in the activities of the organization.'" Id. (quoting 26 C.F.R. § 1.501(a)-1(c) (1984)). "The policy underpinnings of the non-inurement rule derive from the common law belief that charities should promote the public good rather than private benefit." Id.
Notably, "an organization's net earnings may inure to the benefit of private individuals in ways other than by the actual distribution of dividends or payment of excessive salaries." Id. (quoting Founding Church of Scientology v. United States, 412 F.2d 1197 (Cl. Ct. 1969)). "The potential for abuse may also exist when the founder of an exempt organization also controls other non-exempt entities and those entities interact, if the exempt entities operate to benefit the non-exempt entities." Airlie Found., Inc. v. United States, 826 F. Supp. 537, 550 (D.D.C. 1993), aff'd 55 F.3d 684 (D.C. Cir. 1995). "Upon a conclusion that relevant facts reveal private benefit, the organization will not qualify as operating primarily for exempt purposes 'absent a showing that no more than an insubstantial part of its activities further the private interests or any other nonexempt purposes.'" Rameses Sch. of San Antonio, Tex. v. C.I.R., No. 23228-04X, 2007 WL 1061871, at *7 (U.S. Tax. Ct. 2007) (quoting Am. Campaign Acad. v. C.I.R., 92 T.C. 1053, 1066 (1989)).
Moreover, the Tax Code is clear that an organization cannot qualify for tax-exempt status if it engages in certain prohibited political activity. Specifically:
An organization is not operated exclusively for one or more exempt purposes if it is an action organization as defined in subdivisions (ii), (iii), or (iv) of this subparagraph. * * *
(iii) An organization is an action organization if it participates or intervenes, directly or indirectly, in any political campaign on behalf of or in opposition to any candidate for public office.
The term candidate for public office means an individual who offers himself, or is proposed by others, as a contestant for an elective public office, whether such office be national, State, or local. Activities which constitute participation or intervention in a political campaign on behalf of or in opposition to a candidate include, but are not limited to, the publication or distribution of written or printed statements or the making of oral statements on behalf of or in opposition to such a candidate.
26 C.F.R. § 1.501(c)(3)-1(c)(3). Thus, the exemption is lost "'by participation in any political campaign on behalf of any candidate for public office. It need not form a substantial part of the organization's activities.'" Ass'n of Bar of City of N.Y. v. C.I.R., 858 F.2d 876 (2d Cir. 1988) (quoting United States v. Dykema, 666 F.2d 1096, 1101 (7th Cir. 1981)).
Finally, pursuant to the Internal Revenue Code, every organization exempt from taxation under 26 U.S.C. § 501(a) shall file an annual return. 26 U.S.C. § 6033(a)(1). This section requires that the annual return specifically state "the items of gross income, receipts, and disbursements, and such other information for the purpose of carrying out the internal revenue laws as the Secretary may by forms or regulations prescribe . . ." Id. It "imposes no taxes upon the affected tax exempt organizations, but merely requires such organizations to disclose information to the IRS that is considered relevant to the organization's continuing qualification for exempt status." Lutheran Children and Family Serv. of E. Pa. v. United States, Civ. A. No. 83-5305, 1986 WL 7834, at *2 (E.D. Pa. Jul. 10, 1986).
Taking all evidence, in the present case, in the light most favorable to the Government, a reasonable jury could have found that Defendants entered into an agreement with the intent to violate these known legal duties under the Internal Revenue Code. Primarily, the evidence presented at trial established that both Fumo and Arnao fully understood the above-described legal requirements of forming and maintaining a tax-exempt organization. As to Fumo, the Government proved that Citizens Alliance's outside accountant, Ronald Beckman, sent a memorandum to Fumo on June 29, 1996, describing and including IRS Form 1023 - Application for Recognition of Exemption, and IRS Form 990 - Annual Return of Organization Exemption from Income Tax, as well as Rev. Proc. 95-48. (Govt. Ex. 1318.) The purpose of the memorandum and its enclosures was to give Fumo "a good overview of the applicable filing and disclosure requirements related to exempt organizations." (Id.) Subsequently, in August of 1996, Beckman provided Fumo and his Senate counsel, Christopher Craig, information regarding federal tax issues raised by nonprofit corporations that own for-profit subsidiaries, explaining that "501(c)(3) organizations may still be exempt and may own for-profit subsidiaries if their involvement in the day to day management of the subsidiaries is not a substantial part of the nonprofit's overall activities and the subsidiary is established for a bona fide business purpose." (Govt. Ex. 1319.) The letter set forth several factors upon which the IRS focuses to determine whether a for-profit subsidiary maintains an identity separate and apart from a tax-exempt parent. (Id.) Beckman stressed that care must be taken "to ensure that the relationship between the exempt parent and the non exempt subsidiary does not reach that of a principal and an agent," that "[t]ransactions between the subsidiary and the tax exempt parent are conducted on an arm's length basis," and that "[t]he subsidiary must have a business purpose that is separate and distinct from its parent." (Id.)
Further, the evidence indicated that although Arnao was the ultimate signatory on the tax returns, Fumo was intimately involved with and effectively controlled the efforts to obtain approval of and maintain Citizens Alliance as a tax-exempt organization. During the approval process, Beckman communicated directly with Fumo about the status of his efforts to obtain expedited approval. (Govt. Ex. 1327.) In addition, in an e-mail sent on September 11, 1999, after Citizens Alliance had obtained approval of its section 501(c)(3) application, Fumo expressed concern over public disclosure of the Non Profit Federal Form 990's that had to be filed, and directed Citizens Alliance staff to devise creative ways to satisfy Citizens Alliance's filing requirements. (Govt. Ex. 1330).*fn9
As to Arnao's knowledge of the requisite tax laws, the trial evidence established that she was the Executive Director of Citizens Alliance and the primary contact point between Citizens Alliance and the outside attorneys and accountants. Steve Kobasa, Citizens Alliance's accountant after Beckman, testified that Arnao had signed all of Citizens Alliance's tax returns, was intimately aware of Citizens Alliance's finances and funding, and understood how to classify the corporation's expenses. (N.T. Kobasa 8-9, Dec. 15, 2008.) Kobasa's partner, Arthur Amelio, indicated that for each audit he did on behalf of Citizens Alliance, he sat down with Arnao and discussed whether there was any fraud or misappropriation and the effect that would have on the organization's tax-exempt status. (N.T. Amelio 76-79, Dec. 29, 2009.) Lisa Petkun, Citizen's Alliance outside tax counsel, sent a March 28, 2000 memorandum to Ruth Arnao describing Form 990's disclosure requirements, such as compensation to employees and independent contractors over $50,000. (Govt. Ex. 1010.) Similarly, a November 13, 2002 e-mail from Petkun to Arnao, and carbon copied to both Kobasa and Fumo, indicated that Form 990, as well as financial statements, required disclosure of every type of transaction between Citizens Alliance and a Related Entity. (Govt. Ex. 1332.)
Upon proving both Defendants' knowledge of the prerequisites for a tax-exempt organization, the Government then established that Fumo and Arnao violated, on a recurring and persistent basis, the requirements for maintaining and reporting Citizens Alliance's tax-exempt status. As discussed in detail with respect to the scheme to defraud Citizens Alliance, both Fumo and Arnao repeatedly used the assets of Citizens Alliance as their own. Citizens Alliance purchased expensive vehicles, several of which were solely used for Fumo's and Arnao's personal benefit. Citizens Alliance employees performed personal services at Fumo's and Arnao's homes, and Fumo and Arnao jointly engaged in shopping trips for their residences using the Citizens Alliance credit card.*fn10 Finally, Citizens Alliance performed various political polling activities for sole benefit of Fumo's political agenda. All of these expenditures were in direct contravention of what Fumo and Arnao knew to be the requirements of section 501(c)(3). Had such activities been fully disclosed to the IRS, as required by the regulations, Citizens Alliance's section 501(c)(3) status would have been jeopardized.
Thereafter, the Government proved, beyond a reasonable doubt, that Fumo and Arnao actively and jointly made numerous efforts to hide their pilfering and other offending activities. For example, Citizens Alliance created for-profit subsidiaries in 2000, which the Government established were nothing more than sham corporations designed to hide the activities of Citizens Alliance that were not in conformity with its status as a 501(c)(3) corporation, such as the purchase of the cars for the personal use of Fumo and his staff. In a March 23, 2000 memorandum from Arnao to Fumo, Arnao revealed that the two were working in close conjunction to create these sham corporations, with false corporate addresses and purely titular corporate officers:
So if I know that I am right and am doing the right thing lets go over this one more time.
1. Citizens Alliance will stay the same as it is right now.
2. CA Holdings will stay the same and also in Citizens address. I am the sole officer of this co.
3. Eastern Leasing Corp. Will either get an address in hbg [Harrisburg] or we will use the office space I will lease in Mitchell's [Arnao's husband's] bldg. Or Kenny's bldg. We don't have a name for the sole officer
4. Passyunk Real Estate Corp Joe Russo will be president of this using his home address
5. Moyamensing Real Estate Corp. John Travelina will be president of this using his home address
6. 1208 (I will come up with a name) Harry Feinberg will be president of this using the center city address.
7. High Tech Inc. Chris Marrone will be president of this using his home address.
Now on these accts that other people are going to be president do you still want me to be secty/treas so that I take care of the checking accts. We will have all the mail going to their houses and offices etc and they will make weekly drop offs to me. Or do you want them to handle everything. Just let me know. (Govt. Ex. 1344.) Such structuring of the for-profit subsidiaries was directly contrary to what Fumo understood, based on Beckman's prior memorandum to him, as the federal tax requirements for nonprofit corporations that own for-profit subsidiaries.
As a further example of such collaboration, Arnao and Fumo jointly failed to disclose -- for purposes of both Citizens Alliance's Form 990's and Fumo's personal income tax returns -- any compensation received by Fumo from Citizens Alliance. As Kobasa testified, the accountants relied heavily on Arnao to collect all of the information needed to complete their audits of Citizens Alliance and all of the accountants' information came directly from the organization's financial statements. (N.T. Kobasa 31-32, Dec. 15, 2008.) Yet, despite Arnao's certification to the accountants that there were "no material transactions that have not been properly recorded in the accounting records underlying the financial statements," and despite Kobasa's emphasis that he needed to know whether Citizens Alliance was spending its funds in accordance with its tax-exempt purpose, at no point did Arnao disclose to Kobasa any compensation or any other form of payments to Fumo, lobbying expenses (such as those spent to oppose construction of dunes in New Jersey), or any political activity or polling funded by Citizens Alliance, all of which may have jeopardized its tax-exempt status. (Id. at 38, 51, 53-55, 57, 59, 74-75, 80-81; see also N.T. Amelio 48, Dec. 29, 2008.) Moreover, none of the payments to Fumo, including those in the form of goods or services, were disclosed in Citizen Alliance's general ledger or any other books or records. (N.T. Kobasa 58, Dec. 15, 2008.) During the same time period (1999-2002), Kobasa also prepared Fumo's individual tax returns. Via a seemingly coordinated effort, no compensation, payments, or gifts from Citizens Alliance were reported on Fumo's returns in any of those years. (Id. at 57-58.) Aside from themselves being illegal, the omissions on Fumo's returns suggested a calculated effort to ensure that such expenditures by Citizens Alliance remained hidden from the IRS. Such identical failures to disclose legally-required information by both Arnao and Fumo constituted strong circumstantial evidence of their conspiracy.
Finally, the Government established the Defendants' intent via the introduction of evidence exposing Defendants' coordinated and affirmative misrepresentations to the accountants in order to have false tax returns filed. In a prime example cited by the Government, Kobasa began to question Arnao and Fumo about money paid to companies by the name of Global Strategies and Kiley and Co. for "polling." (Id. at 95.) Kobasa explained that based on the invoices he had, the polling appeared to be political in nature. (Id. at 99.) Afterward, Kobasa and his partner Arthur Amelio met with Arnao and asked for a copy of the survey questionnaire and the results. (Govt. Ex. 1336.) Arnao said she could not immediately produce the requested information -- which was the first time that the accountants had asked her for information that she could not immediately provide. (N.T. Kobasa 98, Dec. 15, 2008.) Instead, Arnao asked Kobasa to send her an e-mail repeating his inquiries, and to carbon copy Fumo. (Id. at 61; Govt. Ex. 1334.) He did so and, the following day, Kobasa received an e-mail from Arnao indicating that these expenses were for "community development services," which he took to mean polling the community for services that they wanted or improvements they needed. (Kobasa 62-63, Dec. 15, 2008.) Upon receipt of the e-mail, Kobasa concluded, albeit incorrectly, that the invoices were not for political polling and, as such, he included this information in financial statements and the Citizens Alliance's 2002 Form 990. (Id. at 63; Govt. Ex. 1170, 44.) A logical and permissible inference from such evidence is that Fumo and Arnao collaborated as to how to successfully misrepresent to the accountants the nature of the prohibited political polling expenditures.
In an alternative example, Amelio testified that, in 2003, he had determined that Fumo was somebody who had influence over the organization, reflected by his ability to get grants for the organization from PECO and the Pennsylvania Department of Community and Economic Development. (N.T. Amelio 47, Dec. 29, 2008.) Amelio had a direct conversation with Arnao about whether Fumo received anything of value in that particular year. (Id.) She replied that "at times that they [Citizens Alliance employees] had shoveled his driveway for him, if he needed to get -- needed to go somewhere that they may have done that. And that he compensated the organization for that, and that at times he used some of the -- I think it was for some storage and he had compensated the organization for storage." (Id.) Amelio understood this statement to mean that all of the benefits received by Fumo were being paid for by him. (Id. at 48.) This information was disclosed*fn11 on the Form 990. (Id. at 63.)
Ultimately, based on this evidence, a jury could determine, beyond a reasonable doubt, that Defendants Fumo and Arnao had full knowledge of the requirements with which Citizens Alliance had to comply in order to maintain its tax-exempt status. With and despite such knowledge, they chose to improperly pilfer substantial assets from the organization and use them for purposes far outside the bounds of Citizens Alliance's declared mission with the intent to gain private benefit. Taking their scheme one step further, Fumo, who exercised significant control over Citizens Alliance, and Arnao, who was the Executive Director of Citizens Alliance, jointly withheld information from the organization's outside accountants with the inferable intention of defrauding the IRS and preventing it from discovering information that would lead to a revocation of Citizens Alliance's section 501(c)(3) status. Moreover, the evidence revealed that the two Defendants conspired to affirmatively misrepresent information to the accountants with the knowledge that such information would ultimately reach the IRS. Given the Court's deferential standard of review, and in light of such uncontroverted evidence, we decline to find any basis for granting a judgment of acquittal on these counts.*fn12
2. Whether the Evidence Was Sufficient to Prove, Beyond a Reasonable Doubt, that Fumo Committed Any Act that Aided, Assisted, Solicited, Facilitated, or Encouraged the Filing of a False Tax Return for Citizens Alliance by Any Other Person
Via an alternative challenge to the tax fraud counts, Defendant Fumo claims that, as to Counts 101 and 103, the evidence did not show beyond a reasonable doubt that he committed any act that aided, assisted, solicited, facilitated, or encouraged the filing of a false tax return for Citizens Alliance by any other person. As such a showing is required for a conviction as an aider or abettor, under 26 U.S.C. § 7206(2), Defendant Fumo contends that he is entitled to a judgment of acquittal on these counts.
Section 7206(2) provides:
Any person who--* * * Willfully aids or assists in, or procures, counsels, or advises the preparation or presentation under, or in connection with any matter arising under, the internal revenue laws, of a return, affidavit, claim, or other document, which is fraudulent or is false as to any material matter, whether or not such falsity or fraud is with the knowledge or consent of the person authorized or required to present such return, affidavit, claim, or document; shall be guilty of a felony . . . 26 U.S.C. § 7206(2). "To establish aiding and abetting the filing of a false tax return there must exist some affirmative participation which at least encourages the perpetrator." United States v. Graham, 758 F.2d 879, 885 (3d Cir. 1985) (internal quotation marks omitted). Under this section, however, "[i]t is not necessary to show that the defendant himself prepared the false document in order to sustain a conviction under § 7206(2)." United States v. Cutler, 948 F.2d 691, 695 (10th Cir. 1991). Nor must a person actually sign a tax return to aid in its preparation. United States v. Covney, 995 F.2d 578, 588 (5th Cir. 1993). Rather, "[s]section 7206(2) prohibits willfully aiding or assisting in, procuring, counseling or advising the preparation or presentation of such a document." Id. Thus, "when a form relating to a taxpayer is required to be filed by an intermediary rather than the taxpayer, an offense under § 7206(2) is complete when the document or information has been presented to the entity required by law to transmit the information to the IRS." Cutler, 948 F.2d at 695; see also Gambone, 314 F.3d at 172 (recognizing various cases where section 7206(2) was violated by a defendant's provision of false information to a taxpayer or tax preparer).
The Indictment in this case charged Defendant Fumo with causing the filing of a false Form 990 for Citizens Alliance in 2002 (Count 101), and a false Form 1120 corporate return for CA Holdings, Inc., a subsidiary of Citizens Alliance and parent company to a series of for-profit subsidiaries, in 2002 (Count 102). As set forth in detail above, the evidence presented at trial proved that both forms fraudulently described the impermissible political polling as "community development" polling expenses. Further, Citizen Alliance's Form 990 failed to disclose the payments to Fumo, who was a controlling party, as well as the expenditures outside its declared tax-exempt purpose. Finally, Form 1120 of CA Holdings claimed close to $70,000 in political expenditures as deductible business expenses by labeling it "Community Development Consulting."
This evidence was sufficient for a jury to find, beyond a reasonable doubt, that Fumo committed some act that aided or assisted in, procured, counseled, or advised the preparation or presentation of the false tax forms. As noted above, the Government introduce substantial proof that Fumo controlled Citizens Alliance and was intimately involved with its tax filings. Moreover, the evidence, detailed in the previous section of this Memorandum, allowed the reasonable inference that Fumo instructed Arnao to tell the accountants that Citizen Alliance's improper political polling expenditures were for "community development." As a direct result of that instruction, the accountants included this false information on tax forms, thereby hiding expenditures of Citizens Alliance that would have jeopardized its 501(c)(3) status. Finally, the jury could have concluded from the evidence that Fumo directed Arnao to hide all of Citizens Alliance's payments or other types of compensation to him from the accountants. In short, there was abundant evidence to prove that Fumo provided willful assistance in the preparation of a false return.
3. Whether Either Defendant Knew that the Statement on the Tax Return, Which is the Subject of Counts 100 to 103, Was "False"
In their final, and somewhat repetitive challenge to the Counts charging the scheme to defraud the IRS, Defendants contend that "the evidence did not show beyond a reasonable doubt, in relation to the conduct charged in Counts 100-103, that either defendant knew that the referenced statement on the tax return which is the subject of that Count was 'false.'" (Defs.' Mem. 6.) They argue that "[t]o be 'false' in the pertinent sense, the statement must have been both untrue as a matter of fact and incorrect as a matter of law, and each defendant must be shown to have known this." (Id.) Because of the lack of such evidence, Defendants argue that the convictions cannot stand.
The Court, again, finds no merit to this claim. The crimes alleged in these Counts are crimes of specific intent, meaning that they may be negated by a good-faith misunderstanding of the law or a good-faith belief that one is not violating the law. Cheek v. United States, 498 U.S. 192, 202 (1994); United States v. Morris, 20 F.3d 1111, 1115 (11th Cir. 1994). The term "willful" in this section, however, simply means a voluntary, intentional violation of a known legal duty; there is no requirement of showing "evil motive" beyond a specific intent to violate the law. United States v. Pomponio, 429 U.S. 10, 12 (1976). The government may prove willfulness through direct or circumstantial evidence. As the Third Circuit has explained:
In the majority of criminal cases, the element of intent is inferred from circumstantial evidence. . . . The rule is no different in tax evasion prosecutions.
The Supreme Court . . . [has] stated that "any conduct, the likely effect of which would be to mislead or conceal," is sufficient to satisfy the "affirmative act" element. . . . The cases simply require that there be some evidence from which a jury could infer an intent to mislead or conceal beyond mere failure to pay assessed taxes; it is for the jury to determine, as a matter of fact, whether the affirmative act was undertaken, in part, to conceal funds from or mislead the government.
United States v. Voigt, 89 F.3d 1050, 1090 (3d Cir. 1996) (internal citations omitted) (emphasis in original). "The government may show willfulness by pointing to evidence that the defendant kept a double set of books, made false entries or alterations in his books of accounting, created false invoices or documents, concealed assets or covered up sources of income, or did 'any conduct, the likely effect of which would be to mislead or to conceal.'" United States v. Ringwalt, 213 F. Supp. 2d 499, 504 (E.D. Pa. 2002) (quoting Spies v. United States, 317 U.S. 492, 499 (1943)), aff'd 66 Fed Appx. 446 (3d Cir. 2003).*fn13
The Government, in this case, adduced more than sufficient evidence of willfulness on the part of both Defendants. As to Defendant Fumo, the evidence summarized above established that he was fully aware of the requirements for maintenance of a section 501(c)(3) corporation, yet he purposely directed the use of Citizens Alliance assets for purposes beyond those allowed by the IRS. In an effort to avoid disclosure of such expenditures to the IRS, Fumo worked with Arnao and other members of his staff to: (1) establish sham for-profit subsidiaries in order to purchase various goods for his personal benefit; and (2) provide false information to the accountants regarding the political polling expenditures. Finally, and as direct evidence of his willfulness and knowledge that the tax returns of Citizens Alliance were false, the Government produced evidence that Fumo failed to report the transfer of Citizens Alliance funds or assets to himself on his individual tax returns.
Similarly, as to Arnao, the outside accountants testified that she had full knowledge of the financial workings of Citizens Alliance as well as the tax requirements for a section 501(c)(3) corporation. Yet, in maintaining the financial records of Citizens Alliance, she failed to disclose any payments of goods and services to Fumo of which she was fully aware. Indeed, as described above, she affirmatively misrepresented the extent of those expenditures and falsely indicated that Citizens Alliance was reimbursed by Fumo for any goods or services it provided to him. Moreover, she worked alongside of Fumo to establish the sham for-profit corporations and directly conveyed the false information regarding the political polling expenditures to the outside accountants.
In short, viewing this evidence in the light most favorable to the Government, any reasonable jury could find, beyond a reasonable doubt, that both Defendants knew that the statements on the tax returns, which were the subject of Counts 100-103, were "false" in the sense of being untrue both in fact and law. As such, the Court declines to grant Defendants' Motion on this ground.
D. Scheme to Defraud the Independence Seaport Museum (Defendant Fumo)
In his final effort to obtain a judgment of acquittal, Defendant Fumo challenges the sufficiency of the evidence with respect to the scheme to defraud the Independence Seaport Museum ("ISM") (Counts 104 to 108). Specifically, Fumo offers two bases for his Motion. First, he argues that there was no federally cognizable fraud since all material facts were known to John Carter, whom the Board of Directors had appointed as President of the Museum and who had day-to-day authority to act on behalf of ISM. Because all transactions were authorized by Carter, consistent with ISM's By-laws and Ethics Statement, and were fully disclosed in ISM's books and records, Fumo claims that his actions were not fraudulent. Second, he claims that none of the mailings or wires alleged in Counts 104 to 108 were caused "for the purpose of executing the scheme," as construed in the governing case law. Again, the Court discusses each of these arguments individually.
1. Whether the Evidence Was Sufficient to Establish, Beyond a Reasonable Doubt, that Fumo Had a Scheme to Defraud the ISM
Counts 104 to 108 of the Indictment, charged Defendant Fumo with mail and wire fraud, under 18 U.S.C. §§ 1341 and 1343, in furtherance of a scheme to defraud the non-profit ISM. In particular, the Indictment alleged that Fumo took advantage of his position as a member of the Board of Directors of the non-profit organization to obtain numerous free pleasure cruises on the museum's historic yachts, and acquire free, expensive ship models to be used as decoration in his office, without disclosing such benefits to the full Board of Directors. Reviewing the evidence introduced at trial in the light most favorable to the Government, the Court finds that the evidence was sufficient for the jury to convict Defendant Fumo on these counts.
At trial, the Government proved, without contradiction, that from 1996 to 2003, Fumo was a member of the Board of Directors, known as the "Board of Port Wardens," of ISM. Board members were not compensated, either monetarily or in-kind. (N.T. Meigs 15, Dec. 17, 2008.) Rather, they were expected to engage in fundraising or "development" on the Museum's behalf. (Id.) While Fumo obtained only few donations for the museum, either from his own funds or from his associates, he nonetheless provided substantial state and other public grants. (Govt. Ex. 1403.)
Notwithstanding the fact that none of the other Board members received any compensation, gifts, or rewards for their service,*fn14 the evidence at trial established that Fumo received extensive benefits. Every year, and sometimes more than one time per year, for a period of eight years, Fumo took a cruise to Martha's Vineyard on a yacht owned by the ISM. During these cruises, the Museum paid, not only for the cost of the ship, but for additional expenses such as groceries, supplies, and catered meals. One year, the Museum canceled bookings for one of its yachts to allow Fumo to take his cruise at his preferred time. On another occasion, when none of its yachts were available, the Museum chartered another yacht for Fumo's personal use. In sum, the Government established, and the Defense does not now dispute, that Fumo took a total of twelve free yacht voyages over eight years, with accompanying services and supplies, at a total cost to the Museum of $115,306.88. (Govt. Ex. 1370 (showing each yacht, date, length of time used, guests, charter fee, gratuity, delivery fee, food, and other incidentals)). All of the yacht trips were authorized by ISM President, John Carter.
Aside from the yacht trips, Fumo received models of the ISM ships, Enticer and Principa, for which the Museum paid thousands of dollars. John Carter also authorized the Museum's payment of more than $10,000 for two model renderings of Fumo's personal boat. (Govt. Ex. 1410.)
Other members of the Board of Port Wardens had no knowledge of the benefits being given to Fumo. John Meigs testified that prior to learning of the Government's charges against Fumo, he was not aware of Fumo ever being given free use of ISM's yachts or ISM's chartering of another yacht for Fumo's use. (N.T. Meigs 15, Dec. 17, 2008.) Walter D'Alessio, who was Chairman of the Board, was not aware of any decision by the Board to compensate or provide other financial benefits to Fumo for his work in steering grants to the Museum. (N.T. D'Alessio 8, Dec. 17, 2008.) During the period when he was Chairman, from 1992 to 2005, D'Alessio also had no knowledge that Fumo was being provided the free use of any of the Museum's historic yachts. (Id. at 10.) At no time, according to D'Alessio, was the Board ever asked to authorize any Board member's free use of the Museum's yachts for vacations or other personal benefits. (Id. at 11.) Finally, Peter McCauseland, current Chairman of the ISM Board and Board member during Fumo's tenure, indicated that he had no knowledge of any Board member's gratuitous use of the Museum's yachts for personal vacations and had no knowledge of such benefits being authorized by the Board. (N.T. McCauseland 20-21, Dec. 15, 2008.) Until reading about it in the newspaper, he was not aware of Fumo's free use of the Museum's yachts or the Museum's chartering of another boat. (Id.)
At trial, Fumo did not dispute that he received such gratuitous benefits, but rather argued that, consistent with the Museum's rules, he used the yachts for soliciting contributors to the Museum. Faced with the Government's evidence and testimony from Fumo's guests on the trip that the cruises were nothing more than pleasure cruises, Fumo effectively abandoned this defense and raised the following contention, both mid-trial and during post-trial motions:
The evidence did not show beyond a reasonable doubt that any facts were misrepresented by Senator Fumo to or concealed from ISM, as alleged. All material facts were known to John Carter, whom the Board of Directors had appointed as President of the Museum. Carter had day-to-day authority to act on behalf of ISM. Moreover, all transactions were fully disclosed in the ISM's books and records, as the evidence revealed. For lack of any cognizable "fraud," judgments of acquittal must therefore be entered on Counts 104-108.
The defendant also renews his motion for judgment of acquittal on these counts made when the government rested its case. No reasonable jury could have found beyond a reasonable doubt that ISM was defrauded in allowing of Senator Fumo to use its yachts, or in any other manner, as each trip and expenditure was authorized by Carter, consistent with a fair reading of the ISM Board's by-laws and ethics policy. (Defs.' Mem. 6-7.)
The Court, however, finds this argument to have no merit in light of the substantial evidence to the contrary. As noted above, the law is well-established that an officer or director of a corporation should avoid committing ultra vires acts. Gearhart Indus., Inc., 741 F.2d at 719. In addition, a corporate officer must perform his duties "as an officer in good faith, in a manner he reasonably believes to be in the best interests of the corporation and with such care, including reasonable inquiry, skill and diligence, as a person of ordinary prudence would under similar circumstances." 15 PA. CONS. STAT. § 512(c).
The Government established that John Carter's authorization of Fumo's yacht cruises at the expense of the Museum was outside of and in direct contravention of his authority under the ISM's By-laws and other governing documents.*fn15 Section 4.15 of the ISM By-laws contains an express prohibition on compensation to Board members:
Port Wardens shall not receive compensation for their services on the Board of Port Wardens; provided, however, that the Board of Port Wardens may authorize the reimbursement to any Port Warden of expenses necessarily incurred by him or her in the performance of his or her duties as Port Warden. Nothing herein contained shall be construed to preclude any Port Warden from serving the corporation in any other capacity and receiving compensation therefor. (Def. Ex. 1055.1, 4.) In addition, Article X of the By-laws provides that:
No contract or transaction in which a Port Warden or officer has a financial interest shall be knowingly entered into by the Corporation unless it has been authorized in good faith by the Board of Port Wardens pursuant to ...