On Appeal from the District Court for the Middle District of Pennsylvania (No. 05-cr-00402) District Judge: Honorable John E. Jones III.
The opinion of the court was delivered by: Fuentes, Circuit Judge
Before: RENDELL, FUENTES, and ROTH, Circuit Judges.
Defendants John and Timothy Rigas (the "Rigases") seek to prevent their trial in the Middle District of Pennsylvania for conspiracy to defraud the United States and for substantive tax evasionviolations. The Rigases, who were convicted of conspiracy and substantive fraud counts in the Southern District of New York, but acquitted of wire fraud, claim that their reprosecution in Pennsylvania violates their right to be free from double jeopardy.
The Rigases' principal argument is that the alleged conspiracy (to defraud the United States) charged in Pennsylvania was formed by the same illegal agreement that created the New York conspiracy (to commit offenses against the United States). Because conspiracy to defraud the United States and conspiracy to commit offenses against the United States are different ways of violating a single general conspiracy statute, 18 U.S.C. § 371, the Rigases maintain that they should have been prosecuted under both theories in the same proceeding. The District Court denied the Rigases' motion to dismiss the Pennsylvania indictment.
We agree with the Rigases that 18 U.S.C. § 371 creates a single statutory offense. Because we also find that the Rigases have established a prima facie case that there was only one conspiratorial agreement, we will remand to the District Court to conduct an evidentiary hearing on the conspiracy count.
This appeal stems from the 2002 collapse of Adelphia Communications Corporation ("Adelphia"). John Rigas was the founder of Adelphia. Until 2002, he served as Adelphia's Chairman and Chief Executive Officer ("CEO"). His son, Timothy Rigas, was a board member and Chief Financial Officer ("CFO").Until its disastrous collapse in 2002, Adelphia was the sixth largest cable television provider in the United States. Although the Rigas family did not own a majority of Adelphia's outstanding common stock, they controlled a majority of Adelphia's shareholder votes.*fn2 As a result, the Rigas family elected eight of Adelphia's nine directors and controlled all of Adelphia's corporate affairs.
In the late 1990s, Adelphia began a process of rapid expansion by acquiring other cable operators. It financed these acquisitions by issuing new corporate stock and taking on corporate debt. As a result of this process, Adelphia became highly leveraged. In order to avoid diluting their control of Adelphia, and to create the appearance that Adelphia was reducing its debt burden, the Rigases purchased large amounts of Adelphia stock and assumed Adelphia's debt. According to the Government, these transactions were a sham. When the true state of Adelphia's finances and operations became clear, Adelphia collapsed.
Prior to June 2002, Adelphia's stock was registered with the SEC and was publicly traded on the NASDAQ National Market System. In January 2002, Adelphia's stock traded at $31.85. By June 2002, Adelphia's stock was worth pennies a share and was delisted by NASDAQ.
In 2002, John and Timothy Rigas were indicted in the Southern District of New York. The New York Indictment charged, among other offenses, a wide-ranging conspiracy to loot Adelphia and to hide both the Rigases' plunder and Adelphia's weak financial condition from the public and the SEC, all in violation of 18 U.S.C. § 371. A jury subsequently convicted the Rigases on the conspiracy count, as well as a number of substantive fraud offenses. However, the Rigases were acquitted of wire fraud and one of the bank fraud counts.
In 2005, the Rigases were indicted in the Middle District of Pennsylvania and charged with conspiracy to defraud the United States in violation of 18 U.S.C. § 371 by evading the taxes due on their ill-gotten gains. John and Timothy Rigas were also each charged with three counts of tax evasion for the tax years 1998-2000.*fn3
On September 23, 2002, a grand jury sitting in the Southern District of New York returned an indictment against John and Timothy Rigas, Michael Rigas (Adelphia's Executive Vice President of Operations and another son of John Rigas), and Michael Mulcahey (an Adelphia executive but not a member of the Rigas family). See United States v. Rigas, et al., No. S1-02-cr-1236 (S.D.N.Y.). A superceding indictment, returned in July 2003, charged the defendants with conspiracy to commit an offense against the United States in violation of 18 U.S.C. § 371. The objects alleged by the conspiracy count were numerous: securities fraud in violation of 15 U.S.C. §§ 78j(b) and 78ff and 17 C.F.R. § 240.10b-5; wire fraud in violation of 18 U.S.C. §§ 1343 and 1346; making false and misleading statements in SEC filings in violation of 15 U.S.C. § 78ff; falsification of the books of a public company in violation of 15 U.S.C. §§ 78m(b)(2)(A), 78m(b)(5), and 78ff, and 17 C.F.R. § 240.13b2-1; and bank fraud in violation of 18 U.S.C. § 1344. The Rigases were also charged in twenty-two substantive counts of wire fraud, bank fraud, and securities fraud. The New York Indictment was supplemented by a Bill of Particulars on January 2, 2004.
After a four-and-a-half month trial, the jury found John and Timothy Rigas guilty of: (1) conspiracy to commit securities fraud, to make false statements to the Securities and Exchange Commission ("SEC"), to falsify Adelphia's books and records, and to commit bank fraud; (2) securities fraud in connection with the purchase or sale of Adelphia Class A stock, debentures, and notes; and (3) bank fraud. They were acquitted of wire fraud. The jury did not reach a conclusion about whether wire fraud was an object of the conspiracy. The Second Circuit reversed one of the two bank fraud counts, but affirmed the remaining convictions. Rigas, 490 F.3d at 236, 239.
John Rigas received a sentence of five years' imprisonment on the conspiracy count, and a total combined sentence of twelve years on all the counts. United States v. Rigas, No. 02-cr-1236, 2008 WL 2544654, at *7 (S.D.N.Y. June 24, 2008). Timothy Rigas received a sentence of five years imprisonment on the conspiracy count, and a total combined sentence of seventeen years on all counts. Id. Financial penalties were governed by a Settlement Agreement between the Government and the Rigas family, including John Rigas, Doris Rigas, Michael Rigas, Timothy Rigas, James Rigas, and Ellen Rigas Venetis. The Settlement Agreement did not apply to any tax violations.
1. New York Conspiracy Count
Count One of the New York Indictment alleges a wide-ranging conspiracy (1) to create the false appearance that Adelphia's operating performance was strong and that Adelphia was reducing its debt burden, (2) to use Adelphia assets for the personal benefit of members of the Rigas family, and (3) to make false and misleading statements.*fn4 We focus on the second aspect of the conspiracy, which most closely overlaps with the charges in the Pennsylvania Indictment.
a. Use of Adelphia Assets for Personal Purposes
The New York Indictment alleges that the Rigases used Adelphia funds "[a]mong other things . . . to construct a golf course on land primarily owned by JOHN J. RIGAS; routinely used Adelphia's corporate aircraft for their personal affairs, without reimbursement to Adelphia; and used at least approximately $252,157,176 in Adelphia funds to pay margin calls against loans to the Rigas family." New York Indictment ¶ 62 (emphasis added).
The New York Bill of Particulars provided specific allegations about some of the "other things" the Rigases used Adelphia funds for. For example, according to the Bill of Particulars: Adelphia purchased real estate from Rigas family members above market value without the property being conveyed to Adelphia; Adelphia purchased real estate for Rigas family members and paid to maintain and renovate that property; Adelphia paid the Rigases' property taxes and insurance premiums; Adelphia paid golf club membership dues for the Rigases, paid expenses related to Ellen Rigas's wedding, and purchased 100 pairs of slippers for Timothy Rigas. The New York Bill of Particulars also alleges that Adelphia made charitable contributions on behalf of the Rigases.*fn5
From about 1999 to 2002, "Adelphia advanced millions of dollars in cash to JOHN J. RIGAS, TIMOTHY J. RIGAS and MICHAEL J. RIGAS, in excess of their publicly disclosed compensation." New York Indictment ¶ 169. Other unnamed family members also received "substantial amounts of cash." Id. In about 2001, John Rigas began receiving monthly cash payments of about $1 million. In April 2001, the Rigases "caused Adelphia to file an amended annual report on Form 10-K, which falsely understated the total amount of compensation to [the Rigases and others] by failing to include the[se] cash advances." Id. According to the New York Bill of Particulars, these cash advances totaled nearly $80 million.
In June 2001, the Rigases began constructing a golf course on land in Coudersport, Pennsylvania. Adelphia owned a small portion of the land, while John Rigas owned the rest. The Rigases used approximately $13 million in Adelphia funds on golf course equipment, development, and construction.
Adelphia operated three airplanes out of an airport in Wellsville, New York. The Rigases, "and other members of the Rigas family, routinely used the Adelphia Airplanes for personal travel" without reimbursing Adelphia. Id. ¶ 192.
The Rigases also took Adelphia stock without paying for it and used Adelphia assets to pay for their purchases of Adelphia stock. The Rigas family claimed that they were reducing Adelphia's debt by purchasing substantial amounts of Adelphia stock, but they never actually paid for that stock. Instead, Adelphia "purportedly was compensated for those securities by 'assumptions' by certain [Rigas Family Entities] of debt owed by Adelphia." New York Indictment ¶ 74. These "assumptions" had no financial significance because Adelphia remained "jointly and severally liable for all such debts." Id.
According to the New York Bill of Particulars, the Rigases also took shares of common stock owned by Adelphia from Adelphia's vault and placed them in an escrow account for the benefit of the Buffalo Sabres, a hockey team owned by the Rigas family.
Finally, the Rigas family purchased Adelphia stock on margin using stock loans from a number of banks. When the banks made margin calls against the loans, the Rigases had Adelphia pay the loans. According to the New York Indictment, "[t]he Rigas Family did not reimburse Adelphia for the funds used to pay the margin calls." ¶ 185.
2. New York Wire Transfer Counts
The substantive counts in the New York Indictment included five wire fraud counts. They charged that Adelphia made the following fraudulent wire transfers: (1) a September 18, 2001 transfer of $5 million; (2) an October 1, 2001 transfer of $4.5 million; (3) a March 28, 2002 transfer of about $6.4 million; (4) a March 29, 2002 transfer of about $3.9 million; and (5) an April 12, 2002 transfer of about $4.3 million. The Rigases were acquitted of these charges.
B. The Pennsylvania Action
On October 6, 2005, a grand jury sitting in the Middle District of Pennsylvania returned an indictment charging John and Timothy Rigas with (1) one count of conspiracy to defraud the United States in violation of 18 U.S.C. § 371; and (2) six counts of tax evasion in violation of 26 U.S.C. § 7201.
According to the Pennsylvania Indictment, the Rigases' conspiracy to evade income tax dates back to the late 1980's, shortly after Rigas family members sold privately held cable companies to Adelphia.*fn6 As a result of this transaction, Rigas family members paid over $12.6 million in federal income taxes. "JOHN J. RIGAS and TIMOTHY J. RIGAS stated to an Adelphia employee that they would never pay this large amount of taxes again." Pennsylvania Indictment at 6, ¶¶ 1-2. Timothy Rigas told "Adelphia employees that the Rigas family members should not take large salaries from Adelphia, but should 'live out of the company.'" Id. at 6, ¶ 3.
Shortly thereafter, the Rigases began diverting funds from Adelphia accounts to Rigas family members and family-controlled entities. The allegations about these diverted funds closely parallel the allegations in the New York Indictment: To make these transfers look legitimate to the public and outside auditors, Timothy Rigas accounted for many of these transfers as "loans or intercompany receivables owed to Adelphia, so as to evade the payment of income taxes on the diverted funds."
Pennsylvania Indictment at 6-7, ¶ 5. The Rigases used Adelphia's funds to purchase the Buffalo Sabres hockey team, to pay personal expenses, to build a golf course, to pay for Adelphia stock, and to pay margin loans used to buy additional Adelphia stock. The Rigases also used Adelphia's corporate aircraft for personal travel. Timothy Rigas occasionally made false accounting entries indicating that the Rigases had repaid these loans or assumed liability for Adelphia's corporate debt in exchange for the loans. In all, the Pennsylvania indictment alleges that the Rigases diverted $1.9 billion from Adelphia for the personal benefit of Rigas family members,*fn7 resulting in a tax loss of over $300 million.
The substantive counts of the indictment allege that John Rigas personally evaded approximately $51 million in income tax for the years 1998-2000, and that Timothy Rigas evaded $85 million in income tax for those years.
The Rigases maintain that the Pennsylvania conspiracy count violates their right to be free from double jeopardy. They argue that 18 U.S.C. § 371 creates a single statutory offense of conspiracy, and that they can only be tried once for a single conspiratorial agreement in violation of that statute. The Rigases also maintain that the New York jury concluded that they did not take Adelphia's funds for their personal use, and thus that the substantive tax evasion counts are barred by the collateral estoppel component of ...