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United States v. Ottaviano

United States Court of Appeals, Third Circuit

December 24, 2013

UNITED STATES OF AMERICA
v.
RONALD OTTAVIANO, Appellant

Argued September 24, 2013

On Appeal from the United States District Court for the District of New Jersey (D.C. No. 10-cr-00485) District Judge: Honorable William J. Martini

Mark E. Coyne (Argued) Office of United States Attorney Attorneys for Plaintiff-Appellee

Mark A. Berman (Argued) Hartmann, Doherty, Rosa & Berman Attorneys for Defendant-Appellan

Before: AMBRO, FISHER and HARDIMAN, Circuit Judges.

OPINION

HARDIMAN, Circuit Judge.

Ronald Ottaviano appeals his judgment of conviction for mail and wire fraud, money laundering, tax evasion, and conspiracy to defraud the Internal Revenue Service. Ottaviano raises various constitutional and legal challenges to the conduct of his trial. Because we are unpersuaded that the District Court committed reversible error, we will affirm.

I

Ottaviano is one of those peculiar Americans who does not believe himself bound by United States tax law. Not content to subject only himself to the penalties that flow inevitably from this belief, Ottaviano marketed his views to others for his own financial gain. Through his company, Mid-Atlantic Trusts and Administrators, Ottaviano offered financial products he claimed would help others elude the IRS and have the government pay their debts.

Mid-Atlantic's principal offering was the "Pure Trust Organization" (PTO), which Ottaviano marketed as a means to hide assets from creditors and the IRS. Although PTOs appeared to be legitimate trusts for which Ottaviano and his company would act as trustees, in actuality customers had unlimited access to and control over the accounts—which made them sham trusts. Mid-Atlantic charged customers $3, 000 to start a PTO, after which the company would open a bank account for the customer, often using a false employer identification number and representing that someone other than the customer had "created" the PTO or exchanged assets into it. Mid-Atlantic would then give the customer a debit card, checkbooks, and the online account password, as well as stamps bearing the trustees' signatures, giving customers full control of the assets.

To maintain the appearance of propriety, PTO customers' bank statements were mailed to Ottaviano's home before he forwarded them to customers. Mid-Atlantic also gave customers an elaborate binder of "trust documents" with an "official" section in the front and secret instructions in the back, behind a page prominently labeled "KEEP THIS MANUAL PRIVATE." This section explained that customers could access money in the account whenever and however they wanted as long as they made it appear as if the trustees were making the decisions.

Ottaviano posted false testimonials on Mid-Atlantic's website and referred to them in a podcast to reassure customers about PTOs. He also claimed the PTOs had experienced "just three challenges, but . . . stood up each time, " despite knowing that the IRS considered them a sham.

In 2007, after attending a seminar hosted by a well-known tax protestor, Ottaviano and his business partner also began offering a debt-elimination plan called "Beneficiaries in Common" (BIC). Inspired by "redemption theory, " which posits that the Uniform Commercial Code can be used to access secret bank accounts maintained by the government in every citizen's name, Ottaviano marketed BIC using an elaborate story: When the United States abandoned the gold standard in 1933, the country went bankrupt and the citizenry became debtors. At that point, the U.S. Treasury created secret accounts for each citizen, tied to Social Security numbers or birth certificates. By filing certain documents with the federal and state governments, a citizen could access his account and transform himself from debtor to creditor, forcing the U.S. Treasury to take out millions of dollars and pay off customers' "public debts, " such as mortgages, credit cards, taxes, and criminal fines and penalties.

As far-fetched as this sounds, unscrupulous and/or credulous souls paid Mid-Atlantic $3, 500 each ($5, 000 if purchased jointly) to participate. Ottaviano bolstered his sales pitch by falsely claiming that customers had successfully satisfied mortgages using BIC, that he had successfully used both BIC and PTOs to eliminate his own tax liability and discharge his own debt, and that the Treasury Department had assured him BIC was legitimate. Ottaviano also misrepresented to customers that he had graduated from college and law school, was a certified financial planner and certified to represent taxpayers before the IRS, and was backed by a staff of certified public accountants. In truth, Ottaviano had never even attended college, notwithstanding the fake Villanova University diploma displayed in his office.

After customers bought into BIC, Ottaviano would guide them through a lengthy process. First, Mid-Atlantic provided a $300 million "indemnity bond" for the customer to submit to the Secretary of the Treasury. According to Ottaviano, if the Secretary did not reject the bond in 15 days, it was accepted, and the Secretary had to open an account in the customer's name. Next, the customer "funded" the new account by submitting a $50 million, Mid-Atlantic-supplied bond to the Treasury, supposedly to authorize the government and customer to each spend up to $25 million. After enough time passed for the bond to be "processed, " the customer would be "bonded" and could use Mid-Atlantic-supplied promissory notes against the $25 million. The initial BIC fee included two promissory notes. Additional notes cost $500 each. Mid-Atlantic began sending the U.S. Treasury thousands of "bonds" on behalf of hundreds of customers.

Unsurprisingly, BIC was not effective. Customers who tried to use it to satisfy debts received predictable responses from financial institutions and from the government warning them that BIC was a fraud and that the so-called bonds were worthless. Ottaviano received numerous emails informing him that BIC was likely illegal, yet continued to sell it to new customers. Meanwhile, the Mid-Atlantic offices and staff were flooded with phone calls, letters, faxes, and email from frustrated customers.

Ottaviano's scheme began to unravel in early 2008, when a customer warned Mid-Atlantic office manager Susan McDermott that BIC might be an illegal scam. McDermott and a coworker followed up by searching for more information online and shared what they learned with other colleagues, as well as with Ottaviano and his wife. Soon thereafter, McDermott and the coworker quit their jobs and reported Ottaviano's activities to authorities.

The IRS Criminal Investigation Division had also been probing Ottaviano's business dealings and in the fall of 2008 executed search warrants at his home, a mailbox, and Mid-Atlantic's office, seizing computers and documents. This and later searches unearthed a wealth of evidence, including additional customer complaints and notices from banks and other companies warning that BIC notes and bonds were "irrelevant gibberish" and "frivolous." Even after the warrants were served, however, Ottaviano continued to promote BIC and PTOs, including to an undercover agent posing as a prospective customer. Among other things, Ottaviano told the agent how a customer could really control the PTO, although "the way it's set up, and the way all the documents are, nobody could ever prove that."

In 2010, Ottaviano was charged with one count of conspiracy to defraud the United States under 18 U.S.C. § 371, eight counts of mail and wire fraud under 18 U.S.C. §§ 1341 and 1343, one count of money laundering under 18 U.S.C. § 1957, and two counts of tax evasion under 26 U.S.C. § 51. The indictment also sought forfeiture of both the fees Mid-Atlantic received from 2005 to July 2010 and the Delaware beach house that Ottaviano bought using some of the proceeds.

A jury trial began in May 2011 before Judge William J. Martini of the District of New Jersey. Ottaviano was tried with four codefendants, all of whom were represented by counsel. Ottaviano opted to represent himself, with court" appointed standby counsel available to serve as a resource. At trial, the Government presented extensive documentary evidence detailing Ottaviano's role as the architect of the scheme, as well as testimony from seven IRS representatives, three former employees (including his former office manager, Susan McDermott), four BIC customers who described their negative experiences, and two Ottaviano acquaintances who debunked testimonials Ottaviano had falsely attributed to them.

To further undermine Ottaviano's defense that he had acted out of a good-faith belief that PTOs and BIC were valid, prosecutors presented evidence showing that he had attempted to hide Mid-Atlantic's activities by installing its real computer server in a crawl space above the company's office while placing a dummy server downstairs. The Government also introduced recordings of Ottaviano promoting PTOs and BIC between 2007 and 2009, as well as Ottaviano's conversations with the undercover agent, his meetings with the IRS, and jailhouse calls to his wife.

Initially, the trial proceeded without incident, even with Ottaviano representing himself, and the transcript indicates that Judge Martini acted as a neutral, patient, and accommodating arbiter. After the Government rested, Ottaviano mounted his defense. He ultimately called thirteen witnesses, but had difficulty getting them to appear on the right day and time. With the trial approaching a fourth week, Judge Martini's patience began to wear thin. Despite Ottaviano's promise to show that some BIC instruments worked, his witnesses testified only that Ottaviano had not guaranteed them BIC would work, and no one testified that BIC had satisfied their debts.[1] At various points during ...


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