United States District Court, W.D. Virginia, Abingdon Division
Randy Ramseyer, Assistant United States Attorney, Abingdon, Virginia, for United States.
Michael J. Del Giudice and Timothy J. LaFon, Ciccarello, Del Giudice & LaFon, Charleston, West Virginia, and Wayne D. Inge, Roanoke, Virginia, for Defendant William "Bill" F. Adams, Jr.
Michael A. Bragg, Abingdon, Virginia, for Defendant John B. Ward.
OPINION AND ORDER
JAMES P. JONES, District Judge.
In this criminal case, I consider and deny post-verdict motions by the defendants.
William "Bill" F. Adams and John B. Ward were convicted by a jury in a joint trial in this court of conspiring to commit tax fraud and illegal structuring of currency transactions. They were also convicted of multiple counts of structuring.
The government contended that these crimes arose out of a so-called "ten-percent check cashing scheme." The scheme, the purpose of which was to avoid payment of taxes, involved coal mining companies and mine supply businesses located in Virginia and West Virginia. Over a period of time, the government alleged, crooked mine suppliers provided false invoices to certain mining companies. A mining company involved in the scheme would pay the invoice to the mine supply company by check and in return the supply company would pay ninety percent of the amount of the check in cash to the mining company, keeping ten percent as its fee. The equipment and supplies on the fraudulent invoices sometimes reflected items that the mining company already owned so that the invoices might appear legitimate if audited. The invoices also sometimes reflected a mix of actual equipment and supplies provided as well as purchased cash.
This scheme allowed the mining companies and their owners to avoid payment of income tax on the cash received as well as receive fictitious business tax deductions. In addition, some of the mining companies used the cash to pay employees "off the books, " so that the companies did not pay the required employment taxes and the employees in turn escaped reporting of their wages to the IRS.
The government alleged that the chief cash providers in this scheme were J.D. and C.E. McReynolds, the owners of JD&C Mine Supply Inc., E&J Mine Supply Inc., and L&A Trucking, and Kermit Wiley, the owner of United Hydraulics, Inc. The government contended that these individuals structured cash out of financial institutions by making multiple withdrawals of $10, 000 or less in order to obtain sufficient cash to support the scheme while evading the currency transaction reporting requirements.
Numerous individuals were involved in this scheme, and many were charged. Most pleaded guilty and several testified for the government at trial. Four defendants, all coal operators, pleaded not guilty and were tried together. Adams and Ward were convicted, but two codefendants, David Cline and his son Joshua Cline, were acquitted by the jury.
Count One of the Third Superseding Indictment charged the defendants with the following conspiracy:
From on or about January 1, 2007, through in or about February 2012, in the Western District of Virginia and the Southern District of West Virginia, [the defendants] conspired together and with others to (a) defraud the United States by impeding, impairing, obstructing and defeating the lawful functions of the [IRS] in the ascertainment, computation, assessment, and collection of taxes; and (b) structure currency transactions with one or more domestic financial institutions for the purpose of evading reporting requirements, in violation of 31 U.S.C. § 5324(a)(3).
All in violation of Title 18, United States Code, Section 371.
(Third Superseding Indictment 1, 7, ECF No. 243.) Additionally, the defendants were charged with numerous counts of structuring. These counts each charged that the defendants "willfully caused and aided, abetted, induced and procured the structuring and attempted structuring of currency transactions with one or more domestic financial institutions in the Western District of Virginia and elsewhere for the purpose of evading the reporting requirements prescribed by law, " in violation of 18 U.S.C. § 2 and 31 U.S.C. § 5324(a)(3). ( Id. at 8-61.) Each count listed certain dates on which the cash providers withdrew money from financial institutions in such a way as to evade reporting requirements, and the dates on which the defendants wrote checks to the cash providers in amounts that corresponded to the cash withdrawals. These counts also charged that the structuring activity was part of a pattern of illegal activity involving more than $100, 000 in a twelve-month period, conduct leading to an enhanced statutory penalty. See 31 U.S.C. § 5324(d)(2).
The trial lasted twelve days, from January 21, 2014, to February 5, 2014. The government called twenty-one witnesses. It presented testimony from bookkeepers, cash providers, and other coal mine operators who testified to the defendants' participation in the conspiracy and the structuring. The government also presented financial records related to the structuring charges that were verified by the records' custodians. Defendants Adams, David Cline, and Joshua Cline also called witnesses in their defense. David Cline was the only defendant who testified.
David Cline and Joshua Cline were acquitted by the jury of all charges against them. The jury found Adams guilty of the conspiracy charged in Count One, and on thirteen counts of structuring that were part of a pattern of illegal activity involving more than $100, 000 in a twelve-month period (Counts Thirty-Two, Thirty-Three, Thirty-Five, Thirty-Six, Forty, Forty-One, Forty-Two, Forty-Three, Forty-Four, Forty-Five, Forty-Six, Forty-Seven, and Forty-Eight). The jury found Adams not guilty of two structuring counts (Counts Thirty-Seven, Thirty-Nine).
The jury found Ward guilty of the conspiracy charged in Count One, on twenty-three counts of structuring that were part of a pattern of illegal activity involving more than $100, 000 in a twelve-month period (Counts Six, Eight, Ten, Twelve, Fourteen, Fifteen, Sixteen, Seventeen, Nineteen, Twenty-One, Thirty-Two, Thirty-Three, Thirty-Five, Thirty-Six, Forty, Forty-One, Forty-Two, Forty-Three, Forty-Four, Forty-Five, Forty-Six, Forty-Seven, and Forty-Eight), and on one count of structuring that was not a part of a pattern of illegal activity involving more than $100, 000 in a twelve-month period (Count Four). The jury found Ward not guilty of seven structuring counts (Counts Three, Seven, Thirteen, Eighteen, Twenty-Two, Thirty-Seven, and Thirty-Nine).
Adams and Ward have filed timely motions for judgment of acquittal pursuant to Federal Rule of Criminal Procedure 29(c), and for new trials pursuant to Federal Rule of Criminal Procedure 33(a).
In support of his Motion for Acquittal and Motion for a New Trial (ECF Nos. 430 and 431), Adams claims that the government did not prove a single conspiracy, but actually showed three separate conspiracies: (1) a check cashing conspiracy run by J.D. McReynolds, (2) a check cashing conspiracy run by Kermit Wiley, and (3) a conspiracy to pay cash wages. (Mem. Supp. 3, ECF No. 432.) He argues that the government did not prove a connection between J.D. McReynolds and Kermit Wiley. ( Id. at 12.) Adams also contends that the government improperly argued that the jury was only required to find either conspiracy to obstruct the IRS or conspiracy to structure currency transactions. He argues that the jury was required to find both. ( Id. at 8.) Next, Adams contends that there was insufficient evidence to link him to the conspiracy because J.D. and C.E. McReynolds did not testify that they had done business with him. ( Id. at 9-10.) Adams argues that the government presented improper Rule 404(b) evidence of multiple conspiracies in an effort to show his propensity toward the crime. ( Id. at 18.)
Adams also contends that the government "did not present any evidence" as to the substantive structuring counts against him. ( Id. at 13.) He asserts that there was no evidence that he had authorized the checks listed in the counts against him, in light of the fact that they had been signed by his signature stamp. ( Id. at 14.) He contends that the court erred in limiting the testimony of his forensic accountant, who could have testified that the checks that Adams allegedly had written to the cash providers were less than the total amount of cash that the government alleged he had received. ( Id. at 19.) Finally, he argues that the government presented its case through leading questions, which prejudiced him. ( Id. at 22.)
John Ward has filed a Motion for Judgment of Acquittal, or, in the Alternative, New Trial. (ECF No. 433.) Ward argues that the government's evidence showed the existence of multiple conspiracies, not a single conspiracy. (Br. Supp. 4, ECF No. 434.) He contends that the government did not prove his participation in the conspiracy because no evidence was presented that his company - Warcreek Mining - had filed erroneous tax returns, or that he had attempted to hide his handwritten markings on the books denoting cash payments to be made to his employees. ( Id. at 5.) He also argues that there was no evidence that he had known about false invoices in his company's records, because his bookkeepers acted independently without his input or direction. ( Id. at 11.) With regard to his role at W.A. Mining, Adams' company, Ward asserts that the evidence at best showed that he had picked up some of the cash, which he claims did not of itself indicate that he had been aware of the false invoices being supplied to W.A. Mining. ( Id. at 5.)
With regard to the structuring counts, Ward argues that the government did not present evidence that he had known that J.D. McReynolds was structuring cash withdrawals, or that he had been aware of the currency transactions reporting requirement. ( Id. at 10, 13.) He contends that his father had been responsible for any checks written to the McReynolds by Warcreek Mining. ( Id. at 14.) Finally, he argues that the jury's acquittal of David Cline on structuring counts in which he was also charged shows that the jury could not have found structuring by the McReynolds family in those transactions. ( Id. at 15.)
The motions have been fully briefed and are ripe for decision. After careful consideration of the record and the arguments made by counsel, I will deny the motions.
A summary of the evidence presented as to each defendant is as follows.
William "Bill" F. Adams, Jr.
Law enforcement officials executed a search warrant at Sandy's Bookkeeping, the bookkeeping firm used by Adams, on November 8, 2011, and seized the financial records for Adams' company, W.A. Mining, which had two coal mines: the Cherokee mine and the Warcreek mine. At trial, the government introduced time sheets from W.A. Mining that contained handwritten notations. (Trial Tr. 82, Jan. 24, 2014, ECF No. 411.) Angela "Angie" Payne, an employee of Sandy's Bookkeeping, testified that Adams had made the handwritten notations to show which employees should be paid in cash and how much they should receive. ( Id. at 15.) She identified these handwritten notations on time sheets from both mines. ( Id. at 14, 26-27.) She testified that she had not paid employment taxes for the company on the cash wages, and that she had not reported them on W-2 forms. ( Id. at 15, 27.)
Payne also testified that she had handled bookkeeping for R.S. Mining and Illusions, Inc., two companies that Adams started after W.A. Mining stopped operating the Warcreek mine. ( Id. at 30-31.) Payne testified that Adams had paid employees in unreported cash at R.S. Mining as well, although R.S. Mining's records were not originally seized from her office when the search warrant was executed. ( Id. at 31.) She testified that someone had removed the timesheets for R.S. Mining after the search, and that Adams had brought them back to her. ( Id. at 31-32.) She said that the returned time sheets had been altered because they no longer showed unreported cash payments. ( Id. at 32.)
Sandra "Sandy" Addair, the owner of Sandy's Bookkeeping, also testified to her knowledge of Adams' involvement in the check cashing scheme. She testified that J.D. and C.E. McReynolds had dropped off invoices for Adams at her office. (Trial Tr. 148, Jan. 29, 2014, ECF No. 414.) She stated that she had written checks for these invoices using signature stamps, but only with Adams' or Ward's permission - they would either tell her to pay an invoice, or she would call them to see if she should pay it. ( Id. at 149.) She also testified that she had seen Adams pick up the returned cash from her office, even though defendant Ward usually picked up the cash. ( Id. at 161.)
Addair identified a time sheet for W.A. Mining and explained that the notations on it were the amounts Adams had told her to pay in unreported cash. ( Id. at 153.) She testified that she had not included the cash payments on W-2s or in the employment tax calculations. ( Id. at 158.) Addair testified that she had filed falsified income tax returns, Form 941 (employment tax) returns, and W-2s for Illusions, Inc., R.S. Mining, and W.A. Mining. She also testified that she had filed falsified individual tax returns for Adams. ( Id. at 166-70.)
Addair testified that she had gone to the mines while her office was being searched to tell Adams what was happening. ( Id. at 162-63.) She testified that he had said in reference to the time sheets with the handwritten notations, "I thought you destroyed those." ( Id. at 163.)
The government also introduced extensive paper evidence on the structuring counts against Adams. It introduced the general ledgers of W.A. Mining, R.S. Mining, and Illusions, Inc. (Trial Tr. 61, Jan. 24, 2014, ECF No. 411.) It presented invoices from JD&C Mining Inc., L&A Trucking, and E&J Mine Supply Inc. to W.A. Mining, and also introduced records of the checks written to pay those invoices. ( Id. at 42-58.) Payne testified that Adams had authorized her to write these checks, and that members of the McReynolds family had dropped off cash at her office during this period. ( Id. at 47-53.)
The government introduced evidence that Payne had written Adams more than two dozen checks as reimbursement for false business expenses. (Trial Tr. 67-72, 77, Jan. 24, 2014, ECF No. 411.) Payne identified these checks on W.A. Mining's ledger. ( Id. ) She testified that while Adams occasionally had brought in receipts for mine expenses, the receipts did not add up to the total amount of checks he had received as reimbursement. She stated that the checks actually had been for cash, not repairs. ( Id. at 80-81.) Sandy Addair also testified that she had written reimbursement checks to Adams that he actually had used for payroll cash. (Trial Tr. 158-159, Jan. 29, 2014, ECF No. 414.)
The government presented evidence on Adams' structured transactions with Kermit Wiley as well. Wiley testified that he had sold cash to Adams for a ten percent fee by having checks made out to Dare McKinney, a disabled coal miner to whom Wiley would sometimes give part of the money. (Trial Tr. 206-07, Jan. 27, 2014, ECF No. 422.) Wiley testified that he had sold cash to Adams several times, and that the invoices that he had given to Adams stating that the money was for services were false. ( Id. at 209.) The government introduced invoices from Dare McKinney to R.S. Mining, and also introduced records of the checks used to pay those invoices. ...