Friday, May 25, 2012

Second Circuit Court of Appeals Reverses Stockbroker's Tax Evasion Conviction

The U.S. Court of Appeals for the Second Circuit reversed a New York stockbroker's conviction April 30 on charges of tax evasion for 1996 and 1997 due to insufficient evidence, and vacated her convictions for mail fraud and tax evasion for 1995 on the grounds the counts were improperly joined (UnitedStates v. Litwok, 2d Cir., No. 10-1985-cr, 4/30/12).

The taxpayer, Evelyn Litwok of East Hampton, operated a number of private equity companies from her home and, while she owed nearly $1.5 million in taxes for the years at issue, failed to file personal tax returns. The Second Circuit found there was insufficient evidence to prove that she engaged in an affirmative act relating to 1996 and 1997 and reversed her conviction.

Additionally, the court found the trial record shows no link between Litwok's alleged mail fraud by filing a false insurance claim and her failure to report income. The Second Circuit vacated her conviction on those counts and remanded the case to the U.S. District Court for the Eastern District of New York.

Had the evidence against Litwok been overwhelming on both counts, or had the District Court admitted the tax evasion evidence and the mail fraud evidence with appropriate limiting instructions to the jury, we may well have reached a different conclusion and deemed the error harmless. See id. at 100–01 (citing Lane, 474 U.S. at 450). But the evidence was certainly not overwhelming, and the District Court gave no such limiting instructions.

In summary, the misjoinder of Counts One and Two prejudicially affected the jury's deliberations on each of these counts. We therefore vacate the judgment of conviction as to these counts and remand to the District Court for further proceedings. Having found the evidence insufficient to sustain Litwok's convictions of tax evasion for 1996 and 1997, we need not address her arguments that these offenses were also misjoined with Count One.

For the foregoing reasons, we REVERSE the judgment of conviction for tax evasion for the years 1996 and 1997 (Counts Three and Four), VACATE the judgment of conviction as to the counts of mail fraud and tax evasion for the year 1995 (Counts One and Two), and REMAND to the District Court for further proceedings consistent with this opinion.

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