UNITED STATES COURT OF APPEALS FOR THE FIRST CIRCUIT
No. 96-1132
UNITED STATES OF AMERICA,
Appellee,
v.
RICHARD GOLDBERG,
Defendant, Appellant.
ERRATA SHEET
At page 16, line 15, delete ", Michael Kendall," and at page 17,
line 2, substitute "the prosecutor in question" for "Kendall".
UNITED STATES COURT OF APPEALS
FOR THE FIRST CIRCUIT
APPEAL FROM THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Douglas P. Woodlock, U.S. District Judge]
Before
Boudin, Circuit Judge,
Bownes, Senior Circuit Judge,
and Lynch, Circuit Judge.
Morris M. Goldings with whom David R. Kerrigan and Mahoney,
Hawkes & Goldings were on brief for appellant.
Michael Kendall, Assistant United States Attorney, with whom
Donald K. Stern, United States Attorney, and Kevin J. Cloherty,
Assistant United States Attorney, was on brief for the United States.
February 3, 1997
BOUDIN, Circuit Judge. Richard Goldberg was convicted
of two counts of conspiracy to defraud the Internal Revenue
Service, 18 U.S.C. 371, and eight counts of aiding and
assisting the filing of false income tax returns, 26 U.S.C.
7206(2). Goldberg's appeal is now before us. We begin by
describing the factual background and proceedings in the
district court.
In the years prior to his indictment in 1995, Goldberg
was involved in several businesses in and around Boston. His
ventures included a billboard company, Logan Communications,
and a partial interest in a "Park 'N Fly" lot located in East
Boston near Logan Airport. Goldberg also owned and operated
Liverpool Lumber, Inc., which Goldberg used as a management
company for various of his other enterprises.
In or around 1988, Goldberg became aware that the
Commonwealth of Massachusetts planned to take all or part of
the East Boston Park 'N Fly lot by eminent domain as part of
its Third Harbor Tunnel project. The planned taking not only
threatened Goldberg's profitable parking business, but also
his billboard company, since many of its signs were located
on the parking lot's land. Goldberg began an intense
lobbying effort against the proposal in 1988, eventually
spending over $1 million of his and his partners' money to
oppose the tunnel plans.
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Two of those hired to oppose the project--community
activist Robert A. Scopa and consultant Vernon Clark--were
named as co-conspirators in the two separate conspiracies for
which Goldberg was ultimately convicted. Taking the evidence
most favorable to the verdict, the facts pertaining to the
two different conspiracies were as follows.
Scopa Conspiracy. From 1990 to 1995, Goldberg employed
Scopa to help organize the East Boston community against the
tunnel project and to perform other services. But Goldberg
never paid Scopa in Scopa's own name. Instead, Goldberg had
his Liverpool Lumber company issue paychecks to three
successive "straw" employees, none of whom worked for
Goldberg and all of whom agreed to hand the money over to
Scopa.
To reflect the "wages" of the straw employees, Goldberg
directed his bookkeeper at Liverpool Lumber to prepare
various W-2, W-3, and W-4 reporting statements, which were
then filed with the IRS. These documents falsely described
wage payments to straws who had performed no work for
Liverpool Lumber. The straws, in turn, falsely included the
phantom wages from Liverpool on their own individual returns.
Reporting the money on the straws' returns instead of Scopa's
resulted in a loss of about $150 to the Internal Revenue
Service.
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The government claimed at trial that the scheme was
devised so that Scopa would seem to be unemployed and thus
could continue to collect monthly benefits under a disability
insurance policy. Evidence also indicated that Scopa sought
to hide the payments in order to preserve his status as an
"independent" activist in the East Boston community and to
prevent an extramarital affair from being discovered by his
wife. The district court later found that Scopa, but not
Goldberg, was motivated by all of these objectives.
Clark Conspiracy. In the course of opposing the Third
Harbor Tunnel project, Goldberg also retained Vernon Clark, a
lobbyist in Washington, D.C., who performed various services
to this end. Goldberg's companies owed Clark a substantial
sum of money in 1991 for work performed in opposition to the
tunnel project. Rather than pay the bill directly, the two
men agreed with others to a more complicated method for
Goldberg to discharge his debt to Clark.
At the time, Clark was having a secret affair with a
woman named Patricia McNally. The pair occasionally spent
time in a Maine beach house of which McNally was part owner.
Clark sought to fund an expansion of the beach house without
his wife's knowledge. Goldberg agreed to pay the money he
owed to Clark to a landscaping company owned by John Lango,
McNally's brother-in-law, who would in turn construct the
beach house expansion.
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Goldberg arranged for the preparation of two separate
$10,000 invoices to Park 'N Fly from Lango, dated October 15,
1991 and January 1, 1992, respectively. The invoices were
ostensibly for landscaping services, although Lango performed
no work for any of Goldberg's companies. The invoices were
paid by Park 'N Fly. Lango testified at trial that the
payments were structured in two installments so as to reduce
his taxes on the transaction.
The triangular flow of money and services involved the
preparation and filing of several false tax documents. At
Goldberg's direction, Park 'N Fly sent forms 1099-MISC, one
for each $10,000 payment, to the IRS and to Lango. The forms
falsely listed the payments as non-employee compensation to
Lango. Lango in turn reported the payments as income on his
own income tax returns in 1991 and 1992. Clark did not
report the money. The foreseeable tax loss to the IRS based
on this scheme was about $3,000.
A federal grand jury indicted Goldberg on April 6, 1995
for offenses relating to the above activities. The
indictment charged Goldberg with two counts of conspiring to
defraud the United States government, 18 U.S.C. 371,
several counts of aiding and assisting the filing of false
income tax returns, 26 U.S.C. 7206(2), and several counts
of mail fraud based on his alleged efforts to conceal his
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employment of Scopa from the latter's disability insurer. 18
U.S.C. 1341.
After moving unsuccessfully to dismiss the indictment,
Goldberg waived his right to a trial by jury. Goldberg's
trial before the district judge took eight days, and on
September 6, 1995, the court announced its findings. The
court found Goldberg guilty of conspiring to defraud the
government and of aiding and assisting in the preparation of
false tax returns, but acquitted him on the mail fraud
charges on the ground that his motive to help defraud the
insurer had not been proved beyond a reasonable doubt.
At Goldberg's sentencing in December 1995, the district
court made guideline calculations (described below) but then
departed downward two levels and sentenced Goldberg at the
bottom of the range. The result was a ten-month sentence--
five months to be served in prison and five in community
confinement--as well as three years of supervised release and
a $20,000 fine. Goldberg now appeals, challenging his
convictions and sentence.
The most important and difficult issues on appeal relate
to Goldberg's conviction for conspiracy under 18 U.S.C. 371
to defraud the IRS. This type of conspiracy is known as a
Klein conspiracy, taking its name from an earlier case
involving a complex scheme designed to escape taxes. United
States v. Klein, 247 F.2d 908 (2d Cir. 1957). Goldberg
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argues that the district court misunderstood the crime's
"purpose" element and that the evidence did not support a
conviction.
The defraud clause of Section 371 criminalizes any
conspiracy "to defraud the United States, or any agency
thereof in any manner or for any purpose." 18 U.S.C. 371.
Such conspiracies to defraud are not limited to those aiming
to deprive the government of money or property, but include
conspiracy to interfere with government functions. See,
e.g., United States v. Tarvers, 833 F.2d 1068, 1075 (1st Cir.
1987). The crime with which Goldberg was charged, therefore,
was that he conspired to interfere with the proper
functioning of the IRS, through the filing of false tax
documents.
It is commonly said that in such a conspiracy the fraud
has to be a purpose or object of the conspiracy, and not
merely a foreseeable consequence of the conspiratorial
scheme. Dennis v. United States, 384 U.S. 855, 861 (1966); 1
Sand et al., Modern Federal Jury Instructions 19.02 (1990).
Consider, for example, the case of a band of bank robbers.
All know that the agreed-upon robbery will generate "income"
that none of the robbers will report. Yet it would be
straining to describe interference with the IRS as a purpose
or object of the conspiracy. E.g., United States v. Vogt,
910 F.2d 1184, 1202 (4th Cir. 1990).
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This requirement of purpose accords generally with
conspiracy doctrine, United States v. Alvarez, 610 F.2d 1250,
1256 (5th Cir. 1980), but it is especially important under
the defraud clause of section 371. There are not many
financial crimes without some implications for false
reporting in someone's tax filings, if not for tax liability
itself. If section 371 embraced every foreseeable
consequence of a conspiracy, many joint financial crimes
having no other federal nexus--and perhaps many non-criminal
acts as well--would automatically become federal conspiracies
to defraud the IRS.
The "purpose" requirement, however, is easier to state
than to apply. The laundering of drug money, for example,
normally involves the deliberate concealment of the money's
origin. The primary purpose is almost always to avoid
detection of the underlying crime; but can a jury also find
an implied secondary objective to conceal income from the
IRS? We have held, on specific facts, that a jury could draw
such an inference and also find a violation of section 371.
E.g., United States v. Cambara, 902 F.2d 144, 147 (1st Cir.
1990); Tarvers, 833 F.2d at 1075-76.
Such cases are the source of Goldberg's first argument
on this issue. He argues, inventively, that the conspirators
either must have as their primary purpose the aim of
frustrating the IRS or must be agreeing to undertake the
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conduct in question to conceal some other crime. An example
of the first alternative (primary purpose) is Klein itself
where a web of shell companies and deceptive arrangements was
devised to evade taxes; the second alternative (concealment
of crime) captures the money laundering precedents.
This view of section 371 might explain a number of cases
and create a barrier against overreaching by prosecutors.
But it makes no doctrinal sense. A conspiracy can have
multiple objects, Ingram v. United States, 360 U.S. 672, 679-
80 (1959), and any agreed-upon object can be a purpose of the
conspiracy and used to define its character. The central
problem, which ought not be shirked, is to distinguish
rationally between cases where interfering with government
functions is a purpose and those where it is merely a
foreseeable effect of joint action taken for other reasons.
This effort poses subtle problems in discriminating
"purpose" from "knowledge" and in separating the objects of a
conspiracy from its more remote consequences. Volumes could
be written on these subjects but--for cases like ours--a more
compact solution is at hand: where the conspirators have
effectively agreed to falsify IRS documents to misstate or
misattribute income, we think that (depending upon the
circumstances) the factfinder may infer a purpose to defraud
the government by interfering with IRS functions in the sense
endorsed by the Supreme Court in Dennis.
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It may well be that the conspirators in this case had no
subjective desire--primary or secondary--to throw sand in the
wheels of the IRS, let alone a subjective aim to reduce tax
liability. Goldberg's argument on this point, with one
qualification as to the Clark conspiracy, may be plausible.
But filing a number of false tax documents misattributing
income can interfere so clearly and proximately with IRS
functions--or at least a factfinder could (but need not) so
find--that we see no sharp distinction under section 371
between a purpose to file such documents and a purpose to
interfere.
In permitting a factfinder to equate the two purposes,
we leave untouched the general precept, namely, that mere
collateral effects of jointly agreed-to activity, even if
generally foreseeable, are not mechanically to be treated as
an object of the conspiracy. This would be a different case
if, without filing false tax documents, Goldberg had agreed
with his partners to pay Jones under the table, knowing that
Jones had no intention of reporting the money to the IRS. If
the difference is in degree, then here the degree matters.
This brings us to the evidentiary question raised by
Goldberg which we rephrase to accord with our just-stated
view of the law: does the evidence in this case show that
Goldberg and at least one other conspirator shared a purpose
to interfere with IRS functions by the filing of false income
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reports with the IRS? This question must be asked and
answered separately as to each conspiracy, as Goldberg was
convicted of two separate conspiracies under section 371 and
each conviction involves a separate assessment.
In each conspiracy, the illicit purpose that gives rise
to section 371 violation must be shared by two or more
conspirators. Although the government's brief stresses the
evidence pertaining to Goldberg's own role and knowledge, a
conspiracy to defraud requires at least two who share that
aim. Innocent third parties may be the unwitting instruments
of a conspiracy. But when it comes to characterizing the
purposes or objects of the conspiracy, it is those that are
shared by at least two co-conspirators that make up the
illegal agreement between them. United States v. Krasovich,
819 F.2d 253, 255 (9th Cir. 1987).
Here, the district court found that a purpose of the
conspirators, in each conspiracy, was to interfere with the
IRS. As we have said, such a purpose can be inferred,
depending upon the facts, where the very acts agreed to by
the conspirators included the filing of false income-related
tax documents. This purpose can fairly be imputed to
Goldberg who arranged for the creation of several or more
false tax documents in each scheme. The duration and
complexity of the schemes, and Goldberg's own sophistication,
add to the inference.
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There is no evidence that Goldberg discussed the filing
of false tax documents with other conspirators. Yet we think
that such conduct was an integral and self-evident part of
each conspiracy, permitting the inference that other co-
conspirators shared in that purpose. In the case of the
Scopa conspiracy, false W-2s were given to the straws, who
were participants in the scheme, over an extended period.
Scopa himself signed a tax return with his wife, who was one
of the straws, that incorporated a false W-2.
As to the Clark conspiracy, Lango received the false
form 1099s, and he in turn reported the false figures to the
IRS. Indeed, Lango asked that the amount be divided so that
it could be reported in two different years, testifying later
that Clark had made the suggestion. This indicates a tax
motive but, in addition, shows that both men knew that the
filing of false tax documents was an integral part of the
scheme, and both shared in this purpose with Goldberg. In
sum, the evidence supports the trial court's findings of a
common purpose to interfere with IRS functions.
In addition to "the danger [of injustice] inherent in a
criminal conspiracy charge," Dennis, 384 U.S. at 860, the
defraud clause of section 371 has a special capacity for
abuse because of the vagueness of the concept of interfering
with a proper government function. For that reason, we have
examined with special care both the concept and the evidence
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in this case. But having done so, we conclude that the
conduct and purpose of the defendants, although markedly less
sinister than in Klein, could properly be found to fall
within the outer bounds of section 371.
Goldberg next challenges the admission at trial of two
out-of-court conversations between Lango and Clark, in which
they discussed the false landscaping invoices and the
solicitation of Goldberg's participation in the scheme.
These statements were admitted, over Goldberg's objection at
trial, pursuant to Fed. R. Evid. 801(d)(2)(E), which provides
that "a statement by a co-conspirator of a party during the
course and in furtherance of the conspiracy" is not
considered hearsay.
Goldberg does not dispute that Lango and Clark made the
challenged statements during and in furtherance of the
conspiracy, but he argues that the statements were not
admissible against him because they were made before he
joined. He relies heavily on our opinion in United States v.
Petrozziello, 548 F.2d 20 (1st Cir. 1977), where we said that
"if it is more likely than not that the declarant and the
defendant were members of a conspiracy when the hearsay
statement was made, and that the statement was in furtherance
of the conspiracy, the hearsay is admissible." Id. at 23.
Although this language has been cited with approval in a
few later cases, e.g., United States v. McCarthy, 961 F.2d
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972, 976-77 (1st Cir. 1992), it conflicts with United States
v. Baines, 812 F.2d 41 (1st Cir. 1987). Baines expressed the
traditional notion that--insofar as hearsay is concerned--a
late-joining conspirator takes the conspiracy as he finds it:
"a conspiracy is like a train," and "when a party steps
aboard, he is part of the crew, and assumes conspirator's
responsibility for the existing freight . . . ." Id. at 42;
accord United States v. Saccoccia, 58 F.3d 754, 778 (1st Cir.
1995).
Frankly, the underlying co-conspirator exception to the
hearsay rule makes little sense as a matter of evidence
policy. No special guarantee of reliability attends such
statements, save to the extent that they resemble
declarations against interest. The exception derives from
agency law, an analogy that is useful in some contexts but
(as the Advisory Committee noted) is "at best a fiction"
here. The most that can be said is that the co-conspirator
exception to hearsay is of long standing and makes a
difficult-to-detect crime easier to prove. United States v.
Gil, 604 F.2d 546, 549 (7th Cir. 1979).
If starting afresh, one might argue that the narrow
Petrozziello version of the exception should be preferred, if
only because it accords better with the companion rule
imposing substantive liability for other crimes committed
during the conspiracy; a co-conspirator is held liable for
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foreseeable acts of others done in furtherance of the
conspiracy but only if committed during the defendant's
period of membership. United States v. O'Campo, 973 F.2d
1015, 1021 (1st Cir. 1992). Symmetry is at least convenient.
But we are not starting afresh. The broader Baines test
describes the traditional approach, United States v. United
States Gypsum Co., 333 U.S. 364, 393 (1948), presumptively
adopted by the Federal Rules of Evidence. It is followed in
most circuits. See 2 Saltzburg, et al., Federal Rules of
Evidence Manual 219-22 (5th ed. 1990) (collecting cases).
Most important, it is the test in most of our own recent
cases, including Saccoccia, decided only 19 months ago.1
This panel is arguably not free, but is in any event not
inclined, to depart from Saccoccia.
Goldberg's next claim on appeal is based on his motion
filed prior to trial asking the district court to dismiss the
indictment on the ground of selective prosecution. The
district court denied the motion without holding a full
evidentiary hearing. Goldberg claims that he alleged facts
sufficient to require a hearing on his complaint, and he now
1See Saccoccia, 58 F.3d at 778; O'Campo, 973 F.2d at
1023 n.5; United States v. Fields, 871 F.2d 188, 194 (1st
Cir. 1989); United States v. Murphy, 852 F.2d 1, 8 (1st Cir.
1988); United States v. Anguilo, 847 F.2d 956, 969 (1st Cir.
1988); United States v. Reynolds, 828 F.2d 46, 47-48 (1st
Cir. 1987); United States v. Cintolo, 818 F.2d 980, 997 (1st
Cir. 1987).
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asks this court to remand the case so that he may have such a
hearing.
The government is allowed "broad discretion" in deciding
whom to prosecute, Wayte v. United States, 470 U.S. 598, 607
(1985), but there are some limitations. It is said that the
government may not base its decision to prosecute on an
"unjustifiable standard," including the defendant's exercise
of protected statutory and constitutional rights. Wayte, 470
U.S. at 608. Goldberg bases his selective prosecution claim
on the theory that he was targeted by the government in
response to his vigorous--and constitutionally protected--
lobbying activities in opposition to the Third Harbor Tunnel
project.
In seeking an evidentiary hearing, a defendant need only
allege "some facts (a) tending to show that he has been
selectively prosecuted and (b) raising a reasonable doubt
about the propriety of the prosecution's purpose." United
States v. Saade, 652 F.2d 1126, 1135 (1st Cir. 1981). But
the court may refuse to grant a hearing if the government
puts forward adequate "countervailing reasons" to refute the
charge, id., and if the court is persuaded that the hearing
will not be fruitful. Review on appeal is for abuse of
discretion. United States v. Gary, 74 F.3d 304, 313 (1st
Cir. 1996).
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Here, Goldberg alleged that one of the prosecutors on
the case made a comment to Goldberg's counsel during a
preindictment meeting to the effect that Goldberg "should not
have won" his fight with Frederick Salvucci, Massachusetts'
secretary of transportation during the tunnel planning stage.
Goldberg also claimed that the initials "D.D." on a
prosecution file reflect the complicity in the investigation
of David Davis, executive director of MassPort. Finally, he
pointed to the fact that several of his co-conspirators in
the two schemes, including Clark and Lango, were never
indicted.
The government filed several affidavits to rebut the
claim. It denied that the prosecutor in question made the
alleged statement to Goldberg's attorney. It explained that
the initials "D.D." on the file that raised Goldberg's
suspicion in fact referred not to David Davis but to Denise
Doherty, an FBI agent assigned to the case. In another
district court paper, the government described the origins of
its investigation into Goldberg's activities and gave
examples of other recent prosecutions for mail fraud and
Klein conspiracies.
The district court ultimately denied a hearing, saying
that Goldberg's claims were "close to conclusory." We have
reviewed the complete filings of both sides and the district
court's explanation. What is involved is a judgment call--
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tempered on appeal by the deferential standard of review--as
to the force and specificity of the allegations, the strength
of the response, and the likelihood that a hearing would be
helpful. United States v. Lopez, 71 F.3d 954, 963-64 (1st
Cir. 1995). Here, the district court did not abuse its
discretion.
The claim of selectivity was quite weak; the government
largely explained its choice mainly to pursue Goldberg and
Scopa. And the rather modest evidence of wrongful motive
also melted away, leaving only a single dispute. As to this,
four prosecutors denied under oath that the alleged remark
had been made. But it is in any event too thin a reed to
require an evidentiary hearing, given the lack of surrounding
evidence to support a selective prosecution claim.
Even less need be said about Goldberg's later new trial
motion, whose summary denial is also cited as error. In
substance Goldberg complained that the government did not
follow its own internal rules for tax prosecutions or reveal
to him information about this decision. The government's
procedures do not create substantive rights, United States v.
Michaud, 860 F.2d 495, 499 (1st Cir. 1988), and there is no
substantial basis for believing that the government withheld
Brady material, Brady v. Maryland, 373 U.S. 83 (1963), let
alone that its actions were prejudicial.
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Goldberg's last claim of error concerns his sentencing.
In fixing the sentence, the district court enhanced
Goldberg's base offense level of 10, by four levels--two
levels for his role in the offense, U.S.S.G. 3B1.1(c), and
two more levels for obstruction of justice, id. 3C1.1--to
arrive at an adjusted offense level of 14. (All citations
are to the November 1995 edition of the guidelines).
However, the court departed downward two levels to 12 because
it thought Goldberg's conduct was outside the "heartland"
contemplated by the Klein conspiracy sentencing guideline.
Id. 2T1.9.
The district judge stated that although Goldberg's
conduct "as a matter of law constitutes a Klein conspiracy,
as a matter of sentencing law, it seems to me inappropriate
to apply the Klein conspiracy guidelines." He chose to
depart downward two levels because he thought the guideline
section for aiding and assisting tax fraud, 2T1.4, with a
base offense level of 8 (when the tax loss is $3,001 to
$5,000), was more reflective of Goldberg's conduct than the
Klein conspiracy guideline, 2T1.9, which has a base offense
level of 10.2
2The ten-month sentence--five months to be served in prison and five in community confinement--was the minimum end of the resulting guideline range of 12. U.S.S.G. ch. 5, pt. A (10-16 months at offense level 12).
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The government, sensibly in our view, has chosen not to
pursue an appeal from the downward departure. But Goldberg,
as is his right, challenges the district court's decision to
impose a two-level enhancement for his managerial or
supervisory role in the Scopa and Clark conspiracies. The
applicable guideline calls for an increase if "the defendant
was an organizer, leader, manager, or supervisor in any
criminal activity." U.S.S.G. 3B1.1(c). In such a case, a
two-level increase applies to joint criminal activity that
involved fewer than five participants and was not otherwise
extensive. Id.
Goldberg says that the only person he managed or
supervised was his bookkeeper, Arlene Meucci. Meucci, he
argues, does not count under the guideline because she was
not a culpable participant. See United States v. Morillo, 8
F.3d 864, 872 & n.13 (1st Cir. 1993); U.S.S.G. 3B1.1,
comment n.1. However, at the sentencing hearing, the
district court found that Goldberg "had a management role" in
connection with false payroll and tax documentation directed
to the straw employees in the Scopa conspiracy.
We review a district court's factfinding at sentencing
under a clearly erroneous standard. United States v.
Thompson, 32 F.3d 1, 4 (1st Cir. 1994). On the record before
us, ample evidence shows that Goldberg superintended the
straws' receipt of false tax documents. Goldberg says that
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Scopa and Clark were the true leaders of the two
conspiracies. But a defendant need not be at the top of a
criminal scheme to be a manager or supervisor. United States
v. Savoie, 985 F.2d 612, 616 (1st Cir. 1993). Here,
Goldberg's role was sufficient for the enhancement even if we
assume that Scopa conceived of the payroll scheme and may
have exercised primary supervision over the straws.
Affirmed.
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