United States v. Michael P. Oshatz and Leonard A. Messinger

912 F.2d 534, 31 Fed. R. Serv. 558, 78 A.F.T.R.2d (RIA) 5648, 1990 U.S. App. LEXIS 14774
CourtCourt of Appeals for the Second Circuit
DecidedAugust 23, 1990
Docket847, 858, Dockets 89-1228, 89-1375
StatusPublished
Cited by57 cases

This text of 912 F.2d 534 (United States v. Michael P. Oshatz and Leonard A. Messinger) is published on Counsel Stack Legal Research, covering Court of Appeals for the Second Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
United States v. Michael P. Oshatz and Leonard A. Messinger, 912 F.2d 534, 31 Fed. R. Serv. 558, 78 A.F.T.R.2d (RIA) 5648, 1990 U.S. App. LEXIS 14774 (2d Cir. 1990).

Opinions

JON O. NEWMAN, Circuit Judge:

The primary issue on this appeal is whether the prosecution may cross-examine a defendant’s character witness by asking questions based on an assumption that the defendant is guilty of the offense charged. This issue arises on an appeal by Michael P. Oshatz and Leonard A. Messing-er from their judgments of conviction entered, respectively, on July 14 and May 5, 1989, in the District Court for the Southern District of New York (Robert W. Sweet, Judge) after an eleven-week jury trial on charges arising out of their involvement in a series of fraudulent tax schemes. We reaffirm this Circuit’s view that such cross-examination is impermissible, but nonetheless affirm the convictions because our prior pronouncement on this issue was understandably misinterpreted by the District Court and the resulting error was harmless in the circumstances of this ease.

[536]*536Background

Between 1979 and 1983, Oshatz, a tax attorney, assisted in the formation of a number of affiliated partnerships known as the “Monetary Group.” The offering mem-oranda for the Monetary Group reported that the partnerships would invest in various financial instruments to secure economic gain, that these investments would involve substantial market risk, and that any losses generated by these transactions would be available as tax deductions. Osh-atz and Messinger, his law partner, also formed a number of other partnerships, in which they held an interest, for the purpose of purchasing tax shelter investments from the Monetary Group.

The Monetary Group partnerships engaged primarily in two types of securities transactions on behalf of their limited partner investors. Initially, the partnerships entered into “straddle” transactions in which “short” and “long” positions are simultaneously established in a commodity or a security. At the end of the year, the side of the transaction with a loss is closed out, generating a tax deduction. At the beginning of the next year, the other “leg” of the transaction is closed out, generating a taxable gain. After Congress passed legislation curtailing the use of straddle transactions, see Economic Recovery Tax Act of 1981, Pub.L. No. 97-34, 95 Stat. 172, 323-26, the partnerships entered into repurchase (“repo”) agreements as investment vehicles. This type of arrangement involves the purchase of a security with borrowed money, with the security serving as collateral for the loan. In “open” repurchase agreements, the interest charge on the loan fluctuates with the prevailing market rate, entitling the investor to an interest expense deduction since a profit or loss may be realized on the transaction. Open repurchase agreements function much like straddle transactions since the interest on the loan may be deducted immediately, while the gain from the underlying security, generally a Treasury bill, is not realized until the next taxable year.

The Government offered convincing proof that the tax losses reported by the partnerships from these transactions were not the product of legitimate trading. Edward Markowitz, the head trader for the Monetary Group, testified that he falsified trade documents to reflect straddle transactions that never occurred. The partnerships also removed the risks associated with repurchase agreements by fixing the interest rate of the loan to coincide with the interest rate of the securities that colla-teralized the loan. Though this type of arrangement, known as a “repo to maturity” repurchase agreement, is legal, it provides no basis for claiming an interest expense deduction since no profit or loss can be realized in connection with the interest charges. To generate the desired tax losses, the partnerships financed repurchase agreements by using fixed “repo to maturity” rates but fraudulently documented the transactions as “open” repurchase agreements. Cf. United States v. Atkins, 869 F.2d 135, 138 (2d Cir.), cert. denied, — U.S. -, 110 S.Ct. 72, 107 L.Ed.2d 39 (1989).

The Government brought a sixteen-count indictment against Oshatz and Messinger for their roles in the trading activities of these partnerships. Count One charged both defendants with a conspiracy to defraud the United States, in violation of 18 U.S.C. § 371 (1988), by engaging in fraudulent securities transactions for the purpose of generating tax losses. The remaining counts alleged that one or both of the defendants aided in the filing of false tax returns for various partnerships, in violation of 26 U.S.C. § 7206(2) (1988), and that both defendants knowingly and willfully filed false personal income tax returns, in violation of 26 U.S.C. § 7206(1) (1988). The jury returned guilty verdicts against Osh-atz and Messinger on each of the counts in which they were charged. The District Court sentenced Oshatz to forty months’ imprisonment and three years’ probation. Messinger was sentenced to twenty-eight months’ imprisonment and three years’ probation.

Discussion

Appellants challenge the cross-examination of character witnesses, the admission [537]*537of similar acts evidence, the exclusion of evidence claimed to impeach the credibility of a prosecution witness, and the admission of a summary chart.

I. Cross-Examination of Character Witnesses

Defense counsel questioned Gail Logan as to the reputation of Oshatz for truthfulness and honesty and as to her opinion of his truthfulness and honesty, eliciting testimony favorable to the defense. Logan, who had been an associate in defendants’ law firm, had originally been called as a Government witness and became a character witness for Oshatz during cross-exami-. nation. For convenience, we will consider the defense questioning that elicited her character testimony to be direct examination and the prosecution’s questioning that challenged her character testimony to be cross-examination. On cross-examination, the prosecutor asked, “If I were to show you that Mr. Oshatz knew that the Mar-kowitz transactions were backdated, would that affect your opinion?” Objection was made and overruled. Logan answered, “Yes.” Similar questions were asked and similarly answered with respect to other aspects of the wrongdoing alleged to constitute the offenses for which Oshatz was on trial. After the witness was excused, counsel for both defendants challenged the Government’s right to cross-examine a character witness with hypothetical questions based on an assumption of guilt as to the pending charges. The next day defense counsel called Judge Sweet’s attention to several opinions that appeared to proscribe the challenged cross-examination, including this Circuit’s decision in United States v. Morgan, 554 F.2d 31 (2d Cir.), cert. denied, 434 U.S. 965, 98 S.Ct. 504, 54 L.Ed.2d 450 (1977). In that decision we had said that “[ijnsofar as non-expert character witnesses are concerned,” a hypothetical question that assumes the guilt of the defendant “should not be asked.” Id. at 34.

Before the end of the trial, Judge Sweet filed an opinion rejecting the defendants’ objection to the cross-examination.1 United States v. Oshatz, 704 F.Supp. 511 (S.D.N.Y.1989).

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912 F.2d 534, 31 Fed. R. Serv. 558, 78 A.F.T.R.2d (RIA) 5648, 1990 U.S. App. LEXIS 14774, Counsel Stack Legal Research, https://law.counselstack.com/opinion/united-states-v-michael-p-oshatz-and-leonard-a-messinger-ca2-1990.