United States v. Smith

789 F.2d 196, 1986 U.S. App. LEXIS 24645
Court of Appeals for the Third Circuit·Decided April 28, 1986·No. Nos. 85-5532, 85-5702 and 85-5714·Published·Cited by 102 cases

Opinion

[198] OPINION OF THE COURT

JAMES HUNTER, III, Circuit Judge:

I. INTRODUCTION

XET, Ltd. d/b/a CTA, Ltd., Computer Technology Associates, Inc., John R. Tor-quato, Jr., William T. Smith, Alan R. Stone-man, Judy Ellis, and David Herbert were charged in a thirty-nine count indictment with conspiracy, 18 U.S.C. § 371 (1982), fifteen violations of the Interstate Transportation and Aid of Racketeering (“I.T.A. R.” or “Travel Act”) statute, 18 U.S.C. § 1952(a)(3) (1982) and the mail fraud statute, 18 U.S.C. § 1341 (1982). The indictment outlined a conspiracy involving fifty-one overt acts, seven mail fraud violations, and nine I.T.A.R. violations.

The conspiracy count alleged that the defendants sought to obtain Federal Insurance Contribution Act (“FICA”) recovery contracts1 from state and local entities, not by placing bids, but by bribing public officials with cash, stock, stock options, campaign contributions, employment, and paid travel. The defendants directed their efforts at obtaining the contracts for Allegheny County, the City of Pittsburgh, and the Pennsylvania school employees. The indictment alleged that the conspiracy existed from January 1983 until October 22, 1984.

Torquato, Ellis, and Herbert entered guilty pleas to various counts. Smith and Stoneman pleaded not guilty to all counts. Their trial began on March 26, 1985 and was completed on June 24, 1985. At trial, the government called twenty-two witnesses against Smith and Stoneman, including their principal witness, Torquato, to support the government’s allegations that Smith had offered a total of $400,000 in bribes to the Treasurer and Attorney General of Pennsylvania and that Stoneman had participated in the bribery scheme. The defendants called eighty-eight witnesses including many public officials who had dealt with Torquato on the FICA recovery contracts.

The jury found Smith guilty of conspiracy, four counts of mail fraud and four I. T.A.R. counts. Stoneman was found guilty only of conspiracy. The court sentenced Smith, who could have received up to two million dollars from the scheme, to a twelve-year prison term and a $63,000 fine. Stoneman was sentenced to a prison term of four months and fined $10,000. The government presented no evidence that Stoneman was to receive any payment other than his usual attorney fees.

II. EVIDENCE PRESENTED

In early 1983, Smith and Torquato met to discuss how to obtain Pennsylvania state contracts to recover overpaid Social Security taxes. The two had been friends and business associates for over twenty years. Torquato is the son of a former Democratic County Chairman of Cambria County. Smith was then the Republican Chairman of Dauphin County. They agreed to make political contributions to officials in a position to award the contracts. Torquato introduced Smith to David I. Herbert, the State Director for Social Security, who controlled FICA recovery for Pennsylvania’s public employees. The three men discussed other political subdivisions where they might obtain contracts. From January 1983 to October 1984, Smith and Tor-quato concentrated on obtaining contracts for Allegheny County, the City of Pittsburgh, and Pennsylvania state employees.

CTA, Ltd. obtained and performed a contract for FICA recovery for Allegheny County. This company had been formed by Stoneman on November 29, 1982. Tor-quato sent a copy of the proposal to Smith for review and wrote to him about con[199] tracts in other areas. Torquato paid $852.00 for James Scanlon, head of Allegheny County Computer Services, to take a trip to New York with his family. Stone-man paid this bill on August 31, 1983. Scanlon recommended that CTA, Ltd. be given the contract over other companies giving lower bids. Stoneman executed the contract on behalf of CTA, Ltd.

Torquato offered Gene Scanlon, James Scanlon’s brother, a number of benefits including a $50,000 a year job at CTA, Ltd. for Jim Scanlon, mailing lists for his daughter’s business, use of a rented car, payment for an airline ticket, and finally $100,000 to set up a “widget factory” in Hong Kong. Allegheny County paid CTA, Ltd. for the contract in November 1983. The next month, Torquato sent Smith $1,000 for his services along with a letter discussing how to influence Herbert.

Stoneman set up a California corporation, Corn-Max, Inc., on January 5, 1984, but did not file the corporate documents that would have identified the officers of the corporation and disclosed its connection to CTA, Ltd. He sent 1,500 shares of Corn-Max, Inc. to Herbert on January 22, 1984 with a letter stating that the stock would be bought back in three years for at least $15,000. A similar letter plus 1,500 shares was sent to Scott O’Donnell, Chief Clerk of Allegheny County.

CTA, Ltd. also obtained a FICA recovery contract for the employees of Pittsburgh. The company was to be paid $150,000 even though another contractor, who eventually did the job for the city, had bid $35,000. In fact, after CTA, Ltd. obtained the contract, Torquato hired this bidder as a subcontractor to do the work for $35,000. Stoneman sent Robert Rade Stone, President of the Pittsburgh City Council, a $6,374.86 check drawn on Stoneman’s own bank account and stock options for 35,000 shares of Corn-Max stock. Stoneman also sent stock options for 25,000 shares to Richard Schmeiser, Director of Finance for the City of Pittsburgh. Some of the profits from the FICA contracts were to be used to make the Corn-Max stock valuable and, therefore, to benefit the public officials who were given Corn-Max stock and stock and options.

During 1983, the defendants tried to obtain the FICA recovery contract for all Pennsylvania state employees. Torquato and Smith wanted a fee of $8,000,000 for the job. In November 1983, however, they discovered that the contract was to be performed in-house at a cost of $300,000. To secure the contract, Smith and Torquato had visited the Republican State Chairman, Robert Asher, in July 1983 and offered him $500,000 from the contract for the Republican Party. They decided that, in order to obtain the FICA recovery contracts, they needed to have jurisdiction over the contracts moved from the governor to the State Treasurer, R. Budd Dwyer, a friend of Smith’s. Smith met with Senate Minority Whip Eugene Scanlon, David Herbert, and Jim Scanlon to discuss legislation to accomplish the change. After the legislation passed, Torquato purchased $500 worth of tickets to House Majority Leader Jim Manderino’s fund raiser.

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United States v. Smith, 789 F.2d 196, 1986 U.S. App. LEXIS 24645 (3d Cir. 1986).

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