Free Motion for Disclosure - District Court of Arizona - Arizona

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PAUL K. CHARLTON United States Attorney District of Arizona DANIEL R. DRAKE Assistant U.S. Attorney Two Renaissance Square 40 N. Central Avenue, Suite 1200 Phoenix, Arizona 85004-4408 Arizona State Bar No. 003781 Telephone (602) 514-7623 [email protected]

UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA United States of America, Plaintiff v. John Delo Nichols, Defendant MOTION FOR DISCLOSURE OF BUSINESS RECORDS

The United States, in accordance with the plea agreement in this case, and pursuant to Rule

15 6(e) of the Federal Rules of Criminal Procedure, hereby moves for an Order permitting the 16 disclosure of business records obtained by grand jury subpoena(s)so they might be used by the 17 Internal Revenue Service in calculating the tax loss, that is, the amount of tax owed by the 18 defendant. The parties agreed in paragraph 2(a) of the Plea Agreement, because of the 19 complexity of the case and the detailed accounting required, to leave the calculation of the 20 precise amount of tax loss, or unpaid taxes due and owing, for determination in an administrative 21 proceeding between the IRS and the defendant. Defendant further agreed, in paragraph 3 of the 22 Plea Agreement, that the Internal Revenue Service might have full access to the criminal 23 investigation, including grand jury materials, in making its determination regarding the amount 24 of taxes, penalties and interest due. 25 Because the records sought to be disclosed are business records which were generated 26 independent of the grand jury, and because their use would be in connection with a judicial 27 proceeding, disclosure is appropriate. 28 Excludable delay under 18 U.S.C. § 3161(h) may occur as a result of this motion or an order

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1 based thereon. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 2 /s/ DANIEL R. DRAKE Assistant U.S. Attorney PAUL K. CHARLTON United States Attorney District of Arizona This motion is supported by the following Memorandum of Points and Authorities. Respectfully submitted this 4th day of June, 2005.

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1 2 3 4 FACTS: Defendant John Delo Nichols was charged by grand jury indictment with violations of Title MEMORANDUM OF POINTS AND AUTHORITIES

5 26, United States Code, Section 7203, Willful Failure to File a Return. Because of this failure 6 to file a return, the Internal Revenue Service computed a tax liability using the bank deposits 7 method. That method uses the records of defendant's various accounts with financial firms and 8 other financial transactions to determine the amount of receipts and disbursements during a 9 given period, taking into account inter-account transfers and expenditures. The defendant is 10 given credit for typical exemptions, exclusions, and deductions in this method, and a final tax 11 liability is computed. 12 The defendant has entered a plea of guilty to Count 3 of the indictment in a written Plea

13 Agreement. In that Agreement Mr. Nichols admits he received approximately $70,000 during 14 the calendar year ending December 31, 1999, in the form of checks written to him personally, 15 or to cash. Nichols concedes he received sufficient income to require him to file a tax return, 16 and that he failed to do so. 17 The Plea Agreement specifically provides that the determination of the precise tax loss, that

18 is the amount the government would have received had the defendant filed an accurate tax 19 return, is a matter best entrusted to an administrative proceeding between the IRS and Mr. 20 Nichols because of the complexity of the case and the detailed accounting required. 21 Recognizing the need for ready access to bank, brokerage, and business records showing receipts 22 and disbursements, the parties further agreed that business records in the government's 23 possession might be used to assist in that determination. The records had been ordered produced 24 pursuant to grand jury subpoenas as part of the investigation and charging of the defendant. 25 They were made available to the defendant and his attorney as part of the discovery process in 26 this case. 27 The following business records, provided to the grand jury in this case, are relevant to the

28 IRS civil proceedings:

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Charles Schwab & Co., Inc. Bank One Edward D. Jones & Company Salomon Smith Barney Oklahoma Gas & Electric Sun Valley Mailing Services Chase Manhattan Bank Automated Payment Processing Citibank Transnational Title Insurance Company Bank of America Lawyers Title Morgan Stanley Dean Witter/Dean Witter Reynolds Security Title Agency Homeside Lending, Inc. Paine Webber

LAW: Federal Rules of Criminal Procedure, Rule 6(e)(2) provides: "A grand juror, an interpreter, a stenographer, an operator of a recording device, a typist who transcribes recorded testimony, an attorney for the government, or any person to whom disclosure is made under paragraph (3)(A)(ii) of this subdivision shall not disclose matters occurring before the grand jury, except as otherwise provided for in these rules."

23 One such exception is in Rule 6(e)(3)(E): "The court may authorize disclosure--at a time, in a 24 manner, and subject to any other conditions that it directs--of a grand-jury matter." Subsection 25 (i) provides that this exception applied, "preliminarily to or in connection with a judicial 26 proceeding." 27 28 The "long-established policy of non-disclosure seeks to: (1) prevent the escape of 2

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1 prospective indictees, (2) insure the grand jury of unfettered freedom in its deliberations, (3) 2 impede the subornation of perjury and tampering of witnesses by targets of the investigation, (4) 3 encourage forthrightness in witnesses without fear of retaliation, and (5) act as a shield for those 4 who are exonerated by the gand jury." U.S. v. Dynavac, Inc. 6 F3d 1407, 1411 (9th Cir. 1993). 5 When a document "is sought for its own sake rather than to learn what took place before the

6 grand jury, and if its disclosure will not compromise the integrity of the grand jury process, Rule 7 6(e) does not prohibit its release." Id. at 1411-12. In Dynavac, the records sought from the 8 company by the IRS were business records that had previously been provided to a grand jury in 9 the course of an investigation. The court held that the disclosure would not violate Rule 6(e): 10 "In sum, we think that the disclosure of business records independently generated and sought 11 for legitimate purposes, would not `seriously compromise the secrecy of the grand jury's 12 deliberations.'" Id. at 1412 (citation omitted). Here the documents at issue were prepared 13 independently of the grand jury investigation (and therefore do not constitute "matters occurring 14 before the grand jury") and are legitimately needed by the IRS in its attempt to determine the tax 15 due and owing from Mr. Nichols. 16 As noted above, Mr. Nichols has explicitly agreed that the records in question could be

17 disclosed to the IRS, and used in determining the amount of tax due and owing. Prior to filing 18 this motion counsel undersigned contacted Donald W. MacPherson, the attorney representing 19 Mr. Nichols, regarding the filing of this motion. Mr. MacPherson indicated he had no objection 20 to the granting of the relief requested herein. 21 In conclusion, the government requests an order granting the disclosure of the bank records

22 received pursuant to a grand jury subpoena, described herein. 23 24 25 26 27 28 3 Respectfully submitted this 4th day of June, 2005. PAUL K. CHARLTON United States Attorney District of Arizona /s/ DANIEL R. DRAKE Assistant U.S. Attorney

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CERTIFICATE OF SERVICE

I hereby certify that on August 4, 2005, I electronically transmitted the attached document to the 3 Clerk's Office using the CM/ECF system for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: 4 Donald W. MacPherson [email protected] 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28

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1 2 3 4 5 6 UNITED STATES DISTRICT COURT 7 DISTRICT OF ARIZONA 8 9 10 11 12 13 14 15 The government having filed a motion pursuant to Rule 6(e) of the Federal Rules of 16 Criminal Procedure for use of Grand Jury records obtained pursuant to subpoena for utilization 17 by the Internal Revenue Service involving the investigation of John Delo Nichols, and good 18 cause appearing for the reasons stated therein: 19 IT IS HEREBY ORDERED permitting disclosure of grand jury records, identified as 20 follow, to the Internal Revenue Service: [LIST] 21 IT IS FURTHER ORDERED that the Internal Revenue Service may use the information 22 only to assist in the investigation and civil prosecution of John Delo Nichols. 23 24 25 26 27 28 5 _________________________________ [JUDGE] United States District Court Judge DATED this ____ day of _________________________, 2005. IN RE: GRAND JURY INVESTIGATION [XXX] O R D E R TO DISCLOSE PURSUANT TO RULE 6(e) OF THE FEDERAL RULES OF CRIMINAL PROCEDURE

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