Fleeced Hampton

United States v. Litwok, No. 10-1985-cr (2d Cir. April 30, 2012) (Livingson, Lohier, CJJ, Koeltl, DJ)

An Eastern District jury convicted defendant Evelyn Litwok of one count of mail fraud, and three counts of tax evasion – for the years 1995, 1996 and 1997. The circuit found the evidence legally insufficient to support the conviction for the 1996 and 1997 tax evasions, and also found that the mail fraud and the 1995 tax evasion counts were improperly joined. The court remanded for a new trial on those counts.

Background

Litwok seems to have spent a good part of the mid-1990’s involved in financial shenanigans in and around East Hampton. The mail fraud conviction arose from her involvement in a scheme to defraud an insurance company by making false claims for property damage and related losses at her two East Hampton homes. The tax evasion charges arose from private equity companies that she operated, also out of East Hampton, for the 1995, 1996 and 1997 tax years. Although she owed nearly $1.5 million in taxes, she failed to file a single tax return for those years.

The Tax Evasion Charges

In order to sustain a conviction for tax evasion, the government must prove: (1) the existence of a substantial tax debt; (2) a willful nonpayment, and; (3) an affirmative act performed by the defendant with the intent to evade or defeat the calculation or payment of the tax.

At issue here was only the third element. For one of the tax years at issue, 1995, the government established this element by showing that Litwok barred her accountant from taking  thesteps necessary to preparing and filing her tax return for that year.

But for 1996 and 1997, the government introduced no evidence at all on element three. It showed only that she failed to file her taxes for those years. At oral argument, the government came up with various arguments about how this element might have been established but, since it did not raise those claims either in the district court or in its brief, the circuit considered them forfeited. It reversed the judgment of conviction on the counts relating to those tax years.

Misjoinder

The court also remanded for a new trial on the mail fraud and 1995 tax evasion counts, concluding that they were misjoined. The government established no link between the insurance scam, which took place in 1997, and the unreported 1995 income.

The court also found prejudice in the misjoinder. The 1995 tax evasion count included evidence that Litwok cheated her investors out of millions of dollars for her personal gain, and caused the government to brand her “a cheat, a liar, and a thief.” None of the tax fraud evidence would have been admissible at a trial only on the mail fraud, yet it “inevitably colored the jury’s view” of her role in that scheme. Moreover, the evidence against Litwok was not overwhelming, and the district court gave no limiting instructions.