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07-2365-cr
USA v. Kaiser
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
__________
August Term, 2008
Argued: July 6, 2009 Decided: July 1, 2010
__________
Docket No. 07-2365-cr
________________________________________________________
UNITED STATES,
Appellee,
-v-
MARK P. KAISER,
Defendant-Appellant.
________________________________________________________
Before JACOBS, Chief Judge, CALABRESI, and POOLER, Circuit Judges.
__________
Mark P. Kaiser appeals from a judgment of conviction and sentence entered on May 18,
2007, following a jury trial in the United States District Court for the Southern District of New
York (Griesa, J.). Kaiser argues that there were two errors in the district courtâs jury instructions,
three erroneous evidentiary rulings, and two errors in sentencing. We conclude that the district
court erred in its instruction with respect to the conscious avoidance theory and in admitting the
statement of U.S. Food Serviceâs General Counsel, but we reject Kaiserâs other claims on appeal.
We do not reach Kaiserâs sentencing claims. Accordingly, the judgment of the district court is
VACATED and the matter is REMANDED to the district court for a new trial.
________________________________________________________
RICHARD J. MORVILLO (Andrew L. Frey, Peter H. White, Charles Rothfeld,
Daniel T. Brown, Michael S. Passaportis, on the brief), Mayer Brown LLP,
Washington, DC, for Defendant-Appellant.
DANIEL P. CHUNG, Assistant United States Attorney, of counsel to Preet
Bharara (Daniel A. Braun, on the brief), United States Attorney for the Southern
District of New York, New York, NY, for Appellee.
________________________________________________________
POOLER, Circuit Judge:
Mark P. Kaiser (âKaiserâ) appeals from a judgment of conviction and sentence entered on
May 18, 2007, following a jury trial in the United States District Court for the Southern District
of New York (Griesa, J.). The government alleged at trial that Kaiser, a high-level executive at
U.S. Food Services (âUSFâ), made fraudulent misrepresentations regarding the financial
condition of USF, and ultimately, the financial condition of Royal Ahold N.V. (âAholdâ), which
acquired USF in April 2000.
Count One of the indictment alleged that from April 2000 to February 2003, Kaiser
participated in a conspiracy to commit securities fraud, to make false filings with the Securities
and Exchange Commission (âSECâ), and to falsify books and records, in violation of 18 U.S.C.
§ 371. Count Two charged that Kaiser committed securities fraud in violation of 15 U.S.C.
§§ 78j(b) & 78ff, 17 C.F.R. § 240.10b-5, and 18 U.S.C. § 2. Counts Three, Four, Five, and Six
2
charged that Kaiser made or caused to be made a false filing to the SEC on behalf of Ahold, in
violation of 15 U.S.C. §§ 78 m(a) & 78ff, 17 C.F.R. § 240.13a-1, and 18 U.S.C. § 2.
The jury returned a verdict convicting Kaiser on all five counts of the indictment. With
respect to Count One, the conspiracy count, the jury found that the objectives of the conspiracy
included making false filings and falsifying books and records, but not committing securities
fraud. Judge Griesa sentenced Kaiser principally to a term of 84 monthsâ imprisonment and
imposed a $50,000 fine. Kaiser has been released on bail pending resolution of this appeal.
Kaiser argues that there were two errors in the district courtâs jury instructions, three
erroneous evidentiary rulings, and two errors in sentencing. With regard to the jury instructions,
Kaiser contends that the district court made errors on the conscious avoidance theory and the
âwillfulnessâ element of securities fraud. Kaiser argues that the district court also erred in
admitting 1) evidence of his fraudulent dealings before the charged securities fraud began in
April 2000, 2) certain business planners under the business records exception to the hearsay rule,
and 3) a hearsay statement that USFâs General Counsel wanted to report Kaiser to the SEC.
Finally, Kaiser argues that the district court improperly calculated his sentence.
We conclude that the district court erred in its instructions with respect to the conscious
avoidance theory and in admitting the statement of USFâs General Counsel, but reject Kaiserâs
other claims on appeal. Because we vacate and remand the matter to the district court for a new
trial, we do not reach Kaiserâs claims that the district courtâs sentencing determination was in
error.
I. BACKGROUND
USF is one of the largest distributors of food and related products in the United States.
3
Its primary business is to serve as a middleman by purchasing various food products from
manufacturers and selling them to restaurants. Between 1994 and 2001, Kaiser supervised
employees in USFâs Purchasing Department, which managed the companyâs dealings with its
food vendors. In the Purchasing Department, Kaiser negotiated payments from vendors known
as âpromotional allowances,â or âPAs,â a type of rebate paid to USF upon satisfaction of certain
purchasing targets. These PA payments are an important source of revenue for USF and a
profitable aspect of its business.
The indictment issued against Kaiser charged that he devised a scheme to fraudulently
inflate USFâs PA income for the years 2001 and 2002, that he engaged in further fraudulent acts
to hide the inflated numbers from outside auditors, and that he made various misrepresentations
to the auditors concerning the PA agreements with vendors. The governmentâs case against
Kaiser was primarily built around the testimony of three cooperators, all of whom testified
pursuant to plea agreements with the government: 1) Tim Lee, a USF employee in the Purchasing
Department, 2) Bill Carter, who worked for Lee at USF, and 3) Gordon Redgate, who owned two
corporations that provided services to USF related to the scheme. Lee and Redgate testified that
Kaiser engineered the scheme and knew it was illegal. Kaiser, on the other hand, argued that he
had been set up by Lee and Redgate as a scapegoat and that he had been unaware of the fraud.
A. Promotional Allowance (âPAâ) Income Scheme
Lee testified that, beginning in the 1990s, Kaiser negotiated PA contracts that required
vendors to prepay PAs, subject to the condition that USF would repay the amount if it did not
meet its targets. Although the PA payments were not actually earned until USF met the
conditions in the contract, Kaiser immediately recorded the prepayments as income in USFâs
4
books and records, thereby artificially inflating the amount of revenue USF had earned from PA
payments to ensure that USF met its earnings and other budgetary targets. USF executives,
including Kaiser, only received bonuses when USF met these targets, providing a powerful
motive for Kaiser to inflate USFâs PA income.
As an example, Lee testified about Kaiserâs involvement with vendor Puritan Chemical.
According to Lee, Kaiser negotiated a $26.5 million PA from Puritan Chemical in 1999 to be
earned over a term of ten years. The agreement provided for an $18 million prepayment to USF,
despite the fact that none of the conditions of the PA had been met. To disguise the payment,
Kaiser sent Puritan Chemicalâs check to a third-party intermediary company owned by Redgate,
which broke up the payment into six smaller checks and sent them to USF. Kaiser argued that it
was Lee who was responsible for most of the vendor contracts containing prepayments, pointing
out that â[o]f the 80 contracts in the record from 2000 and before, Kaiser signed 9 and Lee signed
45.â
Lee also testified that Kaiser developed a scheme in the 1990s whereby Kaiser would take
âPA deductionsâ out of amounts that USF owed to vendors for goods, thereby increasing the
amount of PA income on the books. Many of these deductions were inaccurate and not
authorized by the vendors. If a vendor complained, Kaiser would either negotiate with the
vendor to pay back the deductions the following year, thereby allowing USF to meet current-year
budget targets, or he would stall until the year-end audits had been completed. Both the PA
prepayment scheme and the PA deduction scheme resulted in inflated PA income on USFâs
books.
5
B. Scheme After Aholdâs Acquisition of USF
In April 2000, Ahold acquired USF. In early 2001, Kaiser was named the Chief
Marketing Officer of USF, and his focus shifted away from purchasing to the retail side of the
business. According to Lee, however, Kaiser continued to be involved in a constellation of PA-
related schemes to boost USFâs revenue. For instance, Lee testified that Kaiser coordinated
approximately $100 million in fraudulent PA deductions in 2001. Kaiser, however, alleged that
it was Lee who executed the deductions and that Kaiser believed them to be valid. Kaiser also
pointed out that his departure from the Purchasing Department coincided with a dramatic
increase in the number of vendor contracts, many of which had prepayment terms, and that it was
Lee and Carter who were responsible for them. Kaiser signed only one contract after 1999, and
that contract had no prepayment term.
Lee also testified concerning Kaiserâs role in setting the âPA rate,â or the amount of PA
income USF expected to receive in a given fiscal year.1 The rate was calculated based on PA
income received in previous fiscal years and then adjusted for increases or decreases in sales and
projected sales. However, because USFâs PA income had been inflated in previous years, the PA
rate for fiscal year 2001 was also inflated. In order to compensate for this shortfall, the
government argued that Kaiser recorded and caused others to record non-existent PAs in
âtop-side journal entriesâ on the company books. This resulted in phantom accounts receivable
for PA payments that USF was not, in fact, owed. By January 2002, the accounts receivable
1
Kaiser denies being responsible for setting the PA rate. Lee testified that he was not certain
who set the rate, but that Kaiser was involved in certain conversations about it. However, the
government introduced a July 11, 2001 email document in which Kaiser informed other USF
employees of the ârate that you should be accruingâ based on Kaiserâs assessment of the
accounting.
6
balance for PA payments had grown to $300 million. By the end of 2002, the balance had
ballooned to more than $700 million.
C. Deloitteâs Audit of USF
After Ahold acquired USF, the accounting firm Deloitte & Touche (âDeloitteâ) was hired
to audit USFâs year-end financial statements. Although Kaiser was no longer the head of the
Purchasing Department, he was still responsible for helping Deloitte conduct its audit of USFâs
PA income. Most of the acts charged in the indictment concern Kaiserâs involvement with the
Deloitte audit.
1. Fraudulent Accounting Practices
According to the government, because Kaiser knew that a high PA accounts receivable
balance would raise the suspicion of Deloitte auditors, he began manipulating ordinary, non-PA
payments to make them appear to auditors as if vendors were paying down their PA balance. For
example, in the 2001 audit, there was a $10.6 million payment from Redgateâs company that was
treated as a PA even though it was not related to any PA transaction. Kaiser sent Redgate a
backdated letter requesting that the payment be treated as a PA and asked Redgate to send
auditors only the top part of the check so that they would not know the purpose of the payment.
Redgate wrote in his planner on February 5, 2002, that Kaiser had called to say he âneeds top
copy of check dated 4/11/02 for 10 million. Top portion only!â
The government also cited a $1.6 million payment received from the vendor Frozen
Farms, which was recorded as a PA payment from another vendor, Koch Poultry Farms. Later,
Kaiser signed and sent Koch Poultry Farms a confirmation letter stating that it owed USF $3.18
million. By reallocating the $1.6 million that had been received from Frozen Farms to the
7
PA-related account receivable for Koch Poultry, the government argues that Kaiser endeavored
to mislead Deloitte auditors by creating the false impression that the approximately $3.18 million
PA figure was legitimate and that it was being paid down by Koch Poultry. Kaiser responded to
these allegations at trial by emphasizing that the allocation of PAs among vendors had innocuous
explanations, including that the reallocation of funds was necessary to account for changes in
USFâs business.
2. Fraudulent Misrepresentations
In addition to attempting to hide the inflated PA income, Kaiser allegedly lied to Deloitte
auditors about two facts related to the PA agreements. First, the government alleged that in order
to hide the existence of PA prepayments, Kaiser told the auditors that USF did not receive
prepayments. In a document that appears to have been prepared for a November 29, 2000 Audit
Committee Meeting, with âMark Kaiser,â typed on the front cover, there is a statement that
appears to have been drafted by USF management to Deloitte. The statement provides that USF
did not âregularly negotiate âup-frontâ payments from vendors for its [PA] programs.â This
turned out to be false. Kaiser argued that the misrepresentation could not be directly attributed to
him, and that, in any event, he was never made aware of the number of PA agreements with
prepayment terms.
Second, the government alleged that in order to hide the prepayments from the auditors,
Kaiser told them that USF did not have written PA agreements with the vendors. In a letter
providing recommendations to USF management for the year ending December 29, 2001,
Deloitte included an â[o]bservationâ related to USFâs âpromotional allowances with vendorsâ
that âno formal written agreementâs [sic] are signed.â An auditor testified that the document was
8
discussed at a meeting attended by Kaiser. Kaiser argued that this statement was not specifically
attributed to him, and pointed to testimony from auditors at trial that indicated their
understanding that there were some written agreements in place.
3. Fraudulent Confirmation Letters
Finally, the government alleged that Kaiser attempted to hide the inflated PA income
from Deloitte auditors by drafting and sending confirmation letters to certain selected vendors
requesting confirmation that USF had earned and was owed the PA amounts reflected on its
books. Lee testified that one vendor, Pactiv, was shocked by a letter asking it to confirm that it
owed $5.6 million in promotional allowances for 2001. Another vendor, Kenâs Foods, refused to
sign a letter unless Lee signed off on an additional letter stating that the amount in the
confirmation was not actually owed.
Redgate testified that his company had signed confirmation letters after receiving
assurances from Kaiser that it would not have to pay the amounts set forth in the letters. The
government introduced evidence at trial, the admissibility of which is now at issue on this appeal,
that Redgate contemporaneously recorded these conversations in business planners. Kaiser
argued that the government relied almost exclusively on these planner entries to show that the
confirmation letters signed by Kaiser were not good faith estimates of the vendorsâ PA
obligations. The trial court admitted the planners over Kaiserâs objection under the business
records exception to the hearsay rule. Fed. R. Evid. 803(6).
D. The Scheme Unravels
The final straw was a letter signed by Kaiser and sent to the vendor Heritage Bags stating
that Heritage owed a PA balance of over $12 million. The CFO of that company was a former
9
Deloitte auditor, who became concerned and sent a separate letter to Deloitte setting forth the
accurate balance, $2.5 million, and also disclosing that there was a prepayment and a written
agreement. On February 11, 2003, after receiving this letter and other evidence that USF had
agreements with vendors that provided PA agreements, Deloitte suspended work on its 2002
year-end audit.
An investigation ensued, resulting in an indictment against Kaiser charging him with
conspiracy to commit securities fraud, make false filings with the SEC, and falsify books and
records; securities fraud; and making false filing with the SEC. Trial commenced on October 12,
2006 and on November 8, 2008, the jury returned a verdict of guilty on all counts. Specifically,
the jury found the that objectives of the conspiracy included making false filings and falsifying
books and records, but not committing securities fraud. On May 17, 2007, Judge Griesa
sentenced Kaiser to 84 monthsâ imprisonment, two yearsâ supervised release, a $50,000 fine, and
a $600 special assessment. This appeal followed.
II. DISCUSSION
Kaiser raises many different challenges to the trial below. We first consider Kaiserâs
claims with respect to the conscious avoidance and willfulness jury instructions. We then turn to
Kaiserâs argument that he had insufficient notice of evidence the government introduced relating
to his activities before 2000. Finally, we consider Kaiserâs claims with respect to the testimony
of USFâs general counsel and the district courtâs admission of Redgateâs business planners.
A. Jury Instructions
Kaiser argues that the district court erred in instructing the jury with respect to the
wilfulness requirement and the knowledge requirement of securities fraud. We affirm the district
10
courtâs instructions on willfulness, but agree that the district court erred in instructing the jury on
the issue of conscious avoidance.
1. Conscious Avoidance
Judge Griesa instructed the jury with respect to the knowledge requirement as follows:
In determining whether the defendant acted knowingly, you may consider whether
the defendant deliberately closed his eyes to what otherwise would have been
obvious. To put it in very concise terms, there are times that a person can
consciously avoid looking at facts that are available and that, in the law, is the
equivalent of knowledge; in other words, you canât just hide yourself from
knowing something, deliberately hide and then escape responsibility for that. And
so we have the concept in the law of conscious avoidance.
And if there was conscious avoidance, that is deliberate failure to learn
information, then that is the equivalent of actual knowledge, because somebody
canât escape criminal responsibility by deliberately shutting his eyes to something
which would have told him the facts.
On appeal, Kaiser argues that the jury instruction did not contain two elements necessary for a
conscious avoidance charge: âthat knowledge of the existence of a particular fact is established
(1) if a person is aware of a high probability of its existence, (2) unless he actually believes that it
does not exist.â United States v. Schultz, 333 F.3d 393, 413 (2d Cir. 2003) (internal quotation
marks omitted).
a. Standard of Review
Kaiserâs claim with regard to conscious avoidance is subject to review for plain error
because he failed to raise an objection to the charge. Fed. R. Crim. P. 30(d). Judge Griesa first
proposed the idea of a conscious avoidance charge sua sponte during a conference on November
3, 2006. The government stated that it was in favor of the charge and defense counsel that it was
opposed. Judge Griesa indicated that he would give the charge, although he did not inform
11
counsel of the precise language he would use. Later that day, the government submitted a
proposed charge containing the âhigh probabilityâ and âactually believedâ language. Four days
later, on November 7, Judge Griesa gave an abbreviated version of the governmentâs charge,
without the language. Although defense counsel could not have been expected to have reviewed
the law on conscious avoidance when the issue was sprung on them on November 3, by
November 7, the defense team had more than enough time to review the relevant cases. The
defense objected to the charge as given, and the following discussion occurred:
MR. WHITE: The conscious avoidance instruction . . . has to make clear that . . .
if the defendant actually believed that the scheme or its goals did not exist, a
finding of conscious avoidance is improper; in other words, it doesnât deal
with . . . participation of the conspiracy.
THE COURT: Look, Iâll give the mere presence, Iâll do it.
MR. WHITE: Okay. . . . It was a specific point as to conscious avoidance because
itâs improper for them to find he participated in the conspiracy through conscious
avoidance, only â the only aspect of the conspiracy charge or scheme charged
thatâs proper for them to consider conscious avoidance is in knowledge of the
object, and thereâs requirement of knowing membership as the Court instructed
and requirement of knowledge.
THE COURT: I donât understand what youâre getting at. . . . .
THE COURT: The conscious avoidance is a â itâs another way for them to find
knowledge, thatâs what I specifically said, and knowledge and intent is an element
of each of . . . the crimes charged here.
MR. WHITE: I only mention this â the Second Circuit has held that itâs improper
for a jury to conclude that conscious avoidance was a way for someone to have
knowledge of a conspiracy itself. Conscious avoidance is appropriate only for the
â not for the membership in the conspiracy, but for the knowledge of its objects.
Thatâs the distinction the Second Circuit has drawn in terms of conscious
avoidance. . . .
THE COURT: Thatâs probably a good point, okay.
12
Judge Griesa subsequently issued a clarifying instruction to the jury that âmere presence or mere
acquaintance with conspiratorsâ was insufficient, and that conscious avoidance pertained only to
âthe objects of the conspiracy or the substantive crime.â Defense counsel had no objection.
Although the words âactually believedâ were used at one point by defense counsel,
review of the entire colloquy supports the governmentâs position that the defense failed to raise
the issue it now raises on appeal â that Judge Griesaâs charge did not contain the âhigh
probabilityâ or âactually believedâ language required under Schultz and many other cases
discussed below, none of which was cited to the district court. 333 F.3d at 413.
Accordingly, under the plain error standard, Kaiser must demonstrate that any error (1) is
âclear or obvious, rather than subject to reasonable disputeâ; (2) âaffected [his] substantial
rightsâ â i.e., âthat there is a reasonable probability that the error affected the outcome of the
trialâ; and (3) âseriously affects the fairness, integrity or public reputation of judicial
proceedings.â United States v. Marcus, No. 08-1341, 2010 WL 2025203, at *3 (May 14, 2010)
(internal quotation marks and alterations omitted).
b. Error
The government concedes that â[t]his Court has held that a conscious avoidance charge
must communicate two points: (1) that a jury may infer knowledge of the existence of a
particular fact if the defendant is aware of a high probability of its existence, (2) unless the
defendant actually believes that it does not exist.â See, e.g., Schultz, 333 F.3d at 413; United
States v. Sicignano, 78 F.3d 69, 71-72 (2d Cir. 1996) (per curiam); United States v. Feroz, 848
F.2d 359, 360-61 (2d Cir. 1988) (per curiam); United States v. Shareef, 714 F.2d 232, 233-34 (2d
Cir. 1983); United States v. Cano, 702 F.2d 370, 371 (2d Cir. 1983) (per curiam).
13
Indeed, we have repeatedly emphasized these two elements, stating in Feroz that âthe
prosecutor should request that the âhigh probabilityâ and âactual beliefâ language be incorporated
into every conscious avoidance charge.â 848 F.2d at 361. We ordered that the opinion be
circulated to all Assistant United States Attorneys engaged in criminal prosecutions in the
Circuit. Id. In Schultz, we clarified that the language of our prior decisions did not have
âtalismanic weight,â and approved a charge that âcould âhave been more precise.ââ But that
charge included both the phrases âhigh probabilityâ and âactually believed,â leaving no question
as to whether those ideas were conveyed. 333 F.3d at 414. In Sicignano, we clarified that â[a]n
instruction that the jury cannot find knowledge on the basis of mistake or accident is not an
acceptable substitute for the balancing charge which incorporates the concept of actual belief.â
Sicignano, 78 F.3d at 72.
Judge Griesaâs jury instruction on conscious avoidance did not contain either the âhigh
probabilityâ or the âactual beliefâ language that we have long held is essential for an accurate
conscious avoidance instruction. Moreover, we agree with Kaiser that the jury instruction on this
point might well have confused the jury. Instead of using the âhigh probabilityâ language, the
district court instructed that âthere are times that a person can consciously avoid looking at facts
that are available and that, in the law, is the equivalent of knowledge . . . .â There is some risk
that the jury could have convicted if it concluded that Kaiser was merely negligent.
Similarly, the âconscious avoidanceâ charge contained nothing to suggest that actual
belief would absolve Kaiser of culpability. Although the jury was told in a separate instruction
on âknowledgeâ that Kaiser âcannot be convicted of mistake, he cannot be convicted if he in
good faith thought that these results were correct,â the âconscious avoidanceâ charge was
14
presented as an alternative basis on which the jury could find knowledge. Thus, it is possible that
the jury could have convicted Kaiser even if it concluded he had an actual belief that the PA
numbers were correct.
We conclude, therefore, that the jury instruction was in error. In light of Feroz and
Schultz, that error was clear.
c. Substantial Rights
The government argues that there can be no prejudice from the conscious avoidance
instruction because it relied âprincipally on the overwhelming evidence presented at trial of
Kaiserâs actual knowledge of the fraudulent PA income scheme and the resulting overstatements
of USFâs income.â Kaiser, who has the burden to show prejudice, does not argue that the
government relied on a theory of conscious avoidance at trial or in summation; indeed, Kaiserâs
counsel opposed a conscious avoidance instruction on the ground that the government had not
advanced the theory. But once the conscious avoidance theory was charged, it provided a
possible basis for Kaiserâs conviction, and we must consider whether
the instructional error affected Kaiserâs substantial rights.
Kaiser argues that most of the governmentâs transcript citations are to the testimony of
unreliable cooperators Tim Lee and Gordon Redgate. Kaiser further contends that, as Chief
Marketing Officer during the time period in question, his role was limited to assisting with
audits, and that he relied on documents provided by the Purchasing Department, which was
under Leeâs authority. Kaiser argues that the documentary evidence and testimony of other
witnesses pertained mainly to uncontested events and is not inculpatory unless the testimony of
cooperators is credited.
15
We agree that the other evidence presented by the government, if examined apart from
Lee and Redgateâs testimony, is consistent with both the governmentâs theory and Kaiserâs
assertion that he relied on information about promotional allowances from Lee and was not
aware of the fraud. The exhibits cited by Kaiser demonstrate that Kaiser was directly involved in
relatively few contracts, and therefore could have been unaware that a large number of written
agreements were signed containing prepayment terms. The erroneous confirmation letters sent
by Kaiser are also inculpatory documentary evidence, but Kaiser argues that he got the
information from Lee, and trusted that the PA amounts were âbest estimates.â The side letters
from Kaiser used only this âbest estimatesâ language and did not forgive any purported debts,
unlike the side letters drafted by Carter.
Moreover, there was ample reason for the jury to question the credibility of the
governmentâs witnesses. Lee testified that after the fraud was discovered, he and USFâs CEO,
Jim Miller, discussed pinning the blame on Kaiser. Lee and Redgate were close friends and
roommates and Carter testified that it is âprobably trueâ that he was âMr. Leeâs most loyal person
inside the company.â Kaiserâs theory that he was designated as the scapegoat when the scheme
began to unravel is plausible in light of this evidence.
Given the foregoing, there is a reasonable probability that the jury convicted Kaiser on a
conscious avoidance theory and that the jury would not have done so but for the instructional
error. See Marcus, 2010 WL 2025203, at *3. We moreover conclude that the error âseriously
affects the fairness, integrity or public reputation of judicial proceedings.â Id.; cf. United States
v. Cotton, 535 U.S. 625, 632-33 (2002) (finding that error did not âseriously affect the fairness,
integrity, or public reputation of judicial proceedingsâ where evidence on affected element was
16
âoverwhelmingâ and âessentially uncontrovertedâ); United States v. Garcia, 587 F.3d 509, 521
(2d Cir. 2009) (finding that error âseriously affect[ed] the fairness, integrity of pubic reputation
of judicial proceedingsâ where defendant was convicted of an offense of which there was a
âsubstantial possibilityâ that he was not guiltyâ). Accordingly, we order a new trial. We address
the other issues raised in Kaiserâs appeal in order to give guidance to the district court on
remand.
2. Willfulness
Judge Griesa instructed the jury that the required mental state for securities fraud was that
Kaiser âacted knowingly and with intent to deceive,â and elaborated as follows:
In order to convict the defendant, you must find that he knew that false statements
were being made, false information was being incorporated into the earnings
results and the accounts receivable results, that he knew that the promotional
allowance figures were being inflated, and that he did this with intent to cause a
deception, a falsification. Now this means that he cannot be convicted of mistake,
he cannot be convicted if he in good faith thought that these results were correct,
even though they turned out not to be correct. And the government must prove
the contrary of the idea of mistake or good faith belief. The government must
prove, as set forth here, that he knew of the false and fraudulent inflation of the
promotional allowance figures, he knew of the false and fraudulent inflation of
earnings as a result and accounts receivable as a result and that he did that with
intent to create a deception.
Kaiser argues that the district court erred in failing to instruct the jury that âwillfulnessâ required
knowledge of illegality.2 We do not agree, however, that âwillfulnessâ requires proof that the
defendant knew that his actions were illegal.
2
Both parties requested that Judge Griesa instruct the jury that willfulness required knowledge
of illegality. Judge Griesa did not give the proposed instruction, and did not rule on the proposed
instructions before giving the charge, calling the practice âa waste of time.â Because Kaiser
failed to object after Judge Griesa charged the jury, we review the jury instruction for plain error.
Fed. R. Crim. P. 30(d).
17
The Securities Exchange Act of 1934 criminalizes only âwillfulâ violations of its
provisions. 15 U.S.C. § 78ff(a); United States v. Cassese, 428 F.3d 92, 98 (2d Cir. 2005). With
respect to misstatements in public filings, the defendant must have also acted with knowledge of
the falsity of the statement. See 15 U.S.C. § 78ff(a). But the government is not required to
present â[p]roof of a specific intent to violate the law . . . to uphold a conviction under § 32(a) of
the Act, provided that satisfactory proof is established that the defendant intended to commit the
act prohibited.â United States v. Schwartz, 464 F.2d 499, 509 (2d Cir. 1972). Instead, a
defendant may raise the defense that he did not know the law to avoid imprisonment. See 15
U.S.C. § 78ff(a) (â[N]o person shall be subject to imprisonment under this section for the
violation of any rule or regulation if he proves that he had no knowledge of such rule or
regulation.â).
In view of this unique statutory language, we have held that, whatever âwillfulâ might
mean for purposes of other statutes, for the purposes of Section 32(a), it does not encompass the
requirement that a defendant knew he was violating the law. United States v. Dixon, 536 F.2d
1388, 1395 (2d Cir. 1976) (âA person can willfully violate an SEC rule even if he does not know
of its existenceâ (quoting United States v. Peltz, 433 F.2d 48, 54 (2d Cir. 1970)); see also United
States v. Tarallo, 380 F.3d 1174, 1188 (9th Cir. 2004) (âUnder our jurisprudence, . . . âwillfullyâ
as it is used in § 78ff(a) means intentionally undertaking an act that one knows to be wrongful;
âwillfullyâ in this context does not require that the actor know specifically that the conduct was
unlawful.â); United States v. OâHagan, 139 F.3d 641, 647 (8th Cir. 1998) (âCourts that have
interpreted âwillfullyâ in § [78ff] have reached the same conclusion that we reach in this case:
âwillfullyâ simply requires the intentional doing of the wrongful acts â no knowledge of the rule
18
or regulation is required.â).
In Peltz, the defendant was charged with illegal short selling, an offense that required a
âwillfulâ state of mind. 433 F.2d at 54. To satisfy the willfulness element, this Court held that it
was sufficient that the defendant had made statements to his brokers about owning stock that the
defendant knew were false. Id. at 55. We held that Peltz could not avail himself of Section 32(a)
because he had made âno effort to bring himself within this proviso.â Id. at 55 & n.7. Likewise,
Kaiser never requested an instruction on this defense or attempted to meet his burden of proving
ignorance of the securities laws.
In Dixon, the defendant faced charges of failing to disclose in certain SEC statements that
his corporation had loaned him money. 536 F.2d at 1395. Dixon had recorded his debts on the
corporate books under the names of other individuals, knowing that those debts were in fact his
own. Id. at 1396. At trial, Dixon did ânot deny his knowledge that there were SEC rules
requiring the reporting of loans to officers.â Id. at 1395. Rather, Dixon contended that he had
been incorrectly informed that so long as he had paid back most of the loan by the end of the
year, he was exempted from the disclosure rule. Id. We concluded that this was not a âcase of a
defendant manifesting an honest belief that he was complying with the law.â Id. at 1396. Dixon
acted willfully by misstating who had taken out the loans in the corporate books â this was a
âwrongful act,â in the sense of that term in Peltz. Id. Judge Friendly wrote for the Court:
Dixon may have thought his year-end thimblerig would provide escape from a
rule different from the one that existed. But such acts are wrongful âunder the
Securities Actsâ if they lead, as here, to the very violations that would have been
prevented if the defendant had acted with the aim of scrupulously obeying the
rules (which would have necessarily involved correctly ascertaining them) rather
than of avoiding them. Such an intention to deceive is enough to meet the modest
requirements of the first clause of section 32(a) when violations occur.
19
Id.
More recently, we seemed to endorse a higher standard for willfulness in insider trading
cases, stating that willfulness requires
âa realization on the defendantâs part that he was doing a wrongful actâ under the
securities laws, United States v. Peltz, 433 F.2d 48, 55 (2d Cir.1970), in a
situation where . . . ââthe knowingly wrongful act involved a significant risk of
effecting the violation that has occurred,ââ Metromedia Co. v. Fugazy, 983 F.2d
350, 364 (2d Cir. 1992) (quoting Peltz, 433 F.2d at 55).
Cassese, 428 F.3d at 98 (emphasis added). The majority in Cassese did not reach the question of
whether willfulness required only awareness of general unlawfulness or whether it required that
the defendant knowingly commit the specific violation charged, finding that the government had
failed to sustain its burden âeven under the more relaxed definition of willfulness.â Id. at 95.
Judge Raggi dissented in Cassese, writing that under Peltz, the government must only prove âthe
defendantâs awareness of the general unlawfulness of his conduct,â and concluding that the
government had met its burden. 428 F.3d at 109 (Raggi, J., dissenting).
Whatever the gloss put on Peltz and Dixon by Cassese in insider trading cases, as a
general matter, we conclude that Peltz and Dixon do not require a showing that a defendant had
awareness of the general unlawfulness of his conduct, but rather, that he had an awareness of the
general wrongfulness of his conduct. Unlike securities fraud, insider trading does not necessarily
involve deception, and it is easy to imagine an insider trader who receives a tip and is unaware
that his conduct was illegal and therefore wrongful. The same cannot be said of one who
deliberately misleads investors about a security.
In this case, the jury was charged that they had to find that Kaiser knew the statements
were âfalse and fraudulentâ and that he made those statements âwith intent to create a
20
deception,â and the government had to prove âthe contrary of the idea of mistake or good faith.â
For the jury to have found that Kaiser possessed such an intent, it follows necessarily that it also
concluded that there was ââa realization on the defendantâs part that he was doing a wrongful
act.ââ Dixon, 536 F.2d at 1395; cf. United States v. Tucker, 345 F.3d 320, 335 (5th Cir. 2003)
(affirming conviction where jury was charged that government was required to prove that the
defendant acted âknowingly or willfully,â instead of âknowingly and willfully,â finding, among
other things, that âthe district courtâs placement of the definition of âintent to defraudâ
immediately following the elements of the [securities fraud] count effaced any confusion the jury
might have encountered concerning the requisite mens reaâ). We conclude that the district
courtâs instruction on the meaning of âknowingly and with intent to deceiveâ necessarily
encompassed a finding of willfulness under Section 32(a).
B. Rule 404(b)
Federal Rule of Evidence 404(b) provides that â[e]vidence of other crimes, wrongs, or
actsâ may be admissible for certain purposes, âprovided that upon request by the accused, the
prosecution in a criminal case shall provide reasonable notice in advance of trial, or during trial if
the court excuses pretrial notice on good cause shown, of the general nature of any such evidence
it intends to introduce at trial.â
Kaiser argues that the government failed to give him the required notice of Rule 404(b)
evidence of âother crimesâ that occurred before the charged period of the conspiracy from April
2000 to March 2003. We conclude that the pre-April 2000 evidence did not constitute âother
crimesâ evidence and, therefore, that the government did not run afoul of the notice requirement
under Rule 404(b).
21
We have previously analyzed evidence of acts occurring prior to the charged period of the
conspiracy, offered only to show the background of a conspiracy, as âother crimesâ evidence
subject to Federal Rule of Evidence 404(b). See United States v. Langford, 990 F.2d 65, 70 (2d
Cir. 1993); United States v. Pitre, 960 F.2d 1112, 1119 (2d Cir. 1992). However, evidence of
uncharged criminal activity is not considered âother crimesâ evidence âif it arose out of the same
transaction or series of transactions as the charged offense, if it is inextricably intertwined with
the evidence regarding the charged offense, or if it is necessary to complete the story of the crime
on trial.â United States v. Carboni, 204 F.3d 39, 44 (2d Cir. 2000).
The government argues that the pre-April 2000 evidence was âdirect proof of the charged
conspiracyâ and therefore did not fall under Rule 404(b). It notes that income USF recorded
prior to April 2000 had carry-over effects on Aholdâs subsequent financial statements because
USFâs PA rate was calculated at a rate based on PA income in prior years. Furthermore, the
government argues that the terms of many pre-April 2000 agreements extended into subsequent
years, and that Kaiserâs alleged lie to auditors about the existence of written contracts and
prepayment terms depends on its claim that Kaiser knew about these contracts from his pre-April
2000 experience. Finally, the government argues that the scheme itself was devised by Kaiser
prior to April 2000. Lee testified that the measures he took to disguise the real amount of PA
income during the post-April 2000 period â such as the manipulation of the PA rate, the drafting
of false confirmation letters, the use of false and unauthorized PA deductions, and lies to auditors
â were methods devised by Kaiser before April 2000.
We agree that the pre-April 2000 evidence was âinextricably intertwined with the
evidence regarding the charged offense.â Carboni, 204 F.3d at 44. At trial, Kaiser pointed to the
22
1999 Puritan Chemical deal as an example of a pre-April 2000 prepayment that was ultimately
accounted for properly, and therefore had no continuing effects on the charged crimes. However,
the Puritan Chemical deal continued to have bearing on whether Kaiser lied to auditors about the
existence of prepayments and written contracts. And like other contracts signed before April
2000, the Puritan Chemical agreement affected the PA rate, which, according to the government,
Kaiser calculated. We agree with Judge Griesaâs comment at oral argument on Kaiserâs
post-trial motion that â[i]twould have been impossible to intelligibly present a case about much
of what went on after April of 2000 without starting at the beginning.â3 Judge Griesa did not err
in permitting the government to introduce pre-April 2000 evidence as part of its case.
C. Hearsay Testimony
Kaiser next argues that the district court improperly admitted the following testimony
from Lee about the $18.5 million prepayment on the Puritan Chemical PA agreement in 1999:
Mr. Miller [then-CEO of USF] had a conversation with me and had said that Mr.
Abramson, who is the chief general counsel at [USF], had found out that Mr.
Kaiser had taken the 18 and a half million dollar prepayment and had taken it all
to income at one time, and that Mr. Abramson was very upset and wanted to go to
the SEC to expose the fact that Mr. Kaiser had taken it to income.
Lee also testified that as a result of this issue, âMr. Miller told me that he
had to sell the company to Ahold because of Mr. Kaiser.â
Kaiserâs counsel objected to this testimony on the ground that it was double hearsay â
3
Even if we were to conclude that the pre-April 2000 evidence was âother crimesâ evidence
under Rule 404(b), we would find that Kaiser received adequate notice that the government
intended to introduce the pre-April 2000 evidence at trial. The governmentâs March 15, 2006
indictment contained numerous references to events occurring prior to April 2000. The
indictment, in conjunction with the materials disclosed by the government in pre-trial discovery,
was more than sufficient to put Kaiser on notice that the government intended to introduce
evidence concerning his pre-April 2000 actions.
23
neither Miller nor Abramson testified. The government responded that Miller was an unindicted
coconspirator, and that the statement was in furtherance of the conspiracy. See Fed. R. Evid.
801(d)(2)(E). Judge Greisa then asked, âif we just have testimony about Abramson believing
this was wrong and wanting to go to the SEC, whatâs the basis for admitting that?â Defense
counsel argued that Abramson was not a co-conspirator and that Abramsonâs statement that he
wanted to âblow the whistleâ was âin contravention of the conspiracy.â Judge Griesa concluded:
If Abramsonâs statement were the only source of information in the record as to
what was done about the prepayment . . . then that would be a real problem.
But . . . the information about what was done doesnât come from Abramson.
Abramson is cited here as wanting to expose this. And then the question is what
did Lee and Miller do about it.
He ruled that when used for the limited purpose of explaining Lee and Millerâs subsequent
actions, Abramsonâs statement was admissible.
1. Admissibility
The government argues that the statement was not hearsay because it was not offered for
the truth of the matters asserted: (1) that Kaiser attempted to record the Puritan prepayment as
income or (2) that his conduct was sufficiently culpable to warrant a report to the SEC. Instead,
the government argues that Leeâs testimony was relevant to show that Miller and Lee, two of
Kaiserâs co-conspirators, knew that the Puritan transaction had been accounted for improperly
and recognized that measures had to be taken to mask that impropriety.
We disagree with the governmentâs characterization of the purpose for which the
evidence was offered. During summation, the government relied on Abramsonâs statement to
refute Kaiserâs assertion that the Puritan deal was proper because it was approved by lawyers,
arguing that Abramsonâs âthreat[] to report . . . Kaiser to the SECâ was âall you need to know
24
about whether the lawyers approved USF taking the full $18.5 million into income right away.â
The government also argued that Kaiser took measures to properly account for the Puritan
prepayment as a result of Abramsonâs threat. Both of these arguments depended on the truth of
Abramsomâs statement â that he believed the Puritan prepayment improper and wanted to report
Kaiser to the SEC.4
The government makes several other arguments about the admissibility of Abramsonâs
statement that we also reject. First, the government argues that Leeâs testimony did not relay any
âassertionâ by Abramson, rather, it was âan observation expressed by Miller of his understanding
or concern that Abramson was going to report Kaiserâs conduct to the SEC.â This clever
characterization of Leeâs testimony, however, is belied by the record. Lee testified on
cross-examination that Miller was communicating âcommentsâ that Abramson had made to
Miller. It is clear from Leeâs testimony that he was recounting Abramsonâs statement to Miller,
not merely Millerâs âunderstandingâ of Abramsonâs concerns.
Second, the government argues that to the extent there was an assertion it was one of
Abramsonâs intent and â[a] statement of the declarantâs then existing state of mind . . . such as
intentâ is ânot excluded by the hearsay rule.â Fed. R. Evid. 803(3); see also United States v.
Best, 219 F.3d 192, 198 (2d Cir. 2000) (âA declarantâs out-of-court statement as to his intent to
4
The government also argues that it was permitted to introduce the statement to rebut the claim
by Kesler, the Deloitte auditor, who testified that the Puritan prepayment was ultimately verified.
The âopening the doorâ principle of admissibility allows a party to introduce otherwise
inadmissible evidence âwhen the opposing party has introduced inadmissible evidence on the
same issue.â Forrester, 60 F.3d at 60-61 (quotation marks omitted). There are two reasons that
this principle is not applicable here. First, it was the government, not Kaiser, who called Kesler
to the stand and elicited his testimony on the Puritan deal. Second, the government has not
argued that Keslerâs testimony was in any way inadmissible.
25
perform a certain act in the future is not excludable on hearsay grounds.â). However, the obvious
premise of the statement is that Kaiser was violating the law. It is this assertion, and not
Abramsonâs intent to report Kaiser to the SEC, that constitutes inadmissible hearsay.
Moreover, even if we agreed that the statement was not hearsay or fell within a hearsay
exception, the statement should have been excluded pursuant to Federal Rule of Evidence 403.
â[T]he mere identification of a relevant non-hearsay use of [the] evidence is insufficient to justify
its admission if the jury is likely to consider the statement for the truth of what was stated with
significant resultant prejudice.â United States v. Reyes, 18 F.3d 65, 70 (2d Cir. 1994). Such
evidence is not admissible if âthe probative value of [the] evidence for its non-hearsay purpose
is outweighed by the danger of unfair prejudice resulting from the impermissible hearsay use of
the declarantâs statement.â Id. Here, there is no doubt that Abramsonâs statement that he
wanted to report Kaiser to the SEC was highly prejudicial. First, Abramsonâs statement went
directly to an âimportant disputed issueâ in the case: whether Kaiser knowingly sought to
improperly account for the Puritan prepayment. United States v. Forrester, 60 F.3d 52, 62 (2d
Cir. 1995); Reyes, 18 F.3d at 70. Second, the jury could have concluded that Abramson â who
had never been charged with a crime â was a knowledgeable and credible source about Kaiserâs
involvement and culpability. Forrester, 60 F.3d at 62 (prejudice where out-of-court statement by
âknowledgeable speakerâ with âno apparent motive to lieâ). Finally, it did not help that
Abramsonâs statement could not be tested by cross-examination and that the district court refused
to give a limiting instruction to the jury that could have minimized any resulting prejudice.5
5
Kaiser did not request a limiting instruction, but can be excused for this failure because Judge
Griesa raised the issue sua sponte and rejected it himself.
26
Reyes, 18 F.3d at 71; Forrester, 60 F.3d at 62.
Balanced against these factors is the relatively limited relevance of Abramsonâs statement
for the governmentâs case. Reyes, 18 F.3d at 70. Lee admitted his awareness that the accounting
was improper; Abramsonâs statement was therefore not necessary to show Leeâs state of mind.
Id. (finding relevant whether âthe needed explanation of background or state of mind [can] be
adequately communicated by other less prejudicial evidence or by instructionsâ). It is true that
Abramsonâs statement could explain why Kaiser decided to take measures to hide the Puritan
prepayment, and why the prepayment was ultimately accounted for properly on USFâs books.
But the jury could not have accepted the statement for this purpose unless it found Abramsonâs
statement concerning Kaiserâs involvement to be true, that is, unless the jury considered the
statement for the truth of the matter asserted. See United States v. Abreu, 342 F.3d 183, 190 (2d
Cir. 2003) (holding that a non-hearsay purpose that depends on the truth of the matter asserted is
still hearsay).
2. Harmless Error
Because Kaiser objected to the admission of the testimony at trial, the government has
the burden to prove that the error was harmless. âError is harmless if it is âhighly probableâ that
it did not contribute to the verdict.â Forrester, 60 F.3d at 64. The government argues that any
error was harmless because
(1) the testimony was only a limited part of the evidence relating to the Puritan
prepayment; (2) the prepayment was only part of the evidence relating to the
formation and execution of the fraudulent scheme prior to the Ahold acquisition;
and (3) in the end, Judge Griesa instructed the jury that all such pre-acquisition
evidence was only relevant as background and as proof of knowledge and intent.
We conclude that the error was not harmless for largely the same reasons that we found the
27
testimony was prejudicial. Although the government presented other evidence concerning
Kaiserâs role in the Puritan prepayment, most of this evidence was in the form of testimony of
Kaiserâs alleged co-conspirators. The jury may have given more credence to a statement by
Abramson â not himself a member of the conspiracy â about Kaiserâs role in the conspiracy.
Moreover, while the Puritan prepayment was only one transaction in a much larger
scheme, it played a disproportionate role in the governmentâs case because it was one of the few
PA agreements for which there was uncontroverted evidence of Kaiserâs involvement. Finally,
Judge Griesaâs limiting instruction about pre-acquisition evidence did not render the error
harmless. Kaiserâs knowledge and intent were the central issues in the case and formed the basis
of Kaiserâs defense. Abramsonâs statement was directly relevant to these issues. In sum, we
cannot say that it is âhighly probableâ that Leeâs testimony concerning Abramsonâs statement did
not contribute to the juryâs verdict.
D. Redgateâs Planners
Kaiserâs final claim challenging his conviction on appeal is that the district court
improperly admitted Gordon Redgateâs business planners into evidence under Rule 803(6) of the
Federal Rules of Evidence, which is the âbusiness records exceptionâ to the hearsay rule. The
government argues that the planners were admissible not only as business records, but also as
prior consistent statements and co-conspirator statements. Because we conclude that the planners
were properly admitted under the business records exception, we do not reach the governmentâs
other arguments.
The business records exception to the hearsay rule provides for the admission of:
A memorandum, report, record, or data compilation, in any form, of acts, events,
28
conditions, opinions . . . made at or near the time by . . . a person with knowledge,
if kept in the course of a regularly conducted business activity, and if it was the
regular practice of that business activity to make the memorandum, report, record
or data compilation, all as shown by the testimony of the custodian or other
qualified witness. . . . unless the source of information or the method or
circumstances of preparation indicate lack of trustworthiness.
Fed. R. Evid. 803(6). The purpose of the rule is to ensure that documents were not created for
âpersonal purpose[s] . . . or in anticipation of any litigationâ so that the creator of the document
âhad no motive to falsify the record in question.â United States v. Freidin, 849 F.2d 716, 719 (2d
Cir. 1988). âWe have stated that Rule 803(6) âfavors the admission of evidence rather than its
exclusion if it has any probative value at all.ââ United States v. Williams, 205 F.3d 23, 34 (2d
Cir. 2000) (quoting In re Ollag Constr. Equip. Corp., 665 F.2d 43, 46 (2d Cir.1981)).
Since 1997, Gordon Redgate maintained business planners in which he made
contemporaneous handwritten entries related to his two companies. The planners included
contact log pages with preprinted spaces for recording notes pertaining to phone conversations.
During 2001, 2002, and 2003, Redgate kept notes on conversations with Kaiser regarding false
confirmation letters that Kaiser asked him to send. Judge Griesa overruled Kaiserâs objection
and admitted the planners, stating, âpart of his business was to sign these confirmations, and
these are records of the conversations he had in connection with that part of his business. So it
seems to me these are unquestionably business records.â
1. Regular Practice
Kaiser argues that Redgateâs note-taking on telephone conversations was not a âregular
practice,â and that he recorded the conversations to give himself cover in the event the fraud was
exposed. United States v. Freidin, 849 F.2d 716, 723 (2d Cir. 1988) (holding that the âregular
29
practiceâ requirement must be met to admit a business record, even if the court determines for
other reasons that the document is sufficiently trustworthy). Kaiser argues that Redgateâs
note-taking was too sporadic and selective to meet this standard, citing testimony from Redgate
on cross-examination that he only wrote down âhighlightsâ and matters he perceived to be
âimportant.â
The selectivity that Kaiser points out, however, is the nature of all note-taking. A
business record need not be mechanically generated to be part of a âregular practice.â Redgateâs
contact log is different in kind from the types of âmiscellaneous jottingsâ that courts have found
inadmissible under this exception, because it was maintained in a consistent way and was
focused on a certain range of issues that were relevant to his business. Cf. United States v.
Ramsey, 785 F.2d 184, 192 (7th Cir. 1986) (âOccasional desk calendars, in which entries may or
may not appear at the whim of the writer, do not have the sort of regularity that supports a
reliable inference.â).
This Court has allowed the admission of calendars as business records where the
witnesses testified that âhis regular business practice was to keep a calendar in which he
documented events of which he had personal knowledge at or near the time they occurred.â
United States v. Ford, 435 F.3d 204, 214-15 (2d Cir. 2006). Redgateâs business planners are
similar enough to these calenders, in our view, to fall within the scope of the business records
exception.6
6
Kaiser makes a number of other, nearly frivolous arguments on this issue, for example, that
Redgateâs calendar entries were âpersonalâ and not business related. A review of the exhibits
reveals only business-related entries. Kaiser also argues that âthe clandestine and âunusualâ
conversations [Redgate] allegedly recorded are the very definition of irregular business
activities.â It is of no consequence that the fraud was not a regular business activity. All that
30
2. Trustworthiness
Kaiser also argues that Redgateâs planners were not sufficiently trustworthy to serve the
purpose of the business records exception due to a discrepancy between Redgateâs testimony on
direct and redirect examination. Kaiserâs theory at trial was that Redgate had time and
opportunity to alter the planners before turning them over to his attorney. He argued that
Redgateâs inconsistent testimony supports this theory.
On direct examination, Redgate testified that he turned over most of the pages from his
Contact Logs to his attorney on February 13, 2003 â the day after he learned that the fraud had
unraveled and Lee had tendered his resignation to USF â and his attorney had told him his
âproblems were significantly greater than worrying about owing money, and . . . these were
important records, and that he should hold on to them.â The attorney took everything except
â[o]ne page of the contact log that had 2002 stuff on it and two conversations, I believe, in 2003
that they overlooked.â The missing page includes notes from December 27, 2002 through
January 14, 2003. At first, Kaiser testified that it was not turned over to his lawyer because it
was in his current planner at the time he met with his lawyer on February 13, 2003. The missing
page was later turned over to the government, at the earliest in May 2003.
On cross examination, Kaiserâs counsel pointed out there were three subsequent pages of
the planner with entries spanning from January 20, 2003 to March 2, 2003. Because the last page
had entries after February 13, 2003, the date on which Redgate met with his attorney, it could not
have been turned over at that time. Redgate responded, âEvidently he didnât take it.â On
redirect, Redgate changed his testimony. He claimed that the only page not received by his
matters is that Redgateâs note-taking was a regular business activity.
31
lawyer on February 13, 2003 was not the page he had mentioned on direct examination,
containing the entries that spanned 2002 and 2003, but rather, was the last page of the notes,
covering the period from February 6, 2003 to March 2, 2003.
Kaiser has succeeded in raising questions about the trustworthiness of the planners,
but he has failed to show that the district court abused its discretion in finding that the they were
sufficiently trustworthy under Rule 803(6). The district court was entitled to rely on Redgateâs
testimony on redirect to making its evidentiary decision. Reyes, 157 F.3d at 953. âResidual
doubts on the question [of trustworthiness] would go to the weight of the evidence, not its
admissibility.â Id.
We further observe that the âdegree of reliability necessary for admission is greatly
reduced where, as here, the declarant is testifying and is available for cross-examination, thereby
satisfying the central concern of the hearsay rule.â See United States v. McPartlin, 595 F.2d
1321, 1350-51 (7th Cir. 1979). We cannot say, therefore, that the district courtâs reliance on
Redgateâs testimony was in error.
III. CONCLUSION
For the foregoing reasons, the matter is VACATED and REMANDED to the district
court for a new trial. Because we find that the trial was flawed, we do not reach Kaiserâs various
challenges to his sentencing.
32