06-1495-cr L , 06-1710-cr CON United States v. Shellef

06-1495-cr(L), 06-1710-cr(CON)
United States v. Shellef and Rubenstein
UNITED STATES COURT OF APPEALS 1
FOR THE SECOND CIRCUIT 2
August Term, 2006 3
(Argued: December 18, 2006 Decided: November 8, 2007) 4
Docket Nos. 06-1495-cr(L), 06-1710-cr(CON) 5
------------------------------------- 6
UNITED STATES OF AMERICA, 7
Appellee, 8
- v - 9
DOV SHELLEF and WILLIAM RUBENSTEIN, 10
Defendants-Appellants. 11
------------------------------------- 12
Before: POOLER, SACK, and WESLEY, Circuit Judges. 13
Appeal from judgments of conviction following a trial 14
in the United States District Court for the Eastern District of 15
New York (Joanna Seybert, Judge) for wire fraud, money 16
laundering, tax evasion, filing false tax returns, and conspiracy 17
to defraud the IRS as to defendant Dov Shellef, and conspiracy to 18
defraud the IRS and wire fraud as to defendant William 19
Rubenstein. We conclude that the indictment improperly joined 20
certain tax counts with the other charges against the defendants, 21
that it improperly joined Shellef and Rubenstein as defendants, 22
and that the misjoinders were not harmless. 23
Vacated and remanded. 24

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2
ANDREW L. FREY, Mayer Brown LLP (Andrew 1
H. Shapiro, Daniel B. Kirschner, Mayer 2
Brown LLP, Stuart E. Abrams, Frankel & 3
Abrams, of counsel), New York, NY, for 4
Defendant-Appellant Dov Shellef. 5
ALAN L. ZEGAS, Law Offices of Alan L. 6
Zegas, Chatham, NJ (William Nossen, Law 7
Offices of Alan L. Zegas, Chatham, NJ, 8
and, Robert W. Gluck, Mandelbaum, 9
Salsburg, Gold, Lazris & Discenza, P.C., 10
New Brunswick, NJ, of counsel), for 11
Defendant-Appellant William Rubenstein. 12
13
S. ROBERT LYONS, Tax Division, 14
Department of Justice, Washington, D.C., 15
(Eileen J. O'Connor, Assistant Attorney 16
General, Alan Hechtkopf, Karen M. 17
Quesnel, Tax Division, Department of 18
Justice, Washington, D.C., and Roslynn 19
Mauskopf, United States Attorney for the 20
Eastern District of New York, New York, 21
NY, of counsel), for Appellee. 22
SACK, Circuit Judge: 23
The defendant Dov Shellef owned or operated several 24
companies engaged in the distribution of industrial chemicals. 25
The defendant William Rubenstein owned or operated Dunbar Sales, 26
Inc., and Stevens Industries, Inc., which also distributed 27
industrial chemicals and provided warehousing, packaging, 28
labeling, and billing services to other distributors. The 29
chemical at issue in this case -- CFC-113 -- is exempt from 30
excise taxes if its sale comports with applicable federal 31
statutory and regulatory requirements. Notwithstanding the 32
defendants' representations to the manufacturers from whom they 33
bought the chemical that the defendants would sell it in a manner 34
that would render the sales excise-tax-free, some of Shellef's 35
and Rubenstein's sales of CFC-113 did not comply with at least 36

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1 The government dismissed three of the wire fraud counts
against Shellef and Rubenstein.
2 Shellef and Rubenstein each request that we adopt
whichever arguments in the other's brief may be applicable to
him. We do so, but for ease of exposition refer individually to
the appellant in whose brief a particular argument was made.
3
one of these requirements. The government charged Shellef and 1
Rubenstein jointly with conspiracy to defraud the IRS and wire 2
fraud. The indictment also charged Shellef (but not Rubenstein) 3
with 1) personal income tax evasion in 1996; 2) filing on behalf 4
of one of his businesses a corporate tax return that was false 5
insofar as it failed to report legitimate income in 1996; and 3) 6
filing a corporate tax return on behalf of another of his 7
businesses that was false insofar as it failed to report income 8
in 1999. Shellef alone was also charged with money laundering 9
associated with the alleged wire fraud. A jury convicted Shellef 10
and Rubenstein on all charges against them.1
11
On appeal, Rubenstein argues, as a threshold matter, 12
that the 1996 tax charges against Shellef were improperly 13
joined with the conspiracy to defraud and wire fraud charges 14
against him. Shellef similarly argues that the 1996 tax charges 15
should not have been joined with the other charges against him.2
16
Under Rule 8 of the Federal Rules of Criminal 17
Procedure, joinder of criminal charges is permissible when, inter 18
alia, the charges are "based on the same act or transaction." 19
Fed. R. Crim. P. 8(a). Joinder of tax charges with non-tax 20
charges under Rule 8 is therefore permissible if "the tax 21

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4
offenses arose directly from the other offenses charged," such as 1
when the funds derived from the acts underlying the non-tax 2
charges "either are or produce the unreported income" that is the 3
basis for the tax charges. United States v. Turoff, 853 F.2d 4
1037, 1043 (2d Cir. 1988) (internal quotation marks and citations 5
omitted). Even "if the character of the funds . . . do[es] not 6
convince us of the benefit of joining the[] two schemes in one 7
indictment, other overlapping facts or issues may." Id. at 1043- 8
44. 9
We conclude that the indictment improperly joined the 10
1996 tax evasion and false return counts against Shellef with the 11
other charges against both defendants because the 1996 counts are 12
not "based on the same act or transaction" as the other charges 13
within the meaning of Rule 8. We further conclude, for reasons 14
set forth below, that the joinder of Shellef and Rubenstein as 15
defendants in the indictment was also improper. Because the 16
government has not established that the misjoinders of charges 17
and defendants were harmless, we vacate the judgments of 18
conviction and remand for further proceedings. 19
Shellef and Rubenstein raise several other issues on 20
appeal that we need not decide in light of our disposition of the 21
question of joinder: 1) the legal sufficiency of the wire fraud 22
and conspiracy indictments; 2) the evidentiary sufficiency of the 23
conviction for wire fraud; 3) the propriety of several 24
evidentiary rulings made by the district court; and 4) the 25
propriety of the jury instructions. We nonetheless discuss all 26

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5
but the district court's evidentiary rulings to guide the 1
district court on retrial. 2
BACKGROUND 3
Because the jury returned a guilty verdict, the 4
evidence presented to it is construed "in the light most 5
favorable to the government." United States v. Naiman, 211 F.3d 6
40, 46 (2d Cir. 2000) (citation omitted). Except where noted 7
below, the parties do not dispute the relevant material facts. 8
The Defendants 9
The defendant Dov Shellef owned or operated four 10
companies: Poly Systems, Inc. ("Poly Systems"); PolyTuff, Ltd. 11
("PolyTuff"); PolyTuff USA, Inc. ("PolyTuff USA"); and Poly 12
Systems USA, Inc. ("Poly Systems USA"). Poly Systems was an 13
entity located in and doing business from the United States, 14
which sold and distributed defense-related materials, including 15
aircraft manufacturing and maintenance products, primarily to the 16
government of Israel. PolyTuff, an Israeli company, functioned 17
as Poly Systems's representative in Israel. Although nominal 18
ownership of PolyTuff was transferred to one Avi Dolev in 1990, 19
Shellef ran the company beginning no later than 1995, when, 20
according to Shellef, Dolev "disappeared." Test. of Dov Shellef, 21
Trial Tr. 2270-71, July 14, 2005. PolyTuff USA was located in 22
and doing business from the United States; it had been founded by 23
Dolev in 1992 after the Israeli government refused to continue 24
doing business with Shellef and Poly Systems. Poly Systems USA 25
manufactured and sold industrial solvents. 26

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6
Rubenstein is the executive vice president and a forty- 1
five percent owner of two New Jersey-based companies, Dunbar 2
Sales, Inc. ("Dunbar"), and Stevens Industries, Inc. ("Stevens"). 3
The companies buy a variety of industrial chemicals and re-sell 4
them to the United States and foreign governments. These 5
entities also provide warehousing, packaging, labeling, shipping, 6
and bill collection services. Rubenstein provides day-to-day 7
management for the companies. 8
In 1995, Rubenstein and Shellef began working together 9
in an attempt to profit from an impending ban on domestic 10
production of CFC-113. Their plan was to purchase a large volume 11
of CFC-113 that had been produced and stockpiled in anticipation 12
of the ban on production and to sell it to entities that would 13
have difficulty obtaining it elsewhere thereafter. 14
In 1998, Stevens became a co-owner, with Shellef, of 15
Poly Systems USA. That year, Shellef or his company Poly Systems 16
transferred cash to Poly Systems USA as capital. Around that 17
time, Shellef also invested in three unrelated real estate 18
ventures that Rubenstein had undertaken. 19
Regulatory Regime Governing CFC-113 20
CFC-113 is a highly regulated, ozone-depleting 21
industrial solvent commonly used to remove grease from metal. 22
Global regulation of CFC-113 began in earnest following the 23
ratification of the Montreal Protocol on Substances that Deplete 24
the Ozone Layer (the "Montreal Protocol") in 1987. Montreal 25
Protocol, Sept. 16, 1987, S. Treaty Doc. No. 100-10, 1522 26

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7
U.N.T.S. 29. Pursuant to the Montreal Protocol, Congress sharply 1
limited American production of CFC-113 as part of the Clean Air 2
Act, 42 U.S.C. §§ 7401 et seq. The Act implemented a phased ban, 3
to be completed by 2000, of the "production and consumption" of 4
the substance in the United States. See 42 U.S.C. § 7671c. 5
Previously stockpiled CFC-113 could, however, still lawfully be 6
used in the United States. As an incentive for discontinuance of 7
such use, Congress imposed an excise tax on any CFC-113 "sold or 8
used by the manufacturer . . . thereof." See 26 U.S.C. § 9
4681(a)(1) (imposing a tax on sales of ozone-depleting 10
chemicals); 26 U.S.C. § 4682(a)(2) (including CFC-113 within the 11
definition of ozone-depleting chemicals). 12
Congress carved out three exceptions to the 13
applicability of the excise tax, two of which are relevant here. 14
See 26 U.S.C. § 4682(d). 15
First, CFC-113 that has been "diverted or recovered in 16
the United States as part of a recycling process (and not as part 17
of the original manufacturing or production process)" is not 18
subject to the tax. 26 U.S.C. § 4682(d)(1). Such diverted or 19
recovered CFC-113 is known as "reclaimed CFC-113." Newly 20
manufactured CFC-113, by contrast, is referred to as "virgin CFC- 21
113." 22
Second, the statute exempts "sale[s] by the 23
manufacturer or producer of [CFC-113] for export, or for resale 24
by the purchaser to a second purchaser for export." 26 U.S.C. 25
§ 4662(e)(1)(A); see also 26 U.S.C. § 4682(d)(3) (incorporating 26

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3 At trial, an IRS agent testified that Rubenstein purchased
21,768 pounds of CFC-113 in 1995. The government, in questioning
the witness, referred to Rubenstein's purchase of 201,000 pounds.
Our own calculation using the witness's testimony regarding the
applicable invoices indicates that Rubenstein purchased 217,812
pounds. We assume that the witness's reference to 21,768 pounds
is a transcription error or that the government attorney
misspoke.
8
section 4662(e) by reference). The statutes and regulations 1
thereunder impose three procedural requirements for a sale to 2
qualify for this export exemption: 1) both parties must be 3
registered with the Internal Revenue Service ("IRS"), see 26 4
C.F.R. § 52.4682-5(d)(1)(i)(B); 2) the purchaser must provide the 5
manufacturer with a certificate containing a sworn statement from 6
the purchaser that the CFC-113 will be exported, see 26 C.F.R. 7
§ 52.4682-5(d)(1)(i)(C), (d)(3); and 3) the manufacturer must 8
receive proof of export within six months of the initial sale, 9
see 26 U.S.C. § 4221(b) (requiring proof of export); 26 U.S.C. 10
§ 4662(e)(1)(B) (incorporating section 4221(b) by reference). 11
Elf Atochem CFC-113 12
In 1995, Rubenstein's Stevens placed five purchase 13
orders with Elf Atochem ("Elf") for a total of 217,812 pounds of 14
CFC-113 imported from an Elf affiliate in France (the "Elf CFC- 15
113").3 Elf initially charged Stevens $1,152,516.78 for the Elf 16
CFC-113, which price included, in addition to a relatively modest 17
base price, the applicable excise tax of $819,599.58. The 18
parties stipulated before trial, however, that Rubenstein 19
initially intended to export the Elf CFC-113, as he had 20
represented to Elf that he would in order to negotiate an excise- 21

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4 The record often does not distinguish the acts of
Rubenstein from those of his corporations, Stevens and Dunbar.
Here, for example, the witnesses testified that Elf credited
Rubenstein's account, but the invoices refer to Stevens. Similar
confusion exists with respect to Shellef and his various
corporate entities. These distinctions are largely irrelevant
for our purposes, so we primarily follow the trial transcript.
With respect to the tax charges against Shellef, however, the
identity of each entity is important and we are therefore precise
when we discuss the conduct underlying those charges.
5 Shellef and Rubenstein sought to persuade the jury that
they thought the Elf CFC-113 would also be tax-exempt pursuant to
26 U.S.C. § 4682(d)(1) because it was "reclaimed." The Elf CFC-
113, as shipped by Elf, was blended with alcohol. Shellef, a
chemical engineer by training, put the blended material through a
water extraction process to separate the CFC-113 from alcohol,
thus retaining only pure CFC-113.
9
tax-free agreement. Rubenstein further attempted to register 1
with the IRS to satisfy his obligations under section 4682(d). 2
Elf, which had previously paid the excise tax to the IRS on its 3
quarterly return, took a credit for it on a subsequent return, 4
and credited Rubenstein's account for the previously invoiced 5
tax.4
6
Rubenstein exported nearly 190,000 pounds -- or all but 7
about 28,000 pounds -- of the Elf CFC-113. In 1997, however, 8
Rubenstein, with Shellef's help, began to sell the remaining Elf 9
CFC-113 domestically for domestic use notwithstanding the fact 10
that the original sales of any such Elf CFC-113 to Rubenstein's 11
companies would no longer qualify for the excise tax exemption 12
that Rubenstein told Elf would apply to the entire purchase.5
13
Shellef paid an employee of Marisol, Inc., a chemical 14
solvent distributor, to refer Marisol's domestic CFC-113 sales 15
leads to Shellef. Among the prospects referred to Shellef under 16

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6 Custom placed an order on July 9, 1997, seeking twenty
drums of CFC-113 per month for four months. All Discount placed
its order on July 11, 1997.
10
that arrangement were All Discount Laboratories ("All Discount") 1
and Custom Laboratories ("Custom"), both based in California. 2
Shellef used Rubenstein's Elf CFC-113 to fill some of 3
All Discount's and Custom's orders.6 On July 14, 1997, Shellef 4
purchased four drums totaling 2,760 pounds of Elf CFC-113 from 5
Rubenstein and resold them to All Discount. In September and 6
October 1997, Shellef made four shipments of the Elf CFC-113 to 7
All Discount and Custom. Finally, on September 8, 1998, Shellef 8
purchased Elf CFC-113 from Rubenstein, this time reselling it to 9
Marisol. 10
In sum, between July 1997 and September 1998, Shellef 11
bought approximately 28,000 pounds of Elf CFC-113 from Rubenstein 12
and resold it domestically. For many of these sales, Rubenstein 13
prepared documents -- labels and invoices -- falsely indicating 14
that the Elf CFC-113 was reclaimed or was being shipped for 15
export. The excise tax owing and unpaid on these sales of Elf 16
CFC-113 totaled $136,482. 17
Allied Signal CFC-113 18
In 1995, Shellef sought virgin CFC-113 from Allied 19
Signal Inc. ("Allied"), in the United States, purportedly for 20
excise-tax-free resale abroad. Allied and Poly Systems 21
eventually executed a contract effective January 1, 1996 (the 22
"Allied Contract"), under which Allied was required to 23

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11
manufacture 700,000 pounds of CFC-113 (the "Allied CFC-113") for 1
Poly Systems and store it until Poly Systems requested delivery. 2
Poly Systems agreed to purchase and take delivery of all of the 3
Allied CFC-113 sometime prior to December 31, 1997. 4
Under the Allied Contract, Poly Systems could sell the 5
Allied CFC-113 only within a designated territory: Israel, Saudi 6
Arabia, Syria, Egypt, and Jordan. Because the contract required 7
that the Allied CFC-113 be exported, Allied agreed not to charge 8
Poly Systems the excise tax. As set forth in Paragraph 8.A of 9
the agreement, Poly Systems bore the risk of future government 10
regulations prohibiting it from selling the CFC-113 so long as 11
Allied spent at least twelve months after the effective date of 12
the regulation "exercis[ing] reasonable commercial efforts to 13
sell [the Allied CFC-113] to other parties who are permitted to 14
use [it]," with the proceeds of any such sale that exceeded the 15
contract price to be divided equally by Poly Systems and Allied. 16
Allied Contract, effective Jan. 1, 1996, at 3 ¶ 8.A. 17
The Allied Contract required Poly Systems to pay an up- 18
front $140,000 reservation fee, of which Rubenstein paid half in 19
exchange for a share of the profits Poly Systems would earn 20
selling Allied CFC-113 to the Israeli government. Although 21
Rubenstein did not receive a share of Poly Systems's profits from 22
domestic sales of Allied CFC-113, he did store some in his 23
warehouse in Bayonne, New Jersey, and shipped the product as Poly 24
Systems directed. 25

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12
Poly Systems's initial sales were to the Israeli 1
government. But Israel -- like the United States, a signatory to 2
the Montreal Protocol -- was attempting to reduce its 3
manufacture, importation, and use of ozone-depleting chemicals, 4
including CFC-113. By December 1997, Israeli purchases of CFC- 5
113, which had slowed in 1996, came to a halt. Shellef's orders 6
with Allied followed the same pattern, but he did not then inform 7
Allied of the regulatory change in Israel which might have 8
invoked Paragraph 8.A. 9
Poly Systems and Allied consequently became involved in 10
"a dispute around Poly Systems not taking the material on the 11
schedule that it was required to under the original agreement." 12
Test. of Anne Madden, Trial Tr. 858:18-21, June 29, 2005. To 13
resolve the dispute, Allied and Poly Systems amended the Allied 14
Contract effective December 1, 1997 ("First Amended Allied 15
Contract"). Under the First Amended Allied Contract, Poly 16
Systems was required to order the remaining Allied CFC-113 by 17
December 15, 1997, but Allied was required to continue storing it 18
through December 31, 1998. Allied also agreed to extend Poly 19
Systems's territorial exclusivity in the Middle East until 20
December 31, 1999, if Poly Systems took possession of the Allied 21
CFC-113 by December 31, 1998. The amendment incorporated all 22
other consistent terms of the original October 1995 contract. 23
The amendment to the Allied Contract did not solve 24
Shellef's biggest problem: The government of Israel, his best 25
customer, was no longer importing CFC-113. Shellef did have 26

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13
other willing buyers of CFC-113 -- Custom and All Discount, which 1
began buying Elf CFC-113 in mid-1997 -- but the First Amended 2
Allied Contract prohibited Shellef from selling Allied CFC-113 to 3
them. Still, knowing that Rubenstein did not have enough Elf 4
CFC-113 to fill the Custom and All Discount orders, Shellef 5
negotiated another amendment to the Allied Contract on 6
February 10, 1998, effective January 7, 1998 ("Second Amended 7
Allied Contract"). Poly Systems now was required to purchase and 8
take possession of the remaining Allied CFC-113 -- 493,000 9
pounds -- by June 30, 1998, but the price was reduced from $3.75 10
to $3.55 per pound. Shellef rejected Allied's offer to terminate 11
the contract if the Israeli government informed him that it would 12
not order CFC-113 in 1998. The Second Amended Allied Contract 13
stated that "from and after June 30, 1998, all price, volume, and 14
other terms and conditions of sale of [CFC-113] by [Allied] to 15
[Poly Systems] under the Contract shall not be as set forth in 16
the Contract, but shall be as negotiated by the parties from time 17
to time from and after June 30, 1998." Second Amended Allied 18
Contract, at 1 ¶ 1. 19
On June 3, 1998, Shellef sent his contact at Allied, 20
Albert "Lou" Dorsey, a letter stating that Israel had adopted a 21
law generally prohibiting CFC importation. The letter asserted, 22
though, that there might be an exception for "previous importers" 23
and that Shellef was negotiating with such an entity. Letter 24
from Shellef to Dorsey dated June 3, 1998. He suggested that 25
pending the outcome of those negotiations, a) Poly Systems would 26

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14
place orders with Allied before June 30 at the contract price; b) 1
Poly Systems would buy at the regular market price after June 30; 2
and c) Allied should "exercise reasonable commercial efforts" to 3
sell the remaining CFC-113 in accordance with Paragraph 8.A of 4
the original contract. Id.; Allied Contract at 3 ¶ 8.A. Allied 5
pressed Shellef to purchase all the remaining CFC-113 under the 6
agreement and questioned the nature of the governmental 7
regulation that would allow Shellef to invoke Paragraph 8.A. 8
Shellef responded on June 19 by sending Allied a copy of a letter 9
dated March 15, 1998, from an Israeli governmental official to 10
Shellef's lawyer. It stated: "In principle, according to the 11
Vienna Convention, Montreal Protocol, the import [sic] of . . . 12
CFC-113 is prohibited." Test. of Lou Dorsey, Trial Tr. 711:17- 13
19, June 28, 2005. 14
On October 5, 1998, Shellef offered to purchase all of 15
the remaining Allied CFC-113 at a rate of one truckload per 16
month, if Allied reduced the price to $1.60 per pound and 17
continued his exclusive rights in the Middle East. Shellef told 18
an Allied lawyer that "a window had opened up [in Israel] and he 19
would be able to move some material at a lower price." Test. of 20
Anne Madden, Trial Tr. 883:17-18, June 29, 2005. Allied and 21
Shellef agreed on a price of $1.75 per pound and, with other 22
changes not relevant here, agreed that the "other terms and 23
conditions of the Agreement, except to the extent they are 24
inconsistent with the above provisions shall continue in full 25

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7 Shellef strenuously contests whether the territorial
restrictions on him contained in the original contract remained
in effect. On his reading, the Autumn 1998 Agreement did not
incorporate the original contract terms limiting sales to the
original market. Shellef testified at trial that he believed
that, pursuant to the Second Amended Allied Agreement, the
limitation to export sales expired on June 30, 1998, and was not
revived by the Autumn 1998 Agreement. The Autumn 1998 Agreement
made reference to the original contract "as amended," and the
Second Amended Allied Agreement specified that the "terms and
conditions of sale[s]" made after June 30, 1998, "shall not be as
set forth in the Contract, but shall be negotiated by the
parties." But it also said that Allied "agrees to extend
[Shellef's] exclusive rights to sell [CFC-113] in the [Middle
East] through the end of 1999." Allied representatives similarly
testified that they understood the new agreement to incorporate
the export obligation from the previous agreement.
8 At trial, evidence was presented to the effect that the
re-labeling of materials was a common service rendered at the
behest of the product distributor, who did not want the final
purchaser to know where the product was manufactured for fear
that the purchaser would bypass the distributor and buy the
product directly from the manufacturer. Although this practice
of "customer protection" might explain the removal of Allied
labels, it is unclear why it should also be viewed as necessary
for such purposes to change the designation from "virgin" to
"reclaimed." The defendants may have thought that the Elf CFC-
15
force and effect." Letter from Dorsey to Shellef dated Oct. 28, 1
1998 (the "Autumn 1998 Agreement").7
2
Sometime after the February 1998 amendment became 3
effective, but probably before June 1998, Custom stopped buying 4
CFC-113 from Shellef. But during and after the course of the 5
contractual dispute and subsequent negotiations, Shellef began 6
selling Allied CFC-113 to All Discount, making two shipments in 7
September 1998. Shellef asked Rubenstein to ship the Allied CFC- 8
113 out of the Bayonne warehouse in which it had previously been 9
stored, to remove any references to Allied on the drums, and to 10
label the virgin Allied CFC-113 falsely as "reclaimed 113."8
11

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113 was "reclaimed," but there is no evidence that they thought
the Allied CFC-113 to be anything but virgin.
16
From October through December 1998, Shellef made four more 1
shipments of Allied CFC-113 to All Discount. 2
In early 1999, Shellef began storing Allied CFC-113 3
with Five Star Enterprises ("Five Star"), a consignee freight 4
forwarder in California. Shellef directed Five Star to follow 5
instructions given by Rubenstein. On March 12, 1999, 6
Rubenstein's employee, at Shellef's direction, shipped thirty-six 7
drums of the Allied CFC-113 from Rubenstein's New Jersey 8
warehouse to Five Star's California warehouse. Five Star then 9
made periodic shipments of the Allied CFC-113 to All Discount 10
when instructed to do so by Shellef. Other shipments of Allied 11
CFC-113, including sixty drums on February 7, 2000, were also 12
made to Five Star for distribution to All Discount. 13
Beginning on March 9, 2000, Shellef also sold Allied 14
CFC-113 to Mid-Atlantic Chemical, Inc. ("Mid-Atlantic"), a 15
Pennsylvania-based domestic distributor of CFC-113. Shellef told 16
the president of Mid-Atlantic that excise taxes "had been taken 17
care of" on the Allied CFC-113. Test. of Theodore Stepanoff, 18
Trial Tr. 1250:9-14, June 29, 2005. Mid-Atlantic's first 19
purchase of Allied CFC-113 from Shellef was resold by Mid- 20
Atlantic to EM Science in Ohio. 21
In April 2000, Shellef contacted EM Science directly to 22
offer ten drums of Allied CFC-113 "left over from a project in 23
California." Test. of Ronald Wizda, Trial Tr. 523-24, June 27, 24

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17
2005. Shellef offered it at a tax-paid price. EM Science wanted 1
to test the quality of Shellef's product before placing an order. 2
On May 18, 2000, Shellef directed Rubenstein to ship one drum of 3
Allied CFC-113 to EM Science, but to make sure to remove a label 4
falsely indicating that it was reclaimed and attach instead a 5
label correctly indicating that the product was virgin CFC-113 6
produced by Allied. EM Science decided to satisfy its additional 7
CFC-113 requirements through Mid-Atlantic, not through Shellef. 8
Shellef sold Allied CFC-113 on the domestic market each 9
year from 1998 through 2000, with the applicable but unpaid 10
excise tax rate varying from year to year. All told, Shellef 11
sold 30,360 pounds of Allied CFC-113 domestically in 1998; the 12
excise tax due on these sales totaled $162,729.60. In 1999, 13
Shellef sold 198,580 pounds domestically, resulting in an unpaid 14
excise tax in the amount of $1,135,877.60. Finally, in 2000, 15
Shellef's domestic sales of 73,252 pounds of CFC-113 required a 16
total excise-tax payment of $445,372.16 that was never paid. 17
Shellef never sent Allied any documentation regarding any of the 18
domestic sales of its product. 19
1996 Tax Charges 20
Two of the tax charges concern filings with the IRS for 21
the year 1996 -- Shellef's personal return and the PolyTuff USA 22
corporate return filed by Shellef. Shellef had hired an 23
accountant, Stephen Stein, to prepare corporate tax returns for 24
Poly Systems, Poly Systems USA, and PolyTuff USA for that year. 25
Stein had also prepared Shellef's personal income tax returns. 26

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9 "Quicken" is the name given by Intuit Inc. to its widely
used group of financial computer programs for consumer and
business use. They are used, among other things, to keep
financial records, including check registers. See Test. of
Stephen Stein, Trial Tr. 1467:12-20, July 6, 2005; Intuit,
http://www.intuit.com (last visited July 21, 2007).
10 This amount is calculated by adding the cash received in
a fiscal year to the accounts receivable at the end of that year
and then subtracting the accounts receivable that were reported
in the prior year and collected in the current year.
18
Shellef gave Stein copies of "Quicken" records9 that Shellef 1
kept, but he never gave Stein original invoices or similar backup 2
documents to substantiate the information contained in the 3
Quicken documents. 4
For PolyTuff USA's 1996 fiscal year, which ended on 5
February 28, 1997, Shellef's Quicken records, and the PolyTuff 6
USA tax return prepared by Stein, revealed gross receipts10 of 7
$633,639. After expenses, this amounted to a taxable income of 8
$10,547. Stein reconciled the 1996 PolyTuff USA Quicken 9
information with records from checking and money market accounts 10
PolyTuff USA held at First Bank of the Americas. But Shellef did 11
not inform Stein of a PolyTuff USA account held at Marine Midland 12
Bank in which PolyTuff USA had deposited four checks in the total 13
amount of $1,942,113.62 during fiscal year 1996. The reported 14
gross receipts therefore understated actual gross receipts by 15
nearly $2 million. After accounting for unreported expenses, 16
PolyTuff USA owed $288,621.58 in taxes for 1996, instead of the 17
$1,582 it claimed to owe on its return. 18

-- 18 of 56 --

19
Shellef's personal income tax return for 1996, also 1
prepared by Stein, reported total income of $77,446 and taxable 2
income of $53,996. But Shellef hid personal bank accounts from 3
Stein. Because of undisclosed transactions involving these 4
accounts and PolyTuff USA, Shellef's taxable income for 1996 in 5
fact was $957,326 -- $903,330 more than the $53,996 Shellef 6
reported. Shellef owed $344,152 more in personal income tax for 7
1996 than the $9,900 he had reported and paid. 8
1999 Tax Charge 9
By 1998, Shellef was working with a different 10
accountant at Stein's firm -- Stephen Kashinsky. Kashinsky 11
prepared Poly Systems's original 1999 corporate tax return. 12
Based on the Quicken records and bank statements that Shellef 13
gave him, Kashinsky reported gross receipts of $986,224. 14
But Shellef did not tell Kashinsky about accounts held 15
by Poly Systems at North Fork Bank ("North Fork") and Commercial 16
Bank of New York ("CBNY"). In 1999, All Discount paid Poly 17
Systems $662,400 for Allied CFC-113, which it transferred by wire 18
into the undisclosed Poly Systems account at CBNY. Poly Systems 19
also deposited two checks in the total amount of $120,216 into 20
its undisclosed North Fork account. Poly Systems's 1999 21
corporate tax return thus under-reported gross receipts by 22
$782,616. When Shellef became aware of an FBI investigation of 23
his business affairs, he replaced Kashinsky with Michael 24
Maddaloni, who had been preparing Poly Systems USA's filings 25
since Rubenstein made his investment in that company. Shellef 26

-- 19 of 56 --

20
filed an amended return for Poly Systems that added $760,701 to 1
the original return's report of $986,000 in gross receipts, 2
$21,915 less than the $782,616 he had failed to report. 3
Shellef also withheld information from Kashinsky about 4
personal foreign bank accounts -- one at Credit Suisse in 5
Switzerland and the other at Bank Leumi in Israel. He conducted 6
three wire transfers in the total amount of $450,240 out of Poly 7
Systems's CBNY account and into the Credit Suisse and Bank Leumi 8
accounts. The original return did not reflect these 9
transactions. The amended return showed most of these transfers 10
as loans from Poly Systems to Shellef. Shellef repaid the loans 11
with interest. 12
The Indictment 13
On June 24, 2003, a grand jury in the United States 14
District Court for the Eastern District of New York returned a 15
ninety-one count indictment against Shellef and a forty-six count 16
indictment against Rubenstein. Count One charges them jointly 17
with conspiring to impede the IRS's collection of excise taxes in 18
violation of 18 U.S.C. § 371, based on their domestic sales of 19
Elf and Allied CFC-113. Shellef and Rubenstein were also charged 20
jointly in Counts Five through Fifty with wire fraud, in 21
violation of 18 U.S.C. § 1343. Those counts rested on two 22
alternative theories of fraud based on Shellef's alleged promise 23
to export all the Allied CFC-113: 1) absent Shellef's alleged 24
misrepresentation about the CFC-113's destination, Allied would 25
have charged Poly Systems for the excise tax due on domestic 26

-- 20 of 56 --

21
sales of virgin CFC-113; and 2) absent the alleged 1
misrepresentation, Allied would not have sold Shellef the CFC- 2
113. Rubenstein's alleged role in the wire fraud was to store, 3
re-label, and ship the Allied CFC-113 to domestic customers at 4
Shellef's direction. Shellef and Rubenstein allegedly used wire 5
communications to transmit shipping instructions, invoices, and 6
payments they received for domestic sales as part of their plan. 7
The remainder of the counts in the indictment charge 8
only Shellef. Count Two alleges that Shellef violated 26 U.S.C. 9
§ 7206(1) by subscribing to false statements regarding the gross 10
receipts reported in PolyTuff USA's 1996 tax return. Count Three 11
alleges that Shellef evaded personal income taxes for 1996 by 12
understating his taxable income and the tax due, a violation of 13
26 U.S.C. § 7201. Count Four charges Shellef with another 14
violation of section 7206(1), this one arising out of the alleged 15
understatement of Poly Systems's gross receipts on its 1999 16
corporate tax return. 17
In addition to these tax charges, Shellef was indicted 18
on forty-one counts of money laundering, based on his actions 19
underlying the conspiracy and wire fraud counts. The first five, 20
Counts Fifty-One through Fifty-Five, allege violations of 18 21
U.S.C. § 1956(a)(1)(A)(i) arising out of Shellef's use of 22
proceeds from domestic sales of CFC-113 to buy more Allied CFC- 23
113. Counts Fifty-Six through Ninety-One allege violations of 18 24
U.S.C. §§ 1956(a)(1)(A)(ii) and (B)(i), arising out of Shellef's 25

-- 21 of 56 --

11 We note that Shellef argued below that all the tax
charges should be severed from all the non-tax charges but he
argues on appeal that the 1996 tax charges were misjoined with
the remaining charges, including the 1999 tax charge. The
government does not, however, contend that Shellef's argument on
appeal was waived, and so we consider it as argued and briefed
before us.
22
transfer of proceeds from domestic CFC-113 sales to U.S. and 1
foreign bank accounts. 2
District Court Proceedings 3
Prior to trial, Shellef moved to dismiss the 4
conspiracy, wire fraud, and 1999 tax counts for failure to allege 5
offenses and to sever all tax counts from the other counts under 6
Rule 8 of the Federal Rules of Criminal Procedure.11 Rubenstein 7
joined in seeking the relief sought by Shellef. The district 8
court denied the motions. 9
The trial began on June 20, 2005. The government's 10
evidence supporting the conspiracy and wire fraud charges -- and, 11
by extension, the money laundering charges based on the 12
conspiracy and wire fraud counts -- came principally from two 13
witnesses, Allied's Albert Dorsey and Anne Madden. They 14
testified, inter alia, that Shellef obligated himself in the 15
Autumn 1998 Agreement to continue to confine himself to export 16
sales. Shellef's defense to these charges rested in large part 17
on his assertion that he did not, under the Autumn 1998 Agreement 18
or otherwise, undertake to export the Allied CFC-113 after the 19
original contract expired on June 30, 1998. 20

-- 22 of 56 --

23
Although most of the trial explored Shellef's and 1
Rubenstein's dealings with Elf and Allied, substantial portions 2
related to the 1996 personal tax evasion and false return charges 3
against Shellef. Indeed, roughly half of the government's cross- 4
examination of Shellef focused on the 1996 tax evasion and false 5
return charges. 6
On July 28, 2005, the jury returned general verdicts of 7
guilty against both defendants on all counts of which each was 8
charged. The district court thereafter sentenced Shellef 9
principally to seventy months' imprisonment and three years of 10
supervised release. The district court sentenced Rubenstein 11
principally to eighteen months' imprisonment and three years of 12
supervised release. Shellef and Rubenstein were ordered to pay 13
$1,880,461 in restitution. The district court also entered a 14
final order of forfeiture requiring Shellef to forfeit 15
$1,350,650. 16
This appeal followed. By Order of this Court dated 17
December 19, 2006, the district court released the defendants on 18
bond pending appeal. 19
DISCUSSION 20
I. Jurisdiction 21
The district court had jurisdiction over the 22
prosecution of Shellef and Rubenstein pursuant to 18 U.S.C. 23
§ 3231 because they were charged with violating federal criminal 24
laws. The district court entered judgments of conviction against 25
Rubenstein in March 2006 and against Shellef in April 2006. We 26

-- 23 of 56 --

24
have jurisdiction over the appeal of such final judgments under 1
28 U.S.C. § 1291. 2
II. Basis for Vacatur and Remand 3
The defendants argue that the 1996 tax evasion and 4
false return counts against Shellef were improperly joined with 5
the remainder of the counts in the indictment. The government 6
defends the joinder on the ground that "the charges were 'based 7
on the same act or transaction' as the other charges the jury was 8
to consider." Gov't Br. at 51. 9
We review the propriety of joinder de novo. United 10
States v. Feyrer, 333 F.3d 110, 113 (2d Cir. 2003). "[T]he 11
propriety of Rule 8 joinder is subject to full appellate review, 12
and where joinder should not have been permitted, a conviction 13
must be reversed, unless failure to sever was harmless error." 14
United States v. Attanasio, 870 F.2d 809, 815 (2d Cir. 1989) 15
(internal quotation marks and citations omitted). 16
Federal Rule of Criminal Procedure 8 sets forth when 17
joinder is appropriate in criminal cases: 18
Joinder of Offenses or Defendants 19
(a) Joinder of Offenses. The indictment or 20
information may charge a defendant in 21
separate counts with 2 or more offenses if 22
the offenses charged -- whether felonies or 23
misdemeanors or both -- are of the same or 24
similar character, or are based on the same 25
act or transaction, or are connected with or 26
constitute parts of a common scheme or plan. 27
(b) Joinder of Defendants. The indictment or 28
information may charge 2 or more defendants 29
if they are alleged to have participated in 30
the same act or transaction, or in the same 31

-- 24 of 56 --

12 Indeed, the answer to this question is not well-settled.
Compare United States v. Turoff, 853 F.2d 1037, 1043 (2d Cir.
1988) (stating that "our cases indicate that when a defendant in
a multiple-defendant case challenges joinder of offenses, his
motion is made under 8(b) rather than 8(a)") (internal quotation
marks omitted) (citing cases) and Attanasio, 870 F.2d at 814-15
(applying Rule 8(b) to determine whether two conspiracies should
have been charged together) with United States v. Biaggi, 909
F.2d 662, 675-76 (2d Cir. 1990) (citation omitted) (acknowledging
the "thoughtful opinion" of the district court, which limited the
reach of Turoff on the ground that it "should be understood to
apply Rule 8(b) standards to the claim of a defendant in a multi-
defendant trial only when he seeks severance of counts in which
he and at least one of his co-defendants are charged," while
leaving open the possibility "that Rule 8(a) standards apply to a
defendant in a multi-defendant trial who seeks severance of
counts in which he is the only defendant charged," but failing to
resolve the issue because joinder was also proper under Rule
8(b)). We, likewise, need not opine on the reach of Turoff here
because our resolution of this appeal is the same even if Rule
8(a), the more expansive joinder provision, applies.
25
series of acts or transactions, constituting 1
an offense or offenses. The defendants may 2
be charged in one or more counts together or 3
separately. All defendants need not be 4
charged in each count. 5
Fed R. Crim. P. 8. Thus, while Rule 8(a) allows joinder of 6
offenses that are of "the same or similar character," Rule 8(b) 7
does not allow joinder of defendants on that basis alone -- they 8
must be "alleged to have participated in the same act or 9
transaction, or in the same series of acts or transactions." Id. 10
The parties devote considerable attention to the 11
question whether Rule 8(a) or Rule 8(b) applies when a defendant 12
in a multi-defendant, multi-count prosecution such as the one 13
against Shellef challenges the joinder of a count in which he is 14
the only defendant charged.12 But the government explicitly 15
defends both the joinder under Rule 8(a) of the charges against 16

-- 25 of 56 --

26
Shellef and the joinder under Rule 8(b) of defendants only on the 1
grounds that the 1996 tax charges "are 'based on the same act or 2
transaction' as the other charges the jury was to consider." 3
Gov't Br. at 51. It further asserts that all of the charges 4
"share a common nucleus, the sale of the CFC-113." Gov't Br. at 5
51. The government thus appears also to rely for joinder of 6
offenses under Rule 8(a) on the grounds that the charged offenses 7
"are connected with or constitute parts of a common scheme or 8
plan," Fed. R. Crim. P. 8(a), and for joinder of defendants under 9
Rule 8(b) on the parallel grounds that the defendants 10
"participated . . . in the same series of acts or transactions, 11
constituting an offense or offenses," Fed. R. Crim. P. 8(b). Cf. 12
United States v. Halper, 590 F.2d 422, 430 (2d Cir. 1978) 13
(justifying joinder under the "common scheme or plan" clause 14
because it saves the government from having to "prov[e] what is 15
essentially the same set of facts more than once" and the 16
defendant from "defending more than once against what are 17
essentially the same, or at least connected, charges"). 18
Critically, the government does not defend the joinder 19
of offenses under Rule 8(a)'s "same or similar character" clause. 20
See United States v. Turoff, 853 F.2d 1037, 1042-43 (2d Cir. 21
1988) (concluding that Rule "8(b) provides a more restrictive 22
test" because "[u]nlike Rule 8(a), Rule 8(b) does not permit 23
joinder . . . solely on the ground that the offenses charged are 24
of 'the same or similar character'"). If, then, the charges 25
against Shellef alone are not "based on the same act or 26

-- 26 of 56 --

27
transaction" or "are [not] connected with or constitute parts of 1
a common scheme or plan," Fed. R. Crim. P. 8(a), and the charges 2
against both Shellef and Rubenstein are not based on "the same 3
act or transaction, or [o]n the same series of acts or 4
transactions," Fed. R. Crim. P. 8(b), both the joinder of charges 5
and the joinder of defendants were improper. 6
A. Joinder of Charges against Shellef 7
1. Propriety of Joinder. There are three tax charges 8
against Shellef. Two of them arise from Shellef's 1996 tax 9
returns (the "1996 Tax Counts"). First, Shellef is charged with 10
falsely reporting the gross receipts on PolyTuff USA's 1996 11
corporate income tax return (the "PolyTuff Tax Count"). Second, 12
he is charged with misstating his taxable income on his 1996 13
personal income tax return (the "Personal Tax Count"). Third, he 14
is charged with falsely reporting gross receipts on Poly 15
Systems's corporate income tax return in 1999 (the "1999 Tax 16
Count" or the "Poly Systems Tax Count"). As noted, these tax 17
counts are joined with several non-tax counts charging both 18
Shellef and Rubenstein with conspiracy and wire fraud and 19
charging Shellef alone with money laundering. Shellef contends 20
that the 1996 Tax Counts should not have been joined with the 21
remaining counts, including the 1999 Tax Count. 22
We apply a "commonsense rule" to decide whether, in 23
light of the factual overlap among charges, joint proceedings 24
would produce sufficient efficiencies such that joinder is proper 25
notwithstanding the possibility of prejudice to either or both of 26

-- 27 of 56 --

28
the defendants resulting from the joinder. See Turoff, 853 F.2d 1
at 1044 ("applying a commonsense rule to these facts" to 2
determine whether "a reasonable person would easily recognize the 3
common factual elements that permit joinder"); see also id. at 4
1042 (recognizing that the tests for joinder "reflect[] a policy 5
determination that [in some circumstances,] gains in trial 6
efficiency outweigh the recognized prejudice that accrues to the 7
accused"). For example, counts might be "connected" if one of 8
the offenses "depend[s] upon []or necessarily l[eads] to the 9
commission of the other," or if proof of one act "constitute[s] 10
[]or depend[s] upon proof of the other." Halper, 590 F.2d at 11
429. 12
"Tax counts may be joined with non-tax counts where it 13
is shown that the tax offenses arose directly from the other 14
offenses charged." Turoff, 853 F.2d at 1043. "The most direct 15
link possible between non-tax crimes and tax fraud is that funds 16
derived from non-tax violations either are or produce the 17
unreported income." Id. Thus, if a defendant is charged with 18
fraud, the government may prosecute the defendant for fraud and 19
for not paying taxes on the profits produced by the alleged fraud 20
jointly. And "if the character of the funds derived do not 21
convince us of the benefit of joining these two schemes in one 22
indictment, other overlapping facts or issues may." Id. at 1043- 23
44. 24
Here, the Personal Tax Count and the PolyTuff Tax Count 25
against Shellef might have been properly joined with an 26

-- 28 of 56 --

29
indictment charging the 1999 Tax Count because there are common 1
facts concerning Shellef's relationship with Stein and 2
Kashinsky's accounting firm, which handled both his 1996 and 1999 3
tax returns. And inasmuch as the schemes underlying the non-tax 4
counts against Shellef and Rubenstein generated the allegedly 5
unreported 1999 income of Poly Systems that formed the basis for 6
the 1999 Tax Count against Shellef, it seems likely that the 1999 7
Tax Count against Shellef could have been properly joined with an 8
indictment charging only the conspiracy, wire fraud, and money 9
laundering schemes against Shellef -- the unreported 1999 income 10
was produced by those schemes. See United States v. Biaggi, 909 11
F.2d 662, 676 (2d Cir. 1990) (holding that tax counts were 12
properly joined with conspiracy counts because most of the 13
unreported income was produced by the conspiracy). 14
The funds generated by the wire fraud, money 15
laundering, and conspiracy schemes, however, were unrelated to 16
the unreported income that was the basis for the 1996 Tax Counts. 17
Indeed, the alleged 1996 tax violations took place before the 18
conspiracy and wire fraud allegedly began. The government's 19
contention that all the charges "share a common nucleus, the sale 20
of the CFC-113," Gov't Br. at 51, paints the allegations with too 21
broad a brush. Even assuming that PolyTuff USA's unreported 22
gross receipts and Shellef's unreported personal income derived 23
entirely from CFC-113 sales (a fact about which the record is 24
silent), the fact that the businesses that produced the 1996 25
unreported income were also subsequently used to perpetrate the 26

-- 29 of 56 --

30
alleged conspiracy and wire fraud does not justify a conclusion 1
that the offenses charged are "based on the same act or 2
transaction, or are connected with or constitute parts of a 3
common scheme or plan" under Rule 8(a). Fed R. Crim. P. 8(a); 4
see also Halper, 590 F.2d at 429 (rejecting the joinder of income 5
tax counts with Medicaid fraud counts, even though the unreported 6
income was generated by the same business that allegedly 7
committed the Medicaid fraud, because the unreported income may 8
have been produced by legitimate activities of the business 9
unrelated to the fraud). 10
We can find no other link between the 1996 Tax Counts 11
and the other charges sufficient to justify joinder of all of the 12
counts. The gravamen of the government's case with respect to 13
the wire fraud, money laundering, conspiracy, and 1999 tax 14
offenses is that Shellef and Rubenstein conspired to obstruct the 15
IRS's collection of the excise tax due on their sales of CFC-113 16
by misrepresenting to Allied and Elf their intent to resell the 17
product abroad. The only common factual elements between those 18
charges and the 1996 Tax Counts is that Shellef purchased CFC-113 19
from Allied and that Shellef used Stein and Kashinsky's 20
accounting firm from 1996 through 1999. Elements of the 1996 Tax 21
Counts that are not common to the conspiracy, wire fraud, money 22
laundering, and 1999 tax counts include that Shellef made sales 23
to the government of Israel in 1996; that PolyTuff USA deposited 24
these funds in an undisclosed Marine Midland account; that 25
Shellef held an undisclosed personal account at Citibank to which 26

-- 30 of 56 --

31
he diverted corporate profits; and that he omitted the funds from 1
his tax returns. Elements of the conspiracy, wire fraud, money 2
laundering, and 1999 tax counts that are not common to the 1996 3
Tax Counts include that the Israeli government ceased importing 4
CFC-113 in 1997; that Shellef renegotiated his contract with 5
Allied on more than one occasion; that Rubenstein purchased CFC- 6
113 from Elf; that Shellef and Rubenstein sold CFC-113 7
domestically; and that they misrepresented to their domestic 8
buyers that the excise tax had been paid. 9
Requiring that the 1996 Tax Counts be tried separately 10
from the remaining counts, moreover, would not require that the 11
government "prov[e] what is essentially the same set of facts 12
more than once" and Shellef to "defend[] more than once against 13
what are essentially the same, or at least connected, charges." 14
Halper, 590 F.2d at 430. Because "[c]ommission of [the alleged 15
wire fraud and conspiracy] neither depended upon nor necessarily 16
led to the commission of" the alleged 1996 tax misconduct and 17
"proof of the one act neither constituted nor depended upon proof 18
of the other," joinder was improper. Id. at 429. 19
The charges are thus not "based on the same act or 20
transaction, [and] are [not] connected with [and do not] 21
constitute parts of a common scheme or plan" under Rule 8(a). 22
Cf. Biaggi, 909 F.2d at 676 ("Proof of one scheme was helpful to 23
a full understanding of the other."). Although the 1996 Tax 24
Counts may be relevant to determining whether Shellef possessed 25
the requisite mens rea for the 1999 Tax Count, the 1996 Tax 26

-- 31 of 56 --

13 In Biaggi, multiple defendants were involved in a large-
scale conspiracy to extort money from a company called Wedtech.
See Biaggi, 909 F.2d at 670-74. One defendant was also charged
with extorting money from a contractor named Fogliano. See id. at
673. This defendant was further charged with a tax violation for
unreported income. See id. at 675. We reasoned that because the
overwhelming majority of the unreported income was derived from
the Wedtech extortion that was at the center of the trial,
joinder was proper notwithstanding that a small amount of the
income was from the unrelated Fogliano extortion. See id. at
676. Nonetheless, we noted hypothetically that if the trial had
focused on the Fogliano extortion, joinder of a tax count based
largely on unreported Wedtech extortion income may be improper,
even if it included a small amount of Fogliano extortion income.
See id. Biaggi thus reinforced the notion that the propriety of
joining tax charges with non-tax charges depends in large part on
whether the unreported income forming the basis for the tax
charges was derived from the criminal acts that form the basis
for the non-tax charges.
32
Counts and the non-tax counts are not sufficiently "unified by 1
some substantial identity of facts or participants," nor do they 2
"arise out of a common plan or scheme." Attanasio, 870 F.2d at 3
815 (quoting United States v. Porter, 821 F.2d 968, 972 (4th Cir. 4
1987), cert. denied, 485 U.S. 934 (1988)) (finding joinder 5
appropriate where two contemporaneous conspiracies "shared a 6
common purpose" and included "an overlap of participants and 7
acts"). 8
We do not think, then, that the 1999 Tax Count -- which 9
might have been joined with either the 1996 Tax Counts or the 10
conspiracy, wire fraud, and money laundering counts -- provides 11
an adequate link between the 1996 Tax Counts and the non-tax 12
counts to justify joinder of all the charges against Shellef. 13
The 1996 Tax Counts therefore should not have been joined with 14
the remaining counts.13
15

-- 32 of 56 --

Shellef's case stands even further outside Rule 8's scope
than the hypothetical posed by the Biaggi Court. Here, none of
the unreported personal or corporate income was derived from the
conspiracy or wire fraud schemes that formed the basis for the
other charges against Shellef and Rubenstein. There is simply no
meaningful factual overlap between the 1996 Tax Counts and the
remainder of the case.
33
2. Harmlessness of Misjoinder as to Shellef. 1
Erroneous joinder "requires reversal only if the misjoinder 2
results in actual prejudice because it 'had substantial and 3
injurious effect or influence in determining the jury's 4
verdict.'" United States v. Lane, 474 U.S. 438, 449 (1986) 5
(quoting Kotteakos v. United States, 328 U.S. 750, 776 (1946)); 6
see also id. at 450 (concluding that the error in that case was 7
harmless because the evidence of guilt was overwhelming, limiting 8
instructions were given, and the evidence on the misjoined count 9
would have been admissible in a trial on the remaining counts). 10
In determining whether the error was harmless, we inquire whether 11
"evidence tending to prove the charge that should have been 12
severed would nevertheless have been admissible at the trial of 13
the objecting []defendant, and was admitted subject to 14
appropriate limiting instructions." Attanasio, 870 F.2d at 815 15
(quoting United States v. Turbide, 558 F.2d 1053, 1061 (2d Cir.), 16
cert. denied, 434 U.S. 934 (1977)) (internal quotation marks 17
omitted). "The burden of establishing harmlessness is on the 18
government." United States v. Quattrone, 441 F.3d 153, 181 (2d 19
Cir. 2006). We must examine whether the misjoinder was harmless 20
with respect to the jury's conviction of Shellef on each count. 21

-- 33 of 56 --

34
a. The non-tax counts 1
We conclude that misjoinder of the tax and non-tax 2
counts was not harmless with respect to Shellef's convictions on 3
the non-tax counts. Had Shellef been tried on only the non-tax 4
counts and the 1999 Tax Count, some of the evidence related to 5
the 1996 Tax Counts might have been admissible for the limited 6
purpose of establishing Shellef's mental state with respect to 7
the 1999 Tax Count. See United States v. Bok, 156 F.3d 157, 165 8
(2d Cir. 1998) ("[W]e have often explained [that] a defendant's 9
past taxpaying record is admissible to prove willfulness 10
circumstantially."); cf. Fed. R. Evid. 404(b) ("Evidence of other 11
crimes, wrongs, or acts" may be admissible to prove, inter alia, 12
"intent, . . . knowledge, . . . or absence of mistake or 13
accident . . . ."). 14
But other-acts evidence admissible under Rule 404(b) is 15
subject to exclusion under Rule 403, which provides that evidence 16
"may be excluded if its probative value is substantially 17
outweighed by the danger of unfair prejudice." Fed. R. Evid. 18
403; see also United States v. Myerson, 18 F.3d 153, 166 (2d Cir. 19
1994) (recognizing that "[r]elevant evidence of a defendant's 20
prior bad acts [may be] admissible under Rule 404(b) . . . so 21
long as that evidence is not substantially more prejudicial than 22
probative under Rule 403"). We think that the risk of unfair 23
prejudice would have been excessive if evidence of the 1996 Tax 24
Counts were to have been admitted in a trial on the non-tax 25
counts and the 1999 Tax Count. A danger generally associated 26

-- 34 of 56 --

35
with other-acts evidence is that the jury will understand it to 1
suggest that the defendant is predisposed to engage in a 2
particular type of criminal activity. See Fed. R. Evid. 404(b) 3
(providing that other-acts evidence "is not admissible to prove 4
the character of a person in order to show action in conformity 5
therewith"). In this case, there are at least two concerns about 6
the other-acts evidence that would warrant its exclusion. First, 7
there is the danger that the jury may improperly apply the other- 8
acts evidence to the non-tax counts even though it is admissible 9
only as to the 1999 Tax Count. The risk is that the jury would 10
reason that if Shellef was willing to lie to the IRS in 1996, he 11
would be willing subsequently to lie to others, including Allied 12
and Elf personnel. Second, because here the other-acts evidence 13
relates to Shellef's alleged deceit, there is an additional risk: 14
The jury might have interpreted the 1996 Tax Counts evidence as 15
an indication of Shellef's general mendacity relevant to the 16
remaining counts and thereby discount his testimony unrelated to 17
the tax counts. 18
Perhaps, as in Attanasio, an instruction strictly 19
limiting the jury's use of the evidence admitted as to the 1996 20
Tax Counts to that which is permissible -- to negate the 21
inference that the misstated gross receipts on the 1999 Poly 22
Systems return were the product of mere mistake -- would have 23
helped cure the prejudice. But no such instruction was given 24
here. See Attanasio, 870 F.2d at 815 (noting that the district 25
judge "gave appropriate limiting instructions to the jury" to 26

-- 35 of 56 --

36
narrow evidence admitted under Rule 404(b) to the defendant's 1
intent and motive). Since no limiting instruction was given, the 2
evidence as to the 1996 Tax Counts would not have been admissible 3
in a trial on all the other counts. We therefore conclude that 4
the misjoinder of the 1996 Tax Counts was not harmless error as 5
to the non-tax counts. 6
b. The 1996 Tax Counts 7
Prejudicial misjoinder of the charges is, in this case, 8
a two-way street. Just as the introduction of evidence as to 9
elements of the 1996 Tax Counts was prejudicial to jury 10
deliberation on the conspiracy, wire fraud, and money laundering 11
counts, introduction of evidence as to elements of the 12
conspiracy, wire fraud, and money laundering counts was 13
prejudicial to jury deliberation on the 1996 Tax Counts. After 14
hearing evidence of the conspiracy, wire fraud, and money 15
laundering counts, the jury may have thought that Shellef was 16
predisposed to commit crimes of deceit like those alleged in the 17
1996 Tax Counts. No limiting instruction was given that would 18
have been adequate to protect against these risks. See 19
Attanasio, 870 F.2d at 815. 20
c. 1999 Tax Count 21
We conclude, finally on this score, that because of the 22
misjoinder, the jury's conviction of Shellef on the 1999 Tax 23
Count also cannot stand. Although evidence relating to the 1996 24
Tax Counts and the non-tax counts is admissible as to the 1999 25
Tax Count, a limiting instruction was required to prevent the 26

-- 36 of 56 --

14 The district court also gave this instruction:
Any wilful failure to comply with the
requirements of the Internal Revenue Code for
one year is a separate matter from any such
failure to comply for a different year. The
tax obligations of defendant Shellef in any
one year must be determined separately from
the tax obligations in any other year.
That language is not sufficient to avoid the propensity problem.
Even though the jury was instructed to "determine[] separately"
guilt as to the tax charges, this instruction does not explain to
the jury that, if it finds Shellef guilty on one tax charge, it
may consider this conduct only as it relates to intent to commit
the other tax charge. While the instruction properly directs the
jury to determine guilt or innocence separately for each count,
it does not limit the extent that the jury may consider evidence
submitted to prove one count in determining guilt on another
count. For the misjoinder to be harmless, given the facts of
this case, such an instruction was required.
37
jury from improperly considering such evidence as demonstrating 1
Shellef's propensity to commit crimes of deceit. See Bok, 156 2
F.3d at 165 ("[W]e have often explained [that] a defendant's past 3
taxpaying record is admissible to prove willfulness 4
circumstantially."); Attanasio, 870 F.2d at 815. The district 5
court included an instruction of this sort, but it expressly 6
related only to "evidence of acts of the defendants which may be 7
similar to those charged in the indictment, but which were 8
committed on other occasions." Trial Tr. 3146:13-16, July 25, 9
2005. Without a similar limiting instruction applicable to the 10
acts charged in the indictment, however, the government has not 11
demonstrated that the evidence relating to the 1996 Tax Counts or 12
the non-tax counts did not result in actual prejudice to the 13
jury's deliberation. As a result, Shellef's judgment of 14
conviction on the 1999 Tax Count also must be vacated.14
15

-- 37 of 56 --

38
B. Sufficiency of the Evidence of Conspiracy as to Shellef 1
Shellef also argues that the evidence presented failed 2
to support his conviction for conspiring to defraud the IRS, and 3
that therefore his conviction must be reversed rather than 4
vacated. 5
Shellef contends that all of the evidence is consistent 6
with a motive to evade Allied's exclusive domestic 7
distributorship agreements by deceiving the company into thinking 8
that he would not sell the CFC-113 domestically. Because that 9
scheme did not have as a necessary result the perpetration of a 10
fraud on the IRS and there is no additional evidence of actions 11
that would not be explained by a motive to deceive Allied instead 12
of the IRS, Shellef argues, we are required to vacate his 13
conviction for conspiracy. 14
But the government introduced considerable evidence of 15
conduct by Shellef and Rubenstein that supports the inference 16
that they intended to avoid payment of the excise tax entirely, 17
rather than only to trick Allied into selling them CFC-113. For 18
example, Shellef represented to his buyers that the excise tax 19
had been paid; Rubenstein prepared documents indicating that the 20
material was either reclaimed or for export only; and Shellef 21
charged his customers just below Allied's tax-paid rate (and 22
significantly above the tax-free rate Shellef paid). All this 23
was done after they had acquired the CFC-113, and hence is not 24
explainable solely by "the objective of obtaining the chemical 25
from Allied." Shellef Br. at 51. The evidence "allow[ed] the 26

-- 38 of 56 --

39
jury to reasonably infer that each essential element of the crime 1
charged," United States v. D'Amato, 39 F.3d 1249, 1256 (2d Cir. 2
1994), including the "inten[t] to impede or obstruct the IRS from 3
carrying out its functions," Gurary, 860 F.2d at 525, "has been 4
proven beyond a reasonable doubt," D'Amato, 39 F.3d at 1256. 5
In any event, even if the evidence was consistent with 6
a motive to defraud Allied, it is also consistent with a motive 7
to defraud the IRS. Because we must draw all inferences in favor 8
of the verdict, United States v. Naiman, 211 F.3d 40, 46 (2d Cir. 9
2000), the challenge fails. 10
C. Joinder of Charges against Rubenstein 11
For many of the same reasons that there was a 12
prejudicial misjoinder of the 1996 Tax Counts with the 13
conspiracy, wire fraud, and money laundering counts as they 14
relate to Shellef, a fortiori, the conspiracy and wire fraud 15
counts against Rubenstein were prejudicially misjoined with the 16
1996 Tax Counts against Shellef. The indictment alleged that 17
Shellef and Rubenstein devised and executed the wire fraud and 18
conspiracy schemes together, but, as we have explained, the 19
connection between that scheme and the 1996 Tax Counts is too 20
tenuous to justify joinder under Rule 8. Moreover, just as the 21
joinder of the 1996 Tax Counts with the non-tax counts against 22
Shellef may have materially and improperly influenced the jury's 23
deliberations on the non-tax counts as to Shellef, it also may 24
have materially and improperly influenced the jury's 25
deliberations on the wire fraud and conspiracy counts as to 26

-- 39 of 56 --

40
Rubenstein. Indeed, the potential for prejudice misjoinder is 1
arguably greater as for Rubenstein than Shellef, not only because 2
he had no connection at all with the 1996 Tax Count, but also 3
because he chose not to testify yet may have suffered from any 4
adverse credibility determinations made by the jury regarding 5
Shellef's testimony. We therefore vacate the jury's conviction 6
of Rubenstein for wire fraud and conspiracy, too. 7
III. Issues on Remand 8
Because of the prejudicial misjoinder of charges 9
against the defendants, we must vacate and remand the case to the 10
district court for further proceedings. Because several other 11
issues asserted as bases for vacatur of the defendants' judgments 12
of conviction have been fully briefed and argued, and because 13
they are likely to arise again on remand and retrial, we address 14
them here even though their resolution is not strictly necessary 15
in order to decide this appeal. 16
A. Conspiracy to Defraud the IRS 17
Count One of the indictment charged that Shellef and 18
Rubenstein conspired to defraud the IRS. See 18 U.S.C. § 371 19
(rendering it a crime to conspire "to defraud the United States, 20
or any agency thereof in any manner or for any purpose"). 21
Shellef and Rubenstein challenge the sufficiency of the 22
indictment and the jury instructions on this count. We conclude 23
that their challenges are without merit. 24
1. Sufficiency of the Indictment. 25

-- 40 of 56 --

41
Shellef contends that the acts alleged in the 1
indictment do not constitute a conspiracy to defraud the IRS 2
because there is no allegation that he misled Allied or Elf 3
regarding the IRS registration number or certificates of export 4
required to make CFC-113 sales excise-tax free. Without such a 5
misrepresentation, the CFC-113 remained taxable and Allied and 6
Elf should have charged Shellef and Rubenstein the applicable 7
excise taxes. Only Allied and Elf are guilty of failure to pay 8
excise taxes. 9
The government responds that the likely success of the 10
alleged conspiracy is irrelevant. All that is required is that 11
the indictment allege that Shellef and Rubenstein agreed to 12
defraud the IRS, that they participated knowingly and voluntarily 13
in the conspiracy, and that at least one of them committed an 14
overt act in furtherance of the conspiracy. Because the 15
indictment meets these requirements, the government argues, it is 16
legally sufficient. 17
"The sufficiency of the indictment is a matter of law 18
that is reviewed de novo." United States v. Pirro, 212 F.3d 86, 19
92 (2d Cir. 2000). The elements of a conspiracy to defraud the 20
United States (also known as a "defraud clause conspiracy") are 21
"'(1) [that defendant] entered into an agreement (2) to obstruct 22
a lawful function of the government (3) by deceitful or dishonest 23
means and (4) at least one overt act in furtherance of the 24
conspiracy.'" United States v. Ballistrea, 101 F.3d 827, 832 (2d 25
Cir. 1996) (quoting United States v. Caldwell, 989 F.2d 1056, 26

-- 41 of 56 --

42
1059 (9th Cir. 1993)) (brackets in original). The "indictment 1
charging a defraud clause conspiracy [must] set forth with 2
precision the essential nature of the alleged fraud." United 3
States v. Helmsley, 941 F.2d 71, 90 (2d Cir. 1991) (internal 4
quotation marks and citations omitted). 5
Here, the "essential nature of the alleged fraud" was 6
that Shellef and Rubenstein misled manufacturers about the 7
taxable status of their transactions. Whether the manufacturers 8
themselves proceeded to mislead the IRS is immaterial. All that 9
is necessary is that the scheme had the object of making it more 10
difficult for the IRS to carry out its lawful functions and that 11
the scheme depend on "dishonest or deceitful means." See 12
Ballistrea, 101 F.3d at 831-32 ("[Title 18 U.S.C. § 371] covers 13
acts that interfere with or obstruct one of [the United States'] 14
lawful governmental functions by deceit, craft or trickery, or at 15
least by means that are dishonest, even if the Government is not 16
subjected to property or pecuniary loss by the fraud" (citations 17
and quotation marks omitted; second brackets in original)). 18
Shellef and Rubenstein's scheme would have made it more difficult 19
for the IRS to collect taxes on the CFC-113 transactions because 20
Allied and Elf were allegedly misled by Shellef and Rubenstein as 21
to the chemical's destination. Thus misinformed, Allied and Elf 22
could be expected, unwittingly or otherwise, to mislead the IRS 23
about the taxable status of their CFC-113 sales. 24
Shellef argues that because Allied and Elf, not Shellef 25
or Rubenstein, were under a duty to report the transactions to 26

-- 42 of 56 --

43
the IRS and pay the taxes, and because the transactions were 1
taxable unless further misrepresentations were made, either by 2
him or the manufacturers, he cannot be convicted under 18 U.S.C. 3
§ 371. But a defendant need not have a duty to report 4
transactions or pay taxes to be convicted of a conspiracy to 5
defraud the IRS with respect to those reports or payments. See 6
United States v. Nersesian, 824 F.2d 1294, 1313 (2d Cir.), cert. 7
denied, 484 U.S. 958 (1987) ("[T]he fact that [the defendant] 8
. . . had no duty to report [the] transactions . . . is not the 9
operative issue as to whether he agreed to unlawfully defraud the 10
United States by impairing and obstructing [the IRS's] lawful 11
governmental function[] of collecting data. . . ."). Nor can 12
Shellef avoid the reach of the conspiracy statute by arguing that 13
his scheme would fail because other requirements for tax-free 14
treatment -- certification of export and IRS registration -- 15
would not be satisfied. "[T]he illegality of [a conspiracy] does 16
not depend upon the achievement of its goal" and it therefore 17
"does not matter that the ends of the conspiracy were from the 18
beginning unattainable." United States v. Giordano, 693 F.2d 19
245, 249 (2d Cir. 1982) (citations omitted). 20
Shellef and Rubenstein's scheme, as alleged in the 21
indictment, is similar to that of the defendants in Nersesian, 22
824 F.2d at 1309-13. Nersesian involved, among other things, the 23
requirement under the Bank Secrecy Act, 31 U.S.C. § 5311 et seq., 24
that banks report currency transactions exceeding $10,000 in a 25
single day. See Nersesian, 824 F.2d at 1310. The defendants 26

-- 43 of 56 --

15 United States v. Gurary, 860 F.2d 521 (2d Cir. 1988),
cert. denied, 490 U.S. 1035 (1989), is also analogous. The three
defendants in Gurary "sold invoices to corporations . . . falsely
reflecting that one of the defendants' companies had sold goods
to the invoice-purchasing company." Id. at 523. That it
remained for the "[c]orporations purchasing the fictitious
invoices [to] include[] the non-existent goods in their
calculations of cost-of-goods sold for tax purposes, fraudulently
misstating their taxable income" was ultimately of no moment.
See id. (describing scheme); id. at 525 (holding that evidence
supported the conspiracy count). Similarly, here, it remained
for Allied and Elf to submit documents to the IRS falsely
indicating that the CFC-113 they sold to Shellef and Rubenstein
was, as they represented, exported. See id. at 525 (noting that
"[a]ccurate disclosure of the transactions in corporate records
and tax returns would prevent the scheme from working"). But
Shellef and Rubenstein cannot avoid guilt by reason of the fact
that they did not encourage Allied and Elf to take this further
step -- the indictment sufficiently alleges that they "were well
aware their scheme would . . . impede the IRS from learning" the
transactions were domestic and hence taxable. Id.
44
structured their transactions so the banks would not know that 1
they exceeded the $10,000 limit. See id. at 1309-10. Although 2
the defendants had no duty to report the transactions themselves, 3
we upheld their convictions under 18 U.S.C. § 371 because they 4
had "agreed to interfere with and to obstruct this lawful 5
function of the IRS." Id. at 1313.15
6
Here, the indictment alleges that Shellef and 7
Rubenstein agreed to interfere with the IRS's collection of the 8
excise tax by conspiring to misrepresent to Allied and Elf the 9
CFC-113's destination, which in turn would lead them to refrain 10
from paying the excise tax. Just as the Nersesian defendants 11
could be convicted for misrepresenting the nature of their 12
transactions to a third party who owed an independent duty to the 13
IRS, so can Shellef and Rubenstein. 14

-- 44 of 56 --

45
Shellef seeks to avoid the implications of Nersesian by 1
arguing that "[t]he reason that [the scheme in Nersesian] 2
interfered with the IRS's lawful function was that the financial 3
institutions could have no way of knowing that [the defendant] 4
was structuring transactions in a way to prevent the banks from 5
submitting" required reports. Shellef Br. at 43. But the 6
ability of the reporting party to discover the true nature of the 7
transaction is related only to the likelihood of the scheme's 8
success. And, as noted, the likely success of the scheme is 9
immaterial. Giordano, 693 F.2d at 249. 10
Finally, Shellef argues that the rule of lenity 11
prohibits application of the statute to his conduct. But, as our 12
analysis indicates, the statute, as interpreted by our case law, 13
makes clear that his conduct is proscribed. And "[t]he rule of 14
lenity . . . is not applicable unless there is a grievous 15
ambiguity or uncertainty in the language and structure of the 16
[statute], such that even after a court has seized every thing 17
from which aid can be derived, it is still left with an ambiguous 18
statute." Chapman v. United States, 500 U.S. 453, 463 (1991) 19
(citations, internal brackets, and internal quotation marks 20
omitted). 21
The indictment sufficiently alleges a violation of 18 22
U.S.C. § 371. 23
2. Jury Instructions. Rubenstein asserts that the 24
jury instructions erroneously omitted an essential element from 25

-- 45 of 56 --

46
their description of the conspiracy offense. The government 1
responds that, because Rubenstein made no contemporaneous 2
objection to the instructions, any error was not "plain" as 3
required by our review. 4
Rubenstein effectively concedes that he did not object 5
to these instructions. But if these instructions were to be 6
issued again in the course of a new trial, Rubenstein presumably 7
would object. Whether any error would be "plain error" is 8
therefore not an issue we need address. We discuss only whether 9
the instructions were erroneous. 10
The district court instructed the jury on the 11
conspiracy count as follows: 12
In order to satisfy its burden as to Count 13
One, the government must prove each of the 14
following four essential elements beyond a 15
reasonable doubt: First, that two or more 16
persons entered the unlawful agreement 17
charged in the indictment starting in or 18
about July 1997; second, that each defendant 19
knowingly and willfully became a member of 20
the conspiracy; third, that one of the 21
members of the conspiracy knowingly committed 22
at least one of the overt acts charged in the 23
indictment; and fourth, that the overt act or 24
acts which you find to have been committed 25
was or were committed to further some 26
objective of the conspiracy. 27
Trial Tr. 3158-59, July 26, 2005. 28
[W]e have emphasized the need for particular 29
vigilance in enforcing the government's 30
burden of proof in prosecutions under § 371, 31
in view of the broad range of conduct covered 32
by the federal fraud statutes and the risk 33
that a defendant may be convicted of 34
conspiracy based upon an agreement other than 35
that specifically charged in the government's 36
indictment. 37

-- 46 of 56 --

16 We express no view as to whether this error was harmless.
See United States v. Locascio, 6 F.3d 924, 939 (2d Cir. 1993),
cert. denied, 511 U.S. 1070 (1994) (recognizing that we reverse
on the basis of erroneous jury instructions only if "the
defendants-appellants can show that the charge given, when read
as a whole, caused them prejudice").
47
United States v. Gallerani, 68 F.3d 611, 618 (2d Cir. 1995) 1
(internal quotation marks and citation omitted). Applying 2
"particular vigilance," Gallerani, 68 F.3d at 618, we think that 3
the instruction here was erroneous, see United States v. Bayless, 4
201 F.3d 116, 127-28 (2d Cir.), cert. denied, 529 U.S. 1061 5
(2000) (noting that an error exists when there is a "deviation 6
from a legal rule which has not been waived" (internal quotation 7
marks and citation omitted)). The elements of a section 371 8
conspiracy to defraud the United States are, as we have noted, 9
"(1) [that defendant] entered into an agreement (2) to obstruct a 10
lawful function of the government (3) by deceitful or dishonest 11
means and (4) at least one overt act in furtherance of the 12
conspiracy." Ballistrea, 101 F.3d at 832 (brackets in original; 13
citation and internal quotation marks omitted). The district 14
court did not instruct the jurors that they would be required to 15
find that Shellef and Rubenstein agreed to use "deceitful or 16
dishonest means" to obstruct the "lawful function of the 17
government."16
18
B. Wire Fraud 19
The government also charged Shellef and Rubenstein with 20
multiple counts of wire fraud. The wire fraud statute makes it a 21
federal crime to use interstate wire communication to execute a 22

-- 47 of 56 --

48
"scheme or artifice to defraud, or for obtaining money or 1
property by means of false or fraudulent pretenses, 2
representations, or promises." 18 U.S.C. § 1343. Shellef and 3
Rubenstein challenge the sufficiency of the indictment, the 4
sufficiency of the evidence for one of the government's theories, 5
and the jury instructions. 6
1. Sufficiency of the Indictment. The indictment here 7
contains two theories of fraud: a "no-sale" theory and a "tax 8
liability" theory. "Where a jury is presented with multiple 9
theories of conviction, one of which is invalid, the jury's 10
verdict must be overturned if it is impossible to tell which 11
theory formed the basis for conviction." United States v. Szur, 12
289 F.3d 200, 208 (2d Cir. 2002) (citations omitted). 13
a. No-Sale Theory 14
Under the "no-sale" theory, the indictment alleges that 15
Shellef's misrepresentation "induced Allied Signal to sell 16
additional amounts of virgin CFC-113 to Poly Systems that it 17
would not have sold had it known that Shellef in fact intended to 18
sell the product domestically." Indictment ¶ 53. Shellef 19
contends that this theory is not viable because the scheme did 20
not constitute a scheme to defraud within the meaning of the wire 21
fraud statute. The government responds that Shellef deprived 22
Allied of "'the right to define the terms for the sale of its 23
property'" and that this is sufficient to bring his scheme within 24
the reach of the wire fraud statute. Gov't Br. at 40-43 (quoting 25
United States v. Schwartz, 924 F.2d 410, 421 (2d Cir. 1991). 26

-- 48 of 56 --

49
The "essential elements of a mail or wire fraud 1
violation are (1) a scheme to defraud, (2) money or property as 2
the object of the scheme, and (3) use of the mails or wires to 3
further the scheme." Fountain v. United States, 357 F.3d 250, 4
255 (2d Cir. 2004), cert. denied, 544 U.S. 1017 (2005) (quotation 5
marks, citation, and brackets omitted). "Because the mail fraud 6
and the wire fraud statutes use the same relevant language, we 7
analyze them the same way." Schwartz, 924 F.2d at 416. Although 8
the indictment need not allege that the victims of the fraud were 9
in fact injured, it is required to allege that the defendant 10
contemplated actual harm that would befall victims due to his 11
deception in order to meet the "scheme to defraud" prong. See 12
United States v. Novak, 443 F.3d 150, 156 (2d Cir.), cert. 13
denied, --- U.S. ----, 127 S. Ct. 525 (2006). 14
Our cases have drawn a fine line between schemes that 15
do no more than cause their victims to enter into transactions 16
they would otherwise avoid -- which do not violate the mail or 17
wire fraud statutes -- and schemes that depend for their 18
completion on a misrepresentation of an essential element of the 19
bargain -- which do violate the mail and wire fraud statutes. 20
In United States v. Regent Office Supply Co., 421 F.2d 21
1174 (2d Cir. 1970), the defendants sold stationery, id. at 1176. 22
The defendants' scheme consisted of directing their sales 23
personnel to misrepresent their identities to prospective 24
customers so that the customers would be willing to entertain 25
their offers. See id. (noting, as an example, that the sales 26

-- 49 of 56 --

50
personnel fraudulently claimed that they had been referred by a 1
friend of the customer or an officer of the customer's firm). We 2
concluded that no conviction under the mail fraud statute could 3
stand where the misrepresentation was "not directed to the 4
quality, adequacy or price of goods to be sold, or otherwise to 5
the nature of the bargain." See id. at 1179. 6
United States v. Starr, 816 F.2d 94 (2d Cir. 1987), is 7
similar. The defendants there collected bulk mailings from their 8
customers and then sent them through the post office. See id. at 9
95-96. At the post office, however, they hid high-rate mail in 10
low-rate mail packages, and paid the low-rate price for the 11
entire shipments. Id. at 96. The defendants nonetheless charged 12
their customers as if the mailings were high-rate, and produced 13
and mailed false invoices to show that the high-rate price had in 14
fact been paid. Id. We decided that "[t]he misappropriation of 15
funds simply ha[d] no relevance to the object of the contract; 16
namely, the delivery of mail to the appropriate destination in a 17
timely fashion." Id. at 100. Because "[m]isrepresentations 18
amounting only to a deceit are insufficient to maintain a mail or 19
wire fraud prosecution," we concluded that such a charge can not 20
apply to situations where the alleged victims "received exactly 21
what they paid for" and "there was no discrepancy between 22
benefits reasonably anticipated and actual benefits received." 23
Id. at 98-99 (internal quotation marks and citation omitted); cf. 24
id. at 102 (Newman, J., concurring) ("An indictment for 25

-- 50 of 56 --

51
defrauding the Postal Service would have led to a conviction that 1
would surely have been affirmed. However, the indictment for 2
defrauding the customers has led to a conviction that must be 3
reversed.") 4
In Schwartz, 924 F.2d 410, however, we were faced with 5
the type of misrepresentation that Regent Office recognized might 6
form the basis for a wire fraud prosecution -- that is, one 7
"directed to . . . the nature of the bargain," id. at 1179. The 8
defendants in Schwartz had purchased night-vision goggles from 9
Litton Industries. Schwartz, 924 F.2d at 414. Because the Arms 10
Export Control Act restricted the sale of these goggles to 11
certain nations, Litton sought assurances, both in the contract 12
and during the course of performance, that the defendants would 13
not export to the restricted nations. Id. Though the defendants 14
promised to abide by all applicable export regulations, they sold 15
the goggles to nations that were prohibited from purchasing them. 16
Id. at 414-16. We upheld their conviction for wire fraud under a 17
no-sale theory because the "misrepresentations went to an 18
essential element of the bargain between the parties and were not 19
simply fraudulent inducements to gain access to Litton 20
equipment." Id. at 421. The defendants had "deprived Litton of 21
the right to define the terms for the sale of its property in 22
that way," that is, that its product not be exported from this 23
country illegally, and therefore "cost it, as well, good will." 24
Id. 25

-- 51 of 56 --

52
The indictment in the case before us alleges: 1
It was a further part of the scheme and 2
artifice that by promising to export all of 3
the CFC-113 purchased, defendant DOV SHELLEF 4
induced Allied Signal to sell additional 5
amounts of virgin CFC-113 to Poly Systems 6
that it would not have sold had it known that 7
SHELLEF in fact intended to sell the product 8
domestically. 9
Indictment ¶ 53. As in Starr, the indictment here does not 10
allege, pursuant to the government's "no-sale" theory, that there 11
was a "discrepancy between benefits reasonably anticipated" and 12
actual benefits received. Starr, 816 F.2d at 98. And as in 13
Regent Office, it fails to allege that Shellef misrepresented 14
"the nature of the bargain." Regent Office, 421 F.2d at 1179. 15
Instead, the indictment states only that Shellef's 16
misrepresentation induced Allied to enter into a transaction it 17
would otherwise have avoided. Because it does not assert that 18
Shellef's misrepresentation had "relevance to the object of the 19
contract," Starr, 816 F.2d at 100, we do not think it is legally 20
sufficient. 21
We recognize that the facts on which this prosecution 22
rested closely resemble those in Schwartz. As in Schwartz, in 23
the case at bar, government regulations and the contract between 24
the parties called for territorial restrictions on the sale of a 25
product. But we are concerned here only with the sufficiency of 26
the indictment, not the sufficiency of the evidence. The jury 27
here might have erroneously convicted Shellef and Rubenstein even 28
though it concluded that the defendants did not misrepresent an 29

-- 52 of 56 --

53
"essential element" of the bargain, but rather made "simpl[e] 1
fraudulent inducements to gain access to" Allied and Elf 2
products. Schwartz, 924 F.2d at 421. Because we cannot rule out 3
that possibility, we do not think a jury can be permitted to 4
convict either defendant on the "no-sale" theory. See Szur, 289 5
F.3d at 208 (concluding that a remand is required where the jury 6
may have convicted on a legally invalid theory). 7
b. Tax Liability Theory 8
Under the "tax liability" theory, the indictment 9
alleges that Shellef's misrepresentation regarding the 10
destination of the CFC-113 "induced Allied Signal to continue to 11
sell the product to Poly Systems without paying the excise tax to 12
the Internal Revenue Service, or including the tax in the price 13
it charged Poly Systems." Indictment ¶ 52. Shellef argues that 14
the taxes could not have been "property" within the meaning of 15
the wire fraud statute because Shellef's scheme could not have 16
deprived Allied of the tax money that was owed to the federal 17
government. 18
We disagree. Under the agreement, Shellef owed Allied 19
the amount of "any federal excise tax imposed on the sale of" the 20
CFC-113 "which is not anticipated by Seller at the time of 21
contract execution." Allied Contract, effective Jan. 1, 1996, at 22
4 ¶ 11.C; id. at 2 ¶ 6.B. The agreement also required Shellef to 23
sell the CFC-113 abroad. Id. at 1 ¶ 1. Shellef misrepresented 24
the destination of the CFC-113 he was purchasing from Allied so 25
that he could avoid paying to Allied the price increase 26

-- 53 of 56 --

54
necessitated by the application of the excise tax. Allied 1
therefore did not receive the money due it under the agreement, 2
property that was owed to it. To be sure, that money was 3
destined to be passed on to the government. But that is not 4
relevant to our inquiry. Allied had a right to the property and 5
Shellef's scheme was intended to deprive Allied of it. It was 6
therefore a scheme to deprive within the meaning of the wire 7
fraud statute. See United States v. Males, 459 F.3d 154, 158 8
(2d Cir. 2006) ("[I]t is sufficient that a defendant's scheme was 9
intended to deprive another of property rights, even if the 10
defendant did not physically 'obtain' any money or property by 11
taking it from the victim."). 12
2. Sufficiency of Evidence. Shellef argues that the 13
evidence was not sufficient to sustain his conviction under the 14
"no-sale" theory. As noted above, we doubt the legal sufficiency 15
of the allegations on the "no-sale" theory and therefore need not 16
and do not consider the evidentiary sufficiency of a conviction 17
based upon it in the previous trial. Shellef does not seriously 18
contest the sufficiency of the evidence at that trial with 19
respect to the "tax liability" theory. 20
3. Jury Instructions. Rubenstein asserts that the 21
district court's instructions as to wire fraud were erroneous 22
because the district court did not caution the jury that 23
Rubenstein could not be found guilty as an aider and abetter 24
based only on a "general knowledge or suspicion that a crime was 25
being committed" or his "'mere association' with the alleged 26

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17 "Whether rooted directly in the Due Process Clause of
the Fourteenth Amendment, or in the Compulsory Process or
Confrontation clauses of the Sixth Amendment, the Constitution
guarantees criminal defendants 'a meaningful opportunity to
present a complete defense.'" Crane v. Kentucky, 476 U.S. 683,
690 (1986) (citations omitted).
55
principal, defendant Shellef." The district court issued an 1
instruction for the wire fraud counts and included in the 2
instruction a verbatim reading of the aiding and abetting 3
statute. No party appears to contest that they accurately 4
describe the elements of wire fraud. Nor does Rubenstein argue 5
that the aiding and abetting instruction was incorrect -- he 6
asserts only that additional cautionary instructions should have 7
been given. We conclude that the instruction was not improper. 8
C. Evidentiary Rulings 9
Shellef and Rubenstein assert that evidentiary rulings 10
during the course of trial violated their constitutional right to 11
present a meaningful defense17 and their Sixth Amendment right to 12
confront witnesses. In light of the deference we owe to a 13
district court's decisions as to admissibility of evidence, see, 14
e.g., United States v. Ebbers, 458 F.3d 110, 122 (2d Cir. 2006), 15
cert. denied, --- U.S. ----, 127 S. Ct. 1483 (2007), and because 16
we cannot foresee what decisions the district court might make in 17
any new trial, or in precisely what context those decisions might 18
be made, we decline to comment on them or the arguments of the 19
government and the defendants in this regard. 20
CONCLUSION 21

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56
Having reviewed the remainder of the defendants' 1
arguments, we conclude that they are without merit. Because the 2
1996 Tax Counts were improperly joined with the remainder of the 3
charges against Shellef and Rubenstein; and because these errors 4
were not harmless, we vacate the judgments of conviction of both 5
defendants and remand the case to the district court for further 6
proceedings. 7

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