(Rev 8-29-85)

FBI

TRANSMIT VIA: PRECEDENCE: CLASSIFICATION:

IX] Teletype o hnmediale o TOPSECRET
oFacsimile IZJ Priority o SECRET
oAIRTEL o Routine o CONFIDENTIAL
o UNCLASEFTO
IXI UNCLAS
Date 1/14/97

FM FBI SAN FRANCISC~~3255) (P)

TO LEGAT LONDON/PRIOR TY/

I
LEGAT PARIS/PRIORITY/!

DIRECTOR FBI/ROUTINE/

BT

UNCLAS

CITE: //3790//

PASS: FBIHQ.- IRU I, ROOM 7458.

SUBJECT: CONNIE CHIP ARMSTRONG, JR; 1 , -

FORMERLY DBA, HAMILTON-TAFT COMPANY, FBW (D), MF, ITSP, 00:

SAN FRANCISCO.

THE ABOVE CAPTIONED SUBJECTS ARE CURRENTLY IN TRIAL IN

SAN FRANCISCO FOR THE FRAUDULENT DIVERSION OF OVER $50 MILLION

OF HAMILTON TAFT CLIENT FUNDS DURING A PERI~D BEGINNING IN

1989 AND ENDING EARLY 1991. THE SUBJECTS BASICALLY TOOK OUT
SIGNATURE LOANS FOR THESE FUNDS. THESE LOANS ARE NOT PROPERLY
tiEAIlCHED·- '-
3ERlAUZED~-'::nt,J'-

,,/ eJ tJ{ 'TV ~ - INDEXED

-::n/,- J -, -

i
UPLOADED ACS F''''D
f4f ...J0 . 9.....7 .:--___
DATE ()""->oJ-;$.....',-1 0:.!:' - -

~~
U.£.

Approved: Or.gmal liIenam . lJO {vJ 0 I <j

Time Received: 7 TeJprep filename: ',' _ ~.' fJD1/J.01
L-I.-

MRI/JULIAN DATE: I01b /utl ISN: C'9-0 7

FOX DATE & TIME O~ ACCE~ANCE: N _Jd.0 0/7~'=------'jT-7-i./-7-·:t=.-.-J....-CC-A1
.'9~,j)-~r - C)3z.56 - /31
 APAGE 2 196D-SF-93255 UNCLAS

SECURED. THE UNITED STATES ATTORNEYS OFFICE BELIEVES THAT THE

DEFENSE
.-----.1.,, I ----- I
I
THE UNITED STATES ATTORNEY IN SAN FRANCISCO UNDERSTANDS,

AS PART OF THE DEFENSE, THESE SUBJECTS MAY CLAIM I bS

DOCUMENTS GATHERED DURING THIS INVESTIGATION INDICATE THAT

ASSOCIATED LENDERS FINANCIAL CORPORATION IS ASSOCIATED WITH A
L... IPARIS, FRANCE,

75007".

CORRESPONDENCE DATED 12/12/90 DISCUSSING A PROPOSED $100

MILLION LOAN BETWEEN THE CAPTIONED SUBJECTS ANDI~ _

AND I IHAS BEEN DISCOVERED. THIS CORRESPONDENCE

ALSO MENTIONS A SAUDI ARABIA CITIZEN BY THE NAME OF 1 _
~ ~ I IMAY BE THE PERSON NEGOTIATING THIS LOAN FOR THE

CAPTIONED SUBJECTS.
 'PAGE 3 196D-SF-93255 UNCLAS

LEAD(S) :

LEGAT LONDON

AT LONDON, ENGLAND: CONDUCT LOGICAL INVESTIGATION

INTO THE BACKGROUND AND BUSINESS PRACTICES OF ASSOCIATED

LENDERS FINANCIAL CORPORATION AND 1 1BOWATER HOUSE,

13TH FLOOR, 1 EDINBURGH GATE, LOND. DETERMINE IF THIS IS A

LEGITIMATE BANKING OR FINANCIAL INSTITUTION. CONTACT LOCAL

LAW ENFORCEMENT SOURCES REGARDING CIVIL AND/OR CRIMINAL

COMPLAINTS OR CONVICTIONS OF THIS LONDON COMPANY. IF

POSSIBLE, DETERMINE IF THIS BUSINESS HAS $100 MILLION OF

ASSETS.

PLEASE FORWARD ALL PERTINENT INFORMATION TO SAN

FRANCISCO, SQUAD 20, SA WILL HATCHER. THIS INFORMATION IS

NEEDED WITHIN THE NEXT TWO WEEKS IN ORDER TO BE OF ASSISTANCE

WITH THE ONGOING TRIAL.

LEGAT PARIS

PARIS, FRANCE: CONDUCT LOGICAL INVESTIGATION INTO

THE BACKGROUND AND BUSINESS PRACTICES OFI ~

PARIS, FRANCE 75007. ATTEMPT TO

~~D~E:T:E:RM-:I-N-E--I:F~I~_=_=_=_=_=_=_~_-_-_-_-_-_~_ IHAS ACCESS TO $100 MILLION IN b7C
'PAGE 4 196D-SF-93255 UNCLAS

FINANCIAL RESOURCES. CONTACT LOCAL LAW ENFORCEMENT SOURCES

REGARDING THE CRIMINAL HISTORY OFI bie:

PLEASE FORWARD ALL PERTINENT INFORMATION TO SAN

FRANCISCO, SQUAD 20, SA WILL HATCHER. THIS INFORMATION IS

NEEDED WITHIN THE NEXT TWO WEEKS IN ORDER TO BE OF ASSISTANCE

WITH THE ONGOING TRIAL.

BT
_ _ _ _ _-=~,........,=""....,.,.,..,.",...."......IPARIS,F RANCE
2 ATTEMPT TO DETERMINE IF ASSOCIATE LENDERS FINANCIAL CORP.
IS A LEGITIMATE BANKING AND/OR FINANCIAL INSTITUTION
3 ATTEMPT TO DETERMINE IF THERE (IRE ANy 91VIL AND/OR CRIMINAL
COMPLAINTS OR CONVICTIONS REGARDINGL JOR ASSOCIATED b·lr:
LENDERS.
4 IF POSSIBLE, DETERMINE IF THIS BUSINESS WOULD HAVE HAD $100
MILLION IN ASSETS
PLEASE BE ADVISED THAT ANY INFORMATION OBTAINED WILL HAVE TO
BE IN A FORMAT SUITABLE FOR UTILIZATION DURING THE TRIAL TO COUNTER
THE SUBJECTS CLAIMS
IF YOU HAVE ANY QUESTIONS REGARDING THE ENCLOSED b'
INFORMATION OR THIS REQUEST PLEASE CONTACT ME AT 230-4030 USING
OUR REFERENCE NUMBER 196D-SF-93255 THIS INFORMATION IS NEEDED BY
27 JAN 97 IN ORDER TO BE OF ASSISTANCE WITH THE ONGOING TRIAL.
THANK YOU IN ADVANCE FOR ANY ASSISTANCE WHICH YOU MAY BE
ABLE TO PROVIDE REGARDING THIS MATTER AND FOR GIVING IT PRIORITY
HANDLING

ThiS document contains neither recommendations nor conclUSions of the FBI

It IS the property of the FBI and IS loaned to your agency,
It and ItS contents are not to be dlstnbuted outside your agency
Any further dissemination requires wntten approval
from the FBI
Sent
 L.
SUBJECT: CONNIE iP ARMSTRONG, JR; 11.. _

FORMERLY DBA, HAMILTON-TAFT COMPANY, FBW (D), MF, ITSP, 00:

SAN FRANCISCO.
THE ABOVE CAPTIONED SUBJECTS ARE CURRENTLY IN TRIAL IN

SAN FRANCISCO FOR THE FRAUDULENT DIVERSION OF OVER $50 MILLION

OF HAMILTON TAFT CLIENT FUNDS DURING A PERIOD BEGINNING IN

1989 AND ENDING EARLY 1991. THE SUBJECTS BASICALLY TOOK OUT

SIGNATURE LOANS FOR THESE FUNDS. THESE LOANS ARE NOT PROPERLY

SECURED. THE UNITED STATES ATTORNEYS OFFICE BELIEVES THAT THE

DEFENSE WILL CLAIM TO HAVE COLLATE~LIZED THESE PRIVATE LOANS

THROUGH UNVERIFIABLE OVERSEAS FINANCIER.

THE UNITED STATES ATTORNEY IN SAN FRANCISCO UNDERSTANDS,

AS PART OF THE DEFENSE, THESE SUBJECTS MAY CLAIM TO a~VE

ARRANGED A LOAN THROUGH A 11.- 1AT "ASSOCIATED

LENDERS FINANCIAL CORPORATION, BOWATER HOUSE, 13TH FLOOR, 1

EDINBURGH GATl?, LONDON, SW1X7LT, ENGLAND, 589-9600".

DOCUMENTS GATHERED DURING THIS INVESTIGATION INDICATE THAT

ASSOCIATED LENDERS FINANCIAL CORPORATION IS ASSOCIATED WITH A

-- ..JI PARIS, FRANCE,

75007" .

CORRESPONDENCE DATED 12/12/90 DISCUSSING A PROPOSED $100

MILLION LOAN BETWEEN THE CAPTIONED SUBJECTS ANDI __ bi:::

AND 1 1HAS BEEN DISCOVERED. THIS CORRESPONDENCE

ALSO MENTIONS A SAUDI ARABIA CITIZEN BY THE NAME OF I ~

_ _ _ _ _ _ _~~Y BE THE PERSON NEGOTIATING THIS LOAN FOR THE

CAPTIONED SUBJECTS .
..,..,.,~-,. ,
ROUTING SLIP

DATE: 3/;;5/77
TO'~~
FROM: f~
RE FILE NO: I9b A - sF- ;1-jd-S-:;-

SUBJECT'~ CY~rrl.J.

As your off~ce is 00 ~n this case, the attached or~ginal

documents are belng forwarded to you.

Thank you.
Legat Par~s

'J

/ q~)( 93CJ5r=·/4
SEAIr:HED .. ' - _
Sf.RJAlJ"';:::=-'.p IHOF.XEO _I :
-~FILEO ifi1?2
APR 09 1997
 RFPUBLIQUE FRANC,\ISE

MINISTERE DE L'INTERIEUR

DIRECTION GENERALE
DE LA. POLICE NATIONALE LE DlRECTEUR CENTRAL
DE LA POLICE JUDICIA IRE
DIRECTION CENTRALE CHEFB.CN. FRANCE
DE LA. POLICE JUDICIAIRE

ORGANISATION INTERNATIONALE
DE POLICE CRIMINELLE MONSIEUR L 'A TTIICHE LEGAL DE
L'AMI1ASSADE DES ET.~ TS-UNIS D'JLVERIQUE
B. CN. FRANCE 58 HIS RUE DE LA HOETlE
75008 PARIS

PNIDCPJ/AEFl8.1INCBlMB/97/131/366
PARIS, LE 13 FE/'RlER 1997

SUIte il votre coumer reference 196 D - SF -93255 en date du

20/01197 concernant les nommes ARMSTRONG Connie et FOWLES Richard,
j'at l'honneur de vous fatre savOlr que MonSieur Barb AL ZUBAIR, 5 avenue
Fredenc Le Play - 75007 PARIS est mconnu des archives de la ThrectlOn Centrale
de la Pollce JudlClatre n a par contre ete trouve trace aux archtves de la Bngade
Fmanclere de la DirectIOn Centrale de la Pollce JudlClatre de PARIS, d'un nomme
HARD AL ZUHAIR Saleh Ali ne en 1938 il ALZOBAIR (ARABIE
SAOUDITE), de natJonahte saoudlenne, anCien admlIustrateur et P D G de la
SOCIete FlNEXHOTEL, 30 boulevard Haussmann it PARIS 8erne, placee en
redressement Judlclatre Ie 15/04/87

POUR LE DffiECTEUR CENTRAL

DE LA POLICE JUDICIAJRE
LE DffiECTEUR CENTRAL ADJOINT. CHARGE DES
N'FAffiES ECONOMlQUES ET FINANCIERES

"nol:'~~C: l:I1'1~T"1 C []I ArC MeA' 1\,,,, I "<on,,"" n " nn

Fer? ;)-/ /917
 (

• •
(

FD-302 (REV 3-10-82)

- 1. -
FEDERAL BUREAU OF rNVESTIGATION

Date oC transcription 5/29/92

0 t~e ~ternoon
of April 28, 1992, Special Agent
Jreceived a envelope from a company known as
Wallace Sc ; war z and Company, certlfled publlC accounts, 10830
North Central Expressway, Suite 400, Dallas, Texas,r
envelope contained a memo dated May 17, 1990, from \ __
TbiS,
.
75::1,
to CHIP ARMSTRONG regarding "the Rem~ngton d~lemma I'"'.--.m~e~--­
envelope also contained a letter dated January 3, 1991, to Mr.
CONNIE C. ARMSTRONG, Jr., Chairman of th( Board Kniattsbridge
company, Inc., Dallas, Texas, announcingL . res~gnation
from this company.
b7C
Finally, this envelope contained a letter to Mr. CONNIE
C. ARMSTRONG, Jr., on the letterhead of an entity known as
Assoc~ated Lenders F~nancial Corporation, dated DecemJ:=j'
1990, which ~s three pages in length and lS signed by
I I
Coples of these documents are attached to an
cohsldered a part of th~s ~nterview form.

10""lg8"OO 00 -"4'-'/-'2"'8"'/...;9=2 8t San Franclsco, Californlo3'lIc H 196A-SF-93255 SUB c:3'I

~'r"""---------
by ~ '_/--=:g...;l b7C oote dlCtoted 5_/_1_3_/_9...;2 _
I
ThLS document contaIn.! neither recommcndal1ons nor conclUSIons of the FBI IllS the property of the FBI and 15 foaned to your Bgency,
It llnd 1t, con ten U are not to be dIStrIbuted outslde your agency
(06/0111995)

FEDERAL BUREAU OF INVES11GAll0N

Precedence: IMMEDIATE Date: Ol/l7/l997

To: San Francisco Attn: SA will Hatcher

FrOD: Dallas
WCC5
Contact: Acting SSA Peter A. Galbraith, (214) 922-7261

Approved By: GALBRAITH PETER A

Drafted By: Irec

case ID I: 196A-SF-93255 (Pending)

Title: CONNIE CHIP ARMSTRONG, JR.;

1~~===~ ......
,......,...!t'ORMERLY
dba HAMILTON TAFT AND COMPANY-
VICTIM;
FBW; MF

Synopsis: Items provided for trial of CONNIE "CHIP" ARMSTRONG as

requested by. San Francisco Division.

AdDinistrative: Re: 1/16/97 telcall to Acting SSA Peter A.

Galbraith regarding CONNIE "CHIP" ARMSTRONG.

Enclosures: Enclosed for San Francisco is one audio tape.

Details: Dallas has submitted to San Francisco the following

items which were requested.

*Cassette tape, #25-(l of 2), File #l96B-DL-66524.

1
 1 MICHAEL J. YAMAGUCHI
United states Attorney
2
JOEL R. LEVIN
3 C~ief, Criminal Division

41 RONALD D. SMETANA
Special Assistant U.S. Attorney
5 GEORGE D. HARDY
Assistant U.S. Attorney
6
450 Golden Gate Avenue
7 San Francisco, CA 94102
Telephone: (415) 436-6851
II
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
10
UNITED STATES OF AKBRlCA, ) No. OR 94-0276 CAL
11 )
Plaintiff, ) All!'lI!'IDAVIT Oll!' WILLARD L.
12 ) HATCHER, JR. Illi SUPPORT
v. ) OF GQVBRmU!JIIT'S EX-PARTE
) SUBHXSSION
CONNIE C. ARHSTRONG, JR., Iilnd )
14 RICHARD A.FOlllrLES, )
)
15 Dllfondanta. )
---------------)
16

17 I, Willard L. Hatcher, Jr., state that:

18 I have been a Special Agent with the Federal Bureau of

19 Investigation ("FBI") for 6 years, and am currently the case

20 agent for the prosecution in United States v. Connie C.

21 Armstrong. Jr .. et al, I have been involved with the

22 investigation of Hamilton Taft and Company since March of 1991.

23 Prior to his retirement on January 1, 1997, FBI special Agent

24 Patrick K. Murphy was the case agent.

25 2. I first learned of the government's possession of

26 recorded conversations of Connie C. Armstrong, Jr., on the night

AFFIDAVITOP WILLARD L HATCHIJIl, lR

IN SUPPORT OF GOYllRNMENT'S EX-PARTE
SUBMISSION
 1 of January 12, 1997, after witness Terri Robins informed
2 Assistant United states Attorney George Hardy of their existence.
3 3. I telephoned Patrick K. Murphy on January 13, 1997, and
4 asked his knowledge of such recordings. Mr. Murphy stated that
5 he understood that Ms. Robins had made some recordings for the
6 government on an unrelated investigation. Mr. Murphy stated he
7 did not know that Ms. Robins had ever recorded conversations with
8 Armstrong.
4. Mr. Murphy and I knew of the existence of the Dallas
10 FBI's investigation of Armstrong's activity at Comp-U-Check. We
11 understood that this investigation related to conduct that
12 occurred well after the bankruptcy of Hamilton Taft. To our
13 knowledge this investigation was unrelated to Hamilton Taft
14 except for the common involvement of Armstrong.
15 5. Since January 12, 1997, I have contacted Special Agent
16 Peter A. Galbraith, the Dallas FBI case agent for the Comp-U-
17 Check investigation, and requested all taped conversations with
18 Armstrong. I have received thirty-six (36) audio tapes and
19 special Agent Galbraith has assured me that these constitute all
20 of the tape recordings of Armstrong in the possession of the
21 Dallas FBI.
22 6. In addition, Special Agent Galbraith provided to me
23 copies of 302 reports prepared relating to the tapes and
24 documents provided to the Dallas FBI by Terri Robins. He assured
25 me that all of the reports and documents have also been forwarded
26 to San Francisco.

AFFIDAVIT OF WILLAIlD L HATCIlEll, JR

IN SUPPORT OF GOVERNMENT'S EX~PAR.TE
SUBMISSION 2
 1 7. Agent Galbraith expressed concern about the disclosure
2 the tapes, reports and documents to Armstrong because the Comp-U-

3 Check investigation and other related investigations are on-going

4 and he is concerned that disclosure of the materials may
5 jeopardize these investigations. He understood that certain of

6 the tapes, written materials and reports may have to be turned

7 over to Armstrong, but requested that the materials be

a scrutinized carefully and that those ultimately turned over be

9 limited to those necessary to protect Armstrong's rights without

10 harming the investigations.

11 8. Agent Galbraith said that all of the conversations were

12 recorded and documents were received in late 1993 and early 1994,
13 SUbsequent to the Hamilton Taft bankruptcy and before the

14 indictment of Armstrong.
15 9. After review of the tapes and documents by myself,

16 Special Agent Laura Nielson, Assistant United States Attorney

17 George Hardy and special Assistant United states Attorney Ronald

18 Smetana, we determined that Hamilton Taft is mentioned in five

19 (5) tapes; copies of the relevant portions of those tapes have

20 been reproduced for review by the Court for a determination of

21 whether they should be turned Over to Armstrong. In addition,

22 there is one document, a "novella" about Hamilton Taft, that has

23 statements attributed to Armstrong; since I do not know its

24 authorship, that document has been copied for the Court's review.

25 10. All of the reports, tapes and documents received from

26 the Dallas FBI are being made available for the Court's in camera
AFFIDAvrrOF wn.LARD L HATCHER, JR
IN SUPPORT OF GOVEIlNMIlNl"S !lX-FARTE
SUBMISSION 3
 1 review.

3 I declare under penalty of perjury that the foregoing is

4 true and correct. Executed

5 Francisco, California.

Ii

8
COUNTY OF SAN FRANCISCO )
9 ) SS.
STATE OF CALIFORNIA )
10

11 Sworn to and subscribed in my presence on January 24, 1997,

12 in San Francisco, California.

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i~om:':r:::u~eW:
1
Notory N:>IIc - Co1IlomlrJ
Son FrancIDCO CounIV
!

16 My Commission Expires on ,OJ; : i.\" ""'\ ie,' . cli.' [CYll

\
17

18

20

21

22

23

24

2S

26

AFFIDAVIT OF WILLAIID L HATCHER, JR

IN SUPPORT OF GOVERNMENT'S EX-PART!!
SUBMLSSION 4
196A-SF-93255
WLH/wlh

On Fr~day February 20, 1997 the prosecution made ~t's f~nal

arguments and rested it's case. The case is to the Jury at this
tlme (2/21/97).

b7C
by AUSA b7D
copy oJ: file
The defense has made motlon for mistrlal for an alleged rule
16 violation based upon the lack of government's productl0n of
these undercover record~ngs from Dallas FBI. The redacted
pertinent tapes were produced to both defense counsels ln January
of 1997.

,
fD.3S0~' S-B-Sll

{m .ooc.ato PAQe I'UlrTW:I 01

n-o.... ~t City Me 11.!Ile I

(MourH Ctopng In $pac" BOb..... ' I

r---------~========-----------JlrTIn ~S-;;;~OniCle

lI..
0
S F BuSlness wner II
1-
,San Francisco,Ca.
CHIP ARNSTRONG,DBA:HA.MILTON
I TAFT AND CO.

IGuilty of Big Swindle ::::.~:,j~~-SF-93255

I He bilked $55 million from clients $yon,,".n. ,,"'c. San FranClSCO

By Ken Hoover Durmg the three·month trial, Jncexll1;

Chronicle BrqJJ"Wrlter prosecutors alleged tbat Arm-
strong diverted $166 mullon di-
A former Texas firefighter rectly to hunself, usmg the cash to
who transformed hImself vIrtually fmance an extravagant hfestyle.
overmght mto a hlgh·flymg tycoon For $6 5 million, he purchased a
was convIcted yesterday on l,7QO..acre Texas ranch With expen~
charges he swmdled $55 million slve horses, one of the biggest
from a San Francisco payroll tax show rings in Texas and a lake. He
fIrm threw flamboyant parties that fea-
Conme "ChIp" Armstrong Jr. tured well-known entertamers
was convIcted on 21 counts of and laVIshed glllfrIends WIth furs,
fraud by a San FrancIsco federal Jewels and European trIpS
court Jury 10 hIS management of Accordmg to a bankruptcy
HamIlton Taft & Co, a hrm he court report, he made $296,000 m
wrested control of m 1989 and op. gIfts and loans to frIends, relatIves
~rated for two years and employees, Includmg hiS par-
A cexlefendant, RIchard A ents, fIancee, eX-Wife and a woman
Fowles, the company presIdent, Identified III court records as MISS
was convIcted on SIX counts of aId- Texas
mg and abettmg Armstrong in his He made $004,000 m polItical
scheme to defraud. contrIbutIOns, mostly to Republi-
Even Ihough HamIlton Taft cans, and gave $361,000 to charIty
was In fmanclal trouble when He spht hIS tlme between Dal-
Armstrong took over, It managed las and a leased sUIte at the Mark
$4 bIllIOn a year m payroll taxes Hopkms hotel. traveling by hmou-
and boasted a blue-chIp clientele. sme, chartered Jet or hiS own heli-
Among lhe fmns defrauded by copter, accordmg to the account
HamIlton Taft were Federal Ex- gIven m courl by prosecutors Ron-
press, whIch lost about $30 mllllon, ald Smelana and George Hardy
Scott Paper, whIch lost $10 mIllIon, The scheme began unravehng
Stanford UmverSity HospItal, III March 1991 when a HamIlton
whIch lost $3 5 milhon, and the Taft controller, Steven Saladof,
Chromcle Publtshmg CO, WhICh
h1st about $1 null on

SEARCHED lfJDrXE'!!O=..---l
,ERIALWD ;;;1/ jI) FILfO _.L''-l-'---_+

,.. '1 0 '0,'"'

MAR 1.5j{

-, '
~, ,.--
/
• O·
, p r/
,/
~
(

-,
wrote to chents, mformmg them Each quarter thereafter, Ham·
that theIr money was beIng used IItan Taft had to raise an ever·m·
for purposes other than taxes. ' creasmg sum of money to pay chM
Armstrong, a former college ents' taxes, penalties and the can·
football player, contended that he tmumg diversIOns of cash
acted In good faIth III trymg to Durmg 1990, the amount of ch-
save a company that was 10 trouble ents' funds illverted rose from
when he took It over $19 4 mllhon 10 the ftrst quarter to
HIS attorney, Chester Brown, $57 mIllion In the fourth quarter
said Armstrong aggressively sohc·
Ited new chents to brmg the com., When the fIrm was forced IOta
pany out of Its deflc,t and mvested bankruptcy 10 March 1991, the def·
m blgh·nsk, hIgh-return ventures lelt had nsen to $85 mullon
hke a ,hoppmg center and 011 and U S, DlstflCt JUdge Wilham
gas leases Legge sent sentencmg for May 2
In 1988, Armstrong dIscovered
that Hamilton Taft offICIals had dl·
verted to themselves $14 mlll10n 10
clIents' payroll taxes Armstrong
purchased several hundred dollars
10 company stock, then fIled a
shareholder" lawsmt, allegmg
fraud and mIsmanagement In a
settlement, the owners gave Arm-
strong the company.
Prosecutors said Armstrong be.
gan dlVertmg funds from HamIl· I
ton Taft almost from the moment '
he took control He covered up
multImllllon dollar dIVerSIOns by
fll1ng false statements With the In·
ternal Revenue Service
Wlthm several months. the IRS
discovered dIScrepancies In the cli-
ents' tax payments and sent tbem
hfallure to pay notlces ll that re-
qurred them to pay back taxes and
penaltIes
Hamilton Taft off,clals ex·
plamed away the diScrepancies to
angry clients as bankmg problems
or, in some cases, as a computer
failure aClSmg from the Lama Pn·
cta (earthquake The company
promISed to pay the hack taxes
and penalt.es
 ' 1"''''"'' Cl<>on; In 900aI _I
I Prosecutors saidAimstrong oau Iloto 2-27-97

leu n
IIIIlty
I siphoned 01{ $55 million for hiIn-
'\ self and had used some of it to buy
a 1.700-acre ranch near Dallas.
three l\ll[\l~ boxes at T"""" Stadi-
£cmxm: Home
A-4 S.F• Examiner
San Franeiseo,Ca.
no.
guI um, tlJqJ<l1lBlVtl ears and other big-
ticket items.
TheY asid he bad kept custom- ~
...
of Ud
era m the dark by using new chents'
money to pay old clients' tax bills, eta,,: ,L
::- ~_ _ Legge, during a 1993 hearing, de-

--
SWnll:!lng 01lIc0 San Franc~sco
scribed the company as Us Ponzi
:
ayron company
kP
scbame from start to finish."

. ept milli'ons !they owed

Clients eventually learned thet
tax penalties bacaUBe
I m .~~ Itheir money had not been forward-
I WIA payments ' ed to the government on time.
;;AllSOClI;;;;;;;;:;;:;;;-""'''''';;;;;;B8~:------ Among mBJor clients, Federal Ex-
~~~~==- press wound up Ioeing more than
The head of a now-bankrupt $30 million. Scott Paper more then
payroll service company baa been $10 million, StanfofJ1 U"ivemity
convicted in San Francillco of HOBpitel more than $3.6 million
pocketing nnIliODB of dollars that: and Chronicla Publiabing Co. more
v?re supposed to he used to pay than $1 million, BBid U.S. Attorney
Jients'taxes. Michael Yamegt,lchi
ArmBtrang's attorney, CheBter
Brawn, said Armstrong bad taken
over a mllDey-\oeing company end
vieted by a federal court j~ bf n- tried to make it work, and biid
21 felony charges, all rclated ro never intended to defraud clients.
?",ud The company's former pres- '~e BBld he would probably appeal.
ldent, Richard Fowles of Orem '
Utah: was convicted of six ~
The JUlY deliberated for three days
before returning the verdicts
'~J/~6Ii--::f-
WedneBdeY.
Armstrong fuces as much an 10
years in prieon under federal !len-
tencing guidelines, AaaiBtsnt U.s
Attorney George Hardy said. Sen:
fencing is scheduled for May 2 ba-
fore U.s. District Judge Cbarlea
Legge.
Hamilton Taft pro<:BllllBd pay-
roll taxes for more then 250 clients
and wan suppooed to tum over the
money to the federal end stuts gov-
ernments.
The company bad a deficit of ~EARCHED _V.::::-· ,INDEXED
$18 million when Armstrong a ,EflIALlZfO~FILED -.::rr.~_~~-"o-_I
firefighter in a small town n:",..
DaIlaa, gained control in 1989 after
liImg a atocltbolder lawBuit. The MAR 10 199;1
deficit bad grown to $86 million
FBI..=: SAN FAA " '0
vben a federal judge shut down the
company two yeerB later.

:7//'
/ 'C:Jr-
(OJ/16!l99l-l)

fFEDERAL BUREAU OfF INVESTIGATION

Precedence: ROUTINE Date: 04/07/1999

To: San FranC1SCO Attn: BULKY

From: San FranCISCO

Squad 14A
Contact: SA Lavra Nlclson, ext 2556
6iy~.
Approved,/'f B 1""'157"'------
Drafted By: Nlelson Laura In

Case ID #: 196D-81'-93255 (Closed) b7C:

Title: CONNIE CHIP ARMSTRONG of( ,

I I
Formerly dba, HAMILTON-TAFT COI"iPANY,
1'BW (D), MF, ITSP
OO'S['

Synops~s: DISposltIon of EVIdence

Details: The case 16 s~lll pendIng appea~ ac ellIS tIme The

eVIdence must be maIntaIned at least G montlls ~o 1 year from ::.he
date of thlS EC as per the ADSA

++

UPLOADED ACS _",;1.lrti:2.~,-_ ...

DATE '1 ...9..c...
...:.1.,../.2..1.
... f :
 196D-SF-93255
LN:ln~
1

On 4/13/1997, SA Laura Nielson is complying with a request

from AUSA George Hardy to turn over numerous cassette tapes from
a wire worn by a wltness lTI the Hamilton Taft trlal. The Wlre
was for a case out of the Dallas office, SA Peter Galbraith was
the case agent. The defense lawyers ~n the Hamilton Taft trial
are request~ng the tapes and ~t ~s understood by all parties
involved that there is no special master appointed to review the
tapes. It was decided by AUSA George Hardy and Special Assistant
I lnot to appoint a spec~a1 master to review the tapes,
SAPeter Galbraith and FBI Legal Advisor I lagreed that
it is not necessary. Based on the above recommendations, SA hi:"
Laura N~elson and SA W~ll Hatcher are prov~d~ng all of the tapes
to George Hardy, who w~ll ~n turn deliver them to the Ham~lton
Taft defense team.
 LAW OFFICES OF
CHESTER L BROWN
2 2<150 Broadway, Suite 550
Santa Monica, CA 90404
} (3 10) } 15-6315

4 SOLOl'vfOl\ WOLLACK
}88 Market Street, Suite 1080
5 San Francisco, CA94111-5J!5
Telephone: (415) 788-9000
6
Attorneys for Defendant
7 CO,,-;-"1E AR:\·rSTROKG, JR.

10 UNITED STA.TES DISTRICT COURT

11 FOR THE NORTHER,"'l DISTRICT OF CALIFOR,VIA

12

13 Ul'i1TED STATES OF A1VfERICA )

) CR 94-0276 CAL
14 Plaintiff, )
\'$. ) POfNTS A..'lD Al;THORITIES I'K S(JPPORT
OF MOTION FOR :t';HV TRIAL
15

16
CONNIE AR..'v1STRONG, JR. and
RICHARD A FOWLES,
I
)

17 Defendants.

18

19
------------)
I
20
21 I INTRODUCTION
22 Federal Rule of Criminal Procedure}} states that the court may, within its discretion, grant a new

23 trial to a defendant "if required in the interest of justice." While Rule J} does not offer any specific ~

24 examples, courts have granted new trials based on: failure to give a theory of the defense instruction "
I
25 {Um'ied St:zies v. VJ'caria, 12 F.3d 195 (11th Cir. 1994)}; erroneous jurj instructions {United S!.:m:s'~ i
26 Buffa/ana, 727 F.2d 50 (2d Cil. 1984»): failure of the government to nuke timely production of:
27 exculpatory evidence {Kyles v. Whit/ey, 115 S.Ct 1555 (1995); or other errors oflaw

28

APR-28-1397 18:15 <-li5 398 3817

 1 By this motion, ./vir Armstrong moves for a new trial on the following grounds: (1) the
2 government's mid-trial production of exculpatory materials (in the form of the Terri Robins t"pes)

3 prejudiced Mr. Annstrong's ability to prepare for trial and to put on a defense; (2) the cour; e"ed in

4 failing to give the jury a theory of the defense instruction on behalf ofr-fr. A.rmstrong; (3) clr.er errors

5 eflaw regarding the admissibility or inadrr~ssibility of panicular evidence or testimony were :mte";al ar:d
6 prejudicial; and (4) th~ court erred by allowing the jury to view transcript,; of Dora DUM'S testir:1or.y
7 It is !vir. Armstrong's position that, even if anyone of these rulings may not have been sufficient IC'

g "'a.",,,.,t a new trial, the cumulative effect of ,uch ad':erse rulings severely impacl.~d his abi:ir)' le> 1:10um
9 a fair fight against these criminal charges..'

10

11 II ARmn\irE'l'{I

12

13 A LATE DISCLOSURE OF BRA DYMATERIAT, --

14 1.

15 Terri Lee Robins was !\1r. Annstrong's long-time personal assistam at his Dallas-based business,
16 Dresdner Enterprises (which Later be--.ame The Remington Companies, Inc.). By all appearances a trus;ed

17 employee, }'-ls. Robins, in fact, had an enormous a.xe to grind aga.'nst lv1r. Armstrong. In 1991, when Mr. I

18 Armstrong's entities were shut down and placed into involuntary Chapter 11 bankruptcy, Ms. Robins I
19 gave numerous interviews to the FBI -- her vitriol noticeably increasing with each and every interview. I
20 On April 2, 1993, Ms. Robins testifted before the grand jury in Mr. Armstrong's case; the grand jury

21 ultimately indicted!\1r Armstrong on June 27.,1994.

22 In October, 1992, with Hamilton Tfu'1. mired in involuntary bankruptcy and an ongoing criminal

23 investigation against !\1r. Armstrong in full swing, Mr. Armstrong acquired a controlliog interest in
24 Comp-U-Check, a publicly traded Detroit-based company which provides check guarantee and bad check
25 collection services to retailers. When Ms. Robins came to work for Comp-U-Check, !\1r. Annstrong

26 !l.\sumed she did so out ofcominuing loyalty to him. Unbeknownst to him, and until recently to defense
27

2S
I?~fense. counsel is mindful of the fact that ma~y
of these issue,; hav~
been pre'iiou;[y
litlgated U1 this case, but does Wish to re-emphaslZe certam pOints -- both tor this court s
II
reconsideration and to clarify any ambiguities on the record
,
I;
II 2
APP'-28-1997 18:15 415 398 3817
(:<.03
 1 counsel as welJ, Ms. Robins was actually on the payroll of the United States government at that time and:

2 would be handsomely compensated in exchange for her production of some 70 hours of undercover

3 recordings. The recordings consist of conversations between herself and Mr. Armstrong. which teek

4 place between December 7, 1993 and March 3, 199; at]l.1r Armstrong's Dallas oflice. !l.ir. Arm,trong

5 was then under innStigation by the Dallas office oflhe FBI, in connection with his owners:up ofCo:np-

6 U-Check.

7 Unaware of Robins role in the Comp-L'-Check in'Jestigltion. AUSAs Smetana and Hardy

S intended to call Ms. Robins as ? government witr-ess or. January ]}. 19,97 Howe·:e:. d:Jring ,i-.eir

9 preparatlon with Ms. Robins on the night before her scheduled testimony, Robins revealed to them for

10 the first time her involvement in the government's investigation and, more specifically, her taping of
I

11 conversations berween herself and Mr. Armstrong. Upon learning this new information, AUSAs Smetana

12 and Hardy notified defense counsel about the tapes and did not call Robins as a witness A few days

later. the goverrunent produced to defense counsel the five Annstrong-Robins tapes, which they deemed

14 to be rekvam to the defense ofthis case, The prosecutors turned the remaining thirty-one tapes over to

IS t.his court, for an in cam.:ra inspection and a fur:ther determination of what to do. Though this coun

16 understa.~dably chose not to re-,;ew sixty hours of tapes, it did rule that the defense wa5 entitled to those

17 tapes. However, the court reser/ed for a fJture date a decision about ho\.,. and when the defense rrJght

18 review those tapes in the midst of tria!.

19 During the week ofJanlm)' 27, 1997, defense counsel asked for a thirty-day cominuar,ce of th~

20 trial, so that the defense could review the Robins tapes and determine their possible use dup.ng tria!. This ;
, ,
21 court declined to grant such a continuance, instead opting to have a special master appointed -- of the i
22 defense counsel's choosing - who could personally review the tapes and make a preliminary i
i
23 determination of relevance. Unfortunately, defense counsel was then in the midst of preparing a defense:

24 and was unable to lind anyone who was both willing and able to. immediately set aside his practice and I
!

25 devote the necessary time to the project. Since the trial ended, defense counsel has received and I
26 reviewed the tapes and now requests a new trial. '
27

2S

I'

II
APR-28-1997 18:16 415 398 3817 p,n-I
1 2. Eailure tQ Grant CQntinuance -

2 Defense initially cQntends that Mr. Armstrong was prejudiced by this CQurt' s decisiQn nQt tQ gram
J a '.hirty-day CQminuance tQ perTT'jt his attorneys tQ revicw the Rcbins tape,. The mid-trial receipt of the
4 RQbins tapes was nQt Qnly a majQr event, but alsQ a significant distraction tQ defense counsel Even if :

5 the tap~s themselves turned Qut tQ have nQ evidentiary value whatsoever (which the defense does not

6 beheve tQ be the case), defense counsel still had a moral and prQfessiQnal duty to listen to them and me!.:e :

this determinatiQn fQr lhemselves. However, at the time counsel reeei',ed the tapes, th~y were in thc

8 midst of preparing Mr. Ai,nstrong's defense -- an enormQUS, ful1-timt ta,k Under such circ"mst~~ces,

9 there was no way tha: counsel could put aside seventy hours to lister, 10 the Robins tapes --leI alone, '
10 make additional time to dissect the tapes and determine their possible use, at trial. I
I1 The cQncept of retaining a special master tQ review the tapes proved unworkable. If MI. !
I
12 Armmong had enjoyed the benefit of a Simpson-esque team of lavvyers, law students, and paralegals, I
13 then it might truly have been feasible to find someone who was not only familiar with the case, but who I
I
14 could immediately devote ten Qr twelve hours a day to the tape project Mr. ArmStrong, of course, did 1

15 not have such a luxury,' I

16 A continuance shQuld have been granted so that defense counsel could review the tapes, properly

17 analyze them, and, ifnecessary, use those tapes at trial While a thirty-day, mid-trial continuance would
18 have been an unusual step, it was not Mr. Armstrong's fault that the government produced the Robins
19 tapes at such a late stage. Even if the tapes ultimately proved useless, a continuance would have

20 prevented the continuing distraction that permeated the remainder of the trial, making it even more
21 difficult for defense counsel to adequately defend Mr, Armstrong, prepare his defense, and prepare Mr.

22 Armstrong himself for testimony.

23

24
25

26 , Defense cQunsel did CQntact Mike Murray and Ga..-nck Lew, who had been previously
27 appointed to represent Mr. il.rmstrong in this case and, thus, were at least familiar with
the case's facts. However. Mr. Lew was too busy with orher projects at the time while
28 !vir. lVlurray, though expres2ing a willingness to help, was c:nderstandably daunted by both I
the enorrruty and the immediacy of the projec!. I

415 398 3817

 .J. Late DisdQ3!!n: of Brac(yMateriaJ --

2 The prosecutor has a duty to disclose all evidence favorable to t~e defendant which is "material

J either to guilt or punishment." B,ady Y. lvfarylend, 373 US. S3, S~ (196]) Evidence is rnateri,!

4 provided it is likely to "play an important role in uncovering admissible evidence, aiding witness

5 preparation, corroborating testimony, or assisting impeachment or rebu~:al" United States ". Llo.vd. 991

6 F .ld 348, 351 (D. C. Cir. 1993) (cit:Jtions omitted). Ti;nely disdos~re of Brady material requires the

7 government to produce such material "in tim~ for its effective U$e at tria!" Um"ted S!:JIes v. Hi.ggs, 71 J

8 Ud 39, 44 (1933).

9 The Terri Robins tapes constitute exculpatory evidence in several different ways One such way,

10 of course, is by the sheer absence of incu]pawrystatements by Mr. Arm5~ro~g. Indeed, if1v1r. Armstrong

II truly harbored the specific intent to deceive and chear Ham.i1ron Tart' s clients, it is rather shocking that

12 he never made any statements which would even imply this to be the case, despite more than sevenf)'
13 hours of recorded conversations in which Robins was actively atlempti~5 to elicit admissions. L1 fact.

14 from time to time Robins a=ally expresses, on the tapes, her own frustration aboul her inability to oorain

15 any damning evidence against Mr. Armstrong. Throughout the trial cf this matter, defwse counsel

16 repeatedly elicited from the government's own witnesses an ackno',';!eCgment that Mr. Armstrong had

17 never expressed an)1hing other than an intent to make Hamilton Taft's c!lents whole. It Just may be that

18 the Robins tapes would have provided the fmal piece of evidence necesmy to hammer this point home

19 to jurors. Had they heard seventy hours of tapes, in which a governmer.l agent unsuccessfully seeks to

20 elicit a conression from Mr. Armstrong, perhaps the jurors would have come to believe that lvlr.

21 Armstrong really did have an honestly held conviction that be had done nothing wrong. .

22 Moreover, if the absence of inculpatory evidence was not sufficient to convince the jurj, they

23 could h:we heard 1v1r. Armstrong himself say that he had done nothing ".illegal, immoral, or unethica1.'·

24 Mr. Armstrong indeed makes this statement, duting the recorded conversations with Robins. At first
25 blush, ]vir. Armstrong's after-the fact proclamation of innocence may s~m of little significance to this.

26 court. However, at the time these tapes were recorded, Mr. ArmstrorlB was completely unaware that

1erri Robins was actually a government informant. In Mr. Armstrong's eyes, Ms. Robins remained, as

2S ~ways. a trust~d and 10yl1 employee who had stayed until the end at Rer:-.:ogtnn. a"" who. ~ven ?f;~:' a':

I.

APR-~:-19g7 18:17 415 398 3817 p.c.6

 1 of the problems which he had undergone, had continued to work for him at Camp-V-Check In this

2 context,},ok Armstrong's profession of innocence represents far more than a denial. It represents a ,
,
3 firmly held belief, made to a trusted employee ",it.1 whom he felt he could be entirely honest In a specific!

4 intent case such as this one, a belief in the innocence of one's venture negates the "intent to defraud"

5 element and, thus, constitutes a defense to the criminal charges

6 The Robins tapes are also significant in that they provide a revealing look into the marmer in

7 which "'k Am,strong conducts bUSIness. It is clear from the tapes that Mr.."vmstrong demands

8 orgar.izaticn, scrupulou3 attention to detail, and a strong work ethic. Furthermore, at one pair" on tho'

9 tapes, :'vIr. Armstrong expresse3 outrage at the exorbitant cost of a printer to be purchased for Co'mp-U-

10 Check. These traits show someone who is a serious businessman and not merely 3 "con-artist." A ccr,-

11 artist would certainly not waste his time working hard, being organized, and price shoP?ing. I
12 This court should grant a new trial so that the defense may properly bring the RobinS-Armstrong I
13 tapes before the jury, wruch it did not have an opportunity to do during the first trial. I
14

15 B. FAILURE TO GIVE CHARGE REGARDING THEORY OF DEFENSE --

16 "A defendant is entitled to an instruction concerning his theory of the case ltlt IS supported by ;

17 ]a;\V and has some foundation in the evic'.enc~:' United States v. Escobar De Brigb~ 742 F.2d 1196, 1198

18 (9th CiI. 1984) (emph3Sisin original). Furthermore, in performing this analysis, the coun is required to

19 view all evidence "in the light most favorable to the defendant." United Stales v. Parker, 566 F.2d 1304,

20 1305 (5th CiI.), em denied, 435 V.S. 956 (1978). Where a defendant's theory is legally sound and

21 supported by the evidence it is reversible per se for a court to refuse to give a theory of defense

22 instruction. Uaited States F. SoieJo-Mu:riJ.lo, 887 F.2d 176, 1n (9th eir. 1989); United SUltes v. Mann,
23 811 F.2d 495, 4% (9th Cir. 1987); United StiJtes v. Escobar De Bn'gh~ supra, at 1201. Furthermore,

24 the quantum of evidence necessary to support a theory of the defense instruction is small. Even if the

25 evidence is "weak, insufficient, inconsistent, or of doubtful credibility," the instruction is still required

26 provided there is some evidence to support it. United St:ltes v. SoteJo-Mu.ri110, supra, at 178.

27 There are, of course, limitations on this principle. A theory of the defense instruction must be I
23 submitted "in the form of a statement of appropriate principles of law," rather than merely "a r.ar",:ive

.,
APR-28-1997 18:17 415 398 3817 P.07
 recitation of(the defendant's] version of the facts." United Slates Y. Nevitt, 563 F.2d 406, 409 (9th Cif.

2 1977), em. deaied, 444 U.S. 847 (1979). Nor does the court have "to accept a proposed instruction

3 which is manifestly intwded to influence the jury "Uailed Srales v, Fe1J~r-Guliem:z. 940 F.2d 1200, \

1211 (9th Cir 1991). Rather, the instruction should simply "set fo"h the defendant's theory oftne case
I,
5 I on a fairly abstract level" Ibid

Before the trial in this matter began, tv!r. Armstrong proposed the following pretrial jury

7 instruc~ion:

With respect to the fi.:nds paid to Hamilton Taft by the client companies,
with the exception of two clients who arranged to have their payments
kept in separate accounts, the funds paid to Hamilton Taft beca.:ne the
property of Hamilton Ta.11 and could be commingled by Hamilton Ta.'t,
treated by Hamilton Taft as its own assets, used to pay Hamilton Taft's
operating expenses, and invested by Hamilton Taft for its own benefit.
Hamilton Taft did not hold the funds in trust as your employer might hold
your withholding taxes. In other words, Hamilton Taft was entitled to the
us.: of the funds until the taxes were due to be paid, pursuant to the terms
of the contract.
13

14 At the hearing on this matter, this court declined to issue any pre-trial instruction to the jury about the

15 character ofHarnilton Taft funds. At the close of trial, counsel for Mr. Armstrong again moved for trjs

16 identical instruction to be given as a theory of the defense instruction. Trjs COUrt denied the defendwt' s

17 request.

I% The instruction proposed by 1I>ir. Armstrong was not pulled out of thin air, but was lifted directly

19 from the Ninth Circuit's language in In Re Hamilton Taft & Co., 53 F.3d 2%5, 2'3% (9th Cir. 1995),

20 ,<U::ated due to mootness, 6% FJd 337 (1995), with which this court is well acquainted. The instruction

21 also mirror; the language of the Restatement (Seccnd) of Trusts § 2%3 (\ 959) and Section :083 of Austin

22 'oV. Scolt & William Fratcher's treatise, The Law ofImst; (4th ed. 1989). It is, by the Ninth Circuit's

23 own fmding, an accurate and generalize.d summation of law, and not merely a narration of Mr

24 Armstrong's factual "spin" on the case.

25 Nonetheless, if this court believed Mr. Armstrong's instruction to be unduly designed to influence

26 th.ejury, the court was, of course, free to amend the instruction accordingly. For example, it might have

27 prefaced t.'1e instruction by tellinB the jury that the following instruction is merely Mr. Armstrong's theofY

23 of the case It also might have told the jury that. although Hamilton Taft did not hold funds in t:u.st, they i

"
APR-28-1997 18:18 415 398 3817 P.DB
 1 could still convict Mr. Armstrong (at least on certain counts) ifthey found b~yond a reasonable doubt

2 that h~ made, or directed others to make, affirmativ~ misrepresentations about the man..'ler in wrjch

j Hamilton Taft invested its funds However, rather than giving even ;\ qualified instruction, this cour:

4 declined to give any theory of the defense instruction, even though ]vir. Armstrong did present evidence

5 that, ir; his ,iew, Ho.milton Tail did not hold funds in trust. This failure was particularly damaging to :vir
6 Armstrong bccausc the proposcd instr..lction, if believed by the jury, would have required an acquittal as

7 to certain counts of the indictmem -- in particular, counts seven thrOugh founeen, which charged Mr.

S A:mstrong withthe improper "diversion" of fJnds. If Ha...ilton Tal: ,eally did hold legal title to the

9 monies deposited by clients, clearly the company could not have "diverted" its own funds

10 'In actuality, the instruction proposed by Mr. Annstrong would have served two dis~inct, but

1] equally important purposes. First, as alre<!dy discussed, it would have i:lstructed the jury a5 to /vir.

12 Annstrong's theory of the defense -- in other words, l>1r. Armstrong's explanation for why he believed

13 he could spend Hamilton Taft monies as he did. But in addition to layi:lg out Mr. Armstrong's defense,

14 the instruction would also have removed ii'om the domain of the jury a key questior, of Ia\\' concerning

15 the character of the funds held by Hamilton Taft. After a three month trial and numerous pre-trial

16 motions, it is not now necessary to retrace the long procedural histol)' that Ultimately culminated at the

17 Ninth Circuit Court of Appeal. Suffice it to say that the Ninth Circuit's decision -- that Hamilton Taft
18 did not hold monies in truSt -- not only brought closure to this exceedingly subtle issue, but also

19 confirmed what this court itseIfhad already de[ennined in its February, 1993 opinion - that [he character

20 of funds is a legal issue, and not a factual one. Yet Mr. Annstrong was forced to mount his entire

21 defense in this case by reiterating these subtle and esoteric legal arguments to lay jurors, 'Lru,jLngt

22 !Jnlike leaving a defendant's Fourth Amendmer.t suppression motion in the hands of the jury. Ifai1j1hing,

23 the defendant whose suppre:lsion issue is left to the jury might be in better shape than 1'vfr. Armstrong,
24 since lay jurors might at least have some general familiarity v·rith constitutional concepts, '."'h~reas they,

25 are very unlikely to understand the obscure legal nuances that lie at the heart of this case.

26 Ths court has broad discretion to grant a new trial where it believes it necessary to do so in the :
27 interest ofjustice It has previously been held that an improper instruction or a failure to give a defense
28 theorj instmction may be sufficient grounds \0 warrant a new trial. See Uniled Stales v BllffJ/3no, 727

APR-28-199~ 18:18 P.O·j

 "

1 F.2d 50 (2nd Cir 1984); Uni!d S!.Ji!::; v. Vic;;.;.'ia, 12 FJd 195 (11th Cir. 1994). Howevcr, this coun

2 need not find that it cOlnmittcd legal error L" order ,0 giant a new trial. In VicBIia, the trial jud"c stopped

3 short of finding that his failure to giv~ 3. def-er1se lh:of}' i~5truction \va.sltga! error. However, the jUdge
I
4 nonetheless granted a new trial, based on jljs feelir.g L'12.t. ··cr. r:f1e~t;on arid reading over the in5truc:ions,

5 I thi;)].: that the Coun should have instructed the Jury on th~t (heorj dhis defense." lcJ., at 198. On

6 appe:l!, the Ele-"er,th Circuit found it urJlccessary to determine the correctness or incorrectness of the triai

7 CO\;rt's irjtial ref~salto give a defense instruction. Inste~d, the COUI1 upheld the trial judge's decisior.,

8 fmdlng that Rule '33's Hinte;est of justice" bnguar:e. ('is not limir.!!.d to cas'es where the district court

concludes that its prior ruling, upon which it bases the new trial, was legally erroneous." Ibid.

The deblor-crcditor!t.rust dispme has been an ongoing theme throughout the beginning of trjs

case Even before the criminal case began. 1vlr. Armstrong always viev·..ed the ch:.racter of H3.;nilton

12 Taft's funds as absolutely centra! to understanding his conduct in this case. It is not necessary for t!'js

13 court to now have a sudden change of heaI1 aho\;t the correctness or incorrectness. of !vir. Armstrong' 5

14 assertion, in order to grant a new trial. Rather, this COurl should giant a new trial in the interest of

15 justice, so that Mr. Al111strong will truly have the opportunity to put on his ddense to ajury who has
16 been instructed as to exactly what that defense is. Mr. i\rmstrong did not have this chance during the

fmt trial.

19 C. EvIDENT) i\RY ERRORS -

20 1. SteveD Solodoff --

21 Among the 21 counts for which 11;. Armstrong was convicted were three counts of wire f"aud

22 (counts 19 through 21) stemming from his March 12, 199\ letter (attached as Exhibit A)J, sent to

23 numerous Hamilton Taft clients by way offacsimiIe transfer. Mr. Armstrong prepared the M~rch 12

24 letter in response to allegations aired by former Hamilton Taft controller, Steven Solodoff, that Mr.

25 Annstrong was steilir.g client monies and might be preparing to flee the country. The letter refers to Mr.

26
27 Exhibit A., !vir. Armstrong's March 12, 1991 letter to Advo System, was the subject of
count 19 of the indictment. During trial, the government introduced numerous identical
28 letter;, including the letter> at issue in counts 20 and 21. which Mr Armstrong sent to
other Hamilton Taft clients on the same dale.

P, 10
RPR-28-1'3'37 18: 19 415 398 3817
 1 Solodoff as "3 disgruntled former employee, who was permitted to r:osign four weeks ago under

1 circumstances that would suppor: termination for cause" and assures clients that, "Viithcut excepticn,

3 all such charges made by this former employ~e are false."

4 At uia1, the defense called M:r. Solodoff as a hostile witr.e:,s and attempted to cross-exa:rine rum
5 about. (I) the grounds for his tennmation from Hamilton Taft; and (1) his avaricious motives for m:lking

6 these allegations about Mr. Armstrong However, defense counsel was not perr.jt:ed to queslior.1vlr '

7 Solodoff on these subjects. Defense counsel was also cut short in his effort to e::cit testimony f,om I

government witn::ssJ Jerry Kleinberg, as well a:; from tvir AJ7nstrong him5elf, rega;c;;1g the grOl..:nd::; for .

Mr. Solodoffs terrnination.'

I
Defense counsel understands and apprcciatcs this court's position tb: the issue U1 M...r. :
,
Armstrong's case is the truth or falsity of the gfaP.d jury's allegations, and not the tn!\~ or falsity of Steve I

Solodoffs allegations. However, there is certainly an area of overlap between the two, especially since I
the grand jury's indictment charges Mr. Armstrong with three counts that are directly rdated to his I

14 aliegediy false denial of the Solodoff alleg~tions. in a criminal case such as this or.e, which involves

15 serious felony allegations, Ivir. Armstrong should have been given wide latitude to prove the falsity of !
I
161 these three charges. In,tead, he was prohibited from developing enyevidence about the truth of tr,t i
17 March 11, 1991 letter (and, by implication, the falsity of the SolodoffaUegations and the allegations in i
1B counts 19 through 21)

19 By charging V.I. Armstrong with fraud based on the t.1arch 12 letter, the goycmmcnt put at issue

20 every single tlSSertion made in that letter. The indictment did not allege that only certain portions of the

21 letter constituted fraud, while other portions were true. It simply stated that the transmissLon of the

22 letter, as a whole, was an act offraud. Mr. Armstrong de,erved an opportunity to respond, which he did!

23 not get The end result was that the jury saw a letter from M-. Armstrong which claimed, among other

14 things, that Solodoffhad been terminated for cause -- a claim which Mr. Armstrong was never pennitted

25 to prove true. Without any evidence to show that Solodoff Wl!S, in fact, tenninated for cause, the only
26 conclusion which the jury could have possibly reached was that this assertion by Mr. Armstrong \V:iS

27

28 Had he been permitted. I\olr. Armstrong would have teslified that Solvdoff was tcrmine.:ed .
for on-the-job cocaine use.

HPR-28-19~7 18~13 4'i5 2!"::l85di7 P.11

 false. Under such circulTl5taIlces. it Wa.) only natural that the jury would have found ]vir. Armstrong guilty

2 on counts 19 through 21

J Besides demonstrating the truth of the March 12 letter, evidence about !v1I. Solodoffs druov use

4 is also relevant for the insight it p.ovides into his state of rnind at the time he went public "ith his

5 I illeg~tions agJinst Mr Armstrong Tr.e fzct is. Mr. Armstrong wzs brought down by an individual who

6 was not exactly level-headed and ra::onal, but by someone who .egulariy pumped j-js body full of

7 eh~:nJea\s. !vir..J\rmstrong was cha,ged with three separate crimes for domg nQtrjng more than calling

8 Solodo!h liar (b?sed on the limited d:)rmation which he had at that tim~). At a rrjnimum, SolodoF.s

9 drug use would have shown the Jury why Mr. Armstrong might have reasonably b~\ieved that Solcdoff

10 was a liar; quite arguably, it would have also shown that Solodon was a liar.

11 Conversely, when lv1r. Solodoff made sweeping allegations about Mr Armstrong's conduct at

12 Hamilton Taft, Mr. Armstrong was foreclosed from exploring any impure motives which may have

13 prompted these allegations. Unbeknov,l1st to the jury, at almos: the same time that Steven Solodoff was

14 telling Hamilton Taft clienLs about !'vir. Armstrong's alleged theft, he was also filing a multi-mill'lon dollar

15 qui tam action in federal court. It is axiomatic that a witness' fmancial motive is a permissible area of

16 impeachment and cross-examination.

,
1rjs is particularly critical where that witness'. prior statements

17 form the cornerstone of the criminal charges - which, at a minimum, was the case for counts 19 through

18 21. Surely, the existence of the multi-million dollar lawsuit made it at least somewhat more likely that

19 the substance of Solodoffs allegatior.s was false, as claimed by lv1r. Armstrong in his March 11,1991

20 letter.

21 Mr. Armstrong should have been permitted to develop these areas of cross-examination and

22 should have been permitted to present e'/idence through other witnesses, including himself; to show that

23 his March 12, 1991 leller was true, or that he believed it was true, at the time he wrote it.

24
25 2. Keith Voigts _J'

26 Keith Voigts was a former partner for Big Eight accounting firm, KPMG Peat Marwick, who

27 worked closely with Mr Annstrong throughout the two years that he owned Hamilton Taft. On October

28 29, 1992, in the midst of the involuntary bankruptcy proceedings against Hamilton Taft, Voigts filed a

I\
415 398 3817 95>; P.12
 1 Declaration on Mr. Armstrong's behalf (attached as Exhibit B). In the Declaration, Voigts describ~d,

2 ur.der penalty of perjury, how he adyiscd and assisted Mr. Armstrong in rJs operations of HilmiIton Taft,

J and hew he endorsed Mr. Annstrong's pla.~ ofusin3 HaJr..iJton Tal: cash Dow to grow his Texas business'

4 and to inorease his holdings. A5 a direct result ofVoigts , Declaration, bankruptcy trustee Fred Wyle fJed

5 I suit against Voigts, as well as Peat Marwick. During the pre-tria! phase of this civil suit, Ycig-:,

6 Isubrdtted to a deposition, after having received a let:er of immunity from AUSA Eb LuckeJ, who was \
7 working closely with Wyie at the time. The suit eventually settled with the self-insured Peat Marwick i
8 paying SI7.S million out of its own pocket.

9 On November 12, 1996, Mr. AfTl1strong issued a subpo~na to Keit~ Voigts. through YO:gis'

10 attorney, George Niespolo. Voigts responded by informing defense counsel that, if called 1':) lestify at

II trial, he would assert his Fifth Amendment privilege not to do so. AUSAs Hardy and Smetar,a also

12 L-Idic~ted that they would not agree to grant ?'vir. Voigts immunity to test~ry at trial. Given the cr.Jcial

13 nature of Voigts' testimony, defense counsel filed a motion with this coun: seeking to compel VoiS's'

14 testimony as a defense \vimess, under a grent of court-ordered immurilY..AJtematively, Mr. Armstrc"g

15 asked tM court to adrnit Mr. Voigt$' October 29, 1992 Declaration imo evidence as a statement ageins:

16 interest, under Federal Rule of Evidence 804(b)(3)' This cour! declined to take the unusual step of

17 granting court-ordered immunity and found that the Declaration, as a whole, was primarily self-servL~g

18 lmd not a statement agoiIb'1 interest. Thus, the court refused to admit Voigts' Declaration into evide.~ce

19 While court-ordered irrununity is a somewhat unusual step, it was warranted in the instant case.

20 Mr. Armstrong has ulways controded that, in rtlIUling Hamilton Taft, he relied on the advice of lawyers

21 at Godwin, Carlton & Maxwell and eccount:ritts at KPMG Peat Malwick. In fact, in his Declaration,

22 Voigts admits this to be true, and further admits that he endorsed Mr..A..rmstrong's strategy ofusir.g

23 Hamilton Taft cash flow to invest in under-valued assets. Had he been available to testify, Voigts'

24 testimony would have been abrolutely critical to the Mr. Armstrong, since reliance on experts is a

2S

26 Under Rule 804(b)(3), the hearsay statement of an unavailable witness may be admitted
into evidence if that statement "was at the time of its making so far contrary to tr.c
27 declarant's pecuniary or proprietary interest, or so rar tended to subject the declarant to
civil or criminal liability, or to render invalid a claim by the declarant against another, that
28 a reasonable person in the decla.'<IJ\t's pGsition would not have made the Statement unless
beli""ing it to be true."

J2
APR-28-1997 18:20 415 3'38 3817 '34:-; F'.13
 recogruzed defense to fraud chrrrges, which negates a specific intent to defraud. Other than Mt

2 Armstrong himself, it is difficult to imilgine a more important defense witness than a long-tirne Pe~t

3 Mal"'1ck parmer who had already admitted having condoned Ivlr. Armstrong's conduct at HalT'jlton Taft. I
,I
4 More significantly, the government had previously agreed to give 1\1r. Voigts immunity when it !
I
5 I seried their purposes to do so Thus, what the governmer.l was able to do was to elicit testimony from ,I
I
6 Voigts which helped the bankruptcy trustee in his eEort to recover monies for the estate. yet suppres; !
,
7 testimony which rrjght tum around ~nd help !vir. Armstrcr,g at his cri:nina! trial. This is a cister-ior: of i
E the f~et-finding process and should have been cured tmough court-ordered immunity FOf1unately, 'It still i

9 can be - at a new trial of this matter.

10 At a minimum, this court should have adlT'jtted inio evidence the October 29, 1992 Declaration

II of Keith Voigts Defense counsel maintains that Voigts' Declaration, when considered in context, cannot \

12 be understood as anything other than a knowing statement against his own interest. While this court may I
13 be right that there is a self-serving flavor to the Declaration, it is only in the sense that Voigts did not

14 believe that either he or Mr. Armstrong had done anything wrong. However, Voigts' bel.efthat he had
I
15 done nothing wrong does not preclude a finding that hi. statement was knowingly contrary to his I
16 interests. A statement can be self-serving while. at the sarne time, exposing the declarar.t to civil or

17 criminal liability. Such is precisely the case with Voigts' Declaration.

18 If Voigts had acted out of pure self-interest, he would have never given any Declaration in the

19 first place, since he had not yet been personally sued at the time of the Declaration. The primary motive
20 behind his Declaration was not to exonerate himself, but to help Mr. Armstrong at a time when Mr.

21 Armstrong was being sued by the trustee and being investigated for criminal charges..To help !vir.

22 Armstrong, Voigts stepped up and admitted his own role in, and approval of, Armstrong's conduct at

23 Hamilton Taft. The Declaration, as a Whole, essentially says that Voigts condoned Mr. Armstrong's

24 conduct, but that neither he nOr Armstrong had done anything wrong, in Voigts' opinion.
~
25 Regardless of whether Voigts believes he has acted properly or improperly, the key point for Rule

26 804(b)(3) is that his acknowledged complicity in Mr. Armstrong's conduct came at a time when lYrs.

27 Armstrong was being sued civilly and investigated criminally. As a certified public accountant and long-

28 time partner at Peat Marwick, Voigts was certainly no fool and obviously recognized the perils of giving

1'
.J
HPR-28-1997 18:21 415 3'38 3817 P.l~
 jl
I

1 such a Declaration on lYlr. Armstrong's behalf. It is this very peril which gives Voigts' Declaration the !
2 indicia of reliability ncccssary to any hearsay exception. Voigts did not hay.:: to speak up on behalf of the I
3 troubled Mr. Armstrong; the fact that he did so indicates a strong probability of honesty. It SimPlY!

41 doesn't make sense thot Voigts would risk civil, criminal, ar.d professional exposure by lying to protect :

51 Mr. Armstrong Such is the ve,r'j reason behind Rule S04(b)(3)'s hearsay exception. Voig:s' Declaration'

6 should have come into evidence.

7
s 3. Exnibit 1802 --

9 During the time that he ovmed Hamilton Taft, lYIr. Armstrong had an almost daily ritual, in which;

10 he would use a Dictaphone to record his stream of consciousness thoughts, feelings, and impressions I
,
11 about his various bu;iness ventures, and about recent events in general These tape recorded notes would ;

12 then be transcribed by one oft-fr Armstrong's persoilal assistants -- .either Terri Robins (at Dresdner) I
13 or Christina Mistretta (at Ha:nilton Taft). !
14 Exhibit! 802 (attached hereto as Exhibit C) is s seven-page transcription of Mr. A"mstrong's July :

15 J9, 1989 notes -- made just before HalT'jjton Taft held client ta..x deposits for the ftrst time. During tria!, I
16 the defense sought to introduce the document through the testimony of Christina Mistretta who \

17 transcribed the notes, and later through ?vIr. Armstrong himself This coun held the doclllIlent to be I
18 inadmissible hearsay, and not within Federal Rule of Evidence B03(3)'s "state of mind exception," as I
19 defense counsel contended.

20 Federal Rule 803(3) creates a hearsay exception for:

21 "A statement of the declarant's then existing state of mind, emotion,

sensation, or physical condition (such as intent, plan, motive, design,
22 mental feeling, pain, and bodily health), but not including a s:atement of
memory or beuefto prove the fact remembered or believed ...
23
24 This rule has particular significance in a case, such as this one, which is primarily about the defendant's

25 intent. Since neither the government nor the defense can present direct evidence about the inner

26 workings DfMr. Armstrong's mind, the actual stalonents made by:tvir. Annstrong take on a tremendous

27 amount of importance, serving as a window, through which the jury can look into .Mr. Annstrong's mind.
28 Exhibit 1802 was the singular document in this entire case which would have allowed the jury a direct

14
RPR-28-19S? 18:22
1 look at Mr Armstrong's thoughts and impressions on the day that he first decided to hold client tax \

~ \1 deposits'
j I During the trial of this maner, the government accused Mr !l;mstrong of lying to virt'cal!y ,
4 i everjane around him, including his attorneys, his accountants, his employees, and his clients, Exl-~bil

5 I 1801, however, constinltes ;Vir. Armstrong's personal notes. which would be transcribed and then stored
6 in a lo:ked drawer or cabinet, for no one's viewing e:tcept Mr. Annstrong's. Thus, when !vir. Armstrong

7 prepared these notes, he had no motive to mislead anyone; the notes truly refleci his then existing Slate.
8 ofr.~nd, and his genuinely held beliefs about the future of Hamilton Taft SpecifIcally, Mr. Armstrong's

9 contemporaneous notes from July 19, 1989 indicate: (1) thaI, even before he held checks. Mr. Armmor,g .

10 always intended to repay clients' taxes, along with any penalties and interest ("we have the responsibility ,
II to pay the payroll taxes on the due date; if we do not pay those payroll taxes on the due date, we have ,,
,
12 to pay the penalty and imerest"); (2) that he believed (whether realistically or not) lhat Hamilton Ta..'t i
13 would be able to make up the misscd ta.-.; deposilS, plus penalties and interest ("We do not have a problem
14 "1th it at this time; we have our lines of credit in place; we have our collateral in place, our closing bid

15 happened on Gulflex as of July 18th. Dresdner Enterprises has the financial stability and Hamihor. Taft i
16 also has a positive balance sheet."); and (3) that !'.1r. Armstrong did not believe he had done aClything i

17 illegal, irnrnoral, or unethical by holding checks ("as far as a legal positior" it was legal, as far as a moral \
18 and eWcal, it will be moral and e'.rucally right when we pay the interest
.
and penalty.").'
, i
19 \vpj]e it is true that Mr, lumstrong took the witness stand and laid the jury much of what he said
20 in his July, 1989 notes, his testimony was not an adequate substitute for the notes themselves. Quite

21 obviously, Mr. Armstrong's contemporaneous, stream of consciousness statements, made for 'no one's
22 viewing but his own, provide far greater insight into his then-existing intent than his after·the·fact
23 proclamation ofinnocene<:, made to a jury which has been empaneled for the speeific purpose of decidi"g
24 his guilt or innocence. The July, 1989 notes were offered not for their truth but for the light they shed
25 on lYfr. Annstrong's state of mind at the time he committed the acts which are at issue in this case. The
26
27 • This court, of course, was frec to redact portions of Mr. Armstrong's notes which it
deemed to be outside the scope of the defendant's then-existing state of mind.
28
Quoted portions can be found in the final paragraph on ?age seven of the attached exhibil

15
415 398 3817 P.1E.
.1 jury, of course, would be free to give these notes whatever weight they wished -- including none at all,
2 if they felt it appropriate. However, because the notes were not admitted into e\~dence, the jU'f never
J got an opportunity to view thcm at all.

5 D DORA DJ INN TRANSCRIPTS --

6 Dora Dunn was a sales repr~sentatiye at Hamilton Taft who testified as a Wltncss in the \

7 government's case in chid' Though she had very little contact with Mr. Armstrong durir,g her time ot I
8 Hamilton Taft and had little tD say abDut him during her interview with thc FBI, she grew suddenly \

9 loquacious when asked about him at tria1. Dunn testified that Hamilton Taft sales representative made

10 affirmative misrepresentations to clients, telling them that their monies would be invested solely in safe,

11 overnight, federally-backed instruments, when in fact, this was not true. Perh3ps more significantly,

12 Dunn also testified that ·Mr. Armstrong told his sales representatives that the company was in great

13 financial shape as a result of his takeover, and that prospective clier,ts should be made aware ofHami\ton I
14 Taft's new-found profitability. Though numerous other sales representatives testified at trial-- Fred
15 Holloway, Boone Armstrong, John Estes, and Ed Briscoe -- none corrobDrated this panicular testimony.
16 On Thursday, February 20, 1997, the jury in this case began deliberatiDns. The jury remained oUt

17 until Tuesday, February 25, when defense counsel learned that the jury had requested and received

18 transcripts DfDora Dunn's testimony. CDunsel prDmptly asked the court to reCDnvene and, upDn dDing

19 so, defense counsel objected to thc jury's receipt of transcripts and asked the court to declare a rrjstrial.

20 This court denied the motion and discharged the parties.

21 About an hour later, court reconvened again after the jury indicated that it had reached OJ. verdict.

22 At this time, defense counsel renewed its motion for mistrial, relying on the case of United Slares v.

23 Hemandez, 27 F.3d 1403, 1408 (9th Cir. 1994), which found reversible error in the jury's receipt of

24 transcripts, without any preceding cautionary instruction. Instead of declaring a mistrial, this CDurt issucd

25 an after-the-fact insuuction, indicating to the jurors that: (1) the Dunn transcript cannot serve as a

26 substitutc for their memory or their assessment ofDunn's credibility, but was merely tD be used as an aid;
27
Dunn was thc last witness tD testify before the Christmas recess and was still Dn the stand
28 when court ended on December 19, 1996. Dunn resumed and completed her testimony
on January 6, 1997, when court re-convened after the holidays

16
415 398 3817 e.17
 1 (2) they should weigh all the evidence and not focus on any particular portion of the trial; (3) they should

21 not give undue weight to Dunn's testimony, but should consider it in conjunction ·"..ith all the other
J j e'.~de:l.::e. This COUI1 then asked :~c j:';;-j to re,:~~v:ne the ne."(t day and to recons:de: tr.eir verdict in li~~t

4 of the additional instruction The ne;et day. the court re-instructed the jury and discharged the;n for
5 further deliberations. The jury retumed with their guilty verdict approximately an hour later.
6 In Hem:JJ1dez, the Ninth Circuit reversed a felony conviction after the trial court provided cenain
7 transcripts tD the jUli without illst admonishing them "to weigh all the evidence" and without instructioQ
S "that the transcript was not authoritative." ld., a1 1409 At the hearing on trjs matter, Ihis COUrt

9 \ diSlmguished the instanl case from }j=lJJJd~z, largely because the transcript in He.'7l2.11dez contained the
10 testimony of one of only two testifying officers -- obviously a key ",itness in the govemmc;n\'s case.
1i Conversely, in Mr. Armstrong's case, Dora Dunn was just one of approximately forty go,emmer,t
12 witnesses to testifY during trial. While the court's obsen..ation is true, Mr. Armstrong submits that this
13 provides even greater teasan for declaring a mistrial in the instant case. One aftr.e pri",ary Gangers in
14 furnishing transcripts to jurors is that the jury might attach "ndue weight to the testioc!':y c f that
15 parucular ,,~tr,ess, while ignoring the testir:tcny of other witnesses. This danger is even more profound
16 in a case with numerous witnesses, since the testimony of anyone witness constitutes but a small
17 percentage of the government's entire <:a-<e. Iflvlr. Armstrong is to be convicted, this court should make
18 sure that the conviction is based on all of the government's evidence., rather than just one particub

19 witness.
:0 While this court did issue a" instruction, it came at a time when the jury had already reached thei
21 verdict. A verdict reached after three days of intense deliberations is not going to be lightly cast asid
22 and, sure enough, the jury's renewed deliberations lasted barely more than an hour -- indicating that n

23 serious cOll5ideratian was given to changing the verdict. Rather than reconvening the jury at a time whe
24 they rJ!.d already made up their mind, this court should have granted a mistrial at that point.
25

26
27
28

17
APR-28-1997 18:24 415 398 3817 P.1S
 1 III. CONCLUSION
2 For the reasons herein set out, Mr. Armstrong requests, pursuant to Federal Rule of Criminal

3 Procedure 33, that this court grant a new trial in the above-entitled malter.
4 DATED: April 28, 1997
5 Respectfully SUbmitted,
6 CHESTER 1. BROWN
7
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APR-28-1997 18:24 415 398 3817 94% P.1S
196D-SFr 93255
~N In!}

On M1
Asslstant ,
Y 9, 19:7, SA I,allra Nielson took 5 tapes to Special
_ J
a Deputy Attorney General for the b7C:
State of Californla and prosecutor In the Hamllton Taft Trial.
The 5 tapes consist of all pertinent conversations from a wire
worn in an unrelated case for the Dallas offlce, by a potentlal
witness for the Hamilton Taft trial. These copies were made for
the judge in the trial and were returned to SA Laura Nielson
after the trial was over. D W i l l return tapes once he is L;7C
flnlshed reviewing them.

Tapes #4 12/07/93
#5 12/09/93
#13 01/26/94
#17 01/31/94
#25 02/24/94

/C,l,r?· ~
" <:\':>-Z'·
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fmd Kes~lt nrrp:IICreQl[Caro.wesuaW.com/UnQlOeraUILWI

Westlaw:
Home About Account Info Contact Us Help Off

P In re Hamilton Taft & Co.

114 F.3d 991
C.A.9 (Cal.),1997.
lun 11, 1997
114 F.3d 991, 30 Bankr.Ct.Dec. 1236, Bankr. L. Rep. P 77,405,97 Cal. Daily Op. Servo 4410, 97 Daily
Journal D.A.R. 7369

Briefs and Other Related Documents

United States Court of Appeals,

Ninth Circuit.
In re HAMILTON TAFT & COMPANY, Debtor.
Frederick S. WYLE, Trustee of Hamilton Taft & Company, Plaintiff-Appellant,
V.
HOWARD, WElL, LABOUISSE, FREIDRICHS INC.; Howard Weil Financial Corporation;
Legg Mason Inc., Defendants-Appellees.
No. 95-17058.
Ar9ued and Submitted Nov. 8, 1996.
Decided June 11, 1997.

Chapter 11 trustee sought to avoid reverse repurchase transaction between stockbroker and debtor.
Stockbroker moved for summary judgment. The United States Bankruptcy Court for the Northern District
of California, Thomas E. Carlson, Chief Judge, .. 176 B.R. 895.... granted motion. Trustee appealed. The
District Court, !lIston, J., 196 B.R. 532, affirmed. Trustee appealed. The Court of Appeals, William A.
Norris, Circuit Judge, held that: (1) provision preventing trustee from avoiding prepetition settlement
payment made by or to stockbroker governed prepetition reverse repurchase transaction between debtor
and stockbroker; (2) stockbroker's payment to third party, pursuant to reverse repurchase agreement,
was settlement payment; and (3) trustee could not invoke fraud exception to provision barring avoidance
of prepetition settlement payments involving stockbrokers. 1«7 ,,=,,<.
Affirmed.

West Headnotes

ill KeyCite this headnote

51 Bankruptcy
51 V The Estate
51 V(H) Avoidance Rights
51V(H)1 In General
51k2701 k. Avoidance Rights and Limits Thereon, in General. Most Cited Cases

Provision preventing trustee from avoiding prepetition settlement payment made by or to stockbroker
governed prepetition reverse repurchase transaction between Chapter 11 debtor and stockbroker,
notwithstanding trustee's contention that proVision was superseded with regard to repurchase agreements
by provision barring trustee from avoiding prepetition settiement payment made by or to repo participant
in connection with repurchase agreement; provision governing transfers involving repo participants was
intended to address repurchase agreements not already covered by provision governing transfers involving
stockbrokers. Bankr.Code, 11 U.S.CA. § 546(e. f).

ill KeyCite this headnote

51 Bankruptcy
51V The Estate

lof4 9/14/2006 10:55 AM

Fmd Result llLl!-'.lfI..iII;;Ull\.,aJ u. Wl;;;:,uavv .... VIlIl .LlilUIU,",lULllL. n 1

51V(H) Avoidance Rights

51 V(H)l In General
51k2701 k. Avoidance Rights and Limits Thereon, in General. Most Cited Cases

Treasury bill transfer between Chapter 11 debtor and stockbroker pursuant to reverse repurchase
agreement was settlement payment within meaning of statute barring trustee from avoiding prepetition
settlement payment made by or to stockbroker, despite trustee's claim that transaction was not settled
between debtor and stockbroker due to stockbroker's paying third party for stockbroker's repurchase of
treasury bill; funds were transferred to third party at debtor's direction and fulfilled stockbroker's
obligation under agreement. Bankr.Code, 11 U.S.CA. § 546(e).

illl<eyCite this headnote

51 Bankru ptcy
51V The Estate
51V(H) Avoidance Rights
51V(H)1 In General
51k2701 k. Avoidance Rights and Limits Thereon, in General. Most Cited Cases

Trustee could not invoke fraud exception to provision barring avoidance of prepetition settlement
payments involving stockbrokers, so as to avoid reverse repurchase transaction between stockbroker and
Chapter 11 debtor; exception applied to fraudulent transfers completed within one year of filing, and
reverse repurchase transaction occurred more than two years before debtor's filing. Bankr.Code, 11
U.S.CA. §§ 546(e), 548(a)(1).
*991 L.J. Chl'is Martiniak, Feldman, Waldman & Kline, San Francisco, CA, for plaintiff-appellant.
Robert L. Eisenbach III, Cooley, Godward, Castro, Huddleson & Tatum, San Francisco, CA, and Thomas 1<.
Potter, III, Jones, Walker, Waechter, Poitevent, Carrere, & Denegre, New Orleans, LA, for
defendants-appellees.
Jeffrey L. Schwaltz, Hahn & Hessen, New York City, for amicus.
Appeal from the United States District Court for the Northern District of California; *992 Susan !liston,
District Judge, Presiding. D.C. No. CV-95-01612 SI.

Before: NORRIS and KOZINSKI, Circuit Judges, and MOLLOY, [FI~*l District Judge.

FN* Honorable Donald W. Molloy, District Judge from the District of Montana, sitting by designation.

WILUAM A. NORRIS, Circuit Judge.

In late 1987, MaxPharma, Incorporated had an option to buy Hamilton Taft & Company's stock from its
then-owner, Connecticut General Corporation ("CIGNA"). MaxPharma was unabie to arrange financing for
the stock purchase using stock as collateral, but Howard Weil Financial Corporation offered to finance the
stock purchase using a reverse repurchase (or "repo") of a treasury bill (the "T-bill"), and the parties
agreed to finance the stock purchase that way. Pursuant to that agreement, Hamilton Taft wired
$5,000,000 to Howard Weil on January,28, 1..2ll.B.. The next day, Howard Weil used $4,900,000 of the
$5,000,000 in Hamilton Taft's account to purchase for Hamilton Taft a 90-day T-bill, having a face value of
$5,000,000, which was immediately sold back to Howard Weil for $4,100,000 based on a reverse repo
agreement under which Hamilton Taft would repurchase the T-bill in 90 days for the sale price plus
interest. Finally, also on January ~,.l,2,!ill, Howard Weil wired $4,100,000 directly to MaxPharma, at the
request of Hamilton Taft, so MaxPharma could purchase Hamilton Taft's stock from CIGNA.
After Hamilton Taft went into bankruptcy in 1991, Hamilton Taft's trustee sought to avoid the 1988
reverse repurchase transaction between Hamilton Taft and Howard Weil. The bankruptcy court granted
Howard Weil's motion for summary judgment on the ground that § 546(e) of the Bankruptcy Code, 11
U.S.C § 546CE,).. bars the trustee from avoiding the transfer of securities made by a stockbroker pursuant
to a reverse repurchase agreement.J£~i11 The district court affirmed for the reasons stated In the
bankruptcy court's opinion, and so do we.

FN1. The text of § 546(e) reads, in pertinent part: "the trustee may not avoid a transfer that is a ...
settlement payment ... made by or to a ... stockbroker ... that is made before the commencement of
the case .... " 11 USC § 546(e).

20f4 9/14/2006 10:55 AM

rinG KeSUll

I
ill The trustee's principal argument on appeal is that § 546(f), and not § 546(e), controls this case
because Congress intended § 546(f) to supersede § 546(e) with respect to repurchase agreements. See
11 U.S.c. § 546(f) ..lfI'g} Howard Weil responds that § 546(f) supplements, but does not supersede, §.
546(e), even though § 546(f) mentions repurchase agreements and § 546(e) does not. See id. § 546(e).

FN2. Section 546(f) provides in pertinent part that "the trustee may not avoid a transfer that is a ...
settlement payment ... made by or to a repo participant, in connection with a repurchase agreement
and that is made before the commencement of the case.... " 11 U.S.C. § 546(f). A "repo participant"
is "an entity that, on any day during the period beginning 90 days before the filing of the petition,
has an outstanding repurchase agreement with the debtor." 11 U.S.c. § 101(46). It is undisputed
that Howard Weil's last transaction with Hamilton Taft ended
over two years prior to Hamilton Taft's bankruptcy petition, and so Howard Weil does not qualify as a
"repo participant. II

After reviewing both the statutory language and the legislative history, the bankruptcy court held that ".
section 546(f) was intended to address Repo transactions not already covered by section
546(e) rather than to narrow the application of 546..(e)." .176 B.R. at 900... In particular, the
bankruptcy court noted that "Section 546(f) protects additional participants in certain Repo transactions"
who would not have been protected under the terms of § 546(e). Id. at 900. As a result, the bankruptcy
court held that "a defendant that qualifies under 546(e) as a stockbroker [as Howard Wei I does here] need
not qualify under section 546(f) as a repo participant." Id.
We agree with the bankruptcy court. In addition to the statutory language, the legisiative history shows
that § 546(f) was merely intended to augment § 546(e), not to supersede it by controlling repurchase
agreements exclusively. The Senate Report states that § 546(f) was "not intended to affect the status
of repos involving securities or involving *993 commodities as securities contracts and their consequent
eligibility for similar treatment under other provisions of the code, such as the provisions giving protection
to stockbrokers.... " S.Rep. No. 65, 98th Cong., 1st Sess. 45, 49 (1983). Instead, Congress enacted §.
546(f) to govern repurchase transactions that involved categories of participants not named in § 546(e):
"the proposed amendments are intended to afford participants in the repo market the same treatment
with respect to the stay and avoidance provisions of the Code that Public Law 97-222 [codified at § 546(e)
] explicitly provided stockbrokers .... " Id. Indeed, our Bankruptcy Appellate Panel has already said that
"the enactment of section 546(f) and its legislative history provides a further indication that section 546(e)
was intended to apply to payments made in repo transactions." Jonas v. Farmer Bros. Co. (In re Comark).
145 B.R. 47, 52-53 (9th Cir.BAP1992). We hold, therefore, that § 546(e) covers the transaction at issue in
this case.
l!
ill The trustee argues next that even if § 546(e) does cover the reverse repurchase transaction between
Hamilton Taft and Howard Weil, the trustee is not barred from avoiding the T-bill transfer under § 546(e)
because the transfer was not a "settlement payment." Section 546(e) prohibits trustee avoidance of
settlement payments to stockbrokers that are made at any time before the commencement of bankruptcy .I,,<J
actions. 11 U.S.C. § 546(e). The trustee claims that Howard Weil's payment of $4,100,000 to MaxPharma )p'1"
for Howard Weil's repurchase of the T-bill from Hamilton Taft was not a "settlement payment" within the I
meaning of § 546(e) because the transaction did not complete a bilateral exchange between Howard Weil
and Hamilton Taft. Put more simply, the trustee argues that Howard Weil failed to settle the transaction
between Howard Weil and Hamilton Taft because Howard Weil wired the $4,100,000 to MaxPharma, rather
than to Hamilton Taft.
The bankru tc court called this ar ument "frivolous" because" i t is undisputed that the funds were
traosferred to MaxPharma at the direction 0 [Hamilton Taft]. In directing payment of the sale proceeds to
MaxPharma, [Hamilton Taft] exerted dominion over the funds and used them for its own purposes." .176
B.R. at 900... Indeed, the bankruptcy court noted that, from Howard Weil's perspective, payment to
MaxPharma was equivalent to p1l.\1ment to Hamilto..o..Igft.ilDJtiuJ£iJle1JJ:f_qward Weil's obligation under..!be
reverse rep~ agreement. • ld•. In addition, the bankruptcy court noted that we have broadly construed
the term "settlement payment" to "+include[ ] a transfer of securities that completes a securities
transaction." 176 B.R.at 899. (quoting Jonas v. Resolution Trust Corp. (In re Comark), 971 F.2d 322,
326 (9th Cir.1992)). As the bankruptcy court recognized, there can be no question, then, that the T-bill
transferred pursuant to the reverse repo agreement was a settiement payment within the meaning of §.

30f4 9/14/2006 10:55 AM

tma KeSu!t

546(e). In fact, to hold otherwise "..would eviscerate section 546(e) and frustrate Congress's
intent in enacting it, by leaving the broker open to suit for doing nothing more than handling a
securities transaction for the debtor." 176 B.R. at B99.... Again we agree with the bankruptcy court.
III
ill Finally, the trustee argues that his claim should be exempt from § 546(e)'s reach because the tra'nsfer
at issue was fraudulent. But the bankruptcy court correctiy recognized that the ethical nature of the
transaction is Irrelevant to our determination of the legal issues involved ...176 B.R. at 901.... Section
546(e) explicitly excepts fraudulent transfers that are completed within one year of the filing of the
bankruptcy petition. [FN3] Because *994 the reverse repo transaction at issue here was completed over
two years before the filing of Hamilton Taft's bankruptcy petition, the trustee cannot invoke the fraud
exception to § 546(e).

FN3. Section 546(e) provides that a trustee may not avoid the type of settlement payment at issue
here "except under section 548(a)(1) of this title." 11 U.S.C. § 546(e). Section 548(a)(1) provides
that

[t]he trustee may avoid any transfer of an interest of the debtor in property, or any obligation
incurred by the debtor, that was made or incurred on or within one year before the date of the filing
of the petition, if the debtor voluntarily or involuntarily -

(1) made such transfer or incurred such obligation with actual intent to hinder, delay, or defraud any
entity to which the debtor was or became, on or after the date that such transfer was made or such
obligation was
incurred, indebted.

11 U.S.c. § 548(a)(1).

The summary judgment in favor of Howard Weil is AFFIRMED.

C.A.9 (Cal.),1997.
In re Hamilton Taft & Co.
114 F.3d 991, 30 Bankr.Ct.Dec. 1236, Bankr. L. Rep. P 77,405, 97 Cal. Daily Op. Servo 4410, 97 Daily
Journal D.A.R. 7369

Briefs and Other Related Documents (Back to top)

• 1996 WL 33489912 (Appellate Brief) Reply Brief of Appellant Frederick S. Wyle, Trustee of Hamilton Taft
& Company (Apr. 05, 1996)
• 1996 WL 33489913 (Appellate Brief) Original Brief of Defendant-Appellee Howard, Weil, Labouisse,
Friendrichs, Inc. (Mar. 21, 1996)
• 1996 WL 33489911 (Appellate Brief) Opening Brief of Appellant Frederick S. Wyle, Trustee of Hamilton
Taft & Company (Feb. 20, 1996)
END OF DOCUMENT

(C) 2006 Thomson/West. No Claim to Orig. U.S. Govt. Works.

THOiVISON

*
WEST

40f4 9/14/200610:55 AM
..
AD f458 (Rev B/96) Sl1eet 1 - Judgment In a Cnmmal C.. "'~

. ;: : :;========~=nt=tc=b=~=ta=tc=z :mtztrtct (lCourtC-Fi LED

Northern District of California U. S. District Court SEP X5 1997
UNITED STATES OF AMERICA JUDGMENT IN A CRIMINAL ~u~DDr.YTA%'r-cKrNG
v NORTHERN OISTAt " OURT
(For Offenses Committed On or After Novembu 1~1j §8~TlIFORNIA
CONNIE C. ARMSTRONG, .TR.
Case Number 3:94CR00276-001
Chester Brown, Esq. & Sol Wollack, Esq
THE DEFENDANT: Derend<ll1t's Al10rney

pleaded gUilty to count(s)

LJ
o pleaded nolo contendere to count(s)
whIch was accepted by the court
[.XJ was found gUilty on count(s) 1,2,3, £I, 5, 6, 7, 8, 9,10, ] 1,12.13,14.15, J6, 17, 18, 19, 20 & 21
after a plea of not gUilty
Date Offense Count
Title & Section Nature of Offense Concluded Number(s)

18 U.S.c. § 2314 Stolen Property 0210111991 1-3.15-18

18 U.S.C § 1343 \Vlre Fnmd 03/12/1991 4-14,19-21

The defendant IS sentenced as provided In pages 2 through 7 of thiS Judgment The sentence IS Imposed pursuant
to the Sentencing Reform Act of 1984

c::: The defendant has been found not gUIlty on count(s)

o Count(s) (Is)(are) dismissed on tile motion of the Unlled States

IT IS FURTHER ORDERED that the defendant shall notify the United States Attorney for thiS district Within 30 days of
any change of name, reSIdence, or mailing address untIl all fines, restItution, costs, and special assessments-lmposed by thiS
Judgment are fully paid

Defendant's Soc Sec No 460-96-6682 08/29/1997

Defendant's Date of Birth -=0-=6/-=0-=9/c:1-=9-=54-:----~~ .~~-- Oalll or Irl1po~'tI(ln of Judgmnnl
~-_ ..
Defendant's USM No 00000-000
Defendant's ReSidence Address
4843 Slony Ford
~-~---

Dallas, TX, 75252 CHARLES A LEGGE

Defendant's Mailing Address

U.S. District JUdge
Namll 0. T,tla of Juoj":1l11 Officar
.. _ ... _.. _--
4843 Stony Ford

--~. 'i) (q"j.

uOCumem l'{U.
"')allas, TX 75252 Dalll

0G(!) .
ENTERED IN CRIMINAL DOCKET Olstnct Court""
Cllmlnai case Procosslng
, ,
'. AD 2458 (Rev 8196) Sheet 2 • lmpnsonment

DEFENDANT CONNIE C. ARMSTRONG, JR.

CASE NUMBER 3'94CR00276-001

IMPRI$ONMENT
The defendant IS hereby committed to the custody of the United States Bureau of Pnsons to be Impnsoned for
a total term of 108 month(sl _

: .J The court makes the following recommendations to the Bureau of Pnsons

I.J The defendant IS remanded to the custody of the United States Marshal

D The defendant shall surrender to the United States Marshal for this district

LJ at a m/p m on

[J as notified by the United States Marshal

I2J The defendant shall surrender for service of sentence at the Institution designated by the Bureau of Pnsons

before 2 P m on

as notified by the United States Marshal

as notified by the Probation or Pretnal Services Office

RETURN
I have executed this Judgment as follows

Defend.ant delivered on to _ _

at , With a certified copy of this Judgment

UNITED STATES MARSHAL

By
Deputy U S Marthal
AD 2458 (Rev 6/96) Sheet 3 ~ SupervIsed Release /

====== -_.~-----_ .. -

JUdgment.'page~~=.3_~. of L
DEFENDANT CONNIE C. ARMSTRONG, JR.
CASE NUMBER 3:94CR00276-0UI

SUPERVISED RELEASE
Upon release from ImpriSOnment, the defendant shall be on supervised release for a term of 3 year(s)

The defendant shall report to the probation office In the dlstnct to which the defendant IS released within 72 hours of
release from the custody of the Bureau of Prisons

The defendant shall not commit another federal, state, or local cnme

The defendant shall not Illegally possess a controlled substance

For offenses committed on or after Sepfember 13, 1994

The defendant shall refrain from any unlawful use of a controlled substance The defendant shall submit to one
drug test Within 15 days of release from Impnsonment and at least two penodlc drug tests thereafter, as dlfected by
the probation officer

U The above drug testing condition IS suspended based on the court's determination that the defendant poses
a low nsk of future substance abuse (Check, If applicable)
IZJ The defendant shall not possess a firearm as defined In 18 USC § 921 (Check, If applicable)

If thIS Judgment Imposes a fine or a restItution oblIgatIOn, It shall be a condItIon of supervIsed release that the
defendant pay any such fine or restitution that remains unpaid at the commencement of the term of supervised release
In accordance With the Schedule of Payments set forth In the Cnmlnal Monetary Penalties sheet of thiS Judgment

The defendant shall comply With the standard conditions that have been adopted by thiS court (set forth below) The
defendant shall also comply With the additional conditions on the attached page (If indicated below)
See Spccml COndl(IlJIIS of SupervISIon - Page 4

STANDARD CONDITIONS OF SUPERVISION

1) the defendant shall not leave the Judicial dlstnct Without the permiSSion of the court or probation officer,
2) the defendant shall report to the probation officer and shall submit a truthful and complete wntten report Within the first
five days of each month,
3) the defendant shall answer truthfully all InqUines by the probation officer and follow the Instructions of the probation
officer,
4) the defendant shall support hiS or her dependents and meet other family responSibilities,
5) the defendant shall work regularly at a lawful occupation unless excused by the probation officer for schooling, training, or
other acceptable reasons,
6) the defendant shall notify the probation officer ten days pnor to any change In reSidence or employment,
7) the defendant shall refrain from excessive use of alcohol,
8) the defendant shall not frequent places where controlled substances are Illegally sold, used, distributed, or administered,
9) the defendant shall not associate With any persons engaged In CfImlnal actiVity, and s"all not associate With any person
conVicted of a felony unless granted permission to do so by tile probation officer,
10) the defendant shall permit a probation officer to VISit him or her at any time at home or elsewhere and shall permit
confiscation of any contraband observed In plain view of the probation officer,
11) the defendant shall nobfy the probation officer Within seventy-two hours of being arrested or questioned by a law
enforcement officer,
12) the defendant shall not enter onto any agreement to act as an Informer or a speclat agent of a law enforcement agency
Without thepenmlsslon of the court,
13) as directed by the probatIOn officer, the defendant shall notify tIllld parties of flsks that may be occasioned by the
defendanrs cnmlnal record or personal hlstOly or characteflsbcs, and shall penmlt the probatron officer to make such
notifications and to confirm the defendant's compliance With such notification reqUirement
AO 2408 (Rev 8/96) Sheet 3· SupervISed Release

JUdgment-Page 4 of 7

fFENDANT CONNIE C. ARMSTRONG, .JR.

CASE NUMBER 3.94CR00276-001

SPECIAL CONDITIONS OF SUPERVISION

1. The defendant shall pay restltutlon, smgly or jOintly, m the sum ofS62,750,OOO, 3S dIrected b,Y the U S ProbatIOn Officer.

2. Th~ defendant shall make available to the probation officer any requested financial information, upon request of the probatioll
officer.
AO 2.l158 (Rev Bl96) Sheet 5, Part A ~ Cnmmal Monelar '5
. . _----_.=.==== JUdgmenf.Page 5 of __ L
iEFENDANT CONNIE C. ARMSTRONG, JR.
CASE NUMBER 3:94CR00276·001
CRIMINAL MONETARY PENALTIES
The defendant shall pay the following total criminal monetary penalties In accordance with the schedule of payments set
forth on Sheet 5, Part B
Assessment Restitution
Totals' $ 1,050.00 $ $ 62,750,000.00

[ ] If applicable, restitution amount ordered pursuant to plea agreement $

FINE
The above fine Includes costs of Incarceration and/or supervision In the amount of $___ _ _ ._
The defendant shall pay Interest on any fine of more than $2,500, unless the fine IS paid In full before the fifteen til day
after the date of Judgment, pursuant to 18 USC § 3612(f) All of the payment options on Sheet 5, Part B may be subject to
penalbes for default and delinquency pursuant to 18 USC § 3612(g)

The court determined that the defendant does not have the ability to pay Interest and It IS ordered that
o The Interest requirement IS waived
[ ] The Interest requirement IS modified as follows

RESTITUTION
n The determination of reslitutlon IS deferred until
Will be entered after such a determlnalion
An Amended Judgment In a Criminal Case

o The defendant shall make restitution to the follOWing payees In the amounts listed below
If the defendant makes a partial payment, each payee shall receive an approXimately proportIonal payment unless
speCified otherwise In the pnorlty order or percentage payment column below
PriOrity Order
• Total Amount of or Percentage
Name of Payee Amount of Loss Restitution Ordered of Payment

~ $ $---
• Findings for the total amount of losses are reqUired under Chapters 109A, 110, 110A, and 113A of Title 18 for offenses
commrtted on or after September 13, 1994 but before April 23, 1996
AD 21458 (Rev B/S6) Sheet 5, Part 8 - Cnmlnat MonetaI"' - ~s
--_.
-=======
EFENDANT CONNIE C. ARMSTRONG, JR
CASE NUMBER 3:94CR00276-001

SCHEDULE OF PAYMENTS
Payments shall be applied In the following order (1) assessment, (2) restitution, (3) fine pnnclpal, (4) cost of prosecution,
(5) Interest, (6) penalties

Payment of the total fine and other criminal monetary penalties shall be due as follows
A r;;<J In full Immediately, or
B 0 $ .__ . _ ... Immediately, balance due (In accordance with C, D, or E), or

C
o not later than _~~ ,or
D
o In Installments to commence _ day(s) after the date of thiS judgment In the event the entire amount of
criminal monetary penalties Imposed IS not paid prior to the commencement of superviSion, the U S probation
officer shall pursue collection of the amount due, and shall request the court to establish a payment schedule If
appropnate, or

E In (e 9 equal, weel,ly, monthly, quarterly) Installments of $

D over a period of - ----- year(s) to commence day(s) after thedate of thiS judgment

The defendant WIll receive credIt for all payments previously made toward any crlmmal monetary penalties Imposed

Special Instruclions regarding the payment of CfImlnal monetary penalties

The defendant shall make restitutIOn, JOllltly and severally WIth his co-defendant RIchard Fowles. as directed by the probatIOn
oflice.

IZ1 JOI"6;:~~ ~~;;''ii:: JOint and Several

(including Defendant Number) Defendant Name Amount
CR 94-0276 CAL Rldmrd Fowles 562,750,000 00

[J The defendant shall pay the cost of prosecution

o The defendant shall forfeit the defendant's Interest ,n the follOWing property to the United States

Unless the court has expressly ordered otherwise In the speCial instructions above, If thiS judgment Imposes a penod of
unpnsonment payment of Criminal monetary penallies shall be due dUring the period of Imprisonment All Criminal monetary
~nalty payments, except those payments made through the Bureau of Prisons' Inmate FinanCial Responsibility Program are
be made as directed by the court, the probation officer, or the United States attorney
AD 2458 (RelJ B/96l Sheet S ~ Stalemenl of Reasons

Judgmenl·Page 7 of 7
)EFENDANT CONNIE C. ARMSTRONG, JR.
CASE NUMBER 3.94CR00276-00I

STATEMENT OF REASONS
The court adopts the factual findings and gUideline applicatIOn m the presentence report
OR
o The court adopts the factual findmgs and gUideline application In the presentence report except (see attachment, If
necessal)')

Guideline Range Determmed by the Court:

Total Offense Level 31
Cnmlnal Hlstol)' Categol)'
Impnsonment Range 108-135
Supervised Release Range
Fine Range $. to S
L::j Fine waIved or below the gUIdeline range because of Inability to pay

Total Amount of Restitution $ .__62,?~O,OOO 00

Restitution IS not ordered because the complication and prolongation of the sentencing process resultmg from
the fashiOning of a restitution order outweighs the need to prOVide restitution to any Victims, pursuant to 18
USC § 3663(d)

u For offenses committed on or after September 13, 1994 but before Apnl23, 1996 that req""e the total amount
of loss to be stated, pursuant to Chapters 109A, 110, 110A, and 113A of Title 18, restitution IS not ordered
because the economIc cIrcumstances of the defel1dant do not allow for the payment of any amount of a
restitution order, and do not allow for the payment of any or some portion of a restitution order m the forseeable
future under any reasonable schedule of payments
Partial restitution IS ordered for the follOWing reason(s)

The sentence IS Within the gUideline range, that range does not exceed 24 months, and the court finds no reason
D to depart from the sentence called for by the application of the gUidelmes

OR
lZ<[ The sentence IS Within the gUideline range, that range exceeds 24 months, and the sentence IS Imposed for the
follOWing reason(s)

, L ~ ' f ...ti!- ~ o<--,L ..ee- A-.-- /f:-- ~ ~

T..Q,... ~ '1- 1 0 8 ~ --- ",/J ~ G .A:. .,," ~- ~. f f
1- f- -e. ~ --'- ~
OR
o The sentence departs from the gUldelme range
D upon mobon of the government, as a result of defendant's substantial assistance
o for the followmg speCific reason(s)
 FindLaw I For Legal Professionals J For Corporate Counsell For Law Students

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Westlaw case
• KeyCite this case on
Westlaw http://Iaws.findlaw.com/9th/9616768.html

u.s. 9th Circuit Court of Appeals

ATLAS HOTELS, INC. v USA
9616768
ATLAS HOTELS, INC.; BW/IP
INTERNATIONAL; C&R CLOTHIERS,
INC.; CALIFORNIA PACIFIC MEDICAL
CENTER; CHRONICAL PUBLISHING
COMPANY; CLARIS CORPORATION;
ENSR CORPORATION; FIRST CAPITAL
LIFE INSURANCE COMPANY; KEMPER
SECURITIES, INC.; NATIONAL DATA No. 96-16768
CORPORATION; SPRINGFIELD
D.C. No.
SUGAR & PRODUCTS, INC.;
CV-95-01029-JLQ
STANFORD HEALTH SERVICES; SUN
OPINION
MICROSYSTEMS, INC.; SUNBELT
BEVERAGE CORPORATION; WILLIAM
MARSH RICE UNIVERSITY,
Plaintiffs-Appellants,

v.

UNITED STATES OF AMERICA,

Defendant-Appellee.

Appeal from the United States District Court

for the Northern District of California
Justin L. Quackenbush, District Judge, Presiding

Argued and Submitted

October 8, 1997--San Francisco, California

1 of 4 9/16/20066:27 PM
FindLaw for Legal ProtesslOnalS - Lase Law, reaeral ana ~mle I'\.eso...

Filed April 6, 1998

Before: Mary M. Schroeder, Robert R. Beezer, and

Melvin Brunetti, Circuit Judges.

Opinion by Judge Brunetti

SUMMARY

COUNSEL

Tommy A. Conner, San Francisco, California, for the

plaintiffs-appellants.

Pamela C. Berry, Tax Division, Department of Justice, Wash-

ington, D.C., for the defendant-appellee.

OPINION

BRUNETTI, Circuit Judge:

Appellants, Sunbelt Beverage Corporation and other com-

panies that had contracted with Hamilton Taft and Company
to perform payroll tax services, appeal the district court's
grant of summary judgment for the United States ilL the appel-
lants' action seeking a refund oflat~p~ymen~ penalties and
interest paid by Hamilton TaIt~"t-he' fnfernal~Revenue~rVIce
pursuant to 26 U.S.c. s 6656. The district court found that
appellants lacked standing to sue for refund as they did not
pay the penalties, did not have a financial interest in the funds
used 'to pay the penalties, and did not have a valid assignment
of Hamilton Taft's rights under the Assignment of Claims
Act, 31 U.S.C. S 3727. We have jurisdiction, 28 U.S.C.
S 1291, and affirm.

Facts

Appellants individually entered into written agreements

with Hamilton Taft for the provision of payroll tax services.
Per the agreement, Hamilton Taft was to timely deposit pay-
roll taxes with the IRS and file any necessary payroll tax
returns. Each appellant provided Hamilton Taft with the nec-
essary information and sufficient funds for Hamilton Taft to
timely pay its clients' payroll tax liabilities. Hamilton Taft
received fees for specific services and the "float" on the
money that its clients paid to it in advance of the dates on
which the amounts were required to be sent to the taxing
authorities.

In reality, during 1989 and 1990, Hamilton Taft's owner,

Connie Armstrong, Jr., and a select group of his associates
(collectively referred to as "the conspirators " by the district
court) improperly diverted millions of dollars of payroll tax
deposits to other companies owned by the conspirators. As a
result, payments to the IRS were not timely made by Hamil-
ton Taft. Hamilton Taft did eventually make the original pay-
ments owed to the IRS, and the resulting late payment
penalties, by using subsequently deposited funds of other cli-
ents from the commingled client fund. In early 1991, the con-
spiracy was eventually exposed by a former Hamilton Taft
controller.

Following discovery of the conspiracy, creditors of Hamil-

20f4 9/16/2006 6:27 PM

 ton Taft filed an involuntary bankruptcy petition under Chap-
ter 11. Appellants filed claims against Hamilton Taft for
refund of amounts tendered for payment of payroll taxes that
remained outstanding for the first quarter of 1991. Each
appellant received approximately sixty-seven percent of its
claim. During bankruptcy proceedings, Hamilton Taft pur-
portedly assigned to each appellant its right to a refund of the
penalties Hamilton Taft paid for that appellant's failure to
make a timely deposit of payroll taxes.

Subsequently, each appellant filed suit against the United

States seeking a refund of penalties paid to the IRS by Hamil-
ton Taft. These suits were consolidated by the district court.
Summary judgment was granted for the United States and this
appeal followed.

Analysis

We review the district court's grant of summary judgment

de novo. T.W. Elec. Serv., Inc. v. Pacific Elec. Contractors
Ass'n, 809 F.2d 626, 629 (9th Cir. 1987). Accordingly, we
view the evidence in the light most favorable to the nonmov-
ing party to determine whether there are any genuine issues
of material fact and whether the district court applied the rele-
vant substantive law. Tzung v. State Farm Fire & Casualty
Co., 873 F.2d 1338, 1339-40 (9th Cir. 1989). Upon de novo
review, we find that the district court properly granted sum-
mary jUdgment for the United States.

Appellants argue that they have standing to sue for a refund

because, individually, each is the "person who made the
overpayment" as required under 31 U.S.C. S 6402(a). Appel-
lants' argument is not supported by the record.

[1] It is undisputed that Hamilton Taft paid the penalties at

issue. Moreover, standing under S 6402(a) is premised upon
the claimant having a "financial interest in the litigation." See
Bruce v. United States, 759 F.2d 755, 759 (9th Cir. 1985).
Where the claimant is under no obligation to repay the party
who paid the penalties, we have held that the claimant does
not have a financial interest in the litigation. Id. Here, the
agreements between appellants and Hamilton Taft provided
that the appellants were not obligated to reimburse Hamilton
Taft for penalties paid due to Hamilton Taft's negligence.

[2] Appellants alternatively argued that they have standing

to sue because of Hamilton Taft's purported assignment of
their rights to the appellants. Hamilton Taft's purported
assignment is void against the United States for failure to
comply with the requirements of the Assignment of Claims
Act. The Assignment of Claims Act requires that for the
assignment of a claim against the United States to be valid, at
the time of assignment, the claim must be allowed, the
amount of the claim decided, and a warrant for payment must
have issued. 31 U.S.C. S 3727. None of these requirements
were met here.

[3] Accordingly, appellants lack standing to sue for a

refund. The district court properly granted summary jUdgment
for the United States.

AFFIRMED. the end

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30f4 9116120066:27 PM