United States v. Read

Facts

Ds engaged in a scheme to artificially inflate the year-end inventory of Cenco Medical Health Supply Corporation (CMH). Read was president of Cenco and a member of its board of directors. Spiegel was a vice-president of Cenco and president of CMH. Swiger was also a vice-president of Cenco and comptroller of CMH. Estimates of the total fraud ranged from 20 to 25 million dollars over a 5-year-period. Ds also increased reported sales by listing the sales from August 1972 on computer printouts for March 1973 sales. They also created fake documents showing hundreds of thousands of dollars of non-existent inventory to be in transit between warehouses so that it could not be physically counted. Curtiss-Wright Corporation purchased five percent of Cenco's shares and while examining Cenco's finances for a possible loan, found discrepancies in Cenco's inventory records. Ds then kicked into high gear and ordered the repacking of obsolete inventory in boxes of expensive products. Ds also persuaded Cenco's board of directors to approve the destruction of $16 million of obsolete inventory as part of a supposed tax savings program. Almost all of the 'destroyed' inventory existed only on paper. All of these efforts overstated the profitability of Cenco, thereby defrauding its board, its stockholders, and the SEC. Ds were charged with conspiracy, mail fraud, and securities fraud. Spiegel's (D) main defense was that he withdrew from the conspiracy more than five years before the indictment was filed and that prosecution was barred by the statute of limitations. The trial court instructed the jury: 

“Now, we talked about withdrawal. How does a person withdraw from a conspiracy? A person can withdraw from a conspiracy, and in such a case he is not liable for the acts of his former co-conspirators after his withdrawal. A defendant may withdraw by notifying co-conspirators that he will no longer participate in the undertaking. A defendant may also withdraw from a conspiracy by engaging in acts inconsistent with the objects of the conspiracy. These acts or statements need not be known or communicated to all other co-conspirators as long as they are communicated in a manner reasonably calculated to reach some of them. To withdraw from a conspiracy there is no requirement that a conspirator tries to convince the other co-conspirators to abandon their undertaking or that he goes to public authorities or others to expose the conspiracy or to prevent the carrying out of an act involved in the conspiracy. But a withdrawal defense requires that a defendant completely abandon the conspiracy and that he do so in good faith. If you find that a defendant completely withdrew from the conspiracy before the 24th of April, 1974, you should acquit him. If you find that he was a member on April 24, 1974, and that an overt act was committed while he was still a member, his later withdrawal, if any, standing alone, is not a defense.” 

Spiegel (D) objected to the instructions as they put the burden of proving withdrawal on Spiegel (D) and failed to put the burden of disproving withdrawal beyond a reasonable doubt on the government. The jury returned guilty verdicts on all counts as to Read, Spiegel, and Swiger. Ds appealed.

Issues

Rule of Law

Holding and Decision

Legal Analysis

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