Ask the Scholar
Document scope · 1 page
Scholar
Ask about this object, its catalog metadata, its source description, or the page inventory.
For page-specific OCR and visual context, open one of the page chats.
Scholar Source Context
Document identity
localId
118568670
label
JGR/Kilpatrick Tax Case
core
doc
dtoType
document
citationUrl
pageCount
1
Source metadata
id
118568670
contentType
document
title
JGR/Kilpatrick Tax Case
citationUrl
identifierLocal
485
collections
Records of the Office of Counsel to the President (Reagan Administration)
John Roberts' Subject Files
thumbnailUrl
largeImageUrl
imageCount
1
hasImages
yes
source
import
hasTranscription
no
Source extras
naId
118568670
coverageEndDate
logicalDate
1986-12-31
year
1986
coverageStartDate
logicalDate
1982-01-01
year
1982
levelOfDescription
fileUnit
recordType
description
ocrSource
nara-archive
Single page context
seq
1
pageIndex
0
type
document
mediaId
67bb7372844980dc
ocrText
Ronald Reagan Presidential Library
Digital Library Collections
This is a PDF of a folder from our textual collections.
Collection: Roberts, John G.: Files
Folder Title: JGR/Kilpatrick Tax Case
Box: 30
To see more digitized collections visit:
https://reaganlibrary.gov/archives/digital-library
To see all Ronald Reagan Presidential Library inventories visit:
https://reaganlibrary.gov/document-collection
Contact a reference archivist at: [email protected]
Citation Guidelines: https://reaganlibrary.gov/citing
National Archives Catalogue: https://catalog.archives.gov/
Department of Justice
October 22, 1984
STATEMENT BY TOM DeCAIR TO '60 MINUTES'
This is a very important prosecution aimed at allegations of
extraordinarily serious, large-scale tax fraud. Involving some
$122,000,000, it is one of the largest tax fraud prosecutions in
United States history. We have carefully reviewed the decision
and opinion of the trial court, and we feel strongly that we must
proceed with this case either through appeal or by seeking
reindictment from a new grand jury. We have a responsibility to
all honest taxpayers to protect the integrity of the tax system.
The rulings and statements of Judges Winner and Kane are
extreme
unjustified. We are convinced that, on the whole,
iot fairly reflect either the facts or the law in this
hat does not mean that we have failed to take the charges
cutorial misconduct seriously. The matter was referred
e Office of Professional Responsibility, a watchdog unit
charged with investigating allegations of misconduct by
Department of Justice professionals. After an extensive and
independent investigation, that Office concluded that, although
there may have been instances in which the prosecutors did not
fully comply with certain rules of criminal procedure, those
instances did not prejudice the rights of the defendants,
undermine the independence of the grand jury, or even warrant
disciplinary action.
After a thoroughgoing review, we can find no basis for
abandoning our prosecution of this large-scale tax fraud.
#
#
#
THE WHITE HOUSE
WASHINGTON
October 26, 1984
MEMORANDUM FOR FRED P. FIELDING
FROM:
JOHN G. ROBERTSJSR
SUBJECT:
Allegations of Misconduct by Justice
Prosecutors and IRS Officials
Bo Callaway has written Mr. Baker concerning United States
V. Kilpatrick, the somewhat celebrated tax fraud case in
Federal district court in Colorado. In an opinion issued
September 24, 1984, Judge Kane dismissed all twenty-seven
counts of the indictment in a scathing opinion charging the
Justice Department Tax Division prosecutors with misconduct
and unethical behavior. Judge Kane wrote that the prosecutors
abused the grand jury process, violated grand jury secrecy,
improperly used "letters of assurance" rather than the
statutory immunity process, mischaracterized evidence, and
mistreated witnesses. He relied heavily on a prior opinion
in the case by now-retired Judge Winner, which was even more
vituperative in its treatment of the Tax Division attorneys.
Judge Winner's opinion contains several remarkable allegations
of "discourtesy" directed at the judge by the prosecutors,
including shouting and obscenities, "glowering," and throwing
jackets on the floor. (You may recall that this case first
achieved notoriety after an ill-advised and improperly
cleared motion was filed by the prosecutors to prevent the
printing of Judge Winner's opinion.)
Callaway's letter assumes the accuracy of the two opinions,
and urges the President to call for a thorough investigation
of the charges against the prosecutors. The matter is
urgent because "60 Minutes" has been preparing a segment on
the case, which Callaway thinks will air either this Sunday
or next.
The Justice Department has issued a statement to "60 Minutes."
The statement notes that, in the view of the Department, the
opinions of Judges Winner and Kane are "extreme and unjustified.
(The Department has filed a protective notice of appeal, but
may decide to proceed by re-indictment instead.) The
statement also notes that the Office of Professional Respon-
sibility has reviewed the charges of prosecutorial misconduct,
and concluded that while there were instances in which the
attorneys failed to comply fully with certain rules of
criminal procedure, the failures did not prejudice the
defendants and did not warrant any disciplinary action.
- 2 -
There is no need for the President to call for an investi-
gation as suggested by Callaway; that investigation has
already taken place and has essentially "cleared" the Tax
Division attorneys. A reply advising Callaway of this is
attached.
Attachment
THE WHITE HOUSE
WASHINGTON
October 29, 1984
Dear Bo:
Your letter of October 10 to Jim Baker has been referred to
me for consideration and direct response. In that letter
you reviewed the Justice Department tax fraud prosecution
United States V. Kilpatrick, noting the charges of prosecu-
torial misconduct featured in the two opinions in that case.
You suggested that the President call for a thorough investi-
gation of those charges, prior to the airing of a "60
Minutes" segment on the case.
Such an investigation has already taken place. The Justice
Department watchdog unit, the Office of Professional Respon-
sibility, has conducted an extensive and independent investi-
gation. According to the Department of Justice, that Office
concluded that while there may have been instances in which
the prosecutors did not fully comply with rules of criminal
procedure, those instances did not prejudice the rights of
the defendants and did not warrant disciplinary action. The
Department considers the statements of Judges Winner and
Kane to be extreme and unjustified, and, on October 24,
filed a notice of appeal in the case. "60 Minutes" has been
apprised of the foregoing.
Thank you for sharing your concerns about this matter with
us.
Sincerely,
Orig. signed by FFF
Fred F. Fielding
Counsel to the President
Mr. Howard H. Callaway
State Chairman
Colorado Republicans
1275 Tremont Place
Denver, CO 80204
FFF: JGR:aea 10/29/84
bcc: FFFielding/JGRoberts/Subj/Chror
October 26, 1984
Dear Mr. Callaway:
Your letter of October 10 to White House Chief of Staff
James A. Baker, III has been referred to me for consider-
ation and direct response. In that letter you reviewed the
Justice Department tax fraud prosecution United States V.
Kilpatrick, noting the charges of prosecutorial misconduct
featured in the two opinions in that case. You suggested
that the President call for a thorough investigation of
those charges, prior to the airing of a "60 Minutes" segment
on the case.
Such an investigation has already taken place. The Justice
Department watchdog unit, the Office of Professional Respon-
sibility, has conducted an extensive and independent investi-
gation. According to the Department of Justice, that Office
concluded that while there may have been instances in which
the prosecutors did not fully comply with rules of criminal
procedure, those instances did not prejudice the rights of
the defendants and did not warrant disciplinary action. The
Department considers the statements of Judges Winner and
Kane to be extreme and unjustified, and, on October 24,
filed a notice of appeal in the case. "60 Minutes" has been
apprised of the foregoing.
Thank you for sharing your concerns about this matter with
us.
Sincerely,
Fred F. Fielding
Counsel to the President
Mr. Howard H. Callaway
State Chairman
Colorado Republicans
1275 Tremont Place
Denver, CO 80204
FFF:JGR:aea 10/26/84
bcc: FFFielding/JGRoberts/Subj/Chron
ACQUITURE
DEPARTMENT
Department of Justice
JUSTITIA
October 22, 1984
STATEMENT BY TOM DeCAIR TO '60 MINUTES'
!
This is a very important prosecution aimed at allegations of
extraordinarily serious, large-scale tax fraud. Involving some
$122, 000,000, it is one of the largest tax fraud prosecutions in
United States history. We have carefully reviewed the decision
and opinion of the trial court, and we feel strongly that we must
proceed with this case either through appeal or by seeking
reindictment from a new grand jury. We have a responsibility to
all honest taxpayers to protect the integrity of the tax system.
The rulings and statements of Judges Winner and Kane are
extreme and unjustified. We are convinced that, on the whole,
they do not fairly reflect either the facts or the law in this
case. That does not mean that we have failed to take the charges
of prosecutorial misconduct seriously. The matter was referred
to the Office of Professional Responsibility, a watchdog unit
charged with investigating allegations of misconduct by
Department of Justice professionals. After an extensive and
independent investigation, that Office concluded that, although
there may have been instances in which the prosecutors did not
fully comply with certain rules of criminal procedure, those-
instances did not prejudice the rights of the defendants,
undermine the independence of the grand jury, or even warrant
disciplinary action.
After a thoroughgoing review, we can find no basis for
abandoning our prosecution of this large-scale tax fraud.
#
#
#
ID #
CU
WHITE HOUSE
CORRESPONDENCE TRACKING WORKSHEET
0 OUTGOING
H INTERNAL
I INCOMING
Date Correspondence
Received (YY/MM/DD)
/
/
Name of Correspondent:
H. Cullaway
MI Mail Report
User Codes: (A)
(B)
(C)
Subject: allegations of misconduct by Justice
prosecutors and IRS officials
ROUTE TO:
ACTION
DISPOSITION
Tracking
Type
Completion
Action
Date
of
Date
Office/Agency
(Staff Name)
Code
YY/MM/DD
Response
Code
YY/MM/DD
CUHOCLAND
ORIGINATOR
84/10/16
/ /
Referral Note:
WAT 18
D
84/10/16
5.84,10,19
Referral Note:
/
/
/
/
-
Referral Note:
/
/
/
/
-
Referral Note:
/
/
/
/
I
Referral Note:
ACTION CODES:
DISPOSITION CODES:
A Appropriate Action
I - Info Copy Only/No Action Necessary
A Answered
C Completed
C Comment/Recommendation
R - - Direct Reply w/Copy
B - Non-Special Referral
S Suspended
D Draft Response
S For Signature
F * Furnish Fact Sheet
X Interim Reply
to be used as Enclosure
FOR OUTGOING CORRESPONDENCE
Type of Response = Initials of Signer
Code = "A"
Completion Date = Date of Outgoing
Comments:
Keep this worksheet attached to the original incoming letter.
Send all routing updates to Central Reference (Room 75, OEOB).
Always return completed correspondence record to Central Files.
Refer questions about the correspondence tracking system to Central Reference, ext. 2590.
5/81
COLORADO REPUBLICANS
1275 Tremont Place, Denver, Colorado 80204 (303) 893-1776
Howard H Callaway
State Chairman
October 10, 1984
Mr. James Baker
Executive Assistant to the President
The White House
Washington, D.C. 20500
Dear Jim:
This letter concerns an unusual situation and I hope that you will
ask one of your aides to investigate the matter thoroughly.
There is a man named Bill Kilpatrick, who lives in Denver, who was
indicted for tax fraud a number of years ago. The indictment has
proved to be highly irregular and two U.S. District Court judges,
a Republican appointee, Fred Winter, and a liberal Democrat
appointee, John Kane, have accused Justice Department prosecutors
and IRS officials of misconduct and have dismissed all of the
indictments.
Sixty Minutes has investigated the accusations and
counter-accusations and filmed a story. I talked to Mike Wallace
personally at some length, when he was in Denver a couple of
months ago, and he indicated that Sixty Minutes would have a
devastating story documenting the misconduct by government
officials and exonerating Kilpatrick.
The Sixty Minutes program will be shown either October 21, October
28, or November 4. Ira Rosen, the producer, a liberal Democrat
and staunch Mondale supporter, has indicated that he prefers to
show the program on November 4, in the hope that a scathing
denunciation of misconduct by government officials would be
harmful to the Reagan campaign.
The facts, as I understand them, are that the misconduct was a
result of Jimmy Carter's change in the Organized Crime Strike
Force and that the Grand Jury was convened before Reagan was even
sworn in.
Nevertheless, since all of this happened on Reagan's watch, it
could be easy for people to believe that it was Reagan's fault.
Some local friends of the President had planned to call Mille
Wallace, urging him to delay the program until after the election. I
believe that the President's friends have been talked out of this. It
seems to me that a call to Mike would be counter-productive. Mike
Wallace is not likely to rearrange schedules to help anyone in an
election and there is some likelihood that if a friend of the
President's called, the program would begin with "This is the program
that the President's friends tried to delay until after the election."
It seems to me that there is a simple solution; one that fits
the President's personality and is in the public interest. That would
be for the President to call for the thorough investigation of the
allegations. He could ask that any misconduct, if proven, be subject
to the appropriate disciplinary measures. Conversely, if the
allegations are proven to be false, exoneration of the people accused
would be in order. If the President initiates the investigation
before the Sixty Minutes airing, he could lessen the negative impact
the story might have.
This is not a small, local story. We are talking about a large
international operation. Senator Bill Armstrong and Congressmen Dan
Schaefer and Guy VanderJagt are all familiar with the situation. I am
sure they could give you more information.
Thanks, Jim, for listening to the story.
Sincerely,
HHC:bfa
Enclosures:
(1) Rocky Mountain News story
(2) Judge Winner's opinion
(3) Judge Kane's opinion
(4) Wagner & Waller, P.C. letter
WAGNER & WALLER, P.C.
ATTORNEYS AND COUNSELORS ATLAW
300 LAWYERS PROFESSIONAL BUILDING
BARRY S. ENGEL
KEVIN D. ALLEN
5655 SOUTH YOSEMITE STREET
GARY S. LACHMAN*
JERSEY M. GREEN
DENIS H. MARK
M. THEODORE HACKNEY
ENCLEWOOD. COLORADO 80111
RONALD L. RUDMAN
JEFFREY HERM
DAVID J. WAGNER
W. DAVID MURPHY
TELEPHONE (303) 741-1111
WILLIAM C. WALLER, JR.
JERRY C.M. ORTEN
RAPIFAX (303) 694-4028
BEVERLY WHARTON-OSEROW
*ALSO ADMITTED IN FLORIDA
OUR FILE NO.
OF COUNSEL
JAMES C. SHEARON
October 10, 1984
HAND DELIVERED
Bo Callaway
Republican State Committee
1275 Tremont Street
Denver, CO 80203
Re: William A. Kilpatrick Case
Mr. Callaway:
It is my understanding that Jim Reeves furnished you
with copies of Judge Winner's decision and Judge Kane's
decision in Mr. Kilpatrick's case so I will not attempt to
restate or recast what the judges themselves have most
eloquently stated. However, there are two or three additional
points that I think may be of assistance to you and anyone else
attempting to evaluate the implications of these decisions.
I. ROLE OF THE GRAND JURY
The grand jury is a cornerstone of our criminal
justice system. Since the Magna Carta was signed in 1215 A.D.,
people living in the common law countries have been guaranteed
that the government must present its case to an impartial,
independent panel of ordinary citizens to establish that there
is good cause to bring the criminal charges. Its primary role
is to protect citizens. In order to carry out its functions,
it has traditionally been granted very broad powers - broader
powers than any agency of the government - to investigate
wrongdoing by the citizens or the government itself. Secrecy
of the proceedings has always been inviolate. Obviously, the
grand jury must be free to investigate or consider whatever
charges are brought before it without running the risk of
harming or destroying the reputation of innocent citizens. The
Kilpatrick Case
October 10, 1984
Page 2
courts have traditionally been responsible for supervising and
policing the grand jury process, but as a practical matter, it
is up to the individual prosecutor conducting the Grand Jury to
insure that the grand jury process is free from abuse or
taint.
II. ROLE OF THE JUSTICE DEPARTMENT
Although it is not always a distinct line, prosecutors
in the Justice Department are not investigators. Investigators
are the people who gather the evidence and try to make a case
against an individual suspected of wrongdoing. Investigators
are often not trained in the intricacies of the law or the
functions and importance of the grand jury process. Many
limitations are put on the activities of the investigator to
protect the rights of the citizens. These same limitations are
not placed on the grand jury which possesses broad power to
subpoena witnesses, compel testimony and conduct
investigations. Obviously, any agency would be tempted to
utilize the grand jury to expand or broaden its own powers to
investigate.
The Department of Justice has a criminal division.
The criminal division, in turn, has a section which prosecutes
tax cases. The prosecutors assigned to the tax section work
very closely with the IRS to bring cases. From one view this
is a very efficient organization, but I believe the efficiency
of the process is somewhat illusory while the danger inherent
in this organizational structure is very real. The prosecutors
find themselves working hand-in-hand with the IRS to make
cases.
In most situations a criminal investigation has been
completed by an agency such as the FBI and is referred to the
prosecutor to decide whether or not criminal charges should be
brought. The prosecutor looks at a completed investigation.
In our case, which is not unusual in the tax situation, the
referral was made to the Department of Justice well in advance
of an investigation being completed. In fact, the referral
letter, which was referred to by both Judge Kane and Judge
Winner, specifically stated that one reason the referral was
made was because the IRS had determined it would be difficult
or impossible to make a case utilizing the powers which have
been delegated to the IRS. That meant the prosecutors joined
the investigation and commenced a two and one-half year process
aimed not so much at determining the truth of the allegations
but at obtaining a criminal indictment against one or more
defendants. My experience tells me that an an investigation
acquires a dynamic of its own once a certain amount of time and
Kilpatrick Case
October 10, 1984
Page 3
money has been expended. The individuals in the bureaucracy
responsible for carrying out that function begin to identify
with the outcome. That is, the prosecutors instead of being
able to maintain a somewhat detached view of the investigation
with no personal stake in whether or not an indictment is
ultimately obtained, identify with the "success or failure" of
the enterprise. They are no longer able, in my opinion, to
carry out the function of supervising the grand jury process.
To a certain extent, this dichotomy always exists, but
the situation is exacerbated here. I believe there is an
institutional defect associated with the overspecialization in
the criminal division of the Department of Justice and the
willingness of the Department of Justice to become involved
with IRS investigations at such an early stage.
There is also the problem (apparent in our case) of an
excessive delegation of authority. The "United States
Attorneys Manuel" contains detailed instructions regarding all
areas of grand jury investigations. Unfortunately, the
testimony in our case made it clear that many of these
procedures and practices were not followed. The primary reason
was that responsibility for making certain decisions was
delegated too far down the chain of command. That resulted in
either younger, more inexperienced attorneys making decisions
that should have been made by higher ups or in many cases, as
Judge Kane alluded to, the responsibility being delegated all
the way down to the agents in the Internal Revenue Service.
III. WIDESPREAD ABUSE
If the abuses present in the Kilpatrick case were
isolated to this case, we would have a problem that could be
easily solved. Any organization is always going to have a few
bad apples that need to be dealt with from time to time.
However, I am presently convinced that the abuses present in
the Kilpatrick case are widespread.
An affidavit filed by an official of the Department of
Justice referred to the importance of an all out campaign
against the tax shelter business. That may true, but the
Department of Justice cannot allow itself to become a "tool"
for the Internal Revenue Service, Congress or anyone else who
is out to make a public example of the individuals involved.
It is not a coincidence that a major tax shelter indictment is
returned in the fall of each year in order to discourage
investment in tax shelters which are primarily promoted toward
the end of the year.
Kilpatrick Case
October 10, 1984
Page 4
When I interviewed numerous witnesses who had served in the
Department of Justice or as prosecutors in the United States
Attorney's office they conceded that any prosecutor worth a
grain of salt could get an indictment from any grand jury. The
grand jury process was little more than an impediment to
getting the indictment. The whole attitude about the grand
jury exhibited by many of the people was appalling.
As further evidence of the widespread nature of these
abuses the Washington Post quoted Jared Scharf, one of the
prosecutors singled out by Judge Winner and Judge Kane in their
opinions, to the effect that many of the practices present in
the Kilpatrick case are commonly carried out in other cases
around the country.
This letter is very short and does not begin to deal with
all of the ramifications of this case, but I hope it will be
helpful. if you need any further information or if you have
any questions, please do not hesitate to let me know.
Very truly yours,
WAGNER & WALLER, P.C.
By
CC: William A. Kilpatrick
WCW:scy
Briefing for the Commissioner
(A/C CI)
William A. Kilpatrick, et al.
Current status
Solicitor General has authorized an appeal and Notice of
Appeal has been filed. The 10th Circuit Court of Appeals has not
yet set their calendar and no docket number issued or call made
for the appellate brief. Once this is done, the Department of
Justice will file a brief appealing the decision rendered by Judge
Kane on September 24, 1984. Because of Rule 6 (e) concerns, the
appeal brief will be filed under seal, but a motion will be made
to remove the seal. If the seal is removed, we will be able to
obtain a copy of the appeal brief.
Background
The investigation was initiated in the Denver District on
October 22, 1979. The investigation developed information
indicating that Kilpatrick had created a number of corporations
and established a number of foreign bank accounts in promoting
abusive tax shelters. The tax shelter schemes involved coal
leases and the production of methanol. Investors paid 25% in cash
and the other 75% was represented by nonrecourse notes. In
addition to being fictitious, these notes were handled in a "daisy
chain" type fashion through the various corporate entities and
foreign bank accounts, including the Grand Cayman Islands and
-2-
Amsterdam. Check "kiting" and swapping was also involved. The
end result was that investors only had to make the initial 25%
cash payment in order to achieve a 4 to 1 ratio in tax benefits.
The investigation also established that no mining activity or
methanol production was taking place. The deductions consisted of
advance royalty payments and research and development payments.
250 investors were identified prior to the case being referred to
the Department of Justice for grand jury investigation. Also,
substantial information had been developed for civil use prior to
this referral by Chief Counsel on July 30, 1980.
There_were_2_consensual_monitorings_during_thig
investigation. One was conducted by an informant/investor and the
other by an informant/corporate officer.
Also, there was an SEC investigation involving Kilpatrick's
promoting an unworkable methanol process (civil fraud on
investors). We don't have the details.
Defendant Pettingill
One of the main participants in the coal funding scheme,
Pettingill, entered a plea of guilty to 1 count of 26 USC 7206 (2)
on December 3, 1982. He was sentenced on January 8, 1983 to 3
years suspended and 5 years probation. He also agreed to stay out
of shelters and cooperate against Kilpatrick.
-3-
Indictment
An indictment involving 8 defendants (Kilpatrick, 6
associates and the Bank of Nova Scotia) was returned in Denver on
September 30, 1982. The 27 counts of this indictment were as
follows:
Count 1 - 18 USC 371, included 7 defendants in a conspiracy
represented by false deductions to investors relating to the
advance royalty payments.
Count 2 - 18 USC 371, included 5 defendants in a conspiracy
involving false deductions relating to nonexistent research
and development payments.
Counts 3 thru 10 - 26 USC 7206 (2), involved various
defendants.
Counts 11 and 12 - 26 USC 7206 (1), Kilpatrick and O'Donnell;
individual income tax violations.
Counts 13 thru 26 - 18 USC 1341, mail fraud involving various
defendants for defrauding their investors via the use of the
U.S. mail.
Count 27 - 18 USC 1503, Obstruction of Justice, Kilpatrick.
Judge Kane
On February 21, 1983, Judge Kane dismissed counts 1 and 2
relating to the conspiracies. On February 23, 1983 he dismissed
counts 3 thru 26. The only count he did not dismiss was count 27,
the obstruction of justice charge involving Kilpatrick. The judge
held that the financing method had some economic substance and was
not just a sham or scheme to provide deductions to investors.
-4-
He further held that the indictment failed to allege a crime
involving the Bank of Nova Scotia (Cayman Islands Branch) in that
it did not set forth the requisite intent. Also, in the case of
the conspiracies he held that the indictment failed to allege
facts sufficiently detailed to constitute an offense and was not
sufficiently detailed for the defendants to enter a pleading. The
Department of Justice appealed this decision to the 10th Circuit.
No mention was made of prosecutorial misconduct or grand jury
abuse in this decision.
Judge Winner
Judge Winner presided over the trial of William Kilpatrick
for the obstruction of justice charge and Kilpatrick was found
guilty by a jury in May of 1983. On June 20, 1983 Kilpatrick
filed a motion for dismissal of his indictment and for a new trial
't ing prosecutorial misconduct and grand jury abuse.
At Judge Winner's suggestion, the defense requested a partial
remand of the remainder of the case from the 10th Circuit in order
that the additional grounds for dismissal could be considered.
(Briefs had been filed but oral argument had not been made.) On
August 8, 1983 the 10th Circuit granted the partial remand.
On August 16, 1983, at a hearing, Judge Winner stated from
the bench that since he would be retiring soon, this matter would
be decided by another judge. Because of this statement, the
Government did not file a response to Kilpatrick's motion.
-5-
On August 25, 1983, Judge Winner issued a Memorandum Opinion
granting Kilpatrick a new trial and excoriating the three
Department of Justice attorneys who handled the grand jury
investigation, indictment and prosecution of Kilpatrick. The
Department appealed to the 10th Circuit Court of Appeals for
suppression because of the nature of and manner in which this
Memorandum Opinion was issued. The Tax Division called it
slanderous, no finding of fact, and potentially damaging to the
legal careers of the three attorneys.
The 10th Circuit granted DOJ's motion on January 3, 1984, but
vacated the order on January 24, 1984.
For a summary of Judge Winner's conclusions, see the
ucceeding section entitled Judge Kane.
udge Kane
On September 24, 1984, Judge Kane dismissed the entire
indictment for the following stated reasons:
Prosecutorial misconduct; violation of FRCP Rule 6 (d) - 2
special agents in the grand jury at the same time, without
the Government attorney and not being under oath; (the rule
relating to testimony is 1 witness at a time, but the
Government's position is that the agents were only reading
transcripts from a previous grand jury). The record does not
indicate whether or not the agents were under oath, but it
does appear that the attorney conducting the grand jury was
not in the grand jury room at all times when the 2 agents
were there.
-6-
Violations of Rule 6 (e), improper disclosure of grand jury
information. Letters sent to prospective witnesses disclosed
grand jury information. (Letters were also signed by special
agents at the attorney's direction.)
The use of so-called "pocket immunity" in order to encourage
witnesses to testify for the government, instead of using the
provisions of 18 USC 6002 and 6003. ("Pocket immunity" is
becoming a problem for the Department of Justice in other
cases around the country and they are addressing the
situation).
Summary testimony by a special agent was deemed to be
misleading.
The prosecutors deliberately asked certain witnesses
questions before the grand jury knowing they would take the
"5th".
The prosecutors imposed an obligation of secrecy on certain
witnesses in violation of Rule 6 (e) (2).
-7-
Judge Kane appears to have taken Judge Winner's earlier
Memorandum Opinion and written his opinion consistent with that.
He particularly noted the confusion caused by swearing in special
agents of the IRS as "agents of the grand jury". (This practice
is not provided for in the IRM and is unnecessary.) The FRCP Rule
changes legislated in 1976 that became effective in 1977
established Rule 6 (e) (3) (A) (ii), which provides that attorneys
conducting grand jury investigations can disclose grand jury
information to other Government employees assisting such
attorneys. Prior to this rule change, many judicial districts
crated under the theory that the only way to disclose grand jury
information without violating the existing rule, was to swear the
agents in as "agents of the grand jury". * Both Judges stated in
writing that this procedure interferes with the independence of
rand jury.
Judge Kane also concluded that grand jury information was
improperly used for civil purposes. The Government can factually
rebut this conclusion. All civil actions taken were predicated on
the indictment (public record) and/or the information developed
administratively before referral for grand jury. In addition,
computations made by a Revenue Agent assigned to assist in the
grand jury investigation were mistakenly deemed to have been for
civil purposes.
-8-
Final Note
DOJ believes Judge Kane's factual conclusions are clearly
erroneous and much of his legal holdings are unsupported by or are
contrary to law.
However, procedural errors are reflected in the record (e.g.
Rule 6 (d) - 2 special agents in the grand jury room, and Rule 6 (e)
- letters disclosing investigative material signed by special
agents, even though at the direction of attorneys could result in
a "per se" ruling of rules violations.
Finally, the "60 Minutes" show, where the two Federal Judges
participated voluntarily, and which involves a matter actively
before the 10th Circuit, could boomerang and go in our favor. A
close factual review will be to our benefit.
A copy of DOJ's statement to "60 Minutes" is attached. This
statement was not acknowledged during the broadcast.
Attachment
THE WHITE HOUSE
WASHINGTON
February 19, 1985
MEMORANDUM FOR FRED F. FIELDING
FROM:
JOHN G. ROBERTS offd
SUBJECT:
Memorandum for the President Prepared
by Alfred Kingon Regarding "60 Minutes"
Broadcast on the Kilpatrick Tax Case
David Chew has asked if we have any problem with forwarding
to the President a memorandum from Al Kingon regarding the
"60 Minutes" segment on United States V. Kilpatrick, the tax
fraud case currently pending before the United States Court
of Appeals for the Tenth Circuit. I reviewed this case in
an October 26, 1984 memorandum for you (Tab A), prompted by
a letter from Bo Callaway. You will recall that Kilpatrick
is one of the largest tax fraud prosecutions in U.S. history,
involving $122 million. The twenty-seven count indictment
was dismissed last fall by the district court, with two
Federal judges involved in the case criticizing Tax Division
prosecutors for prosecutorial misconduct and unethical
behavior ranging from violations of grand jury secrecy to
courtroom tantrums. A review of the matter by Justice's
Office of Professional Responsibility concluded that the
prosecutors did at certain points fail to comply fully with
the Federal Rules of Criminal Procedure but that those
failures did not warrant disciplinary action of any sort and
did not prejudice the defendants. Justice is appealing the
dismissal of the indictment. (You may recall that this case
first achieved notoriety after an ill-advised and improperly
cleared motion was filed by the prosecutors to prevent the
printing of one of the opinions criticizing them.)
Kingon's memorandum strikes me as inadequate in failing to
note that an OPR investigation took place, and that the
investigation generally cleared the prosecutors. The
President probably wants to know if something should be done
about the allegations in the judges' opinions and the "60
Minutes" segment, and the memorandum should tell him that
something -- the OPR review -- has already been done. The
draft memorandum attached at Tab B suggests a suitable
addition to the Kingon draft.
More generally, the fact that this memorandum was prepared
by Kingon rather than our office troubles me. He apparently
gathered information from Justice about a pending Federal
- 2 -
case, in what I assume was an inadvertent violation of
established policy with respect to communications with the
Department of Justice (White House Staff Manual, Standards
of Conduct 8.B., page F-10). I will leave it to you whether
and if so how to raise this concern, but I think this might
be a good opportunity to alert the new staff members to
applicable restrictions on communications. If you agree,
something along the lines of the draft memorandum at Tab C
could be sent.
Attachments
THE WHITE HOUSE
WASHINGTON
February 19, 1985
MEMORANDUM FOR DAVID L. CHEW
STAFF SECRETARY
signed by FFF
FROM:
FRED F. FIELDING
COUNSEL TO THE PRESIDENT
SUBJECT:
Memorandum for the President Prepared
by Alfred Kingon Regarding "60 Minutes"
Broadcast on the Kilpatrick Tax Case
You have asked for our views on a proposed memorandum from
Al Kingon to the President concerning United States V.
Kilpatrick, the subject of a recent "60 Minutes" segment. I
recommend that the memorandum be revised to note that the
Justice Department Office of Professional Responsibility
conducted an independent investigation of the allegations in
the judicial opinions. That investigation concluded that
the prosecutors failed to comply fully with certain rules of
criminal procedure, but that the failures did not prejudice
the defendants and did not warrant any disciplinary action.
The President should know that the proper action in response
to allegations of the sort involved here has already been
taken.
Accordingly, I recommend adding the following at the end of
the penultimate paragraph:
The internal watchdog unit of the Department of
Justice, the Office of Professional Responsi-
bility, conducted an independent review of the
allegations made against the Justice Department
prosecutors. The investigation concluded that
the prosecutors failed to comply fully with certain
rules of criminal procedure, but that the failures did
not prejudice the defendants and did not warrant any
disciplinary action.
In light of your staffing responsibilities I should take
this opportunity to alert you to certain restrictions on
communications with the Department of Justice contained in
the Standards of Conduct for members of the White House
Staff. A copy of the pertinent provision is attached. In
view of these restrictions, any inquiries, such as the
instant one, concerning pending Federal cases should be
referred in the first instance to the Counsel's Office.
Similar restrictions apply to contacts by White House staff
members with independent regulatory agencies, investigative
- 2 -
and intelligence departments and agencies, procurement
agencies, and the Department of the Treasury. These re-
strictions are designed to preserve public confidence in the
effective and impartial administration of the laws, and
operate to protect the White House staff from allegations of
undue interference in particular pending matters. If you
feel that some action is necessary to ensure that new
members of the staff are fully cognizant of these restric-
tions published in the Staff Manual, please advise.
FFF:JGR;aea 2/19/85
CC: FFFielding
JGRoberts
Subj
Chron
ID #.
CU
WHITE HOUSE
CORRESPONDENCE TRACKING WORKSHEET
o OUTGOING
H INTERNAL
I - INCOMING
Date Correspondence
Received (YY/MM/DD)
/
/
Name of Correspondent: David L. Chew
MI Mail Report
User Codes: (A)
(B)
(C)
Subject: memo from alpred Kingon re: "60 minutes"
Broadcast an the Kilpatrick Tax case
ROUTE TO:
ACTION
DISPOSITION
Tracking
Type
Completion
Action
Date
of
Date
Office/Agency
(Staff Name)
Code
YY/MM/DD
Response
Code
YY/MM/DD
CUHOLL
ORIGINATOR 85,02,15
/ /
Referral Note:
CUAT 18
R
85/02/15
585/02/19
COB
Referral Note:
/ /
/
/
-
Referral Note:
/ /
/ /
-
Referral Note:
/ /
/
/
-
Referral Note:
ACTION CODES:
DISPOSITION CODES:
A # Appropriate Action
I - Info Copy Only/No Action Necessary
A Answered
C Completed
C Comment/Recommendation
R - R Direct Reply w/Copy
B - Non-Special Referral
S Suspended
D . Draft Response
S For Signature
F - Furnish Fact Sheet
X Interim Reply
to be used as Enclosure
FOR OUTGOING CORRESPONDENCE:
Type of Response = Initials of Signer
Code = "A"
Completion Date = Date of Outgoing
Comments:
Keep this worksheet attached to the original incoming letter.
Send all routing updates to Central Reference (Room 75, OEOB).
Always return completed correspondence record to Central Files.
Refer questions about the correspondence tracking system to Central Reference, ext. 2590.
5/81
Document No.
WHITE HOUSE STAFFING MEMORANDUM
DATE:
2/15/85
ACTION/CONCURRENCE/COMMENT DUE BY:
2/19/85
SUBJECT:
MEMO FROM ALFRED KINGON RE "60 Minutes" BROADCAST ON
THE KILPATRICK TAX CASE
ACTION FYI
ACTION FYI
VICE PRESIDENT
MURPHY
MEESE
OGLESBY
REGAN
ROGERS
DEAVER
SPEAKES
STOCKMAN
SVAHN
CHEW
P
SS
VERSTANDIG
FIELDING
WHITTLESEY
FULLER
KINGON
BUCHANAN
TUTTLE
HICKEY
McFARLANE
McMANUS
REMARKS:
Do you have any problem with the attached being forwarded
to the President?
RESPONSE:
1985 FEB 15 PH 1: 57
David L. Chew
Staff Secretary
Ext. 2702
THE WHITE HOUSE
WASHINGTON
February 15, 1985
MEMORANDUM FOR THE PRESIDENT
FROM:
ALFRED H. KINGON
SUBJECT:
"60 Minutes" Broadcast on the Kilpatrick Tax Case
You had expressed an interest in a recent "60 Minutes" program
which reported on a large tax fraud indictment in the U.S.
District Court in Denver, Colorado. This is a summary of the
issues involved in the case.
The matter involves an investigation of a tax shelter of coal
leases and methanol production which the IRS alleged to be
fraudulent. The Justice Department became involved when the
scale of the alleged fraud became apparent - $122 million. It
is one of the largest tax fraud prosecutions in U.S. history.
The IRS/Justice investigation dates back to 1979 and revealed
that no mining or methanol production was taking place. A 27
count indictment against William Kilpatrick and six others was
returned in September 1982. In December 1982, one of the main
participants in the coal funding scheme, Pettingill, pleaded
guilty and received a three year suspended sentence.
Kilpatrick, the primary defendant, has contested his indictment
on the grounds that three Department of Justice attorneys
committed procedural irregularities during the grand jury
investigation. After being found guilty in May of 1983 for an
obstruction of justice charge, Kilpatrick won a new trial. In
ordering a new trial, the judge openly criticized the three
Justice Department attorneys involved in the case. The
Department of Justice asked the court to keep the district
court judge's opinion from being published. The appeals court
originally agreed with DOJ and then later ruled otherwise.
Both Federal judges who reviewed the case appeared on the
"60 Minutes" program.
The CBS presentation neglected to address the scope of the
allegations against the Kilpatrick and the tax fraud charges.
CBS also neglected to acknowledge the position of the Justice
Department as presented in a statement released in October 1984.
The Justice Department firmly believes that the conclusions of
both judges in the Kilpatrick case are erroneous and their
legal holdings are unsupportable. The Solicitor General is
appealing the matter, and the case is now pending. Both
Treasury and Justice advise that any public discussion of this
matter would be inappropriate.
CC: Donald T. Regan