Before DUFFY, Chief Judge, and HASTINGS and PARKINSON, Circuit Judges.
On April 30, 1957, an eleven count indictment was filed in the United States District Court for the Northern District of Illinois, charging violation of the Internal Revenue laws and of the conspiracy statute. In the first ten counts John Francis Keenan (hereinafter called Frank Keenan) was the sole defendant. He was charged in Counts 1, 2, 3 and 4 with having wilfully attempted to evade and defeat a large part of his personal income taxes for the years 1950, 1951 and 1952. In Counts 5, 6 and 7, he was charged with having wilfully attempted to evade and defeat the taxes of Champlin-Shealy Company, a corporation, during the same period. Counts 8, 9 and 10 are not before us. In Count 11 it was charged that Frank Keenan, his brothers, James and Mark, and his sons, George and Edward, were engaged in a continuing conspiracy from the end of 1944 to the date of the indictment. The Champlin-Shealy Company was named as a co-conspirator but not as a defendant.
In substance, Count 11 charged that there was a fraudulent deduction on the books and tax returns of the ChamplinShealy Company of large sums designated as "Sales Expenses" and "Sales Commissions," the bulk of which - while ostensibly paid to the defendants other than Frank Keenan - constituted unreported taxable income to Frank Keenan; and that Frank Keenan used the other defendants as conduits to channel such income to him. Twenty-one overt acts were listed. During the trial, overt acts 15 through 21 were withdrawn.
The cases were transferred by Judge LaBuy to the Eastern District of Illinois. The trial before Judge Platt and a jury lasted seven weeks. Frank Keenan was found guilty on the first seven substantive counts and on the conspiracy count, but was found not guilty as to Counts 8, 9 and 10. James and Mark Keenan were each found guilty on the conspiracy count, the only count in which they were charged. Edward and George Keenan, the sons of Frank, were found not guilty on the conspiracy count, which was the only count in which they were charged. Frank Keenan was given concurrent two-year sentences on each of the eight counts on which he was convicted, and was likewise fined $7,000.00 on each count. James Keenan and Mark Keenan were each fined $5,000.00 and sentenced to imprisonment for one year and a day.
From the evidence, the jury was entitled to believe the following facts: On December 31, 1944, defendant Frank Keenan acquired, at a cost of $65,106.59, all of the stock of Champlin-Shealy Company which was engaged in the printing business in Chicago. On February 1, 1945, the old corporation was dissolved and a new corporation was formed under the same name. Frank was elected president and Pauline Ross who had been employed by the old corporation for many years, was elected Secretary-Treasurer. Of the 675 outstanding shares, 673 were issued to defendant, one to Ross and one to a third party. On February 27, 1945, defendant resigned as president and transferred his stock in the corporation to James Keenan, who then was elected president. James paid $13,500.00 for twenty percent of the stock, and held the other eighty percent as nominee for Frank Keenan.
From 1934 to 1950, Frank Keenan was an alderman of the City of Chicago. The Government suggests that his resignation as president was prompted by the Illinois statute which forbade municipal officers from doing business directly or indirectly with the city.
Although Frank Keenan claimed that he had nothing to do with the management of the company from 1945 to the end of 1950, there was substantial evidence that Frank was in de facto control of the company. He had his own private office at Champlin-Shealy, and came to the office every week day when he was in Chicago. During this period James was not authorized to sign company checks alone. Frank had the combination to the safe while usually James did not. On several occasions when James learned the combination, and Frank became aware of that fact, the combination was changed. On one occasion in 1948, when James removed some securities from the safe which he put up as collateral for a bank loan, Frank became angry and the safe deposit box of the company at the bank to which Frank, James and Miss Ross had previously had access, was closed out. A new box was opened to which only Frank and Miss Ross had access. In 1947, the shares of the corporate stock held by James as nominee for Frank were transferred to Georgia Keenan, Frank's wife.
In 1950, Frank was elected to the County Board of Tax Appeals and was no longer employed by the City of Chicago. In November, 1950, Frank and James had a violent disagreement resulting in a fist fight. On November 24, 1950, James resigned as president and defendant's son, George, was elected president. James sold his shares of stock in ChamplinShealy for $75,000.00. Three days later George resigned and Frank was elected president.
The Champlin-Shealy Company never declared a dividend after the Keenans acquired control. Commencing in January, 1945, a corporate check was made out each week in the amount of $150.00 payable to cash, and on the corporate books was charged to "Sales Expenses." In July, 1947, the weekly amount was increased to $300.00, and in April, 1950, to $400.00. Each week these checks would be cashed and Miss Ross would place the cash received in an envelope marked "Sales Expenses." Sometimes Frank would pick up the envelope, and at other times James would do so. Throughout 1950 Frank and James frequently bought cashier's checks out of their shares of the "Sales Expense" checks. After Frank bought out James' interest in the corporation late in 1950, the $400.00 weekly checks continued to be issued and cashed. Of the proceeds, $100.00 would be sent to James' bank in the form of a cashier's check, and the other $300.00 would be turned over to defendant in currency. Between 1948 and 1951 several Internal Revenue agents advised Miss Ross that the corporation would have to keep invoices to substantiate deduction of the lump sum "Sales Expense" checks. This never was done.
During the period when the "Sales Expense" checks were being issued, the company also listed on its books expenses incurred for advertising, travel, entertainment, automobile expense, presents for customers, etc. However, these items were substantiated, and were entirely independent of the lump sum weekly checks hereinbefore described. The total amount of unsubstantiated weekly checks issued between 1945 and 1953 and charged to "Sales Expense" was $145,100.00. The practice of cashing these checks continued until April 15, 1954, the day after Frank Keenan was invited in for questioning by Treasury Agents.
Starting in 1946, the company issued numerous checks for "Sales Commissions." Practically all of the proceeds of these checks came into the hands of Frank Keenan - usually by circuitous routes. In 1946, Mark Keenan was credited with $5,200.85 charged to "Sales Commissions." This was approximately three percent of the net gross sales. On March 14, 1947, a company check for $5,200.85 was issued to Mark. It was endorsed by Mark Keenan and Miss Ross and was cashed at the bank. Mark received $200.00. A cashier's check for $5,000.00 was purchased and turned over to Frank Keenan.
In 1947 Mark was credited with "commissions" of $13,394.56 representing four and two thirds percent of the total net sales. Frank's twenty-two year old son, Edward, was placed on the payroll in July, 1947, and did some clerical work for the company. He was credited with $6,697.28 representing two and one third percent of the total 1947 net sales. $3,500.00 of this sum was paid to Edward four days after he was hired. All of this commission was turned over to Frank Keenan.
James Keenan was credited with $20,091.85 of "Sales Commissions" in 1947. This represented seven percent of total net sales. The same pattern of crediting commissions to the account of James (seven percent), Mark (four and two thirds percent) and Edward (two and one third percent), was followed from 1947 until February, 1950. At that time Edward left the company and Frank's other son, George, then twenty-two years old, was placed on the payroll. For the period from March, 1950 to November, 1950, George did only clerical work but was credited with two and one third percent of the total net sales as "Sales Commissions."
On December 1, 1950, the date Frank Keenan was elected president, the corporation authorized a new schedule of commissions under which George would receive six percent of sales, Mark six percent and Frank two percent. These rates remained in force until the end of 1954. During the years 1950 through 1954, George Keenan, although doing only clerical work, was credited with "Sales Commissions" of more than $108,000.00. George turned all of this money over to Frank Keenan.
During the years 1947 through 1954, fifty-nine checks were issued by the company payable to Mark, James, George or Edward which totaled more than $112,000.00. These checks were endorsed by the payee and immediately turned over to Miss Ross to be cashed. The currency was placed in the office safe or in the company's safe deposit box at the bank. The currency was turned over to Frank Keenan as he requested it or was used to purchase cashier's checks for him.
In addition to the fifty-nine double endorsed checks there were forty-five corporate checks charged against the accounts of James, Mark, Edward or George which totaled more than $154,000.00. The proceeds of these checks were used among other things to purchase securities for Frank Keenan; deposited in his personal bank accounts; used to purchase bank drafts which were sent to California and deposited there to the credit of the Oaks Hotel (owned by Frank Keenan); deposited directly in a California bank in the ...