First Circuit Reverses District Court Order Granting New Trial
BY: Jeffrey Hamlin
Appellate courts do not often reverse a trial judge’s decision to grant a new trial, so we took notice when the First Circuit did so in United States v. Carpenter. Given the case history, the First Circuit decision should help to answer an important question: How much leeway do prosecutors have when summarizing evidence in closing arguments?
In 2005, a jury convicted Daniel Carpenter on nineteen counts of wire and mail fraud. The charges pertained to Carpenter’s operation of Benistar, a company that handled “like kind” exchanges for owners of investment property. Under federal law, investors may defer capital gains on the sale of investment property if they exchange it for another property of like kind. In order to qualify, the seller or “exchangor” must complete the exchange within 180 days of the initial sale and must not take possession of sale proceeds in the interim. To meet the requirements, exchangors usually rely on a qualified intermediary to hold the exchange funds until they are reinvested. Benistar’s business as a qualified intermediary gave rise to the charges against Carpenter.
The government alleged that Carpenter obtained investors’ exchange funds by fraud. At trial, the prosecution argued that Carpenter persuaded investors to contract with Benistar by misrepresenting that their funds would be managed conservatively for a modest return of 3 to 6%. According to prosecutors, Carpenter made the representations knowing full well that the money would be used for high-risk trades. The jury apparently agreed, returning a guilty verdict on all counts.
Carpenter requested a new trial, which the trial judge granted due to the government’s repeated use of a gambling metaphor in closing arguments. The court noted that the evidence against Carpenter was sufficient for a conviction, but not overwhelming. The government may have tipped the scales by arguing that Carpenter had gambled with investors’ money hoping to make millions for himself. It was possible the jury convicted based on moral disapproval of gambling rather than evidence of fraud.
In a divided opinion, the First Circuit affirmed, largely deferring to the trial court’s assessment.
The Hartford Courant
By NICHOLAS RONDINONE
SIMSBURY — The chairman of the company that owns a building that will house a medical marijuana facility in Simsbury was recently sentenced in Massachusetts and indicted in Connecticut on wire and mail fraud charges.
Daniel E. Carpenter, 59, of Simsbury, was found guilty of 19 counts of wire and mail fraud in 2008 and was sentenced by U.S. District Court Judge George A. O'Toole late last week to three years in prison, three years' supervised release and was ordered to pay a $100,000.
In a separate case in December, , Carpenter was indicted by a federal grand jury in Hartford on 33 counts of wire fraud, mail fraud and conspiracy to commit mail and wire fraud.
Carpenter is the chairman of Grist Mill Partners, the company that owns the property at 100 Grist Mill Road, which will be the site of one of the state's first medical marijuana facilities.
In the Massachusetts case, the U.S. attorney's office said that Carpenter's company, Benistar Property Exchange Trust Company, was acting as a middleman in tax-deferred real estate exchange transactions that resulted in the loss of more than $9 million.
The Massachusetts' U.S. attorney's office said that Carpenter's company had offered to hold money in accounts with low yields but then invested it in risky stocks. When clients were looking for their money to complete the transactions, the company didn't have it all, the U.S. attorney's office said.
An attorney for Carpenter said he plans to appeal the decision to the U.S. Court of Appeals.
Benistar Troubles Leave Twisted Trail
Simsbury tax attorney sued, indicted over bankrupt business
Ray B. Burton III, The Connecticut Law Tribune
After more than 20 years of building and operating more than a dozen financial planning firms, tax attorney Daniel E. Carpenter, a Simsbury resident, tried his hand trading stock options in the go-go tech boom of the late 1990s.
But when the millennium turned, so did his luck.
Seven clients of his Newton, Mass.-based Benistar Property Exchange Trust Co. were left holding the bag -- to the tune of more than $9 million.
Nearly three years later, Carpenter, whose companies list the city of Bridgeport and the Fairfield School District among its clients, is in heaps of trouble. Since the collapse of Benistar Property, Carpenter has lost a multimillion dollar civil suit in Massachusetts, was indicted by a federal grand jury in Massachusetts on 19 counts of mail and wire fraud, and faces disbarment in Connecticut.
To his attorneys, Carpenter is a victim of the stock market collapse who is being hounded by former clients disgruntled over the investment losses. "At most this is a breach of contract case," said Carpenter's longtime outside counsel, Richard S. Order, of Axinn, Veltrop & Harkrider's Hartford office. "Mr. Carpenter has been devastated by all of this. I'm surprised he hasn't had a heart attack with all the stress."
Those who trusted him with their retirement savings and other funds, however, claim Carpenter converted their money to his personal use, lost it all and is now trying to hide behind attorneys and a web of shadow corporations.
Carpenter started handling so-called "1031" transactions in 1998 after meeting Martin L. Paley of Newton. Paley, who was running his own company, joined with Carpenter and formed Benistar Property Exchange Trust Co.
Named after the section of the tax code that allows it, a 1031 is a way to avoid capital gains taxes when selling one investment property to buy another. To qualify, the original seller cannot have control of the money between the sale and the subsequent purchase. The money must go to a third party, an intermediary, where it remains until the replacement property is bought. The purchase must happen within 180 days.
Benistar Property's mission was to be that intermediary. Clients had two options for their money while in Benistar's care. They could pick a "Merrill Lynch Ready Asset Money Market Account," which returned 3 percent interest and required 72 hours notice for a withdrawal, or they could choose a "Merrill Lynch Investment Account." That account required 30 days notice and returned 6 percent.
Paley, president of Benistar Property, was the front man, bringing in clients and getting them to use Benistar as their intermediary. Carpenter was the company's chairman. He worked in Simsbury and was responsible for investing the money entrusted to the firm.
"From the beginning, the money was going to be worked for the return of their percentage," Order maintained. "All the documents indicated the money would be held and invested at the sole discretion of Benistar."
Tax Court Again Takes Dim View of Benistar Plan
In McGehee Family Clinic the Tax Court ruled that a clinic and shareholder’s investment in an employee benefit plan marketed under the name “Benistar” was a listed transaction substantially similar to the transaction described in Notice 95-34 (1995-1 C.B. 309). This is at least the second case in which the court has ruled against the Benistar welfare benefit plan.
Notice 95-34 was issued in response to trust arrangements sold to companies that were designed to provide deductible benefits such as life insurance, disability and severance pay benefits. The promoters of these arrangements claimed that all employer contributions were tax-deductible when paid, by relying on the 10-or-more-employer exemption from the IRC § 419 limits.
BENISTAR 419 PLAN HELD BY TAX COURT TO BE A "LISTED TRANSACTION"
The United States Tax Court has held that the Benistar 419 Plan & Trust, crafted by Daniel Carpenter, was a plan that offered the same type of tax benefits as those listed in IRS Notice 95-34 (i.e., the deduction of contributions made to the trust arrangement).
In fact, the benefits of the Benistar Plan were touted as "virtually unlimited." Promotional materials described the Benistar Plan as a trust arrangement that claimed to meet the 10-or-more employers-plan exemption under IRC Section 419A(f)(6), offering life insurance. The policies require large contributions relative to the cost of the amount of term insurance that would be required. When the participants in the plan have the right to receive the value reflected in the underlying insurance policies purchased by the plan, despite the fact that the payments of benefits are contingent upon the death of the insured while employed. As long as participants were willing to benefit by Benistar Plan's distribution policies, there was no reason ever to forfeit a policy. This event was viewed to be an unanticipated event. While noting that the plan does not reduce benefits if the assets derived from an employer's contributions are insufficient to fund all of the benefits promised to that employer's employees, the Tax Court found that since the plan does mantain separate accountings of the assets attributable to contributions in an "internal spreadsheet" and permits employers to make larger contributions, contributions are used only for the policy to which it is allocated. Thus, the Tax Court held that the Benistar Plan is a listed transaction, under I.R.C. Section 6707A(c)(2).
The Tax Court further found that because the taxpayer failed to file IRS Form 8886, in years 2005, 2006, or 2007, they were liable for the penalty. The Court held that the IRS is not required to send personalized notices of the potential applicability of the penalty. The year end, December 31, 2004 was after the enactment of I.R.C. Section 6662A, and so this penalty provision is not retroactive, nor was it being applied retroactively in a way that might raise due process concerns.
TWO FACE ADDITIONAL CHARGES IN STOLI SCHEME
WASHINGTON, June 4 -- The U.S. Department of the Treasury's Office of the Special Inspector General for the Troubled Asset Relief Program issued the following news release:
The Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP) today announced that Daniel Carpenter, 60, of Simsbury, Conn., and Wayne Bursey, 63, of Bloomfield, Conn., have been charged in a 57-count superseding indictment with various conspiracy, fraud, and illegal monetary offenses stemming from a scheme to defraud insurance companies into issuing insurance policies on the lives of elderly people for the benefit of the defendants and other investors, also known as a stranger-originated life insurance (STOLI) scheme.
In December 2013, Carpenter and Bursey were charged in a 33-count indictment with conspiracy to commit mail and wire fraud, and multiple wire fraud and mail fraud offenses. The superseding indictment, which was returned by a grand jury in Hartford on May 14, 2014, adds one count of conspiracy to commit money laundering, 10 counts of money laundering, and 13 counts of making illegal monetary transactions.
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CONNECTICUT MAN SENTENCED IN CONNECTION WITH TAX-FREE PROPERTY EXCHANGE BUSINESS
FBI - Boston Edition
U.S. Attorney’s Office
A Connecticut man who victimized exchangors in Massachusetts was sentenced yesterday for his role in a mail and wire fraud scheme involving a tax-free property exchange business.
Daniel E. Carpenter, 59, of Simsbury, Connecticut, was sentenced by U.S. District Court Judge George A. O’Toole to 36 months in prison, three years of supervised release, and a $100,000 fine. In June 2008, Carpenter was convicted of 19 counts of mail and wire fraud following a 13-day jury trial.
Carpenter was charged with mail and wire fraud in connection with his handling of money entrusted to him by clients who engaged in tax-deferred real estate exchange transactions from August to December 2000. Under the relevant federal tax code provision, sellers of investment real estate were permitted to defer capital gains taxes on sale proceeds, provided they purchased a like property within six months and did not take possession of the sale proceeds during the interim. Carpenter owned a company, Benistar, which acted as an intermediary for these exchanges, holding clients’ money pursuant to escrow agreements until they purchased a replacement property. Carpenter, through Benistar, marketed his services as a qualified intermediary using materially false and misleading statements in marketing materials and contracts. The documents omitted critical information about Carpenter’s risky investment strategy, while at the same time emphasizing the importance of the safety and security of the funds and representing that Benistar would “invest” the exchangors’ money in low-yield “escrow” accounts for the exchangors’ benefit at established financial institutions. Carpenter obtained millions of dollars from clients engaged in these property exchanges and, without telling them, used their money to trade in high-risk stock options in an attempt to earn substantial profits for himself and Benistar, even as the exchangers’ earnings were capped at the modest rates of return reflected in the agreements.
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REAL ESTATE TRANSFER TURNED FRAUD BECOMES 3 YEARS IN PRISON FOR CONNECTICUT MAN
When it comes to the transfer of real estate, there are quite a few very specific laws and regulations, and as one Connecticut man recently found out, the punishments for violating those laws can be severe.
According to sources, Daniel E. Carpenter, 59 year old resident of Simsbury, Connecticut, was recently sentenced to 3 years in prison, and then 3 years of supervised release, as well as a $100,000 fine. The sentence, passed down by U.S. District Court Judge George A. O’Toole, punctuated the end of Carpenter’s 6 year ordeal, in which he was convicted of 19 separate counts of mail and wire fraud.
The convictions reportedly came about after authorities figured out that Carpenter had been involved in illegally handling money for clients, and using their money for illegal purposes while the clients believed they were in tax-deferred real estate exchanges from the months of August through December 2000.
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Poor Business Practices May Bring Down “The Corporate Veil”
On April 17, 2007, the Massachusetts Appeals Court issued a decision that should serve to remind clients that, in order to maintain the liability limiting protection of their corporate form, they must abide by the fundamental rules of business governance. In Cahaly v. Benistar Property Exchange Trust Co., Inc., No. 05-P-1717, 2007 WL 1098223 (Mass. App. Ct. Apr. 17, 2007), the Appeals Court ruled that the corporate veil could be pierced enabling the plaintiffs to recover damages from affiliates of defendant corporations.
The Appeals Court’s decision affirmed Superior Court Judge Botsford’s prior ruling from the Superior Court’s Business Litigation Session, in which she held that these affiliates “should not be permitted to escape responsibility through the misuse of the corporate form.” See Cahaly v. Benistar Property Exchange Trust Co., Inc., Nos. 01-0116, 01-0229, 01-0330, 01-0581, 01-3433, 01-4305, 01-0075 (consolidated actions), slip op. at www.socialaw.com (Mass. Super. Sept. 23, 2003). Among the facts supporting Judge Botsford’s conclusion were:
Individual defendant exerted pervasive control over the various corporate defendants, which were owned by him and/or his family members;
Various unexplained inter-company transfers of funds;
Individual defendant treated the various defendant companies as “one group,” with one individual serving as “chairman”; and
Individuals holding director positions were uninformed about company management.
Officials Knew Of Criminal History Of Man Connected To Medical Marijuana Facility
March 13, 2014|By NICHOLAS RONDINONE, email@example.com, The Hartford Courant
SIMSBURY — State and town officials said the criminal history of the former chairman of the company that owns the building that will house a new medical marijuana facility in town did not factor into their decision to approve the facility.
A spokesperson for the company that will operate the facility, Curaleaf LLC, said the company was aware of the legal issues faced by Daniel Carpenter, a Simsbury resident and former chairman of Grist Mill Partners, which owns the building at 100 Grist Mill Road.
A lawyer for Carpenter said he left his role with Grist Mill Partners as of mid-January.
Carpenter was sentenced last month by a federal judge in Massachusetts to three years in prison and three years' supervised release after he was convicted by a jury in 2008 of 19 counts of mail and wire fraud, according to the Massachusetts' U.S. attorney's office. Carpeter, who must also pay a $100,000 fine, was granted a retrial in the case but the conviction was reinstated in November 2013, according to court records.
Carpenter was also indicted in Connecticut earlier this year on 33 counts of mail and wire fraud by the U.S. attorney's office.
"[Curaleaf] knew there was an ongoing case during the negotiations but they didn't know of any prior convictions," Pat Ryan, the spokesman for the company, said in an interview this week. Ryan said that negotiations on the lease were "well underway" by the time Carpenter's conviction was reinstated in November.
Ryan said Carpenter's legal problems weren't an issue because Carpenter will not be directly involved with Curaleaf's facility. "He was never going to have anything to do with Curaleaf," Ryan said.
The commissioner of the state Department of Consumer Protection, which oversees the licensing of medical marijuana production facilities, said that it too was aware of Carpenter's criminal background during the review of Curaleaf's application.
"This was not a surprise to us," said William Rubenstein. "It's an issue that in our view did not affect the integrity of the applicant."
"The landlord has no operation responsibilities, no management responsibilities and no access to the building," Rubenstein said.
State regulations would prevent Carpenter from entering the property unless he gets prior approval from DCP, Rubenstein said.