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United States v. Sutherland

United States Court of Appeals, Fourth Circuit

April 19, 2019

UNITED STATES OF AMERICA, Plaintiff - Appellee,

          Argued: March 20, 2019

          Appeal from the United States District Court for the Western District of North Carolina, at Charlotte. Max O. Cogburn, Jr., District Judge. (3:15-cr-00225-MOC-DCK-1)


          Barry Joel Pollack, ROBBINS, RUSSELL, ENGLERT, ORSECK, UNTEREINER & SAUBER, LLP, Washington, D.C., for Appellant.

          Amy Elizabeth Ray, OFFICE OF THE UNITED STATES ATTORNEY, Asheville, North Carolina, for Appellee.

         ON BRIEF:

          Dawn E. Murphy-Johnson, MILLER & CHEVALIER CHARTERED, Washington, D.C., for Appellant.

          R. Andrew Murray, United States Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Charlotte, North Carolina, for Appellee.

          Before WILKINSON, HARRIS, and QUATTLEBAUM, Circuit Judges.


         Defendant Patrick Sutherland appeals from his convictions for filing three false tax returns and obstructing a grand jury proceeding. Sutherland principally contends that providing fabricated loan documents to a U.S. Attorney's office was too distant from an ongoing grand jury proceeding to meet the nexus requirement set forth in United States v. Aguilar, 515 U.S. 593 (1995), and Marinello v. United States, 138 S.Ct. 1101 (2018). The district court properly instructed the jury on the nexus requirement, however, and the jury's determinations pursuant to that instruction were based on the substantial evidence presented at trial. For the reasons that follow, we affirm.


         This case involves the defendant's attempts to avoid paying taxes, and his subsequent efforts to cover up those crimes. Sutherland owned or operated several insurance businesses that sold products out of the United States and Bermuda. He routed his international transactions though Stewart Technology Services (STS), a Bermuda company. Defendant claims that his sister, Beverly Stewart, owned and controlled STS, but Sutherland actually managed all its day-to-day affairs. Despite allegedly owning a multi-million-dollar business, Stewart worked at the Best Western hotel in Cody, Wyoming for less than $10 an hour. At one point, she was unable to pay a $600 fee without her hotel earnings.

         Between 2007 and 2011, STS sent Sutherland, his wife, or companies that he owned more than $2.1 million in wire transfers. In each of the tax years 2008, 2009, and 2010, STS and Sutherland treated these wire transfers in inconsistent manners that provided Sutherland tax advantages. See J.A. 1252-62 (Government exhibit 12A, which compiles information from 127 wire transfers). To wit, Sutherland treated the vast majority of the wire transfers from STS to his companies as bona fide loans or capital contributions, which ordinarily are not taxable income for their recipient. By contrast, STS treated nearly all of the wire transfers as expenses that had been paid to Sutherland. If the wire transfers were in fact expenses paid to Sutherland, as STS recorded them, then Sutherland and his companies should have reported the wire transfers as taxable income. Far from reporting them as income, however, Sutherland either treated the transfers from STS to him and his wife as bona fide loans or failed to account for them in his general ledger altogether. In the end, Sutherland did not report the $2.1 million as income on his tax returns.

         Sutherland's treatment of the STS transfers mirrored his treatment of other income. Indeed, the defendant seemed to think that marking income as a capital contribution or loan was a foolproof scheme. For example, three Sutherland companies- Insigne Consulting, Insigne, Inc., and XYZ Entertainment-sent almost $42, 000 to Kryotech Holdings, another Sutherland company, between 2007 and 2009. The paying companies recorded each transfer as a non-taxable marketing expense, while Kryotech treated the payments as non-taxable capital contributions. The net result: none of Sutherland's companies would pay taxes on those funds. Similarly, Insigne, Inc., received more than $125, 000 in taxable fees from another firm, Global Financial Synergies, between 2006 and 2010-yet Sutherland described the majority of them as nontaxable capital contributions. Come tax day, despite the millions of dollars flowing through his accounts, Sutherland reported just $88, 979 of income in 2008; $16, 669 in 2009; and $72, 415 in 2010.

         But the scheme was short lived. In April 2012, Sutherland was served with grand jury subpoenas seeking financial records from his companies, including Insigne Consulting, Insigne Financial Services, Insigne, Inc., Kryotech Holdings, and XYZ Entertainment. Just three months later, Sutherland's attorney sent to the U.S. Attorney's office a letter that purported to explain away a large number of transactions relating to the subpoenaed materials. With respect to the wire transfers from STS to Sutherland's companies, the letter said that each transfer was a loan ...

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