Oral Statements Allowed as Evidence in Nonprofit Fraud Case
The U.S. 6th Circuit Court of Appeals overturned a decision by U.S District Judge Marianne O. Battani this week, effectively allowing oral statements to be used as evidence in a case against a president of a homeless shelter and his controller.
Defendant Jon Rutherford, President and CEO of Metro Emergency Services, Inc., was indicted in 2006 along with his Controller, Judith Bugaiski, on charges of conspiracy, tax evasion, fraud and willful failure to pay taxes.
Rutherford and Bugaiski entered not guilty pleas in response to charges that Rutherford used $750,000 in funds from the nonprofit agency to make illegal political contributions to Michigan Democrats. He also allegedly hired former Detroit Mayor Kwame Kilpatrick’s father, Bernard N. Kilpatrick, and paid him a $100,000 salary as a consultant to his organization. Other charges accuse the two of making false statements to the Internal Revenue Service and hindering its investigation.
A three-member panel of the court was asked to review a decision by Judge Battani concerning the validity of using oral statements made by the defendants as evidence in the proceedings. Battani determined that they could not be used because the Internal Revenue Service investigators were treating the case as a civil matter even after evidence of criminal fraud had surfaced, which violates their standards of operation. The defendants were not advised they were subjects of a criminal investigation, and thus the IRS violated their constitutional rights.
However, the Appeals Court reversed the decision on the grounds that the 5th Amendment is violated only if the agents forced the defendants to speak against their will. The court found there was no evidence proving that statements from Rutherford and Bugaiski were coerced or forced, and that negligent violations by the IRS did not violate the defendants’ constitutional rights.
Defense attorney Steven Fishman states that he is considering asking the full appeals court to review the decision.
Case History
Rutherford and Bugaiski were charged with conspiracy to evade federal income taxes in addition to 19 other counts of tax evasion and failure to pay, according to the U.S. Department of Justice.
The first count alleged that questionable actions occurred between November 1997 and April 2004, including conspiring to defraud the IRS, evading personal income taxes on $2 million of Rutherford’s income, failing to pay taxes withheld from employees, and falsifying tax returns for a related property management firm.
The additional 19 counts concerned violations of specific tax codes in relation to the conspiracy charges, alleging the two defendants attempted to thwart the investigation by providing false documentation. The case states that proceeds received by Metro Emergency Services were used for contributions to Michigan Democrats and Rutherford’s personal gain. Taxes withheld from employees were also kept by Rutherford versus paid to the IRS as required.
The IRS also charged the defendants with providing falsified documents, and using tax-exempt funds for the political fund contributions. Both parties have pled not guilty to the federal charges before them, and are still awaiting trial.
About the Author
Jamie Simpson is a legal researcher and journalist based in Indianapolis, Indiana with more than ten years of legal writing experience. She earned her B.S. in Animal Science from Purdue University, and more recently a Master of Public Affairs-Certificate in Public Management from Indiana University. As a prospective law student and current author, Jamie regularly reports on recent court rulings and legal challenges of public interest through various publications online.