In securities fraud prosecution, Second Circuit affirms admission of business planners of a cooperating witness as business records under FRE 803(6) which were kept as part of a regular practice; questions about the trustworthiness of the records went to the weight of the evidence and not admissibility, in United States v. Kaiser, _ F.3d _ (2d Cir. July 1, 2010) (No. 07-2365-CR)
FRE 803(6) allows business records to be admitted as an exception to the rule excluding hearsay. Business records can take a variety of forms. The Second Circuit recently considered whether business planners of a cooperating witness were admissible under the hearsay exception.
In the case, defendant Kaiser was a senior executive at U.S. Food Services (“USF”), a large distributor of food and other products. He was prosecuted for making false representations concerning the financial condition of USF and the company which ultimately acquired USF. The misrepresentations concerned ing income related to “promotional allowances” (“PAs”) which vendors paid to USF after purchasing targets were met. At trial, Redgate testified as a cooperating witness about two companies he owned which became involved with financial transactions with USF in the PA income scheme. For example, an audit indicated that one of Redgate’s companies paid $10.6 million to USF which was treated as PA income but was not. Redgate testified that the defendant provided assurances that his company would not have to pay amounts listed in confirmation letters. Redgate recorded many of these conversation in his business planners which were admitted at trial over defense objection. The business planner records included “contemporaneous handwritten entries related to his two companies,” “contact log pages with preprinted spaces for recording notes pertaining to phone conversations,” including conversations “with [defendant] Kaiser regarding false confirmation letters that Kaiser asked him to send.” Kaiser, _ F.3d at _. In admitting the business records, the trial court noted that “part of his business was to sign these confirmations” which were “records of the conversations he had in connection with that part of his business.” Kaiser, _ F.3d at _. Redgate and another cooperating witness testified that the defendant designed the fraud scheme. The defendant countered that the two cooperating witnesses set him up and he had no knowledge of the fraud. The jury convicted the defendant of five counts, including conspiring to make false filings with the Securities and Exchange Commission (“SEC”), and falsify books and records; committing securities fraud; and making or causing to make false filings to the SEC.
The Second Circuit affirmed the admission of the business planners under the business records hearsay exception.
The Second Circuit dismissed the defense argument that the note-taking of telephone conversations was not a “regular practice” and was selective, sporadic, and designed to provide cover. The circuit noted that there is some arbitrariness as to what is being recorded which was an inherent part of note-taking: “The selectivity that Kaiser points out, however, is the nature of all note-taking. A business record need not be mechanically generated to be part of a “regular practice.” Kaiser, _ F.3d at _. In fact, the circuit resolved that the records were similar to calendar records maintained as part of a regular business practice.
Compare United States v. Ford, 435 F.3d 204, 214-15 (2d Cir. 2006) (affirming admission of “calendar as a business record” based on testimony “that his regular business practice was to keep a calendar in which he documented events of which he had personal knowledge at or near the time they occurred”), with United States v. Ramsey, 785 F.2d 184, 192 (7th Cir. 1986) (“Occasional desk calendars, in which entries may or may not appear at the whim of the writer, do not have the sort of regularity that supports a reliable inference.”).
The Second Circuit also dismissed the defense claim that the record activity involved “the clandestine and ‘unusual’ conversations [Redgate] allegedly recorded are the very definition of irregular business activities.” Kaiser, _ F.3d at _ n.6. The circuit noted the focus of the argument was misplaced: “It is of no consequence that the fraud was not a regular business activity. All that matters is that Redgate’s note-taking was a regular business activity.” Kaiser, _ F.3d at _ n.6.
Finally, the circuit considered the defense contention that the business records lacked trustworthiness, based on discrepancies between the records and trial testimony and the possibility that “Redgate had time and opportunity to alter the planners before turning them over to his attorney.” Kaiser, _ F.3d at _. This issue went to the weight of the evidence and not the admissibility of the records. While the defendant “has succeeded in raising questions about the trustworthiness of the planners, but he has failed to show that the district court abused its discretion in finding that the they were sufficiently trustworthy under Rule 803(6),” particularly since the declarant testified subject to cross-examination “thereby satisfying the central concern of the hearsay rule”. Kaiser, _ F.3d at _ (citation omitted). While the business planners were admissible as business records, the circuit ultimately vacated the conviction and remanded the case for a new trial on other grounds.
The Kaiser case provides another example of the wide variety of records which may qualify as a business record, where the requirements of FRE 803(6) are met. Concerns about discrepancies in the evidence typically affect the weight of the evidence but not the admissibility of the records.