20090813b Exhibits To Motion For Discovery

u.s.
Department of Justice
U.S.
Federal Bureau of Investigation
450 Golden Gate Avenue

In Reply, Please ReIer to
t.o San Francisco, CA 94102
FIle No February B, 1991
yt Ji4IJ1ff~1'Ji} ''''''! IJI.'.se""~

Ji$-~rtL! ,( '''Ildl liI.'6enhtJ/
,If
II nYlDIIIYt{J
nYlDN"" 1/~1fI '1thT7/1'JUM/
1/~N m""o
'1 th11/1'!uM/ ')7l'N/U
Mr. william T. Mc Givern
united states Attorney "'~I
Vi,,1 /til
IVI III/~ .j.,oJ
II/If} flo,) 1'1
htloJ dtJ ~a.lP~1Idt
hr/ol ~~""illt1t •.
Northern District of California
P.O. Box 36055
San Francisco, California 94102
Attn: Mr. Michael Yamaguchi
u.s. Attorney
Assistant U.S.
Re: Chip Armstrong, dba
Hamilton Taft and
Company
company
~'Plaza,
#1 Market "Plaza,
r'
Spear s~et Tower
San Frqncisco,
Fr~cisco, Ca 94105
Possi~e Fraud by Wire,
Possi91e Wirer
Tax raud
00: San Francisco
Dear Mr. Mc
Me Givern:
Our office is submitting
SUbmitting the following information to
you for a prosecutive opinion as to 'whether a violation of
Federal Law has taken place.
The San Francisco Division first became cognizant of
the existence of Hamilton Taft and Company in August of 1988 when
Il ~as interviewed at our office. I I was
the co-founder of Hamilton Taft and the other founder was one, .-
I I who founded the company in ,1979.
1979 • For your
information,
information r Hamilton Taft is a service company which provides. a
b7C tax paying service on behalf of their clients. Hamilton Taft and
Company collects money from their ~us clients and in turn
state~ and local income
pays their clients various feder~, staee~
1 - Addressee 'nl\\
'nn,O0 ""\
'""\ II· fJt.
fJt, - -~r~
-~I~ 1
1 - 196A-2B6B
196A-2868
PKM/sgc
ru
~ I \ , 1/
'1/ 'V
\
(2) i\
Enclosures
b7C
o
D - PageCJ?5c,~
~! 9(;ff-
Exhibits to Motion for Discovery
--, 9"fj- d15t.:~
1
/ q / .L1 - ~::_
./q/LI- q '?:J c-< -:- I""
rJ':: - q,?..Jc,-:" I 11
taxes. Unemployment taxes and other various tax liabilities are
also paid by Hamilton Taft. When a company becomes a client of
Hamilton Taft, it notifies Hamilton of the companies payroll
dates, pertinent payroll information, the state in which the
company is required to pay taxes and the type of taxes which need
to be paid and on what dates. Hamilton collects monies from
these various clients and in turn pays the clients tax obligation
whether they be local, county, state and/or federal income taxes,
unemployment taxes and/or other tax liabilities.
b7C I I advised that when a client company enrolls
with Hamilton Taft, the company notifies Hamilton of its payroll
dates, pertinent payroll information the state in which the
company is required to pay taxes and the type of taxes which need
to be paid. The company then remits to Hamilton Taft on a timely
basis its payroll tax liability. The client company will also
remit funds to Hamilton Taft which would be used to pay the
aforernentionedtax liabilities. Historically the funds were
either wired to a Hamilton Taft Impound Account each time a
payroll is paid by the company or Hamilton Taft gains access to
the companies account by a depository transfer check.
Hamilton Taft was also responsible for filing all
applicable federal, state, county and local tax filing
information on behalf of its client and pay their various taxes
as they become due for the service Hamilton Taft charges its
clients a fee based on the number of times a client renders a
payroll and the number of areas taxing agencies which have to be
ultimately paid. Hamilton Taft also receives the interest in
which it can generate on the funds its clients deposit with it.
All this information is revealed to the client prior to a
contract being entered into by the client and Hamilton Taft.
This is also done orally by Hamilton Taft's sales
representatives.
As Hamilton Taft grew, the company became concerned
with what its liability may be with the funds they were
collecting on behalf of their clients. Because of this internal
concern in 1981, the firm contacted Baker and McKenzie Attorney's
at Law, 555 California street, San Francisco, California, 94104
and requested that this firm provide Hamilton with an opinion of
the characterization of the funds it was holding on behalf of its
clients for tax payments.
On October 29, 1981, Baker and McKenzie issued an
opinion that basically stated that at the time a payroll is
rendered, that is paid by the employer, the funds representing
the withheld taxes belong to the federal government. The
employer becomes a trustee for those funds and as such the duties
and responsibilities of a trustee are mandated under common law.
Exhibits to Motion for Discovery - Page 2

In addition various state and federal law mandates how a trustee
needs to act in his capacity as a trustee.
~
\;. ..:::
Although Hamilton Taft is not the employer but an ...::
'.".
'" rr
"'. ;.- :3
~ ::l
independent agent, it was the opinion of Baker and McKenzie that ~
-.F-...J:·.. .
~.F"'-l;;'--
the funds are still trust funds and the holder of these funds ()L 0t~~
() I~~~ ~
s~
(Hamilton Taft) still bears the responsibility of a trustee. ~

~\. - "'~~
~c.. ~~ -~~
~~
~~ 'l;.
S::'~ ~
)C':;'
When interviewed by the Federal Bureau of Investigation ~~ ~
::" 1988, II
(FBI) in August of 1.988, I went so far as to state ~~':::-
stat,e that some <:i::i:::-
"':. individuals representing clients have stated that the collected j.~;.;.~
"t:~,;~.'-.""'~~"~
,: account separate from other funds .,...
funds need to be put in a bank a'ccount ~ ."~ ,~
~ ';:"
:-\.
~;:
of that particular entity. addition~ during his tenure at
In addition, L~:::: :i;.~ lJ
"'~~,:~ Hamilton
Hamil ton Taft, Hamilton "'-t..it ~i
Hamil ton ,Taft considered themselves to be trustees '-..I...Q·?,i
-'. , for those funds on behalf of the various .
taxing
,
agencies. :L:"t>:;;
{[~'t:c;
~ "~ i.'
~~~
Byway
By way of background information, I
stated that in I ~\ ~
August of 1984, Hamilton Taft was sold to the Cigna.Corporation ~~
the large insurance conglomerate out of philadelphia,
Philadelphia, "~
~
Pennsylvania and Hartford, Connecticut. At that time, Hamilton
Taft had approximately 900 corporate clients and was -handling
handling on
,..r'
'"a daily basis, approximately $100,000,000 in client deposits.
"a
According to a personality conflict developed
b7C between himself and one formally Executive Vice
President of cigna Corporat~on w
W 0 was placed by that corporation
as the person in charge of Hamilton Taft's operation. Because of
be~enlI
tbe persynality differences between
the and I
Ilandl lonel
lone I I
I----- was appointed as President of Hamilton Taft.
Jwas
Hamilton Taft in the latter half~\

Shortly after leaving ,Hamilton
19~5,1I
of 1985, th. at Hamilton Taft started
Istated he became aware that
,1stated stc;rted I1
approx1mately $100,000 per month. He noted that while
to lose approximately whlle he ('(.
was President of Hamilton Taft, that the company although not
highly profitable, was able to stay in a slight profit position.
He understands that Hamilton Taft hired another President but'the
lose, money in C.igna and soon thereafter
company continued to lose
began to look for a buyer for Hamilton·Taft.
Hamilton "Taft. In December of
1987, Maxphrama Incorporated of Dallas, Texas paid $500,000 to
Cigna Corporation as a down payment for the purchase of Hamilton
Taft. On February 29, 1988, Maxphrama Incorporated completed 'its
purchase of Hamilton Taft from Cigna Corporation. / .'
I____~'also onel
~also stated to onel I former Executive
Vice President in charge of operations for Hamilton Taft provided
foregoing information. r--1allegedly toldl
him with the foreqoin: Ion
Ion
February 27,1.988 that~
27,1988 thatC I ~iml I! transfer
$5,000,000 by wire transfer to a brokerage house in New brl~ans,
Louisiana called the Howard Wiel Labluisse Friedricke Investment
Al1eqediy~toldl
Security Incorporated. Allegediy~toldl I that this wire
td'"purchase
transfer was to' B111 at 5 1/2% interest. r I
purchase a Treasury Blll
allegedly asked I I Treasury'Bi~
Iwhy she was purchasing a Treasury" Birr--
3
fLit, Ii fJk t dlnJ 0fd /;(JJ H~IIe-tkFtW,
has /&../-l,,{/
(J W ¥
nJ I ,,~t% IS IIJIJ c.J
Exhibits d."pbdJ....
to Motion .ft;~ //JO!; - Page
for Discovery
? /w !d,/.,[ !
3
aJtfo/f
J
;t:;';
I
til /~, IhJ r:.p j/ /J~
with such a short yield period, I I would not respond to
May's c::::::J told!
Mayl s question and just told him to do it. c:::Jtold! II that
exclusive~stomer funds which were put on
the $5,000,000 was exc1usive~stomer
deposit with Hamilton Taft. ~told'
~toldl ~that
Ithat at the time the
transfer was made, Hamilton Taft did not have any funds of its
own.
__I noted that the form 8-K
u
~
~_...II a-K report which,.
which. was filed in -'-'.
-"',
the Securities Exchange Commission (SEC) by Maxphrama far for the \
purchase of Hamilton Taft, Maxphrama states it has used a \
$5,000,000 Treasury Bill to secure a promissory note which funds i
were used to conclude the ~urchase of Hamilton
Hamilton' Taft from Cigna ~'
Corporation. According total1 Itold him that these funds ~;
had been transferred to th~s brokerage firm from customer funds ~
in the custody of Hamilton Taft. According to L' .
toL' I~ also f ;~~"
that 1-; .
advised thatl J
Ihad directed him to wire transfer $50,000

; - i ,~):..:
in an unrelated transaction. ! ,~
In order to assist you in preventing your opinion from

a historical point of view~ Yle are enclosing a copy of the actual r ~I~
view;~e
FD-302 noting interview Of,
of,
fs
- ,
I with appropriate copies of -J /~'~
/~;-1:\'1\
.
7 ~l,f,.
hJ--l:--\"'"
[~
b7C documents provided byl

by' to our agent. -,,/'r (>,
--/-t (:!l.
G'-'
.,~
~
!,
Il was also interviewed in December of ~ ~

1988. l---===~Ih~a~d~b~e~e~n~h~ired
I~--:===~Ih~a~d~b~e~e~n~hiiredby Hamilton Taft as Treasurer- ~J
Manager of the firm. I I is a Certified Public Accountant f~
I
(CPA) having become a CPA in the state of ta~;f:rnia ~.:
Ibasically stated that shortly after
ta:if:rnia :': t986.
became
~
\<
President of Hamilton Taft, she told him t a sewall s e weu e making
the day to day investment decisions regarding the funds of
Hamilton Taft. She instructed him not to make any investment
unless she okayed them. He explained to her that any monies b7C
collected from the clients only had a two or three day "window" "windowll
which they could be invested prior to having to be paid to
during Which
I
taxing entities. Thereafter, all investments he made, other than
into commercial paper, were done at the direction ~
I~ In connection with his responsibilitiesC:
:D
L
~would
.Jwould
assist in the preparation of the monthly financial statements for
Hamilton Taft. Each month a meeting would be held to discuss a
just completed financial statement for the previous month. At
the close of such a meeting in April, 1988, after the close of
statements, I
the April financial statements,l lstated that he had a
conversation with in her office. During this
conversation was bragging on the financial strength of
Maxphrama an ow axphrama was in the process of purchasing C &
H Nationwide Incorporated, a specialized trucking company.
Apparently, in order to sUbstanti~te herr her, statements and the
strength of Maxphrama, she showedL _ the Hamilton financial
statement which listed Hamilton Taft's assets in excess of
30,000,000. r I
financial picture was quite different than
the financial statements which he had prepared for Hamilton from
the month of
the month of April,
April, 1988.
1988. J3i{))~. x ~~'lJJ~~ l~.~'~~~~'~;} -{t7,:,:
~~t:;~;:~.t~:~;:,~~·~·~~~1; -
, :~: ~~'J~t::1JDL~~~ ~/~:.~~,
~~s;C:;'°L~C; '1';:.~~.
~r::'~:,:~~~
"'t.'.:' """... 4 i,"'" t"'"''
~f ''''U' k'" '.' I
(~~: li/;J~'~'

to~
~
pparent tol lin looking at the financial
statement showed him that someone had taken the April,
1988 financ~a statements of Hamilton and re-did them. The
financial statement prepared for Hamilton Taft showed its
reta)U:d earnt'ngs at approximately $200,000. I,
.... '1-,
J • ~
reta)u:d Istated he
toldL _ . during this conversation that he thought the
financ~al statements which she had showed him for Hamilton Taft
rl:prese:ta~ive of Hamilton Taft's
were a fabrication and not rFpresenta~ive
actual financial condition. L _ ~ Jreplied that the people in
Dallas were taking care of these f~nancial statements.
~~~_rnoted
~~~~rnoted that the above incident concerning what he
considered false and misleading financial statements was a major
factor in his ultimate decision to sever his employment with
Hamilton Taft. A copy of the interview form FD-302 the interview
oil
ofl I is incorporated as part of this communication.
onel
It should also be noted that onel I was
september of 1988 regarding his former employment
interviewed in September
with Hamilton Taft. At the time of this interview,c::J stated
that he was self-employed as a consultant specializ~ng in
employment taxes. He stated that prior to being self-employed,
he was employed for five years with Hamilton Taft in San
Francisco as their Chief Operations Officer and Executive Vice
President. A copy of the interview conducted withc::J is
attached hereto.
united
This matter was informally presented to the United
States which concluded that there was a lack of ((.
states Attorney's office whioh
evidence to support the violation of any federal law at that
time. Our case was subsequently closed. Itt
/.1'1I jj • OL..... !'.'I /$. ' .'.~...-,.•.'".-,..
J.'j(J ; : .'. ".
~/Dd tl~/ iJJ~~
?1'D(j~~, w(J~ rJUV--i·_"'''' _.fJ. M:.,.....
rJ~ . ..,..,,~.fJ _~,~M:.,
On December 24, 1990 ,7 -the o~fiqe receiyetf

-the. office ~complaint SA)
receiy..etf :..~j:A.
S/,.; }';:A,
Icall from one I ~L .Cont.r~~ler "and CPA. I

~Lcont.rf:)llerand I
I( stated that he was the current Controller of Hamilton Taft and
that he was calling the FBI because he felt that his employer was} was). . }11 <
cheating the Internal Revenue Service -(IRS) - (IRS) by not paying ta~es t'1~I:'~(--/1'li'~ 1"1I-J; I,ll
,'iiI
owing to not only the I~S but other taxing entities wh wh~n n th~Y
th y
7J.n c11ent
7 ;~~
J t&~~
1.
wer,e due. I - ~advlsed that at least $20,000,000 1n
ladv1sed cl~ent (l/I' --~:'t
rJIJ ' ! ~~:,t
funds have been transferred to accounts controlled by Chip ~B~ ..
':ljl,jj
Armstrong, the new CEO of Hamilton Taft. I I stated that
~) the;e
tbe:e f"rdS
turdS were used to purchase one or more companies in Tex~s. Texi?-s.
I _~ stated that Hamilton Taft had approximatel: 100
emp oyees in San Francisco in July of 1990. I t advised
.,
Armstrong is basically operating a Ponzi scheme, ut~lizing the

tens of millions of dollars which are sent to Hamilton Taft for
the ultimate payment of tax liabilities sustained by Hamilton
Taft I s clients. I
Taft's I~ has documentation, to support his claims r~~ t; ~r\ ~
~r\';;;
and is scheduled to present same to t~e FBI 7"~t:"S~'" <;;
Jar:uary 13" ~991 =~t;;..~~
rBI on Jar;uary ~
at 10: 00 am. I
at, I furth 7r stated that th 7re 15 ~s an ongolng
ongo~ng , ;:;i.; ~:-% ~~% ~:s.:
prov1d~ng lul1J.ng
procedure for prov1d1ng c11ents who actually ~
lul11ng letters to cll.ents ~~~< ,_ ~::-< ~
comPlain to Hamilton Taft when they, the client, receive a late ~ t~·~
complain z.~.~ ~, ~
\ '.~, "-""
b: 'IV~'"
"" ;= 'f\.~ ~ r, '.:: ....
~"\', ~
~ s.;- 'R ~
s;.-~.,--::
5 f.":'"~' \
~~
~'" '~~'.~ ~':,~~
t- ." ..
5 it.; .:'~ :--'0,
~~'~'"":
~ \.)~~ . :
;;.,,~
~,~ ~
~ l"""".~,,,
~""'(";,:""1 ...
~'-r-
~ ..t"- 1l .::
.;::"....
......

,, .... . . t..~
t;,.i \/• 'tt"~
~t··
~~
~~''.
~:~".
~~~~.
'"'-:
b7e
I
notice from the IRS. , I~ states that a letter on Hamilton
Taft stationery is generated to the IRS berating the IRS for
having made an error in showing at least the front copy of a
check drawn on Hamilton Taft/s
Taft's checking account allegedly
demonstrating that payment was actually made on a particular date
liability_ These checks were never sent to
for a particular tax liability.
the IRS but a copy of the letter was sent to the client, thereby
stalling the clients further inquiries.
Please contact us at your earliest convenience so that
we might discuss this matter in greater detail.
Sincerely
sincerely yours,
RICHARD W. HELD
Special
special Agent in Charge
By:
I (J!.P /f!6
Superv~sory
I b7C
Special Agent
6*

(12J31JI99~)
(l2/311199S)
FEDERAL BUREAU OF INVESTIGATION
Precedence: PRIORITY Date: 02/10/1997
To: San, FranC1SCO

San FranClSCO Attn: SA Will Hatcher
From: Sacramento
Contact: IAII
IA ~
Approved By:
Drafted By: _________1epg

Dra.fted I
i:
Case ID #: 196D-SF-93255 (Pend~ng)
Title: CONNIE CHIP ARMSTRONG, JR.;

I I
I Formerly dba
HAMILTON-TAFT COMPANY
FBW (D)
(D);i MF; ITSP
00: SF
Cop~es of FD-302s and inserts enclosed from Sacramento

Synopsis: Caples
synopsis:
flle
ille 196B-1364.
Reference: 196D-SF-93255 Serial 124
Enclosures: FD-302 of Ion 2/19/86

"FD-302 of Ion 3/12/86
FD-302 of Ion 5 /23/86
FD-302 of Ion 6/19/8 6
Insert at:. ~uoene. Oreoon
a-c Euaene reaon from 5/1 4 - 6/18/86
FD-302 of Ion 6/2 5/86
FD-302 of Ion 8/7/86
FD-302 of Ion 9/17/86
FD-302 of 3/3l!8 7
Ion 3131/8
FD-302 of Ion 3 /25/87
FD-302 of Ion 4/7/8 7
Details: A review of closed Sacramento flle

ille 196B-1364 revealed
the above enclosed FD-302s and inserts .
••
!~.::::;:::;;;;;.::~::.~

U.S. Departmen, ..If Justice
Departmen • ..Jf
Federal Bureau vesngatlOn

of In veStlgatlOn
In Reply, Ple:lBe
PleaBe Reier to 450 Golden Gate Avenue
File
Ftle No San Francisco, California 94102
September 23, 1988
~x. Joseph P. Russoniello

Russonie11o
states Attorney
united States
Northern District of california
Box 36055
San Francisco, California 94102
Attention: Mr. Floy Dawson
u.s.
Assistant U. S. Attorney
Re: Il...-.
Re: I~====-"""":,:,,,,
~ _
....,j
PRESIDENT, dba
HAMILTON TAFT AND COMPANY,
SAN FRANCISCO,
FRANCISCO 1 CALIFORNIA ;
UNKNOWN SUBJECTS, dba
MAX PHARMA, INCORPORATED,
200 CRESCENT COURT, SUITE 1375,
D~.E
D~.s TEXAS;
POSSIBLE WIRE FRAUD
Dear Mr. Russoniello: I
Referenced conference between Assistant u.s.

U.S. Attorney
(AUSA) Michael Yamaguch~ andSpecial Agent (SA) IJ I
on September 14, 1988.
This letter is to confirm the above referenced
conference in which SAl I delineated the details of the
allegation and the resuI~s OI
or his investigation to date regarding
matter. AUSA Mike Yamaguchi indicated based on what
captioned matter I
was presented to him as well as his examination of documentation

pertinent to the captioned matter, there was insufficient
1 - Addressee
~1 - San
,1 Franc~sco ((196A-2868)
ItES/bfo
'R'ES Ibfo
(2)
.
I ,
Exhibits to Motion for Discovery - Page 8{J.-
{\
{J.•
Mr. Joseph P. RU5soniello
evidence to support a violation of federal law at this time and

he would therefore decline prosecution. AUSA Yamaguchi added if
further information could be obtained regarding the allegations
presented, he would reconsider his opinion.
Based on AUSA Yamaguchi's declination, our office will
close its investigation into the captioned matter.
Very truly yours,
RICHARD W. HELD
Special Agent in Charge
b7C
By: I
Superv~sory Spec2al Agent
I
2*

(R~v 11-15-83)
fD-302a (R.:v
lD-302a
196A-SF-93255
b7C
or
~onlmuahon of FD-302 of
:onllnuallon ~I- - - -
--11.... .....,j
......1...- •• 0
On 2/8/93
_-----=.-----.;____
n_------'----''--
2/ B/ 9 3 ,J Page
p age _ 2 __
She said that it was apparent to her within the first

twenty-four hours while reviewing Hamilton Taft financial records
that Hamilton Taft was in a cash flow crisis. She said it was
then her job to look at investments and/or loans to determine the
income~
likelihood of these assets generating any income. She was to
insure that any future capital outflow was ureal investments
investments".
lf
•
She found out that almost immediately after Maxpharma

purchased Hamilton Taft from cigna corporation that Hamilton Taft
client funds were wire transferred out of Hamilton Taft. These
funds were in the form of notes and were booked at Hamilton Taft
as investments. But she saw no evidence of an attempt to collect
on these notes by Hamilton Taft. She said that some of the
transactions were incredibly complicated.
She said that she had frequent meetings concerning

these notes with Hamilton Taft officers. She discovered that
I I (PHO)
(PHD),, Chief
chief Financial Officer,
Officer,l II
~ (PHD), I 1
~
PHO), Director of Operations, President
lPresictent
~~~--~~~~(PHO), I(PHO), Comptroller, were the only Hamilton Taft
off~cers that
a knew about the loans by Hamilton Taft which Were
outstanding and uncollected.
She further explained that she recalls ten to fourteen
million dollars in loans had left Hamilton Taft with no payments
returning to Hamilton Taft. She discussed these loans with
II Ibut with
Ibut not withl I I,
All of these loans were
"brokered lllJ through the Maxpharma office in Dallas, Texas. She
discovered that Maxpharma officers would telephoner 1 at
Ma~pharma in
Hamilton Taft and instruct her to wire money to Ma~pharman
1
a9 d then a,~er the fact.Maxpharma would then send the
Dallas a9d
b7C notes toL JlnSan FranC1SCO.
She felt that the officers at Hamilton Taft were
protective ofl of~ I oftenl IWQul~ accuse
I IOf raiding the funds of Hamilton Taft.1
10f jwas not
)was
very helpful in her audit. She felt that this was because he was
the person who actually wire transferred the funds from Hamilton
allas.
alIas. She understood the process being that (FNU)
of Maxpharma in Dallas would
o transfer un s an
r---. . . . . .~o=-~wire the monies. I
r--"'--~o::-"~wire
c:::
Iwould then instruct
~ (PHD), a director, often
~(PHO),
got irate at her inquiries regarding Hamilton Taft loans. A day
or two after she started working at Hamilton Taft she discovered

FD-302u (Re.v 11-15-83)
196A-SP-93255
ContinuatIOn of FD-302 of
ContinuatIOn _.....=~~~~~~!!!!!!!l!II • On _ _2-:,./_
2-:,./_8....:;/_9_3
8....:;/_9_ 3 • PAgo _ _3_ _
a "funny" transaction where two to three million dollars of

Hamilton Taft funds was wired to Dallas, Texas. She understood
thatl ~were working on some deal to raise funds.
She was told that these funds were supposedly to be used to
"recapi talize" Hamilton Taft. I linstructed her that the
details of the transaction was none of her business l but she
believes that the funds went to either Amerimac Company in
California or to Gulftex, a real estate business in Texas.
I ~said that from her examination of Hamilton

Taft financ1ai records she discovered that all the funds sent out
J7C for these loans had to be dedicated Hamilton Taft client funds.
She said that' lhad to know that
Hamilton Taft client funds were being used to finance these
investments. She understood thatl lactually assisted in
the creation of the notes to Hamilton Taft. One of these loans
in 1988 in the amount of approximately $200,000.00 was to a
CONNIE CHIP ARMSTRONG, JR. business in Dallas, Texas by the name
of Dresdner Corporation (PHD).
She said thatl 1 (PHO) I Sales Manager, and

1~------------l(PHO), Vice Presldent of dperations, at Hamilton
Taft were both
concerned and upset at the news of the loans.
These loans violated Hamilton Taft's written cash management
policy which stated that Hamilton Taft can onJY invest client
funds in safe overnight type of investments. I said that I
she recalls that most of the notes for the 1988 loans were for a
90 or 180 day period. She stated that in or around March 1989
I Iwas fired byl resigned. I
She said that Arthur Anderson C.P.A. firm withdrew from
the Hamilton Taft audit a couple of days after they gave Hamilton
Taft their appointment letter. At that point she said that
management at Hamilton Taft felt that Hamilton Taft did not have
enough interest money to pay Arthur Anderson. Therefore,
Hamilton Taft did not receive any audited financial statements to
give the increasingly concerned Hamilton Taft clients. EDS one
of Hamilton Taft's largest clients was requesting audited
financial statements.
I 'said that she started taking legal action on

the debtors at the notes to Hamilton Taft. She was taking
aggressive collection acti~she felt that she could have
collected on the Amerimac'L----Jandl rates if not for

FD-30la (Rev 11-15-83)
196A-SF-93255
Conunuullon of FD-302 of _~~~!!!!!!!!!!!~ ,---- , 2-.;.1_8.....;1_9_ 3

On _ _2-.;./_8.....;/_9_3 • Pngc: _4_
the ARMSTRONG takeover of Hamilton Taft in March of 1989. She

said that the I ~ and Amerimac notes totaled approximately $6
million dollars. She personally told ARMSTRONG at the Petit and
Martin law offices about the notes outstanding and her collection
efforts at Hamilton Taft. She told him that he should be able to
collect on some of these loans. She said that he did not seem
interested.
She said that in March of 19891 I concluded that

he was not able to recapitalize Hamilton Taft and that Hamilton
Taft would have to file for Chapter Seven bankruptcy protection
b7C so he conceded Hamilton Taft to ARMSTRONG She recalls a $20
4
million dollar figure being used at Hamilton Taft around the time
ARMSTRONG took control of Hamilton Taft. She said that the $20
million dollars represented the negative capital and the negative
cash flow at Hamilton Taft. She said that she felt at that time
that this much capital would be necessary to keep Hamilton Taft a
viable company. The financial condition of Hamilton Taft was
constantly being communicated to ARMSTRONG and his attorneys
during the legal actions. I 'said that she sat through
all of the depositions during ARMSTRONG's legal action to gain
control of Hamilton Taft.
She said that she understood that ARMSTRONG's plan for

Hamilton Taft was to recapitalize Hamilton Taft by investing $20
million dollars, rehirel Ito satisfy Wells Fargo Bank and
expand Hamilton Taft's customer base to infuse more revenue into
Hamilton Taft.

r:'::;AN~(;:=·=-. ,:,:... ... ::=~ . . .:. 9":",·:":'
"'H: .... C
:- ~ o :..&. = ..... .. :.
~
"1I: ruPt'
'- ':-"'C,-.
:,c .. ( ,,·
"O .. G .. o~c.
.. ::.l:e .... l'r.,;·
• .: .... =CN
-·""'· ... G";a ... a.!: .
.... 0 · ' 0
:'..I~·c-
........... ~.;.(' ::r: .. - -':':_~'U: .
Octc=er 19, 1981
Mr. :·iarc Paiva

~amilton Taft & COffi?any
1255 Post Street
San Francisco, CA 94109
Re: Charac:erization of Funds ~ichheld by Employer

'E'or Tax Payments
Dear Marc:
Per your request, this letter Q1SCUSSes the characteri-

zation of funds withheld by employers from employee pay
checks in satisfaction of federal and sta~e income taxes,
Social Security taxes, and state ~nemployment insurance '.
taxes. This letter is limited to a discussion of the In-
ternal Revenue Code ("I.R.C."), t~e California Revenue and
Taxation Code ("Cal. Rev. & Tax. Code"), ;:he California
Unemployment Insurance Code ("Cal. U. Com. Code"), and the
general responsibilities and duties of a trustee as reflected
in the California Civil Code ("Cal. Civ. Code").
An employer is required to withhold from the wages of

employees amounts in respect of federal income taxes (I.R.C.
§ 3402], Social Security taxes [I.R.C. § 3102], state income
taxes [Cal. U. Corn. Code § 13020], and state unemployment
insurance "taxes [Cal. U. Com. Code § 986]. The employer is
liable for the deduction and witr.holding of taxes. I.R.C. 5
3403: Cal. U. Corn. Code § 13021.
Characterization of Withheld Funds
Funds that are withheld or collected as income tax or

Social Security Tax are to be held by the employer as " a
special f:..1nd in trust for the United States." LR.C. § 750l.
u.s ..... Hill, 368 F.2d 617,66-2 ::.S.T.C. ~[9736 at 87382 (5th

:-: :'. :.: 3r c ? ..= ': j. .J
, 'C ::.:)0-2r :::?, ~ ~ ; ~
?-".:ls:e :'·... 0
2i.~., 1966~. ="...!~ds Lhat are .....'l.-:::~eld cr :::: __ ~cr:ed as s~ate

inco~e c~x 3re ~o be held by ~~e employer aE "3 special fund
in tr'Jsc for the S't'ate ot Cali=ornia rCcl. -,:. Com .. Cocie §
ll
13070]; '..."hile :~nds withheld 2.5 unemcl~vmen~ :'nsurance tax

.:i r e t 0 be \.; i t h he 1 d "i n t r L1 st.
IICal . - U • - Ca ~ . :: 0 d e § 9 8 6 • The
duty to keep Withheld taxes as a trust arises as the taxes
are withheld from wages regardless of the or~scribed dace for
~ayment to the government and does not termi~ate until the
taxes are paid over. ';stleforc ' I . U.S., 75-1 U.S .T.C. I! 9464
,;stleforc
( D. ~1 i nn. 1975).
During the ?eriod the funds are held i~ trust, the person
holding the f~ndsassumes, with a few except~ons discussed
~elow, the duties and resDonsibilities of a ~rustee as such
duties and responsibiliti~s are mandated under common law.
~arsh v. Home Federal Savinas & Loan Assn, 66 Cal. App. 3d
674, 136 Cal. Rptr. 180 (4th D.C.A. 1977). In general, a
trustee is a fiduciary and is bound to act in the highest
good faith toward his beneficiary, must make full disclosure
of material facts, must not acquire any adverse interest, and
must not use his position to gain any advantage over the
beneficiary or to make any special ~rofit. Cal. Civ. Code §§
2228-2233. A trustee normally should not ~ingle trust
property with his own, but if he do.es willfully mingle the
trust funds with property of his own, he is absolutely liable
for their safety and for the value of thei~ use. Cal. Civ.
Code §§ 2236.
A trustee has a general duty to invest funds for the

benefit of the beneficiaries, but he must account over to the
beneficiaries any interest earned. Cal. eiv. Code § 2262.
In investing, reinvesting, or otherwise managing trust property,
a trustee must exercise the judgment and care which people of
prudence, discretion, and intelligence exercise in the management
of their own affairs. Cal. eiv. Code § 2261. California law
provides a-fairly liberal description of the type of investment
a prudent person would make, including every kind of property,
real, personal, or mixed, and every kind of investment which
a prudent person might enter into. Id.
Notwithstandin~ the foregoing, the parties to the trust

may alter or waive any of the standard pro~isions and duties.
Rest. 2d, Trusts § 216. It is possible for the parties to a
trust arrangement to authorize commingling of funds, to authorize
the trustee to retain any income from
rrom the trust assets, and

.' : r. ~·1 arc r' 2 V i..J
>: tobe r .2 9, : 9S1
?age Three
:0 consent ~o various ki~ds of investmen~s. The ~ase G[

:·;acsh
:·:acsh Va HOi7le Federal Savir.qs &. Loan Assn. I 66 C::. ';?p . .,)0
6 7 4 , 1 36 Cal.. R~ t: r--:. 1 8 0 (4 t h D. C .. rl.. 1 9' 7 7), i spa =- tic u 1 a t 1 Y
instructive. At issue in Marsh was the proprie~~ and
:egality or ':he lIimpoundll or llreserve" accounts :::.lstomar-ily
required by savings and loan 2ssocia~ions and ba~Ks in
connection with residential ~ortgages to insure ~ayment of
~axes and insurance.. The suit was a class action seeking
general and punitive damages and seeking an acco~nting of
interest on the impound accounts, which were customarily held
~ithout interest.
The Court first determined that the impound accounts

~onstituted trusts, not escrOws. It then considered in
detail the nature of a trust and the duties of a trustee,
observing that the beneficiary of ' the trust may ~aive the
right to any income and may authorize the commingling of
Eunds. Thus, the Court noted that the deed of trust authorizing
the impound account stated specifically that the payments by
the plaintiff would be held by Home Federal "in its general
fund without interest," and concluded that the parties had
agreed that the trustees could commingle and use the trust
funds, but did not have to account for any interest earned.
9.
The statute and cases indicate that the trust funds

created by I.R.C. § 7501, Cal. U. Com. Code § 986, and Cal.
U. Com. Code § 13070 are subject to some modification of the
general rule. Thus, although normally a trustee must segregate
the assets of a trust and not commingle the assecs with his
personal funds, see Cal. eiv. Code § 2236, it is not generally
required that the-Iunds withheld for taxes be held separately
from the general accounts of the corporation or chat they be
deposited in a separate bank account, Slodov v. ~.S., 436
U.S. 238, 78-1 U.S.T.C. ,[ 9447 at 84,206 (1978); Newsome v.
U.S., 431 F.2d 742, 70-2 U.S.T.e. ~ 9504 at 84,1~9 (5th Cir.
1970). The Treasury or the Franchise Tax Board, as the case
may be, may specially require that withheld taxes be put into
separate accounts, however, in the event the employer has
failed previously to make appropriate deposits, payments, or
returns for such taxes, I.R.C. § 7512; Cal. Rev .. & Tax. Code
5 18492.
Furthermore, there is nothing in the statute or any

regulation or case with which we are acquainted to imply that
the government is entitled to any additional interest on the
trust funds doring the period such funds are held in trust.
Thus, it would follow that if an employer decided to forego
interest on the trust funds, he, too, could do so.

:·1 r. :·1.3 r c ? a \. i 3-
Oc tobe r :2 9, 1981
?age four
~ole of Co11ec~ing Ager.~
The foregoing discussion has considered the situation of

an emclover. There does noe appear to be any case law, regula-
tion, or statute dealing wit~ an :~dependent agent who actually
pays over the taxes to the sovernment. The funds presumably
are still trust funds, and che holder of those funds still
bears the responsibilities of a trustee. Presumably, however,
the collecting agent may use the f~nds in the same manner as
the employer ~ight have, ana is noe required, insofar as the
Internal Revenue Service or the Franchise Tax Board are
concerned, to segregate the =unds from the general fund of
the collecting agent.
Penalties
The normal penalty for a breach of fiduciary duty by a

trustee is the amount of the loss to the beneficiary. A simi-
lar penalty is imposed by I.R.C. § 6672 or Cal. Rev. & Tax.
Code § 18815: any person required to collect, account for,
and pay over withholding taxes who willfully fails to collect,
account for, or pay over such tax, is liable for a penalty
equal to the total amount of the tax evaded, not collected,
not accounted for, or paid over. ~
The test is " w illfullness." Basicallv, "willfullness"

does not require anintent to deprive the government of its
taxes, Newsome v. U.S., suora, 70-2 U.S.T.C. at 84,151, but
can be evidenced merely by use of the withheld funds for any
other corporate purpose, regardless of any expectation that
adequate funds would be available at the due date for the
taxes. WavchofE v. U.S., 79-2 U.S.T.C • • 9602 at 88,195
(S.D. Tex. 1979). Any person who voluntarily and consciously
risks the withheld taxes in the operation of a corporation is
subject to liability under I.R.C. § 6672 (Cal. Rev. & Tax.
Code § 18815) if subsequently the corporation is unable to
remit the withheld taxes. ~ewsome v. U.S., supra.
In addition to the civil penalties, however, there are

also ciminal penalties. I.~.C. § 7202 provides that any
person required to collect, account for, and pay over any tax
who willfUlly fails to collect, account for, or pay over such
tax shall be guilty of a felony and, upon conviction thereof,
shall be fined not more than S10,000, or imprisoned not more

:·lr. :·larc Pa'.'.:..3
October 29, :981
?age Five
than five years. o~ both, together with the costs of prosecu-

tion. Cal. Kev. & Tax. Code § 19408 imposes a fine of nat
maximuml, or both
mOre than $2,000 or imprisonment [no staeed maximumj,
for the similar offense. Although the penalties under these
sections have been imposed only rarely and only in particularly
egregious situations, there is considerable need to be con-
cerned about the potential criminal penalties as well.
If you have any questions or comments.concerning the

foregoing, please do not hesitate to contact us.
t;;jY,
~id L. Kimpert
DLK/aw
..

FD-36 (Rev 11-17-88)
FBI
TRANSMIT VIA: PRECEDENCE: CLASSIFICATION:
o Teletype o Immediate o TOP SECRET
o Facsimile o
D IJriority
Inority o SECRET
!KJ
tKl AIRTEL o
D Routine o CONFIDENTIAL
o UNCLAS EFT 0
o UNCLAS
Date 8/4/93
8/4 / 93
TO DALLAS, SAC
FROM SAC, SAN FRANCISCO (196A-SF-93255) (P)

SUBJECT CONNIE CHIP ARMSTRONG, JRj
JRi
ET ALi
WIRE FRAUD (A)i
FRAUDj
MAIL FRAUDi
00: SAN FRANCISCO
Reference airtel dated February 22,
verbal/ailth~l::i:~tion
SA HATCHER has obtained verbal /a1i{~~ti
::tign from
united States
United states Attorney YAMAGUCHT, forL
Attorney,I MICHAEL YAMAGUCHI, _ I
I Iconfidential source to record conversa lons with b2
subiects of this case. I I
2 - DALLAS
(1)
tfj,) - SAN FRANCISCO
WLH/wlh ~-;r
l.
1. . .
"' '
-.
(:5- 0"
APP,oved:~
Approved: ":fS:~ Transmitted
(Nwnher)
(Nmnber) (Tune)
Per
PCI' __

1 MICHAEL J. YAMAGUCHI
United states Attorney
2
JOEL R. LEVIN
3 C~ief, Criminal Division
41 RONALD D. SMETANA
Special Assistant U.S. Attorney
5 GEORGE D. HARDY
Assistant U.S. Attorney
6
7 San Francisco, CA 94102
Telephone: (415) 436-6851
II
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
10
UNITED STATES OF AKBRlCA, ) No. OR 94-0276 CAL
11 )
Plaintiff, ) All!'lI!'IDAVIT Oll!' WILLARD L.
12 ) HATCHER, JR. Illi SUPPORT
v. ) OF GQVBRmU!JIIT'S EX-PARTE
) SUBHXSSION
CONNIE C. ARHSTRONG, JR., Iilnd )
14 RICHARD A.FOlllrLES, )
)
15 Dllfondanta. )
---------------)
16
17 I, Willard L. Hatcher, Jr., state that:
18 I have been a Special Agent with the Federal Bureau of
19 Investigation ("FBI") for 6 years, and am currently the case
20 agent for the prosecution in United States v. Connie C.
21 Armstrong. Jr .. et al, I have been involved with the
22 investigation of Hamilton Taft and Company since March of 1991.
23 Prior to his retirement on January 1, 1997, FBI special Agent
24 Patrick K. Murphy was the case agent.
25 2. I first learned of the government's possession of
26 recorded conversations of Connie C. Armstrong, Jr., on the night
AFFIDAVITOP WILLARD L HATCHIJIl, lR

IN SUPPORT OF GOYllRNMENT'S EX-PARTE
SUBMISSION

11 of January 12, 1997, after witness Terri Robins informed
22 Assistant United states Attorney George Hardy of their existence.
33 3. I telephoned Patrick K. Murphy on January 13, 1997, and
44 asked his knowledge of such recordings. Mr. Murphy stated that

that
55 he understood that Ms. Robins had made some recordings for the
66 government on an unrelated investigation. Mr. Murphy stated he

77 did not know that Ms. Robins had ever recorded conversations with
88 Armstrong.
4. Mr. Murphy and I knew of the existence of the Dallas
10
10 FBI's investigation of Armstrong's activity at Comp-U-Check. We
11
11 understood that this investigation related to conduct that
12
12 occurred well after the bankruptcy of Hamilton Taft. To our
13
13 knowledge this investigation was unrelated to Hamilton Taft
14
14 except for the common involvement of Armstrong.
15
15 5. Since January 12, 1997, I have contacted Special Agent
16
16 Peter A. Galbraith, the Dallas FBI case agent for the Comp-U-
17
17 Check investigation, and requested all taped conversations with
18
18 Armstrong. I have received thirty-six (36) audio tapes and
19 special Agent Galbraith has assured me that these constitute all
20
20 of the tape recordings of Armstrong in the possession of the
21
21 Dallas FBI.
22
22 6. In addition, Special Agent Galbraith provided to me
23
23 copies of 302 reports prepared relating to the tapes and
24
24 documents provided to the Dallas FBI by Terri Robins. He assured
25
25 me that all of the reports and documents have also been forwarded
26
26 to San Francisco.
AFFIDAVIT OF
AFFIDAVIT OF WILLAIlD
WILLAIlD L
L HATCIlEll,
HATCIlEll, JR
JR
IN SUPPORT
IN SUPPORT OF
OF GOVERNMENT'S
GOVERNMENT'S EX~PAR.TE
EX~PAR.TE
SUBMISSION
SUBMISSION 2

11 7. Agent Galbraith expressed concern about the disclosure
disclosure
22 the tapes, reports and documents to Armstrong because the Comp-U-
Comp-U-
33 Check investigation and other related investigations are on-going

on-going
44 and he is concerned that disclosure of the materials may
55 jeopardize these investigations. He understood that certain of
66 the tapes, written materials and reports may have to be turned
77 over to Armstrong, but requested that the materials be
aa scrutinized carefully and that those ultimately turned over be
99 limited to those necessary to protect Armstrong's rights without

without
10
10 harming the investigations.
11
11 8. Agent Galbraith said that all of the conversations were
were
12
12 recorded and documents were received in late 1993 and early 1994,
1994,
13
13 SUbsequent to the Hamilton Taft bankruptcy and before the
14
14 indictment of Armstrong.
15
15 9. After review of the tapes and documents by myself,
16
16 Special Agent Laura Nielson, Assistant United States Attorney
17
17 George Hardy and special Assistant United states Attorney Ronald
Ronald
18
18 Smetana, we determined that Hamilton Taft is mentioned in five
19
19 (5) tapes; copies of the relevant portions of those tapes have
20
20 been reproduced for review by the Court for a determination of
21
21 whether they should be turned Over to Armstrong. In addition,
22
22 there is one document, a "novella" about Hamilton Taft, that has
has
23
23 statements attributed to Armstrong; since I do not know its
24
24 authorship, that document has been copied for the Court's review.
review.
25
25 10. All of the reports, tapes and documents received from
26
26 the Dallas FBI are being made available for the Court's in camera
camera
AFFIDAvrrOF wn.LARD
AFFIDAvrrOF L HATCHER,
wn.LARD L HATCHER, JRJR
IN SUPPORT
IN SUPPORT OF
OF GOVEIlNMIlNl"S
GOVEIlNMIlNl"S !lX-FARTE
!lX-FARTE
SUBMISSION
SUBMISSION 3

1 review.
2
3 I declare under penalty of perjury that the foregoing is
4 true and correct. Executed
55 California.
Francisco, Ca1ifornia.
Ii
8
COUNTY OF SAN FRANCISCO )
9 ) SS.
53.
STATE OF CALIFORNIA )
10
11 Sworn to and subscribed in my presence on January 24, 1997,
12 in San Francisco, California.
@,. co:":~=73
e.eeeeceee.eeeJ
~z
13
.. ' \;,~;,\~ \ \, ". \ ') "-~-:G('~,~\('.
14
15
•
d"
,~..
' ,
0 0
•
i~om:':r:::u~eW:
1
Notory N:>IIc - Co1IlomlrJ
Son FrancIDCO CounIV
!
. Notary publIc
I
t
/'
16 My Commission Expires on '-j:

,OJ; :Ie )+-" ~\~,\ )C.
i.\" ""'\ ie,' .--}-\
cli.' 1Cl1l
[CYll
\\
17
18
19
20
21
22
23
24
25
2S
26
AFFIDAVIT OF WILLAIID HATCHER, JR

WD..LARD L HATCHER.
IN SUPPORT OF GOVERNMENT'S EX-PART!!
GOVIlRNMENT'S EX-PARTE
SUBMLSSION
SUBMISSION 4

FD-36 (Rev 11-17-88)
FBI

o
D Teletype o Immediate oD TOP SECRET
o Facsimile [J Priority
[] o SECRET
lKl
(K] AIRTEL o Routine o CONFIDENTIAL
o UNCLAS EFT 0
o UNCLAS
TO SAC, SAN FRANCISCO

FROM SAC, -93255) (SQD 15) (P)
SUBJECT CONNIE C. ARMST

DBA HAMILTON T T AND COMPANY, ET ALi
SAN FRANCISC , CALIFORNIA;
(B);i MA
FBW (B) FRAUD; BANKRUPTCY FRAUD (A);
00: SAN F CISCO
ARMED AND DANGEROUS
RE: Teletype from San Francisco to Dallas dated

April 3, 1992.
Enclosed for San Francisco are two copies of insert
regarding witness I I ori
original
inal and one copy
co of
with betweenlL...
FD-302 regarding meeting between
original interview notes. ....
with original interview notes. ~------------------------------~
b'7C
__.a~
For informa~·~-s~~~~~CQ-lla~~agents
informa~·~~~ ~__~ agents observed
b7D m~e~e~~ing between
~th~e__~m~e~e~~ing
~t_h_e and debriefed
I Jimmediately a
cp: (encl 5)~

San Francisco (enci
<9>: Dallas
Dallas
- . _--
tARCH
--
IKOOO-
i~ . "
I
, ,
..
Approved: _ )
·'&)1~
Approved: Transmitted
(Ti~~"";':~"':':";~--riJ&-
(Number) (Ti
~
<. fa
LEADS:
DALLAS AT DALLAS: Will obtain co ies of
and forward them to San
b7D

FD-36 (Rev 11-11-88)
FBI

o Teletype o Immediate o
D TOP SECRET
o Facsimile o
D Priority o SECRET
IX] AIRTEL: o Routine o CONFIDENTIAL
o UNCLAS EFT 0
o UNCLAS
Date 5 5/92
5/5/92
TO SAC, SAN FRANCISCO (196A-SF-93255)
FROM (RUe)
SAC, DALLAS (196A-SF-93255) (SDQ 15) (RUC)
SUBJECT : CONNIE C. ARMSTRONG, ET AL;
ALi
DBA HAMILTON TAFT AND COMPANY, ET AL;
ALi
SAN FRANCISCO, CALIFORNIA;
FBW (B); FRAUDji BANKRUPTCY FRAUD (A);
(B) i MAIL FRAUD
00: SAN FRANCISCO
ARMED AND DANGEROUS
RE: Teletype from San Francisco to Dallas dated April
3, 1992 and Airtel from Dallas to San Francisco dated 5/1/92.
Enclosed for San Francisco are nine documents
enclosed in a envelope.
Francisco, 1
information, San Francisco.
For information. ,
sent copies
sent copies of
of documentsl~
documentsl~ -------- __
:__------------------
Ir These documents are as follows:
follows~
b7C
b7D
I'nL
I.....
__ ..:I
IS
r ------------.....
L.-
'"IS pertal.n to I......
..1
perta~n to 1
..... --Ir1
Inasmuch as all investigation has been conducted by
the Dallas Division in this matter, this case is being consid-
Rue.
ered RUC.
(2)- l)~
San Francisco (encl 1)P?
Y -
Y Dallas
JM/jm ,EARCH,fD
.... 1l111'~ .....- - 1
( ~_ _
ERIAUZED,.........
An/If ~I 5
Approved: _ Transmitted
Exhibits(Time)
(Number)
to Motion for Discovery - Page 25
A
A .__
_ "-'
" , "_
.~
APAGE 2 196A-SF-93255 UNCLAS
WILLARD L. HATCHER, JR. AND SAI ~WERE IN
DALLAS LAST WEEK (4/22/92-4/24/92) INTERVIEWING WITNESSES IN

THE DALLAS AREA. I IWAS ONE OF THE WITNESSES
INTERVIEWED. I I
" ' - - - - - - - - 1
b7e
b7D
OR(~NFLUENCED
~
BY THE SAN FRANCISCO OFFICE)
? ~
BE AWARE THAT
I~-----------I SAl IDALLAS
DIVISION.
LEAD:
DALLAS DIVISION
AT DALLAS] TEXAS
DEBRIEF I ~AS SOON AS POSSIBLE I I

I I IF FEASIBLE AND PRACTICAL,~-Ir=======il
CONTACT .
PRIOR TOI... .....,j1

APAGE 3 196A-SF-93255 UNCLAS
BY THE MEETING PLACE~ ITO b7D
WITNESS THE MEETING AND/OR OVER HEAR THE CONVERSATION.
BT

11 should not be used to justify making a ruling on an issue that is
2 nothing but a red herring.
33 It is clear what the defendant is attempting to do. He
4 wants the jury not to hear relevant evidence. He doesn't want the
55 jury to hear about the Ranch acquisition, or the limousine rides,
66 or the luxury jet purchase. He also doesn't want the jury to hear
7 what his lawyers and senior management were telling him--that he
88 couldn't use client tax money for long-term personal investments.
99 He also doesn't want the jury to hear about the lies he told his
10
10 employees regarding the source of funds for his ranch and other
11
11 purchases. He doesn't want the jury to hear about the lies he told
12
12 the victim companies in order to lull them into a false sense of
13
13 security. But all of this evidence is relevant to prove the
14
14 charges in the Indictment.
15
15 To his credit, the defendant spells out the remarkable
16
16 ramifications of a decision to declare that In re Hamilton Taft &
&
17
17 Co. represents the "law of the case". He wants:
18
18 1. Defense counsel to be able to refer to monies at
issue, in both opening and closing statements as the
19
19 property of Hamilton Taft or Hamilton Taft cash
flow;
20
20
2. The government not to refer to those monies as
21
21 "client monies" or "client funds" and not to state
or imply that Hamilton Taft held those monies in
22 trust;
23
23 3. The government not to present evidence of any advice
which Mr. Armstrong received from lawyers or other
24
24 experts, to the extent that such advice was
inconsistent with the "law of the case";
25
25
4. The court to instruct the jury that monies, once
26
26 delivered to Hamilton Taft, became the property of
GOVERNMENT'S OPPOSITION
GOVERNMENT'S OPPOSITION TO
TO ARMSTRONG'S
ARMSTRONG'S
MOTION TO
MOTION TO DISMISS
DISMISS AND/OR
AND/OR REQUEST
REQUEST FOR
FOR
PRETRIAL INSTRUCTION
PRETRIAL INSTRUCTION 10
000165.
J Exhibits to Motion for Discovery - Page 28
..
1 Hamilton Taft;
2 5. The court to instruct that Hamilton Taft was free to
use its cash flow to cover its operating expense or
3 to invest those monies for its own benefit and in
anyway it wished;
4
6. The court to instruct the jury that Hamilton Taft's
5 sole duties to its clients were those duties stated
contractually but that clients were free to sue for
6 breach, if Hamilton Taft ever failed to live up to
those duties.
7
8 Nothing in the language, logic, or holding of the vacated

9 opinion in In re Hamilton Taft & Co. comes close to justifying such
10 a gutting of the government's case.
11 The defendant's motion to characterize, as a matter of law,
12 the nature of the relationship between Hamilton Taft and the victim
13 clients, in the form of a pretrial ruling should not be granted.
14 The characterization has not been settled as a matter of law. The
15 characterization, even if accepted as "debtor-creditor", does not
16 negate the presence of a fraudulent scheme or support in any way
17 the six conclusions cited above. The characterization would only
18 confuse the jury, leaving them to wonder about the illogical
19 technicalities of the law.
20 II
21 II
22 II
23 II
24 II
25 II
26 II
GOVERNMENT'S OPPOSITION TO ARMSTRONG'S
MOTION TO DISMISS AND/OR REQUEST FOR
000166
J Exhibits to Motion for Discovery - Page 29
•
1 III. Conclusion
2 For the foregoing reasons, the government respectfully
3 submits that the motion to dismiss be denied and that the Court
4 deny the request to make In re Hamilton Taft & Co. the law of the
5 case.
6 DATED: November 5, 1996 Respectfully submitted,
7 MICH~~J. YAMAGUCHI
unite~ ta~~s i~~/rn:;, . __

By~I{)~
8
9
10 RONALD D. SMETANA
Special Assistant U.S. Attorney
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
GOVERNMENT'S OPPOSITION TO ARMSTRONG'S

MOTION TO DISMISS AND/OR REQUEST FOR
J HOnlG1
Memorandum
lVIemorandum
To SAC, San Francisco ((C'f(,I}-SF-Q'rJ..s5)(P)

SAel DQt~
((Q(,J}-SF-Cf1}S"5)(P) Dole 3/8/92
From
s~ I b7C
Subject Connie Chip Armstrong, et al
dba, Hamilton Taft and Company, et al
Francisco,l Ca.
San Francisco
FBW (B); Mail Fraud, Bankruptcy Fraud, (A);
OO:SF
On the afternoon of March 5, 1992 a meeting was held at

prosecru~t~i~o_n
the office of AUSA Michael Yamaguchi to discuss prosecru~t~i~o~n~ ~
__
were~I====~~==~=
strategy in the above referenced matter. Present were~I====~~==~~
712 truste~. Also present was Mr.
ESQ. representing the bankruptcy trustee.
Ronald Smetana, Deputy Attorney General, Major Fraud unit of the
california state Attorney General's office. SA's will Hatcher and
re resented the FBI.
I represented
_-J.-:-.,,1,',.' ~!},<. ,'", " ,"""',
- >. rf,)(;)0/:. .
1 '
i u.J
J·r....
'.~
-, .
iJ{'! i.e.· J
>,tV] •
~-f3S ;oA-
/t~ ~w;/v r.
~~~~~/vr'
f'h-
{q~ Pr-SF-'1Yd.S,
(I) {q, It-SF-cr)aS,
iJA ( I
~
JJ., ~a
Oa I - -") -J
~ b7C
b/C I
/C7 L1 l 1
/C) IlL1l / e-::-
(.! t:-::: r,-- ?rl
~"' ?h
~",rr'
2
On February 27, 1992 the accountant for the trustee

finished his second interim report for the bankruptcy which
includes among other thing a tracing of over $4,000,000 directly
into the pockets of Armstrong himself. The report cites payments
by Armstrong using Hamilton Taft funds to a stripper' and the use
of over $225,000 to purchase Dallas Cowboy "skyboxes lt •
The next investigative step is to apply for an ex parte
order for Armstrong's personal tax returns for 1988, 1989, and
1990. Also several interviews of former Armstrong associates will
be conducted in Texas.
Finally due to the continuing effort being expended by
SA Will Hatcher and his anticipated involvement in this matter it
is requested that he be designated co-case agent for the
remainder of the investigation of this case.

FD-302 (REV. 3-10-82)
- 1 -
FEDERAL BUREAU OF INVESTIGATION
Date of transcription 2/18'/92
On the afternoon of January 13, 1992, a conference was

held at thelPffices gf Feldman. Waldman and Kline, bankruptcy
counsel for. trustee in the bankruptcy of1
Hamilton Taft Corporation (HTC). The law firm's offices are
located at 235 Montgomery street, suite 2700, San Francisco,
California, 94104. Present at this meeting werel I
Esw1;re, representing Feldman, Waldman and Kline, at cetera. Mr .
I . CPA, t~~ accQuntant
the trustee himsel~,L
the bankruptcy trustee, andfOr
These individuals thereafter
provided the following information: b7C
I 'stated that he has recently received certain
accounting reports from representatives of CHIP ARMSTRONG in
Dallas, Te~as, which begin reporting on the period from
November 1, 1990 through June 15, -1991. This accounting work was
generated using the Quicken Software and chronicles CHIP
ARMSTRONG's personal finances.
I ~ stated that in July, three reports became
available to him. Wated that only copies
were duplicated by per a restriction put on_ _
CberkS
. and
Of!Som:
apparently agreed y the coun~~ for the frus ee y
Mr. ARMSTRONG's representatives.
Quicken summary was in fact a
0
L
pub11C
advised that the
record and that, in
addition, the law firm had filed a motion for conternpt·against
CHIP ARMSTRONG for his having allegedly violated a temporary
restraining order issued by the bankruptcy court.
I I stated that his preliminary report indicates

that approximately four million dollars of Hamilton Taft funds
have been traced· directly to CHIP ARMSTRONG, that is, four
million dollars of HTC funds have been traced to going directly
to Mr. ARMSTRONG. I Istated that ARMSTRONG had or has five
bank accounts. Any payment that was made to CHIP from either
Hamilton Taft or one of the subsidiaries controlled by ARMSTRONG
are accounted for, that is, they are covered by explanations.
These explanations are usually in the form of a note receivable
or an account receivable notation. These entries to the books
and records of Hamilton Taft or anyone of these subsidiaries
-.]ID
Invesligationon 2/10/~:J at Sa);} :P'];a1=lci~co, Caloi.;fornil ile 11 J96A-SF-93255 Sub C
~I I b7C
by SA f,YNN HATCHER PKM la
/a an Dale dictated 2 11
/1 0 192
/92
~M I ; I - ..
If This document conta.in~ neither recommendations nor conclusions of the FBI. It Is the property of the FBr and is loaned to your agtncy;
ils contents are not to be c1btrlbuted
1\ and its c1blrlbuted outside your aaency.
... _-- ... _---

----------------'------'--_._-
FD-302a (B:ev. 1l-lS-83)
f:>A-SF-93255
}:>A-SF-93255 Sub C
Con tlnua tion ofFD-302

Continuation of FD-302 01 -J
-Jl- I
.J--------------,' On 2/10/92 ,P age _~2",,---
Page __
_----2"---
controlled by ARMSTRONG were to pay for clothing for

Mr. ARMSTRONG or for a truck for his personal use. Succinctly
stated, these documents provided a paper trail for a trloan" or
"advance ll to ARMSTRONG to account for the payments to him.
I ~ndicated that an enormous portion of
ARMSTRONG's standard of living was booked by the various
comptrollers as advances to CHIP ARMSTRONG.
b7C
IIstated that during the period March 20th
through April 4th, 1991, CHIP ARMSTRONG liquidated three assets
which were not in Hamilton Taft's name. The first asset to be
liquidated was a helicopter, apparently owned and/or leased by
Winthrup Corporation for 1.1 million dollars. The second asset
and/or payment was a $700,000 payment to CHIP ARMSTRONG's
criminal. lawyer in Dallas. Finally,1 lindicated that
$300,000 went to Rem~~Companies wh~ch was possibly in turn
repaid to a law firm of Long and Leavitt in San Francisco.
. With h:se~lt to the helicopter transaction and

Wlth h:se~~t
liquidation
liquidation! indicated l~l million dollars was
jindicated
transferred to W~nthrup on the same day and on the same day, CHIP
ARMSTRONG wired transferred $700,000 to his Dallas based criminal
lawyer,~
lawyer,C:: IWith respect to this $700,000 'wire
transfe~
transfer, Istated that $400,000 of the lawyers' fees were
toJthe trUSjee~ Again, with respect to the helicopter
returned tOfhe
transaction~
transaction _ indicated that three million dollars had
originally been wire transferred to another one of~Knights Bridge
companies and then in turn to winthrup Realty. I I stated
that ARMSTRONG has few sources of income other than the sale of.
assets purchased with Hamilton Taft funds. Among the assets that
ARMSTRONG purchased, apparently with Hamilton Taft funds, are two
stadium boxes for the Dallas Cowboys football team and these
apparently were purchased for $140,000 and $125,000,
respectively. A third box is still owned by ARMSTRONG.
Approximately 1.1 million to 1.3 million went to various lawyers.
Seven hundred and thirty-five thousand dollars went to criminal
lawyers and one hundred seventy-five thousand, two hundred
thousand and eighty thousand dollars, respectively, went to civil
attorneys.
---_ ... _-- "

-'.;-~::"":-- -----' -
-' ----------~

FD-301a (~cv. 11-15-83)
~5A-SF-93255 Sub C
b7C
Continuation of FD-302 of -J If--------------.·On _-'2...;.I

.....l~Q>4IL....9L2~-. · Pagc_..lI
2/10/92 Page _~3:....-_
3"'----
~rmstrong's
All records for Hamilton Taft and any of trmstrOnq/S
companies are currently domiciled in San Francisco. L ~
indicated that some records are missing and those records are for
the company known as Winthrup Realty and CHIP ARMSTRONG's
personal financial records.
b7C
Additionally,l ~ndicated
~ndicated that her law firm is in b7C
possession of winthrup's ledgers· through May of 1991. b7D
- --
- -----
- .'.. -
- ----
-- -----
-- -- -----
-- " ''-
-----
- ---_.-_.--"-----

"-302.
"1-3028 (Rev. 11-15-83)
196A-SF-93255
_ _ _ _ _ _ _ ,On 4/15/91 Pa llC _ _2

,,page __
2_
--------
cash account for that day. If an overage, the money would go to

Hamilton Management for investing. If short, he would ask
Hamilton Management to wt~re money into the account to cover
checks written that day. _ lassumed all the trouble was
started when ARMSTRONG instructed one of these guys to send money
to somewhere else or he had the money from Kansas go to one of
his companies in Dallas for investment. "No, I don't consider
his ranch a real investment
investment".
ll
•
After the interviewing agents gavel la

la copy of
the sUbpoena for HT records, II Isaid "I have been down a
'said
similar shopping list as yours.".
yours. lI • He thought a chunk of client
money was taken out and used for investments. Probably a verbal
order by ARMSTRONG. This money replaced later. HT replaced
Federal Express money with Federal Express payments. HT did not
use "Joe Blow's" money to pay Federal Express's taxes and
penalties. Every tax that is owed in last quarter has been paid. b """ ""1n
I Istated that HT is about 90 million short this quarter . . !J ....

'.-
because the clients are not putting money into the company. 4
I lexpressed that everything the trustee is
IIHe's doing your work. I am
doing will help your investigation. "He's
concerned that you guys will come in here and take all the
away.. We will not see them for years.
records away. years."1I He had that
happen before in another case dealing with meat inspectors
getting kickbacks.
I Idiscussed he had worked for his family/s
family's
company which had filed bankruptcy. He had successfully
reorganized the company. He had went on to work for other
companies in trouble. He decided to start consulting on his own.
That is when he answered the HT ad.
When questioned again about his contact with ARMSTRONG
he explained most of his contact was in bUdget meetings. He said
ARMSTRONG was planning to double the volume of business. There
was a summary of the meeting minutes kept by a secretary but he
was not sure which secretary.
When asked what was ARMSTRONG's long term plans
I--------~Ireplied
I~--------~replied he did not know much about ARMSTRONG/s
ARMSTRONG's goals.
doing. If I
"I've been trying to do what you guys are doing." I
stated "I know a lot of peripheral facts, but not any detail".
I Idid say that ARMSTRONG went overseas to establish

r::D-301a (Rev. 11-15-83)
196A-SF-93255
Continuation ofFD-302 of ~l... ...J----------' On 4/15/91 . Page _3_
I
Hamilton gaft International
Jsaw the bUdget that_
ae
d make SOme sorf of deal.
. prepared for
ARMSTRONG. The bUdget indicated that some $50 million dollars of
capital was to be introduced back into HT this month and
eventually catch up all the delinquent taxes due by October of
this year.
b7C
I Ibelieves what' Istated in his written
statement about the actions of the client response unit is a lie.
He was managin; tn~! unit. The intent was not to mislead ~
clients. r _ ~hO was the supervisor in that ~
department weu d verIfy the unit's intent.
I Ilast contact with ARMSTRONG was last friday

at the HT office in San Francisco. l Istated,IIWe all met
here. It; The trustee with three others and ARMSTRONG with his
attorneys. He explained that he was trying to salvage the
business. He had another meeting later with employees. A sort
of pep talk asking them not to believe the newspapers.
I Iproduced a list of all current employees to

the interviewing agents upon the agents request. Since the
produced copy was missing the last digit of the employee's
telephone numbers another copy was sent vis facsimile to Federal
Bureau of Investigation office later the same day.

, ..
IN THE UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
No. 93-15455
IN RE: HAMILTON TAFT & COMPANY,

,
Debtor
FREDERICK S. WYLE, TRUSTEE,
Appellant
v.
S & S CREDIT COMPANY,
Appellee
ON APPEAL FROM THE JUDGMENT OF THE

UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF CALIFORNIA
BRIEF OF THE UNITED STATES AS AMICUS CURIAE

ON PETITION FOR REHEARING
On May 23, 1995, this Court invited the Government to file

an amicus
an amicus brief "addressing whether the opinion filed in this
case, In re Hamilton Taft & Co., No. 93-15355 [sic], slip op.
case,
filed May 2, 1995, adversely affects in any way the interests of
filed
the IRS in collecting federal taxes."
the The following brief is
sUbmitted in response to that invitation.

sUbmitted
STATEMENT
The case is an appeal from a District Court judgment
~ffirming
~ffirming a Bankruptcy Court's refusal to treat a payment of
federal taxes as a voidable preference under Bankruptcy Code (11

federal
000154
- 15 - ,
CONCLUSION
For the above stated reasons, this Court should grant the
petition
petition for rehearing and affirm the jUdgment of the District
Court
Court affirming the Bankruptcy Court's jUdgment insofar as it
refuses
refuses to treat payments made by debtor for S & S's trust fund
tax
tax liabilities as voidable preferences.
Respectfully submitted,
LORETTA C. ARGRETT
Assistant Attorne General
L
c:::c.. <1. (oJ I) (L[LLtLA',c,J
GARY R~ ALLEN 1 (202) 514-3361
GARY D. GRAY 514~3005
(202) 514~3005
PAULA K. SPECK (202) 514-4329
Attorneys
Tax Division
Department of Justice
Post Office Box 502
Washington, D.C. 20044
Of Counsel:
Of
MICHAEL JOSEPH YAMAGUCHI

MICHAEL
United States Attorney
United
AUGUST 1995
AUGUST
000155
J
93-15455 Summary Page 1 of 2
Court Case Billing

Calendar Opinions Orders/Judgments XML TXT Logout Help
Home Search History
If you view the Full Docket you will be charged for 4 Pages $0.32
General Docket
United States Court of Appeals for the Ninth Circuit
Court of Appeals Docket #: 93-15455 Docketed: 03/18/1993
Wyle, et al v. S & S Credit Co. Termed: 10/12/1995
Appeal From: US District Court for Northern California, San Francisco
Case Type Information:
1) bkd
2) district court
3) null
Originating Court Information:
District: 0971-3 : CV-92-02996-CAL Lead: 92-3-0057-LK
Trial Judge: Charles A. Legge, U.S. District Judge
Date Filed: 08/03/1992
Date Order/Judgment: Date NOA Filed:
02/23/1993 03/01/1993

https://ecf.ca9.uscourts.gov/cmecf/servlet/TransportRoom?servlet=CaseSummary.jsp?caseN... 8/7/2009
93-15455 Summary Page 2 of 2
08/24/1995 56 Filed original and 40 copies IRS's brief as amicus curiae on petition for rehearing and
suggestion for rehearing en banc., of 15 pages; served on 8/21/95. (Per court request,
PANEL AND ALL ACTIVE JUDGES.) [93-15455] (RG)
09/08/1995 57 Filed Appellant Frederick S. Wyle's response to petition for enbanc rehearing by
defendant-appellee S&S Credit Company, Inc., (PANEL AND ALL ACTIVE
JUDGES.) [2790529-1] served on 9/8/95 [93-15455] (RG)
09/12/1995 58 Rec'd notice of appearance of George M. Borkowski (Withdrew as counsel: attorney
Richard R. Mainland for All American Gourmet, attorney John Tate for All American
Gourmet, attorney Karl E. Block for All American Gourmet [93-15455] (RG)
09/19/1995 59 Received csl Patricia S. Mar for Appellant Frederick S. Wyle letter dated 9/19/95 re:
....we request that the court take no action on the petition for rehearing or sugg for
rehearing en banc pending the filing of any pleadings necessary to withdraw the petition
for rehearing (PANEL & ALL ACTIVE JUDGES); served 9/19/95 [93-15455] (SA)
09/21/1995 60 Received csl Robert D. Crockett for Appellee S & S Credit Co. letter dated 9/20/95 re:
...the above case has settled. S&S Credit withdraws its petition for rehearing and
suggestion for en banc review (PANEL & ALL ACTIVE JUDGES); served 9/20/95 [93-
15455] (SA)
10/12/1995 62 Order filed (FOR PUBLICATION) The court is advised that the case has been settled.
Accordingly, the appeal is dismissed as moot and the decision filed May 02, 1995,
appearing @ 53 F.3d 285, is vacated. ( Procedurally Terminated After Other Judicial
Action; Dismissed. William A. NORRIS, author; David R. THOMPSON; Stephen S.
TROTT. ) [93-15455] (DL)
10/17/1995 63 MANDATE ISSUED [93-15455] (XX)
04/15/1996 64 RECORD RETURNED. (See control card for details.) (BL)
02/11/2005 65 Received Movant Connie C. Armstrong's motion to recall the mandate. ;no service.
Party is not listed on docket. PANEL [5325953] [93-15455] (GR)
03/07/2005 67 Filed order ( David R. THOMPSON, ): The " mtn to recall Mandate" submitted by pro
se Connie C. Armstrong, and received by this court on 2/11/05 is ordered filed. The
mandate in this case was issued 10/17/95. the movant Armstrong's mtn to recall the
mandate is denied. No further filings of any kind will be accepted in this closed case.
[93-15455] (KKW)
PACER Service Center

Transaction Receipt
08/07/2009 11:46:18
PACER Login: no0150 Client Code:
Description: Case Summary Search Criteria: 93-15455
Billable Pages: 1 Cost: 0.08

https://ecf.ca9.uscourts.gov/cmecf/servlet/TransportRoom?servlet=CaseSummary.jsp?caseN... 8/7/2009
" "
,.
Ncr. 93-15455
IN THE
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
In re HAMILTON TAFT & Co.,

Debtor, Frederick S. WYLE,
Trustee in Bankruptcy of
Hamilton Taft & Co.,
Plaintiff-Appellant
v.
S & S CREDIT CO.,
Defendant-Appellee.
MOTION TO RECALL MANDATE
Movant Connie C. Armstrong, Jr. respectfully requests that
this Court recall its mandate issued on October 12, 1995. On
that date, this Court dismissed a pending en bane appeal due to
mootness by reason of settlement and then vacated the panel
decision appearing at 53 F.3d 285. For the reasons that follow,
vacatur was not appropriate, and Armstrong seeks the remedy of a
recalled mandate to prevent injustice.
1. The instant civil litigation parallels criminal
litigation originating in the same district court and reviewed.
by this Circuit. Specifically, the criminal litigation was
addressed by this Court in United States of America v. Connie C.
Motion to Recall Mandate Page 1

Armstrong, ~r., 216 F.3d 1084, No. 97-10392, WL 425007 (9th Cir.
2000) (Table Opinion). In that criminal appeal of a fraud
conviction arising from his ownership of Hamilton Taft,
Armstrong challenged the district court's refusal to give a
theory-of-the-defense instruction. Armstrong pointed to this
Court's opinion in In re Hamilton Taft & Co., 53 F.3d 285 (9th
Cir. 1995) and requested that the district court instruct the
jury in accordance with that opinion. To counter arguments by
the government during the criminal trial concerning breach of
trust, Armstrong wanted the jury informed that ~ . . under
ordinary principles of trust, Taft did not hold the funds in
trust. Thus, the funds were property of [Taft] 1/

1/ Id. at
288. The requested ,instruction was pivotal as it underscored
Armstrong's legal authority to invest the subject monies for his
own account. In reliance on this Court's improper vacatur of
its opinion in In re Hamilton Taft, the district court refused
the instruction.
2. This Court upheld the district court's refusal. In
doing so, this Court also relied upon the vacatur of In re
Hamilton Taft & Co. as the basis for affirming the district
court. ~We reject Armstrong's assertion that this Court's
decision in In re Hamilton Taft & Co., 53 F.3d 285 (9th
Cir.1995), opinion vacated, 68 F.3d 337 (9th Cir.1995), required

the district court to use his proposed instruction. In re
Hamilton Taft has been vacated as moot, and thus is no longer
binding precedent."1 U.S. v. Armstrong at *1. Because the
vacatur challenged in this instant motion is both intertwined
with and materially impacting the review of Armstrong's criminal
conviction, Armstrong asserts the vacatur actually invades a
concrete and particularized legal interest, thereby giving him
standing to challenge the vacatur. See Lujan v. Defenders of
Wildlife, 504 U.S. 555 1 560 (1992). He has a "direct stake in
the outcome." Diamond v. Charles, 476 U.S. 54 1 56 (1986)
3. Armstrong is still incarcerated from the convictions
challenged in his ongoing criminal appeal. On May 28, 2002,
Armstrong filed a PETITION FOR PANEL REHEARING WITH SUGGESTION
FOR REHEARING EN BANC of the panel opinion released as U.S. v.
Armstrong, No. 00-10399, WL 554373 (9th Cir. Apr 15, 2002).
This Court has not released its response to Armstrong's
Petition. For these reasons, this motion concerns an actual
I The quoted passage continues as follows:

"Furthermore, its holding--that Hamilton Taft does not hold
client funds in trust for the IRS--is inapplicable to the issue
of what obligations existed between the company and its
clients." U.S. v. Armstrong at *1 (emphasis in original). Thi p
statement contradicts the clear language of the opinion, which
held that the subject funds were the property of Hamilton Taft.
Contractual obligations were of no moment in either the civil or
the criminal litigation.

case or controversy under Article III of the United States-
Constitution.
4. This Court held in Zipfel v. Halliburton Co., 861 F.2d
565 (9th Cir.), that "the authority of a Court of Appeals to
recall its mandate is clear. While the authority is not
conferred by statute, it exists as part of the court's power to
protect the integrity of its own processes." Id. at 567
(citations omitted). The decision whether to exercise the power
"falls within the discretion of the court, but such discretion
should be employed to recall a mandate only when good cause or
unusual circumstances exist sufficient to justify modification
or recall of a prior judgment." rd. As a general rule, this
Court will recall a mandate only when animated by "an
overpowering sense of fairness and a firm belief that this is
the exceptional case requiring recall of the mandate in order to
prevent an injustice. u 1f
Verrilli v. City of Concord, 557 F.2d
664, 665 (9th Cir. 1977) i see also Zipfel, 861 F.2d at 567.
Specifically, this Court has recalled its mandate when a
"decision of the Supreme Court \departs in some pivotal aspects'
from a decision of u this court. Zipfel, 861 F.2d at 567 (quoting

lf
American Iron and Steel lnst. v. EPA, 560 F.2d 589, 596 (3d Cir.
1977) I cert. denied, 435 U.S. 914 (1978)). This is the
situation in the case at bar.

5. The mandate for which recall is sought reads, in its
entirety, as follows: "The Court is advised that the case has
been settled. Accordingly, the appeal is dismissed as moot and
the decision filed May 2, 1995, appearing at 53 F.3d 285, is
vacated." In re Hamilton Taft & Co., 68 F.3d 337, 337 (9th Cir.
1995). As discussed below, automatic vacatur of an appeal
mooted by settlement is not authorized by the Supreme Court.
Moreover, 'this case presents a uniquely harmful twist. Unlike
the typical situation where a district-court ruling is under
review by a panel, the parties settle, and the inquiry then
becomes whether or not to vacate the district court ruling,
here, the panel had already released an opinion reversing the
lower court. By vacating the panel opinion, this Court has let
stand a district court opinion that was held erroneous following
de novo appellate review.
6. The u.s. Supreme Court has spoken on this issue and has
instructed that "mootness by reason of settlement does not
justify vacatur of a judgment under review." u.s. Bancorp v.

Bonner Mall, 513 U.S. 18, 29 (1994). This Court has interpreted
Bonner Mall to hold that when the mootness is caused by actions
of the parties, rather than happenstance, automatic vacatur is
not appropriate. See American Garnes Inc. v. Trade Prod., 142
F.3d 1164, 1169 (9th Cir. 1998); Mayfield v. Dalton, 109 F.3d

1423, 1427 (9th Cir. 1997); Cammermeyer v. Perry, 97 F.3d 1235,
1239 (9th Cir. 1996). Despite the Supreme Court's clear
instructions, this Court nonetheless automatically vacated an
opinion under review when that opinion was mooted by settlement
between the parties.
7. Such vacatur was not lawful and has had a direct and
adverse impact on the review of Armstrong's criminal conviction.
ACCORDINGLY, Armstrong requests that this Court recall the
mandate issued on October 12, 1995 and thereby reinstate its
opinion in In re Hamilton Taft. Armstrong further requests that
this Court, in the interest of justice, ameliorate the harm
caused by the improper vacatur by recalling its opinion in U.S.
v. Armstrong,2 which opinion relied upon the improper vacatur,
and remand that criminal case for a new trial.
Respectfully submitted,
Connie C. Armstrong r Jr.

Reg. No. 88762-011 r Unit B-5
Federal Correction Institution
P.O. Box 9000
Seagoville r Texas 75159-9000
2 216 F.3d 1084, No. 97-10392, WL 425007 (9th Cir.

2000) (Table Opinion) .

Memorandum
To . SAN FRANCISCO (196A-SF-93255) (P) Data

Date 3/8/91
From sAJ
s~ __ (SQ' 5) b7C
Subject CHIP ARMSTRONG, Jr., elba

dba
Hamilton Taft and Company
1 Market Plaza
Spear street Tower
San Francisco, California
Fraudj
FBW; MFi Tax Fraud;
00: SAN FRANCISCO
The purpose of this memo is to'document

tO'document events that
~~;;;:"":~~Io6..JII'oIIIel...,e
~~~~~",,-w.-.lrl.IiII:ie since 13 I9
~bruary 13, 19~ which
6bruary 1 9 whi,?h is the date that
~~~~ ~was last interviewed by the writer. On that
__________~provided numbs
provided a numbe ocuments to iter which
have been disse ~na e y he writer to qA ~A or the IRS
C~ere
C~here in San Francisco, telephone number 556-6850. It should:
also be noted. that a copy of these documents along with a sumrn~ry
summ~ry
of the writer's review of San Francisco file 196A-2868 has been
prepared and disseminated to AUSA MICHAEL YAMAGUCHI at 556-1328.
A copy of this summary is a matter of record under a separate
communication which is a part of this file.
Due to the fact that AUSA YAMAGUCHI was on annual leave
and did not return to his office until March 4, and/or 5, 1991 no
overt investigation was undertaken. This matter was referred to
Mr. Y GUCHI because of his revious referral w' he handled ~
re ardin Haml on Taft in which he subse entl f r- ~_
I
lJlck 0]_it was
prosecution.. This matter was investigated by S
handled under--SF 196A-2868 and was closed
- -7
August, 1988.
with regard to information supplied byl writer I

was reluctant to initiate any overt investigation for fear that-
there would~ Eotential liability attached wherein the
governm~nt £.QB1dJ2e accused.Qf initiatipg the downfall ,of
captioned company bvl'the mere fact that it was making overt
inquiries. [ . ' ,has provided detailed information which, ~
of this date, has'been unable to be thoroughly corroborated.
Progress is being made to effect such corroDorat2on. .
I. ~ expressed apprehension in his mind regarding

the "extensive n time-it was taking for the government to decide
Whether or not to initiate an investigation and to effect some
criminal process. He was told that the government ha_g._:t.Q.........@~_
victim before any process would be forthcoming. He was further

196A-SF-93255
PKM:/sgc
PKM/sgc
advised on more than one occasion by the writer of the potential

civil liability which miggt attach to the revelation to the
general public that the FBI was conducting or maybe conducting an
investigation into certain alleged criminal activities on the
part of Hamil ton Taft.
Hamilton ..
~1, 1991~r=
Nonetheless, on February 1-1, lsaw fit to
Isaw
congressional offices here in San Francisco of
contact the Corigressional
Congress persons NANCY PELOSI and BARBARA BOXER. ~
~presentat'
xep~esentat' on resswoman PELOSI's office to whom
spoke ave arne of an investi ative re orter
rter e
~hould consider
consi~er contacting.. with b~s infdt:mat·ipn.
infOrmat.iQD. On Fel?ruary~';
Fel;>ruar~,';
~1, the wrlter
~1, w~it~r as well as ~gentl
~gentl lof the eIn repo~ed
Cln reported
- receiving telephone calls from an attorney at the Department of
Justice making inquiry as to the FBI and/or IRS' connection if
any with Hamilton Taft.
b7C
On February 13, 1991
1991,r during the interview ofl~ __
-....
conducted by the writer, he was again questioned as to the reason
for making calls to the aforementioned conaressional offices. He
he was concerned about II
stated that be
Ifollowing his resignation from Hamilton

~T-a-Y-~t--o-n--F-le-~b--'r-u-a-r-Y~1~1~,~1~9~9~1~.
~'1~·a~,r~~~o~n~~~·e~~~~:r=u~a~r~y~~11-,~1~9~9~1~.
It should be noted that I l
during this interview on February 13, 1991 re-iterated that fact.
fact.-
thatlI
that I
1
1 I He was J~'
J---- I
again reminded of potential civil liability problems that might ~
gDpue
gn?ue from the pyblicatign Qf the possibl~nterest of the FBI
publicatiQD of
res~9t to-llamilton
with r~~9t £af~.
to-Jiamilton Iaf~. .
On Wednesday, March 6 1991, the writer received a~
telephone call from SAJ ; JrRS
JIRS CID who advised that he
had been called by a M-.
M • RALPH :ININ W, an investigative reporter
for the Wall street Journal here in San Francisco. The purpose
of KING's call to SWAIN was to confirm that the IRS was
conducting~nY§stigationregarding Hamilton Taft.
conducting-an-ipy§stigation On the
morning of March 6, 1991, the writer reviewed message slips that
had arrived on Tuesday, March 5, 1991, the writer having been on
sick leave that day and one of, them was from RALPH KING of the
Wall street Journal. The writer did not return KING's phone
call, however, in res~g to a page, for a telephone call calIon
on
the afternoon call of ~h-_6Jl
~h-_6J) 1991, the writer became connected
to Mr. KING of the Wall street.
street,Journal.
Journal. The usual inquiries were
made and the usual response, t~at, is we can neither confirm
and/or deny the existence of any investigation was provided to
Mr. KING who seemed perturbed £y ~ thi§ ~eseon~.
~espon~.
:22

196A-SF-93255
PKM/sgc
PKMjsgc
On March 6, 1991,1 r head of corporate

security of Sun Micro Systems Inc. at 2550 Garcia Ave., Mountain
View, California 94043, telephone number (415) 336-0496 was
called by the writer in response to call that he had made to our
office on March 5, 1991.
writer that his office had
been contacted by was
accompanied by an attorney
attorneJ one (ph) who advised that
of I
the purpose ofl .. J_ contac lcro Systems was to
advise Sun Micro Systems that it had been the victim of a fraud
perpetrated by Hamilton Taft' on Sun -.Micro Micro Systems and numerous
other corporate clients of Hamilton Taft. I ~dvised
'advised
the writer that he would fax certain documents up to San
5uggestiqn. These documents·
Francisco at the writer's suggestiqn. documents'included
included a
copy of·
of' the service agreement thal: thati,· exists betw~en Sun
exiErts....betV{~en Sun, }1,icJ;'o
.Mic1;"o ...
Systems and Hamilton
Hamil ton Taft dated (October 1, ._.1981 __.1987 as well as copies
of certain Federal tax forms whicn had been executed by employees
of Hamilton Taft Company. I~ Ilalso
also advised the writer writer.
that I pad r
ad of his own volition convened a meeting of ""~~}:'~~
several of the corporate representatives who he had contacted .t~~('-_~,':;~'.'.J
,~~}:,~v ;'N"_.':~ ;~
.1~. " n;
f~;(,·.~,,;~·,') "~"'7 .'r< _'J_'- .. ' /
.
.Jr
presumably in the first week of March telling these corporations

who are current and/or former clients of Hamilton Taft, that they
had in fact been ,defrauded by Hamilton Taft. Sun Micro-Systems
reluctantly agreed to "host" this meeting which was to take place .I"'" .1,'
during the afternoon of March 8, 1991 at Sun Micro System's ,;'; ,;
offices in Mountain View.
/, :':'~",;
,i' " '
nf )1/("
.'> ,..
Of the mornin: of Marcb

March 7. H91, I
7, 1991, l:throilgh
I,throtgh' .
his associatel l,
l, an investigator for the Co~porate
security:.. Department of un
Securit~Department l~~ages oj
un Micro Systems, facsimiled 16/pages o,f
documents to the writer. The most salient point of t~ese these
documents was a letter to Sun Micro Systems dated February 13, i~:;}··';
"', ,'.' '
1991 from the ,.IRS in-'
in-- Fresno. The letter refers to a particular ./, ;) >')'
,/' .;'0;7 ";'
tax identification number utilized by' Sun Micro Systems and .' '~:
"s;";:,'
references a tax period ending september 30 1990.'- The letter
30,I 1990.' ~,l~:?,.,.
\,e':,.
goes on to thank tax payer (Sun Micro Systems) for its reply I·,
}
t -.~, ';0
dated January 25, 1991 and its payment of $260,784.25 in penaltyJ;'.....

penaltyJ;'. , .
fees and for its late deposit of ($5,215, 684~86). The - .,~
.. ' .... ' ,'."
signifipan:e Of
signifiri:lD:e of th~S
tb~'5 ::mmunication is that Sun Micro Systems .,',; .'..
t h r o u g h L J h a s represented, as of March 7, 1991, that
it did ~nac~
lnac~ sen t e appropriate money that is $5,215,684.86
to Hamilton Taft via a wire transfer in order to pay employment
tax obligations do and owing the IRS for the tax period ended
September 30 r 1990. Per an agreement of which the writer is in
receipt, that is, the service agreement between Hamilton Taft and
Sun Micro System?, Hamilton Taft is responsible for the
payment af~--L~e
of~--L~e penalties.
penalti~§4 It is an inference drawn by Sun
3

196A-SF-93255
PKM/sgc
Micro Systems personnel that this document tends to corroborate

what I I was alleging in his representations to the
government. '
On the afternoon of March 7, 1991, AUSA YAMAGUCHI was
personally visited by the writer and a brief update was provided
to him of events that have taken place. On March 8, 1991, copies
of the aforementioned facsimiles were provided to AUSA YAMAGUCHI
fore his review. On March 8, 1991, Mr. YAMAGUCHI suggested to
the writer ,that efforts continue to accumulate enough probable
cause to cause the issuance of a search warrant for the offices
b7C at Hamilton Taft at the earliest possible date.
The following corporations have been contacted by ]
I land/or his attorney and ~d~~~ed that they' have been the
victims of fraud perpetrated on them by Hamilton Taft. These
corporations are Costal Savings Bank, Sun Micro Systems, American
West Airlines, and one or two chemical companies located at the
east coast. In addition, I I
advised writer that he
has been contacted by representat~ves of Lloyds of London
Insurance company with respect to Hamilton Taft. It is-y,nkno~~
~~~~~~tdyal~!!!p~;~_!,~~_,~.wil.~
, h_e,Y,~~,},~E?i.~~,~~~!~,!:~~~,~,__ "_9! .. J)}.e
me~t~ng_"",I:.o-;-oe,,··he~d_~,at,.Sun.,M~c_ro __ systems, ().f:!:~pes
,on the .afternoon
at-March 8, 1991.
San Francisco at San Francisco, California:

Investigation is continuing.
4*

- ;""
-- .- . . P •
-I qtpl1-s f-, 9d25(
.,-- ~
4/3/91
~STRONG'
Mr. Baker:\f7
sSP RE: CONNIE/C. JR.,
AKA 9HIP~STRONG;
~ss=-n.;f~', :.
.e'c DBAvHAMILTON TAFT AND COMPANY:
32ND FLOOR, SPEAR STREET TOWER,
~R I j -
ic:q-~) .,f ~ SAN FRANCISCO, CALIFORNIA;
FRAUD BY WIRE ~ MAIL FRAUD; TAX FRAUD i
00: SAN FRANCISCO
San Francisco has initiated a Fraud By Wire

investigation based on information received from the former
Comptroller of Hamilton Taft and Company (HTC) that the SUbject,
Armstrong, has embezzled over $100 million from the firm's
clients over the last three years. These allegations continue to
be front-page news in San Francisco and on 3/15/91, the Wall
Street Journal ran a front7page article detailing the allegations
(copy attached).
HTC contracts ,with companies who owe taxes to numerous
state and local taxing authorities. Client companies make a lump
sum wire transfer of funds to the HTC account, and thereafter,
HTC issues checks to whatever taxing authority is owed money.
The former Comptroller, I I, has alleged that
Armstrong diverted lump sum payments to his own use and
thereafter, incurred penalties associated with late payments and
7C passed these costs along to the client companies who were not
notified of the late charges. In essence the allegation is that
Armstrong is running a "Ponzi scheme" of considerable magnitude
Which requires increasing amounts of cash to keep the operat'on
going. Jt; -jJj
&-l
left HTC in Februar of 1991 and on 3
You will be kept apprised of pertinent developments.

NOT APPROPRIATE FOR DISSEMINATION TO THE PUBLIC
L.~S
Enclosure
1 - Mr. Jones 1 - Mr. O'Hara
1 - Mr. Baker 1 - Mr. Esposito
1 - Mr. Potts 1 - Special Assistants, CID
1 - Mr. Bryant
GDM:gdmjsw (9)
(Jv\~

20090813b Exhibits To Motion For Discovery

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

20090813b Exhibits To Motion For Discovery

Uploaded by

Copyright:

Available Formats

u.s.

Federal Bureau of Investigation

450 Golden Gate Avenue

yt Ji4IJ1ff~1'Ji} ''''''! IJI.'.se""~

Exhibits to Motion for Discovery - Page 2

(Hamilton Taft) still bears the responsibility of a trustee. ~

Hamilton Taft in the latter half~\

Ihad directed him to wire transfer $50,000

In order to assist you in preventing your opinion from

b7C documents provided byl

Il was also interviewed in December of ~ ~

Exhibits to Motion for Discovery - Page 4

On December 24, 1990 ,7 -the o~fiqe receiyetf

Icall from one I ~L .Cont.r~~ler "and CPA. I

Armstrong is basically operating a Ponzi scheme, ut~lizing the

Exhibits to Motion for Discovery - Page 5

Exhibits to Motion for Discovery - Page 6

FEDERAL BUREAU OF INVESTIGATION

Precedence: PRIORITY Date: 02/10/1997

To: San, FranC1SCO

Drafted By: _________1epg

Title: CONNIE CHIP ARMSTRONG, JR.;

Cop~es of FD-302s and inserts enclosed from Sacramento

Reference: 196D-SF-93255 Serial 124

Enclosures: FD-302 of Ion 2/19/86

Details: A review of closed Sacramento flle

Exhibits to Motion for Discovery - Page 7

Federal Bureau vesngatlOn

~x. Joseph P. Russoniello

Referenced conference between Assistant u.s.

was presented to him as well as his examination of documentation

evidence to support a violation of federal law at this time and

Exhibits to Motion for Discovery - Page 9

She said that it was apparent to her within the first

She found out that almost immediately after Maxpharma

She said that she had frequent meetings concerning

Exhibits to Motion for Discovery - Page 10

a "funny" transaction where two to three million dollars of

I ~said that from her examination of Hamilton

She said thatl 1 (PHO) I Sales Manager, and

I 'said that she started taking legal action on

Exhibits to Motion for Discovery - Page 11

Conunuullon of FD-302 of _~~~!!!!!!!!!!!~ ,---- , 2-.;.1_8.....;1_9_ 3

the ARMSTRONG takeover of Hamilton Taft in March of 1989. She

She said that in March of 19891 I concluded that

She said that she understood that ARMSTRONG's plan for

Exhibits to Motion for Discovery - Page 12

........... ~.;.(' ::r: .. - -':':_~'U: .

Octc=er 19, 1981

Mr. :·iarc Paiva

Re: Charac:erization of Funds ~ichheld by Employer

Per your request, this letter Q1SCUSSes the characteri-

An employer is required to withhold from the wages of

Characterization of Withheld Funds

Funds that are withheld or collected as income tax or

Exhibits to Motion for Discovery - Page 13

2i.~., 1966~. ="...!~ds Lhat are .....'l.-:::~eld cr :::: __ ~cr:ed as s~ate

13070]; '..."hile :~nds withheld 2.5 unemcl~vmen~ :'nsurance tax

A trustee has a general duty to invest funds for the

Notwithstandin~ the foregoing, the parties to the trust

Exhibits to Motion for Discovery - Page 14

:0 consent ~o various ki~ds of investmen~s. The ~ase G[

unite~ tas i/rn:;, . __