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The evidence in the case would be that after that yearly summary was produced in a careful and considerate fashion, Mr. Wright would sit down with Judge Claiborne and go over the yearly summary for the purpose of assuring they had carefully and accurately identified all legal fee income.
Mr. KINDNESS. Mr. Chairman, call for order.
Mr. KINDNESS. Inasmuch as the information being provided, let us characterize the evidence to some degree. I would ask if you could differentiate that evidence that is stipulated, that is tested, so that we might be sure which is which.
Mr. Chairman, my request is that if the witness could differentiate between that part of the evidence described which is either uncontested or stipulated, and that which might have been contested in the trial, it would help in the evaluation of the summary.
Mr. KASTENMEIER. Is the witness able to do that which the gentleman from Ohio requests?
Mr. HENDRICKS. Yes, I am.
Mr. KASTENMEIER. In which case, without objection, we would request you do.
I thank the gentleman from Ohio's request.
Mr. HENDRICKS. I believe everything I have related to the committee so far is uncontested. I will indicate in the future, during the course of my testimony, any areas which I believe have been subject to contest by the defense.
The evidence in the case further demonstrated that on the basis of this process of accounting and review with Judge Claiborne, that Mr. Wright would prepare the 1040 tax returns every year, and this was the typical process that was used year in and year out, beginning in about 1948 or 1949, and continuing for 30 years after that.
For these services, and other services, including other tax purposes, Mr. Wright was paid for the relevant period of time here $500 per year.
Now, during the period also relevant to the case, there was also evidence, and I believe it is uncontested, that Judge Claiborne also maintained his own small black book which contained and recorded all of his legal fees. The exhibit was in fact a defense exhibit, and it is Defense Exhibit 47.
In particular, as it relates to the 1979 tax year, it is clear and uncontested, I believe, that Defense Exhibit 47 contains notifications as to all of Judge Claiborne's legal fee income for that year.
Now, if I could take the committee up to the 1970's. By the 1970's, Harry E. Claiborne had become a highly successful lawyer. His practice was general trial litigation, and he was involved in the defense of a number of significant and widely reported cases in the Las Vegas area, and other places.
In 1977, his gross income was $375,752, and his gross income for the first 8 months of 1978 was $240,876. Of course, his net income was something less than that, I believe approximately $190,000some-odd in 1977, and an appropriately smaller amount for 1978.
In September 1978, Judge Claiborne became-was sworn in and became a U.S. district court judge for the district of Nevada. At that time, his salary dropped rather dramatically to approximately $54,000. And I believe, sir, there is no question regarding that. By Judge Claiborne's own words, that drop was—his income “dropped dramatically.” That characterization is contained on page 929 of the transcript of the trial, and I believe that was Judge Claiborne's testimony.
At the same time that his income was dropping as a result of his taking on the judicial robes, many of his expenses-because of his lifestyle-remained constant. For example, his various alimony payments continued to remain constant at $21,000 per year, so that his effective disposable income had dropped even more significantly than the drop from $375,000 gross to $54,000 would indicate.
Again, I would point out that by Judge Claiborne's own admission, he became in a "financial bind," and this bind became worse as time went on.
By mid-1980, Judge Claiborne was in such a condition of financial bind that he wrote a letter to an attorney named Frank Rothman requesting an immediate payment of a $37,000 legal fee, and stated: “For the first time in my life, I am desperately in need of money.” The letter which Judge Claiborne wrote to Mr. Rothman was Government's exhibit No. 10 at the trial.
If I might back up the time—again, to the time Judge Claiborne became judge, at the time he left his law practice, there were two other attorneys employed in his law office, and they were James J. Brown and Annette Quintana. At the time Judge Claiborne left his practice, he agreed with Mr. Brown and Ms. Quintana to split fees on cases which they had worked on prior to Judge Claiborne's leaving his laws practice, but cases where they would be anticipated billings subsequent to the time Judge Claiborne took the bench, and this agreement resulted in legal fees being received by Judge Claiborne during calendar year 1979, which payments, legal fees, were reportable on Judge Claiborne's 1979 tax return.
Government's exhibit 6 contains a number of those legal fee checks which were provided to Judge Claiborne by Mr. Brown; and Government's exhibit 9 in the trial contained legal fee checks provided to Judge Claiborne by Annette Quintana.
I would indicate to the committee that the manner in which that was done would be that Mr. Brown would collect the fees from the clients, he would deposit the fees in his account, and he would then write a check pursuant to the fee splitting arrangement to Judge Claiborne, so that during calendar year 1979 Judge Claiborne received a number of fees from Mr. Brown, and similarly, Ms. Quintana did the same thing.
She would receive fees from clients. She would split the fees. And she would remit to Judge Claiborne his portion of the fees. Those fees included checks on January 5, 1979 for $3,381; a check for $17,500 on the 19th of January; a check for $833 on the 26th of January; a check for $84.38 on January 26; a check for $1,106.66 on February 15; a check for $7,000 on July 19; a check for $2,905.90 on August 31, 1979; a check for $3,011.56 on November 13, 1979; and a check for $250 on November 13, 1979.
All of those checks-nine in total, I believe, Mr. Chairman-were received from James Brown.
In addition, on January 16, Judge Claiborne received a check from Annette Quintana for $1,000; and he received an additional
$1,000 check from Annette Quintana on February 12, on March 9, on April 12, and on May 14, 1979, for a total legal fee income from these two sources of $41,072.93.
At the same time, in 1979, Judge Claiborne's system for reporting his financial dealings to Mr. Wright changed, and Judge Claiborne began forwarding less and less information to Mr. Wright; and I don't think that that has not been subject to any debate.
We also know from the trial that Judge Claiborne did another thing with respect to his legal fee income, and that is, by and large, with certain exceptions, he stopped this consistent practice he had had for 30 years of depositing his legal fee checks in banks. Instead, he began to cash these checks at various establishments in the Las Vegas area, including predominantly casinos.
In early 1980, J. Wright, the accountant, began to go through the process, the final process, of preparing Judge Claiborne's 1979 tax return, and he did this by sitting down with Judge Claiborne at some time between May 22 and June 15, 1980. With respect to this particular period, I believe there had been some testimony from the defense, which was contrary to the Government's evidence, including the testimony of Mr. Wright, that they sat down between May 22 and June 15, 1980, and that Harry E. Claiborne and J. Wright agreed that Judge Claiborne's legal fee income for 1979 was $22,322.90.
Judge Claiborne listed—thereafter provided Mr. Wright with a number of sheets of paper which identified these items of income: $22,322.98—not the correct figure of $41,072.93. And these sheets on which Judge Claiborne indicated the $22,000 figure was Government's exhibit 31 during the course of the trial.
Now, the $22,000, the $22,332 figure was the only legal income for 1979 ever reported to Mr. Wright, according to Mr. Wright's testimony.
Judge Claiborne signed that return on the 16th of June 1980, and that return, which was Government's exhibit 3, reported $22,332.87. As I ha) mentioned, Judge Claiborne's true legal income was $41,072.93. The discrepancy between the $41,000 figure and the $22,000, which Judge Claiborne reported, resulted from facts which were demonstrated or shown on Government's exhibit 42, and I have, for the committee's benefit, made copies of Government's exhibit 42, which is a chart. If I may, Mr. Chairman, I might offer these copies, which rather graphically demonstrate how that income was handled.
Mr. KASTENMEIER. The witnesses' request is to do what? Mr. HENDRICKS. I would like to provide to the committee copies of this exhibit for purposes of brief discussion.
Mr. KASTENMEIER. Without objection, the committee will receive copies of the exhibit.
[See appendix II.)
Mr. COBLE. May I ask a question? I didn't hear the last few words.
Mr. KASTENMEIER. Would you repeat your statement?
Mr. COBLE. When you say it graphically represents—I didn't hear the rest of that.
Mr. HENDRICKS. It is a chart in which we have identified all of these checks I have just mentioned, and it demonstrates how they were disposed of, whether they were reported or unreported, and whether they were deposited or cashed.
Mr. COBLE. Thank you, Mr. Chairman.
Mr. HENDRICKS. Now, this chart is a reduction of a much larger chart, which was about 3 by 6 feet in dimension, which we used during the course of the trial, and it is a reproduction of a Government's exhibit, Government's exhibit No. 42.
The points that I would like to make with respect to the use of the chart are that, of the 14 legal fee checks for 1979, out of 14 checks, as you can see by looking down the right-hand column, only 242 of those checks were reported—242 out of 14. The one-half, I might explain.
There is a $17,500 check on January 19 provided to Judge Claiborne by Mr. Brown, and one-a little more than one-half of that, $10,000, was reported. The remainder of that check, $7,500, was not reported.
So the point is, out of 14 checks, only 242 were reported. There were 1142 checks that Judge Claiborne never told J. Wright about.
Of the 1142 checks that were not reported, 8 of those were cashed at casinos. This cashing of checks at casinos took place even though there was testimony in the case Judge Claiborne had to go farther from his office to cash checks at casinos than he would have had to have gone to have deposited them in his bank. He had to go past the bank to get to the casino to cash those checks.
This cashing took place even though Judge Claiborne had a practice, as testified to by Mr. Wright, of consistently depositing all of his legal fee income, for 30 years; and this cashing took place at a time when Judge Claiborne was becoming increasingly desperate for money.
There was testimony adduced from a Government witness on cross-examination that, from a Government expert, that a jury could reasonably infer that this pattern of cashing was associated with a desire to conceal income.
If I might pass on to tax year 1980—
Mr. KASTENMEIER. Counseling with my colleagues, since you just completed a phase and we have a recorded vote, it probably makes sense for us at this point to recess for 15 minutes.
If my colleagues agree, we will proceed in that fashion. The committee will stand in recess until about 10:15.
We will proceed with Mr. Hendricks. You might just, for the purpose of responding to the fact we were in recess, indicate what area you have covered, and which area you now intend to go into, sort of recap that.
Mr. HENDRICKS. Thank you, Mr. Chairman.
I have covered up to this time the 1979, and the evidence in the case regarding the 1979 calendar year, and the actions that were taken to file Judge Claiborne's form 1040 income tax returns for 1979.
Now, I contemplate providing an outline of the evidence as it relates to the 1980 year. Now, the 1980 year was the second count of which Judge Claiborne was convicted during the trial in 1984, and it was count 6 in the indictment.
The evidence in the case, Mr. Chairman and members, is that during 1980, Jay Wright, the accountant, received little or no information from Judge Claiborne regarding his 1980 income. In late March or early April 1981, Jay Wright had not been dismissed as the accountant for Judge Claiborne, and even though he had received no monthly information from Judge Claiborne, he nevertheless still considered himself to be Judge Claiborne's accountant, and he began the process of getting or trying to accumulate information for purposes of filing Judge Claiborne's 1980 tax returns. He made numerous calls
to Judge Claiborne for purposes of obtaining this information. The evidence is clear, and that is contained at pages 204 to 206, and 644 to 645 of the transcript that Judge Claiborne did not take his phone calls.
Jay Wright left messages for the judge to return his phone calls so that he could prepare the tax returns. These phone calls were not returned, and I don't believe this is testimony.
Information regarding this is contained at the same page numbers I have just cited.
Thereafter, without any discussion with his accountant, associated for some 30 years, Judge Claiborne decided to seek the advice of another tax preparer.
He essentially dropped Jay Wright without a word after 30 years of association. Judge Claiborne turned to a firm called Creative Tax Planning
Creative Tax Planning was run by an individual named Jerry Watson. Mr. Watson had no college degree, no professional license, was not an accountant. In fact, he had been fired by an insurance company for ethical problems which he had during his employ.
This information is contained at the transcript, page 788 and following. Judge Claiborne hired Mr. Watson of Creative Tax Planning as his tax preparer without any inquiry into Mr. Watson's background or qualification.
Judge Claiborne has admitted that, and I would refer the committee to pages 961 through 970 of the transcript of the trial.
By April 6, 1981, Judge Claiborne and Mr. Watson had had discussions regarding the 1981 return. In a letter dated April 6, Mr. Watson says to Judge Claiborne, "The possibility of taking a loss on your business looks good.”
This is contained in Government's exhibit 47.
The business that Mr. Watson is referring to is Judge Claiborne's law business which he had left in 1978, and that law business had been entirely written off on Judge Claiborne's 1978 tax returns.
Judge Claiborne knew this, and Judge Claiborne admitted this on cross-examination during the trial, pages 923, 924.
The testimony of the Government's witness, summary expert, at pages 798 and 807, makes it clear that the leasehold interests, the interests in furnishings, the interest in the law library had, for purposes of the depreciation schedules, been entirely written off as of the end of 1978.
Nevertheless, Mr. Watson, the individual I mentioned with no professional qualifications in this area, says to Judge Claiborne, "The possibility of taking a loss on your business looks good.”