. . . In such circumstances, sealing the indictment “would undermine the purpose of having a statute of limitations at all.”
Introduction
In United States v. Boswell, No. 23-30315 (5th Cir. Jul. 23, 2024) (“Decision”), the Fifth Circuit addressed a multifaceted appeal involving criminal convictions on charges of bankruptcy fraud and tax evasion against Joseph Boswell, a businessman who managed an obscure web of business entities nominally owned by family members and associates. The appeal originated from a jury trial conducted by the U.S. District Court for the Western District of Louisiana.
The Fifth Circuit upheld the tax evasion conviction but reversed the bankruptcy fraud conviction because the indictment remained sealed beyond expiration of the statute of limitations. In doing so, the court revisited its decision in United States v. Sharpe, 995 F.2d 49 (5th Cir. 1993) to clarify that a defendant need not demonstrate actual prejudice where the government fails to demonstrate a legitimate prosecutorial objective or public purpose to justify sealing the indictment past expiration of the statute of limitations.
Factual Background
Boswell’s Businesses and Bankruptcy
The facts of this case are as intricate as they are intriguing. During the 1990s, Boswell operated a network of businesses that cleaned and serviced pizza ovens for restaurant chains across the United States. Decision at 2. Around 1995, Boswell ceased reporting his income to the IRS and stopped paying taxes, a decision that would have long-term consequences for Boswell and his enterprises. Id.
Boswell’s financial situation began to deteriorate throughout the 2000s due to several compounding factors. After Hurricane Katrina struck in 2005, Boswell’s revenue sharply declined as many of his clients—pizza franchises in the affected areas—scaled back their operations or closed entirely. Id. Adding to his woes, some of Boswell’s crew members quit and began working directly with the pizza restaurant chains, effectively cutting Boswell out of his own business. Id.
In 2007, Boswell’s financial troubles deepened when a creditor, a personal acquaintance, sought a judgment against him for $177,000 of outstanding debt. Although the two parties eventually settled their differences by signing a promissory note with scheduled payments, the settlement intensified Boswell’s growing financial burden. Id. Moreover, the following year, in 2008, Boswell’s wife filed for divorce, resulting in a consent judgment with additional fixed monthly payment obligations. Id. at 2-3.
As Boswell’s debts piled up and his revenue continued to decline, the IRS took notice of his failure to comply with tax laws and initiated an investigation into his financial affairs. Id. at 2. The Service began civil enforcement actions to recover the unpaid taxes, but Boswell’s use of a complex structure of entities to conduct his ongoing business enterprises, most of which were nominally owned by family members and associates, complicated those efforts. Id. at 2-3. Boswell used the nominee entities not only to direct his business operations but also, the government alleged, to hide income and assets that should have been reported to the IRS. Id. at 3-4.
By the time Boswell filed for bankruptcy in 2011, his financial situation had become dire. In his bankruptcy filings, Boswell claimed that he owed the IRS $751,000 in back taxes. Id. at 5. The government, however, alleged that this amount failed to fully capture the full extent of Boswell’s tax liabilities, as he had underreported income from his nominee companies and failed to disclose certain income-producing assets.
The bankruptcy filing triggered a new criminal phase in the IRS’s investigation. As the IRS continued its investigation, it uncovered evidence that Boswell had not only hidden assets and income from the IRS but also made false statements to the bankruptcy court in his bankruptcy filings. Id. at 4-5. These false statements included misrepresentations about his control of the nominee businesses as well as other assets, including Boswell’s personal residence, held in the name of family members. The government contended that this conduct constituted bankruptcy fraud under 18 U.S.C. § 152(1) as well as affirmative acts of tax evasion under 26 U.S.C. § 7201.
Sealing of the Indictment
On July 13, 2018, the government indicted Boswell on a single count of bankruptcy fraud. Decision at 5. The magistrate judge ordered the indictment sealed, even though the government failed to provide “any reasoning in support” of sealing it. Id. The indictment was thus returned and sealed approximately one month before the statute of limitations for bankruptcy fraud expired on August 29, 2018—five years from the conclusion of Boswell’s bankruptcy on August 29, 2013. Id. (citing 18 U.S.C. § 3282).
On February 28, 2019, the grand jury returned a two-count superseding indictment, adding the tax evasion charge. Decision at 5-6. “Again, the Government moved to seal the indictment without explanation, and the magistrate judge granted the . . . request.” Id. at 6. The two-count superseding indictment was subsequently unsealed on March 20, 2019—the day Boswell was arrested. Id.
Sentencing
Following his conviction, Boswell was sentenced to sixty months’ imprisonment for each count of conviction, set to run concurrently, and three years of supervised release. Dkt. 170 (“Judgment”). In addition to the prison term, Boswell was ordered to pay $646,259.70 in restitution to the IRS as a condition of his supervised release. Id.
Fifth Circuit’s Analysis
Count One: Bankruptcy Fraud and the Statute of Limitations
The primary issue in Boswell’s appeal was whether the bankruptcy fraud charge should have been dismissed because the government failed to adequately justify sealing the indictment beyond expiration of the applicable statute of limitations.
In responding to that issue, the government contended that the indictment was properly sealed because “potential coconspirators were a component part of the scheme to defraud and assisted the defendant in creating nominal businesses to hide assets and income obtained by him.” Decision at 13. According to the government, “[L]eaving the indictment unsealed would potentially alert the coconspirators.” Id. The government thus argued that sealing the indictment was necessary “to further [the] investigation.” Id. at 14.
In analyzing the issue, the Fifth Circuit revisited its prior holding in United States v. Sharpe, 995 F.2d 49 (5th Cir. 1993). In Sharpe, the Fifth Circuit had ruled that “a properly sealed indictment does indeed toll the statute of limitations, absent a showing of substantive and actual prejudice.” 995 F.2d at 50. Left unexplained by Sharpe, however, was whether a criminal defendant must prove actual prejudice to enforce the statute of limitations.
The government argued that, when properly read, Sharpe required Boswell to “show both improper sealing and actual prejudice.” Decision at 18 (emphasis in original). The Fifth Circuit disagreed, clarifying and construing Sharpe to mean that “(1) an improperly sealed indictment does not toll the statute of limitations; and (2) even a properly sealed indictment will not toll the statute of limitations if the defendant can show substantive and actual prejudice.” Decision at 13. Under that construction, Boswell could succeed on appeal by satisfying either prong of the Sharpe rule.
As to the first prong, the Fifth Circuit explained that “to determine whether the indictment was properly sealed and thus tolled the statute of limitations, the court must consider whether the indictment was sealed for any legitimate prosecutorial objective or where the public interest required it.” Id. In view of that standard, the Fifth Circuit rejected each of the arguments presented by the government to justify sealing the indictment past expiration of the statute of limitations.
First, the government relied on United States v. Edwards, 777 F.2d 644 (11th Cir. 1985) to suggest that appellate courts routinely defer to the discretion of magistrate judges in deciding to seal an indictment. Although not disagreeing that deference may be owed in certain circumstances, the Fifth Circuit found that the government’s reliance on Edwards was nevertheless misplaced in this case. In Edwards, the magistrate judge had conducted an actual hearing and engaged in an active “colloquy” with the government about its reasons for sealing the indictment. Decision at 14-15 (citing Edwards, 777 F.2d at 648-49). Deference to the magistrate judge’s decision was therefore warranted in that case. Id. In the Boswell matter, however, “the Government presented no justification for sealing to the magistrate judge,” and the Fifth Circuit therefore concluded that no deference was owed to the magistrate judge’s mere ministerial decision to seal the indictment. Decision at 15.
Next, the government relied on United States v. Bracy, 67 F.3d 1421 (9th Cir. 1995) for the proposition that an indictment may be properly sealed during an ongoing investigation. In Bracy, the 9th Circuit recognized a legitimate purpose for sealing the indictment where the government was actively investigating a narcotics manufacturing and distribution operation. Id. at 1426. The Fifth Circuit rejected the government’s Bracyarguments because the government’s investigation of Boswell’s bankruptcy fraud was demonstrably not“ongoing” when the indictment was returned—Boswell was indicted in 2018 almost five years after his bankruptcy concluded in 2013. Decision at 15.
Finally, the government relied on United States v. Lakin, 875 F.2d 168 (7th Cir. 1989) for authority to obtain and seal an indictment where there is probable cause to justify the charge, but additional investigation is needed “to determine whether the case should be pursued.” Id. at 170. While commenting that “Lakin presents a closer call,” the Fifth Circuit nevertheless found that the government failed to show that it “needed more time to gather additional evidence to determine whether a case against Boswell should be pursued” when the bankruptcy case had been completed almost five years before the indictment. Id. at 15 (emphasis in original).
Instead, the Fifth Circuit found Boswell’s arguments based on United States v. Gigante, 436 F. Supp. 2d 647 (S.D.N.Y. 2006) more persuasive. Decision at 15. In Gigante, the Southern District of New York cautioned against using sealed indictments as a means to circumvent the statute of limitations, especially where, as here, “‘the defendant was well aware that the Government was investigating him, and there was no indication that the defendant would flee or be difficult to track.’” Id. (quoting Gigante, 436 F. Supp. 2d at 657). In such circumstances, sealing the indictment “would undermine the purpose of having a statute of limitations at all.” Decision at 16.
The Fifth Circuit emphasized that “[t]he most troubling aspect of the Government’s action in this case is that, despite its burden to ‘explain and support the legitimacy of its reasons for sealing the indictment,’ the Government has undertaken very little effort to support with evidence that its justifications are in fact legitimate.” Id. at 17 (quoting Sharpe, 995 F.2d at 52). In rejecting the government’s assertion that a sealed indictment was needed to avoid alerting Boswell’s co-conspirators to the investigation, the Fifth Circuit chided the government by pointing out that “[e]ach of Boswell’s alleged co-conspirators . . . [had] testified in front of the grand jury” as part of the government’s investigation of Boswell. Decision at 17. The alleged co-conspirators were, therefore, alerted to the investigation prior to the initial indictment. Id. In conclusion, the court found that “[t]he Government has provided no evidentiary support for its proffered justifications; it submitted no affidavits or other record evidence that would permit the court to substantively evaluate the Government's prosecutorial objectives in sealing.” Id.
The Fifth Circuit thus concluded that the government’s asserted justifications for sealing the indictment were insufficient to toll the statute of limitations. Having satisfied the first prong of Sharpe’s analysis, Boswell, was not required to demonstrate actual prejudice, and the court reversed Boswell’s conviction on the bankruptcy fraud charge.
Count Two: Tax Evasion
Having reversed Boswell’s conviction on bankruptcy fraud, the Fifth Circuit next considered whether it must, in turn, vacate Boswell’s tax evasion conviction and order a new trial on that charge alone. Relying on United States v. Plyman, 551 F.2d 965 (5th Cir. 1977), Boswell argued that the evidence supporting the tax evasion conviction was "inextricably bound up" with the evidence presented at trial to support his bankruptcy fraud conviction. Id. at 967.
To that end, Boswell argued that the government’s presentation of evidence on the bankruptcy fraud charge “dominated the trial,” resulting in an unfair distortion of the evidence of his alleged tax evasion. Decision at 18-19. Specifically, Boswell asserted that because damaging testimony from witnesses such as his ex-wife and certain creditors would have been inadmissible in a trial based solely on tax evasion, “the potential for prejudice on [the tax evasion count] was acute.” Id. (quoting Plyman, 551 F.2d at 967). In other words, Boswell argued that the jury’s consideration of the tax evasion charge was prejudiced by evidence that never should have been admitted during the trial.
The Fifth Circuit commented that it ordinarily addresses this type of “spillover” prejudice between related counts in the context of a district court’s denial of a motion to sever counts for presentation in separate trials. See United States v. Edwards, 303 F.3d 606, 639 (5th Cir. 2002) (misjoinder of claims may require a new trial). According to Edwards, Boswell was required to show that he “experienced some prejudice as a result of the joinder of the invalid claims.” Id. at 640.
The Fifth Circuit found no such prejudice because the government’s theory of prosecution was essentially the same for both Boswell’s bankruptcy fraud and tax evasion—Boswell used nominee ownership to conceal income and assets from both the bankruptcy court and the IRS. The Fifth Circuit therefore rejected Boswell’s contention that testimony from his ex-wife and other witnesses would have been inadmissible in a trial for tax evasion alone, because that evidence likewise pertained to Boswell’s use of nominee ownership and control of assets relevant to his tax evasion. The Fifth Circuit therefore concluded that “[t]his evidence would . . . be admissible in a trial solely pertaining to [tax evasion], such that there was no unjustified taint of the [tax evasion] conviction due to the simultaneous trial of [bankruptcy fraud].” Decision at 20.
Conclusion
In reversing Boswell’s conviction on bankruptcy fraud, the Fifth Circuit clarified its precedent inSharpe, holding that a defendant need not prove actual prejudice to obtain reversal if the government fails to justify sealing the indictment beyond the statute of limitations. Here, the government failed to meet that standard, allowing Boswell to escape conviction on the bankruptcy fraud charge. However, the court upheld the tax evasion conviction, determining that the evidence of Boswell’s financial misconduct was equally admissible and relevant to both charges. Despite the reversal, this decision is unlikely to affect Boswell’s overall sentence, as the 60-month prison terms for each conviction had been set to run concurrently.
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