## Facts

- Zenith Radio Corporation employed Peter K. Yonan as a purchasing-department buyer with primary responsibility for soliciting cabinet bids, negotiating prices, and dealing with cabinet vendors.
- Irving H. Greensphan was president of Accurate Box Corporation, a Zenith cabinet supplier; Andrew George operated A & G Woodworking Co.
- Zenith maintained a written conflict-of-interest policy prohibiting purchasing employees from accepting gratuities or kickbacks from suppliers; Yonan signed the policy, and suppliers were notified of it.
- From about June 1967 through January 1971, the defendants agreed that Yonan would receive kickbacks connected to Accurate Box’s cabinet sales to Zenith.
- To fund and conceal the kickbacks, George submitted fictitious “commission” invoices from A & G Woodworking to Accurate Box; Accurate Box paid the invoices, and George passed a portion of the proceeds to Yonan.
- The kickbacks and related arrangements were not disclosed to Zenith.
- The charged mailings were Zenith’s checks mailed to Accurate Box as payment for cabinets; those payments enabled Accurate Box to make the commission payments that financed the kickbacks.

## Issues

1. Whether a private-employee kickback arrangement, concealed from the employer and contrary to a known conflict-of-interest policy, constitutes a “scheme to defraud” under 18 U.S.C. § 1341 by depriving the employer of money and the employee’s honest and faithful services.
2. Whether Zenith’s mailings of payment checks to Accurate Box were sufficiently connected to the scheme to satisfy § 1341’s mailing element.
3. Whether trial errors required reversal, including admission of Zenith’s conflict-of-interest policy, alleged instructional errors, and denial of severance.

## Decision

- The Seventh Circuit affirmed all convictions on all counts for mail fraud and aiding and abetting.
- The court held that the concealed kickback scheme constituted a scheme to defraud Zenith of money and of Yonan’s honest and faithful services.
- The court held that Zenith’s mailed checks to Accurate Box were in furtherance of the scheme because they facilitated the flow of funds used to pay the sham commissions and kickbacks.
- The court found no reversible error in admitting Zenith’s conflict-of-interest policy, in the jury instructions when considered as a whole, or in the denial of severance.

## Legal Principles

- A mail-fraud “scheme to defraud” can be established by an employee’s deliberate, undisclosed kickback arrangement that breaches the duty of honest and faithful service owed to the employer and is intended to benefit the employee and confederates.
- Proof of fraud does not depend on showing the employer received poor quality goods or was demonstrably overcharged when the scheme involves concealment of a material conflict of interest and kickbacks tied to the employer’s transactions.
- The mailing element of § 1341 is satisfied when mailings are incident to an essential part of the scheme or a step in its execution, including routine payment mailings that enable the scheme’s funding.
- Evidence of a written conflict-of-interest policy may be admitted to show the existence of a duty, defendants’ knowledge of that duty, and intent to deceive through nondisclosure.
- Defendants jointly involved in a single scheme may be tried together absent a showing of compelling prejudice; instructional claims warrant reversal only if the charge, viewed in its entirety, misstates the law or misleads the jury on the government’s burden.

## Conclusion

The court sustained mail-fraud convictions where a purchasing employee secretly took vendor-funded kickbacks through sham invoices, concluding that the concealment and breach of duty to the employer constituted a scheme to defraud and that mailed payment checks integral to the payment flow satisfied the statutory mailing requirement.


United States v. George, 477 F.2d 508 (7th Cir. 1973)