## Facts

- Harold Brady sought to reduce or defer 1974 income tax liability through commodity futures transactions executed by Siegel Trading Company (STC).
- Joseph Siegel (STC president) and Alvin Winograd (STC vice-president) arranged Mexican peso futures “tax straddles” on the International Monetary Market in Chicago.
- Tax straddles could lawfully defer taxes if executed as bona fide, competitive exchange trades reflecting real market exposure.
- The government alleged the defendants instead implemented prearranged, noncompetitive trades among STC-related accounts to produce artificial losses for Brady.
- The alleged program matched Brady’s orders with known counterparties, reducing genuine market risk and ensuring intended tax outcomes.
- The government also characterized the trades as fixed, uncompetitive transactions and wash sales prohibited by the Commodity Exchange Act.
- A jury convicted Siegel and Winograd of (1) conspiracy to defraud the United States (18 U.S.C. § 371), (2) aiding and assisting fraudulent returns (26 U.S.C. § 7206(2)), and (3) fixed/noncompetitive futures transactions and wash sales (7 U.S.C. § 6c(a)(A)).
- The defendants appealed, challenging the legal theory of “risk,” the characterization of the trades as non-bona fide, evidentiary sufficiency, and jury instructions.

## Issues

1. Whether the tax-fraud counts required proof that the futures transactions were completely “risk-free,” and whether the evidence supported finding the transactions lacked bona fide market substance.
2. Whether the evidence permitted the jury to find the transactions were fixed, noncompetitive, prearranged trades and wash sales prohibited by the Commodity Exchange Act.
3. Whether the evidence and jury instructions were sufficient to sustain convictions on all counts.

## Decision

- The Seventh Circuit affirmed the convictions on all counts.
- The court held the government did not have to prove the transactions were absolutely risk-free to sustain the tax-fraud convictions.
- The court concluded the jury could find the defendants did not carry out the program through bona fide competitive open-market trading, but through prearranged transactions designed to generate artificial tax losses.
- The court held the pattern and structure of the trading supported findings of fixed, noncompetitive transactions and wash sales under the Commodity Exchange Act.
- The court rejected challenges to sufficiency of the evidence and upheld the jury instructions as adequate.

## Legal Principles

- A tax strategy that may be lawful in form (e.g., futures straddles) can support criminal liability when executed through sham or non-bona fide trading designed to fabricate tax losses and impede tax collection.
- For conspiracy to defraud the United States and aiding preparation of false returns, the government need not prove a scheme eliminates all theoretical market risk; proof that the transactions were structured and implemented to avoid bona fide competitive exposure and to create artificial losses can suffice.
- Prearranged matching of orders, fixed pricing, and noncompetitive execution on an exchange may constitute unlawful fixed/noncompetitive futures transactions and wash sales under the Commodity Exchange Act.
- Appellate review sustains a conviction where, viewing the evidence favorably to the government, a rational jury could find guilt beyond a reasonable doubt under correctly stated legal standards.

## Conclusion

The Seventh Circuit affirmed convictions arising from a futures “tax straddle” program, holding that criminal tax and commodities violations were supported where defendants used prearranged, noncompetitive trading to manufacture tax losses, and that the government was not required to prove the trades were wholly risk-free.


United States v. Winograd, 656 F.2d 279 (7th Cir. 1981)