The opinion of the court was delivered by: LECHNER
Richard S. Cannistraro ("Cannistraro") pled guilty to a nine count indictment including conspiracy to commit securities fraud, securities fraud, mail fraud, and obstruction of justice. He was sentenced to a term of imprisonment totalling eight years and to pay fines and restitution totalling approximately $ 725,000. Several motions are before the court: the motion of the United States seeking a turn over order pursuant to a writ of execution issued for money and assets which were placed with the court in connection with Cannistraro's bail; Cannistraro's motion for the return of money and assets which he deposited with the court in connection with his bail; and Cannistraro's motion challenging his sentence.
On May 15, 1987, United States Magistrate Ronald J. Hedges of the District of New Jersey issued an arrest warrant for Cannistraro based on a criminal complaint alleging a conspiracy to commit securities fraud. On that day Cannistraro was arrested in California. On May 18, 1987, Cannistraro made his initial appearance before United States Magistrate Brown in the Central District of California. Magistrate Brown allowed the pretrial release of Cannistraro; bail was satisfied with $ 75,000 in cash and a $ 50,000 appearance bond secured by defendant's title to his 1985 928S Porsche automobile.
On May 28, 1987, a federal grand jury sitting in Newark, New Jersey returned a nine count indictment charging Cannistraro with conspiracy to violate the securities laws, securities fraud, mail fraud, interstate transportation of stolen property, and obstruction of justice. Specifically, the indictment alleged that between 1982 and 1983 Cannistraro entered into an arrangement with portfolio managers of mutual and bank funds whereby they agreed to assist him in manipulating the price of the securities of Liquidation Control, Inc. ("LCI") and Toxic Waste Containment, Inc. ("TWC"). According to the indictment, the portfolio managers agreed to buy large blocks of these stocks for their funds' accounts, in return for which Cannistraro agreed to establish "nominee" brokerage accounts for the fund managers to conceal their fundamental interest in the transactions. The indictment further alleged Cannistraro, who at the time was a securities analyst at Wood Gundy, Inc. ("Wood Gundy"), drafted a false and misleading Wood Gundy research investment report concerning TWC and distributed this report through the United States mails. Finally, the indictment alleged Cannistraro had provided money to a grand jury witness in an effort to have this witness lie under oath to the grand jury about the witness' stock nominee relationship with Cannistraro.
On June 12, 1987, Cannistraro was arraigned; he pled not guilty to the charges against him. Shortly before trial, however, on September 21, 1987, Cannistraro pled guilty to all nine counts of the indictment. There was no plea agreement with the Government.
On September 24, 1987, a hearing was held on the Government's motion for the detention of Cannistraro pending sentencing. After testimony from several witnesses was heard, Cannistraro was allowed to remain free on bail. In order to ensure Cannistraro's appearance for sentencing on November 2, 1987, his bail was increased by $ 450,000 and other conditions of release were imposed.
On September 25, 1987, Cannistraro executed a second appearance bond, and posted with the court various municipal bonds and certificates of deposit registered in his name which totalled approximately $ 455,000.
Cannistraro also filed with the court an appropriate document to transfer to the United States legal title of the assets he posted.
The Memorandum discusses each of the counts to which Cannistraro pled guilty. In discussing count one, charging conspiracy to commit securities fraud, Cannistraro explains his relationship to the companies, LCI and TWC. Cannistraro was an officer and director of LCI and also owned 975,000 shares of LCI stock. Memorandum at 4. According to Cannistraro he was not an officer, director or insider of TWC. The Memorandum notes, however, that there were some common members of the LCI and TWC management teams and boards of directors. Id. at 5.
Cannistraro was a vice president and securities analyst at Wood Gundy. In the course of his duties he became acquainted with Bynum Vickory ("Vickory"), the portfolio manager of the Calvin Bullock Fund, and Bill Fritz ("Fritz"), the portfolio manager of the Marshall & Isley ("M&I") Fund. In separate conversations, Cannistraro told Vickory and Fritz that he was an officer of LCI and that it had just gone public; according to Cannistraro, the portfolio managers expressed some interest in buying LCI stock. In other conversations with the portfolio managers, Cannistraro told them that "TWC would be going public by Monarch Funding and that TWC could be a great success." Id. at 5-6.
According to Cannistraro, his
guilty plea to count one is based upon his mentioning the possibility of getting Vickory and Fritz, or friends of theirs, an allocation of a couple of thousand dollars in a future TWC offering. This served as an added inducement for their purchase of LCI and possibly TWC shares for their respective funds.
Id. at 6. Cannistraro further admits he aided Vickory and Fritz
in opening nominee accounts at Monarch by assisting in their obtaining new account forms, and he used his friendship with Leo Eisenberg, the president of Monarch, to obtain a $ 3,000 allocation of TWC for Bill Fritz's nominee and a $ 1000 allocation of TWC for Bynum Vickory's nominee.
In discussing this count, the Memorandum indicates the M&I fund lost $ 124,375 in LCI and the Bullock fund lost $ 25,000 in LCI. Id. at 7, 13-14. The Memorandum also states that Cannistraro and his co-conspirators gained a total of $ 247,572 from their transactions in TWC and LCI stock. This total includes the nominee accounts in the names of Carl A. Key, Donna Lee Clarambeau, Edward Cannistraro, Mary Godano, Dennis Williams, and Harold Beyer. Id. at 10.
Counts two through six charged separate securities fraud offenses. The Memorandum states the basis for Cannistraro's guilty plea to count two was
his failure to disclose his partial beneficial ownership in the [shares of the] Mary Godano [nominee account]. As an officer and director of LCI, Cannistraro should have disclosed any additional shares in which he might have had a beneficial interest.
Id. at 17. The Memorandum explains Cannistraro assisted his father, Edward Cannistraro, in the opening of a nominee account in the name of Mary Godano through Monarch Funding. Cannistraro also asked Leo Eisenberg, the president of Monarch Funding, "to give an allocation in the initial public offering of LCI to . . . Mary Godano." Id. at 15. Cannistraro had a partial beneficial interest in the Mary Godano account. Id.
The Memorandum indicates the basis for Cannistraro's guilty plea to count three was his failure to disclose the assistance he provided his father in opening an account at Monarch Funding and in obtaining an allocation in the initial public offering of LCI. Id. at 18. The death of Edward Cannistraro resulted in making Cannistraro a partial beneficial owner of the LCI shares. Id. at 19.
With respect to count four, Cannistraro admits he arranged for Donna Lee Claranbeau ("Claranbeau") to receive $ 5000 for the use of her name in a nominee account which he opened at Monarch Funding, and for which he obtained "a $ 10,000 allocation of [TWC] in the initial public offering. Id. at 22. Cannistraro details further that he borrowed $ 10,000 in cash from Monarch Funding which he gave to Claranbeau and which she used to purchase 40,000 units of TWC securities. Id.
Cannistraro directed the trading in the Claranbeau account. The account earned a profit of approximately $ 50,000. Id. Cannistraro states he pled guilty to count four because he did not disclose the Claranbeau nominee account in his Wood Gundy report recommending TWC. Id. at 23.
Similarly, with respect to count five, Cannistraro admits he arranged with Carl Alan Key ("Key") to open a nominee account at Monarch Funding to purchase TWC securities. Cannistraro borrowed $ 10,000 in cash from Monarch Funding which he gave to Key, instructing him to write a check to Monarch Funding to pay for 40,000 TWC units in the initial public offering. Id. at 24. The Key account earned a profit of $ 4,695. Id. Cannistraro states he pled guilty to count five because he did not disclose the Key nominee account in his Wood Gundy report which recommended TWC. Id. at 25.
With respect to count six, Cannistraro states that on April 19, 1983 he received a telephone call from a reporter for Ground Floor Publications regarding TWC. Cannistraro answered the reporter's questions and sent him a copy of the Wood Gundy report on TWC. Cannistraro, however, failed to disclose that nominee accounts had previously owned and sold TWC shares or the previous arrangements with the M&I Fund and the Calvin Bullock Fund. Cannistraro states his guilty plea to count six is based on this nondisclosure. Id. at 26.
The Memorandum indicates Cannistraro pled guilty to counts seven and eight, transporting fraudulent monies in interstate commerce and mail fraud, because of the doctrine that all members of a conspiracy and responsible for the overt acts of co-conspirators. Id. at 30-31. Cannistraro concedes that these offenses were committed in connection with the conspiracy charged in count one to which he pled guilty. Id.
Finally, the Memorandum sets forth Cannistraro's version of the facts underlying his guilty plea to count nine for obstruction of justice. Cannistraro states he agreed to pay Key's legal fees incurred in any investigations of the nominee account. Id. at 31. According to Cannistraro, he gave Key approximately $ 10,000 in cash for legal fees. Cannistraro states Key told him that he had received a subpoena and that he was going to talk with government officials. According to Cannistraro,
he and Key then discussed the events leading up to the purchase of TWC stock and in discussing the scenario misstated a few facts in order to minimize Cannistraro's role in the Key account.
In light of the sophistication and the potential of Cannistraro's fraudulent schemes, his attempt to obstruct justice, and considering all factors relevant to the sentencing determination, Cannistraro was sentenced to a term of imprisonment totalling eight years, followed by five years of probation, fines totalling $ 330,000, restitution in the amount of $ 394,847 and a special assessment of $ 50.
For purposes of the restitution order, although the Government's position was that Cannistraro's fraud on the investing public resulted in a loss of approximately three million dollars, the figures contained in Cannistraro's Memorandum were relied on in concluding that Cannistraro's illegal conduct resulted in a fraud on investors in the amount of $ 394,847. See Transcript of Sentencing Proceedings at 27, 49-50. This amount reflects the sum of the losses in LCI stock transactions of the Calvin Bullock and the M&I Fund ($ 25,000 and $ 124,375 respectively) and the profits gained by Cannistraro and his co-conspirators ($ 247,572). Id. at 27; see also Memorandum at 7, 10, 13-14.
At the sentencing hearing the addition of the profit and loss figures was reviewed with Cannistraro's trial attorney, David O'Connor ("O'Connor"). O'Connor responded: "I accept that, your Honor . . . ." Sentencing Transcript at 27. O'Connor continued: "Now I'm not going to argue, your Honor, because there is no question that losses can be added to the gains and make this case . . . ." Id. at 28.
On November 2, 1987, the day of the sentencing hearing, a Judgment and Commitment Order was entered against Cannistraro for his total term sentence, fines and restitution. Cannistraro was immediately remanded to the custody of the Attorney General. Id. at 51.
On November 13, 1987, Cannistraro filed a notice of appeal to the Third Circuit. The notice was filed by two law firms: Fleming, Merrill, Roth & Russell (Cannistraro's present counsel), and Gersten, Savage, Kaplan & Zuckerman (Cannistraro's trial counsel). See Defendant's Ex. D.
On November 16, 1987, Cannistraro's present counsel by Bruce Merrill ("Merrill") contacted the clerk's office for the United States District Court in Trenton, New Jersey in an attempt to have Cannistraro's bail recognizances cancelled. Merrill states he was advised that pursuant to Local Rule 35C.1 of the General Rules of the District of New Jersey, the $ 75,000 cash posted by Cannistraro would not be returned but rather be applied toward the fines imposed on Cannistraro by the judgment of the court. Merrill Aff., para. 6.
On November 20, 1987, Barry R. Goldsmith ("Goldsmith"), Assistant Chief Litigation Counsel for the SEC, sent a letter to the court requesting an order freezing Cannistraro's assets which were posted for bail until a trustee was appointed, at which time assets with a value in accord with the restitution order would be turned over to the trustee. Copies of this letter were sent to the Government and to Cannistraro's trial counsel, O'Connor and Marvin Gersten, who are both members of the firm of Gersten, Savage, Kaplan & Zuckerman.
Merrill, Cannistraro's present counsel, states that he first became aware of the December 1, 1987 order on December 9, 1987 when Assistant United States Attorney ("A.U.S.A.") Robert Warren ("Warren") advised him of it. On that date, A.U.S.A. Warren sent Merrill a copy of the order.
On January 29, 1988, A.U.S.A. Warren submitted to the court a proposed order regarding the appointment of a trustee to establish and oversee a fund to hold monies received pursuant to this court's restitution order. A copy of the letter and proposed order was sent to Merrill. See Merrill Aff., para. 9 and Ex. G. This proposed order was never signed.
On February 5, 1988, Merrill sent a letter to the court which he "submitted in opposition" to the proposed order for the appointment of a trustee to oversee the restitution fund. In this letter, Merrill objected for the first time to the December 1, 1987 order which froze Cannistraro's assets posted with the court, and asserted that Local Rule 35C.1 violates the Eighth Amendment. Although no motion was filed with the court, Merrill requested that the parties be allowed "a sufficient amount of time to fully develop and brief the issues raised in this letter, prior to entering the government's order." See Defendant's Ex. H.
On February 11, 1988, Goldsmith submitted to the court a revised proposed order for the appointment of a trustee. See Defendant's Ex. I. A copy of this correspondence was sent to Merrill. See Merrill Aff., para. 11.
On February 12, 1988, A.U.S.A. Warren wrote to the court in response to Merrill's February 5, 1988 letter. See Defendant's Ex. J. On February 16, 1988, Merrill wrote to the court replying to A.U.S.A. Warren's letter and requesting a briefing schedule regarding the issues raised in the correspondence, although no motion had yet been filed with the court. See Defendant's Ex. K.
On February 26, 1988, the United States requested the court issue a writ of execution because Cannistraro had failed to pay promptly the restitution and fines. The writ was issued, commanding the United States Marshal to satisfy the criminal judgment against Cannistraro out of the personal property of Cannistraro as set forth in the affidavit of A.U.S.A. Janice Montana.
On February 26, 1988 the writ of execution was served by a Deputy United States Marshal on the Clerk of the Court in Trenton, New Jersey, thus effecting execution upon all monies and assets listed in the writ. See Montana Aff., para. 2.
On March 8, 1988, Goldsmith sent a letter to the court advising that the SEC had approved the appointment of Thomas L. Morrissey, Esq. ("Morrissey") of the Newark, New Jersey firm of Carpenter, Bennett & Morrissey to serve as trustee of the Cannistraro restitution fund; Goldsmith submitted a proposed order, providing for the appointment of Morrissey. A copy of this letter was sent to Merrill. See Defendant's Ex. L. On March 11, 1988, Merrill wrote to the court to oppose the proposed order; Merrill requested that the court delay considering the proposed order until the matter was resolved after Merrill filed a motion which Merrill indicated he was then in the process of preparing. See Defendant's Ex. M.
On March 22, 1988, the proposed order was signed, appointing Morrissey as trustee to establish and oversee a fund which is to hold all monies received from Cannistraro pursuant to this court's restitution order. As indicated in the order, the purpose of the fund is to recompense investors for losses resulting from the stock manipulations in which Cannistraro participated. The order further provided that the trustee, Morrissey, was to take into his custody assets of Cannistraro with a current value of $394,847, which were to be obtained from the assets posted for bail.
Now before the court is the motion by the United States for an order directing the Clerk of the Court to turn over to the United States Marshal pursuant to the writ of execution all assets of Cannistraro held by the Clerk and further directing that assets in the value of $ 394,847 shall be paid to the trustee of the restitution fund. Also before the court is Cannistraro's motion, filed on March 28, 1988, for the return of the assets and cash he posted for bail. Cannistraro challenges Local Rule 35C.1, this court's orders of December 1, 1987 and March 22, 1988, as well as the writ of execution, dated February 26, 1988. In addition, on April 5, 1988 Cannistraro filed a motion, pursuant to Fed. R. Crim. P. 35, challenging the terms of his sentence and the manner in which the sentence was imposed.
For the reasons which follow, the Government's motion for a turn over order is granted; Cannistraro's motions for the return of the bail money and to modify his sentence are denied.
I. Motions Concerning Bail ...