The opinion of the court was delivered by: ALFRED J. LECHNER, JR.
I. Motion to Dismiss and for Discovery Based on Allegations of Prosecutorial Misconduct
II. Motion to Dismiss for Pre-Indictment Delay, Selective Prosecution and Vindictive Prosecution
C. Vindictive Prosecution
III. Motion to Preclude Cayman Islands Depositions
B. Right to Conduct Recross
C. Right to Confrontation
IV. Motion to Dismiss Counts One and Two as Barred by the Statute of Limitations
A. Substantive RICO -- Count One
B. RICO Conspiracy -- Count Two
V. Motion to Dismiss Counts One, Two and Eight for Failure to State a Securities Laws Offense
A. Disclosures in the Wood Gundy Reports
VI. Bertoli's Motion to Dismiss Count Seven Charging Obstruction of Justice
A. Dismissal of Count Seven
B. Severance of Count Seven
VII. Motion for Discovery
A. Tape Recordings or Transcripts of Conversations -- Request Numbers One, Two Eight and Nine
B. Production of Documents -- Request Numbers Three through Seven
1. Documents Obtained Subsequent to 9 February 1990
2. Bank Records and Tax Returns -- Request Number Four
3. Letter of Intent, Citywide Securities Check and Due Diligence Files - Request Numbers Five through Seven
C. Giglio Material -- Request Numbers Eleven through Fourteen
VIII. Motion to Reconsider First Pretrial Motions in Light of Second Superseding Indictment
Currently before the court are the pretrial motions of the Defendants
(1) to dismiss the Second Superseding Indictment for prosecutorial misconduct, or in the alternative, for discovery of grand jury materials (the "Misconduct Motion"), (2) to dismiss the Second Superseding Indictment for pre-indictment delay, for selective prosecution and for vindictive prosecution (the "Pre-Indictment Delay Motion"), (3) to preclude the introduction of the Cayman Islands Depositions (the "Cayman Islands Motion") at trial, (4) to dismiss Counts One and Two of the Second Superseding Indictment on the ground that the RICO Counts are barred by the statute of limitations (the "Statute of Limitations Motion"), (5) to dismiss Counts One, Two and Eight of the Second Superseding Indictment for failure to state an action for securities fraud (the "Securities Fraud Motion"), (6) to dismiss Count Seven (the "Obstruction of Justice Motion"), (7) to compel discovery pursuant to Fed.R.Crim.P. 16 (the "Motion to Compel Discovery") and (8) for the court to consider the pretrial motions filed in connection with the Superseding Indictment as filed following the Second Superseding Indictment (the "Motion re First Pretrial Motions") (collectively, the "Second Pretrial Motions").
For the reasons set forth below: the Misconduct Motion is denied; the Pre-Indictment Delay Motion is denied; the Statute of Limitations Motion is denied; the Securities Fraud Motion is denied and the Obstruction of Justice Motion is denied. The Motion to Compel Discovery is denied; however, Bertoli is given leave to continue to inspect documents in possession of the Government. The Cayman Islands Motion is also denied; however, Bertoli is given leave to cross-examine witnesses with respect to the Second Superseding Indictment and to recross individuals not previously recrossed and Cannistraro is given leave to cross-examine individuals deposed in the Cayman Islands.
As to Count One, the Second Superseding Indictment states Monarch, the enterprise, was a securities brokerage firm in New York City, New York which was engaged in the business of underwriting, purchasing and selling securities primarily traded in the over-the-counter markets. Second Superseding Indictment, Count One ("Count One"), P2. Count One states Bertoli was the former president of a brokerage firm, not named in the Second Superseding Indictment, and controlled and had a beneficial interest in several nominee brokerage accounts
maintained at Monarch. Id., P3. These nominee brokerage accounts included accounts in the names of family members and various Cayman Islands individuals and entities. Id.
Count One states Cannistraro was a securities research analyst with Wood Gundy, Inc. ("Wood Gundy"), a brokerage firm located in New York City, New York. Id., P4. It states Cannistraro controlled and had a beneficial interest in nominee brokerage accounts maintained at Monarch. Id. These nominee brokerage accounts included accounts in the names of relatives and Cayman Islands individuals and entities. Id. Count One states that Eisenberg was the owner and president of Monarch. Id., P5. It states Eisenberg controlled and had a beneficial interest in nominee brokerage accounts maintained at Monarch, which included accounts in the names of various Cayman Islands individuals and entities. Id. Count One describes the pattern of racketeering engaged in by the Defendants and others, including Eisenberg, as consisting of predicate acts of mail fraud, wire fraud, interstate transportation of money taken by fraud, securities fraud and obstruction of justice. Id., P9.
Count One charges that from about January 1982 to the present, in the District of New Jersey and elsewhere, the Defendants and Eisenberg participated in the affairs of Monarch through a pattern of racketeering activity, the object of which was to "use Monarch as a vehicle to engage in fraudulent securities trading practices and thereby obtain money and other things of value for the Defendants. . . ." Id., PP7-8. It identifies the victims of the racketeering activity as the purchasers and sellers of securities recommended and traded by the Defendants and Eisenberg. Id., P8. It alleges the means and methods of conducting the conspiracy included "attempts to conceal and cover-up their fraudulent activities." Id., P9.
Count One charges the Defendants with engaging in racketeering activity through the execution of seven separate fraudulent trading or concealment schemes involving the following securities: Astrosystems, Inc. ("Astrosystems"); Nature's Bounty, Inc. ("Nature's Bounty"); Liquidation Control, Inc. ("LCI"); Toxic Waste Containment, Inc. ("Toxic Waste") and High Technology Capital Corp. ("High Tech"). Id., P9.
As to the scheme involving Astrosystems
(the "Astrosystems Scheme"), Count One states that between approximately October 1982 and August 1983, in the District of New Jersey and elsewhere, the Defendants and Eisenberg established nominee brokerage accounts at Monarch and elsewhere to purchase Astrosystems securities from the investing public with the knowledge that favorable research reports were to be prepared by Cannistraro and disseminated by Wood Gundy to the investing public. Id., P12. Count One charges the Defendants and Eisenberg made such purchases with the expectation that the research reports would cause an increase in the price of Astrosystems securities. Id.
Count One identifies four such reports transmitted between November 1982 and December 1982 recommending the purchase of Astrosystems securities. Id., P13. It charges that the reports were false and misleading because they did not disclose that the Defendants and Eisenberg "had purchased Astrosystems securities based upon advance knowledge of the reports, and intended to profit on the sale of these securities once the dissemination of the reports had caused the price of Astrosystems securities to rise." Id., P14.
Count One identifies, by date and content, eight instances of mail fraud in violation of 18 U.S.C. §§ 1341-2, two instances of wire fraud in violation of 18 U.S.C. § 1343 and one instance of securities fraud in violation of section 10(b) ("Section 10(b)") of the Securities Exchange Act of 1934 and rule 10b-5 ("Rule 10b-5") 17 C.F.R. § 240.10b-5 15 U.S.C. § 78j, all perpetrated by the Defendants and Eisenberg in executing the Astrosystems Scheme. Id., PP17-19.
With respect to the second scheme (the "Nature's Bounty Scheme"), Count One states that from approximately December 1982 to March 1983 the Defendants and others, including Eisenberg, engaged in a scheme involving the securities of Nature's Bounty.
Id., PP20-21. It states that in or about January 1983, the Defendants and Eisenberg used nominee and other brokerage accounts at Monarch and elsewhere, including a brokerage firm trading account
at Monarch (the "Monarch Trading Account"), Euro Bank Corp.'s ("Euro Bank") account
at Monarch and a trust account in the name of Berco (the "Berco Trust")
at Swiss Bank & Trust Corporation Limited, Grand Cayman Island ("Swiss Bank"), "to purchase Nature's Bounty securities from the investing public, with the knowledge that favorable research reports were to be prepared by [Cannistraro] and disseminated by Wood Gundy to the investing public, and with the expectation that the reports would cause the price of Nature's Bounty securities to rise." Id., P21.
Count One identifies two reports transmitted in January 1983. Id., P22. It states they were false and misleading in that they "failed to disclose, among other things, that the Defendants . . . and others, including . . . Eisenberg, had purchased Nature's Bounty securities based upon advance knowledge of the reports, and intended to profit on the sale of these securities once the dissemination, or anticipated dissemination of the reports, had caused the price of Nature's Bounty securities to rise." Id., P23.
Count One alleges the Defendants and Eisenberg "sold their Nature's Bounty securities to the investing public without disclosing the fraudulent trading scheme, and thereby fraudulently obtained profits totalling at least $ 400,000." Id., P24. It identifies, by date and content, six instances of mail fraud, four instances of wire fraud and one instance of securities fraud in violation of Section 10(b) and Rule 10b-5, all perpetrated by the Defendants and others, including Eisenberg, in executing the Nature's Bounty Scheme. Id., PP25-27.
As to the third scheme (the "LCI Scheme"), Count One states that between approximately October 1982 and November 1983, the Defendants and others, including Eisenberg, devised a scheme to defraud and obtain money "by means of false and fraudulent pretenses, representations, and promises" with respect to LCI
Securities. Id., P28. Count One describes the LCI Scheme as one in which the Defendants and Eisenberg rigged and manipulated the market in order to raise and control the price of LCI securities and create a greater demand for the same. Id., PP29-30.
Count One states Bertoli caused Monarch to underwrite the initial public offering (the "IPO")
of LCI securities. Id., P31. It states Bertoli arranged for the LCI IPO to be sold in units; a unit consisted of one share of common stock and two warrants. Id., P32. It states that the Defendants and others, including Eisenberg, caused "virtually all of the securities in the LCI IPO to be sold to individuals and entities who were controlled by them, or who were under the control of individuals who had understandings with them concerning the manner in which these securities would be traded." Id., P33. It states that as a result, the Defendants and Eisenberg controlled the LCI securities traded in the market and enhanced their ability to fraudulently manipulate the price of the LCI securities. Id.
Count One states that during the LCI IPO and the first few days of aftermarket trading, the Defendants and Eisenberg purchased substantial amounts of LCI securities at minimal cost through nominee brokerage accounts, such as the Euro Bank account at Monarch. Id., P34. It states one way the Defendants and Eisenberg controlled pricing was that prior to the close of the LCI IPO, they made arrangements with brokers and traders for the LCI securities to be traded according to the directions of Defendants and Eisenberg. It states these individuals bought and sold LCI securities at times and prices determined by the Defendants and Eisenberg, rather than by the market forces. Id.
Count One states Defendants and Eisenberg bribed portfolio managers and research analysts of the M&I Growth Fund
(the "M&I Fund") and Aggressive Growth Shares, Inc. (the "Bullock Fund").
It states the Defendants and Eisenberg opened nominee brokerage accounts at Monarch for the benefit of the M&I Fund and Bullock Fund managers and research analysts. These accounts were used to generate large sums of money through fraudulent trading of LCI securities. Id. The managers in turn bought large blocks of LCI securities for their respective funds. Id., P36. The research analysts caused Halswell Corp.
("Halswell") to open an account at Monarch. Id.
Count One states Cannistraro wrote a research report to be circulated prior to the close of the LCI IPO recommending the purchase of the LCI securities (the "LCI Report"). Id., P37. It states the Defendants caused a broker from G.K. Scott & Co. ("G.K. Scott") to claim authorship of and publish the LCI Report on G.K. Scott letterhead because Cannistraro was an officer and director and the largest shareholder of LCI. Id. It states as part of the LCI Scheme the Defendants and Eisenberg caused the LCI Report to be disseminated without disclosing that Cannistraro had actually authored it, that the Defendants and Eisenberg were engaged in a scheme to manipulate the market and that the LCI Report was part of the scheme. Id., P38.
Count One states that during the first five days of aftermarket trading the Defendants and Eisenberg caused the LCI securities to rise from the IPO unit price of twenty-five cents to $ 1.25 and that by the end of February 1983, they caused the price to rise to $ 1.625 per share. Id., P39. It states the Defendants and Eisenberg sold their LCI securities "without disclosing this fraudulent trading scheme" and "fraudulently obtained profits totalling at least $ 462,000." Id., P40. Count One identifies, by date and content, six instances of mail fraud, five instances of wire fraud and one instance of securities fraud in violation of Section 10(b) and Rule 10b-5, all perpetrated by the Defendants and others, including Eisenberg, in executing the LCI Scheme. Id., PP41-43.
As to the fourth scheme (the "Toxic Waste Scheme"), Count One states that between approximately December 1982 and October 1983, the Defendants and others, including Eisenberg, engaged in a scheme concerning Toxic Waste
securities. Id., P44-45. Count One describes the Toxic Waste Scheme as one in which the Defendants and Eisenberg rigged and manipulated the market in order to raise and control the price of Toxic Waste securities and create a greater demand for the same in order to ensure they could sell their Toxic Waste securities at a substantial profit. Id., PP45-46.
Count One states Bertoli caused Monarch to underwrite the IPO of Toxic Waste securities. Id., P47. It states Bertoli caused the securities in the Toxic Waste IPO to be sold in units; a unit consisted of one share of common stock and two warrants. Id., P48. It states the Defendants and others, including Eisenberg, caused "the securities in the Toxic Waste IPO to be sold to individuals and entities who were controlled by them, or who were under the control of individuals who had understandings with them concerning the manner in which these securities would be traded." Id., P49. It states as a result the Defendants and Eisenberg controlled the LCI securities being traded in the market and enhanced their ability to fraudulently manipulate the price of the Toxic Waste securities. Id.
Count One states that during the Toxic Waste IPO and first days of aftermarket trading, the Defendants and Eisenberg purchased substantial amounts of Toxic Waste securities at minimal costs through nominee brokerage accounts in the names of Parsico Ltd. ("Parsico")
and Venture Partners "A" ("Venture Partners")
maintained at Monarch. Id., P50. It states one way the Defendants and Eisenberg controlled pricing was that prior to the close of the Toxic Waste IPO, they made arrangements with various brokers and traders to trade the Toxic Waste securities according to the directions of Defendants and Eisenberg. It stated these individuals bought and sold Toxic Waste securities at times and prices determined by the Defendants and Eisenberg, rather than by the market forces. Id., P51. It states Defendants and Eisenberg opened nominee brokerage accounts at Monarch for the benefit of the M&I Fund and Bullock Fund managers and research analysts. Id., P52. It states the Defendants and Eisenberg bribed the M&I Fund and Bullock Fund managers to buy large blocks of Toxic Waste securities for their respective funds. The M&I Fund and Bullock Fund research analysts caused the Halswell brokerage account at Monarch to purchase large blocks of Toxic Waste securities. Id.
Count One states as part of the fraudulent scheme to inflate the price of Toxic Waste securities, Cannistraro wrote four research reports (the "Toxic Waste Reports") to be circulated prior to the close of the Toxic Waste IPO. These reports recommended the purchase of the Toxic Waste securities. Id., P53. It states Cannistraro caused Wood Gundy to disseminate the Toxic Waste Reports to the investing public. Id. It states the Defendants and Eisenberg caused the Toxic Waste Reports to be disseminated without disclosing that the Defendants and Eisenberg were engaged in a scheme to manipulate the market and that the reports were part of the scheme. Id., P54. Count One states that as part of the Toxic Waste Scheme, on or about March or April 1983, Bertoli and Eisenberg caused Monarch to disseminate to brokers, research analysts, securities newsletters and Monarch customers eighteen thousand copies of one of the Toxic Waste Reports recommending the purchase of Toxic Waste securities. Id., P55. It states that on or around March or April 1983, Cannistraro caused to be prepared and disseminated to the investing public articles in the 14 March 1983 Portfolio Letter and the securities investment newsletter "Ground Floor," dated 22 April 1983 (the "22 April 1983 Ground Floor"). Id., P56. It states these articles discussed the Toxic Waste Reports and continued to recommend the purchase of Toxic Waste securities without disclosing the Toxic Waste Scheme. Id.
It states that during the first three days of aftermarket trading the Defendants and Eisenberg caused the Toxic Waste securities to rise from the IPO unit price of twenty-five cents to $ 1.25 per share of common stock and that between 10 March 1983 and mid-June 1983, they caused the price to rise to $ 4.50 per share. Id., P57. Count One states the Defendants and Eisenberg sold their Toxic Waste securities "without disclosing this fraudulent trading scheme" and "fraudulently obtained profits totalling at least $ 4,240,000." Id., P58. It identifies, by date and content, eleven instances of mail fraud, two instances of wire fraud, one instance of interstate transportation of money taken by fraud in violation of 18 U.S.C. § 2314 and one instance of securities fraud in violation of Section 10(b) and Rule 10b-5, all perpetrated by the Defendants and others, including Eisenberg, in executing the Toxic Waste Scheme. Id., PP59-62.
As to the fifth scheme (the "Beneficial Owners Concealment Scheme"), Count One states that from approximately March 1983 to November 1984, in the District of New Jersey and elsewhere, the Defendants executed a scheme to conceal the identities of the promoter and beneficial owners of High Tech.
Id., P63. It states that in about March 1983, Bertoli became the promoter of High Tech, whereby he founded High Tech, appointed its officers, board of directors and advisory board, allocated the distribution of its securities and arranged for the IPO of its securities, which were underwritten by Monarch. Id., P64.
Count One further states that in March 1983, prior to the IPO of the High Tech securities, the Defendants and Eisenberg caused 3.1 million shares of High Tech restricted common stock to be placed in the names of nominees while the shares were beneficially owned by the Defendants and Eisenberg. Id., P65. It states the Defendants and Eisenberg did not disclose in High Tech's registration statements and prospectus the role of Bertoli as High Tech's promoter and the Defendants' and Eisenberg's beneficial ownership of more than ten percent of High Tech's common stock and more than ten percent of High Tech's outstanding stock. Id., P66.
Count One states that having concealed such information, the Defendants raised $ 425,000 in capital for High Tech from the investing public and were able to direct the management and policies of High Tech to their benefit. Id., P67. In addition, it states that from approximately February 1984 to July 1984, the Defendants caused 3.1 million shares of High Tech common stock beneficially owned by them to be sold for a profit of at least $ 115,000. Id., P68. It identifies, by date and content, five instances of mail fraud, three instances of wire fraud and two instances of securities fraud in violation of 15 U.S.C. §§ 77g, 77x, 77aa(4), 77aa(6) and 77j(a)(1), all perpetrated by the Defendants and others, including Eisenberg, in executing the Beneficial Owners Concealment Scheme. Id., PP69-72.
Count One states Bertoli caused Monarch to underwrite the IPO of High Tech securities. Id., P76. It states Bertoli caused the securities in the High Tech IPO to be sold in units, consisting of one share of common stock and two warrants. Id., P77. It states that the Defendants and others, including Eisenberg, caused "the securities in the High Tech IPO to be sold to individuals and entities who were controlled by them, or who were under the control of individuals who had understandings with them concerning the manner in which these securities would be traded." Id., P78. It states as a result the Defendants and Eisenberg controlled the LCI securities being traded in the market and enhanced their ability to fraudulently manipulate the price of the High Tech securities. Id.
Count One states that during the High Tech IPO and first few days of aftermarket trading, the Defendants and Eisenberg purchased substantial amounts of High Tech securities at minimal costs through nominee brokerage accounts maintained at Monarch in the names of Parsico, Venture Partners, VPI Ltd. ("VPI")
and Roger Rowland.
Id., P79. It states one way the Defendants and Eisenberg controlled pricing was that prior to the close of the High Tech IPO, they made arrangements for High Tech securities to be traded by traders and brokers according to the directions of the Defendants and Eisenberg. It states this trading procedure allowed High Tech securities to be bought and sold at times and prices determined by the Defendants and Eisenberg, rather than by the market forces. Id., P80. It states that as part of the High Tech Scheme the Defendants and Eisenberg bribed a fund manager and a research analyst in an attempt to cause the buying of large blocks of High Tech securities. Id., P81.
Count One states the Defendants and Eisenberg allocated securities in the High Tech IPO to the research analyst's nominee brokerage account at Monarch. Id. In exchange for such allocation, and in exchange for money which the Defendants and Eisenberg provided to the research analyst through the trading of LCI and Toxic Waste securities in his nominee accounts at Monarch, the research analyst caused the Halswell brokerage account at Monarch to purchase a large block of High Tech securities. Id. In addition, Count One states the Defendants and Eisenberg allocated securities in the High Tech IPO to the M&I Fund manager's nominee brokerage account at Monarch in exchange for which the M&I Fund manager agreed to cause the M&I Fund to purchase a large block of High Tech securities. Id.
Count One states as part of the fraudulent scheme to inflate the price of High Tech securities, Cannistraro recommended the purchase of High Tech securities to various brokers at Wood Gundy without disclosing that the Defendants and Eisenberg were engaged in a scheme to manipulate the market and that the recommendation was part of the scheme. Id., P82.
Count One states that as a result of the dissemination of such reports, the price of Solar Age securities was artificially inflated and the transfer of Solar Age securities to High Tech thereby artificially increased the value of High Tech's portfolio. Id., P86. It states the fraudulently inflated value of High Tech securities was then publicized to the investing public in various newsletters and letters from High Tech. Id. It states the Defendants and Eisenberg caused the price of High Tech securities to rise in the first six days of aftermarket trading from the IPO price of fifty cents to $ 2.25 per share of common stock; between 15 June and mid-October 1983 the price increased to $ 3.25 per common share. Id., P87.
Count One states that from about June 1983 to about February 1984, the Defendants sold their High Tech securities to the investing public without disclosing the fraudulent trading scheme for a profit of at least $ 1,720,000. Id., P88. It identifies, by date and content, eleven instances of mail fraud, three instances of wire fraud and one instance of securities fraud in violation of Section 10(b) and Rule 10b-5, all perpetrated by the Defendants and others, including Eisenberg, in executing the High Tech Scheme. Id., PP89-91.
As to the seventh and last scheme (the "Cover-Up Scheme"), Count One asserts the Defendants obstructed justice to conceal their wrongdoing. Count One states a subpoena of a grand jury empaneled in the District of New Jersey
was served on one of Cannistraro's nominees on or about 24 January 1986, requiring the nominee to produce documents and to testify before the grand jury. Id., P93. It states Cannistraro instructed and directed this nominee, in return for cash payments, to conceal Cannistraro's beneficial ownership in the nominee's Monarch account. Id., P94.
Count One states Bertoli engaged in conduct to obstruct justice and to cover up the fraudulent trading schemes by shredding and destroying documents in the Cayman Islands in June and November 1987, by removing documents and hiding the proceeds from the racketeering activities and by submitting false and fraudulent affidavits to the court. Id., P95.
Count Two of the Second Superseding Indictment charges the Defendants with conspiracy to violate RICO section 1962(c) by agreeing with others, including Eisenberg, to conduct the affairs of Monarch through a pattern of racketeering in violation of RICO section 1962(d). It charges the conspiracy existed from about January 1982 to at least January 1989 in the District of New Jersey and elsewhere. Second Superseding Indictment, Count Two ("Count Two"), P2. It states the pattern of racketeering consisted of the racketeering acts charged in Count One of the Second Superseding Indictment. Id.
Count Three of the Second Superseding Indictment charges Bertoli with conspiracy to obstruct justice in violation of 18 U.S.C. § 371 in connection with a civil litigation brought by the SEC against the Defendants, Eisenberg and Steven Cloyes, a securities broker at Monarch (the "SEC Action"), the grand jury investigations related to the underlying securities fraud, the prosecution of Cannistraro in 1987 and this action. Second Superseding Indictment, Count Three ("Count Three"), P14. It charges the conspiracy began as early as March 1983 and has continued to the present. Id.
Count Three describes the object of the conspiracy as a means "to cover-up, conceal, and eventually avoid civil and criminal liability for, the illegal racketeering activities of . . . Bertoli, . . . Cannistraro and . . . Eisenberg, and to prevent evidence of their . . . beneficial ownership of money and accounts in the Cayman Islands, from being considered and used" in the civil and criminal actions against them. Id., P15. It states the conspiracy was achieved by causing brokers or nominees to lie to or conceal evidence from investigators and the grand jury, causing Cayman Islands banks from producing documents requested in an informal agreement between the United States Department of Justice and the Cayman Islands Authorities (the "Gentleman's Agreement"),
requesting financial documents from Cayman Islands entities, concealing documents at Monarch that were subpoenaed by the grand jury, destroying documents relating to the nominee accounts at Euro Bank, filing a false financial disclosure form with the United States Probation Office, transferring funds in the Cayman Islands and submitting false affidavits during the course of this prosecution. Id., PP16-28.
Count Three lists thirty-three overt acts committed by the Defendants and Eisenberg between March 1983 and the return of the Second Superseding Indictment in furtherance of this conspiracy. These overt acts are too numerous to set forth in full. However, they include meetings and telephone calls in March and August 1983 between Bertoli and/or Eisenberg and a broker from G.K. Scott, see Count Three, overt act numbers 1, 3-4 and 6, and false and misleading statements provided by a G.K. Scott broker to SEC investigators or to the SEC, id. overt act numbers 2 and 5. In addition, they include false and misleading statements made by Eisenberg to the SEC. Id., overt act numbers 7-8. The overt acts also include telephone calls or meetings between Cannistraro and his nominees and subsequent false statements by the nominees to the SEC or the grand jury, id., overt acts numbers 9-11, 16-17, 21, flights by the Defendants to the Cayman Islands, id. overt acts numbers 12-15, 18-20, 22-24, the shredding of documents in the Cayman Islands, id., overt acts numbers 25, 27, a meeting between Bertoli and Eisenberg in New York, New York, id., overt act number 30, and providing false documents or affidavits to the court or the United States Probation Office. Id., overt acts numbers, 26, 31-33.
Count Four charges Bertoli with obstruction of justice in violation of 18 U.S.C. §§ 1502-1503. Second Superseding Indictment, Count Four, P4. It states that in or about June 1987 Bertoli and Eisenberg, after a grand jury returned the 1987 Cannistraro Indictment, shredded and destroyed documents in the Cayman Islands which were relevant to the investigations of a grand jury, empaneled on 30 January 1986. Id., PP2-4.
Count Five charges Bertoli with obstruction of justice in violation of 18 U.S.C. §§ 1503 and 2. Second Superseding Indictment, Count Five, P3. It states that in or about November 1987, in the District of New Jersey and elsewhere, Bertoli shredded and destroyed documents in the Cayman Islands that were relevant to the investigations of a grand jury, empaneled on 17 March 1987. Id., PP2-3.
Count Six charges Bertoli with obstruction of justice in violation of 18 U.S.C. §§ 1503 and 2. Second Superseding Indictment, Count Six, P2. It states that in or about April 1990, in the District of New Jersey and elsewhere, Bertoli and others, including Eisenberg, "caused the racketeering proceeds and documents relating to those racketeering proceeds to be transferred from the custody and control of [a Paget-Brown & Co. ("Paget Brown")] employee and then caused the racketeering proceeds to be moved from the Cayman Islands to the Principality of Andorra in Europe." Id.
Count Eight charges the Defendants with conspiracy in violation of 18 U.S.C. § 371 to violate Section 10(b) and Rule 10b-5 in connection with the purchase and sale of Solar Age securities. Second Superseding Indictment, Count Eight ("Count Eight"), P2, 16. It states the conspiracy existed between about May 1983 and about October 1985 in the District of New Jersey and elsewhere. Id., P2. Count Eight states that as part of this conspiracy, in June 1983 the Defendants agreed with the president and vice president of Solar Age that in exchange for the transfer of 200,000 shares of Solar Age common stock to High Tech, Cannistraro would prepare favorable research reports recommending the purchase of Solar Age securities for dissemination to the investing public by Wood Gundy. Id., PP3-4. It states it was additionally part of the agreement that Bertoli and High Tech would obtain additional financing for Solar Age by means of a secondary public offering of securities. Id.
Count Eight states Bertoli and Cannistraro used nominee brokerage accounts to purchase Solar Age securities with knowledge that Cannistraro was preparing favorable research reports and with the expectation that such reports would cause the price of Solar Age stock to rise. Id., P4. Count Eight states the Solar Age Reports were false and misleading in that they failed to disclose that they were prepared by Cannistraro in exchange for the transfer of 200,000 shares of Solar Age common stock to High Tech. It further states the Solar Age Reports were misleading because they did not disclose that the Defendants had purchased Solar Age securities based on advance knowledge of the Solar Age Reports and intended to profit on the sale of the Solar Age securities after the dissemination of the Solar Age Reports caused the price of the securities to rise. Id., P5.
Count Eight states that between about June 1983 and about December 1983, the Defendants sold their Solar Age securities after the price had risen, in part because of the demand created by the Solar Age Reports, to the investing public, without disclosing their scheme to defraud, for a profit of at least $ 265,000. Id., P6. Count Eight further states the secondary public offering of Solar Age securities arranged by Bertoli raised over $ 990,000 for Solar Age. Id., P7.
Count Eight lists sixteen overt acts committed by the Defendants between June 1983 and September 1985 in furtherance of this conspiracy. These overt acts are too numerous to set forth in full. However, they include a 6 June 1983 meeting attended by Bertoli, Cannistraro and the executive vice president of Solar Age in New York City, New York, id., Count Eight, overt act numbers 1, 2 and 3, various telephone calls and correspondence made on 6 June 1983 and 20 June 1983 by Solar Age personnel at the prompting of Bertoli and Cannistraro, id. Count Eight overt act numbers 4, 5 and 6, a 28 June 1983 wire transmission by Wood Gundy, made at the prompting of Cannistraro, of a research report recommending the purchase of Solar Age securities, id. overt act number 9, and the August and September 1985 mailing of the Solar Age prospectus in connection with the secondary offering of Solar Age securities, id. over act number 15.
Cayman Islands Depositions30
On 4 September 1991 depositions commenced in the Cayman Islands (the "Cayman Islands Depositions") before presiding Judge Sir Denis Malone, Cayman Central Authority (the "Cayman Authority").
Attending the Cayman Islands Depositions were the Government and Bertoli. Neither Cannistraro nor his then counsel were present at the Cayman Islands Depositions.
At the start of the Cayman Islands Depositions, the Cayman Authority explained the procedure for the depositions. He stated Cayman law, rather than United States law, would be the background law, but it would not be rigidly applied. 4 September Proceedings Tr. at 16. He explained the "records in the proceedings will be those requested by the United States authorities." Id. at 17. He stated the proceedings must be kept within the parameters of the Treaty and that collateral issues should not be pursued widely. Id. at 33. With respect to cross-examination, he stated that "questions which affect the credibility of a witness by attacking his character, but are not otherwise relevant to the actual inquiry, ought not to be asked unless there are reasonable grounds for thinking that the implication conveyed by the question is well-founded or true." Id. The Cayman Authority explained issues of admissibility were matters for the trial judge in the United States. Id. at 34. He reminded the parties that Article Seven of the Treaty limits the use of information obtained through the Treaty. Id. During the course of the depositions, the Cayman Authority explained that Bertoli would not be permitted to voir dire the witnesses with respect to documents being introduced by records custodians.
See, e.g., Duggan Dep. Tr. at 21-23.
During the Cayman Islands Depositions Bertoli cross-examined all of the witnesses and recrossed Bechard. After the Government conducted redirect-examination of Coleman, Bertoli sought to recross Coleman. Coleman Dep. Tr. at 300. The Cayman Authority did not permit recross-examination. It stated: "There's no Recross here. There's Examination in Chief, there's Cross Examination and there's a Re-examination." Id. Bertoli, therefore, moved to strike the redirect testimony on the grounds that he was denied an opportunity to recross. Id. at 302. Bertoli states despite the fact that the Government introduced a piece of evidence on redirect,
he was not given an opportunity to recross Bond. Cayman Islands Moving Brief at 18-19.
At the close of the Cayman Islands Depositions, Bertoli objected to the fact that the Government did not call four witnesses it had subpoenaed for depositions. 17 Sept. 1992 Dep. Proceedings at 6-7. The Cayman Authority explained that it could not require the Government to call witnesses. Id. at 7. Following the Cayman Islands Depositions, Bertoli moved in this court to depose three witnesses in the Cayman Islands, all of whom had previously been subpoenaed but not called by the Government. Notice of Motion, filed 12 November 1991. On 19 December 1991 Bertoli was given leave to depose George Ebanks, deputy managing director of Euro Bank, Joan Bond, assistant secretary of Euro Bank, and Patrick Holmes, an officer at the Guardian Bank and Trust (Cayman) Limited. Letter-opinion and order, filed 19 December 1991. A Letter Rogatory has been submitted to the Cayman Authority requesting that these depositions be conducted; as of the date of this opinion, the depositions have not been scheduled.
I. Motion to Dismiss and for Discovery Based on Allegations of Prosecutorial Misconduct
The Defendants move to dismiss the Second Superseding Indictment on the ground of prosecutorial misconduct, or in the alternative, for discovery of grand jury materials. Misconduct Moving Brief at 2-6. Bertoli made the same motion with respect to the Superseding Indictment; the motion to dismiss the Superseding Indictment based on prosecutorial misconduct was denied. Eisenberg, 773 F.Supp. at 701-13.
The Defendants speculate:
It is likely, given the fact that not less than seven grand juries were empaneled to investigate the charged offenses, and many witnesses were called to testify before just one of those grand juries, that transcripts of witness testimony from prior grand juries were submitted to subsequent grand juries. Further, it is substantially likely that summaries of testimony and evidence were submitted to the indicting grand jury.
The Defendants assert that any use of such summaries was improper if the testimony itself was available, if the jury was misled into believing the summaries were actually the testimony and if he was prejudiced by such use. Misconduct Moving Brief at 2 (citing United States v. Wander, 601 F.2d 1251, 1260 (3d Cir. 1979)). The Defendants request, therefore, an order "requiring disclosure of the grand jury minutes to determine whether transcripts of prior testimony were read to the indicting grand jury." Id. In the alternative, the Defendants request an in camera review of the grand jury materials to determine if the grand jury was misled with respect to the evidence or testimony presented. Id. at 6.
The Government argues the Defendants have failed to establish a showing of misconduct on the part of the Government and that such "misconduct 'substantially influenced the grand jury's decision to indict. . . .'" Opposition Brief at 21 (quoting Bank of Nova Scotia v. United States, 487 U.S. 250, 256 (1988)). The Government argues discovery of grand jury materials is inappropriate because the Defendants have not shown a "'substantial likelihood of gross or prejudicial irregularities in the conduct of the grand jury.'" Id. at 23 (quoting United States v. Fischbach and Moore, Inc., 576 F.Supp. 1384, 1394 (W.D.Pa. 1983)). Lastly, the Government argues the Defendants have not shown that the Government misled the jury by using summaries of prior grand jury testimony such that an in camera review of the grand jury material is warranted. Id. at 24-25.
The use of hearsay evidence by a grand jury is not prohibited. Costello v. United States, 350 U.S. 359, 363, reh'g denied, 351 U.S. 904 (1956); United States v. Ismaili, 828 F.2d 153, 164 (3d Cir. 1987), cert. denied, 485 U.S. 935 (1988), United States v. Steele, 685 F.2d 793, 806 (3d Cir.), cert. denied sub nom. Mothon v. United States, 459 U.S. 908 (1982); Wander, 601 F.2d at 1260. A grand jury is prohibited from using hearsay evidence if "nonhearsay is readily available; . . . the grand jury was also mislead into believing it was hearing direct testimony rather than hearsay; and . . . there is also a high probability that had the jury heard the eye-witness it would not have indicted the defendant." Ismaili, 828 F.2d at 164 (citing Wander, 601 F.2d at 1260).
The Defendants argue because of the secrecy provided to grand jury materials, they are unable to determine whether there was an improper use of hearsay testimony; however, they speculate as to the use of summaries and transcripts of witnesses from prior grand juries. The Defendants, therefore, request discovery of the grand jury materials or an in camera review of the grand jury materials.
In considering the Defendants' request for discovery of the grand jury materials, two principles must be borne in mind. First, it is a "'long established policy that maintains the secrecy of grand jury proceedings in the federal courts.'" United States v. Sells Eng'g, Inc., 463 U.S. 418, 424 (1983) (quoting United States v. Proctor & Gamble Co., 356 U.S. 677, 681 (1958)); see also United States v. McDowell, 888 F.2d 285, 289 (3d Cir. 1989); accord Eisenberg, 773 F.Supp. at 707.
This general rule of grand jury secrecy is codified in Rule 6(e) of the Federal Rules of Criminal Procedure. United States v. Johns, 858 F.2d 154, 158 (3d Cir. 1988). "Rule 6(e) applies not only to information drawn from transcripts of grand jury proceedings, but also to anything which may reveal what occurred before the grand jury." In re Grand Jury Matter, 682 F.2d 61, 63 (3d Cir. 1982); see also Fund for Constitutional Gov't v. National Archives & Records Serv., 656 F.2d 856, 869 (D.C. Cir. 1981) (The scope of grand jury secrecy encompasses anything "which would reveal 'the identities of witnesses or jurors, the substance of testimony, the strategy or direction of the investigation, the deliberations or questions of the jurors, and the like.'") (quoting SEC v. Dresser Indus., Inc., 628 F.2d 1368, 1382 (D.C. Cir.), cert. denied, 449 U.S. 993 (1980)); accord, Eisenberg, 773 F.Supp. at 707.
The secrecy of grand jury proceedings is not absolute. Rule 6(e)(3)(c)(i) authorizes disclosure by court order. The party moving for court-ordered disclosure bears a heavy burden of proving to the court that "the material they seek is needed to avoid a possible injustice in another judicial proceeding, that the need for disclosure is greater than the need for continued secrecy, and that their request is structured to cover only material so needed." Douglas Oil Co. v. Petrol Stops Northwest, 441 U.S. 211, 222 (1979) (footnote omitted). Before disclosure of the grand jury transcripts, which would corroborate the Defendants' arguments can be ordered, the Defendants must offer evidence of a "substantial likelihood of gross or prejudicial irregularities in the conduct of the grand jury." United States v. Budzanoski, 462 F.2d 443, 454 (3d Cir.) (citing United States v. Politi, 334 F.Supp. 1318, 1322 (S.D.N.Y. 1971); United States v. Dioguardi, 332 F.Supp. 7, 20 (S.D.N.Y. 1971)), cert. denied, 409 U.S. 949 (1972). Only after the Defendants have met this burden does a court balance the need for disclosure against the need for secrecy. Id. ; see also McDowell, 888 F.2d at 289.
Second, to the extent the Defendants seeks dismissal of the Second Superseding Indictment as a sanction for such alleged misconduct, the Supreme Court has held in a recent decision that a district court may not exercise its supervisory powers to dismiss an indictment for prosecutorial misconduct in such a way that by-passes the harmless error rule of Fed.R.Crim.P. 52(a).
Bank of Nova Scotia, 487 U.S. 250. Thus, dismissal is appropriate only "'if it is established that the violation substantially influenced the grand jury's decision to indict,' or if there is 'grave doubt' that the decision to indict was free from the substantial influence of such violations." Id. at 256 (quoting United States v. Mechanik, 475 U.S. 66, 78 (1986)); see also United States v. Soberon, 929 F.2d 935, 939-40 (3rd Cir.), cert. denied, U.S. , 112 S. Ct. 73 (1991). A district court has "no authority to dismiss [an] indictment on the basis of prosecutorial misconduct absent a finding that petitioners were prejudiced by such misconduct." Bank of Nova Scotia, 487 U.S. at 263.
In addition, because the Defendants have not offered evidence of a substantial likelihood of prejudicial irregularities in the grand jury proceedings, the request for discovery of grand jury materials or for an in camera review of the minutes from the grand jury is denied. See, e.g., United States v. Torres, 901 F.2d 205, 232-33 (2d Cir.) (denying motion of defendant for discovery of grand jury minutes or for in camera review of such minutes, where defendant failed to sufficiently allege prejudice from allegedly perjured grand jury testimony), cert. denied sub nom. Cruz v. United States, U.S. , 111 S. Ct. 273 (1990).
II. Motion to Dismiss for Pre-Indictment Delay, Selective Prosecution and Vindictive Prosecution
The Defendants move to dismiss the Second Superseding Indictment against them on the grounds of pre-indictment delay and selective and vindictive prosecution.
The Defendants state the investigation for the charges underlying the indictments in this case began in 1982 and continued through the return of the Second Superseding Indictment. They argue the delay in bringing the Indictment and subsequent Superseding Indictment and Second Superseding Indictment violates the Due Process Clause. Pre-Indictment Delay Moving Brief at 5. The Defendants contend the period of delay was prejudicial because numerous defense witnesses have died. Id. The Defendants also argue affirmative indications of malice exist, as well as questions as to whether venue is proper. Id. The Government argues it did not purposely delay, and there is no evidence that it purposely delayed bringing the indictments in this case to gain a tactical advantage over the Defendants. Opposition Brief at 29-33. The Government further argues the Defendants have failed to establish prejudice as a result of any delay in bringing the indictments. Id. at 33-40.
The Due Process Clause of the Fifth Amendment requires dismissal of an indictment "if it were shown . . . that the pre-indictment delay . . . caused substantial prejudice to [the defendant's] right to a fair trial and that the delay was an intentional device to gain tactical advantage over the accused." United States v. Marion, 404 U.S. 307, 324 (1971) (footnote omitted).
The Marion Court, however, declined to delineate the circumstances in which pre-indictment delays would require the dismissal of the indictment. Id. The Court stated:
We need not, and could not now, determine when and in what circumstances actual prejudice resulting from pre-accusation delays requires the dismissal of the prosecution. Actual prejudice to the defense of a criminal case may result from the shortest and most necessary delay; and no one suggests that every delay-caused detriment to a defendant's case should abort a criminal prosecution. . . . The rights of the defendant to a fair trial will necessarily involve a delicate judgment based on the circumstances of each case.
Id. at 324-25 (footnotes omitted); accord, United States v. Lovasco, 431 U.S. 783, 789-90, 796-97, reh'g denied, 434 U.S. 881 (1977). "Marion makes clear that proof of prejudice is generally a necessary but not sufficient element of a due process claim, and that the due process inquiry must consider the reasons for the delay as well as the prejudice to the accused." Lovasco, 431 U.S. at 790.
The Lovasco Court described its task in determining whether pre-indictment delay violates the Due Process Clause as one to determine "only whether the action complained of . . . violates those 'fundamental conceptions of justice which lie at the base of our civil and political institutions,' and which define 'the community's sense of fair play and decency." Id. (citations omitted). The Court stated where the delay results from the prosecution's decision to continue its investigation, the delay would not warrant dismissal of the indictment. Id. at 791-96.
In Lovasco, the Government appealed the dismissal of an indictment for pre-indictment delay. The Government indicted the defendant for possession of firearms stolen from the United States mails and for dealing in firearms without a license eighteen months after the alleged offenses occurred. 431 U.S. at 784. The defendant moved to dismiss the indictment for pre-indictment delay arguing that little additional evidence was uncovered during the seventeen months preceding the indictment and that he suffered prejudice as a result of the death of two material witnesses. Id. at 785. The Government argued it kept the investigation open for eighteen months to determine the validity of its theory that the defendant's son was responsible for the thefts. Id. at 786.
The Supreme Court reversed the dismissal of the indictment. It held that in the interest of law enforcement, potential defendants, the public and the courts, no time frame can be imposed during which the Government must bring an indictment. Id. at 791-95. The Court explained the Fifth Amendment does not require the Government to bring an indictment the moment it has probable cause to so. Id. at 791. The Court stated:
Investigative delay is fundamentally unlike delay undertaken by the Government solely "to gain tactical advantage over the accused," precisely because investigative delay is not so one-sided. Rather than deviating from elementary standards of "fair play and decency," a prosecutor abides by them if he refuses to seek indictments until he [or she] is completely satisfied that he [or she] should prosecute and will be able promptly to establish guilt beyond a reasonable doubt. Penalizing prosecutors who defer action for these reasons would subordinate the goal of "orderly expedition" to that of "mere speed[.]" This the Due Process Clause does not require.
Id. at 795-96 (citations and footnote omitted).
Relying on the Government's representations that it continued the investigation to learn the identity of additional participants during the eighteen month hiatus between the crimes and the indictment, the Court reversed the dismissal of the indictment. Id. at 796-97.
In Ismaili, the Circuit affirmed the district court's denial of the motion to dismiss for pre-indictment delay. 828 F.2d at 167-69. The first grand jury investigation into the charged fraud scheme involving the promotion and sale of customized vans began in January 1981. Id. at 166. This grand jury was unable to complete the investigation and did not return an indictment. Id. In 1982 the Government received a report of an investigation from a Federal Bureau of Investigation ("F.B.I.") case agent. Additional information was needed, however, to take the case before a grand jury. Because the prosecutor in charge of the case was also involved in three other felony trials and other activities, the investigation did not resume until the summer of 1983 and an indictment was not returned until the summer of 1984. Id. at 166-67.
The Circuit held the allegations of prejudice were insufficient to warrant dismissal. It stated the fact that witnesses died does not bar prosecution as a result of pre-indictment delay. Id. It further reasoned the record did not reflect that the documents did in fact ever exist or could have been found. Id. at 169. The court stated a finding of no intentional delay was implicit in the district court's decision. Having found the district court did not err in its decision that Ismaili did not satisfy his burden of proof, the Circuit affirmed the court's decision. Id.
In United States v. Sebetich, 776 F.2d 412 (3d Cir. 1985), cert. denied, 484 U.S. 1017 (1988), defendants, bank robbers, appealed their conviction arguing, inter alia, pre-indictment delay. Id. at 429-30. The three robberies charged in the indictment occurred in 1979 and the indictment was returned on 23 March 1984 just five days before the statute of limitations had run. Id. at 429. In challenging the delay, the defendants relied on the fact that the F.B.I. investigation concluded on 4 February 1982 when it determined there was sufficient evidence to return an indictment. Id. The indictment, however, was delayed as a result of confusion as to whether the robberies would be prosecuted by the state or federal government. Id. The Government conceded the prosecution fell through the cracks and the investigation was reopened in March 1983. Id. The defendants argued they were prejudiced by the delay because potential witnesses, including alibi witnesses, had died and memories had faded for other witnesses. Id.
The Circuit affirmed the district court's denial of the motion to dismiss for pre-indictment delay. It stated the defendants "produced no evidence tending to suggest that the delay was a deliberate tactical maneuver by the government." Id. at 430. It explained the delay was a result of a mix-up between the federal and state government and the moment the federal Government realized the case was not proceeding it reopened its investigation and returned an indictment within six months. Id. Because the court found no intentional delay, it declined to decide whether the defendants satisfied their burden of showing actual prejudice. Id. It commented, however, that it had "serious doubts as to whether the allegations of prejudice were specific enough to constitute a showing of actual prejudice." Id.
In United States v. United States Gypsum Co., 550 F.2d 115 (3d Cir. 1977), aff'd, 438 U.S. 422 (1978), corporate defendants and individual officers were convicted for antitrust violations. Id. at 117. Investigations by the Department of Justice into a conspiracy to violate the Sherman Anti-Trust Act, 15 U.S.C. § 1 et seq., began in 1965 and lasted through 1971. In 1971 a grand jury began inquiries which lasted until 27 December 1973 when an indictment was returned against the defendants. 550 F.2d at 117. Prior to trial, the defendants moved to dismiss the indictment for pre-indictment delay; the motion was denied. Id. at 118. During the five-month trial which commenced on 3 March 1975 the Government called thirty-five witnesses and the defendants called thirty witnesses. Id.
The defendants appealed their conviction on the ground that the trial court denied their motion to dismiss. The defendants argued the Government purposely postponed empaneling the grand jury to await the outcome of a civil case involving the same conspiracy. Id. The Circuit rejected the defendants' contentions of intentional delay and stated: "Any delay in empaneling the grand jury resulted from the Government's reluctance to frame criminal charges against appellants before learning whether plaintiffs in a civil action could carry their burden of proof." Id.
In this case, the Defendants appear to argue the delay from the time of the initial investigations to the return of the Indictment, Superseding Indictment and Second Superseding Indictment was an intentional act of the Government which was awaiting the death of several key defense witnesses.
Pre-Indictment Delay Moving Brief at 5; Bertoli Aff. at 12-13.
The Government argues there is no evidence of intentional delay. Specifically, it contends the Second Superseding Indictment alleges racketeering acts which occurred between December 1982 and October 1984, predicate acts which occurred between August 1985 and September 1988 and overt acts which occurred as late as October 1988. It argues, therefore, the Indictment, which was returned in June 1989, was within nine months of the last racketeering act charged and within eight months of the last overt act charged. Opposition Brief at 29-30. In addition, the Government argues the investigation "involved no less than six separate securities fraud schemes" which required the Government to interview numerous witnesses and to send out numerous grand jury subpoenas. Id. at 31. The Government contends its investigation was further hindered because of the difficulties it encountered in obtaining evidence from the Cayman Islands concerning the Defendants' secret Cayman Islands accounts.
The Defendants have not carried their burden of demonstrating intentional delay. Although numerous grand juries were empaneled and the time from the initial investigation through the return of the Indictment was lengthy, there is no evidence of Government manipulation. Significantly, Bertoli has provided no evidence to substantiate his assertion that the Government was purposely waiting to return the Indictment until the death of Isaacson or any other witness. Indeed, he has not shown or suggested that the Government was even aware of a life threatening medical condition of Isaacson or any other witness.
In addition, the Government's investigation into the underlying criminal charges met with some set-backs when it had difficulty obtaining evidence from the Cayman Islands. The Government initially sought to gather evidence in 1986 through the Gentlemen's Agreement; however, such attempts were unsuccessful. The investigation was also slowed when the 1987 Cannistraro Indictment was returned and the Government was preoccupied with that prosecution. In light of the absence of evidence showing intentional delay, the Government's representations that the investigation continued during the pre-indictment period must be taken in good faith and is a sufficient basis to defeat a finding of intentional delay. See, e.g., Lovasco, 431 U.S. at 796.
Specifically, Bertoli states Rose Farrell ("Farrell"), chief secretary at Monarch, would have offered favorable testimony to the Defendants' defense. Bertoli Aff. at 4-5. Bertoli states Farrell died during the period of pre-indictment delay.
Bertoli relies on Farrell's testimony made before the SEC on 9 February 1984. Bertoli Aff. at 4-5 (citing Appendix, Ex. A (the "Farrell SEC Tr.")). Bertoli states that without the testimony of Farrell, the testimony of Eisenberg will go unchallenged. Id. at 5. He states Farrell would have testified as to "mailing confirmations to Parsico Ltd., VPI Ltd., Ventures [sic] Partners and Roger Rowland and the directions and issuance of checks to Euro Bank. . . ." Id. at 5. At the SEC hearing Farrell testified that Eisenberg handled the Euro Bank, Venture Partners and Parsico accounts at Monarch. Farrell SEC Tr. at 81. Farrell stated she did not know who the contact person was on those accounts. Id. Farrell also recalled taking calls from a man named George who instructed her to transfer by wire funds from Monarch to the three accounts. Id. at 82. She did not know if George controlled those accounts. Id. at 82-83.
Farrell testified that Bertoli came to Monarch to conduct business for his wife's and children's accounts and his wife's custodian accounts. Id. at 89-81. She stated Bertoli occasionally came to Monarch to use the telephone and on one occasion he received a Federal Express package at Monarch. Id. at 89. Farrell could not testify as to whether Bertoli had any affiliation with Toxic Waste, LCI, Euro Bank, Venture Partners or Parsico or whether Bertoli was ever at Monarch's offices when Lindsley was there. Id. at 91-92.
Bertoli also claims he has suffered actual prejudice because of the death of Isaacson on 15 January 1988.
Id. at 6-8. Bertoli offers through the Isaacson Affidavits, asserted to have been prepared prior to his death, the testimony which he would have provided at trial. Id. ; Appendix B-D. Bertoli states "Isaacson's testimony would have substantially rebutted the Government's claim that certain Cayman Islands entities, namely Venture Partners, VPI Ltd., Roger Rowland, Parsico, Ltd. and Euro Bank Corp. maintained accounts at Monarch . . . and traded in the securities of [LCI], Toxic Waste . . ., High Tech . . . and others." Bertoli Aff. at 7 (footnote omitted).
Bertoli argues that prior to Isaacson's death on 15 January 1988, the Government lacked sufficient evidence to indict him which he claims is evidenced by the fact that Bertoli was not named in the 1987 Cannistraro Indictment. Id. Bertoli argues Isaacson is one of the few persons, aside from Eisenberg, who could testify as to the identity of the beneficial owners of Parsico, VPI, Venture Partners and Roger Rowland.
Id. at 8.
Bertoli states he has been further prejudiced by the death of Thomas Renshak ("Renshak"), an order clerk and security trader at Wood Gundy. Bertoli Aff. at 8-9. He states Renshak died during the period of pre-indictment delay.
Id. at 9. Bertoli states Renshak's testimony during the SEC Action is evidence that Renshak would have been beneficial to his defense. Id. He asserts Renshak would have testified he maintained a due diligence file in the trading room which contained a prospectus of LCI naming Cannistraro as an officer. Id.
Bertoli states Renshak had knowledge of the trading of the Cannistraro and Godono
accounts, the alleged nominee accounts of Cannistraro.
Id. at 9. In addition, Bertoli states Renshak had knowledge regarding the purchases by the M & I Trust and that these purchases had no impact on the market. Id. Bertoli asserts the testimony of Renshak "would refute the allegations of . . . Eisenberg with respect to the control of the trading markets of LCI and Toxic Waste by Bertoli and Eisenberg." Id.
Bertoli also refers to the deaths of Lawrence Monberg ("Monberg"), a salesman at Prudential Bache, David Averell ("Averell"), a retail salesman at Monarch, and Irving Orenstein ("Orenstein") a large purchaser of High Tech, to establish actual prejudice. Id. at 9-10. Bertoli states these individuals died during the period of pre-indictment delay.
Id. at 11. He states these three individuals "could have testified regarding the distribution of the prospectus of LCI, Toxic Waste and High Tech, the market size and the availability of the securities, and refute the allegations of . . . Eisenberg as to the control of the new issue purchasers of Toxic Waste and High Tech . . . by Bertoli and Eisenberg." Id. at 9. Bertoli claims their testimony would be "important because the timing of the mailings or failure to mail the prospectus by Monarch would impact on whether any new investors relied upon the prospectus of High Tech, Toxic or LCI." Id. at 9-10.
Lastly, Bertoli claims he was prejudiced by the death of Lawrence Rohde ("Rohde"), an employee of the Department of Defense, who testified before the grand jury and provided a letter to the court attesting to the accuracy of the Toxic Waste Report. Id. Bertoli states because Rohde worked at the Department of Defense, he had knowledge of the "serious nature of the toxic waste problem at [Department of Defense] sites." Id. He states Rohde died during the period of pre-indictment delay.
Id. at 11.
The Defendants have failed to establish actual prejudice as a result of the deaths of the above-mentioned individuals. Although the Defendants do proffer what these individuals would have testified about, they do not establish that the proffered testimony would have exculpated the Defendants. Furthermore, the Defendants have not established prejudice because they have not specified when the nine individuals died. The individuals may have died prior to the completion of the Government's case. See, e.g., Ismaili, 828 F.2d at 168.
In addition, the Defendants have not established that the Government intentionally delayed the return of the Indictment, Superseding Indictment or Second Superseding Indictment until the deaths of the above-mentioned individuals to gain a "tactical advantage over the [Defendants]." Marion, 404 U.S. at 324. Absent proof of the Government's knowledge of their impending deaths, the Government faced the same risk that its witnesses would die or the memories of its witnesses would fade as a result of the decision not to bring the Indictment until 1989. Indeed, as a result of the pre-indictment delay, the Government has faced its own hurdles with respect to documents that have been destroyed and money which has been transferred.
Count Three, PP24-25, 27.
Significantly, the testimony relied on by Bertoli does not appear to exculpate the Defendants. With respect to Farrell, her testimony did not identify the contact persons for the Cayman Islands entities' accounts at Monarch. Farrell Tr. at 81. Similarly, the fact that Farrell would testify that Eisenberg handled the Roger Rowland and the Donna Lee Clarambeau accounts does not exculpate the Defendants. Id. at 87, 155. Bertoli also relies on the testimony of Farrell that Bertoli came to Monarch to conduct his own, his wife's and his children's accounts and his wife's custodian accounts. Bertoli Aff. at 5 (citing Farrell SEC Tr. at 89-91). Farrell also stated that Bertoli came to Monarch to use the telephone occasionally and on one occasion received a Federal Express package at Monarch. Farrell SEC Tr. at 89. Farrell could not, however, testify as to whether Bertoli had any affiliation with Toxic Waste, LCI, Euro Bank, Venture Partners or Parsico or whether Bertoli was ever at Monarch's offices when Lindsley was there. Id. at 91-92.
With respect to the testimony of Scott, who Bertoli states would have testified that Wood Gundy had no policy with respect to its employees owning stock of a company it recommended, the Defendants have not established that this evidence is unavailable from other sources. Although Scott testified he would have had responsibility for making such a policy, Scott SEC Tr. at 39, it seems unlikely Scott was the only employee of Wood Gundy who could testify as to the policies of the company. Accordingly, it does not appear that only Scott's testimony on this point would assist the Defendants. The Defendants have not established actual prejudice resulting from Scott's death.
Similarly, it is not clear how the testimony of Renshak would have exculpated the Defendants. The Defendants neither establish Renshak's expertise with respect to the impact of trading on the market such that Renshak would have been qualified to offer an opinion that the M&I Fund purchases had no impact on the market, nor state that other experts are not available. Significantly, with respect to trading in Cannistraro's nominee accounts in the names of Cannistraro and Godono, it is likely that documentary evidence exists with respect to such trading. Although Renshak may have been the trader who actually executed the transactions,
such transactions would be documented. This is particularly the case with respect to Renshak's testimony relating to the LCI prospectus. Renshak stated he had a copy of it in his due diligence file; however, Renshak did not maintain the due diligence file for Wood Gundy. Renshak Dep. at 46.
As to the deaths of Monberg, Averell and Orenstein, the Defendants have not established they were the only witnesses available to offer the relevant testimony. Bertoli has offered no evidence to substantiate his claims as to what they would have stated at trial. Indeed, the Government has evidence that Monberg would not testify as Bertoli claims. The Government contends it has evidence that
Opp. Brief at 39 (footnote omitted).
As to Krasnoff, it is not clear from the record that he would have been a defense witness. Indeed, the Government asserts he would have been a Government witness because of his involvement in this case. Accordingly, in the absence of proof of the substance of Krasnoff's testimony it is not possible to determine whether the Defendants were prejudiced by the delay in the indictment.
Lastly,the Defendants have not established actual prejudice because of the death of Rohde. As indicated by the Government, the accuracy of the Toxic Waste Report is not at issue in the Indictment, but rather the issues at trial will center around the intentional inflation of the price of Toxic Waste stock. Accordingly, the death of Rohde has not resulted in actual prejudice toward the Defendants.
Even assuming the testimony of the deceased defense witnesses would have been exculpatory, the Defendants have not established that the Government was aware of their impending deaths, much less established that their deaths were impending. The loss of exculpatory evidence alone is insufficient to dismiss an indictment. See e.g., Griffin v. Spratt, F.2d , No. 91-1604, slip op. at (3d Cir. 7 July 1992) (civil rights action raising right to have evidence preserved for prison disciplinary action); see also Arizona v. Youngblood, 488 U.S. 51 (1988) (criminal defendant does not have right under Due Process Clause to have all potentially exculpatory evidence preserved for trial; criminal defendant must show evidence of bad faith failure to preserve potentially useful evidence to establish denial of due process), reh'g denied, 488 U.S. 1051 (1989).
The actual prejudice prong of the Marion test as well as the intentional delay prong have not been satisfied. The motion to dismiss the Second Superseding Indictment for pre-indictment delay is denied.
The Supreme Court has stated that "the Government retains 'broad discretion' as to whom to prosecute." Wayte v. United States, 470 U.S. 598, 607 (1985) (quoting United States v. Goodwin, 457 U.S. 368, 380 n.11 (1982)). The Court explained:
This broad discretion rests largely on the recognition that the decision to prosecute is particularly illsuited to judicial review. . . . Judicial supervision in this area, moreover, entails systemic costs of particular concern. Examining the basis of a prosecution delays the criminal proceeding, threatens to chill law enforcement by subjecting the prosecutor's motives and decisionmaking to outside inquiry, and may undermine prosecutorial effectiveness by revealing the Government's enforcement policy.
The breadth of prosecutorial discretion, however, "is not 'unfettered. Selectivity in the enforcement of criminal laws is . . . subject to Constitutional constraints.'" Id. at 608 (quoting United States v. Batchelder, 442 U.S. 114, 125 (1979)). The Court stated claims for selective prosecution are subject to the "ordinary equal protection standards." Id. It stated that to establish a basis for dismissal because of selective prosecution, the defendant must show "both that the passive enforcement system had a discriminatory effect and that it was motivated by a discriminatory purpose." Id. (citing Personnel Adm'r of Massachusetts v. Fenney, 442 U.S. 256 (1979); Arlington Heights v. Metropolitan Hous. Dev. Corp., 429 U.S. 252 (1977); Washington v. Davis, 426 U.S. 229 (1976)). It noted, however, the defendant need not demonstrate a discriminatory intent if the equal protection claim is based on an overtly discriminatory act. Wayte, 470 U.S. at 608 n.10.
With respect to the discriminatory purpose prong of the selective prosecution test, the Wayte court explained it "'implies more than . . . intent as awareness of consequences. It implies that the decisionmaker . . . selected or reaffirmed a particular course of action at least in part "because of," not merely "in spite of," its adverse effects upon an identifiable group.'" Id. at 610 (quoting Personnel Adm'r of Massachusetts, 442 U.S. at 279).
The Third Circuit has stated a defendant bears the burden of proof to establish two factors.
First, he [or she] must provide evidence that persons similarly situated have not been prosecuted. Second, he [or she] must show that the decision to prosecute was made on the basis of an unjustifiable standard, such as race, religion, or some other arbitrary factor, or that the prosecution was intended to prevent his exercise of a fundamental right.
United States v. Schoolcraft, 879 F.2d 64, 68 (3d Cir.) (citing Government of Virgin Islands v. Harrigan, 791 F.2d 34, 36 (3d Cir. 1986)), cert. denied, 493 U.S. 995 (1989).
In Schoolcraft, the defendant was charged with making a false statement in the acquisition of a firearm and unlawful possession of a firearm by a previously convicted felon. 879 F.2d at 66. In addition, the Government filed a criminal information alleging prior convictions, as permitted under the Armed Career Criminal Act, 18 U.S.C. § 924(e)(1). 879 F.2d at 66. Prior to trial, the defendant moved for dismissal arguing, inter alia, selective prosecution. Id.
The Circuit affirmed the district court's denial of the motion to dismiss for selective prosecution. Id. at 69. it observed the record reflected no efforts taken by defense counsel to determine whether there were similarly situated defendants in the state system who had not been transferred to the federal system. Id. It further stated there was no evidence the defendant had been prosecuted "on the basis of an unjustifiable standard or for exercising one of his fundamental rights." Id.
In Harrigan, the defendant was prosecuted and convicted under the habitual criminal statute of the Virgin Islands. 791 F.2d at 35. Harrigan challenged the application of the statute to him arguing, inter alia, it denied him of equal protection of the law. Id. At his sentencing he argued the government "made its decisions on when to file habitual criminal informations on a racially discriminatory basis;" however, he provided no evidence to support his claim. Id. at 36. The first time Harrigan raised evidence to support his claim of selective prosecution was on appeal when he presented a record indicating that the fourteen people sentenced under the habitual criminal statute in the previous twenty years were minorities, including nine African-Americans and five Hispanics. Id. Because no evidence had been presented at his sentencing hearing, the Circuit did not consider the evidence first raised on appeal. Id.
On appeal Harrigan also argued the government violated his right to equal protection because it arbitrarily chose when to file habitual criminal informations. Id. He argued the government, in the past, did not file habitual criminal informations in cases involving grand larceny, the charge against Harrigan. Id. The Circuit rejected Harrigan's argument on the ground that the government's change of policy on whether to file information on persons convicted of theft alone is not evidence of arbitrariness. Id. It continued: "Prosecutors consider numerous factors in deciding whether to prosecute including the age and record of the offender, the role of the person in the crime, and the resources of the prosecutor's office." Id. at 37.
To establish an invidious purpose, the defendants relied on the fact that the F.B.I. had been given information relating to their union status. Id. at 1237. They argued "such evidence, combined with an alleged 'pattern' of prosecution of union officials in the Dallas-Fort Worth area, gave rise to the inference that prosecution of defendants was based on their assertion of the right to strike and their union activities." Id.
The Greene court rejected this argument and stated the record indicated the defendants had been prosecuted because of their status as strike leaders,not as union officials. Id. The court relied on the evidence in the record that the defendants had actively participated in the strike and that in the documents submitted, in camera, the Government continuously referred to the defendants as strike leaders, not union officials. Id. at 1237-38. The court further stated the Government prosecuted all strike leaders of whom it was aware, whether union officials or rank-and-file members. Accordingly, the Circuit found the defendants failed to establish an improper motive in the selective prosecution of the striking air traffic controllers. Id. at 1238.
In this case,the Defendants base their argument for selective prosecution on the fact that the prosecution is based on a novel use of RICO which was attempted only once before in which case the Government eventually abandoned the charge. Pre-Indictment Delay Moving Brief at 10. They argue they have been singled out as the targets of such novel application of RICO for conduct which is pervasive and generally accepted within the industry. Id. The Defendants further rely on the fact that the Government has immunized "at least a dozen persons" and accepted plea bargains from "at least five [persons]." Id.
The Defendants' general averment that their conduct of not revealing their interest in stock while favorably recommending the purchase of the stock was a generally accepted practice within the industry is unsubstantiated. The Defendants provide newspaper or magazine articles discussing the propriety of analysts' conduct of "loading up" on stock prior to making a favorable recommendation on it. Defendants' Reply Ex. 9. These articles do not state it is a generally accepted practice among firms, but rather discuss the debate among brokerage firms as to whether front-loading by analysts should be permitted. Id. Indeed, one article refers to SEC action taken against an analyst who purchased stock prior to his recommendation and who knew or should have known his representations contained in his recommendation were false. Id., John R. Dorfman, Analysts Frequently Own Stocks They Tout, Wall St. Journ., 7 Jan. 1992, at C1-2.
Even assuming the Government has not previously prosecuted scalping and stock manipulation schemes involving securities analysts,a change in policy alone is not evidence of arbitrariness and selective prosecution. Harrigan, 791 F.2d at 35.
Lastly, to the extent the Defendants assert they are being selectively prosecuted because of Bertoli's assistance to Lindsley during his defense in a criminal trial, the Defendants have provided no evidence of such claim. The Second Superseding Indictment makes substantial allegations regarding the various fraudulent and manipulative securities trading schemes of the Defendants. No evidence of an improper motive in prosecuting the Defendants has been presented. See, e.g., Greene, 697 F.2d at 1238.
The analytical framework for evaluating claims of prosecutorial vindictiveness is set forth in Blackledge v. Perry, 417 U.S. 21 (1974). In Blackledge, the defendant was convicted of a misdeameanor in Northampton County District Court, located in Northampton County, North Carolina. The defendant then filed a notice of appeal to the Northampton County Superior Court, which he was entitled to do under North Carolina law and which entitled him to a trial de novo. Prior to the commencement of the defendant's trial, the prosecutor obtained an indictment from a grand jury, charging the defendant with a felony based on the same conduct charged previously in the misdemeanor.
The Supreme Court held: "[The] Due Process Clause is not offended by all possibilities of increased punishment upon retrial after appeal, but only by those that pose a realistic likelihood of 'vindictiveness. '" Id. at 27 (emphasis added). The Court held while there was no evidence that the prosecutor had acted in bad faith or maliciously in seeking the felony indictment, due process required that there be no "potential for vindictiveness" and ruled that it was impermissible for the State to respond to the defendant's "invocation of his statutory right to appeal by bringing a more serious charge against him. . . ." Id. at 28-29; see also United States v. Oliver, 787 F.2d 124, 125 (3d Cir. 1986) ("Actual retaliatory motivation need not exist; the Court's focus is on whether the possibility of increased punishment posed a realistic likelihood of vindictiveness.").
A presumption of prosecutorial vindictiveness arises where the "'totality of circumstances surrounding the prosecutorial decision at issue' suggest[s] the 'appearance of vindictiveness.'" United States v. Robison, 644 F.2d 1270, 1272 (9th Cir. 1981) (quoting United States v. Griffin, 617 F.2d 1342 (9th Cir.), cert. denied, 449 U.S. 863 (1980)). Once the presumption is created, "the court must determine whether the prosecutorial decision was justified by either independent reasons or intervening circumstances sufficient to dispel the appearance of vindictiveness." Id. A "charging decision does not levy an improper 'penalty' unless it results solely from the defendant's exercise of a protected legal right, rather than the prosecutor's normal assessment of the societal interest in prosecution." Goodwin, 457 U.S. at 380 n.11 (discussing prosecutorial misconduct in pre-trial context); see also Schoolcraft, 879 F.2d at 67 ("There is no prosecutorial vindictiveness . . . where the prosecutor's decision to prosecute is based on the usual determinative factors."). "If . . . the course of events provides no objective indication that would allay a reasonable apprehension by the defendant that the more serious charge was vindictive," the presumption is not overcome. United States v. Krezdorn, 718 F.2d 1360, 1365 (5th Cir. 1983), cert. denied, 465 U.S. 1066 (1984).
In Blackledge, the Supreme Court stated in dictum that the case before it would have been different if the State had shown it was unprepared to proceed on the felony at the outset of the case. 417 U.S. at 29 n.7. In other cases, the presumption has been found to have been rebutted by a showing of the Government that the decision to bring the subsequent charge was "based upon new facts or evidence not known to the Government at the time of the original indictment." Krezdorn, 718 F.2d at 1363. In addition, courts have found a difference between the illegal conduct alleged in the prior and subsequent indictments weighs against a finding of prosecutorial vindictiveness. Robison, 644 F.2d at 1272-73; United States v. Preciado-Gomez, 529 F.2d 935, 939 (9th Cir.), cert. denied, 425 U.S. 953 (1976).
In a pretrial setting, however, a court cannot presume vindictiveness. Goodwin, 457 U.S. at 372-84; Bordenkircher v. Hayes, 434 U.S. 357, 362-63, reh'g denied, 435 U.S. 918 (1978). To establish a violation of the Due Process Clause in a pretrial context, the defendant must establish actual vindictiveness. Goodwin, 457 U.S. at 384. In Goodwin, the defendant was originally charged with several misdemeanor and petty offenses. Prior to his trial date, Goodwin fled the jurisdiction and was not returned until three years later. After Goodwin's return, the Government modified the charges against Goodwin by adding a felony indictment. Goodwin moved to set aside his verdict on the ground of prosecutorial vindictiveness arguing that the additional felony indictment gave rise to an appearance of retaliation. Id. at 371.
The Court held there was "no evidence . . . that could give rise to a claim of actual vindictiveness; the prosecutor never suggested that the charge was brought to influence the respondent's conduct." Id. at 380-81 (emphasis in original). The Court distinguished a pretrial setting from a trial setting and stated:
In the course of preparing a case for trial, the prosecutor may uncover additional information that suggests a basis for further prosecution or he [or she] simply may come to realize that information possessed by the State has a broader significance. . . . In contrast, once a trial begins . . . it is much more likely that the State has discovered and assessed all of the information against an accused and has made a determination, on the basis of that information, of the extent to which he should be prosecuted. Thus, a change in the charging decision made after an initial trial is completed is much more likely to be improperly motivated than is a pretrial decision.
In this case, the Defendants recognize there is no presumption of vindictiveness in the pretrial context. Pre-Indictment Delay Moving Brief at 9. They argue, however, "there is enough in the record to make a prima facie showing -- or at least a colorable claim -- that this prosecution is the product of vindictiveness in fact." Id. The Defendants rely on the previous aggressive defense against prior charges.
Id. Bertoli also argues vindictiveness is evidenced by the fact that he assisted Lindsley who was previously the target of prosecution by the Government. Id. The Defendants argue that the Government's pursuit of a novel theory of RICO prosecution and the Government's institution of this action in "an unusual venue,"
give rise to a showing of actual prejudice. Id. ; 19 June 1992 Oral Arg. Tr. at 13, 15.
As mentioned, the Defendants have provided no evidence that they are being prosecuted in revenge because Bertoli assisted Lindsley defend criminal charges. Although the Government may have discovered the underlying securities fraud during its investigation of the Hudson County Democratic machine, Bertoli has presented no evidence that the Government chose to prosecute the case solely because of Bertoli's involvement in Lindsley's defense. A prosecutor is given wide latitude to investigate criminal conduct and to determine which conduct to prosecute. There is no basis to assume the Government's response to the discovery of alleged fraudulent and illegal conduct was to retaliate against Bertoli. The facts presented by Bertoli do not "pose a realistic likelihood of 'vindictiveness.'" Blackledge, 417 U.S. at 27.
The fact that the venue of this case is New Jersey is not evidence of actual vindictiveness. Indeed, by the Defendants' own admission, the initial stages of the investigation were conducted in New Jersey. Defendants' Reply Ex. 7. In addition, High Tech is based in New Jersey, Count One, P6(e), and the Defendants sometimes operated in New Jersey. See generally Second Superseding Indictment.
The Constitution guarantees to criminal defendants a trial "in the State where the said Crimes shall have been committed," U.S. Const. art. III, § 2, cl. 3, by a "jury of the State and district wherein the crime shall have been committed." U.S. Const. amend. VI. This right is implemented by Rule 18 of the Federal Rules of Criminal Procedure, which provides: "Except as otherwise permitted by statute or by these rules, the prosecution shall be had in a district in which the offense was committed." Id. The situs of a crime must be determined by reference to the statute proscribing the criminal act. Johnston v. United States, 351 U.S. 215, 220, reh'g denied, 352 U.S. 860 (1956); Eisenberg, 773 F.Supp. at 694-95.
As discussed, Bertoli does not challenge the propriety of venue of this action, but merely characterizes it as "unusual." Such an assault on the venue of this action, absent a viable motion to change venue, is insufficient to establish actual vindictiveness. See, e.g., Goodwin, 457 U.S. at 380-81 (in pretrial context defendant must present evidence supporting claim of actual vindictiveness). Moreover, Monarch conducted some of its business in New Jersey. Therefore, the prosecution is in the district in which some of the offenses were committed. Accordingly, Bertoli's motion to dismiss the Second Superseding Indictment for vindictive prosecution because of the venue is denied.
Cannistraro argues the presumption of vindictiveness applies to him because he is not a pretrial defendant. 19 June 1992 Oral Arg. Tr. at 14. He argues the sealed Indictment was returned in this case after he withdrew his guilty plea in the 1987 Cannistraro Indictment. Id. He further states that after he refused to make a deal to cooperate with the Government, the Superseding Indictment, which is now the Second Superseding Indictment, was returned. Id. Cannistraro raised these same arguments in the first set of pretrial motions. See Eisenberg, 773 F.Supp. at 714-17. Cannistraro merely adds to this claim the fact that the Second Superseding Indictment has been returned. 19 June 1992 Oral Arg. Tr. at 14.
As was the case with the Superseding Indictment, the acts charged in the Second Superseding Indictment are different from those charged in the 1987 Cannistraro Indictment. See supra pp. 4-6, n.3. Accordingly, it cannot be inferred from the charges contained in the Second Superseding Indictment that there is a "realistic likelihood" that the Government sought to "up the ante" by filing the Second Superseding Indictment in January 1992 in response to any action taken by Cannistraro. Blackledge, 417 U.S. at 27. The charges in the Second Superseding Indictment against Cannistraro instead reflect the use of prosecutorial discretion.
As the Third Circuit has stated: "'Prosecutors have traditionally enjoyed discretion in deciding which of multiple charges against a defendant are to be prosecuted or whether they are all to be prosecuted at the same time.'" United States v. Pungitore, 910 F.2d 1084, 1112 (3d Cir. 1990) (quoting United States v. Cardall, 885 F.2d 656, 666 (10th Cir. 1989)); see also United States v. Moscony, 927 F.2d 742, 755 (3d Cir. 1991) ("So long as the prosecutor has probable cause to believe that the accused committed an offense defined by statute, the decision whether or not to prosecute, and what charge to file or bring before a grand jury, generally rests entirely in his discretion.") (quoting Bordenkircher, 434 U.S. 357), cert. denied, U.S. , 111 S. Ct. 2812, reh'g denied, 112 S. Ct. 16 (1991); accord, Eisenberg, 773 F.Supp. at 717. The motion of Cannistraro to dismiss the Second Superseding Indictment due to prosecutorial vindictiveness is denied.
Lastly, the Defendants argue the novelty of the charges alleged in the Second Superseding Indictment establishes actual vindictiveness. Pre-Indictment Delay Moving Brief at 9-10. This argument was previously addressed with respect to the claim for selective prosecution and fails for the same reasons as stated above. The motion to dismiss for vindictive prosecution is denied.
III. Motion to Preclude Cayman Islands Depositions
The Defendants seek to exclude from evidence the Cayman Islands Depositions. Specifically, they argue the Cayman Islands Depositions are inadmissible because since they were taken, the Second Superseding Indictment, containing new legal theories, was returned. Cayman Islands Moving Brief at 1. Bertoli contends as a result of the changes in the Second Superseding Indictment his motive during cross-examination of the deposed witnesses has been altered.
Id. He argues, therefore, the Cayman Islands Depositions are inadmissible because they do not satisfy the requisite identity of motives required by Rule 804(b)(1) of the Federal Rules of Evidence. Id. Bertoli further seeks to exclude the Cayman Islands Depositions on the grounds that he was not permitted to recross certain witnesses or introduce evidence during cross-examination and he was not allowed to call witnesses which the Government had previously subpoenaed.
Id. at 1-2.
Cannistraro argues the Cayman Islands Depositions are inadmissible because his right to confrontation was violated. Id. at 2. Specifically, he argues his right to confrontation was violated because the Rule 15 Letter Request for the Government to pay the travel expenses of his attorney was denied and because he did not waive his right to attend the Cayman Islands Depositions. Id.
The use of depositions in a criminal case is permitted by Rule 15 of the Federal Rules of Criminal Procedure. Rule 15 provides, in pertinent part: "Whenever due to exceptional circumstances of the case it is in the interest of justice that the testimony of a prospective witness of a party be taken and preserved for use at trial, the court may . . . order that testimony of such witness be taken by deposition. . . ." Fed.R.Crim.P. 15(a). Such depositions, "so far as otherwise admissible under the rules of evidence, may be used as substantive evidence if the witness is unavailable as . . . defined in Rule 804(a). . . ." Id., R. 15(e).
establishes an exception to the hearsay rule and governs the admissibility of former testimony. Fed.R.Evid. 804(b)(1); see also United States v. Salerno, U.S. , 60 U.S.L.W. 4650 (19 June 1992); United States v. Kelly, 892 F.2d 255, 262 (3d Cir. 1989), cert. denied, U.S. , 110 S. Ct. 3243 (1990). "Nothing in the language of Rule 804(b)(1) suggests that a court may admit former testimony absent satisfaction of each of the Rule's elements." Salerno, U.S. , 60 U.S.L.W. at 4651. Indeed, in Salerno, the Supreme Court rejected the defendants' argument that it was not necessary to establish a similar motive in the interest of "adversarial fairness." Id. The Court reasoned: "Congress . . . presumably made a careful judgment as to what hearsay may come into evidence and what may not. To respect its determination, we must enforce the words that it enacted. . . . This Court cannot alter evidentiary rules merely because litigants might prefer different rules in a particular class of cases." Id.
In Salerno, the defendants sought to introduce grand jury testimony of two witnesses who invoked the Fifth Amendment privilege against self-incrimination at trial. Id. at 4650. The district court refused to admit the grand jury testimony and stated "the motive of a prosecutor in questioning a witness before the grand jury in the investigatory stages of a case is far different from the motive of a prosecutor in conducting the trial." Id. On appeal, the Second Circuit reversed the trial court's decision and held the trial court erred in excluding the grand jury testimony because it was contrary to adversarial fairness. Id. at 4650-51. The Circuit stated "in order to maintain 'adversarial fairness,' Rule 804(b)(1)'s similar motive element should 'evaporatee' when the Government obtains immunized testimony in a grand jury proceeding from a witness who refuses to testify at trial." Id. The Supreme Court reversed the Second Circuit's holding to dispense with the similar motive requirement. Id. Rather than consider the issue in the first instance, it remanded the question of whether a similar motive had been established. Id. at 4652.
In this case, the only element of Rule 804(b)(1) contested by the parties is whether Bertoli had a similar motive in conducting cross-examination while the Superseding Indictment was pending as he would have if conducting cross-examination for the Second Superseding Indictment. Bertoli argues that the legal theories raised in the two indictments are different. He contends as a result of the differences, he would have had a different motive in conducting cross-examination for the Second Superseding Indictment. Cayman Islands Moving Brief at 25-38.
The Government argues Bertoli has the same motive to cross-examine witnesses during the Cayman Islands Depositions as he would have had he cross-examined them after the Second Superseding Indictment. Opposition Brief at 103-112. Specifically, the Government argues both the Superseding Indictment and the Second Superseding Indictment charge the Defendants with establishing nominee brokerage accounts at Monarch in the names of Cayman Islands entities. Id. at 105. The Government argues its motive during the Cayman Islands Depositions was to establish that the Defendants and Eisenberg controlled the Cayman Islands entities. Id. Accordingly, the Government contends Bertoli's cross-examination was designed to "cast doubt" on the Government's theory. Id. It argues, Bertoli would have this same motive if he were to cross-examine the witnesses today. Id. at 105-06.
A determination as to whether a party against whom former testimony is being offered had a similar motive is a factual determination. "The opportunity to develop testimony offered at another proceeding is not established by presence alone." United States v. Taplin, 954 F.2d 1256, 1258 (6th Cir. 1992). In Taplin, the court stated presence of the defendant's counsel during a co-defendant's suppression hearing, even where defendant's counsel was asked if he had any questions, does not prove that the defendant was prepared for a full and thorough cross-examination of the witness. Id.
In United States v. Lowell, 649 F.2d 950 (3d Cir. 1981), the defendant sought to read to the jury from the plea transcript of a co-conspirator, Montalbano, who had invoked his Fifth Amendment right against self-incrimination. Id. at 965. The Circuit affirmed the decision to exclude the testimony because "the prosecutor, although present at Montalbano's plea hearing, had no similar motive or interest." Id. It stated: "The only motive at the earlier hearing was to assure that the plea was voluntary and that a factual basis existed for the plea. . . . Montalbano's implicit denial of receipt of payment from [the defendant], even if untrue, did not deprive his plea of guilty of the conspiracy charge of a 'factual basis.'" Id.
In United States v. Powell, 894 F.2d 895 (7th Cir. 1990), cert. denied, 495 U.S. 939 (1990), the defendant sought to call a co-conspirator, who was not named in the indictment, to testify at trial. The co-conspirator informed the judge that if called, he would invoke the Fifth Amendment privilege against self-incrimination. Id. at 901. The defendant, therefore, moved to introduce the co-conspirator's statements made at his detention hearing and plea hearing. The district court excluded the testimony from the plea hearing on the ground that the Government did not have the same motive at the plea hearing as it would at trial. Id. It stated the Government was only trying to establish a factual basis for the guilty plea and did not have an incentive to pursue the issue of the defendant's involvement with the co-conspirator. Id.
In United States v. North, 910 F.2d 843 (D.C.Cir.), op. withdrawn in part on other grounds, 920 F.2d 940 (D.C. Cir. 1990), cert. denied, U.S. , 111 S. Ct. 2235 (1991), the defendant, Oliver North ("North"), sought to introduce a three-to-four-hour excerpted video-tape of John Poindexter's thirty hours of immunized testimony before the congressional committees who investigated the Iran/Contra affair. Id. at 905. The district court denied North's motion. On appeal, North argued the video-tape was admissible under Rule 804(b)(1). The Circuit affirmed the district court. The Circuit stated Congress and the independent counsel appointed to investigate and prosecute criminal wrongdoings by government officials in the Iran/Contra affair were not the same party. Id. at 905-06.
The North court recognized Congress and the independent counsel did not have a similar motive. It commented on the obvious: the independent counsel was prosecuting the case and asking questions to support a criminal conviction. Id. at 907. It also observed: "Although Congress in authorizing and conducting the Iran/Contra hearings may have had an intent to determine whether illegal conduct had occurred, and to identify government officials who might have engaged in illegal activity, the political and legislative goals of Congress are far different from the prosecutorial commission of the [independent counsel]." Id.
In United States v. Licavoli, 725 F.2d 1040 (6th Cir.), cert. denied sub nom. Calandra v. United States, 467 U.S. 1252 (1984), Ferritto, a witness in a state murder trial, refused to testify at a federal RICO trial because the Government did not comply with the plea agreement. Id. at 1047. At trial, the Government moved to read Ferritto's testimony at the state trial. The defendants appealed their conviction, inter alia, arguing Ferritto's testimony was inadmissible under Rule 804(b)(1). Id. at 1048. The defendants argued although the murder and conspiracy to murder charges in the state court proceeding are the predicate acts for the federal RICO conspiracy, the motive to cross-examine was not the same because there is the additional "enterprise" element in the federal trial. Id.
The Court affirmed the district courts' decision to allow the state court testimony. It commented that the "defendants . . . failed to point to any matter that they would have raised in cross-examination with respect to the enterprise element that they did not raise in the prior proceedings." Id. It further relied on the fact that the jury was given a limiting instruction as to how to consider the different versions of the facts. Id. at 1048-49.
In this case, Bertoli had an adequate opportunity to cross-examine the witnesses at the Cayman Islands Depositions with respect to the Superseding Indictment. As the parties are well aware, however, after the Cayman Islands Depositions, the Second Superseding Indictment was returned. It must be determined, therefore, whether there is a substantial identity of issues with respect to the two indictments. The Government contends, with the exception of the obstruction of justice charges, the Second Superseding Indictment has only been altered in so far as the fraudulent securities trading schemes have been "fleshed out a bit more." Letter to court, dated 23 January 1992 at 2. Bertoli argues the underlying theory of the RICO allegations has been changed from scalping and manipulation as to purchases of certain mutual funds to "massive market manipulation over an extended period of time." 19 June Oral Arg. Tr. at 5; Cayman Islands Moving Brief at 31-35.
Most of the charges in the Superseding Indictment remained the same in the Second Superseding Indictment. This is especially true with respect to the list of the securities fraud schemes. Nevertheless, the Government has alleged in the Second Superseding Indictment additional facts and charges which were discovered as a result of the Cayman Islands Depositions. For instance, the Government has added to the list of nominee accounts Berco Trust and Euro Bank.
The addition of facts and entities is, however, distinguished from the facts of Lowell and Powell where the Government was only attempting to establish a factual basis at a plea hearing as opposed to establishing the truth of statements as is required for trial. During the Cayman Islands Depositions, Bertoli was conducting cross-examination to prepare his defense which would remain the same if he were conducting cross-examination after the return of the Second Superseding Indictment. Although statements relating to new nominee accounts were raised during the Cayman Islands Depositions, Bertoli would presumably have a motive to challenge the validity of such statements.
This case is also distinguished from the facts of North, because Bertoli would be defending a criminal prosecution under the Second Superseding Indictment. Moreover, Bertoli's argument, that he would have a different motive in conducting cross-examination at the Cayman Islands Depositions in light of the Second Superseding Indictment, strains credulity because he does not specify the nature of such difference. At oral argument, Bertoli merely stated his motive would have been different, it may have been shorter or pinpointed into different areas. 19 June 1992 Oral Arg. Tr. at 17.
B. Right to Conduct Recross
Bertoli further argues the depositions of Bond and Coleman are inadmissible because he was not given an opportunity to conduct recross examination of them. Cayman Islands Moving Brief at 39. Bertoli argues the denial by the Cayman Authority of his right to conduct recross-examination with respect to Bond and Coleman deprived him of his Sixth Amendment right to confrontation. Id. The Government argues there is no basis to conduct recross-examination because no new information was raised during the Government's redirect of Bond and Coleman. Opposition Brief at 113-14.
The right to recross-examination was addressed by the Circuit in United States v. Riggi, 951 F.2d 1368 (3d Cir. 1991), reh'q denied, 1992 U.S. App. LEXIS 1985 (3d Cir. 13 Feb. 1992) (en banc). The court stated: "As a general rule, a trial court has wide discretion to restrict recross-examination, especially when no new matters have been raised on redirect." Id. at 1374. (citing Alford v. United States, 282 U.S. 687, 694 (1931); United States v. Rockwell, 781 F.2d 985, 988 (3d Cir. 1986); United States v. Kenny, 462 F.2d 1205, 1226 (3d Cir.), cert. denied sub nom. Murphy v. United States, 409 U.S. 914 (1972)).
Although the Federal Rules of Evidence do not directly address a party's right to redirect and recross-examination, Rule 611(b) provides:
Cross-examination should be limited to the subject matter of the direct examination and matters affecting the credibility of the witness. The court may, in the exercise of discretion, permit inquiry into additional matters as if on direct examination.
Fed.R.Evid. 611(b). The scope of redirect-examination has traditionally been limited to those matters raised on cross-examination. Riggi, 951 F.2d at 1375. The Circuit stated:
Ideally, no new material should be presented on redirect, because litigants will in theory have presented all pertinent issues during the direct examination. In reality, however, new information may come out on redirect, when the trial court, in its discretion and in the interest of justice, determines that the information is relevant and admissible.
Id. (citations omitted). Where a new subject is raised in direct examination, the "Confrontation Clause of the Sixth Amendment mandates that the opposing party be given the right of recross-examination. . . ." Id. (citing Hale v. United States, 435 F.2d 737, 752 n.22 (5th Cir. 1970), cert. denied, 402 U.S. 976 (1971)).
The Riggi court explained, cross-examination and recross-examination of material brought out on direct and redirect are the principal means to test the trustworthiness of the witness. Id. at 1376 (citing Davis v. Alaska, 415 U.S. 308, 316 (1974)). The absence of proper confrontation "calls into question the ultimate integrity of the fact-finding process." Ohio v. Roberts, 448 U.S. 56, 64 (1980); accord, Riggi, 951 F.2d at 1376. The Circuit observed:
"Where . . . new matter is brought out on redirect[-]examination, the defendant's first opportunity to test the truthfulness, accuracy, and completeness of that testimony is on recross[-]examination. To deny recross-examination on a matter first drawn out on redirect is to deny the defendant the right of any cross-examination as to that new matter. The prejudice of the denial cannot be doubted."
Riggi, 951 F.2d at 1376 (quoting United States v. Caudle, 606 F.2d 451, 458 (4th Cir. 1979) (citations omitted)).
If a party seeks to conduct recross-examination as to matters not raised on redirect-examination, however, the decision lies within the trial court's discretion. Riggi, 951 F.2d at 1376; (citing United States v. Stoehr, 196 F.2d 276, 280 (3d Cir.), cert. denied, 344 U.S. 826 (1952)).
In Riggi, the trial court introduced a blanket rule that there would be no recross-examination. Id. at 1372. It was not until after thirteen witnesses had been examined on redirect that the court lifted its absolute ban on recross and permitted recross on request. Id. One of the thirteen witnesses, Ronald Fino ("Fino"), was a key Government witness. On redirect examination, Fino provided new evidence. Id. After the redirect, Riggi objected to the line of redirect questioning and urged the court to reconsider its policy on recross-examination. Id. at 1373. The trial court affirmed its policy that there would be absolutely no recross in the trial, be it for the Government or the defendant. Id. Riggi challenged his conviction, inter alia, on the ground that the trial court deprived him of his right to confrontation. Id. at 1374. The Circuit stated the trial court "erred in imposing its blanket prohibition on recross-examination." Id. at 1375.
In this case, Bertoli was permitted to conduct recross-examination of a record custodian witness during the depositions taken on 5 September 1991. See Bechard Dep. Tr. at 31. Subsequently, however, Bertoli was not permitted to conduct recross-examination of Coleman and Bond. See Coleman Dep. Tr. at 300-02; Bond Dep. Tr. at 347. Specifically, with respect to the testimony elicited from Bond onredirect, Bertoli argues new material was introduced. He argues the Government offered into evidence Exhibit 2500 an unsigned letter from Euro Bank which it had available at the time of direct examination. Cayman Islands Moving Brief at 42-43.
The Cayman Authority's blanket prohibition of recross-examination appears to have violated the Sixth Amendment right to confrontation. As previously discussed, Bertoli is going to take additional depositions in the Cayman Islands, at a date to be set. At oral argument,the Government in fact conceded that it would be appropriate to permit recross-examination with respect to Bond and the introduction of Exhibit 2500. 19 June 1992 Oral Arg. Tr. at 18. With respect to the other witnesses, the Government conceded there was no down side to permitting Bertoli to have an opportunity to recross those for whom there was redirect, except it would be an inconvenince to the witnesses. Id. at 18-19. The inconvenience of the witnesses does not outweigh the Sixth Amendment right to confrontation. Bertoli is given leave to conduct recross-examination of those witnesses he was previously denied the opportunity. Such recross, however, is limited to issues raised on redirect. Bertoli is not permitted to use this opportunity to question the witnesses on issues he should have raised during cross-examination.
C. Right to Confrontation
Cannistraro argues the Cayman Islands Depositions are inadmissible because he was deprived of his Sixth Amendment right to effective assistance of counsel and his Sixth Amendment right to confrontation. Cayman Islands Moving Brief at 48. He argues his attorney was not able to attend the Cayman Islands Depositions because the Rule 15 Letter Request was denied. Id. The Government argues Cannistraro's constitutional rights were not violated because Cannistraro voluntarily chose not to attend or pay for his then counsel to attend the Cayman Islands Depositions. Opposition Brief at 119-128.
As discussed in prior opinions, Rule 15(c) does not require a court to order payment of expenses, but states a court "may direct" that the Government pay the costs for depositions. See 11 February 1992 Opinion at 35-36. Cannistraro voluntarily waived his right to have his counsel represent him at the Cayman Islands Depositions. The motion to exclude the Cayman Islands Depositions on this ground is denied.
Cannistraro also argues he was denied his Sixth Amendment right to confrontation because he was not permitted to attend the Cayman Islands Depositions. Cayman Islands Moving Brief at 49-50. He states he never waived his right to confront witnesses at the Cayman Islands Depositions. Id. at 56.
The Sixth Amendment provides: "In all criminal prosecutions, the accused shall enjoy the right . . . to be confronted with the witnesses against him . . . ." U.S. Const., VI Am. A defendant may, however, make a knowing and voluntary waiver of the right to confrontation. Brookhart v. Janis, 384 U.S. 1, 4 (1966). "For a waiver to be effective it must be clearly established that there was 'an intentional relinquishment or abandonment of a known right or privilege.'" Id. (quoting Johnson v. Zerbst, 304 U.S. 458, 464 (1938)).
In Brookhart, the petitioner sought habeas corpus relief because he was denied an opportunity to cross-examine any of the state's witnesses who testified during his criminal trial. 384 U.S. at 2. Prior to trial, the petitioner's appointed counsel informed the trial judge that the petitioner signed waivers of a trial by jury and wanted to be tried by the court. Id. at 5. The trial judge on the record explained that if tried by the court, there would be no cross-examination of the witnesses because the defendant, "'in effect admits his guilt and wants the State to prove it.'" Id. at 6 (quoting state court record). The defendant responded to the trial judge that he wanted to point out he was in no way pleading guilty to the charge. Id. The trial court then asked the defendant to determine whether he wanted a full trial or a trial by the court and his counsel stated only a trial by the court. Id.
The Court stated the record reflected the petitioner's desire not to plead guilty. It further stated the proposed "prima facie trial" by the court would have been a truncated kind of trial and would in effect be a guilty plea which was inconsistent with the petitioner's desire not to plead guilty. Id. at 7. It is stated, therefore, "the constitutional rights of [the] defendant cannot be waived by his counsel under such circumstances." Id. The Court held the defendant "neither waived his right nor acquiesced in his lawyer's attempted waiver . . . ." Id. at 8; see also United States v. Johnpoll, 739 F.2d 702, 710 (2d Cir. 1984) (defendant waived right to confront witnesses when he chose not to attend foreign depositions after Government indicated willingness to pay expenses), cert. denied, 469 U.S. 1075 (1984), reh'g denied, 469 U.S. 1197 (1985). It recognized, however, some circumstances may exist where counsel would be permitted to waive his client's constitutional claims. Id. at 7.
In this case, unlike the facts in Brookhart, Cannistraro did not indicate a contrary intention than that expressed by his then counsel. Moreover, the Government had previously expressed to Cannistraro its willingness to provide a telephone hook-up so that Cannistraro could listen to and participate in the Cayman Islands Depositions. See Government's Exhibits, Ex. 14. After the denial of the Rule 15 Letter Request, Cannistraro neither made arrangements for his then retained counsel to attend the Cayman Islands Depositions, nor did he accept the Government's offer and request the Government to provide the proposed telephone hook-up to the Cayman Islands Depositions.
In any event, as discussed during oral argument, because a second set of depositions will be taken in the Cayman Islands and Cannistraro will be afforded an opportunity to attend those depositions, Cannistraro will be given an opportunity to conduct cross-examination and recross-examination, if appropriate. Cannistraro has been given an opportunity to view the videotapes
and transcripts of the Cayman Island Depositions. See Order, filed 8 July 1992, and amended 10 July 1992. Cannistraro has identified the witnesses for cross-examination. Cannistraro's Letter to court, dated 16 July 1992, at 2.
IV. Motion to Dismiss Counts One and Two as Barred by the Statute of Limitations
The Defendants move to dismiss Counts One and Two of the Second Superseding Indictment on the ground that they are barred by the statute of limitations. Statute of Limitations Moving Brief at 1-2. In the alternative,the Defendants argue the obstruction of justice allegations in Counts One and Two should be severed as being improperly joined because Bertoli is not alleged to have participated in Cannistraro's obstructionist behavior and Cannistraro is not alleged to be a part of Bertoli's obstructionist behavior. Id. at 2, 11-12. The Government argues the obstruction of justice charges are predicate acts which are properly part of the substantive RICO charge. Opposition Brief at 71.
A. Substantive RICO -- Count One
RICO does not contain its own statute of limitation. The general five year statute of limitations period applicable to non-capital offenses contained in section 3282 of Title 18 therefore applies to substantive RICO charges.
United States v. Forsythe, 560 F.2d 1127, 1134 (3d Cir. 1977); see also 18 U.S.C. § 3282. A substantive RICO charge under section 1962(c)
must be brought within five years of a RICO predicate act by the defendant. United States v. Persico, 832 F.2d 705, 714 (2d Cir. 1987), cert. denied sub nom. Russso v. United States, 486 U.S. 1022 (1988); see also 18 U.S.C. § 3282. The Persico court rejected the Government's theory that the limitation period should run from the last predicate act committed by any member of the group. 832 F.2d at 714. It stated: "The focus of section 1962(c) is on the induvidual patterns of racketeering engaged in by a defendant,rather than the collective activities of the members of the enterprise,which are proscribed by section 1962(d)." Id. (emphasis added).
The predicate act must be part of the same pattern of racketeering. United States v. Gatto, 746 F.Supp. 432, 462 (D.N.J. 1990), rev'd on other ground, 924 F.2d 491 (3d Cir. 1991). The definition of a "pattern" requires at least two acts of racketeering activity within a ten-year period. 18 U.S.C. § 1961(5). The Supreme Court has held "two isolated acts of racketeering activity do not constitute a pattern." Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 496 n.14 (1985); see also Insurance Consultants of Am., Inc. Employee Pension Plan v. Southeastern Ins. Group, Inc., 746 F.Supp. 390, 413 (D.N.J. 1990). The essential characteristics of a pattern of racketeering activity are "continuity plus relationship" and the "threat of continuing activity." Sedima, 473 U.S. at 496 n.14.
In H.J. Inc. v. Northwestern Bell Tel. Co., 492 U.S. 229 (1989), the Supreme Court reiterated: "'The term pattern itself requires the showing of a relationship' between the predicates . . . and of the 'threat of continuing activity. It is this factor of continuity plus relationship which combines to produce a pattern.'" Id. at 239 (quoting 116 Con. Rec. 18940 (1970) (Sen. McClellan), as quoted in Sedima, 473 U.S. at 496 n.14)) (emphasis added by H.J. Inc. Court). The Court observed: "Congress intended that to prove a pattern of racketeering activity a plaintiff or prosecutor must show that the racketeering predicates are related, and that they amount to or pose a threat of continued criminal activity." Id. (emphasis in original); see also United States v. Pelullo, F.2d , No. 91-1792, slip op. at 30 (3d Cir. 12 May 1992).
As to the relatedness requirement, the Court repeated the principle that "criminal conduct forms a pattern if it embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events." H.J. Inc., 492 U.S. at 240 (citing Sedima, 473 U.S. at 496 n.14); see also Pelullo, F.2d slip op. at 30. The Court found it necessary to analyze the continuity requirement at greater length than the relatedness requirement. The Court commenced by stating that in order to form a pattern, "the predicates themselves[must] amount to, or . . . they [must] otherwise constitute a threat of, continuing racketeering activity." Id. (emphasis in original). The Court eschewed the requirement that continuity be demonstrated through allegations of multiple schemes, holding: "What a plaintiff or prosecutor must prove is continuity of racketeering activity, or its threat, simpliciter. This may be done in a variety of ways, thus making it difficult to formulate in the abstract any general test for continuity." Id. at 241.
In fleshing out the meaning of the continuity requirement, the Court stated: "'Continuity' is both a closed - and open-ended concept, referring either to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition." Id. ; see also Pelullo, F.2d at , slip op. at 31. It stated that a party alleging a RICO violation "may demonstrate continuity over a closed period by proving a series of related predicates extending over a substantial period of time." H.J. Inc., 492 U.S. at 242; see also Pelullo, F.2d at , slip op. at 31.
The Court further explained:
Predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this requirement: Congress was concerned in RICO with long-term criminal conduct. Often a RICO action will be brought before continuity can be established in this way. In such cases,liability depends on whether the threat of continuity is demonstrated.
Whether the predicates proved establish a threat of continued racketeering activity depends on the specific facts of each case. Without making any claim to cover the field of possibilities--preferring to deal with this issue in the context of concrete factual situations presented for decision--we offer some examples of how this element might be satisfied. A RICO pattern may surely be established if the related predicates themselves involve a distinct threat of long -term racketeering activity, either implicit or explicit. . . . The continuity requirement is likewise satisfied where it is shown that the predicates are a regular way of conducting defendant's ongoing legitimate business. . . .
The limits of the relationship and continuity concepts that combine to define a RICO pattern, and the precise methods by which relatedness and continuity or its threat may be proved, cannot be fixed in advance with such clarity that it will always be apparent whether in a particular case a "pattern of racketeering activity" exists. The development of these concepts must await future cases, absent a decision by Congress to revisit RICO to provide clearer guidance as to the Act's intended scope.
H.J. Inc., 492 U.S. at 242-43 (emphasis added) (citations and footnote omitted).
In H.J. Inc., customers of a telephone company brought suit alleging the telephone company had been bribing state regulatory officials to gain approval for excessive telephone rates. The Court found the fact that the "racketeering predicates occurred with some frequency over at least a 6-year period . . . may be sufficient to satisfy the continuity requirement." 492 U.S. at 250. The Court also held trial may establish the "alleged bribes were a regular way of conducting [the defendant's] ongoing business, or a regular way of conducting or participating in the conduct of the alleged and ongoing RICO enterprise." Id. Accordingly, the Court found the requisite continuity.
The Third Circuit has declined to read H.J. Inc. as defining continuity solely as a temporal concept,"though duration remains the most significant factor." Pelullo, F.2d at , slip op. at 31; see also Hindes v. Castle, 937 F.2d 868, 873 (3d Cir. 1991); Marshall-Silver Constr. Co. v. Mendel, 894 F.2d 593, 596-977 (3d Cir. 1990); Casper v. Paine Webber Group, Inc., 787 F.Supp. 1480, 1506 (D.N.J. 1992); Insurance Consultants, 746 F.Supp. at 414. The Third Circuit stated:
If the Court in H.J. Inc. intended that the duration of the predicate acts or the threat arising therefrom should be determinative without reference to whether the societal threat was limited to a single, one time injury, we would not have expected the Court to eschew providing a specific standard in favor of a fact oriented, case-by-case development.
In Pelullo, the Circuit explained the differences in proving an open- and close-ended period. The Third Circuit observed:
Continuity in an open-ended period, i.e. a period involving a series of predicate acts that project into the future, may be established by proving a threat of continuity, which exists where the predicate acts themselves involve threats of long-term racketeering activity, or where the predicate acts are part of an entity's regular way of doing business.
It stated, however, that the factors identified in its decision in Barticheck v. Fidelity Union Bank/First Nat'l State, 832 F.2d 36, 39 (3d Cir. 1987), such as the number of unlawful acts, the length of time involved, the similarity of the unlawful acts, the number of victims, the number of perpetrators, and the nature of the unlawful activities, remain relevant to the issues of continuity and relatedness. Pelullo, F.2d at , slip op. at 32 9citing Banks v. Wolf, 918 F.2d 418, 423 (3d Cir. 1990)); see also Marshall-Silver, 894 F.2d at 597 (pointing to case-by-case analysis of pattern requirement which considers size and magnitude of fraud as being part of pattern analysis).
The Pelullo court further observed "that unless the Government can prove that there was a threat of continuity, it must be able to demonstrate that the pattern of racketeering occurred over a 'substantial' period of time." F.2d at , slip op. at 34. It stated although the Circuit has not defined a bright line test for what constitutes a sufficient period of time, "we have never found such a period to exist where the racketeering activity occurred over a period of one year or less." Id. at 35 (citing Hughes v. Consol-Pennsylvania Coal Co., 945 F.2d 594, 611 (3d Cir. 1991) (twelve months), petitionfor cert. deneid, U.S. , 112 S. Ct. 2300 (1992); Hindes, 937 F.2d at 875 (eight months); Banks, 918 F.2d at 423 (eight months); Marshall-Silver, 894 F.2d at 597 (seven months).
In this case, the last predicate acts of Cannistraro alleged in the Second Superseding Indictment are the obstruction of justice acts. It alleges that
in or about January 1986 to in or about February 1987, at Newark, in the District of New Jersey . . . Cannistraro unlawfully, willfully, knowingly,and corruptly influenced, obstructed, and impeded, and endeavored to influence, obstruct, and impede, the due administration of justice in connection with the . . . investigation by United States grand juries, in that . . . Cannistraro instructed and directed his nominee, in return for cash payments, to conceal from the United States grand juries . . . Cannistraro's beneficial ownership of the nominee's brokerage account at Monarch. . . .
Second Superseding Indictment, Count One, P94.
As to Bertoli, the Second Superseding Indictment alleges he obstructed justice beginning June 1987 through December 1991 by shredding and destroying documents, removing documents and hiding the proceeds of the racketeering activity and by submitting false and fraudulent affidavits to the court. Id., P95. The threshold inquiry is whether the obstruction of justice acts alleged satisfy the continuity plus relatedness requirement with respect to the predicate acts of mail fraud, wire fraud and securities fraud of Monarch.
Applying the foregoing principles to the case at bar, it appears the Second Superseding Indictment establishes a continuity plus relationship as to the obstruction of justice predicate acts and the other predicate acts alleged. The Defendants argue the final securities predicate, the mail fraudon 21 June 1987, is remote in time from Cannistraro's obstructionist conduct in January 1986 and February 1987 and Bertoli's obstructionist conduct in June 1987 and December 1991. Statute of Limitations Moving Brief at 11. The Government argues the predicate acts are continuous and related because of the additional conduct taken by the Defendants during the intervening time frame. Opposition Brief at 74-75.
The obstruction of justice predicates are not remote from the securities fraud predicates which ended in October 1984. Count One, P69(5) (e). Indeed, many of the acts alleged in Count Three occurred prior to the obstruction of justice predicates alleged in Count One. For instance,false testimony was provided to the SEC by a G.K. Scott broker at the behest of Bertoli and Eisenberg in March 1983 and again at the behest of Bertoli in August 1983. Count Three, P28(1)-(6). In March and August 1984 Eisenberg provided false testimony to the SEC in connection with the SEC Action. Id., P28(7) & (8).
The next related conduct occurred in January 1986 when Cannistraro contacted one of his nominees and instructed him to tell a false story regarding the trading activities at the Monarch account to the law enforcement authorities. Id., P28(9). That same month, the nominee gave a false story to law enforcement authorities in Newark, New Jersey. Id., P28(10). The scheme to cover-up and conceal the racketeering activities continued into February 1986 when the Defendants and Eisenberg traveled to the Cayman Islands and then to Miami where Cannistraro paid his nominee $ 2,000. Id., P28(12)-(16).
Count Three alleges that in January 1987 Cannistraro bribed a grand jury witness. Id., P28(17)-(21). It charges that in June 1987 Bertoli and Eisenberg and in November 1987 Bertoli shredded documents in the Cayman Islands which they obtained from Euro Bank. Id., P28(25) & (27). It further alleges that in September 1988 Eisenberg caused a records custodian from Monarch to provide false and misleading testimony to a grand jury in Newark, New Jersey. Id., P28(28).
The alleged events satisfy the continuity plus relationship test. The obstruction of justice predicates are part of a continuing pattern to conceal the securities and mail predicates. Moreover, many of the documents destroyed and false testimony obtained related to the conduct of Monarch. Accordingly, the continuous pattern of obstructionist conduct is sufficiently related to the other alleged RICO predicates. The obstruction of justice predicates are properly alleged in the Second Superseding Indictment and should not be redacted. Therefore, Count One is not barred by the statute of limitations; the motion to dismiss Count One of the Second Superseding Indictment as being barred by the statute of limitations is denied.
B. RICO Conspiracy -- Count Two
The statute of limitations for a RICO conspiracy under section 1962(d)
is five years which begins running upon the accomplishment or abandonment of the objective of the conspriacy. Under conspiracy statutes "'the conspiracy may be deemed terminated,'" for statute of limitations purposes, "'when . . . its objectives have either been accomplished or abandoned, not when its last overt act was committed.'" Persico, 832 F.2d at 713 (quoting United States v. Grammatikos, 633 F.2d 1013, 1023 (2d Cir. 1980)); see also United States v. Long, 917 F.2d 691, 698 (2d Cir. 1990); Gatto, 746 F.Supp. at 463; United States v. Di Gilio, 667 F.Supp. 191, 194 (D.N.J. 1987).
The Persico court explained the statute of limitations begins to run at the point at which the crime is complete. 832 F.2d at 713; see also 18 U.S.C. § 3282. The court held "because the RICO conspiracy statute does not require proof of an overt act, we believe that the crime of RICO conspiracy is not complete until the purposes of the conspiracy either have been accomplished or abandoned." Persico, 832 F.2d at 713. It stated there was no reason to analyze "the RICO conspiracy statute . . . in a manner inconsistent with other conspiracy statutes not requiring proof of overt acts." Id.
Significantly,the "defendant need not commit an act within the five year limitations period; the statute of limitations does not bar an action for RICO conspiracy against that individual if he or she continues as a coconspirator and another conspirator acted within the five year period." Gatto, 746 F.Supp. at 463. The rationale is that a member of a conspiracy is presumed to continue as a member until he or she affirmatively withdraws from the conspiracy. Id. (citing Hyde v. United States, 225 U.S. 347, 369 (1912)). Once an individual conspirator affirmatively withdraws from the conspiracy, however, the statute of limitations commences as to that individual. Id. (citing United States v. Salerno, 868 F.2d 524, 534 n.4 (2d Cir.), cert. denied sub nom. United States v. Wagstaff, 491 U.S. 907 (1990)).
The Supreme Court in Grunewald v. United States, 353 U.S. 391 (1957), addressed the issue of the object of a conspiracy with respect to acts of concealment. The defendants were convicted of conspiracy to defraud the United States by fixing tax fraud cases and taking actions to conceal their scheme from a congressional investigation committee. Id. at 393-94. The indictment alleged that part of the conspiracy was an agreement to conceal the acts of the conspirators. Id. at 394 n.7. The Supreme Court was faced with the issue of whether the prosecution was barred by the applicable statute of limitations. Id. at 394. The Court stated the "crucial question in determining whether the statute of limitations has run the scope of the conspiratorial agreement, for it is that which determines both the duration of the conspiracy, and whether the act relied on as an overt act may properly be regarded as in furtherance of the conspiracy." Id. at 397.
The Court rejected the Government's argument that the cover-up should be regarded as part of the conspiracy. Applying the standards set forth in Krulewitch v. United States, 336 U.S. 440 (1949) and Lutwak v. United States, 344 U.S. 604, reh'g denied, 345 U.S. 919 (1953),
the Court stated:
The crucial teaching of Krulewitch and Lutwak is that after the central criminal purposes of a conspiracy have been attained, a subsidiary conspiracy to conceal may not be implied from cirucumstantial evidence showing merely that the conspiracy was kept a secret and that the conspirators took care to cover up their crime in order to escape detection and punishment.
Grunewald, 353 U.S. at 401-02.
In analyzing the record in Grunewald, the Court rejected the Government's claim that the agreement to conceal was part of the original conspiracy. It observed: "There is not a shred of direct evidence in this record to show anything like an express original agreement among the conspirators to continue to act in concert in order to cover up, for their own self-protection, traces of the crime after its commission." Id. at 404. It noted, "the essential missing element is a showing that the act was done in furtherance of a prior criminal agreement of the conspirators." Id. at 404 n.16.
The Court, however, cautioned:
By no means does this mean that acts of concealment can never have significance in furthering a criminal conspiracy. But a vital distinction must be made between acts of concealment done in furtherance of the main criminal objectives of the conspiracy, and acts of concealment done after these central objectives have been attained,for the purpose only of covering up after the crime.
Id. at 405 (emphasis in original). The Court concluded that where the conspiratorial agreement included an agreement to conceal the conspiracy,the statute of limitations does not commence until after the acts of concealment are completed. Id. at 406. The ultimate question of whether acts are in furtherance of the conspiracy or only for purposes of concealment depends on the objectives of the conspiracy, a determination of which is a question of fact for the jury. United States v. Young & Rubicam, Inc., 741 F.Supp. 334, 343 (D.Conn. 1990) (citing United States v. Finkelstein, 526 F.2d 517, 522 (2d Cir. 1975), cert. denied sub nom. Scardino v. United States, 425 U.S. 960 (1976)).
Cases applying Grunewald have consistently interpreted it as not ruling out the possibility of acts of concealment being part of the original conspiracy. See, e.g., United States v. Masters, 924 F.2d 1362 (7th Cir.) (RICO conspiracy), cert. denied, U.S. , 111 S. Ct. 2019 (1991); Steele, 685 F.2d at 803 (conspiracy under 18 U.S.C. 371); Young & Rubicam, 741 F.Supp. at 342-45 (RICO conspiracy).
In Masters, the defendants, two police officers and an attorney, were charged with substantive and conspiracy RICO violations.
924 F.2d at 1365. The defendants appealed the RICO conspiracy charge on the ground that the statute of limitations had run. Id. at 1368. The conspiracy charge alleged, among other elements, that the defendants had agreed to conceal their actions involving the underlying murder and to participate in such concealment indefinitely. Id. The defendants did"not deny that if there was such an agreement it was still in force five years before the indictment." Id.
On appeal, the court stated there was an "'express original agreement among the conspirators to continue to act in concert in order to cover up . . . traces of the crime . . . .'" Id. (quoting Grunewald, 353 U.S. at 404). It stated:
The conspirators in this case, . . . intended from the first to exert strenuous efforts to prevent discovery of the crime . . .; the fact that two of the three conspirators were policemen supports the inference that concealment was part of the original conspiracy and not a spontaneous reaction to fear of arrest and prosecution. It was also a fair inference that the defendants agreed to keep trying to conceal the conspiracy for as long as they could, using their official positions where possible.
Masters, 924 F.2d at 1368.
The defendants, relying on Grunewald, argued the alleged acts of concealment were distinct from the alleged underlying criminal conspiracy. Id. at 343. The court stated its inquiry for a motion to dismiss was limited to the sufficiency of the indictment because the issue of the object of the conspiracy was a question of fact for the jury. Id.
The court held the indictment properly alleged acts of concealment as part of the original conspiracy. Id. In making its ruling, it relied on the fact that the indictment charged the defendant with conspiring to bribe persons to obtain and retain an account. It stated the relationship with the account was not severed until after the grand jury returned the indictment. It stated: "Concealment of the purported scheme was necessary to avoid detection and ensure retention of the account . . . ." Id.
In this case, the Second Superseding Indictment sufficiently alleges the Defendants and Eisenberg intended from the outset of the conspiracy to engage in efforts to prevent discovery of the alleged crime and their involvement in it. It alleges the means and methods of the conspiracy included "attempts to conceal and cover-up their fraudulent activity." Count One, P9. Moreover, it alleges the Defendants used, as part of their scheme, accounts at Monarch in the names of Cayman Islands entities. The fact that the Defendants funnelled the proceeds of the scalping and stock manipulation schemes in to Cayman Islands entities is evidence that they intended to take advantage of the secrecy laws of the Cayman Islands and thereby conceal their profits. The facts alleged do not present a case where the Defendants made a spontaneous agreement after the crime to conceal their conduct.
Whether the Government can satisfy its burden of establishing evidence from which it can be "shown or . . . implied," Grunewald, 353 U.S. at 406, that there was "an express original agreement among the conspirators to continue to act in concert in order to cover up, for their own self-protection traces of the crime . . ." is an issue for trial. Id. at 404; Young & Rubicam, 741 F.Supp. at 343. The Statute of Limitations Motion is denied on this ground.
To the extent Cannistraro challenges Count Two because he has been incarcerated since 1987, his argument is without merit. As discussed, a co-conspirator remains liable until the object of the conspiracy is accomplished regardless of whether he or she participated in the last predicate acts. Persico, 832 F.2d at 713.
Arrest or incarceration alone does not terminate a co-conspirators participation in a conspiracy. Gatto, 746 F.Supp. at 463. It is the burden of the defendant to prove withdrawal from a conspiracy. United States v. Gillen, 599 F.2d 541, 548 (3d Cir.), cert. denied, 444 U.S. 866 (1979); see also Gatto, 746 F.Supp. at 463. The defendant must show "affirmative acts inconsistent with the object of the conspiracy and communicated in a manner reasonably calculated to reach co-conspirators . . . ." United States v. United States Gypsum Co., 438 U.S. 422, 464 (1978). The Circuit stated withdrawal is typically shown by a full confession to the authorities or a communication to his or her co-conspirators that the defendant has abandoned the goals of the conspiracy. Steele, 685 F.2d at 803-04; see also United States v. Rosa, 891 F.2d 1063, 1069 (3d Cir. 1989); United States v. De Peri, 778 F.2d 963, 980 (3d Cir. 1985), cert. denied sub nom. Pecic v. United States, 475 U.S. 1110 (1986); United States v. Toth, 776 F.Supp. 1030, 1033 n.3 (E.D.Pa. 1991).
V. Motion to Dismiss Counts One, Two and Eight for Failure to State a Securities Laws Offense
The Defendants argue the mail and wire fraud acts relating to the alleged scalping and manipulation schemes should be stricken from the Second Superseding Indictment and Counts One, Two and Eight should be dismissed. Securities Fraud Moving Brief at 1. The Defendants acknowledge they previously challenged the Superseding Indictment on the ground that scalping does not state a crime; however, they state this motion is designed to address two specific issues. Id. First, they argue the reports prepared by Cannistraro did state that relevant persons might hold positions in the recommended stock. They contend, therefore, the Government's argument based on non-disclosure of the Defendants' and Eisenberg's positions in the securities Cannistraro recommended is baseless. Id. at 1-6. Second, the Defendants argue that,contrary to the decision in Eisenberg, 773 F.Supp. at 717-725, the alleged scalping schemes do not allege a violation of the securities laws absent a breach of fiduciary duty. Securities Fraud Moving Brief at 2, 6-17.
A. Disclosures in the Wood Gundy Reports
The Defendants' first argument appears to challenge the Second Superseding Indictment because it is based upon a theory of non-disclosure when, they argue, there was in fact disclosure. Id. at 5. The Defendants rely on the fact that every report named in the Second Superseding Indictment included the following declaration:
The statements and statistics contained herein have been obtained from sources we believe to be reliable but we cannot represent that they are complete and accurate. This publication is for the information of investors and does not constitute an offer of or solicitation of the sale of securities. Wood Gundy . . . and its affiliated companies together with their Directors and Officers,may from time to time have a position in the securities mentioned.
Id. (emphasis added by Defendants) (footnote omitted). The Defendants state the Second Superseding Indictment charges securities fraud based on nondisclosure because the "reports were false and misleading in that the reports failed to disclose, . . . that the defendants . . . had purchased . . . securities based upon advance knowledge of the reports, and intended to profit on the sale of these securities once the dissemination of the reports had caused the price of . . . [the] securities to rise . . . ." Id. at 3-4. They argue because the reports contained a disclosure of the possibility of ownership in the recommended securities, the premise of the scalping charge is false. Id. at 6.
The Defendants' argument is based on a game of semantics without recognition of the applicable securities law. As explained in Eisenberg, securities fraud can be grounded in nondisclosure where there is a fiduciary duty to disclose
and inadequate disclosure which arises when a public statement is made that is false or misleading or is so incomplete as to be rendered false or misleading. 773 F.Supp. at 721-23. It is a well settled principle that once disclosures are made, there is a duty to disclose all material information regardless of a fiduciary duty owed to the shareholders. Greenfield v. Heublein, Inc., 742 F.2d 751, 756, 758 (3d Cir. 1984), cert. denied, 469 U.S. 1215 (1985) (citing SEC v. Texas Gulf Sulpher Corp., 401 F.2d 833, 862 (2d Cir. 1968), cert. denied sub nom. Coates v. United States, 394 U.S. 976 (1969)); see also Basic Inc. v. Levinson, 485 U.S. 224, 235 n.13, 108 S. Ct. 978, 985 n.13 (1988) ("'Rule 10b-5 is violated whenever assertions are made . . . in a manner reasonably calculated to influence the investing public . . . if such assertions are false or misleading or so incomplete as to mislead.'"); accord, Eisenberg, 773 F.Supp. at 723.
The allegations in the Second Superseding Indictment cannot be read as asserting only a case based on non-disclosure where there is a fiduciary duty to disclose. Indeed, the terms non-disclosure or fiduciary duty are not used. The Second Superseding Indictment repeatedly alleges:
Count One, P14 (emphasis added); see also, id., PP23, Count Eight, P5. As was held in Eisenberg, these allegations charge the Defendants with disseminating to the investing public "misleading and incomplete statements regarding certain securities . . . ." 773 F.Supp. at 723. The disclaimer in the reports prepared by Cannistraro is, at best, incomplete to be false and misleading. The motion to dismiss Counts One, Two and Eight because the premise of the Second Superseding Indictment is nondisclosure is denied.
The Defendants argue the alleged scalping schemes do not state a violation of the securities laws. Specifically, they argue a Section 10(b) violation cannot be premised on allegations of scalping absent a fiduciary duty. Securities Fraud Moving Brief at 7. They further argue that the reliance on Zweig v. Hearst Corp., 594 F.2d 1261 (9th Cir. 1979), is unjustified because it is a pre-Chiarella decision. Securities Fraud Moving Brief at 8. They further argue Eisenberg is erroneous in that it distinguished between mandating disclosure under Chiarella because of a fiduciary duty and mandating full disclosure once a public statement has been made omitting material facts. Securities Fraud Moving Brief at 8-9.
The Defendants fail to recognize, however, that the Third Circuit has interpreted Chiarella and Dirks to "involve only the question of when outsiders and nonfiduciaries will be treated as insiders or fiduciaries for purposes of the affirmative duty to disclose or refrain from trading." Deutschman v. Beneficial Corp., 841 F.2d 502, 506 (3d Cir. 1988), cert. denied, 490 U.S. 114 (1989); accord Eisenberg, 773 F.Supp. at 719 n.57. It further stated: "Nothing in those opinions,however, can be construed to require the existence of a fiduciary relationship between a section 10(b) defendant and the victim of that defendant's affirmative misrepresentation." Deutschman, 841 F.2d at 506. Once a defendant chooses to speak, he or she is not free to lie or mislead. Id. A misrepresentation of a material fact is subject to Section 10(b) and Rule 10b-5 liability.
As stated in Eisenberg : "The purpose of Section 10(b) and Rule 10b-5 is to ensure that 'investors obtain disclosure of material facts in connection with their investment decisions regarding the purchase or sale of securities.'" 773 F.Supp. at 721 (citations omitted). An omitted fact is material if there is substantial likelihood the investor would consider it important in making an investment decision. Basic, Inc., 485 U.S. at 231 (adopting definition of materiality in context of Section 14(a) of Exchange Act set forth in TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)); see also Eisenberg, 773 F.Supp. at 722.
The Defendants' criticism of Eisenberg 's reliance on Zweig69 is misplaced. The Defendants fail to recognize that Eisenberg acknowledged the vitality of Zweig 's holding, that the columnist had a fiduciary duty, is questionable in light of Chiarella. 773 F.Supp. at 722. It relied, however, on the fact that Zweig "was premised in part on the [court's] conclusion that the columnist made affirmative misrepresentations which were rendered misleading by virtue of omissions of material facts." Id. at 722 (citing Zweig, 594 F.2d at 1271).
The Defendants also disapprove of the reliance in Eisenberg on SEC v. Blavin, 557 F.Supp. 1304 (E.D.Mich. 1983), aff'd, 760 F.2d 706 (6th Cir. 1985). The Defendants argue Blavin does not support a finding of a distinction between insider trading cases and other cases where the liability is premised on the misleading nature of statements. Securities Fraud Moving Brief at 13. The district court's holding in Blavin is set forth in Eisenberg.
773 F.Supp. at 722-23. On appeal, the Circuit affirmed the trial court's finding that Blavin was liable under Section 10(b) and the Investment Advisors Act of 1940, 15 U.S.C. § 80b-6. Blavin, 760 F.2d at 710-12. The Circuit focused on the materiality of the misstatements contained in the newsletter regarding Blavin's holdings in the securities he recommended. Id. at 711. The newsletter included a disclaimer that the investment advisor may trade in the recommended securities for his own account; it did not state that Blavin had invested in ten to twenty-five percent of the publicly available stock of the companies he recommended. Id. Although Blavin did not contest that the disclaimer was misleading he argued that a reasonable investor would not consider the misstatements material. Id. (citing TSC Indus., 426 U.S. at 449).
The Circuit affirmed the trial court's grant of summary judgment and held the disclaimer was a material misstatement. Id. It stated: "The effect of such large holdings on Blavin's objectivity in making investment recommendations would be particularly important to his clients." Id. (citing Zweig, 594 F.2d at 1266). As stated in Eisenberg, the reliance on Blavin was based on the fact that the court "analyzed the legality of the defendant's conduct by viewing the case as one in which the defendant made a statement rendered misleading due to an omission of material fact, where violation of the securities law is not premised on a duty of disclosure." 773 F.Supp. at 723. Although the Blavin court did find a fiduciary duty under the Investment Advisors Act, the fiduciary duty was not the basis of Blavin's liability for the affirmative misrepresentation.
The Second Superseding Indictment sufficiently pleads an affirmative misrepresentation by the Defendants. The issue of whether the misrepresenation is material is an issue for the jury. See TSC Indus., 426 U.S. at 450 ("The issue of materiality may be characterized as a mixed question of law and fact. . . .") The motion to dismiss Counts One, Two and Eight on the ground that scalping is not an actionable securities violation is denied.
VI. Bertoli's Motion to Dismiss Count Seven Charging Obstruction of Justice
Count Seven charges Bertoli with obstruction of justice on the ground that he submitted the allegedly false and fraudulent Isaacson Affidavits. Count Seven, PP4-5. Bertoli argues Count Seven should be dismissed because it alleges perjury, not obstruction of justice. Obstruction of Justice Moving Brief at 1. In the alternative, Bertoli argues Count Seven should be severed because it will unfairly prejudice him. Id. at 2.
A. Dismissal of Count Seven
Count Seven alleges a violation of section 1503 of Title 18. Section 1503 is an omnibus clause which penalizes any person who "endeavors to influence, obstruct, or impede, the due administration of justice."
18 U.S.C. § 1503. Section 1503 was enacted, in part, to "prevent 'miscarriages of justice by corrupt methods.'" United States v. Williams, 874 F.2d 968, 976 (5th Cir. 1989) (quoting United States v. Vesich, 724 F.2d 451, 453 (5th Cir. 1984)). It "forbids all corrupt endeavors to obstruct or impede the due administration of justice." Williams, 874 F.2d at 976 (emphasis in original) (footnote omitted).
The Third Circuit has stated, however, that an allegation of perjury is insufficient to secure a conviction for obstruction of justice. United States v. Rankin, 870 F.2d 109, 111 (3d Cir.), cert. denied, 493 U.S. 840 (1989); see also In re Michael, 326 U.S. 224, 228 (1945) (reversing punishment for contempt resulting from perjured testimony). In Rankin, the defendant was charged with obstruction of justice because he submitted an affidavit which the defendant knew contained false allegations.
870 F.2d at 111. The defendants argued on appeal that the submission of false testimony could not alone constitute an obstruction of justice charge. Id. They argued the Government must allege "the particular manner in which the defendants' conduct obstructed the due administration of justice." Id.
The Circuit agreed with the trial court that an allegation of mere perjury was insufficient to establish an obstruction of justice charge. However, because the Rankin court was only faced with the issue of the sufficiency of the indictment, it declined to determine "how much more than a perjurious act the Government must prove . . ." 870 F.2d at 112. It stated that at the pretrial stage the only inquiry was whether the obstruction of justice count constitutes"'a plain, concise and definite written statement of the essential facts constituting' an obstruction of justice and . . . whether [it is] in compliance with Federal Rule of Criminal Procedure 7(c) and [the] Fifth and Sixth Amendments." Id.
An indictment is generally deemed sufficient if it: 1) "contains the elements of the offense intended to be charged," 2) "sufficiently apprises the defendant of what he must be prepared to meet," and 3) allows the defendant to "show with accuracy to what extent he may plead a former acquittal or conviction" in the event of a subsequent prosecution.
Id. (quoting Russell v. United States, 369 U.S. 749, 763-64 (1962)). It stated the elements of section 1503 are "'(1) endeavoring to (2) corruptly (3) influence . . . the due administration of justice.'" Id. (quoting United States v. Tedesco, 635 F.2d 902, 907 (1st Cir. 1980), cert. denied, 452 U.S. 962 (1981)). The Rankin court stated where the obstruction elements are alleged in the indictment it satisfies the pleading requirements without specifying the manner in which the conduct obstructed justice. 870 F.2d at 112.
Bertoli recognizes that Rankin permits the development of the facts at trial to determine whether the Government has proved more than perjury. Defendants' Reply Brief at 8. Bertoli argues, however, that the Government would not present any additional facts at trial than those alleged in the Second Superseding Indictment. Id. He argues "the only purpose served by letting the Government prove this claim at trial would be to unfairly prejudice [him] with evidence which pertains to a wrongly-brought charge." Id. at 9.
Count Seven of the Second Superseding Indictment alleges the Isaacson Affidavits "were false and fraudulent in that . . . the Cayman Islands accounts were actually beneficially owned in whole or in part by . . . Bertoli, . . . Cannistraro, and . . . Eisenberg." Count Seven, P4. It alleges: "Bertoli knew that the Isaacson Affidavits were false and fraudulent and that they had been prepared for the use of . . . Bertoli . . . Cannistraro . . . and Eisenberg, in attempting to fraudulently exculpate themselves in any civil or criminal proceedings involving securities trading in these Cayman Islands accounts." Id. It alleges:
Count Seven sufficiently alleges the elements of an obstruction of justice offense. It concisely alleges that Bertoli corruptly endeavored to obstruct the administration of justice. It further alleges that the act which caused the obstruction of justice was the introduction of the false and fraudulent Isaacson Affidavits. Bertoli's argument that the production of evidence at trial will not establish anything more than what is already alleged in the Second Superseding Indictment and should be foregone because it will only result in prejudice to him is contrary to the holding in Rankin. As was the case in Rankin, the Second Superseding Indictment only alleges that Bertoli impeded the due administration of justice. It is the Government's burden at trial to prove the submission of the Isaacson Affidavits was intended to or did, in fact, impede justice. Moreover, the argument that he will be prejudiced by the introduction of the evidence is more properly an argument to be advanced in his motion for severance which is discussed below. The motion to dismiss Count Seven is denied.
B. Severance of Count Seven
Bertoli argues Count Seven should be severed to afford him a fair trial. Obstruction of Justice Moving Brief at 4. He argues one of the central issues at trial will be the identity of the beneficial owners of certain Cayman Islands accounts. Id. He argues it is inappropriate for the Government to charge him in this case with obstruction of justice for filing an affidavit which attacks one of the Government's central claims. Id.
The Government argues severance is inappropriate because the preparation and submission of the Isaacson Affidavits were part of the Defendants' RICO activities. Opposition Brief at 54. It argues Count Seven must be tried with the other Counts in the Second Superseding Indictment because the evidence offered in connection with the other counts will establish a motive for the conduct alleged in Count Seven. Id. Additionally, the Government argues Bertoli has not demonstrated prejudice that would result in a manifestly unfair trial. Id. at 55. It argues even if Bertoli were able to establish prejudice, it would be illusory because the evidence relating to Count Seven will be introduced in connection with the RICO counts. Id. at 56.
Rule 14 of the Federal Rules of Criminal Procedure provides: "If it appears that a defendant . . . is prejudiced by a joinder of offenses or of defendants in an indictment . . ., the court may order . . . separate trials of counts, grant a severance of defendants or provide whatever other relief justice requires." Fed.R.Crim.P. 14.
Although a request for severance is made under Rule 14,
Rule 8 of the Federal Rules of Criminal Procedure merits consideration. Rule 8 permits joinder of offenses and defendants.
Joinder of offenses and defendants promotes economy of judicial and prosecutorial resources, as well as the public interest in avoiding expensive and duplicative trials. United States v. Lane, 474 U.S. 438, 449, reh'g denied, 475 U.S. 1104 (1986); United States v. Gorecki, 813 F.2d 40, 42 (3d Cir. 1987); United States v. Jackson, 649 F.2d 967, 973 (3d Cir.), cert. denied, 454 U.S. 1034 (1981). When distinct offenses have both a logical and temporal relationship, joinder permits the Government to present its evidence in an efficient manner. Such evidentiary overlap "strongly counsels in favor of joinder." United States v. McDonnell, 699 F.Supp. 1348, 1351 (N.D. Ill. 1988) (citing United States v. Shue, 766 F.2d 1122, 1134 (7th Cir. 1985), cert. denied, 484 U.S. 956 (1987)).
In this case, the literal requirements of Rule 8 are met. As discussed, the Second Superseding Indictment alleges Bertoli's preparation of the Isaacson Affidavits were part of the Defendants' racketeering activities. Therefore, a presumption arises in favor of joinder. See United States v. Swift, 809 F.2d 320, 322 (6th Cir. 1987) (Rule 8(b) "can, and should, be 'broadly construed in favor of initial joinder'. . . .") (quoting United States v. Isaacs, 493 F.2d 1124, 1158 (7th Cir.), cert. denied sub nom. Kerner v. United States, 417 U.S. 976 (1974)). Indeed, there is a presumption against severance because it is "assumed that closely related charges are being tried together. . . ." United States v. Velasquez, 772 F.2d 1348, 1355-56 (7th Cir. 1985), cert. denied, 475 U.S. 1021 (1986); see also United States v. Serubo, 604 F.2d 807, 819 (3d Cir. 1979).
If, however, offenses or defendants have been improperly joined, severance is required as a matter of law under Rule 8. United States v. Andrews, 765 F.2d 1491, 1496 (11th Cir. 1985) ("Misjoinder under Rule 8(b) is prejudicial per se. . . .") (emphasis in original), cert. denied sub nom. Royster v. United States, 474 U.S. 1064 (1986); United States v. Bledsoe, 674 F.2d 647, 654 (8th Cir.) ("Misjoinder of defendants is inherently prejudicial."), cert. denied sub nom. Phillips v. United States, 459 U.S. 1040 (1982); United States v. Vastola, 670 F.Supp. 1244, 1261 (D.N.J. 1987) (citing United States v. Somers, 496 F.2d 723, 729 (3d Cir.), cert. denied, 419 U.S. 832 (1974)).
When a number of offenses are joined in one indictment or multiple defendants are jointly charged with a single offense, "some prejudice almost necessarily results." Vastola, 670 F.Supp. at 1261 (quoting Cupo v. United States, 359 F.2d 990, 993 (D.C. Cir. 1966), cert. denied, 385 U.S. 1013 (1967)). This level of prejudice, however, is permissible so long as the technical strictures of Rule 8 are met. Thus, Rule 8(a) is generally satisfied if the indictment charges offenses which are temporally or logically connected to support the conclusion that the offenses are part of the same plan. Gorecki, 813 F.2d at 42; see also United States v. Gonzalez, 918 F.2d 1129, 1136 n.6 (3d Cir. 1990), cert. denied, U.S. , 111 S. Ct. 1637 (1991); United States v. Di Pasquale, 561 F.Supp. 1338, 1347 (E.D. Pa. 1983), aff'd, 740 F.2d 1282 (3d Cir. 1984), cert. denied, 469 U.S. 1228 (1985).
Severance under Rule 14 is within the discretion of the trial court. United States v. Eufrasio, 935 F.2d 553, 568 (3d Cir.), cert. denied sub nom. Idone v. United States, U.S. , 112 S. Ct. 340 (1991); United States v. Boyd, 595 F.2d 120, 125 (3d Cir. 1978). Rule 14 authorizes a trial court to sever counts or defendants where, despite an indictment's technical compliance with Rule 8, joinder would result in a "manifestly unfair trial." Vastola, 670 F.Supp. at 1261 (citing United States v. Reicherter, 647 F.2d 397, 400 (3d Cir. 1981)). A defendant bears a heavy burden when he or she moves for severance under Rule 14. See United States v. McGlory, F.2d , No. 90-3604, slip op. at 69-70 (3d Cir. 19 June 1992); Eufrasio, 935 F.2d at 568; United States v. Sandini, 888 F.2d 300, 305 (3d Cir. 1989), cert. denied, sub nom. Thomson v. United States, 494 U.S. 1089 (1990); United States v. De Peri, 778 F.2d at 983; United States v. Di Pasquale, 740 F.2d 1282, 1293 (3d Cir. 1984), cert. denied, 469 U.S. 1228 (1985). Mere allegations of prejudice are insufficient to meet this burden. A defendant "must demonstrate 'clear and substantial prejudice.'" Gorecki, 813 F.2d at 43 (quoting Sebetich, 776 F.2d at 427); United States v. Wright-Barker, 784 F.2d 161, 175 (3d Cir. 1986). "It is not enough to show that severance would have increased the defendant's chances of acquittal." McGlory, F.2d at , slip op. at 70.
Prejudice cannot be shown merely because the jury may consider the facts alleged in one count during their considerations of another count. Eufrasio, 935 F.2d at 570-71. The jury can reasonably be expected to confine its considerations of evidence to the proper charges. Id. "The defendant must demonstrate that in light of the evidence to be submitted against him, the evidence in the case as a whole is so complex or confusing, that a reasonable jury would be unable to 'compartmentalize' the evidence as to each [count] and would thus be unable to make an individualized determination of the prejudiced defendant's innocence or guilt." United States v. Zolp, 659 F.Supp. 692, 701 (D.N.J. 1987); see also McGlory, F.2d , slip op. at 70.
In determining whether to sever a trial, the "court should balance the public interest in joint trials against the possibility of prejudice inherent in the joinder of defendants." Eufrasio, 935 F.2d at 568 (citing De Peri, 778 F.2d at 984); see also McGlory, F.2d at , slip op. at 69. Joint trials "conserve [public] funds, diminish inconvenience to witnesses and public authorities, and avoid delays in bringing those accused of crime to trial." Bruton v. United States, 391 U.S. 123, 134 (1968). Moreover, "joint trials generally serve the interests of justice by avoiding inconsistent verdicts and . . . [other] advantages which sometimes operate to the defendant's benefit." Richardson v. Marsh, 481 U.S. 200, 210 (1987). Significantly, the "public interest in judicial economy favors joint trials where the same evidence would be presented at separate trials of defendants charged with a single conspiracy." Eufrasio, 935 F.2d at 568.
In support of the request for severance, Bertoli argues the introduction of evidence that the Isaacson Affidavits are false and fraudulent would prejudice the jury against him with respect to the other Counts in the Second Superseding Indictment. But as the Government argues, the Government will introduce the Isaacson Affidavits as part of the evidence in the RICO Counts. Accordingly, joinder of Count Seven will not result in "clear and substantial prejudice" resulting in an unfair trial. Eufrasio, 935 F.2d at 568, 571.
Moreover, the trial is projected to last two to four months. To sever Count Seven will require that many of the same witnesses be reassembled and would result in a gross waste of judicial resources, time and effort. The substantial public interest in judicial economy outweighs any prejudice to Bertoli by not severing Count Seven. The motion to sever Count Seven is denied.
VII. Motion for Discovery
Bertoli makes fourteen discovery requests pursuant to Rule 16 of the Federal Rules of Criminal Procedure seeking the following material: (1) all tape recordings or transcripts of telephone conversations involving Bertoli which the Government received subsequent to 9 February 1990 ("Request Number One"), (2) all tape recordings or transcripts of telephone conversations involving Cannistraro which the Government received subsequent to 9 February 1990 ("Request Number Two"), (3) all documents in connection with this matter received by the Government subsequent to 9 February 1990 ("Request Number Three"),
(4) copies of all bank statements, canceled checks and tax returns for the years 1982 through 1984 of various individuals ("Request Number Four"),
(5) copy of a letter of intent between Solar Age and Citywide Securities ("Request Number Five"), (6) copy of a check issued to Citywide Securities on behalf of Solar Age ("Request Number Six"), (7) all due diligence files with respect to Solar Age, Nature's Bounty and Astrosystems maintained by Citywide Securities or Wood Gundy ("Request Number Seven"), (8) a tape recording of a conversation in 1987 between Carl Alan Key and Cannistraro ("Request Number Eight"), (9) a tape recording of a conversation between Eisenberg and Gary Nudelman ("Request Number Nine"), (10) a list of the names of the alleged co-conspirators ("Request Number Ten"),
(11) names of all witnesses the Government heard before the Grand Jury but did not intend to call as witnesses who have contradicted the statements of various individuals ("Request Number Eleven"), (12) any deals, promises or inducements made to Government witnesses in exchange for testimony ("Request Number Twelve"), (13) any statements tending to impeach credibility of Government witnesses ("Request Number Thirteen"), and (14) all offers of immunity to Government witnesses ("Request Number Fourteen"). Discovery Notice of Motion.
A. Tape Recordings or Transcripts of Conversations -- Request Numbers One, Two, Eight and Nine
With respect to Request Numbers One and Two for tape recordings of the Defendants received after 9 February 1990, the Government concedes that any such tape recordings would be within paragraph 1(a) of the discovery order, dated 23 May 1990 (the "Discovery Order").
Opposition Brief at 88. It states, however, that it "possesses no relevant tape recordings of Bertoli or Cannistraro that were received after February 9 1990." Id.
With respect to Request Number Eight for a tape recording or transcript between Cannistraro and Carl Alan Key, Cannistraro stated, at oral argument, that Assistant United States Attorney, Robert Warren "represented . . . to Mr. Bob Talcot in Los Angeles when I was arrested, saying that I should cooperate immediately because he had this conversation with Carl Alan Key and myself on tape, which was supposed to be extremely beneficial to the Government, or at least in Mr. Warren's eyes." 19 June 1992 Oral Arg. Tr. at 10. The Government states it "does not have a tape recording of a conversation between Carl Alan Key and Cannistraro and never indicated to Bertoli that it did." Opposition Brief at 88; see also 19 June 1992 Oral Arg. Tr. at 9 ("As far as the tapes, there is no tape between Carl Alan Key and . . . Cannistraro. I have represented that to the Court and to the defendants in our papers and, as far as I know, Mr. Warren has never made that representation.").
As to Request Numbers One, Two and Eight, the Government has made affirmative representations that the requested tape recordings do not exist. The representations of the Government will be relied on and accepted. Request Numbers One, Two and Eight are denied.
As stated in Eisenberg, "even under [a] broad interpretation of Rule 16(a)(1)(A), . . . discovery of the statements of co-conspirators may only be permitted on a Rule 16 motion if the Government does not intend to call such co-conspirators as witnesses at trial." 773 F.Supp. at 682 (quoting United States v. Jackson, 757 F.2d 1486, 1491 (4th Cir.), cert. denied, 474 U.S. 994 (1985); United States v. Konefal, 566 F.Supp. 698, 706 (N.D.N.Y. 1983)). If the Government intends to call Eisenberg as a witness at trial, his statements are not discoverable until Eisenberg testifies at trial. Id. (citing Jencks Act, 18 U.S.C. § 3500 ("Jencks material")).
To the extent the tape constitutes impeachment material discoverable under Giglio v. United States, 405 U.S. 150 (1972) ("Giglio " material), the Government states it will be disclosed on the day before the witness testifies. Opposition Brief at 90. Because Bertoli has presented no basis for the production of the tape between Eisenberg and Gary Nudelman, Request Number Nine is denied.
B. Production of Documents -- Request Numbers Three through Seven
1. Documents Obtained Subsequent to 9 February 1990 -- Request Number Three
Request Number Three asks for production of all documents received by the Government subsequent to 9 February 1990, the date of the last inspection by Bertoli of the document room. Discovery Notice of Motion, P3. Specifically, Bertoli requests documents received from Eisenberg, Paul Eisenberg, Michael Eisenberg, the SEC, American Express, Joseph Lugo, Jose Camprubi, Eric Moss and the NASD. Id. Bertoli cites no authority for the proposition that he is entitled to these documents as a matter of right. It appears Bertoli relies on the fact that during the Cayman Islands Depositions, the Government introduced Exhibit 2500 which Bertoli had not previously seen. Discovery Affidavit, P8. He argues, therefore, the Government has documents in its possession which it did not provide under the Discovery Order. Id., P9.
As stated, Bertoli neither cites authority nor advances arguments as to why he is entitled to any documents the Government has received subsequent to 9 February 1990. Former counsel to Bertoli, in fact, reviewed documents in the storage room on forty-two occasions since 9 February 1990. Opposition Brief at 82. As a result of such investigations, Bertoli had additional documents photocopied in June 1991. Id. at 82-83. The Government represents that pursuant to the Discovery Order, it "will allow Bertoli to inspect and copy the documents it intends to introduce on its direct case approximately 30 days before trial." Id. at 91. In addition, the Government states that if any of the requested documents constitute exculpatory evidence under Brady v. Maryland, 373 U.S. 83 (1963) ("Brady " material), it will make such documents available.
Id. at 92. Lastly, the Government states it will provide all Jencks
and Giglio material the day before a witness testifies at trial. Id.
Although the Defendants are not entitled to more discovery, the Government has provided no reason why it should not permit Bertoli to continue to inspect the boxes of documents in the Government's possession. Accordingly, Bertoli is given leave to access the documents in the Government's possession; the Government is not, however, required to locate and identify those documents, it has received subsequent to 9 April 1990. Request Number Three for production of documents obtained subsequent to 9 February 1990 is denied.
2. Bank Records and Tax Returns -- Request Number Four
With respect to Request Number Four for bank statements, canceled checks and tax returns for various individuals, it appears Bertoli seeks these documents on the theory that the Government has previously made its documents open for inspection and should continue to do the same. Discovery Affidavit, P3. Specifically, Bertoli argues when his former counsel made its initial inspection of the three hundred boxes of documents in the Government's storage room, it was agreed that Bertoli would have continued access to these documents as the case proceeds.
Id., P3, Ex. A (letter from Podvey Sachs to Government).
3. Letter of Intent, Citywide Securities Check and Due Diligence Files -- Request Numbers Five through Seven
Request Number Five seeks an order requiring the Government to produce a copy of a letter of intent between Solar Age and Citywide Securities to underwrite the sale of Solar Age common stock. Discovery Notice of Motion, P5. Request Number Six seeks a copy of a check issued to Citywide Securities on behalf of Solar Age pursuant to the letter of intent. Id., P5. Request Number Seven requests copies of due diligence files of Citywide Securities or Wood Gundy involving Solar Age, Nature's Bounty and Astrosystems. Id., P7.
The Government states it "does not have a 'check issued to Citywide . . . on behalf of Solar Age. . . .'" Opposition Brief at 92 n.46. The Government states assuming it possesses the letter of intent or a check relating to the Solar Age issuance of common stock, Bertoli has already had an opportunity to copy such documents. Id. With respect to Request Number Seven, the Government states it "does not believe it has any Wood Gundy or Citywide due diligence files on Solar Age, Nature's Bounty and Astrosystems." Id. It states even if it possessed such files, they have previously been made available to Bertoli. Id.
Request Numbers Five, Six and Seven are denied for the same reasons applied to Request Number Three. As discussed, however, the Government has shown no basis why Bertoli should not be given leave to access the three hundred boxes of documents in the Government's possession. Accordingly, such leave is granted and Bertoli can mark documents for independent copying. The Government is not, however, required to locate and photocopy the documents requested.
C. Giglio Material -- Request Numbers Eleven through Fourteen
Request Number Eleven seeks a list of witnesses the Government heard before the grand jury, but does not intend to call as trial witnesses, who have contradicted the statements of Eisenberg, Paul Eisenberg, Michael Eisenberg, Robert Cooper and Herbert Cannon. Discovery Notice of Motion, P11. Bertoli also seeks in Request Number Twelve any deals made by the Government in exchange for a witness's testimony, in Request Number Thirteen he seeks any statements impeaching the credibility of a Government witness and in Request Number Fourteen he seeks all offers of immunity to Government witnesses. Id., PP12-14. Requests Eleven through Fourteen all seek material which would be used to impeach the Government's witnesses. These requests, therefore, are classified as requests for Giglio material. Bertoli made a similar motion in Eisenberg. 773 F.Supp. at 684-85.
In Eisenberg, Bertoli's request for Giglio material was denied. It stated, "the Third Circuit held a defendant's due process right to a fair trial is satisfied when information relating to the credibility of Government witnesses is disclosed the day the witnesses are scheduled to testify." Eisenberg, 773 F.Supp. at 684 (citing United States v. Higgs, 713 F.2d 39, 44 (3d Cir. 1983), cert. denied sub nom. Kemp v. United States, 464 U.S. 1048 (1984)). "The purpose of requiring disclosure of impeachment information is not to assist the defense in a general pretrial investigation, but only to give the defense an opportunity to effectively cross-examine the Government's witnesses at trial." Eisenberg, 773 F.Supp. at 685 (citing Higgs, 713 F.2d at 44-45).
Bertoli now seeks early disclosure of Giglio material on the ground that he is pro se. Defendants' Reply Brief at 18. Bertoli, however, has provided no case law which suggests that the disclosure requirements of Giglio are different when a defendant has knowingly and voluntarily waived his right to counsel. Indeed, when Bertoli waived his right to counsel he was repeatedly warned of the fact that this matter presented complicated issues for trial and would be held to the same standards that would be applied were he represented by counsel. See 3 September 1991 Tr. at 30, 38-39. Bertoli will not now be allowed to use his voluntary decision to proceed pro se as a means to allow him to otherwise impermissible pretrial discovery. Accordingly, Request Numbers Eleven through Fourteen to the extent they are based on Bertoli's status as a pro se defendant are denied.
Bertoli also argues Request Numbers Eleven through Fourteen should be granted because Brady requires the disclosure of "material impeachment evidence." Defendants' Reply Brief at 19 (citing United States v. Kiszewski, 877 F.2d 210, 216 (2d Cir. 1989); Perkins v. Le Fevre, 691 F.2d 616, 619 (2d Cir. 1982); United States v. Kalevas, 622 F.Supp. 1523, 1531 (S.D.N.Y. 1985)). The requirements of Giglio and Brady are fully set forth in Eisenberg. 773 F.Supp. at 684-85. The Government is fully aware of its obligations under Brady. The Government has represented that if "it determines that any 'witnesses . . . heard before the Grand Jury' possess exculpatory information within the meaning of Brady, it will provide Bertoli with the names of those witnesses." Opposition Brief at 89. The Government's representation is accepted and relied on; Request Numbers Eleven through Fourteen are denied.
VIII. Motion to Reconsider First Pretrial Motions in Light of Second Superseding Indictment
The Defendants have filed the Notice of Motion that was previously filed for the First Set of Pretrial Motions. At oral argument, Bertoli explained the purpose of this motion as follows:
That's merely requesting the Court, because I consider the Second Superseding Indictment a totally new indictment, that the Court consider all of those motions as if they were filed and the decisions, of course, . . . of the Court would be standing. I don't want to waive, for example, any rights that would have been covered by those motions.
19 June 1992 Oral Arg. Tr. at 34.
The First Set of Pretrial Motions has been considered in light of the Second Superseding Indictment and the decision in Eisenberg remains extant.
United States v. BERTOLI, CANNISTRARO
List of Pleadings and Related Documents1
1. Bertoli's Motion to Recuse Judge Lechner
- Submitted by Sachs for Bertoli
Documents in Support of Motion
A. Sachs Affidavit, dated 2 Nov. 1989
1. Bertoli's letter to court, dated 2 Nov. 1987
2. Bertoli's letter to Justice Marshall, dated 3 Nov. 1987
C. Letter Brief, dated 3 Nov. 1989 in further support
- submitted by Tolomeo for Bertoli
Transcript of Proceedings, U.S. v. Cannistraro, Crim. No. 87-193, dated 2 Nov. 1987
D. Amended Brief in Support of Motion to Recuse
- submitted by Podvey Sachs
1. Bertoli's letter to court dated 2 Nov. 1987
2. Bertoli's letter to Justice Marshall dated 3 Nov. 1987
E. Letter from Podvey Sachs, dated 6 Nov. 1989, clarifying 3 Nov. 1989 Letter Brief
Documents in Opposition to Motion
A. Memorandum of Law in Opposition, dated 17 Nov. 1989
- submitted by Rosenfield
- on the Memorandum: Fietkiewicz and Warren
2. Cahill Affidavit in Support of Motion to Intervene and to Stay Civil Discovery (w/other docs.)
3. Correspondence between Bertoli and Government from Jan. 1976-April 1977
4. Letter, dated 1977, from Bertoli to U.S. Atty. Gen. requesting indictment of District Judges Lacey and Stern
5. Documents re: disqualification of Judge Ralph Tracy
6. Transcript of Proceedings, U.S. v. Cannistraro, Crim. No. 87-193, dated 21 Sept. 1987
7. Verified Complaint, filed 2 Feb. 1976 - Bertoli v. Goldstein, Civil Action No. 76-207,
8. Verified Complaint - Bertoli v. Foreman of Grand Jury & attached documents, Civ. No. 76-286
8a. Bertoli's letter requesting leave to dismiss, dated 12 Aug. 1977
9. Bertoli's list of witnesses, dated 1 Oct. 1987
10. Subpoena to Bertoli, dated 1 Oct. 1987
11. Notice of Motion to quash subpoena w/documents, dated 10 Nov. 1987
12. Supplemental Memo in support of motion to quash subpoena, dated 13 Nov. 1987
13. Transcript of Proceeding, U.S. v. Cannistraro, Crim. No. 87-193, dated 24 Sept. 1987
14. Government's Sentencing Memo for U.S. v. Cannistraro, Crim. No. 87-193, dated 23 Oct. 1987
15. Sentencing Memo submitted by Cannistraro re: U.S. v. Cannistraro, Crim. No. 87-193, dated 28 Oct. 1987
16. Transcript of Proceeding, U.S. v. Cannistraro, dated 24 July 1990
Minutes of Proceedings of 29 Jan. 1990
- Hearing on Defendants' motion for recusal; decision reserved.
- Speedy Trial Order to be filed.
- Appearances: Fietkiewicz, Warren and Rosenfield (Government)
Sachs and Tolomeo (Bertoli)
Pollack and Codey (Cannistraro)
Sterheim and Fallick (Eisenberg)
Continuance granted (excluded time between filing of Bertoli's recusal motion and the date of both recusal motions pursuant to Speedy Trial Act)
OPINION, filed 22 March 1990
Bertoli's motion for recusal denied
ORDER, filed 30 March 1990
Bertoli's motion for recusal denied
2. Government's Motion to Grant Leave to take foreign depositions and for issuance for request for foreign judicial assistance (Cayman) and to have a Special Master over proceedings appointed
- Submitted by Rosenfield
- Pursuant to F.R.Crim.P. 15 & 28, 28 USC § 1781, 18 USC § 507
Documents in Support of Motion
A. Government Moving Brief
- Submitted by Rosenfield
B. Affidavit of Cahill, dated 19 Oct. 1989
1. Copy of Superseding Indictment, dated 29 Sept. 1989
2. Copies of stock certificates for Astrosystems
3. Copies of stock certificates for Astrosystems
4. Stock purchase receipt for Richardson Greenshields to Euro Bank, dated 15 July 1983
5. Statements of Richardson Greenshields to Euro Bank, dated 31 July 1983
6. Check of Euro Bank to Richardson Greenshields
7. Money transfer from Butterfield Bank to Chase Manhattan Bank, dated 11 Jan. 1983
8. Account credit from Chase Manhattan to Butterfield Bank & Monarch, dated 11 Jan. 1983
9. Financial records, dated 1982-1983
10. Check, dated 18 June 1983, from Monarch to Euro Bank
11. (a) Statement of Butterfield Bank's account from Irving Trust, dated 31 Jan. 1983
(b) Check from Monarch to Euro Bank, dated 18 Jan. 1983
12. Records of phone calls of Liquidated Control for Oct. 1982-1983 and of Monarch for Dec. 1982
13. Wire transfer from Butterfield Bank to Irving Trust, dated 15 Dec. 1982
14. Wire transfer from Butterfield Bank to Monarch, dated 15 Dec. 1982
15. Balance sheet of Euro Bank for 1982
16. Wire transfer from Butterfield Bank to Irving Trust, dated 16 Dec. 1982
17. Wire transfer from Euro Bank to Monarch, dated 21 Dec. 1982
18. Check from Monarch to Monarch, dated 14 March 1983
19. Check from Monarch to Venture Partners, dated 17 March 1983
20. Check from Monarch to Irving Trust, dated 14 March 1983
21. Check receipts from Euro Bank to Irving Trust, dated 14 May 1983
22. Balance sheets from March 1983
23. Balance sheets from March - April 1983
24. Sell orders for Toxic Waste from various parties, ...