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State v. DeLuzio

Decided: June 27, 1994.

STATE OF NEW JERSEY, PLAINTIFF-APPELLANT,
v.
HARRY DELUZIO, DEFENDANT-RESPONDENT. STATE OF NEW JERSEY, PLAINTIFF-APPELLANT, V. JOHN KELTY, DEFENDANT-RESPONDENT. STATE OF NEW JERSEY, PLAINTIFF-APPELLANT, V. LOIS SANDERS, DEFENDANT. STATE OF NEW JERSEY, PLAINTIFF-APPELLANT, V. DONALD SANDERS, DEFENDANT-RESPONDENT. STATE OF NEW JERSEY, PLAINTIFF-APPELLANT, V. THEODORE WATLEY, DEFENDANT-RESPONDENT.



On certification to the Superior Court, Appellate Division, whose opinion is reported at N.J. Super. (1993).

Clifford, Handler, Pollock, Stein, O'hern, Garibaldi

Per Curiam

PER CURIAM

The Court denied the petitions for certification filed by defendants Lois and Donald Sanders and granted the State's cross-petition for certification. 134 N.J. 564 (1993). That portion of the judgment of the Appellate Division that is under review on the State's appeal is affirmed, substantially for the reasons expressed in the opinion of the Appellate Division, reported at N.J. Super. (1993).

JUSTICES CLIFFORD, HANDLER, POLLOCK, and STEIN join in this opinion. JUSTICE O'HERN has filed a separate Dissenting opinion, in which JUSTICE GARIBALDI joins. CHIEF JUSTICE WILENTZ did not participate.

O'HERN, J., Dissenting.

The Court has set aside the convictions of Lois Sanders, Donald Sanders, and Theodore Watley for promoting gambling, a violation of N.J.S.A. 2C:37-2, and possession of gambling records, a violation of N.J.S.A. 2C:37-3, on the basis of the Appellate Division opinion below, N.J. Super. (1993). Specifically, the State charged defendants with promoting an illegal lottery, a third-degree offense under N.J.S.A. 2C:37-2. The Appellate Division held that the familiar form of a pyramid scheme is not a "lottery" within the meaning of N.J.S.A. 2C:37-1(h), and therefore does not constitute a gambling offense. The Court has also set aside the convictions of Officers Harry DeLuzio and John Kelty for promoting gambling, in violation of N.J.S.A. 2C:37-2, and official misconduct, a violation of N.J.S.A. 2C:30-2(b), which were dependent on the underlying offenses of the Sanderses.

The facts regarding defendants' pyramid scheme are well known. See State v. Sanders, 212 N.J. Super. 599, 601-03, 515 A.2d 1256 (App. Div. 1986), rev'd, 107 N.J. 609, 613-14, 527 A.2d 442 (1987). Lois Sanders and her son Donald were the masterminds of an intricate pyramid scheme designed to defraud investors of their money. In late 1980, the Sanderses created Co-Op Investments (Co-Op) in New Jersey after profiting from a similar pursuit in California. Defendants enticed investors to enter the scheme for a fee of $650 by dangling before them a purported payout of $35,000 if they reached the top of the pyramid. Charts allowed investors to track their progress up the pyramid and

determine their chances of winning the $35,000. Over 2,000 persons invested a total of well over $1,000,000 in the Co-Op scheme. The court issued a permanent injunction on March 17, 1981, prohibiting Co-Op from operating in New Jersey. The Sanderses fled to Illinois and immediately established a third pyramid scheme. Eventually, they were returned to New Jersey to stand trial for offenses arising out of their involvement in Co-Op. The Appellate Division has affirmed the jury convictions of various related theft offenses; only the lottery-related convictions were set aside. N.J. Super. (1993).

In its petition for certification, the State asserted: "Defendants in this case duped the public into believing that their lottery was an investment scheme. Unfortunately, defendants also duped the Appellate Division, which is unable to recognize the breadth of our proscription against lotteries." Regrettably, Lois and Donald Sanders have succeeded as well in convincing this Court that their pyramid-swindle scheme was just another business venture, albeit accompanied by the futile hope of financial gain by investors and a one-way cash flow into the pockets of "con artists." By raising a facade of legitimacy and by relentlessly pursuing their fraudulent activity, defendants have "artfully dodged" the proscription against illegal lotteries.

Undoubtedly, the Legislature will soon remedy the interpretive problem. In the meantime, I do not believe that these defendants should benefit from the misperception that their enterprise was anything but a Ponzi-type criminal lottery. (Charles Ponzi was a notorious swindler who, starting in 1919, defrauded investors of $9,582,000 in eight months by promising to repay them $150 in ninety days for every $100 invested. Cunningham v. Brown, 265 U.S. 1, 44 S. Ct. 424, 68 L. Ed. 873 (1924).) As in a Ponzi swindle, defendants were simply "using newly invested money to make old investors think they were earning profits ...


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