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Abuhouran v. Grondolsky

July 20, 2009


The opinion of the court was delivered by: Debevoise, Senior District Judge


In these two cases Petitioners seek relief pursuant to 28 U.S.C. § 2241, asserting that they are actually innocent of the money laundering charges of which they were convicted, and that they are entitled to vacatur of those convictions in light of the Supreme Court's decision in United States v. Santos, 128 S.Ct. 2020 (2008). The Petitioners are Hitham Abuhouran (Steve Houran) and Aktham Abuhouran (Tony Houran). Associated with them in their criminal transactions was their brother Adham Abuhouran (Adam Houran), who is now a fugitive. This case presents the question whether the money derived from the multiple bank frauds of which Petitioners and their confederates were guilty were "profits" of the bank frauds and thus "proceeds of some form of unlawful activity" within the intent of § 1956(a)(1) of the money laundering statute.

I. Procedural Background

A. Steve Houran: In 1992, the Bank of the Brandywine Valley ("BBV") failed as a result of thefts of more than $9 million engineered by a consortium of individuals including the three Houran brothers, led by Steve Houran. On October 3, 1995, Steve Houran, Tony Houran and five others were named in a 57-count indictment in the United States District Court for the Eastern District of Pennsylvania.

Steve Houran was charged with 27 counts, including one count of engaging in a continuing financial crimes enterprise, 18 U.S.C. § 225; 15 counts of bank fraud, in violation of 18 U.S.C. § 1344; four counts of money laundering, in violation of 18 U.S.C. § 1956(a)(1); two counts of interstate transportation of stolen property, in violation of 18 U.S.C. § 2314; one count of conspiracy to commit perjury and to make false statements to a bank, in violation of 18 U.S.C. § 371; one count of conspiracy to commit money laundering and to transport stolen property in interstate commerce, in violation of 18 U.S.C. § 371; two counts of perjury, in violation of 18 U.S.C. § 1623; and a forfeiture claim, based on 18 U.S.C. § 982. On September 10, 1996, when his trial was scheduled to begin, Steve Houran entered a guilty plea to all charges against him.

Upon entering his guilty plea in September 1996, Steve Houran announced an intention to cooperate with the government in the investigation of others, and the government stipulated in the plea agreement that it would consider that cooperation in deciding whether to file a motion pursuant to § 5K.l of the Sentencing Guidelines allowing a downward departure at sentencing. Steve Houran immediately began to provide information which he said concerned significant matters of national security, such as international terrorism.

While purporting to cooperate, however, Steve Houran was also continuing to surreptitiously engage in new financial frauds. He was continuing to secure fraudulent real estate loans in the names of sham borrowers from other institutions. The additional thefts through such fraud during the 18 months that Steve Houran was on bail in the federal case amounted to more than $500,000.

In addition, beginning in 1996, Steve Houran and his brothers developed a new scheme of credit card fraud which resulted in the theft of additional hundreds of thousands of dollars from credit card issuers.

In 1997, having amassed substantial evidence of the new frauds, the government filed an ex parte motion to revoke the bail of Steve Houran and his two brothers. The Pennsylvania District Court then held a three-day hearing at which the government presented evidence of the crimes committed by the Hourans while on bail. At the conclusion of that hearing, on May 14, 1997, the court ordered that Steve Houran be detained, and that his brothers be released to home detention subject to electronic monitoring.

Because of Steve Houran's criminal conduct while on bail, and other false statements he made to government representatives while he was purportedly "cooperating," the government announced that it considered Houran to be in breach of his plea agreement and stated that it would not file a departure motion on his behalf under Section 5K1.1 of the Guidelines. The government deemed the "cooperation" to be largely false and essentially a diversionary action to conceal the ongoing crimes in 1996-1997.

On August 19, 1997, Steve Houran was sentenced by United States District Judge Louis H. Pollak to a within-Guidelines term of imprisonment of 188 months, a term of supervised release of five years, a special assessment of $1,350, restitution in the amount of $6,917,246.10, and an order of forfeiture.

On November 19, 1998, the Court of Appeals affirmed the sentence. See United States v. Abuhouran, 161 F.3d 206 (3d Cir. 1998). Steve Houran petitioned for certiorari, which was denied by the Supreme Court on April 19, 1999. See Abuhouran v. United States, 526 U.S. 1077 (1991).

Steve Houran has since filed numerous post-conviction petitions in the District Court in the Eastern District of Pennsylvania and the Court of Appeals. All of his various petitions were denied. These petitions included two captioned under Section 2255, both of which were denied by the District Court. In addition, the Court of Appeals has three times rejected Steve Houran's motions for permission to file second or successive petitions.

After the August 19, 1997, sentencing, the Government continued its investigation of the new frauds which had occurred during the investigation and prosecution of the original case. The result was another indictment in the Eastern District of Pennsylvania, returned in 2001 against 12 persons, including Steve Houran. In that case, No. 01-629-01, he pled guilty to an additional charge of conspiracy, and, by stipulation, was sentenced to a term of imprisonment of 60 months, with 24 months to run consecutively to the earlier imposed 188-month sentence. At present, the projected release date following the completion of both of the sentences is September 13, 2012.

On June 2, 2008, the Supreme Court issued its decision in Santos. In a divided decision which produced no majority opinion, the Court held that the term "proceeds" in the money laundering statute, as applied to the proceeds of an illegal gambling operation in violation of 18 U.S.C. § 1955, refers to "profits" of the offense and not simply "receipts." Santos, 128 S.Ct. at 2025. Steve Houran immediately sought to challenge his conviction for four counts of money laundering on the basis of that decision, asking permission to file a successive 2255 petition. On October 3, 2008, the Court of Appeals denied his request, for the reason that Santos did not set forth a new rule of constitutional law retroactively applicable to cases on collateral review, and thus his case did not fall within the narrow grounds allowed for a successive 2255 petition. The Government acknowledges, however, that Steve Houran may proceed under 28 U.S.C. § 2241 in the unusual circumstances of this case. See In re Dorsainvil, 119 F.3d 245, 251 (3d Cir. 1997) (denying for lack of "newly discovered" evidence petitioner's request to file a successive 2255 petition based on new Supreme Court precedent, but stating that relief under section 2241 is available in such circumstances).

B. Tony Houran: Tony Houran was one of the seven defendants named in the 57-count indictment. In September 1996, he proceeded to trial along with his brother and co-defendant Adam Houran.

At the conclusion of the six-week trial, Tony Houran was convicted of four counts of bank fraud in violation of 18 U.S.C. § 1344; one count of money laundering in violation of 18 U.S.C. § 1956(a)(1); two counts of conspiracy in violation of 18 U.S.C. § 371; and one count of forfeiture pursuant to 18 U.S.C. § 982. He won a judgment of acquittal, pursuant to Rule 29 of the Federal Rules of Criminal Procedure, on one count of perjury, and was acquitted by the jury on one count of interstate transportation of stolen property. (Adam Houran was convicted by the jury of all charges against him.)

Tony Houran was sentenced by Judge Pollak on August 22, 1997, to a term of imprisonment of 109 months, a term of supervised release of five years, restitution in the amount of $1,860,477.44, and a special assessment of $350. Tony Houran appealed on a variety of issues. The Court of Appeals affirmed the conviction and sentence. See United States v. Abuhouran, 162 F.3d 230 (3d Cir. 1998).

Relevant to Tony Houran's § 2241 petition are events that followed his conviction. Both Tony and Adam Houran joined Steve Houran's purported effort at cooperation. As part of their effort to obtain leniency at sentencing, they met regularly with F.B.I. agents and other government agents beginning in September 1996 and engaged in monitored meetings with subjects under investigation.

During the course of these efforts, the three brothers engaged in substantial financial frauds, as described above. Obtaining evidence of the new fraud, the Government moved to revoke the bail of the three brothers. After a hearing, the Court on May 14, 1997 ordered that Steve Houran be detained and that Adam and Tony Houran be released to house detention subject to electronic monitoring. Adam and Tony Houran entered upon another scheme. They deposited counterfeit checks totaling approximately $2.5 million in six banks and tried to persuade the banks to wire the funds to accounts in Jordan. On August 14, 1997, after making these arrangements, the two of them cut their electronic monitoring bracelets and attempted to flee the country. Tony Houran was apprehended at Kennedy Airport about to board a flight for Amman, Jordan, the Hourans' native country. Adam Houran remains a fugitive. A week later, Tony Houran received the 109 months sentence of imprisonment described above.

In 2001, a new indictment was returned in the Eastern District of Pennsylvania naming 12 persons, including Tony Houran. He was charged in four counts with participation in additional frauds totaling several million dollars which postdated the BBV case. The new indictment concerned in part the effort of the Houran family in August, 1997, to steal an additional $2.5 million from six banks through the use of counterfeit checks, and have that money wired to Jordan, and then to flee from the United States.

Of the six banks, only PNC Bank wired funds as requested. On August 14, 1997, it wired $185,000 to an account in Tony Houran's name in Jordan. PNC instituted litigation in Jordan in an attempt to recover the money.

In the second litigation, the parties entered a plea agreement. They agreed that the guideline sentencing range would be 78-97 months. Tony Houran would plead guilty only to the conspiracy count, and the Government would move to dismiss the remaining three substantive counts of mail fraud. This had the effect of limiting Tony Houran's sentencing exposure to 60 months (the statutory maximum for the conspiracy charge).

Entering the plea agreement pursuant to Federal Rule of Criminal Procedure 11(e)(i)(c), the parties agreed to a specific sentence. The agreement called for a sentence of 60 months imprisonment on the conspiracy charge, to run concurrently with the sentence imposed in the first case, with the exception that 24 months of the new sentence would run consecutively to the 109-month sentence imposed in the first case.

The agreement also included a provision requiring that Tony Houran, terminate the litigation in Jordan and return to PNC Bank the $185,000 which was stolen from it in August, 1997, as part of the counterfeit check scheme. The agreement provided that the government would recommend a consecutive 24-month sentence only if Tony Houran cooperated and gained the return of the stolen money. In the event that the stolen money was not returned by the time of sentencing, the government was free to recommend that more of the 60-month term run consecutively to the existing sentence. In exchange for the government's concessions in the plea agreement, Tony Houran agreed to waive his right to appeal.

The stolen money was not returned by the time of sentencing in February 2004, and the government presented evidence that Tony Houran had participated in an effort in Jordan to make the funds even more inaccessible. The government asserted that Tony Houran was in breach of his plea agreement due to the failure to return the stolen money. While the agreement then allowed the government to recommend a consecutive sentence of as long as 60 months, it tempered its recommendation and suggested that 42 months of Houran's new sentence be consecutive to the sentence in the first case. The Court agreed and imposed the recommended sentence.

Despite his plea agreement, Tony Houran filed an appeal of the sentence. The government moved to dismiss the appeal on the basis of Tony Houran's appellate waiver, and on January 14, 2005, the Court of Appeals granted that motion and dismissed the appeal. See United States v. Abuhouran, 119 Fed. Appx. 402 (3d Cir. 2005) (dismissing the appeal in the second case based on appellate waiver, and rejecting Tony Houran's argument that the government breached the plea agreement).

There were further developments in July 2005, when PNC Bank's attorney in Jordan successfully obtained the $185,000 from a Jordanian court. On the basis of that development, the government filed a motion in the District Court pursuant to Federal Rules of Criminal Procedure 35 requesting that the Court reduce Tony Houran's sentence to comport with the parties' original agreement, i.e., a term of 60 months imprisonment, with 24 months to run consecutively to the sentence imposed in the first case. On November 22, 2005, the District Court granted the motion.

At the time the government filed its Rule 35 motion, it did so pursuant to an agreement with Tony Houran in which he once again affirmed his waiver of the right to appeal. The new provision stated:

4. The defendant acknowledges that the government is not required by law to file a motion under Rule 35(b) in his case allowing a modification of his sentence, and that rather the government is acting in its sole discretion to file the motion on his behalf. In exchange for the government's action, the defendant agrees that, if the Court accepts this agreement and imposes the sentence stipulated above, the defendant will withdraw the pending petition he filed in this case pursuant to 28 U.S.C. § 2255. The defendant further agrees that, if the Court accepts this agreement and imposes the stipulated sentence, he will not file, and waives the right to file, in both this case and No. 95-00560-04 [the first case], any new appeal of or collateral attack on the defendant's conviction, sentence, or any other matter relating to either prosecution, whether such a right to appeal or collateral attack arises under 18 U.S.C. § 3742, 28 U.S.C. § 1291, 28 U.S.C. § 2255, or any other provision of law. (emphasis added)

The 109-month sentence imposed in the first case, after credit for good behavior, terminated on August 2, 2005. The 24-month consecutive sentence in the second case, after credit for good behavior, terminated on April 24, 2007, and Tony Houran was released from prison. He then began to serve the terms of supervised release: five years in the first case, and three years in the second case.

II. Discussion

A. Santos Decision: Both Steve Houran and Tony Houran assert that by virtue of the Supreme Court's definition of "proceeds" for money laundering purposes as "profits" and not "receipts," they are innocent of the money laundering charges of which they were convicted.

The facts of Santos are important when deciding its impact upon the instant cases. From the 1970s until 1994, Santos operated a lottery in Indiana that was illegal under state law. Santos hired helpers to run the lottery. At bars and restaurants his runners gathered bets from gamblers, kept a portion of the bets as their commissions, and delivered the rest to Santos's collectors. The collectors delivered the money to Santos, who used some of it to pay the salaries of the collectors and to pay the winners.

The payments to the runners, collectors and winners were the basis of a 10-count indictment, naming Santos among others. A jury found Santos guilty of one count of conspiracy to run an illegal gambling business, one count of running an illegal gambling business, one count of conspiracy to launder money under 18 U.S.C. § 1956(a)(1)(A)(i) and § 1956(h), and two counts of money laundering under 18 U.S.C. § 1956(a)(1)(A)(i). The court sentenced Santos to 60 months of imprisonment on the two gambling counts and to 210 months imprisonment on the three money laundering counts. The Court of Appeals for the Seventh Circuit affirmed the convictions and sentences, and the Supreme Court declined to review.

On Santos's 28 U.S.C. § 2255 collateral attack on the money laundering convictions the District Court held that the federal money-laundering statute's prohibition of transactions involving criminal "proceeds" applies only to transactions involving criminal profits, not criminal receipts. Applying this holding to Santos's case, the district court found no evidence that the transactions on which the money laundering convictions were based (Santos's payments to runners, collectors and winners) involved profits, as opposed to receipts of the illegal lottery. The court vacated the money laundering conviction, and the Court of Appeals affirmed.

The government's appeal to the Supreme Court produced four opinions. In what will be referred to as the "plurality" opinion, Justice Scalia held that, "[b]ecause the 'profits' definition of 'proceeds' is always more defendant friendly than the 'receipts' definition, the rule of lenity dictates that it should be adopted." Santos, 128 S.Ct. at 2025.

Justice Alito, with whom Chief Justice Roberts and Justices Kennedy and Breyer joined, dissented. In their view the term "proceeds" in the money laundering statute means gross receipts, not net income or profits. Id. at 2036 (Alito, J., dissenting).

In an opinion concurring in the judgment resulting from Justice Scalia's opinion, Justice Stevens stated that "Congress could have provided that the term 'proceeds' shall have one meaning when referring to some specified unlawful activities and a different meaning when referring to others . . . If Congress could have expressly defined the term 'proceeds' differently when applied to different specified unlawful activities, it seems to me that judges filling the gap in a statute with such a variety of applications may also do so, as long as they are conscientiously endeavoring to carry out the intent of Congress. . . . [T]his Court need not pick a single definition of 'proceeds' applicable to every unlawful activity, no matter how incongruous some applications may be." Id., at 2032 (Stevens, J., concurring). Justice Stevens concluded that "[t]he revenue generated by a gambling business that is used to pay the essential expenses of operating that business is not 'proceeds' within the meaning of the money laundering statute." Id. at 2033 (Stevens, J., concurring).

The Court of Appeals for the Third Circuit had occasion to refer to Santos in United States v. Yusuf, 536 F.3d 178 (3d Cir. 2008). The issue in that case was whether unpaid taxes, which were unlawfully disguised and retained by means of the filing of false tax returns through the United States mail, were "proceeds" of mail fraud for purposes of sufficiently stating a money laundering offense under the federal international money laundering statute, 18 U.S.C. § 1956(a)(2). Mail fraud was the specified unlawful activity to support the money laundering charges against the defendants, who moved in the District Court to dismiss the substantive money laundering charges on the basis that any imposed taxes disguised and retained as a result of filing false tax returns through the mail do not equate to "proceeds" of mail fraud. The District Court agreed and dismissed the substantive money laundering counts.

On the government's appeal, the Court of Appeals summarized Santos. In a footnote it stated: "In view of the above discussion, we believe that Santos overrules this Court's decision in United States v. Grasso, which was relied upon by the District Court in the instant case. Grasso, 381 F.3d 160, 169 (3d Cir. 2004) (holding that "proceeds," as that term is used in the money laundering statute, means gross receipts [from illegal activity] rather than profits.'" Yusuf, 536 F.3d at 186 n. 11.

Applying Santos, the Court of Appeals ruled:

. . . the mailings of the fraudulent tax returns resulted in "proceeds" of mail fraud based on the nature of the entire ongoing fraudulent scheme because the unpaid taxes unlawfully retained by defendants represented the "proceeds" of a fraud that was also furthered by previous mailings. See Morelli, 169 F.3d at 806-807. Each mailing, whether it occurred before or after a given act of tax fraud, served to promote and conceal each month's unlawful retention of taxes, either ex ante or ex post, and made it more difficult for the government to detect the entire fraudulent scheme. See Id. Moreover, each mailing of the fraudulent tax forms "contributed directly to the duping" of the Virgin Islands government, and subsequent mailings were essential to keep defendants' scheme going because it would have come to an end if the tax collecting authorities did not continue to receive these mailings. See Schmuck, 489 U.S. at 712. Accordingly, it logically follows that the unpaid taxes, unlawfully disguised and retained through the mailing of the tax forms, were "proceeds" of defendants' overall scheme to defraud the government. This scheme was both dependent on and completed by the monthly mailing of the false Virgin Islands gross receipt tax returns.

Finally, in light of the Supreme Court's decision in Santos, we recognize that the "proceeds" from the mail fraud in this case also amount to "profits" of mail fraud. See 128 S.Ct. 2020, 2025, 2036. By intentionally misrepresenting the total amount of Plaza Extra Supermarkets' gross receipts through the mailing of fraudulent tax returns, the defendants were able to secretly "pocket" the 4% gross receipts taxes on the unreported amounts which were the property of the Virgin Islands government. . . . Other than some small expenses incurred in perpetuating the mail fraud - i.e., the postage stamp affixed to their monthly tax return or any other preparation fees relating to the return - the unpaid taxes retained by defendants amounted to profits. Once these profits were included in the lump sums sent abroad by defendants, the offense of international money laundering was complete.

Id. at 190.

In the instant case the government invites the court to take a limited view of both Santos and Yusuf and interpret the Santos holding as being limited to cases involving an illegal gambling enterprise, and nothing else. The government notes that the plurality and dissenting opinions left the Court evenly divided between the view that "proceeds" means profits in all cases and the view that it means gross receipts in all cases. With Justice Stevens taking the view that "proceeds" may mean profits as applied to some specified unlawful activities and gross receipts as applied to others, the meaning of Santos is unclear, ...

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