The opinion of the court was delivered by: WEINSTEIN
Revised Opinion and Order
WEINSTEIN, District Judge:
The Supreme Court, upon being informed by the Solicitor General that the defendant, Joseph F. Schipani, was a participant in a number of conversations which had been electronically monitored by agents of the Federal Bureau of Investigation and which led to the use of tainted evidence against the defendant, vacated the defendant's conviction for income tax evasion, and remanded "the cause to the district court for a new trial, should the Government seek to prosecute . . . anew." 385 U.S. 372, 87 S. Ct. 533, 17 L. Ed. 2d 428. Following a detailed analysis of the hundreds of exhibits and the testimony of the many witnesses relied upon at the trial, the government concluded that none of the evidence that it utilized was tainted and that "the Solicitor General was in ERROR " (Government's Affidavit in Reply to Defendant's Motion for Suppression of Evidence, p. 2) (emphasis in original) when he informed the Supreme Court to the contrary. Consequently, it has decided to prosecute anew.
Defendant has moved to suppress and a full evidentiary hearing has been held. The Government has freely revealed all data available to it. It has presented all the surveillance logs of conversations in which the defendant participated or was mentioned, the files of the Federal Bureau of Investigation, the Alcohol and Tobacco Tax Division of the Treasury Department, the Intelligence Division of the Internal Revenue Service, and the Department of Justice, and the testimony of the many agents and attorneys in the 1961-63 investigations of the defendant and the 1966 review of their work by the Department of Justice. In addition, the Federal Bureau of Investigation "case agent" assigned to the Schipani investigation reviewed all the Federal Bureau of Investigation reports relating to the defendant and underlined in red pencil all information obtained as a result of electronic surveillance.
This evidence has been examined to obtain answers to two questions. First, whether the entire investigation of the defendant was tainted because its intensity was substantially affected by the electronic surveillance. Second, whether individual items of evidence used at the first trial were obtained, either directly or indirectly, as a result of illegal monitoring. For the reasons stated below, the first question is answered in the negative and the second in the affirmative.
On October 15, 1965, after a non-jury trial, the defendant was found guilty in this Court of willfully evading the payment of income taxes for the years 1956 through 1960. 26 U.S.C. § 7201. The case was tried on a "net worth" theory. The evidence showed that the defendant had a certain net worth at the beginning of 1956 and an increase in net worth at the end of that year and each succeeding year during the indictment period. The defendant kept no books, failed to file returns for any of the years covered by the indictment, and adduced no proof at the trial.
The defendant's financial practices were characterized by the trial court as being "marked by concealment through use of the names of others, failure to keep records in transactions when record keeping is usual and absence suspicious, extensive use of Manufacturers Trust Co. personal money orders, and large transactions in which currency was used." United States v. Schipani, 63-CR-237, October 15, 1965, E.D. N. Y., p. 7. The most damaging evidence against the defendant were the money orders. Through them were traced many of defendant's financial transactions and upon them the government based its computation of the defendant's yearly gross income. In addition, the trial court found that the defendant had likely sources of income from an interest in a restaurant and as a negotiator in labor-management relations.
The conviction was affirmed by the Second Circuit (362 F.2d 825). Certiorari was denied on November 7, 1966 (385 U.S. 934, 87 S. Ct. 293, 17 L. Ed. 2d 214).
On November 30, 1966, the Solicitor General filed a supplemental memorandum with the Supreme Court which suggested that "the Court vacate its order denying certiorari, grant certiorari, vacate the judgment of the court of appeals, and remand the cause to the district court for a new trial, should the government seek to prosecute petitioner anew." Supplemental Memorandum in the Supreme Court for the United States, p. 6. The basis for this recommendation was the discovery by attorneys in the Department of Justice that the defendant had been a participant in a number of conversations which had been electronically monitored as a result of a trespass by agents of the F.B.I. This electronic surveillance began a short time prior to the commencement of the investigation of the defendant for tax violations and continued during the period when much of the evidence introduced at the defendant's trial was uncovered.
In his memorandum to the Supreme Court, the Solicitor General stated:
"The substance of the monitored conversations involving petitioner and others was recorded in logs kept by the F.B.I. agents who conducted the electronic surveillance and was reflected in various F.B.I. reports which came to the attention of those in charge of investigating and prosecuting petitioner for possible tax violations. The reports did not disclose the manner in which the information contained therein had been obtained.
"Unlike the situation in Black v. United States, 385 U.S. 26, 17 L. Ed. 2d 26, 87 S. Ct. 190 (1966), we cannot say in the instant case that none of the evidence used by the government at petitioner's trial was obtained, either directly or indirectly, from an improper source. Some of the material in the F.B.I. reports (which were based in part on the electronic surveillance) provided investigatory leads and other information used in proceeding against petitioner. Since there was material evidence against petitioner which was tainted, his conviction cannot stand, and no purpose would be served here in having the district court conduct a collateral hearing, such as was suggested by the government in its memorandum in Black." Supplemental Memorandum in the Supreme Court of the United States, pp. 3-4.
In addition, the Solicitor General disclosed that while his memorandum was being prepared, it was learned that the Alcohol and Tobacco Tax Division had engaged in electronic surveillance of another establishment frequented by the defendant. On the information available to him at that time, which admittedly was incomplete, the Solicitor General advised the Court that it "appears that . . . no relevant information" was obtained from this source.
As noted above, the Supreme Court, acting on this recommendation, vacated the judgment below and remanded the cause for a new trial. 385 U.S. 372, 87 S. Ct. 533, 17 L. Ed. 2d 428.
B. Roles of Government Agencies in Case
Four government agencies ultimately played a role in the events which culminated in the prosecution of the defendant for income tax evasion - the Federal Bureau of Investigation (F.B.I.), the Organized Crime and Racketeering Section of the Justice Department (Organized Crime Section), the Intelligence Division of the Internal Revenue Service (Intelligence), and the Alcohol and Tobacco Tax Division of the Treasury Department (Alcohol Tax Division). The role of each of them in the Schipani case will be examined with a view towards determining what effect, if any, the information obtained by the F.B.I. had on the investigations being conducted by the other three agencies.
The F.B.I. was the first government agency to take an interest in the defendant. It had been compiling information on him since 1958. In an F.B.I. report dated October 10, 1960, the defendant was described by one source as "one of the most influential and powerful figures in the New York underworld" and considered to be associated with several of New York's top hoodlums. He was reported to have "inherited" the gambling interests of Joe Adonis and was suspected of being the owner of the Casa Bianca Restaurant and of having an interest in two others, the Hampshire House and Gurney's Inn. An earlier F.B.I. report identified him as being in control of an association of private carting companies. During the period between 1958 and 1960, the F.B.I. appears to have pursued its investigation of the defendant neither with vigor nor with any intention of initiating a criminal prosecution.
In January of 1961 the F.B.I. acquired a new and productive source of information concerning the defendant's activities. As part of its investigation of one Michael Clemente, an associate of the defendant, the F.B.I. installed a microphone in the Prisco Travel Bureau, a "front" for Clemente's criminal activities and a meeting place for many of New York's top mobsters. This device was in operation from January 10, 1961 to January 31, 1963.
Although the defendant was not the subject of this electronic surveillance, nine conversations in which he was a participant and twenty-seven others in which he was discussed or his name was mentioned, were electronically monitored. The defendant's voice was first picked up on March 2, 1961; on three occasions prior to that date, beginning on January 12, 1961, his name was mentioned and his activities were discussed by Clemente and others.
The information obtained from this method of surveillance confirmed the F.B.I.'s belief that the defendant was intimately associated with many of the top figures in the Brooklyn underworld and revealed several of his current illicit activities. Numerous conversations were monitored concerning the defendant's role in a private association of New York carting companies and his concealed interest in one such concern. In addition, information was obtained concerning the defendant's involvement with the sale of Puerto Rican sweepstakes tickets on the New York docks, his partial ownership of the Casa Bianca Restaurant, and his control of a New York labor union local.
The further activities of the F.B.I. in the Schipani case were not developed. In February, 1962, it announced to the Alcohol Tax Division its intention to launch a saturation investigation of the defendant's interests in the carting field. No evidence was adduced at the suppression hearing to indicate whether or not this plan was carried out, and, if so, with what results. No evidence, if any, resulting from the carting investigation by the F.B.I. was introduced at the trial.
2. Organized Crime and Racketeering Section of the Department of Justice
The appointment of Robert F. Kennedy as Attorney General in January of 1961 inaugurated a new era in the fight against organized crime in the United States. The Attorney General recognized that organized crime presented a national as well as a local problem and that only the federal government, with an organization as broad as that of the criminal syndicates, could effectively combat it.
To implement this concerted drive, an area coordinator in the Organized Crime Section was designated to select as "targets" for investigation those individuals suspected of being part of the organized crime network in the United States. The numerous federal law enforcement agencies involved in these investigations were ordered to cooperate and exchange information with each other and to synchronize their activities as much as possible. In order to facilitate this effort, all agencies were required to send in periodic progress and intelligence reports to the Organized Crime Section.
One of the targets selected for investigation as part of this program by the area coordinator, Philip Wilens, was the defendant. In a memorandum dated January 31, 1961, Wilens recommended that two investigations of the defendant be initiated: one by Intelligence into the defendant's "gambling activities in order to determine if there is available evidence of wagering tax violations" and the other by Alcohol Tax "to determine if Schipani has filed or caused to be filed falsified Forms 11 in applying for the retail liquor dealer stamps for these premises [Casa Bianca Restaurant, Hampshire House, and Gurney's Inn]. "
Wilens testified categorically that this decision was based solely upon information obtained from the untainted F.B.I. report of October 10, 1960. The data about the defendant's suspected criminal activities in the Wilens memorandum was essentially a summary of this F.B.I. report. In addition, Wilens stated that this report constituted the only information he (and, to the best of his knowledge, any one else in his department) had about the defendant at that time and that he had no knowledge of any electronic surveillance of the defendant or any one connected with the case.
Wilens' recommendation with regard to an investigation of the defendant was accepted. By letters dated February 14, 1961 and February 27, 1961, the Alcohol Tax Division and Intelligence were requested to conduct investigations of the defendant. These letters were dictated by Wilens for his Chief's signature sometime between January 31, 1961 and February 6, 1961. They are set out below (Silberling succeeded Hundley as Chief of the Organized Crime Section between the time the two letters were sent):
Director, Alcohol and Tobacco Tax Division
Re: Joseph Frank Schipani, Brooklyn, New York, FBI #571946
The subject of this letter, Joseph Frank Schipani, is reputed to be a major racketeer in the Brooklyn, New York area and is said to have succeeded to the Brooklyn hoodlum interests of Joe Adonis.
This person is believed to have acquired undisclosed interests in the following retail liquor dealer establishments: Casa Bianca Restaurant and Cocktail Lounge, 4th Avenue and 100th Street, Brooklyn, New York and Hampshire House Restaurant, 339 Merrick Road, Rockville Center, Long Island, New York. His wife is believed to own 10 shares of stock in Guiney's [sic] Inn, Inc., On the Brink of the Beach, Montauk Point, Long Island, New York.
The Attorney General has directed that we request your division to undertake investigations regarding whether Schipani has filed, or caused to be filed, falsified Forms 11.
In the event your files presently contain information relating to Schipani and his activities, we would appreciate receipt thereof. Also, if you desire further details concerning Schipani's activities, they can be obtained by you from the Federal Bureau of Investigation.
Re: Joseph Frank Schipani, Brooklyn, New York, FBI #571946
The subject of this letter, Joseph Frank Schipani, is reputed to be a major racketeer in the Brooklyn, New York area and is said to have succeeded to the Brooklyn gambling interests of Joe Adonis.
In this regard he is supposed to be operating a handbook in the area of 42nd Street and 3rd Avenue, Brooklyn, New York, which covers the entire Bay Ridge section. He is also said to have an interest in a handbook operating in the general area of 5th Avenue in Brooklyn.
The Attorney General has directed that we request your Division to undertake an investigation of the activities of this person with regard to possible wagering tax violations.
If your files presently contain any information regarding this subject, we would greatly appreciate receipt thereof.
Chief, Organized Crime and Racketeering Section, Criminal Division"
3. Investigations Conducted by Alcohol and Tobacco Tax Division and Intelligence Division of ...