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UNITED STATES v. DEPALMA

August 25, 1978

UNITED STATES of America, Plaintiff,
v.
Gregory J. DePALMA, Eliot H. Weisman, Richard Fusco, a/k/a "Nerves", Murad Nersesian, a/k/a "Mike Fusco" and "Mickey Coco", Leonard Horwitz,a/k/a "The Fox", Laurence I. Goodman, Salvatore J. Cannatella, Louis Pacella,a/k/a "Louie Dome", Anthony Gaggi, a/k/a "Nino", and Thomas Marson, Defendants



The opinion of the court was delivered by: SWEET

The Indictment in this action was filed on June 2, 1978 and alleges a pattern of racketeering activity by the defendants centering on the corporate enterprise known as the Westchester Premier Theatre ("the Theatre") (Count One), a securities fraud (Counts Two through Twelve), a bankruptcy fraud (Counts Thirteen through Twenty-three) and an obstruction of justice (Count Twenty-four). The events giving rise to the charges occurred over a period from 1971 through 1978. The Indictment resulted from extensive electronic interceptions, data obtained from informants, and the admissions of certain of the defendants. There are ten defendants named. Not surprisingly defendants have filed extensive pretrial motions challenging the adequacy of the various counts of the Indictment, the propriety of joinder of the counts in the Indictment, seeking severance, dismissal of certain counts as a consequence of prosecutorial misconduct, striking certain material from the Indictment, requesting a bill of particulars, production of documents for inspection, and seeking a continuance. *fn1" This court has previously ordered evidentiary hearings relating to (1) the Government's compliance with the sealing and minimization requirements of Title III of the Omnibus Crime Control and Safe Streets Act of 1968, 18 U.S.C. §§ 2510-2520, (2) the suppression of certain statements by defendant Weisman, and (3) the use of the Government of allegedly immunized testimony of defendant Weisman. The matters requiring evidentiary hearing will be dealt with in a subsequent opinion.

For the reasons set forth below, the motions to dismiss the Indictment, for misjoinder and severance are denied. The motion to strike certain matters from the Indictment, for a bill of particulars, document inspecting and for a continuance are granted to the extent set forth below.

 I. COUNT ONE CHARGES AN OFFENSE.

 Count One charges defendants Weisman, DePalma and Fusco with violating 18 U.S.C. § 1962 (c); *fn2" ("RICO"), in that they are alleged to have participated in a pattern of racketeering activity *fn3" in the conduct of the affairs of the Theatre through the commission of acts of securities fraud and bankruptcy fraud. Section 1962(c) is part of Title IX of the Organized Crime Control Act of 1970 (Public Law No. 91-452).

 Title IX, entitled Racketeer Influenced and Corrupt Organizations, proscribes, Inter alia, "the operation of any enterprise engaged in interstate commerce through a "pattern' of "racketeering activity.' " H. R. Rep. No. 1549, 91st Cong., 2nd Sess. Reprinted in 2 U.S.Code Cong. & Ad.News, pp. 4007, 4010 (1970). Section 1961(1) of Title IX defines racketeering activity to include bankruptcy and securities fraud. A review of the legislative history relating to this statute evinces the concern of Congress in eliminating the influence of organized crime activities in our society. The Senate Report on the Organized Crime Control Act states as follows:

 
Obviously, the time has come for a frontal attack on the subversion of our economic system by organized criminal activities. That attack must begin, however, with the frank recognition that our present laws are inadequate to remove criminal influences from legitimate endeavor organizations.
 
Title IX recognizes that present efforts to dislodge the forces of organized crime from legitimate fields of endeavor have proven unsuccessful. To remedy this failure, the proposed statute adopts the most direct route open to accomplish the desired objective. Where an organization is acquired or run by defined racketeering methods, then the persons involved can be legally separated from the organization, either by the criminal law approach of fine, imprisonment and forfeiture, or through a civil law approach of equitable relief broad enough to do all that is necessary to free the channels of commerce from all illicit activity.

 S. Rep. No. 617, 91st Cong., 1st Sess. 78-79 (1969). This attitude was consistently endorsed in both the House and the Senate during hearings on this bill. It is in this context that the defendants' motions must be viewed.

 A. The Indictment Properly Alleges a Pattern of Racketeering.

 Defendant Weisman asserts that in order to establish a violation of 18 U.S.C. § 1962(c) the two acts of racketeering activity necessary to establish a "pattern" must be related. Claiming that the activities with respect to the alleged securities fraud are not related to the activities of the alleged bankruptcy fraud, Weisman seeks dismissal of Count One. The motion is denied.

 The statutory definition of pattern of racketeering activity is unambiguous and contains no reference to any requirement of "relatedness." A review of the legislative history establishes that Congress was concerned with proscribing illegal activities of legitimate business, and that the only relation it deemed necessary for the two predicate acts is that they both be in the conduct of the affairs of the same enterprise. 18 U.S.C. § 1962(c) (1970). *fn4"

 Two significant amendments to the definition of pattern of racketeering, prior to the enactment of the statute, lend further support to this view. Prior to these amendments the definition was as follows: "The term pattern of racketeering activity includes at least one act occurring after the effective date of this chapter." S. Rep. No. 617, Supra at 122. Since "the term "pattern' indicates that what is intended to be proscribed is not a single isolated act of "racketeering activity,' but at least two such acts" (Id.) the statute was amended to read as follows: "The term "pattern of racketeering activity' means at least two acts, one of which occurred after the effective date of this chapter." Id. There was no requirement that the two acts be related to each other. In fact, at that point there was no requirement that the two acts even be related in time. This was the cause of some concern to those who commented on the proposed bill. See e.g. 116 Cong. Rec. S855 (daily ed. Jan. 22, 1970) (analysis of American Civil Liberties Union). Such concerns led to the enactment of the ten year limitation in the statute. It was this ten year limitation that provided any requirement of nexus between the two predicate acts. In its final form the statute simply required that the person commit at least two acts of racketeering activity within a ten year period.

 Considering the time and effort spent by Congress on this definition, had it wanted to provide for any "relatedness", it had ample opportunity to do so. Instead Congress must have realized that the definition of "pattern of racketeering activity" would necessarily be interpreted in the context of the statute to which it applies (18 U.S.C. § 1962). Thus, the term "pattern", when used in this context, applies to the relationship of the acts to the enterprise, and no more. The definition of "racketeering activity" in the section and the additional definition of "pattern of racketeering activity", taken together, results in the conclusion that the "pattern" definition states a minimum but not necessarily an exclusive definition. A main focus of Title IX was the enterprise, *fn5" not only the persons committing the acts, and Congress felt that the "pattern" would be supplied by this common factor. *fn6"

 This interpretation was accepted by the court in United States v. Elliott, 571 F.2d 880 (5th Cir. 1978). The Fifth Circuit there noted that the Organized Crime Control Act

 
does not criminalize either associating with an enterprise or engaging in a pattern of racketeering activity standing alone. The gravamen of the offense described in 18 U.S.C. § 1962(c) is the conduct of an enterprise's affairs through a pattern of racketeering activity. Thus, the Act does require a type of relatedness: the two or more predicate crimes must be related to the affairs of the enterprise but need not otherwise be related to each other.

 Id. at 899 n.23. This analysis is consistent with the legislative history. United States v. Parness, 503 F.2d 430, 438 and 442 (2d Cir. 1974), Cert. denied, 419 U.S. 1105, 95 S. Ct. 775, 42 L. Ed. 2d 801 (1975) is also apposite in this regard. There, predicate acts of the RICO charge were three separate violations of 18 U.S.C. § 2314, all steps in a scheme to take over a hotel. Although these violations arguably had a greater nexus than merely steps in the common scheme, "there is no indication in Parness that the Court of Appeals requires anything more for the establishment of a "pattern' within the meaning of § 1961(5) than two acts of racketeering . . ." United States v. Moeller, 402 F. Supp. 49, 58 n.7 (D.Conn.1975). Indeed, it has been noted in this district, in dictum, that "(t)here is no constitutional principle that would prevent Congress from labeling the commission of two crimes within a specified period of time and in the course of a particular type of enterprise a "pattern' of activity, whether or not a sequence of two similar acts amounts to a pattern as that term is ordinarily understood." United States v. Field, 432 F. Supp. 55, 60-61 (S.D.N.Y.1977).

 Defendant Weisman relies heavily on the opinion in United States v. Stofsky, 409 F. Supp. 609 (S.D.N.Y.1973) in support of his contention that the two acts themselves must be related in a greater degree than just to the affairs of the same enterprise. Although some of the language in Stofsky would support this position, the holding in the case does not go this far. In determining the constitutionality of 18 U.S.C. § 1962(c) the court in Stofsky stated that "(this) Court therefore construes the word "pattern' as including a requirement that the racketeering acts must have been connected with each other by some common scheme, plan or motive so as to constitute a pattern and not simply a series of disconnected acts." Id. at 614. But this should not mean that the acts themselves must be interrelated. The common scheme or plan must be supplied in each instance by the enterprise, in the conduct of whose affairs the acts must be committed. Congress, after long analysis and debate, defined the term "pattern". Had Congress intended the definition of "pattern" used in 18 U.S.C. § 3575(e) (also part of the Organized Crime Control Act), which the court in Stofsky used to cast light on the § 1961(5) definition of "pattern", it could have specifically provided for such. *fn7" Instead Congress determined that the "enterprise" would be the common bridge between the two predicate acts and therefore specifically did not provide any other requirement or test of interrelatedness. *fn8"

 It is perhaps reassuring, however, to note that the definition of "pattern" as set forth in 18 U.S.C. § 3575(e) has been met here, for the criminal acts alleged had the same "purposes", "participants", and are interrelated by "distinguishing characteristics and are not isolated events." The characteristics are the use of an apparently legitimate enterprise, the Theatre, as a vehicle to provide benefits to the participants in the pattern as a consequence of concealed criminal acts. If Congress intended this definition to be read into § 1961(5) it should have said so; but even if it had, the Indictment remains sufficient.

 In United States v. White, 386 F. Supp. 882 (E.D.Wis.1974), cited by defendant Weisman, the court was concerned that absent a showing of a pattern or interrelatedness, 18 U.S.C. § 1962(c) could be used against the isolated acts of an independent criminal; therefore the two acts "must have a greater interrelationship than simply commission by a common perpetrator." Id. at 883. This court agrees that more than a common perpetrator is needed. However, the additional element is satisfied by a showing that the predicate acts were both committed in the conduct of the affairs of the same enterprise or business, therefore possessing a distinguishing characteristic, and are not isolated. See generally S. Rep. No. 617, 91st Cong., 1st Sess. (1969); 116 Cong. Rec. H35, 196 and H35, 197 (daily ed. Oct. 6, 1970).

 Indeed the dictionary definition of pattern, whether in terms of a dress pattern or model, or a pattern of shot, implies separate, discrete elements which are placed together in a whole, a conception consistent with Congress' intent to deal with organized crime.

 The Indictment here satisfies the definition of "pattern of racketeering activity"; both frauds are alleged to have been committed in the conduct of the Theatre's affairs and related to the essential functions that the Theatre served in the regular conduct of its affairs. See United States v. Ladmer, 429 F. Supp. 1231, 1245 (E.D.N.Y.1977).

 In fact, the alleged frauds are of exactly the type with which Congress was concerned when it enacted the Organized Crime Control Act. As noted by Senator Thurmond during hearings on the bill,

 
One of the favorite devices of organized crime is to infiltrate a company, build it up, and then let it go broke so that it can take advantage of certain tax provisions and other devices thus disposing of or protecting a large treasury of illegally obtained dollars. This provision will help in curbing this activity.

 116 Cong. Rec. S953 (daily ed. Jan. 23, 1970). Congress recognized that "(i)n business, the mob bleeds a firm of assets, then takes bankruptcy" (176 Cong. Rec. S591 (daily ed. Jan. 21, 1970) (remarks of Sen. McClellan)) and sought to protect the public from such occurrences. It is this type of situation which is alleged in this case.

 Furthermore, even if the term "pattern" requires that the predicate acts themselves be interrelated, such exists between the alleged frauds:

 (i) Defendants Weisman, Fusco and DePalma allegedly were each involved in both frauds.

 (ii) The frauds allegedly were with respect to the same entity.

 (iii) The stock fraud allegedly defrauded investors in the sale of the securities. The bankruptcy fraud allegedly defrauded these same investors, who would have been entitled to any remaining assets in the event the Chapter XI reorganization was successful.

 (iv) The frauds allegedly had the same common goal of enriching those in control of and related to the Theatre through the use of illegal acts.

 (v) Both frauds allegedly were committed well within the statutory requirement of ten years.

 (vi) The alleged skimming activities bridge the gap between the securities fraud and the bankruptcy fraud, implying that both were anticipated by those in control of and related to this enterprise. Although the alleged skimming activities here cannot be considered, in themselves, as predicate acts necessary to prove a RICO violation, they still may be considered to prove a nexus between the two frauds. Cf. United States v. Frumento, 426 F. Supp. 797, 803 (E.D.Pa.1976), Aff'd, 563 F.2d 1083 (3d Cir. 1977), Cert. denied, 434 U.S. 1072, 98 S. Ct. 1258, 55 L. Ed. 2d 776 (1978) (jurors could consider acts of bribery as proof of motive, opportunity, intent, plan, knowledge and absence of mistake or accident although such could not be considered as constituting the pattern of racketeering activity). The Indictment sufficiently alleges a pattern of racketeering activity.

 B. The Alleged Predicate Offenses are Sufficient.

 Defendant Weisman next asserts that the alleged securities fraud and bankruptcy fraud are insufficient predicate offenses under RICO. With respect to the securities fraud Weisman claims that, although 18 U.S.C. § 1961(1) specifically includes fraud in the sale of securities as a predicate offense, the sale of the securities in this instance, the alleged securities fraud, was not in the conduct of the affairs of the enterprise (18 U.S.C. § 1962(c)), having been committed prior to the formation of the Theatre and therefore not in the conduct of its affairs.

 The Indictment alleges that Weisman was involved in the formation of the corporate entity known as the Westchester Premier Theatre *fn9" and was employed by and associated with such from or about January 1, 1971 (Indictment at PP 1 and 2). The sale of the securities, in 1973, was "in order to create the Theatre as a going concern" (Indictment at P 3), but not to establish the enterprise; such already existed and pursuant to the securities laws of the United States had to be in existence prior to the offering for sale of any securities of the enterprise. The Indictment relates to the corporate entity, and not merely to the building which housed the Theatre. To conclude otherwise would be to deny reality.

 Weisman's claim that the alleged bankruptcy fraud was not part of the day to day activities of the enterprise, and therefore not in the conduct of the enterprise's affairs, is also unrealistically technical. The statute in question specifically provides that an offense involving bankruptcy fraud is a predicate offense (18 U.S.C. § 1961(1)(D) (1970)) and the legislative history of the statute evidences Congress' concern with fraudulent bankruptcies. There is nothing in the statute requiring that the racketeering activity be part of the day to day business operation of an enterprise. The statute merely refers to the enterprise's affairs bankruptcy is such. The affairs of an entity in Chapter XI, as was the ...


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