Appeals from judgments of conviction entered in the United States District Court for the Southern District of New York after a jury trial before Judge Robert W. Sweet for violation of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 et seq., and related offenses. Affirmed.
Before Smith*fn* and Feinberg, Circuit Judges, and Owen, District Judge.*fn**
Eliot H. Weisman and Salvatore J. Cannatella appeal from judgments of conviction entered in the United States District Court for the Southern District of New York after an eight-week jury trial before Judge Robert W. Sweet. Weisman, Cannatella and eight other co-defendants were indicted in June 1978 for alleged criminal offenses arising out of the creation, operation and bankruptcy of the Westchester Premier Theatre (the Theatre) in Tarrytown, New York. Weisman was convicted of one count of operating the Theatre through a pattern of racketeering activity in violation of 18 U.S.C. §§ 1962(c) and 2, nine counts of fraud in the sale of securities in violation of 15 U.S.C. §§ 77q(a) and 77x and 18 U.S.C. § 2, nine counts of bankruptcy fraud in violation of 18 U.S.C. §§ 152 and 2, one count each of conspiracy to commit securities fraud and bankruptcy fraud in violation of 18 U.S.C. § 371, and one count of endeavoring to obstruct a grand jury investigation in violation of 18 U.S.C. §§ 1503 and 2. Cannatella was convicted of the same counts of bankruptcy fraud and conspiracy to commit bankruptcy fraud.*fn1 In this appeal, Weisman and Cannatella raise numerous challenges to the conduct of the trial and the verdict, the most significant of which relate to Weisman's conviction under the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 et seq. For reasons set forth below, we affirm the judgments of conviction.
Appellant Weisman does not argue that the evidence at trial was insufficient to convict him; while appellant Cannatella does make such a claim, it is without merit as will be seen below in Part III B of this opinion. The following is a brief summary of the charges in the government's indictment, which were subsequently shown to be justified by the evidence at trial and by guilty pleas of various defendants. The Theatre, from its inception until its collapse, was operated through a wide ranging pattern of fraud. This pattern emerged in 1973, when Weisman, along with his partners and eventual co-defendants Gregory J. DePalma and Richard Fusco, sought through a fraudulent public offering of common stock to raise over two million dollars for construction of the Theatre. Weisman and his co-defendants filed with the Securities and Exchange Commission a prospectus that contained false and misleading statements and that failed to disclose material facts, including DePalma's and Fusco's role in the project and their beneficial ownership of a large portion of the Theatre's stock. Also, to insure purchase of the necessary minimum number of shares at the public offering, Weisman, DePalma and Fusco, with the assistance of co-defendants Murad Nersesian, Leonard Horwitz and Laurence I. Goodman, made secret arrangements through which various individuals agreed to purchase stock in the Theatre in return for promises of eventual cash payoffs, transfers of portions of Weisman's interest in the Theatre, and other forms of inducement or remuneration.
Due to these efforts, the public offering of the Theatre's stock was successful. The newly constructed Theatre opened in March 1975, at which time Weisman and his confederates systematically began to skim and convert to their own use moneys received by the Theatre from ticket sales and various concessions. Portions of these funds were also used to repay the various secret debts incurred prior to the stock offering. During this period, the Theatre received a substantial amount in loans from Hugh Johnson & Company. These loans were arranged by the company's president, appellant Cannatella, who assumed a management role in the Theatre along with Weisman, DePalma and Fusco.
The skimming operation forced the Theatre in December 1976 to file a petition under Chapter XI of the Bankruptcy Act. The Theatre was adjudged a "debtor in possession" and allowed to continue operations, but all expenditures, other than salaries and operating expenses, were subject to prior approval by the bankruptcy court. Nonetheless, Weisman, DePalma and Fusco, now joined by Cannatella, continued secretly to skim the Theatre's receipts. Portions of the diverted revenues were unlawfully paid to various co-defendants, including Thomas Marson and Anthony Gaggi.
In May 1977, a federal grand jury began investigating the operations of the Theatre. At this time, Weisman and Horwitz attempted to persuade various prospective grand jury witnesses not to disclose the defendants' fraudulent transactions. These efforts to sidetrack the grand jury were unavailing, however, and a multiple count indictment was returned in June 1978.
Trial commenced in October 1978 as to nine defendants; Marson's trial was severed for health reasons. In December 1978, Judge Sweet granted Gaggi's motion for acquittal, and in January 1979, declared a mistrial as to the remaining defendants when the jury was unable to reach a verdict. Subsequently, defendants Fusco, DePalma and Marson pled guilty to various charges. The new trial for defendants Weisman, Cannatella, Nersesian and Horwitz began in March 1979. As in the first trial, the bulk of the government's case consisted of testimony of several participants in the various schemes and numerous tape recordings obtained by the government through electronic surveillance and by a body recorder worn by government informant Norman Brodsky. In May 1979, the jury acquitted Nersesian but found Weisman, Horwitz and Cannatella guilty on all counts. Judge Sweet subsequently granted Horwitz's motion for a new trial, but denied similar motions by Weisman and Cannatella. On this appeal, we treat the major arguments raised by Weisman and Cannatella in separate sections. Our reviewing task is made easier by the various thorough opinions of the district judge, to which we refer below.
Weisman directs his most pointed attack against his conviction for violating the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. §§ 1961 et seq., commonly known as RICO. For convenience, we have reproduced the relevant sections of RICO as Appendix A. The RICO count charged that Weisman, along with DePalma and Fusco, violated § 1962(c) by conducting the affairs of the Theatre through a "pattern of racketeering activity" that included the various predicate acts of securities fraud and bankruptcy fraud alleged elsewhere in the indictment. Weisman contends that his conviction on this count was invalid in three respects.
Weisman first argues that Judge Sweet's charge on the relationship between the various predicate acts of racketeering necessary to establish a violation of section 1962(c) was incorrect. That section prohibits the operation of any "enterprise" engaged in interstate or foreign commerce through a "pattern of racketeering activity." A "pattern of racketeering activity" is defined by section 1961(5) to require the commission of at least two "acts of racketeering" within a ten-year period, and section 1961(1)(D) specifies both fraud in the sale of securities and bankruptcy fraud as acts of racketeering. Weisman, however, unsuccessfully requested that the jury be charged that even if it found that he had committed two or more predicate acts of racketeering within a ten-year period, an unlawful "pattern of racketeering activity" would not be established unless the predicate acts were also found to be "related" to each other through a "common scheme, plan or motive so as to constitute a pattern of activity."
Weisman renews this claim on appeal, arguing that a requirement of "relatedness" between predicate acts is implicit in the meaning of the word "pattern" and should have been explained further, as he requested. Appellant further argues that such an interpretation is necessary in order to prevent the application of RICO to instances of sporadic and unrelated criminal activity that Congress clearly did not intend the statute to cover.*fn2 Finally, appellant relies heavily on the analysis of the district court in United States v. Stofsky, 409 F. Supp. 609 (S.D.N.Y.1973), aff'd on other grounds, 527 F.2d 237 (2d Cir. 1975), cert. denied, 429 U.S. 819, 97 S. Ct. 65, 50 L. Ed. 2d 80 (1976). In Stofsky, the court noted that the language of RICO did not embody any express requirement of relatedness between predicate acts. The court nonetheless concluded, as appellant argues here, that the word "pattern" should be construed to require that the predicate acts of racketeering be "connected with each other by some common scheme, plan or motive" in order to prevent the application of the statute to isolated and sporadic criminal acts. 409 F. Supp. at 614. The court found further support for its interpretation of "pattern" in the language of 18 U.S.C. § 3575, the provision of the criminal code dealing with "Dangerous Special Offenders." Section 3575 characterizes as "special offenders" those who, inter alia, commit a felony as part of a "pattern" of criminal conduct, and subsection (e) specifies that a "pattern of criminal conduct" exists when "criminal acts . . . 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." Since RICO and section 3575 were both enacted as part of the Organized Crime Control Act of 1970, the Stofsky court concluded that the interpretation of the word "pattern" under both provisions should be similar.
While these arguments are far from frivolous, we affirm Judge Sweet's refusal to give the requested charge, substantially for the reasons set forth in his ruling on appellant's challenge to the indictment before the first trial, which raised the same arguments. United States v. DePalma, 461 F. Supp. 778, 781-85 (S.D.N.Y.1978). As noted in Stofsky, supra, the statutory language does not expressly require that the predicate acts of racketeering be specifically "related" to each other and we find no affirmative evidence in the legislative history from which we should infer such a requirement.*fn3 Furthermore, the broad spectrum of predicate acts of racketeering enumerated in section 1961(1) belies any intent on the part of Congress to require that such predicate acts of racketeering must possess a unitary character. While we agree with appellant Weisman that RICO was not intended to apply to sporadic and unrelated criminal acts, see S.Rep.No.91-617, 91st Cong., 1st Sess., pp. 122, 158 (1970), we find that the statute was generally designed to avoid such an application. Most importantly, the predicate acts constituting a "pattern of racketeering activity" must all be done in the conduct of the affairs of an "enterprise." 18 U.S.C. § 1962(c). Thus, the enterprise itself supplies a significant unifying link between the various predicate acts specified in section 1961(1) that may constitute a "pattern of racketeering activity." See United States v. Elliott, 571 F.2d 880, 899 & n.23 (5th Cir. 1978). In addition, the statute requires that the predicate acts be temporally related in that they must occur within a ten-year period. Moreover, we do not believe that the extensive definition of "pattern" in section 3575 requires a district court to give a parallel charge concerning the meaning of "pattern" under RICO. Indeed, the fact that the two sections were enacted simultaneously yet embody different definitions of "pattern" would seem to indicate that Congress intentionally chose to use the term differently in different contexts.
It may well be, as appellant argues, that the statutory requirements that predicate acts of racketeering must occur in the conduct of a single enterprise within a ten-year period in order to constitute a "pattern of racketeering activity" are by themselves inadequate to bar some hypothetical prosecutions under RICO that are clearly beyond the intended scope of the statute. See note 2 supra. In United States v. Huber, 603 F.2d 387 (2d Cir. 1979), cert. denied, 444 U.S. 1085, 100 S. Ct. 1043, 62 L. Ed. 2d 770 (1980), we noted that "the potentially broad reach of RICO poses a danger of abuse where a prosecutor attempts to apply the statute to situations for which it was not primarily intended" and we went on to caution strongly against "undue prosecutorial zeal in invoking RICO." Id. at 395-96. We reiterate this warning, but are content to rule on actual, as opposed to hypothetical, applications of the statute, and we find that the RICO indictment in the present case was clearly appropriate. The evidence in the record reveals that the affairs of the Theatre, from its inception until its eventual collapse and bankruptcy, were conducted through a variety of racketeering activities enumerated in the indictment. Indeed, a more appropriate application of the statute would be difficult to imagine.*fn4 Accordingly, we find no error in the court's refusal to adopt Weisman's extended definition of "pattern" in charging the jury.
Weisman also objects to the RICO conviction on the ground that the district court incorrectly charged the jury that the two conspiracy counts alleged in the indictment could constitute the predicate acts of racketeering necessary to establish a "pattern of racketeering activity" under section 1962(c). In support, appellant notes that violations of 18 U.S.C. § 371, the conspiracy statute, are not listed as predicate acts of racketeering under section 1961. Appellant also infers a specific congressional intent to exclude conspiracy as a predicate act from the fact that original versions of the bill that ultimately became RICO did include conspiracy as a predicate act, but the statute as enacted did not. Finally, appellant suggests that the inclusion of conspiracy as a predicate act would again raise the specter of an unintended hypothetical application of RICO; specifically, appellant argues that commission of a single substantive offense enumerated in section 1961 could nonetheless result in a RICO violation if conspiracy to commit that offense were also charged as a predicate act of racketeering. Such a prosecution, appellant contends, would be directly contrary to Congress's intent to restrict the application of RICO to situations in which two or more separate predicate acts of racketeering are committed.
While these arguments are not without force, we think that conspiracy can properly be charged as a predicate act of racketeering under RICO, at least when it involves any of the substantive offenses listed in section 1961(1)(D). That provision states that " "(racketeering) activity' means . . . any offense involving (bankruptcy) fraud . . ., fraud in the sale of securities, or the felonious manufacture, importation, concealment, buying, selling, or otherwise dealing in narcotic or other dangerous drugs, punishable under any law of the United States." (Emphasis supplied). This language is certainly broad enough on its face to include conspiracies involving securities and bankruptcy fraud and drug related offenses. The deletion of conspiracy from earlier drafts of RICO does not undermine this conclusion. In those drafts, the conspiracies chargeable as predicate acts could relate to a broad number of offenses now listed in subsections (A) to (C) of section 1961. While this specific reference to conspiracy was deleted from the final version of RICO, the expansive language quoted above was retained in a separate section section 1961(1)(D). Thus, the alterations of section 1961(1) are most logically interpreted as an attempt to restrict the conspiracies chargeable as predicate offenses to those involving offenses listed in subsection (D). This conclusion is bolstered by the fact that subsections (B) and (C), which list most of the other predicate acts chargeable under RICO, conspicuously lack the broad "any offense involving" language of subsection (D) and, in fact, require that the act be indictable under specifically enumerated sections of the criminal code. Finally, the present indictment is not rendered invalid simply because some hypothetical prosecutions under the statute as presently interpreted would fall beyond the pale of intended application.
Even if our conclusion that the two conspiracy counts could be charged as predicate acts of racketeering is incorrect, Weisman's conviction under the RICO count is nonetheless valid. In addition to convicting Weisman on the conspiracy counts, the jury also found him guilty of nine counts of bankruptcy fraud, all of which were also charged as predicate acts of racketeering under the RICO count, and nine counts of fraud in the sale of securities, which the district court also charged could constitute a single predicate act of racketeering under the RICO count.*fn5 Thus, even excluding the conspiracy counts as predicate acts, the convictions for securities fraud and bankruptcy fraud could also constitute ten separate predicate acts of racketeering, any two of which would be sufficient to sustain the conviction on the RICO count. This assumes, of course, that the jury also found that these substantive offenses occurred in the conduct of an "enterprise" engaged in interstate or foreign commerce, as required by section 1962(c). While in some situations it may be doubtful that this assumption is established as a matter of law, in the present case the jury could not have rationally concluded that the conspiracies to commit bankruptcy and securities fraud occurred in the conduct of the Theatre's affairs without also finding that the substantive offenses carried out in the course of the conspiracies also took place in the conduct of the Theatre's affairs. Thus, even if the conspiracy counts were excluded, the jury verdict conclusively established a RICO violation and therefore any error in the inclusion of these counts in the RICO charge was harmless. For this reason, the decision in United States v. Brown, 583 F.2d 659, 669 (3d Cir. 1978), cert. denied, 440 U.S. 909, 99 S. Ct. 1217, 59 L. Ed. 2d 456 (1979), heavily relied upon by appellant, is distinguishable. In Brown, where there was no conspiracy charge, the jury found defendant guilty of four substantive counts and also of a RICO count in which the four counts were charged as predicate acts of racketeering. The Third Circuit reversed the convictions on two of the substantive counts for insufficient ...