The opinion of the court was delivered by: CONNER
Defendant William Fellus ("Fellus") appeared before this Court on June 23, 1983 and entered a plea of guilty to two counts of mail fraud. Shortly before his scheduled sentencing, he moved to withdraw that plea on the grounds that it was the result of coercion and that an insufficient factual basis for the plea had been established at his allocution. For the reasons set forth below, defendant's motion is denied and his sentencing will proceed.
Fellus was arrested in May 1983 and charged by means of a criminal information with mail fraud. The information alleged that he and another individual, Shuky Mishrick ("Mishrick"), both of whom had been hired to operate a "twenty-four hour desk" for the brokerage firm of Dean Witter Reynolds ("Dean Witter"), devised and executed a scheme to enrich themselves by trading as undisclosed principals in an account they fraudulently represented to be a non-discretionary customer account, and by using Dean Witter funds to engage in unauthorized speculative trading which was deliberately concealed from Dean Witter. The information further alleged that Fellus and Mishrick transferred their illegal profits into foreign bank accounts and caused the mail delivery of certain contracts for the purchase of silver. All of these acts were said to have been committed wilfully, knowingly and in violation of a fiduciary duty owed to Dean Witter.
Shortly after Fellus's arrest, Dean Witter commenced an action against him in state court to recover the money he had wrongfully appropriated. Dean Witter obtained an ex parte order of attachment against his assets, including the contents of his known domestic and foreign bank accounts. As a result, Fellus was unable to post the $200,000 cash bail set at his arraignment, and he remained in custody.
At the hearing held by this court on June 23, Fellus sought to waive indictment and enter a plea of guilty to the mail fraude charges. He was represented by Jeffrey Ressler, Esq. ("Ressler"); also present were an Assistant United States Attorney and counsel for Dean Witter. Before accepting the plea, the Court asked Fellus a number of questions designed to ascertain whether his decision to plead guilty was made freely and voluntarily. When asked whether any pressure had been brought to bear upon him, Fellus replied, "No, sir." (Def's Ex. E, p.6).
He then provided the Court with many of the details of the fraudulent scheme.
Fellus and his attorney explained that an individual named Nessim Yaffe ("Yaffe") had given Fellus and Mishrick permission to open an account with Dean Witter and to trade under his name.
According to their agreement, Fellus would receive 65% of the profits generated through this account, Mishrick would receive 25%, and Yaffe 10%. (Def's Ex. E, p.11).Approximately $1.9 million was subsequently transferred by wire into numbered bank accounts in Switzerland and Luxembourg for ultimate distribution among the three men. (Def's Ex. E, pp. 13-14).
The Court asked Fellus whether he did, "through the use of Dean Witter funds, without authority and in secret, assume a net short position in silver in the amount of 7.3 million ounces, . . . which short position was nowhere recorded in the books and records of Dean Witter and which was deliberately concealed." Fellus replied, "Yes." (Def's Ex. E, p.16). When the Court inquired further as to how this was accomplished, Fellus inquired further as to how this was accomplished, Fellus indicated that he had called other dealers and, in the name of Dean Witter, made short sales by means of forward-dated contracts. Ressler explained that, under the plan, profits and losses were not to be placed against any particular account. At the end of the each trading day, Fellus would then have the option of assigning them either to the Yaffee account or to Dean Witter. The scheme went awry, according to Ressler, when the market turned against the positions established by Fellus and Mishrick, and the two attempted to compensate by rolling over their unrecorded trades. By the time Dean Witter discovered their activity and fired them, it had suffered losses of approximately $14 million. Fellus was asked whether he understood his attorney's explanation and whether it was correct. He responded "Yes." (Def's Ex. E, p.19).
Ressler also indicated that at some point prior to their detection, Fellus and Mishrick had agreed that Mishrick would handle the silver contracts, as this was his area of expertise. Therefore, Fellus did not actually handle the contracts which formed the basis of the mail fraud charges against him. Nonetheless, when asked by the Court whether he knew the contracts had been entered into, and that documents reflecting the transactions would be mailed, Fellus replied, "Yes, sir." (Def's Ex. E, p.20).
Following this discussion, Dean Witter's counsel passed a note to the Government's attorney, prompting the prosecutor to inquire whether the Court wished to elicit the method by which defendant's trades were hidden from Dean Witter. Ressler observed this communication between Dean Witter and the Government and brought it to the Court's attention. He indicated that although his client was prepared to make such appropriately a subject for discussion in the civil action pending against Fellus in state court. The Court agreed that the information was unnecessary for purposes of establishing a factual basis for the guilty plea, and accepted Fellus's plea to both counts.
Ressler then made an appliation for a reduction in bail. During the ensuing discussion, Ressler detailed the extent of Fellus's cooperation throughout the plea negotiation process, and stated with regard to Fellus's foreign bank accounts, "I indicated to the government that Mr. Fellus is prepared to execute waivers of secrecy on behalf of the government so that they can ascertain whether or not any other funds are available." (Def's Ex.E, p.25). When the Government opposed a bail reduction on grounds that Fellus might have additional money secreted away, Ressler reiterated his client's willingness to execute waivers of secrecy. The Court declined to reduce defendant's bail, and the hearing concluded.
Shortly before the scheduled sentencing in this matter, the prosecutor received a telephone call from an attorney who said he was considering entering the case on behalf of Fellus. He wanted the Government to consent to withdrawal of Fellus's guilty plea on one of the two counts in exchange for execution of the secrecy waivers promised earlier. Counsel for the Government rejected this proposal and a few days later the instant motion was filed by Jeffrey Bragman, Esq. ("Bragman").
The standard for permitting withdrawal of a guilty plea prior to sentencing is a liberal one, but the defendant has the burden of satisfying the trial judge that there are valid grounds for withdrawal. The trial judge's determination as to whether a defendant has met the burden is reversible only if clearly erroneous. United States v. Michaelson, 552 F.2d 472 (2d Cir. 1977). Defendant contends here that his plea was not the product of a free and voluntary choice, but was rather the result of an "inherently coercive" atomosphere created by undue cooperation between the Government and Dean Witter. (Bragman Aff. at P33). He also asserts that an insufficient factual basis was established at the June 23 hearing. Based upon written submissions and the oral presentations of counsel, I must conclude that these claims are without merit and that the motion should be denied.
Bragman's affidavit in support of the motion contains various assertions of improper involvement by Dean Witter in Fellus's prosecution. He alleges that "the office of the United States Attorney and counsel for the alleged victim "whipsawed" the defendant between two pending litigations, each for the benefit of the other." (Bragman Aff. at P19). He states further that the Government participated in a course of conduct "orchestrated by counsel for Dean Witter, which coercively pressured the defendant into pleading guilty in the criminal action, thereby concomitantly providing and advantage to Dean Witter Reynolds in the pending civil action." (Bragman Aff. at P20). In support of these claims, counsel has directed ...