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UNITED STATES v. CHEUNG

January 13, 1997

UNITED STATES OF AMERICA, Plaintiff, against HOLLMAN CHEUNG, Defendant; LANG FANG CHAU et al., Plaintiffs, - against - HOLLMAN CHEUNG et al., Defendant


The opinion of the court was delivered by: WEINSTEIN

 In these related civil and criminal fraud cases, criminal restitution is utilized as a bridge to avoid extensive civil litigation. The victims are to be compensated through an integrated civil settlement and a criminal restitution order. What was in effect a civil quasi-class action is coordinated with a criminal proceeding to assure maximum recovery by the victims with minimum transactional costs.

 The assigned magistrate judge, the Assistant United States Attorney (AUSA) and plaintiffs' counsel for ninety-four of the hundreds of victims engaged in lengthy negotiations to reach this result. The court held extensive post-settlement, post-plea hearings akin to those required in approving a Rule 23 class action settlement. It approved the methods of disbursing funds in both the criminal and civil cases. It also approved the civil action fee of the attorney for plaintiffs, treating it as if it had been earned in a class action even though the joinder of plaintiffs was pursuant to Rule 19 rather than to Rule 23 of the Federal Rules of Civil Procedure.

 The AUSA and cooperating Federal Bureau of Investigation (FBI) agent were substantially aided by discovery conducted by plaintiffs' attorney in the civil case. By coordination with the criminal prosecution, the civil attorney's work was reduced. Defense counsel was the same in both the civil and criminal cases. Together, the three attorneys and the FBI Special Agent in charge assisted the court in locating hundreds of victims, fixing the amounts of their losses, and discovering the assets of the defendant.

 II. FACTS

 Between 1989 and 1993 defendant, Hollman Cheung, participated in a series of financial service companies operating under various names including World Bullion, Profitable Bullion, and United Bullion, in California and in New York. Defendant used these companies to defraud hundreds of people. Almost all of the victims were recent Chinese immigrants, many of whom had placed substantially all of their savings into what they believed to be prudent investments that would provide them and their children with financial security when they could no longer work.

 In the course of these activities, defendant hired an arsonist to burn down a competitor's offices. The fraud was more successful than the fire, which failed to burn.

 III. PROCEDURAL HISTORY

 Defendant was indicted on four counts of wire fraud, one count of fraud, one count of attempted arson, and one count of criminal conspiracy. He pled guilty to one count of wire fraud, 18 U.S.C. § 1343, and one count of attempted arson, 18 U.S.C. § 844(i). After extensive cooperation, he was sentenced to time served in prison (31 1/2 months), two years supervised release, $ 1.25 million in restitution, and a $ 100 special assessment.

 Ninety-four investors who had been victimized in the fraud joined to initiate a civil RICO action against defendant. 18 U.S.C. §§ 1961 et seq. Each plaintiff contributed voluntarily to a legal fund to defray expenses. The complaint alleged that defendant had fraudulently conspired to convert funds that plaintiffs had provided for legitimate investments in commodities, foreign currencies and precious metals.

 After extensive negotiation with the aid of the magistrate judge, the civil litigation was settled for $ 200,000, to be used to cover the plaintiffs' attorney's fee and to provide the named civil plaintiffs with compensation. These civil proceeds are in addition to the pro-rata portion of the criminal restitution payment of $ 1,250,000 to be shared among all several hundred who were mulcted, including those in the civil suit. Concurrently with its sentencing judgment, the court approved the civil settlement agreement (Settlement).

 IV. COMBINING CRIMINAL AND CIVIL PROCEEDINGS

 In recent years, Congress and the courts have stressed restitution to victims as an important aspect of the punishment imposed on those guilty of crimes. An increasing number of American legal scholars have recognized the value of such an approach. One commentator in the early 1980s described a number of contemporary proposals to combine monetary remedies for criminal victims with prison sentences as follows:

 
Judicial preference for restitution finds support in the Model Penal Code, . . . the Model Sentencing Act, . . . a recent draft of the proposed new Federal Criminal Code, . . . and several other prestigious sentencing proposals. In addition, although explicit criminal code provisions for some form of restitution are not quite universal, legislation ...

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