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UNITED STATES v. GORDON

January 10, 1998

UNITED STATES OF AMERICA,
v.
BRUCE W. GORDON, WHO'S WHO WORLD WIDE REGISTRY, INC., STERLING WHO'S WHO, INC., TARA GARBOSKI, a/k/a "Tara Green," ORAL FRANK OSMAN, a/k/a "Frank Martin," LAURA WEITZ, a/k/a "Laura Winters," ANNETTE HALEY, SCOTT MICHAELSON, STEVE RUBIN, a/k/a "Steve Walden," and MARTIN REFFSIN, Defendants.



The opinion of the court was delivered by: SPATT

 SPATT, District Judge.

 On March 19, 1997, the grand jury returned a 73-count Superseding Indictment which charged Bruce W. Gordon ("Gordon"), Who's Who Worldwide Registry, Inc. ("Who's Who Worldwide"), Sterling Who's Who, Inc. ("Sterling Who's Who," Who's Who Worldwide and Sterling Who's Who will collectively be referred to as, the "Companies") and six of their employees, Tara Garboski a/k/a "Tara Green" ("Garboski"), Oral Frank Osman a/k/a "Frank Martin" ("Osman"), Laura Weitz a/k/a "Laura Winters" ("Weitz"), Annette Haley ("Haley"), Scott Michaelson ("Michaelson"), and Steve Rubin a/k/a "Steve Walden" ("Rubin," collectively, the "Employee Defendants"), with conspiracy to commit mail fraud (Count 1) and the substantive crime of mail fraud (Counts 2-56). Gordon is also charged with: giving perjurious testimony at the trial of Reed Elsevir, Inc. v. Who's Who Worldwide Registry, Inc., 1994 U.S. Dist. LEXIS 4439, *1, CV 92-3959 (DFJ), a case involving allegations of trademark infringement and false advertising (Count 57); obstruction of justice in the bankruptcy action entitled In re Who's Who Worldwide Registry, Inc., 197 Bankr. 193, Docket No. 894-81496-478, by submitting a bankruptcy petition containing false information, and giving false, evasive and misleading testimony under oath, with regard to the ownership of Who's Who Worldwide and other corporations controlled by Gordon (Count 59); filing false tax returns for the years 1991-1994 (Counts 62-65); filing False Collection Information Statements dated September 16, 1991, July 8, 1993 and December 29, 1993, with the Internal Revenue Service (Counts 70-72); and money laundering between December 1, 1992 and the date of the indictment (Count 73). In addition, Gordon and Martin Reffsin ("Reffsin"), the principal accountant for Gordon and the Companies, are each charged with: obstruction of justice with regard to the bankruptcy proceeding entitled In re Who's Who Worldwide Registry, Inc., 197 Bankr. 193, Docket No. 894-81496-478 (Count 58); conspiracy to impair, impede and defeat the Internal Revenue Service between January 1989 and the date of the indictment (Count 60); and evasion of payment of income tax for the calendar years 1981 through 1990, by allegedly concealing and attempting to conceal from the Internal Revenue Service the nature and extent of Gordon's income and assets (Count 61). Finally, Reffsin is charged with assisting in the filing of Gordon's alleged false income tax returns for the years 1991 through 1994 (Counts 66-69).

 The indictment arises out of the Companies' business of selling memberships in their "Who's Who" registries. Familiarity with the Court's prior opinions is presumed.

 Presently before the Court are the following two omnibus motions: (1) Osman, Weitz, Garboski, Michaelson, Rubin and Haley move to sever Counts 57 through 73 from the remaining counts of the Superceding Indictment pursuant to Fed. R. Civ. P. 8(b) and 14; and (2) Gordon moves by an Order to Show Cause to dismiss pursuant to Fed. R. Crim. P. 12(b)(2), Count 73 which charges Gordon with money laundering.

 I. DISCUSSION

 A. Motion to sever

 Osman, Weitz, Garboski, Michaelson, Rubin and Haley move to sever Counts 57 through 73 from the remaining counts of the Superceding Indictment on the following grounds:

 
(1) joinder under Fed. R. Crim. P. 8 (b) is improper since Counts 57 through 73 do not arise out of the same act or transaction or series of acts or transactions as Counts 1-56; and
 
(2) the evidence of fraudulent activity engaged in by Gordon and Reffsin, arising from Counts 57 through 73, will prejudice them since the jury will not be able to compartmentalize the various facts and issues. Hence, due to this "spillover" effect, the severance is warranted pursuant to Fed. R. Crim. P. 14.

 1. Fed.R.Crim.P. 8(b)

 Fed. R. Crim. P. 8(b) ("Rule 8(b)") provides as follows:

 
(b) Joinder of defendants. Two or more defendants may be charged in the same indictment or information if they are alleged to have participated in the same act or transaction or in the same series of acts or transactions constituting an offense or offenses. Such defendants may be charged in one or more counts together or separately and all of the defendants need not be charged in each count.

 "Rule 8 does not explicitly provide a standard that governs when multiple offenses and multiple defendants are joined in one indictment." United States v. Turoff, 853 F.2d 1037, 1043 (2d Cir. 1988). Where the joinder involves both multiple offenses and multiple defendants, Rule 8(b) must be applied. Id. "The effect of construing Rule 8 in this fashion is that multiple defendants cannot be tried together on two or more similar but unrelated acts or transactions; multiple defendants may be tried together only if the charged acts are part of a series of acts or transactions constituting an offense or offense." Id.; see also C. Wright, 1 Federal Practice and Procedure: Criminal 2d ┬ž 144, at 508-09 (1982). In United States v. Attanasio, 870 F.2d 809 (2d Cir. 1989), the Second Circuit interpreted this rule to mean that the acts must be "unified by some substantial identity of facts or participants, or arise out of a common plan or scheme." Id. at 815 (citing United States v. Porter, 821 F.2d 968, 972 (4th Cir. 1987), cert. denied, 485 U.S. 934, 108 S. Ct. 1108, 99 L. Ed. 2d 269 (1988)).

 In the present case, the moving defendants contend that the mail fraud counts are improperly joined to the subsequent counts in the indictment which name only Gordon and Reffsin. They contend that each grouping of counts alleges essentially a separate conspiracy, and that they are not sufficiently connected to permit joinder under Rule 8(b). The Court finds that for the reasons stated in the Government's Memorandum of Law in Opposition to Defendants' Pre-Trial Motions at 72-80, all counts of the Superceding Indictment have been properly joined under Rule 8(b). The mail fraud counts (Counts 1-56) charge Gordon and the moving defendants with participating in a scheme to defraud their customers by means of certain representations. The remaining seventeen counts charge Gordon and his accountant, Reffsin, with laundering and evading taxes on the proceeds of this alleged illegal activity and with making false statements in federal bankruptcy proceedings in order to protect against creditors' legitimate claims to those proceeds.

 The Companies producing the money that is the subject of all the counts, are consequently the centerpiece and focal point of the two conspiracies. First, the defendants seek to sever the mail fraud counts with Count 57, which charges Gordon with perjury at the trial of the trademark infringement suit brought by Reed Elsevier against Worldwide. Count 57 shares a substantial factual basis with the mail fraud counts. Gordon is charged with lying under oath at the trial when he stated that the Companies held conferences and seminars for their customers. This alleged misrepresentation is identical to one of the alleged false statements that the moving defendants are charged with making over the telephone to lure customers. Hence, the Court finds that Count 57 is properly joined to the mail fraud counts due to factual interrelatedness. See United States v. Biaggi, 909 F.2d 662, 676 (2d Cir. 1990) (interrelated conspiracies properly joined under Rule 8(b) where "proof of one scheme was helpful to a full understanding of the other"), cert. denied, 499 U.S. 904, 111 S. Ct. 1102, 113 L. Ed. 2d 213 (1991).

 Second, the moving defendants maintain that Counts 60-69, the tax-related counts, are improperly joined to the mail fraud counts. However, the Second Circuit has held that counts in an indictment which allege illegal activity are properly joined to tax evasion counts where the revenue on which the tax was evaded resulted from the criminal conduct charged in the non-tax count. See Turoff, 853 F.2d at 1043 (tax evasion count properly joined to mail fraud count); Biaggi, 909 F.2d at 676 (tax evasion count properly joined to extortion count). The tax counts allege violations of the Internal Revenue Code arising from Gordon's failure to disclose his income from the Companies. This income allegedly ...


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