The opinion of the court was delivered by: SCHWARTZ
Before the Court are defendants' motions (i) to sever pursuant to Rule 8(b) and Rule 14 of the Federal Rules of Criminal Procedure (Fed. R. Crim. P.); (ii) to dismiss the Second Superseding Indictment ("SSI") for improper joinder and for prosecutorial misuse of the grand jury; and (iii) for the Government to provide a bill of particulars and Brady material. For the reasons stated, these motions are denied.
The following are the pertinent facts alleged in the indictment.
Defendant Irving Goldstein and his wife owned and operated 47th Street Photo ("47th Street"), a large discount retail electronics concern with several stores in the metropolitan New York area. In the mid-1980s, allegedly as a result of difficulty securing distribution contracts with certain manufacturers, Irving Goldstein opened two new retail computer businesses, Advanced Computer Corp. ("Advanced") and Microland, Inc. ("Microland") and concealed his control of these companies by placing ownership in the hands of nominees. In 1988, he installed defendant Isaac Reinhold as President of both Advanced and Microland and in 1989 "sold" both companies to Reinhold in a sham transaction. In 1991, Advanced and Microland were merged into Micro Innovation Computer Center ("Micro"), an entity nominally owned by Reinhold, but actually controlled by Irving Goldstein and operated for the benefit of 47th Street. In similar fashion, Irving Goldstein also operated Maxum Computer Systems ("Maxum") as a subsidiary of 47th Street.
In January 1992, 47th Street filed for bankruptcy. In connection with the bankruptcy proceedings, Irving Goldstein repeatedly denied that he or 47th Street owned Micro or Maxum. He also provided creditors with documents purporting to reflect the sale of Maxum to a 47th Street Photo employee in 1990.
In the bankruptcy proceeding, Reinhold filed a $ 2.4 million claim on behalf of Micro against 47th Street, rendering Micro 47th Street's largest creditor. Reinhold withdrew this claim when it was challenged by another litigant in the bankruptcy proceeding.
By 1994, as a result of 47th Street's bankruptcy, Micro faced financial difficulties and turned to Fidelity Funding of California ("Fidelity"), a Texas asset-based lender. In order to induce Fidelity to enter into a financing agreement, Micro provided Fidelity with information purportedly listing its accounts receivable and outstanding invoices. Among the account debtors Micro listed was Masel Supply Company ("Masel"), a photographic supply company located in Brooklyn, New York, owned in part by defendant Michael Mendlovic, Irving Goldstein's brother-in-law. When contacted by Fidelity representatives seeking to verify Micro's accounts receivable, Mendlovic falsely represented that the invoices listed by Micro were legitimate and would be paid. In January 1995, in reliance on information provided by Micro and confirmed by Mendlovic, Fidelity agreed to purchase up to $ 6.25 million of accounts receivable and to advance Micro 80 percent of the face value of those receivables (approximately $ 5 million). At approximately the same time, several of the defendants met and agreed to raise additional money for Micro by submitting fraudulent invoices to Fidelity. From January 1995 until July 1995, when the scheme collapsed, Micro sought additional funds from Fidelity almost daily, with the largest of these requests predicated on fraudulent invoices.
As an essential part of the scheme, Irving Goldstein and his son, defendant Josef Goldstein (who by 1994 had become an executive at Micro), enlisted the aid of various entities to pose as account debtors of Micro. These included, among others, defendant Mendlovic's company, Masel, defendant Herbert Greenfield's
company, Thrifty Cosmetics and Sundries, Inc. ("Thrifty"), and defendant United Talmudic Academy of Boro Park ("UTA"), a yeshiva that the Government alleges had "close ties to Irving Goldstein." In their assumed roles as Micro "debtors," these entities (1) falsely represented to Fidelity that Micro's phony invoices were issued in connection with real transactions and (2) "paid" a small portion of the invoices purchased by Fidelity with funds provided by Micro to maintain the illusion that the debts were legitimate. At the time Fidelity discovered the fraud in July 1995, it had advanced to Micro in excess of $ 2 million based upon open invoices addressed to Masel, UTA and Thrifty.
The defendants in this case were indicted on July 15, 1997 for conspiracy to commit wire fraud. Defendant Reinhold was additionally charged with five substantive counts of wire fraud. On September 23, 1997, the Grand Jury returned a superseding indictment ("FSI") which also charged defendants Irving Goldstein and Reinhold with conspiracy to commit bankruptcy fraud and Irving Goldstein with two substantive counts of bankruptcy fraud. On November 21, 1997, the defendants filed various motions, including a motion to dismiss Count One of the FSI on the grounds that it improperly charged multiple conspiracies in a single count. In response to the defendants' motion to dismiss Count One, the government returned to the Grand Jury and sought a Second Superseding Indictment. As a result, on December 16, 1997, the Grand Jury returned the SSI.
Count One of the SSI charges defendants Reinhold, Josef Goldstein and Irving Goldstein with conspiracy to commit wire fraud in connection with Micro's alleged fraud against Fidelity. Counts Two to Four charge Mendlovic, Greenfield and UTA with separate conspiracies to commit wire fraud in connection with their involvement in the Fidelity scheme. Counts Five to Eight charge Reinhold and Mendlovic with acts of wire fraud arising out of the submission of fraudulent Masel invoices and the transmission of funds used in connection with payment of certain past due invoices. Counts Nine through Twelve charge Reinhold, Josef Goldstein, and Greenfield with acts of wire fraud arising out of the submission of fraudulent Thrifty invoices and the transmission of fluids used in connection with payment of certain past due invoices. Counts Thirteen through Seventeen charge Reinhold, Josef Goldstein, Irving Goldstein and the UTA with acts of wire fraud arising out of the submission of fraudulent UTA invoices and the transmission of funds used in connection with payment of certain past due invoices. Count Eighteen charges Irving Goldstein and Reinhold with conspiracy to commit bankruptcy fraud in connection with 47th Street's bankruptcy. Counts Nineteen and Twenty charge Irving Goldstein with two substantive counts of bankruptcy fraud in connection with 47th Street's bankruptcy.
The defendants have filed motions seeking various forms of relief. All defendants, except for Reinhold, have moved pursuant to Fed. R. Crim. P. 8(b) to sever counts eighteen to twenty of the SSI (counts seven to nine of the FSI) on the grounds that the bankruptcy fraud and wire fraud charges do not constitute a common plan or scheme and that the two sets of charges are linked only by the existence of two common defendants, Irving Goldstein and Reinhold. Mendlovic, Josef Goldstein and UTA move to sever the bankruptcy counts of the SSI pursuant to Fed. R. Crim. P. 14 on the grounds that evidence of the bankruptcy fraud charges will prejudice the defendants' ability to defend against the wire fraud charges. Mendlovic, Josef Goldstein and UTA move pursuant to Fed. R. Crim. P. 14 to sever their cases from the case against Reinhold on the grounds that inculpatory statements by Reinhold are inadmissible against the other defendants and cannot be redacted to prevent any danger of prejudicial spillover. Mendlovic, Josef Goldstein, UTA and Greenfield move pursuant to Fed. R. Crim. P. 8(b) to sever all counts on the grounds that the defendants were not all aware of; and did not all join in, all of the schemes alleged. Mendlovic, Josef Goldstein, UTA, Greenfield and Reinhold move pursuant to Fed. R. Crim. P. 14 to sever all counts on the grounds that a joint trial will result in prejudicial spillover and, according to Greenfield and Reinhold, will involve the presentation of antagonistic defenses. Mendlovic, Josef Goldstein, Greenfield and Reinhold move for a bill of particulars. Josef Goldstein, Mendlovic and UTA move to dismiss the SSI on the grounds that the government misused the grand jury for purposes of trial preparation, and Greenfield moves for production of Brady material.
I. Motions to Sever and to Dismiss for Improper Joinder
The threshold question on the motions to sever and for dismissal for improper joinder is whether the SSI adequately alleges that the defendants were all part of a common scheme or plan to aid Irving Goldstein by ...