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UNITED STATES v. FERRARINI

June 12, 1998

UNITED STATES OF AMERICA, Plaintiff,
v.
DONALD FERRARINI, BRUNO RUMIGNANI, A. MICHAEL KAGAN, HOWARD MILLER, and EVERETT VIEIRA, Defendants.



The opinion of the court was delivered by: COTE

OPINION

 DENISE COTE, District Judge:

 This case, for which the Grand Jury returned an indictment on September 25, 1997, and a superseding indictment on January 8, 1998, concerns allegations of various crimes arising out of the operation of Underwriters Financial Group, Inc. ("Underwriters"), a publicly traded company which collapsed in the summer of 1995, and two of its subsidiaries, BRI Coverage Corporation and UFG International, Inc. (collectively "UFG"), through which Underwriters operated its insurance brokerage business. As an insurance broker, UFG, among other things, obtained insurance policies for its customers and arranged financing for customers to help them pay their insurance premiums. The defendants Donald Ferrarini, Bruno Rumignani, and Howard Miller served as President, Executive Vice-President, and Senior Vice President, respectively, of Underwriters and UFG, and defendant Everett Vieira was employed by UFG to perform various functions, including serving as a financial consultant. Defendant Michael Kagan was the Senior Vice President of CPF Premium Funding, Inc. ("CPF"), a company which loaned money through UFG to UFG's customers for the purpose of paying premiums. For the sake of simplicity, this Opinion will refer solely to Underwriters when describing the activities -- many of which were undertaken through UFG -- which are the concern of this indictment. At the present time, the defendants in this action have separately filed motions seeking (1) severance of their trials pursuant to Rules 8 and 14, Fed. R. Civ. P, (2) the dismissal of certain counts in the indictment, and (3) the production of a Bill of Particulars and various evidence in the custody of the Government. For the reasons set forth below, the defendants' motions are denied.

 I. BACKGROUND

 The first count of the eighty-six count superseding indictment (hereafter, the "indictment") alleges a conspiracy, in which all of the defendants participated, with four objects: mail fraud, insurance fraud, securities fraud, and the making of false statements to the SEC. Put most simply, the defendants are charged with having fraudulently procured loans for Underwriters; misappropriated customers' premium payments; and misrepresented to the SEC Underwriters' financial condition, all in an effort to obtain badly needed operating funds for Underwriters and to disguise Underwriters' true financial condition.

 The indictment charges that from June 1993 to April 1995, the defendants fraudulently obtained for Underwriters 37 loans totaling approximately $ 12.8 million from three finance companies, including CPF. In furtherance of this scheme, the indictment alleges that the defendants Ferrarini, Rumignani, Miller, and Vieira submitted phony finance applications to the lenders. Kagan allegedly abused his fiduciary position at CPF by accepting some $ 425,000 from Underwriters in order to induce CPF to approve the loans to Underwriters.

 The defendants are further charged with having misappropriated customers' premium payments for legitimate loans. At the time Underwriters went out of business in 1995, it is alleged to have misappropriated over $ 6.0 million altogether in customer premiums owed to various insurance companies. According to the indictment, the defendants initially appropriated premiums which had been held for nine months or longer and thus appeared to have been overlooked. By 1993, Ferrarini, Rumignani, and Miller allegedly began to misappropriate current customers' payments as well as aged payments. The defendants' alleged recordation of the fraudulent loans and the misappropriated customer payments as income to Underwriters -- and their concealment of the company's liability to repay those funds -- on financial statements filed by Underwriters with the SEC give rise to the securities and false statements charges.

 Each of the defendants also is charged with substantive crimes arising out of the conspiracy. Ferrarini, Rumignani, and Miller are charged with one count of securities fraud and six counts of making false statements to the SEC, the latter series of counts all being tied to filings of forms 10-K and 10-Q. Ferrarini and Rumignani are charged in thirty-seven counts with mail fraud in connection with the mailing of documents as part of the scheme to defraud premium finance companies. Vieira is named in two of those counts; Kagan in twenty-seven; and Miller in nineteen. Ferrarini and Rumignani are named in seventeen counts of insurance fraud connected to the embezzlement of funds belonging to Underwriters' customers. Finally, Rumignani, Vieira, and Miller are each charged with one count of making false statements to the United States Attorney's Office during its investigation of UFG.

 Two of the defendants are charged with substantive crimes that are not directly related to the conspiracy. Kagan is charged with five counts of mail fraud for engaging in his own financing scheme in which he obtained fraudulent loans from CPF. Ferrarini is charged with thirteen counts of insurance fraud for his alleged embezzlement of approximately $ 456,600 of Underwriters' funds for his personal use, and three counts of tax evasion for failing to report the embezzled funds as income. The Government has consented to a severance of counts sixty-eight through eighty-three, the embezzlement and tax evasion charges against Ferrarini. Accordingly, these charges against Ferrarini will be severed and will not be discussed further. The Government therefore seeks to try the five defendants together on a seventy count indictment.

 II. DISCUSSION

 A. Severance

 There is a preference in the federal system for the joint trial of defendants who have been indicted together. See United States v. Miller, 116 F.3d 641, 679 (2d Cir. 1997), cert. denied, S. Ct. , 1998 U.S. LEXIS 3606, 1998 WL 38113 (June 1, 1998). In order to prevail on a motion for severance, a defendant must demonstrate not simply that he will be prejudiced by a joint trial, but that "there is a serious risk that a joint trial would compromise a specific trial right of one of the defendants, or prevent the jury from making a reliable judgment about guilt or innocence." Zafiro v. United States, 506 U.S. 534, 539, 122 L. Ed. 2d 317, 113 S. Ct. 933 (1993). Such risks occur, for example, when evidence admissible against one defendant alone leads a jury to conclude erroneously that another defendant is guilty or when "essential exculpatory evidence" is unavailable at a joint trial but available if a defendant is tried alone. Id. See also United States v. Walker, F.3d , 1998 U.S. App. LEXIS 7416, 1998 WL 174606, *4 (2d Cir. Apr. 15, 1998) (Nos. 96-1544, 96-1545, 96-1546).

 In moving for separate trials, Kagan, Miller, and Vieira argue that they will be prejudiced by a joint trial because they were relatively minor players in the conspiracy. In addition, they argue that they will suffer from "spillover prejudice" on account of the evidence of other crimes that will be introduced against their codefendants. Kagan also argues that his trial must be severed from that of his codefendants because his defense requires their testimony, which will be unavailable at a joint trial. Finally, Ferrarini, Rumignani, Vieira, Kagan, and Miller all argue that they are entitled to a severance because their defenses are antagonistic with those of other defendants. Ferrarini seeks severance from Vieira; Vieira seeks severance from Ferrarini and Rumignani; Kagan seeks severance from all of the other defendants; and Miller and Rumignani seek severance from Kagan.

 1. Severance for "Minor Players"

 In support of his argument that he is a minor player in the conspiracy charged in the indictment and will be harmed through spillover prejudice, Kagan points out that he is named in thirty-three of the seventy counts in the indictment, and that there is no allegation that he had any involvement in the scheme to misappropriate insurance premiums from Underwriters' clients or the scheme to obtain premium finance loans from entities other than CPF. Vieira, in turn, points out that he is named in only four of the seventy counts, and also is not alleged to have been involved in the scheme to misappropriate insurance premiums from Underwriters' clients. *fn1" Miller, who is named in only twenty-eight counts, also claims that he will be prejudiced by a joint trial because he is alleged to have been a relatively small player in the conspiracy.

 Summarizing the indictment's allegations against Kagan and Vieira, each of these two defendants is charged with conduct relating to UFG's obtaining insurance premium loans. Kagan, as an employee at CPF, recommended approval of the loans for which UFG applied, which resulted in CPF lending $ 9.38 million. Vieira, a financial consultant at UFG, assisted in obtaining such loans from both CPF and another entity, Imperial. On one or more occasions in February and March 1995, the indictment alleges that the five defendants met at Vieira's home to discuss UFG's increasingly desperate cash-flow situation and the premium finance loans UFG had obtained from CPF. Vieira also is accused of having made false statements about the premium finance loans obtained by UFG from CPF to the United States Attorney's Office during its investigation of UFG. As for Miller, he is alleged to have signed his name on numerous fraudulent loan agreements and misleading SEC filings, as well as a check for $ 175,000 to Kagan. He also is alleged personally to have attempted to cover up one of the fraudulent loan agreements made in the name of one of Underwriters' clients.

 First, it is well established that defendants who played a minor role in a conspiracy may be tried with those who played a larger or dominant role. See, e.g., United States v. Cardascia, 951 F.2d 474, 483 (2d Cir. 1991); United States v. Casamento, 887 F.2d 1141, 1153 (2d Cir. 1989). A "disparity in the quantity of evidence and of proof of culpability are inevitable in any multi-defendant trial, and by themselves do not warrant a severance." Cardascia, 951 F.2d at 483. It is not altogether clear from the face of the indictment, however, that either Vieira, Kagan, or Miller properly may be characterized as having only a minor role in the conspiracy. Certainly, as described by the indictment, Kagan's role was critical to the scheme to obtain premium finance loans, since he facilitated Underwriters' obtaining over $ 9 million of the $ 12.8 million that it obtained through this scheme and was paid $ 425,000 for those efforts.

 In any event, it is fair to conclude from the structure and scope of the indictment that particularly Vieira, but also Kagan, played a smaller role in the conspiracy than defendants Ferrarini and Rumignani. Miller also may have played a smaller role in the conspiracy than did Ferrarini and Rumignani, but he too was critical to its success. Nonetheless, the case is neither so complex nor so large that appropriate instructions will not suffice to remind the jurors of the need to consider each defendant separately. In any event, as discussed below, even at a separate trial much of the evidence of which these three defendants complain would be admitted. Consequently, this portion of their severance motion properly is denied.

 2. Spillover Prejudice

 Vieira, Kagan, and Miller argue that they will suffer from undue "spillover prejudice" on account of the evidence that will be introduced of other crimes committed by their codefendants. First, these three defendants each urge that the substantive counts arising from the misappropriation of customer premiums should be severed. Second, Miller, joined by Rumignani, has moved for severance of the mail fraud counts brought against Kagan for his embezzlement scheme and of the counts charging Miller, Vieira, and Rumignani with false statements to the United States Attorney's Office.

 A severance of the counts related to the misappropriation of customer premiums is not warranted since this evidence would be admissible even at separate trials of the moving defendants. As the Second Circuit noted in United States v. Rosa, 11 F.3d 315 (2d Cir. 1993),

 
A defendant's right to a fair trial does not include the right to exclude relevant and competent evidence. Thus, the fact that testimony against a codefendant may be harmful is not a ground for severance if that testimony would also be admissible against the moving defendant tried separately. Evidence at the joint trial of alleged coconspirators that, because of the alleged conspiratorial nature of the illegal activity, would have been admissible at a separate trial of the moving defendant is neither spillover nor prejudicial.

 Id. at 341 (internal citations omitted). Here, although Vieira and Kagan are not named in the substantive counts alleging misappropriation of customer premiums and misrepresentations to the SEC, they are alleged to have been part of the conspiracy that gave rise to these crimes. The evidence of these other crimes therefore would be admissible even in a separate trial of Vieira or Kagan. Both of the schemes outlined in the conspiracy count -- the scheme to misappropriate insurance premiums and the scheme to obtain premium finance loans -- shared a common goal, that is, to obtain monies by fraud for Underwriters and thereby to disguise the true financial condition of the company. That Vieira and Kagan were only involved in one of these two schemes does not mean that proof of the overall conspiracy, and the various means that the conspirators used to achieve the goals of the conspiracy, would not be admissible at their separate trials. See Miller, 116 F.3d at 679 (evidence of other, even violent, crimes committed by other defendants admissible against coconspirators); Rosa, 11 F.3d at 341. Miller particularly cannot reasonably complain of unfair "spillover" prejudice as a result of a joint trial. *fn2" Miller is alleged to have been a part of both schemes in the conspiracy; therefore evidence concerning both schemes certainly would be admissible against Miller even at a separate trial.

 In addition to moving for severance from the other defendants, Miller has moved for severance of counts 63 through 67 of the indictment, which charge Kagan with mail fraud relating to his own scheme to defraud CPF, and counts 84 through 86, which charge Rumignani, Vieira, and Miller, *fn3" respectively, with making false statements to the United States Attorney's Office during proffer sessions in response to questions about UFG. None of the remaining counts need be severed.

 The first group, the counts against Kagan alone, allege that Kagan obtained approximately $ 284,349 for his own account from CPF by submitting five fraudulent financing agreements between January and August 1994. This is essentially the same thing he is charged with having done in concert with the Underwriters defendants during the period from June 1993 through April 1995. In both schemes -- Kagan's alone and the collective scheme -- the Government alleges that the funds were obtained in the same manner: by submitting fictitious applications, with forged signatures, to premium finance companies. *fn4" In the collective scheme, three premium finance companies were targeted, although the bulk of the loans -- 30 out of 37 -- were obtained from CPF. Kagan is named only in those counts arising out of the collective scheme in which CPF was defrauded. Thus, the victim of the scheme was the same in both those counts of the collective scheme in which Kagan is named and in Kagan's own scheme; moreover, both schemes occurred during the same period of time.

 In order for joinder of offenses to be proper where there are both multiple offenses and multiple defendants, the requirements of Rule 8(b), Fed. R. Crim. P., must be satisfied. United States v. Cervone, 907 F.2d 332, 341 (2d Cir. 1990); United States v. Attanasio, 870 F.2d 809, 814-15 (2d Cir. 1989); United States v. Turoff, 853 F.2d 1037, 1042-43 (2d Cir. 1988). Accordingly, multiple defendants may be tried together where 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(b), Fed. R. Crim. P. The Second Circuit has interpreted this requirement 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." Attanasio, 870 F.2d at 815 (internal quotation omitted). Here, the overlap in facts between the Kagan scheme and the collective scheme is considerable. As importantly, however, where the charges are different, instructions will suffice to keep the difference clear in the minds of the jury.

 That the Kagan and collective schemes may not have shared, in all respects, "a common plan," as Miller argues, does not negate the propriety of joinder. Miller contends that, because the collective scheme is alleged to have had as its goal "to keep UFG afloat," the Kagan scheme, which is not alleged to have shared that goal, is improperly joined. This argument fails for two reasons. First, it ignores the fact that Kagan's participation in the collective scheme is alleged to have been driven by the financial benefits that it offered him, including a payment of $ 425,000. This is the same goal that is alleged to have driven his own scheme. Second, it ignores the fact that Rule 8(b) does not require a common goal or conspiracy. Indeed, as interpreted in Attanasio, Rule 8(b) requires only that the counts be connected by common facts or participants or that they arise out of a common plan or scheme. Attanasio, 870 F.2d at 815. The similarity between the schemes reduces the likelihood of any prejudicial spillover. Cardascia, 951 F.2d at 483 (severance not warranted where unrelated evidence was only another bank fraud scheme and not of violent activities).

 Moreover, it appears that evidence of these crimes would be admitted at trial even if the acts were not also charged in the indictment. Since the Kagan and collective schemes are so similar, evidence of Kagan's embezzlement scheme would be admissible in any trial against Kagan on the collective scheme as Rule 404(b) evidence tending to prove the hotly contested issues of his intent to participate in and knowledge of the collective scheme. Rule 404(b), Fed. R. Evid. See Attanasio, 870 F.2d at 815. Just as a limiting instruction would protect Kagan's codefendants from such Rule 404(b) evidence if it were admitted solely to prove Kagan's intent with respect to the collective scheme, a limiting instruction will protect his codefendants when this evidence is introduced against Kagan to prove the separate charges against him in the indictment.

 Counts 84 through 86, which allege false statements to the United States Attorney's Office by Rumignani, Vieira, and Miller, are properly joined for similar reasons. These charges are not unrelated to the activities at the heart of the conspiracy, but stem directly from the defendants' efforts to cover up those activities. See Turoff, 853 F.2d at 1044 ("one scheme stemmed from the other -- and that link provides a sound basis for joinder under Rule 8(b)"). Accordingly, at a separate trial of these counts, the Government would have to introduce evidence of the underlying conspiracy and fraud counts in order to prove a defendant's motive to lie to the Government and to put the charges in an understandable context for the jury. Moreover, evidence of those activities -- and their unlawful nature -- would be necessary at a separate trial on the false statement charges to prove the falsity of the defendants' statements that they were not engaged in fraudulent activity. See United States v. Biaggi, 909 F.2d 662, 676 (2d Cir. 1990) ...


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