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U.S. v. NUMISGROUP INTERN. CORP.

December 13, 2000

UNITED STATES OF AMERICA., PLAINTIFF,
V.
NUMISGROUP INTL. CORP.; NUMISMATIC ASSET STRATEGIES, INC.; GALERIE DES NUMISMATIQUE, LTD.; MERIDIAN NUMISMATICS, INC.; ROBERT DUPURTON; JOHN LAURA; ANGELINA CALTGIRONE A/K/A "ANN CALTA"; ROBERT SMITH A/K/A "BRIAN MILLS" AND "DAN GALLAGHER"; TOM PAULL; NICK FERRARO; AND CALVIN RICHARD A/K/A "MICHAEL BENNETT" AND "TONY BENNETT," DEFENDANTS.



The opinion of the court was delivered by: Spatt, U.S. District Judge

MEMORANDUM OF DECISION AND ORDER

This criminal case involves allegations of mail fraud against several coin dealerships, their owners, and employees. Presently before the Court are motions by the corporate entities and their owner, Robert DuPurton (collectively, "the Numisgroup Defendants") (i) to suppress evidence seized pursuant to a search warrant on the grounds that the warrant was procured with false or misleading statements; (ii) for return of property improperly seized under the warrant; (iii) for dismissal of the indictment; (iv) for severance from the co-defendants; (v) for a Bill of Particulars and certain discovery; (vi) for production of Brady material; and (vii) to quash grand jury subpoenas issued by the Government. In addition, DuPurton has made a letter motion for relief from certain bail conditions to allow him to pay accumulating legal expenses. Defendant Paull moves (i) to suppress evidence seized pursuant to the warrant and (ii) for a Bill of Particulars. Defendant Smith moves for (i) severance from all of the other defendants; (ii) for a Bill of Particulars; and (iii) for disclosure of information relating to Michael Zelen, allegedly the Government's confidential informant. Defendants Laura and Ferraro have joined in their codefendants' motions by letter. Defendant Caltagirone has not joined in any of the pending motions.

BACKGROUND

On April 5, 2000, the Government filed a thirty-four count indictment against the Defendants. Count One alleged that the Defendants engaged in a conspiracy to commit mail fraud by defrauding purchasers of collectible coins by fraudulently misrepresenting the condition, value, and marketability of coins that they sold. Counts Two through Thirty-Four allege individual acts of mail fraud involving sales to Numisgroup customers nationwide between 1996 and 2000.

DISCUSSION

A. As to the motions to suppress

(i) Suppression for inaccuracies or omissions in the affidavit

Both the Numisgroup Defendants and Paull seek to suppress all evidence seized pursuant to a search warrant issued on February 25, 2000 by United States Magistrate Judge Viktor V. Pohorelsky. The Defendants contend that the affidavit of Postal Inspector Sol Farash used to obtain the warrant was false and misleading.

Suppression of evidence seized pursuant to a warrant is an appropriate remedy if the magistrate or judge in issuing a warrant was misled by information in an affidavit that the affiant knew was false or would have known was false except for his reckless disregard of the truth. U.S. v. Leon, 468 U.S. 897, 923, 104 S.Ct. 3405, 82 L.Ed.2d 677 (1984); Franks v. Delaware, 438 U.S. 154, 98 S.Ct. 2674, 57 L.Ed.2d 667 (1978). A defendant who makes a "substantial preliminary showing" of knowledge or recklessness by the affiant is entitled to a hearing, at which the defendant bears the burden of establishing such knowledge or recklessness by a preponderance of the evidence. Franks, 438 U.S. at 155-56, 98 S.Ct. 2674. However, because truthfulness of every statement in the affidavit is not required, U.S. v. Canfield, 212 F.3d at 713, 717 (2d Cir. 2000); U.S. v. Trzaska, 111 F.3d 1019, 1027 (2d Cir. 1997), a defendant seeking suppression must also establish that the claimed inaccuracies or omissions were necessary to the issuing judge's probable cause finding. Id.; U.S. v. Salameh, 152 F.3d 88, 113 (2d Cir. 1998). Thus, in analyzing a motion for suppression, the Court should disregard the allegedly false statements and determine whether the remaining portions of the affidavit would support probable cause to issue the warrant. Id.

The Defendants devote several pages of their submissions to catalog alleged inaccuracies in Inspector Farash's affidavit. Many of these alleged inaccuracies, such as claims that Inspector Farash misidentified the number of floors in the building Numisgroup occupies or the spelling of an alleged victim's name are inconsequential. See Canfield, 212 F.3d at 718-19 (affidavit referring to "apartment house" as an "apartment building" not materially misleading). Other arguments contend that Inspector Farash misled the magistrate judge by not offering up a thorough dissertation on the vagaries of grading collectible coins, yet do not dispute his fundamental assertion that the Government had some victim's coins re-graded by a reputable coin-grading service. However, the Defendants do point out certain concrete inaccuracies in Inspector Farash's warrant, which the Court will address in turn.

First, in what the Numisgroup Defendants characterize as "perhaps the most significant of the agents' misrepresentations," the Defendants contend that Farash misrepresented Numisgroup's policy on returned coins. Farash's affidavit states "the salesperson [falsely represented to customers] that Numisgroup had a thirty day return policy, when in fact Numisgroup would only, at most, exchange returned coins for coins of equal or lesser value." The Numisgroup Defendants do not deny that returns had to be made within 30 days, but contend that the company had more than $2 million in returns in 1999, amounting to 20% of its total sales, and that "generally but not exclusively," those purchases were credited to the purchasers credit cards.

Next, the Defendants contend that Inspector Farash misstated several facts involving alleged victim George Barre. According to Farash's affidavit, Barre purchased two 1882 Morgan Silver Dollars, rated as grade MS-65 for a total cost of $11,000; one Gold Liberty coin rated MS-63 for $8,325; one Gold Kellog & Co. coin rated MS-63 for $22,500; and one Gold Indian coin rated MS-63 for $6,250. Farash then stated that Barre had the coins re-graded by a reputable agency and appraised by an independent coin dealer. Upon re-grading, the Silver Dollars were reduced three levels from MS-65 to MS-62, and the Gold Indian was reduced thirteen levels from MS-63 to AU-50. The appraiser of the coins estimated the value of the Silver Dollars to be $21 each, rather than the $5,500 each that Barre paid; the Liberty was estimated to be worth $1,400, a difference of almost $7,000; the Gold Kellog was worth $2,500, approximately one-tenth of its purchase price; and the Gold Indian was appraised at $1,400, or about $5,000 less than Barre paid. According to the Defendants, Barre misstated the year of the two Silver Dollars, which were actually minted in 1882, and that a published coin guide rates an MS-65 1882 Silver Dollar at $15,000. In addition, the Defendants cite several material omissions relating to the grading and valuation of the victims' coins. These alleged omissions are discussed in more detail below.

The Defendants next point out an error regarding alleged victim Roxie Hollingshead. According to Farash's affidavit, Hollingshead purchased a 1921-S Morgan Silver Dollar for $7,200. According to the Defendants, the actual invoice price charged to Hollingshead was $1,675.

Farash's next alleged victim was Frank Massa, who purchased one 1853 Gold Liberty, graded as MS-63, for $8,250; one 1911 Gold Indian graded as MS-64 for $1,250; one 1924 St. Gaudens graded MS-65 for $1,250; and one 1908 St. Gaudens graded MS-65 for $1,250. An independent appraisal of these coins revealed the Liberty to be "ungradable because the finish of the coin had been altered" and with a value of only $100, a difference of more than $8,000 from the purchase price; the Gold Indian to be graded as AU-58, six levels lower than Numisgroup's grade, and worth $385, a quarter of the purchase price; and the two St. Gaudens as MS-63 and MS-62, two to three grades lower, and worth only about $650, half of the purchase price. The Defendants cite an ambiguity in Farash's affidavit that fails to indicate whether these gradings were made by the national grading service or by the independent dealer himself and, as a result, suggest that the valuations "are meaningless."

Farash next cited to alleged victim Herbert Steidle, whose mother had been charged $3,605 for a coin that she claimed not to have ordered. According to Farash, even though Steidle's mother had returned the coin to Numisgroup in May 1999, no refund had ever been credited. Notably, the Defendants do not allege that Farash's affidavit misrepresents any facts regarding Steidle, but does claim that Steidle's version of events is not credible, in part because he is repeating hearsay from his mother who suffers from a "mental infirmity," and partly because "the postal inspector made no further effort to ascertain what had happened, but rather, chose to use these questionable facts to inflame his application to the magistrate judge."

Finally, Farash's affidavit indicates that he has spoken with a total of 20 alleged victims, and that "the defendants engaged in similar patterns of conduct with those 20 customers as is described above." The Defendants argue that the evidence regarding the five specific victims is weak, and warrants the inference that the remaining 15 victims have even weaker evidence of fraud.

The Defendants also attack Farash's citation to evidence supplied by a Confidential Informant who was employed by Numisgroup. According to the Defendants, the Informant is Michael Zelen, whom the Defendants contend has been convicted of mail fraud with regard to unrelated coin transactions and that his cooperation was an effort to avoid a lengthy jail sentence on that conviction. The Defendants contend that Farash should have disclosed the Informant's background to the Magistrate Judge, and also should have acknowledged that the Informant "may have been personally involved with fraudulent transactions" in side deals while working with Numisgroup.

In the detailed recitation above, the Court discerns only two actual affirmative inaccuracies in Farash's affidavit, namely the minting date of the Silver Dollars purchased by Barre and the purchase price of Hollingshead's coin. Upon close inspection, however, the error regarding Barre is of little comfort to the Defendants. Assuming that the Defendants are correct, and that Barre actually purchased 1882 Silver Dollars, Farash's affidavit merely recites the purchase price of the coins of $11,000 and the fact that they appraised three grades lower at a value of only $21. The Government never presented Judge Pohorelsky with any, inaccurate valuation of the coins based on the incorrect date. Moreover, this Court assumes that the independent appraisal of the coins was based on a physical examination that would have revealed their actual date. Thus, the inaccuracy cited by the Defendants regarding Barre is of no consequence. Likewise, given the evidence of other victims, striking the portion of the affidavit concerning Hollingshead would not affect the finding of probable cause based on the other allegations.

Therefore, if Farash's affidavit is defective, it must be because of the facts he omitted from it, not because of the facts that were misstated. The omissions the Defendants complain about fall into three general categories: first, that Farash omitted information about the coin grading process; second, that Farash failed to disclose facts about the "independent appraisers"; and third, that Farash failed to disclose facts about the Confidential Informant.

In the first category, the Defendants claim that Farash should have explained that grading coins is an inexact science, and that major coin grading services view differences of three grades or less to be insignificant. Notably, this assertion appears to be contradicted by the Defendants' own papers, which state that "the variance of one grade in a coin can mean that the coin can lose (or gain) 90% of its value." The Defendants also point out that the Professional Coin Grading Service ("PCGS"), ...


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