United States District Court, Eastern District of New York
December 22, 2000
UNITED STATES OF AMERICA,
STEPHEN J. SABBETH, DEFENDANT.
The opinion of the court was delivered by: Hurley, District Judge.
MEMORANDUM AND ORDER
Pending before the Court is the application of Stephen J.
Sabbeth ("Sabbeth") for bail pending appeal. The controlling
statute, 18 U.S.C. § 3143, provides in pertinent part as follows:
(b) Release or detention pending appeal by the
defendant. — (1) . . . the judicial officer shall
order that a person who has been found guilty of an
offense and sentenced to a term of imprisonment, and
who has filed an appeal . . ., be detained, unless
the judicial officer finds —
(A) by clear and convincing evidence that the
person is not likely to flee or pose a danger to the
safety of any other person or the community if
released. . . .; and
(B) that the appeal is not for the purpose of delay
and raises a substantial question of law or fact
likely to result in —
(ii) an order for a new trial,
(iii) a sentence that does not include a term of
(iv) a reduced sentence to a term of imprisonment
less than the . . . expected duration of the appeal
18 U.S.C. § 3143.
Notwithstanding the language of § 3143 that seemingly
conditions the availability of bail pending appeal on a showing
that the conviction or sentence under attack is likely to be
disturbed on appeal, the Section has not been so interpreted.
See United States v. Hart, 906 F. Supp. 102, 106 (N.D.N Y
1995). Rather, as explained by the Second Circuit in United
States v. Randell, 761 F.2d 122 (2d Cir. 1985):
[The] appropriate interpretation . . . requires a
district court to determine first whether any
question raised on appeal is a "substantial" one. The
Miller court defined a substantial question as "one
which is either novel, which has not been decided by
controlling precedent, or which is fairly doubtful."
[United States v. Miller, 753 F.2d 19, 23 (3d Cir.
1985)]. Giancola held that a substantial question
"is one of more substance than would be necessary to
a finding that it was not frivolous. It is a `close'
question or one that very well could be decided
either way." [United States v. Giancola,
754 F.2d 898, 901 (11th Cir. 1985)]. Handy defined
substantial as "fairly debatable." [United States v.
Handy, 753 F.2d 1487, 1490, amended by
761 F.2d 1279 (9th Cir. 1985)]. We do not believe
that these definitions of "substantial" differ
significantly from each other, but if we were to
adopt only one, it would be the language of
Id. at 125 (footnote omitted).
If the presence of a substantial question is demonstrated, the
movant must then establish that the question is "`so integral to
the merits of the conviction on which defendant is to be
imprisoned that a contrary appellate holding is likely to require
reversal of the conviction or a new trial.'" Id. (quoting
Miller, 753 F.2d at 23).
Sabbeth neither represents a risk of flight nor a danger to
another or the community. Absent from the record is anything to
suggest that his appeal is for the purpose of delay. Accordingly,
the present application turns on whether the issue broached is
1. Counts of Conviction
Sabbeth stands convicted, after a trial by jury, under each of
the six counts of Indictment 97-CR-421(S)(DRH).
Count One charged that:
On or about and between June 1, 1990 and April 1992,
[he] . . . acting individually and as an agent of
Sabbeth Industries, together with others, in
contemplation of the filing of a case under Title 11
of the United States Code by Sabbeth Industries, and
with intent to defeat the provisions of Title 11 of
the United States Code, did knowingly and
intentionally conspire to fraudulently transfer and
conceal property belonging to Sabbeth Industries, in
violation of Title 18, United States Code, Section
(Indictment ¶ 13.)
Count Two charged that
On or about and between June 1, 1990 and April 1992,
. . . [he] individually and as an agent of Sabbeth
Industries, together with others, in contemplation of
a case under Title 11 of the United States Code by
Sabbeth Industries, and with intent to defeat the
provisions of Title 11 of the United States Code, did
knowingly, intentionally and fraudulently transfer
and conceal property belonging to Sabbeth Industries.
(Indictment ¶ 16.)
Counts Three, Four, and Five each charged Sabbeth with having
committed perjury in a proceeding under Title 11 of the United
States Code. Under Count Six, he was accused of having engaged in
money laundering in violation of Title 18 U.S.C. § 1956 with
respect to "the proceeds of specified unlawful activities, to
wit, monies unlawfully transferred and concealed from Sabbeth
Industries, Ltd. in violation of Title 18 U.S.C. § 152 (1993)."
(Indictment ¶ 24.)
2. Evidence at Trial
Sabbeth was the sole shareholder of Sabbeth Industries, Ltd.
("Sabbeth Industries") and its president until December of 1990.
He also was the corporation's landlord, and lent monies to the
After many years of successful operations, Sabbeth Industries
experienced plummeting sales during the late 1980s. By the end of
the decade, it was in dire financial straits and a probable
candidate for bankruptcy. It managed to survive because of a
revolving line of credit provided jointly by National
Westminister Bank USA ("Nat West") and Manufacturers Hanover
Trust, Co. ("Manufacturers"), the outstanding balance of which
ranged between $14,000,000 and $18,000,000 during the period from
July 1989 to September 1990. The indebtedness was collateralized
via a pledge of basically all of Sabbeth Industries' assets and
was personally guaranteed by Sabbeth.
Sabbeth Industries also owed Sabbeth approximately $2,000,000
for past due obligations.*fn1 However, that debt was
to the bank indebtedness pursuant to subordination agreements
which bore a number of signatures including Sabbeth's.
Notwithstanding what was intended by the banks to be a tightly
controlled line of credit, it developed that Sabbeth had been
withdrawing funds from Sabbeth Industries during 1990. The total
sums taken exceeded $1,000,000, with approximately $750,000 of
that amount being received by Sabbeth from June 1, 1990 to
December 28, 1990 in the form of fifty-five Sabbeth Industries'
checks. The corporation filed a voluntary petition for Chapter 11
reorganization on December 28, 1990.
Sabbeth categorizes the above-referenced payments to him as
being made "openly." (Def.'s Mem. Supp. at 3.) That
characterization is accurate in the sense the payments were made
by corporate checks. Additionally, Sabbeth had testified during
the bankruptcy proceeding that a Nat West loan officer had
approved his withdrawal of funds from Sabbeth Industries
notwithstanding, inter alia, the subordination agreements and his
personal guarantee. The jury was aware of the bankruptcy court
testimony in that it was the subject matter for Sabbeth's
conviction for perjury under Count Four.
The jury also heard testimony, however, that the banks were
unaware that corporate checks were being written to Sabbeth for
antecedent debts prior to being alerted to that fact by a third
party in mid-November 1990. That third party was Robert
Eisenberg, a business consultant hired by the corporation-at the
request of the banks-to stop the downward spiral. Upon being
tipped-off by Eisenberg of Sabbeth's activities, Nat West
obtained copies of Sabbeth Industries' checks from its check
retention department which confirmed the subject payments. Bank
officers then confronted Sabbeth on a number of occasions, each
time angrily demanding to know what he had done with the money.
He obliquely responded by simply indicating that he no longer had
it, although he did tell Eisenberg when they were alone that the
missing monies were used to prevent his brother-in-law from being
killed by the Mafia due to unpaid gambling debts.
As later discovered, however, the bulk of the funds were in the
C. Fiore brokerage account which was established by Sabbeth in
December 1989 using his wife's maiden name, his mother-in-law's
home address, and with a number of false entries, including a
bogus social security number. The subject monies that Sabbeth
received from Sabbeth Industries traveled through various bank
and brokerage accounts on route to the C. Fiore account. (See
Gov't's Trial Exs. 231-235.) Those transfers are the subject of
the money laundering charged in Count Six.
3. Basis for Present Application
In seeking bail pending appeal, Sabbeth identifies the
"substantial" legal issue for purposes of § 3143 as the
instruction given to the jury concerning "property belonging to
Sabbeth Industries." (Def.'s Mem. Supp. at 3-4.) Sabbeth proffers
that the definition provided by the Court was wrong. He urges
now, as he did at trial, that since the monies that Sabbeth
removed from the corporation, and thereafter secreted, were "in
payment of bona fide debts" owed to Sabbeth, the sums involved
ceased being corporate property at the moment of transfer and
thereafter constituted "his property"; as such, he could not be
legitimately convicted of bankruptcy fraud, and concomitant money
laundering, involving the "property of Sabbeth Industries." Id.
Sabbeth contends that the legitimacy of the other counts of his
conviction are "called into doubt" and "equally shaky" given the
purported charging deficiencies as to Counts One and Two. (Def.'s
Mem. Supp. at 28.)
1. Section 152(7) and its Purpose
The bankruptcy fraud conspiracy and substantive bankruptcy
fraud charged in
Counts One and Two are based on 18 U.S.C. § 152(7). The relevant
portion of that section reads:
A person who —
(7) in a personal capacity or as an agent or
officer of any person or corporation, in
contemplation of a case under title 11 by or
against the person or any other person or
corporation, or with intent to defeat the
provisions of title 11, knowingly and fraudulently
transfers or conceals any of his property or the
property of such other person or corporation; . . .
shall be fined under this title, imprisoned not more
than five years, or both.
18 U.S.C. § 152(7).
The purpose of criminalizing a transfer or concealment of
assets, if done with the requisite mens rea, and in contemplation
of bankruptcy or to defeat the provisions of Title 11, is to
prevent and punish efforts to circumvent the provisions of Title
11, including the "priorities among creditors . . . and the rule
that claimants within a class share pro rata." (Def.'s Request to
Charge #20); see also United States v. Shapiro, 101 F.2d 375,
379 (7th Cir. 1939).
2. Positions of Parties at Trial
The shared focal point at trial of the prosecution and defense
was the initial transfers from Sabbeth Industries to Sabbeth.
The prosecution's case followed the scenario set forth in the
indictment, viz., that Sabbeth violated § 152(7) each time he
withdrew funds from Sabbeth Industry given the attendant
circumstances, and that each subsequent transfer and concealment
of those criminally derived funds triggered a further violation
of the statute. (Trial Tr. ("Tr.") at 32 (government's opening),
3267 (government's summation).) The government used the existence
of the C. Fiore account to underscore Sabbeth's criminal intent
in withdrawing funds from Sabbeth Industries and in the transfers
that occurred thereafter.
The defense countered by arguing that the monies paid to
Sabbeth were for bona fide debts and thus became his funds upon
their receipt; the jury was also told that the payments were made
openly and with the approval of the banks. (Tr. at 67
(defendant's opening), 3382 (defendant's summation).)
3. Defendant's Request to Charge # 17
Consistent with the position argued to the jury, the defense
proffered the following request to charge:
The second element that the government must prove
beyond a reasonable doubt is that the property
transferred or concealed by Stephen Sabbeth was the
property of Sabbeth Industries or the bankruptcy
estate of Sabbeth Industries.
The property of Sabbeth Industries includes any
legal or equitable interests in property held by
Property belonging to the bankruptcy estate of
Sabbeth Industries includes all legal or equitable
interests of Sabbeth Industries in property as of the
commencement of the Chapter 11 case. In this case,
the Chapter 11 bankruptcy petition was filed on
December 26, 1990. Property over which the
debtor-in-possession, trustee or creditor asserts, or
otherwise may have, a right to recover-whether on the
ground that a prior transfer of such property was a
fraudulent conveyance or a voidable preference-is not
property of the bankruptcy estate until such property
Transfers or concealment of property that you find
belonged to Stephen Sabbeth or Carole Sabbeth cannot
support a finding of guilt under Count Two, even if
you find all of the other elements have been met.
Thus, if you find that Sabbeth Industries made
payments to Stephen
Sabbeth on account of a debt or obligation it owed
him, then any subsequent transfer or concealment of
that money does not constitute a transfer or
concealment of the property of Sabbeth Industries,
and you must return a verdict of not guilty.
(Def.'s Req. Charge # 17, at 25-26.)
A party does not have a right to have a requested instruction
included within the Court's charge, even if it dovetails with
that party's theory of the case, unless it correctly states the
law. Request # 17 fails to satisfy that prerequisite.
In arguing to the contrary, Sabbeth posits that the term
"property" entails "possession" for purposes of § 152(7). (Def.'s
Mem. Supp. at 10.) And from that, the argument continues, the
funds received by Sabbeth-even if in payment for past due
debts-may not be deemed to be corporate property since the
corporation no longer had possession of the funds. At most, in
Sabbeth's view, Sabbeth Industries retained a right to try to
recover possession via the pursuit of a preference action in the
As explained in Kokoszka v. Belford, 417 U.S. 642, 94 S.Ct.
2431, 41 L.Ed.2d 374 (1974), "[t]he term [property] has never
been given a precise or universal definition." Id. at 645, 94
S.Ct. 2431. Instead, its meaning must be determined within the
statutory context of which it is a part. See id.
The "[a]uthority" furnished by Sabbeth for request # 17 was
11 U.S.C. § 541, FDIC v. Hirsch (In re Colonial Realty Co.),
980 F.2d 125 (2d Cir. 1992), Maxwell Communications Corp. v. Societe
General PLC (In re Maxwell Communications Corp.), 186 B.R. 807,
819-20 (S.D.N.Y. 1995), aff'd, 93 F.3d 1036 (2d Cir. 1996), and
Corporate Food Management, Inc. v. Suffolk County College (In re
Corporate Food Management, Inc.), 223 B.R. 635, 642-43
(Bankr.E.D.N.Y. 1998). (Def.'s Req. Charge at 26.) Section 541
defines the term "property of the debtor's estate" under Title 11
and the three cases cited indicate that preferential transfers
(11 U.S.C. § 547) and fraudulent conveyances (11 U.S.C. § 548)
are not included as part of the debtor's estate in bankruptcy
court unless and until the transfers are set aside. As noted by
the government, that is an "entirely rational construction of
Congressional intent as to the meaning of the technical
bankruptcy term `property of the debtor's estate', since the
trustee cannot distribute among creditors property that he does
not have." (Gov't's Mem. Opp. at 25-26.)
Sabbeth, however, was not charged with violating a provision of
Title 11, of course, but rather with criminal conduct under Title
18. And the section of Title 18 found by the jury to have been
violated, § 152(7), has its own purpose and elements. See United
States v. West, 22 F.3d 586, 589-90 (5th Cir. 1994) (holding
that transfer may provide basis for violation of § 152(7) even if
occurred more than one year prior to filing of bankruptcy
petition; only requirements for conviction are that transfer was
made knowingly, fraudulently and with the intent to defeat
provisions of the bankruptcy code); United States v. Moody,
923 F.2d 341, 347 (5th Cir. 1991) ("[Section 152(7)] does not use the
term `property of the debtor.' Accordingly, there is no need to
dissect the Bankruptcy Code. We will not give the plain wording
and meaning of [§ 152(7)] the strained, hypertechnical reading
urged by Moody." (footnote omitted)).
Significantly absent from § 152(7) is any reference to such
terms as "preference" or "bona fide" debt, which are the
cornerstones of Sabbeth's argument concerning what constitutes
"property" for present purposes. Moreover, the conduct of Sabbeth
in taking property from his business on the eve of bankruptcy
fits squarely within the previously explained purpose of §
An application of the rationale underlying Sabbeth's argument
would produce anomalous results in a number of situations.
For example, money taken by a corporate insider in satisfaction
of an antecedent debt-made in contemplation of bankruptcy and for
the purpose of receiving more from the corporation vis-á-vis
other creditors than would be the case under the equitable
distribution provisions of the Bankruptcy Code-could not be
prosecuted under § 152(7) if (a) the estate representative waits
more than a year to act or otherwise "drops the ball" in seeking
to recover monies taken as a preference under 11 U.S.C. § 547, or
(b) if the corporation somehow managed to escape bankruptcy.*fn2
Moreover, even if the corporation in the above example went
bankrupt and the estate were successful in recovering the sums
taken for purposes of distribution pursuant to the Bankruptcy
Code, no criminal proceeding could be commenced until the
completion of the preference action, including any possible
appeals. Such impediments and preconditions to prosecution surely
were not envisioned by the Congress in enacting § 152(7).
Sabbeth's position at trial, and today, is that if the monies
he took from his corporation during 1990-even if done in
contemplation of bankruptcy and/or to defeat the distribution
provisions of Title 11-were in satisfaction of antecedent debts,
the subject of those transfers could not be deemed "property of
Sabbeth Industries" for purposes of § 152(7) as a matter of law.
Instead, the defense sees the subject monies as being simply
targets for possible preference, or fraudulent conveyance actions
to be commenced by the bankrupt estate. With respect to
subsequent transfers, if the initial transfers to Sabbeth were
"in satisfaction of bona fide debts," then such funds are
characterized as "his personal property to use as he wished"
(Def.'s Mem. Supp. at 4).
The above represents the message sought to be conveyed under
charge request # 17. That message is incorrect. Accordingly, the
Court declined to so charge the jury.
4. Charge to Jury re: Meaning of "Property" Under § 152(7)
Upon concluding that Sabbeth's requested charge # 17 was
erroneous, the Court looked to Sand's Modern Federal Jury
Instructions for possible assistance.
Instruction 15-8 provides, in pertinent part:
[T]he government must prove . . . that in
contemplation of a bankruptcy proceeding, defendant
transferred property which would belong to the
estate of the debtor.
1 Leonard B. Sand, Modern Federal Jury Instructions ¶ 15.01
(1999) (emphasis added). Instruction 15-6 provides in pertinent
The term "estate of the debtor" also includes
interests in property owned by the debtor within one
year before the bankruptcy petition was filed.
Id. ¶ 15.01 (emphasis added); see also Seventh Circuit,
Federal Jury Instructions, Offense Instructions for
18 U.S.C. § 152(7) ([T]he government must prove . . . [that] the defendant
transferred or concealed certain property . . . which belonged
or would belong to the bankrupt estate. (emphasis added)).
While the Court noted at the time of trial that the meaning of
§ 152(7) is relatively "straightforward" (Tr. at 3060), its
applicability to certain situations is at least arguably
problematic. For example, under what circumstances, if any, would
payment of current obligations as they became due run afoul of
The definition of "property belonging to Sabbeth Industries"
given by the Court was as follows:
As to this element of Count Two, the government
must establish that the property transferred or
concealed by defendant was the property of Sabbeth
Industries or of the bankruptcy estate of Sabbeth
The property of Sabbeth Industries consists of any
legal or equitable interest in property held by
Sabbeth Industries. It includes any corporate
property transferred to defendant during 1990 before
the bankruptcy petition was filed on December 28,
1990, which property-but for the transfer or
transfers-would have been included in the bankruptcy
estate of Sabbeth Industries. Sums, if any, paid to
defendant for past due interest or past due
rents-that is for antecedent debt(s)-would constitute
property for purposes of Section 152, if the payment
or payments were made while the corporation was
insolvent; conversely, monies, if any, paid to
defendant by Sabbeth Industries for current
obligations, such as for current rent or current
interest, would not have been property of the
bankruptcy estate upon the filing of bankruptcy
petition, but rather would have been defendant's
"Insolvency" indicates a financial condition such
that the sum of the entity's debts is greater than
all of such entity's property, at a fair valuation,
exclusive of property transferred, concealed, or
removed with intent to defraud the entity's
The property of Sabbeth Industries, as above
defined, became the property of the bankruptcy estate
upon the bankruptcy petition being filed on December
The indictment charges that defendant fraudulently
concealed monies received from Sabbeth Industries
both before, and after the filing of the petition.
Given the continuing nature of the alleged
concealment, you also need a definition of property
held by the bankruptcy estate of Sabbeth Industries.
However, the definition is the same for purposes of
this element of Count Two, whether the property
belonged to Sabbeth Industries before the filing, or
to the bankruptcy estate after December 28, 1990. For
that reason, the definition of property provided
above with respect to Sabbeth Industries is
incorporated by reference here, that is, with respect
to the bankruptcy estate.
The above definition is contained in the third element of the
substantive bankruptcy fraud crime alleged in Count Two, and
incorporated by reference as to Count One. By way of context, the
Court's instruction as to all of the elements required to be
proven under Count Two was:
In order to sustain this charge, the government must
prove each of the following elements beyond a
First: That the defendant transferred or concealed
Second: That the property transferred or concealed
belonged to Sabbeth Industries or to the
bankruptcy estate of Sabbeth Industries;
Third: That the defendant transferred or concealed
this property while acting individually or as
an agent of Sabbeth Industries, Ltd.;
Fourth: That these actions were committed by the
defendant in contemplation of a case under
Title 11, United States Code, by Sabbeth
Industries, Ltd., or with the intent to
defeat the provisions of Title 11; and
Fifth: That the defendant did so knowingly,
fraudulently, and intentionally.
The charge given to the jury was based primarily on the
language and purpose of § 152(7), supplemented by consideration
of such cases as Moody and West as well as
the proposed charge in Sand's Federal Jury Instructions.
To the extent the charge under attack embellished on the Sand's
charge, the additions narrowed the type of conduct embraced by
the statute. For example, absent from § 152(7) is any reference
to a person or corporation being insolvent at the time of a
subject transfer. Similarly, § 152(7) seemingly would not
preclude a prosecution of transfers for contemporaneous value,
assuming the presence of all of the elements of the crime. Yet,
given the paucity of authority, and consistent with the concept
of lenity, limiting language was added by the Court to the Sand's
charge. Whether that should have been done may be debatable, but
surely not by Sabbeth who was the beneficiary of the additions.
Essentially all of the arguments made in support of the present
application were voiced at length during the trial by highly
skilled counsel. One argument, however, has newly surfaced, viz.:
[A]s the government sees it, the disputed rent and
interest payments remained Sabbeth Industries' from
the outset because Mr. Sabbeth committed fraud in
those initial transactions. But that is the problem
with the charge in this case. Indeed, under the
Court's instructions, the jury was directed that the
disputed funds remained company property, regardless
of whether there was any initial fraud, provided only
that those funds were paid by Mr. Sabbeth in
satisfaction of antecedent debts while the company
was insolvent. Under this instruction, even if the
jury specifically concluded that there was no fraud
in the initial transaction, it would be required to
treat the money as company property for purpose of
all subsequent transactions.
(Def.'s Surreply at 6.)
Sabbeth argued at trial that the initial transfers were lawful
and, accordingly, those that followed were as well, the theory
being that the property ceased being that of Sabbeth Industries
as a matter of law upon its use to pay antecedent debts. And that
was the basis for Sabbeth's requests to charge. But, as noted,
the Court declined to charge that theory and, accordingly,
request # 17-which embodied Sabbeth's trial position-was not
With respect to the current argument, it too turns on the
meaning of the term "property of Sabbeth Industries." Assume the
jury concluded that Sabbeth was not guilty of, for instance,
Count Two vis-á-vis the initial transfers to him due to the
government's failure to prove one or more of the "non-property"
elements of the crime. Would the Court's charge, as given, leave
the jury "rudderless" at that point? The answer to that question
The jury was instructed to consider each transfer and act of
concealment separately. They were given the elements which the
government was required to prove beyond a reasonable doubt to
warrant conviction. And the property subject to transfer or
concealment remained the property of Sabbeth Industries whether
the violation occurred upon transfer to Sabbeth, or not until
the transfers from Sabbeth for purposes of § 152(7). That
conclusion borders on being self-evident as to transfers to
Sabbeth. His receipt of each corporate check in payment of an
antecedent debtassuming all elements of § 152(7) were present-was
criminal at the moment of transfer. United States v. Shapiro,
101 F.2d 375, 378-79 (7th Cir. 1939) ("The crime is complete when
the act of . . . transfer is performed with a criminal intent.").
Not surprisingly, Sabbeth proffers no case suggesting that a
criminal act of transfer vests a property interest in the
transferee for purposes of the statute. The monies so acquired by
him retained their illegal status, rendering subsequent transfers
and concomitant concealment efforts violative of the statute,
again, if accompanied by criminal intent.
Although perhaps less obvious, non-criminal corporate payments
to Sabbeth for antecedent debts similarly would remain
"property of Sabbeth Industries" for purpose of the statute. That
label would have no meaning, however, unless Sabbeth-who agrees
that all of the subject payments to him were preferences under §
547 of the Bankruptcy Code-later elected to secrete the payments
received with the criminal purpose of preventing their return to
the corporation for equitable distribution among its creditors.
Judge Sand's proposed charge, along with the Seventh
Circuit's-including their explanations that "property" includes
items which would have belonged to the estate but for the subject
transfers-is correct. The contrary conclusion urged by Sabbeth,
i.e., that the monies became "his" and remained so under § 152(7)
unless and until returned to the estate through a successful
preference action in the bankruptcy court, is subject to
precisely the same criticisms germane to the scenario of the
initial corporate transfers to Sabbeth being criminal in
character. See supra pp. 38-39.
Finally, Sabbeth places considerable stock in the words "his"
and "corporation" appearing as modifiers to "property" in §
152(7). Indeed, that fact is the cornerstone of his "constructive
amendment" argument. Yet the simpler, more convincing explanation
is that their inclusion within the statute simply reflects that
individuals and corporations fall within the Section's ambit and
The above analysis dovetails, inter alia, with the language and
purpose of § 152(7), and is consistent with both the Sand and
Seventh Circuit proposed charges.
In conclusion of this section of the opinion, Sabbeth's
contention that the "property" instruction given to the jury was
flawed-for its failure to adopt the rationale embodied in his
charge request # 17-remains unconvincing. Moreover, the charge
given adequately instructed the jury as to Counts One and Two.
5. "Substantial Issue" as to Counts One and Two
Notwithstanding that the Court is of the belief that no
reversible error occurred with respect to Counts One and Two,
that does not end the inquiry for purposes of the present
application. See Hart, 906 F. Supp. at 106. Here, a
juxtapositioning of the arguments raised by Sabbeth against the
explanation provided by the Second Circuit in Randell as to the
meaning of § 3143(b)(1)(B), demonstrates the existence of a
"substantial issue" for appeal with respect to those counts.
If Sabbeth's property argument is accepted by the Circuit
Court, his convictions for bankruptcy fraud under the first two
counts of the indictment presumably will be reversed. In that
regard, the "correct interpretation of the clause `property of
the corporation' under Section 152(7) presents a question of
first impression in this and other Circuits." (Def.'s Surreply at
2.) While such cases as Colonial Realty, Maxwell
Communications, and In re Saunders, 101 B.R. 303
(Bankr.N.D.Fla. 1989)-which address the issue of what constitutes
the property of an estate for purposes of a bankruptcy
proceeding-fail to shed light on the issue at hand, other cases
relied upon by Sabbeth during the trial and currently, although
distinguishable, are germane.
In United States v. Alper, 156 F.2d 222 (2d Cir. 1946),
appellant, a creditor of debtor Chernow, was convicted under a
predecessor statute of 18 U.S.C. § 152(1), which criminalizes the
knowingly and fraudulent concealment of property belonging to a
bankrupt estate. See id. at 223.
Chernow was in default under notes held by Alper. See id. at
224. Alper suggested that Chernow buy large amounts of liquor on
credit, use some of that liquor to satisfy the outstanding
indebtedness to him, and then file for bankruptcy. See id.
Alper's suggestion was implemented by Chernow. See id.
Following discovery of the above scenario, Alper was charged
and convicted of concealing goods from Chernow's trustee in
bankruptcy. See id. at 223. That conviction
was reversed by the Second Circuit, with the Court holding that
the cases of liquor received by Alper, to the extent that they
were in payment of a debt, constituted a preference but not a
concealment of assets. See id. at 224. In so holding, the Court
cited Levinson v. United States, 47 F.2d 451 (6th Cir. 1931),
see id., another case upon which Sabbeth relies.
Both Alper and Levinson, however, involved what is now §
152(1), the language and terminology of which is different than §
152(7). And, as noted in Moody, the two subdivisions are
concerned with different types of wrongdoing and each should be
interpreted consistent with its own language. See Moody, 923
F.2d at 347. Nonetheless, the holdings in Alper and Levinson
raise a "substantial issue" regarding the legitimacy of the
convictions under Counts One and Two.
6. Absence of Substantial Issue as to Convictions and Sentence
Under Counts Three, Four and Five
Under Counts Three, Four and Five, Sabbeth stands convicted of
"knowingly and fraudulently mak[ing] a false oath . . . in
relation to [a] case under title 11" in violation of § 152(2).
Count Three alleged that Sabbeth lied when, during a deposition
conducted on March 17, 1992, he falsely testified that the bogus
social security number under which the C. Fiore account was
opened was due to an error by the brokerage house, and that his
wife had asked the brokerage house to correct the error "way
before" Nat West obtained a restraining order on the C. Fiore
account as part of its efforts to recover the secreted funds for
Count Four and Five alleged that Sabbeth made false statements
under oath on April 27, 1992 during a hearing before Judge Goetz
in the bankruptcy court. The charged false statements both
pertain to Sabbeth testifying that he received prior approval
from the banks for his withdrawals from Sabbeth Industries during
the year preceding bankruptcy. The bulk of those monies, viz.
$892,279.00, were in the C. Fiore account as of May 1992.
(Gov't's Trial Ex. 15-i.)
The false testimony charged in Counts Three, Four and Five were
given during proceedings in the bankruptcy court, the purpose of
which was to determine whether the funds taken by Sabbeth from
Sabbeth Industries, and traced to the C. Fiore account, were to
be restored to the estate or awarded to the other claimant, Nat
With respect to those three counts, the government was, as
explained to the jury, required to establish each of the
following five elements beyond a reasonable doubt:
First: That there existed a proceeding under Title
11, United States Code, which as I have
previously explained, contains the federal laws
relating to the petition for the reorganization
under bankruptcy filed by Sabbeth Industries,
Second: That defendant Stephen J. Sabbeth made a
statement under oath in or in relation to the
proceeding referred to in the first element;
Third: That the statement concerned a material fact;
Fourth: That the statement was false; and
Fifth: That the defendant acted knowingly and with
the intent to defraud.
None of the above elements require discussion for present
purposes other than the word "material" which does not appear in
§ 152(2). The courts have interpreted the judicially crafted
element of materiality broadly. United States v. O'Donnell,
539 F.2d 1233
, 1237-38 (9th Cir. 1976). As explained in United
States v. Lindholm, 24 F.3d 1078
(9th Cir. 1994):
The scope of materiality [under 18 U.S.C. § 152(2)]
includes: (1) matters
relating to the extent and nature of the bankrupt's
assets; (2) inquiries relating to the bankrupt's
business transactions or his estate; (3) matters
relating to the discovery of assets; (4) the history
of a bankrupt's financial transactions; and (5)
statements designed to secure adjudication by a
particular bankruptcy court.
Id. at 1083 (citing O'Donnell, 539 F.2d at 1237-38).
Understandably, given "the broad definition" of materiality for
purposes of § 152(2), the element is "readily established," and
does not require proof that creditors were harmed, or misled by
the false statements. United States v. Key, 859 F.2d 1257, 1261
(7th Cir. 1988); United States v. Phillips, 606 F.2d 884, 887
(9th Cir. 1979); O'Donnell, 539 F.2d at 1237.
From the above discussion of what constitutes materiality for
purposes of § 152(2), it can be seen that Sabbeth's distinction
between "property of Sabbeth Industries" and "his property" is
irrelevant as to Counts Three, Four and Five. Which is to say,
the determination of whether the funds in the C. Fiore account
belonged to the estate, or to Nat West, did not hinge, directly
or indirectly, on the definitional parsing which is central to
Sabbeth's attack on his convictions under the first two counts of
Instead, reference to the type of matters listed as material in
Lindholm-and Sabbeth's testimony in the bankruptcy proceedings
seems to fall within each of the listed items-, viewed in
conjunction with the other elements that the government was
required to establish under § 152(2), strongly suggests the
absence of any issue, substantial or otherwise, as to the three
perjury convictions. Accordingly, Sabbeth's argument that the
purported invalidity of his convictions under Counts One and Two
taint his convictions under Counts Three, Four and Five lacks
During the preference action pursued by Sabbeth Industries to
recover the monies in the C. Fiore account, Sabbeth acknowledged
that the sum previously mentioned represented monies he took from
the corporation in payment of antecedent debts. That evidence is
significant because it bears on the sentencing guideline range
which would be applicable if the only counts of conviction were
Counts Three, Four and Five.
As noted in the pre-sentence report, the base offense level for
the perjury is 6. (PSR ¶ 68.) Since the amount of funds involved,
however, is over $800,000, the offense level is increased by 11.
(Id. ¶ 69.) Therefore, even absent any other adjustment such as
for more than minimal planning being made, the adjusted offense
level would be 17, which, with a criminal history category of I,
would call for a range of incarceration of between 24 and 30
In sum, given the independent character of the convictions
under Counts Three, Four and Five, there is no reason to believe
that Sabbeth would be granted a new trial as to those counts of
conviction even if, arguendo, his convictions under Counts One
and Two were reversed. And the probable sentence that he would
receive for those three counts standing alone would far exceed
the likely time required to decide his appeal. Given the
circumstances, Sabbeth's argument directed to Count Six need not
For the reasons indicated with respect to Sabbeth's convictions
under Counts Three, Four and Five, his application for bail
pending appeal is denied. He shall surrender to the designated
correction facility to begin service of his sentence by 2:00 p.m.
on January 26, 2001.
The above constitutes the decision and order of the Court.