The opinion of the court was delivered by: Johnson, District Judge.
On February 12, 1998, Defendants Allen Gross ("Gross"), Peter
Rebenwurzel ("Rebenwurzel"), and David Malek ("Malek"),
(collectively "Defendants"), were indicted by a grand jury on
charges of bank fraud and making false statements in connection
with mortgage applications, in violation of 18 U.S.C. § 1344
and 1014. Defendants now move to dismiss the twenty-one count
indictment in the above-captioned case, claiming, in part, that
prejudicial pre-indictment delay has violated their due process
rights under the Fifth Amendment.*fn1 For the reasons that
follow, Defendants' motions to dismiss are granted.
Factual and Procedural History
In the indictment, the Government charges that between 1987
and 1989, Defendants intentionally made false representations to
FNB in order to obtain loans for numerous properties in the
Bronx section of New York City. The Government specifically
alleges that Gelt engaged in various schemes to defraud FNB into
providing Gelt with ten real estate loans and that Malek and
Rebenwurzel submitted false applications, through Gelt as
mortgage broker, for four such mortgage loans. As a part of this
fraudulent scheme, Defendants allegedly made misrepresentations
to FNB consisting of inflated underlying purchase prices,
inflated down payments on properties, and inflated rent rolls
reflecting the income being produced by the properties. The
Government further claims that in some instances, Defendants
breached a covenant not to obtain secondary financing on the
properties without FNB's consent.
For a number of the properties at issue, Defendants are
accused of submitting wholly fabricated documents to obtain
mortgages, while in other instances, the misrepresentations were
allegedly made by Defendants in conjunction with a series of
"flip" transactions. In a flip transaction, the person who
initially entered into a contract with the seller to buy
property (the "flipper" or "initial purchaser") assigns the
right to buy that property to another person who will ultimately
seek the loan and actually purchase the property (the "flippee"
or "subsequent purchaser"). The flipper profits from the
transaction by selling the property to the flippee, at the time
of assignment, for a price higher than that stated in the
original contract between flipper and seller. The Government
asserts that a mortgage application representing the higher
price paid by the flippee as the purchase price for the real
estate, rather than the lower price paid by the flipper,
misrepresents the value of the property and defrauds the bank.
Of added significance here is the Government's allegation that
Gelt brokered numerous transactions wherein multiple flips
resulted in the initial purchaser and the final flippee being
the same individual.
Defendants filed pre-trial motions in January 1999, however,
those motions were not fully briefed and before the Court until
April 1999. This Court subsequently held a due process hearing
on Defendants' motions. The hearing took place over the course
of four days, commencing on September 15, 1999, continuing on
February 22-23, 2000, and concluding on March 8, 2000. During
the hearing, the Court heard testimony from ten witnesses and
viewed evidence in order to determine both the reason for the
delay in prosecution and whether the delay would in fact result
in possible or actual prejudice, as argued in Defendants'
motions. Between June 2000 and October 2000, the parties filed
post-hearing memoranda to further clarify the issues that had
been addressed at the hearing. After reviewing the record in
this case, the Court makes the findings contained herein.
In January 1992, in the Southern District of New York, FNB
filed a complaint against Defendants and others, pleading two
causes of action under the Racketeer Influenced and Corrupt
Organizations Act ("RICO") and seven pendent state law claims.
Accepting all of FNB's allegations as true, the court dismissed
FNB's complaint without prejudice for failure to state a claim
upon which relief could be granted. First Nationwide Bank v.
Gelt Funding, Inc., No. 92 Civ. 790, 1992 WL 358759 (S.D.N.Y.
Nov. 30, 1992). FNB thereafter repled its claims in an amended
complaint. However, the court again found that FNB had failed to
state a cause of action. First Nationwide Bank v. Gelt Funding,
Corp., 820 F. Supp. 89 (S.D.N.Y. 1993). The Second Circuit
affirmed the dismissal of FNB's claims in the Southern District
of New York and the United States Supreme Court declined to
grant a writ of certiorari. First Nationwide Bank v. Gelt
Funding Corp., 27 F.3d 763 (2d Cir. 1994), cert. denied,
513 U.S. 1079, 115 S.Ct. 728, 130 L.Ed.2d 632 (1995). In affirming
the district court's dismissal, the Second Circuit stated that:
[t]he methodology employed by FNB in determining the
magnitude of the defendants' alleged overstatements
of income is so defective, and the conclusions
reached so defy logic, that no "reasonable
inferences" can be drawn therefrom. No amount of
detail can save FNB's complaint when the detail is
based on flawed and unreasonable methodologies that
lead to unsupported conclusions.
First Nationwide Bank, 27 F.3d at 772.
Two similar actions were commenced by FNB in New York Supreme
Court in 1993.*fn2 The state court actions alleged the same
claims of fraud on which the unsuccessful federal litigation was
based. The two state actions were consolidated and dismissed in
their entirety. See First Nationwide Bank v. Gelt Funding
Corp., Index No. 125305/93, Order (N.Y.Sup.Ct. June 12, 1995).
Now, nearly three years after the dismissal of FNB's state and
federal civil claims against Defendants, before this Court are
criminal charges stemming from the same or similar transactions.
I. Statute of Limitations
The acts charged against Defendants and alleged in the
indictment occurred during the period spanning December 1987 and
August 1989. Defendants were not indicted on those acts,
however, until February 12, 1998. Defendants move to dismiss the
indictment as time-barred, arguing that the applicable statute
of limitations to be applied to this case is the five year
period prescribed by 18 U.S.C. § 3282 ("§ 3282").*fn3 The
Government contends that the applicable ...