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U.S. v. INGRASSIA

October 15, 2005.

UNITED STATES OF AMERICA,
v.
STEVEN INGRASSIA, SLAVA VOLMAN, NICHOLAS ANTONELLI, JEFFREY BASSIN, CARL CUNZIO, JOHN FLANAGAN, OTTO KOZAK, ROBERT KOZAK, and PATRICK McFADDEN, Defendants.



The opinion of the court was delivered by: ARTHUR SPATT, District Judge

MEMORANDUM OF DECISION AND ORDER

This case involves allegations of a "boiler room" securities fraud scheme involving principals and representatives of Donald & Co., a brokerage firm that was located in Garden City, New York. Currently pending before the Court are objections by the government to the Report and Recommendations filed on September 7, 2005 (the "Report") by United States Magistrate Judge James Orenstein relating to plea proceedings for the six remaining defendants in this securities fraud case. The Report found that the pleas satisfied the relevant requirements of Rule 11 of the Federal Rules of Criminal Procedure, but that the notification of victims did not fully satisfy the requirements of the Crime Victims Rights Act, 18 U.S.C. § 3771 ("CVRA").

Specifically, the Report recommended that this Court accept each guilty plea only after the government has provided notice by first-class mail or other reasonably equivalent method to all identified victims of the following: each defendant's plea, release status, sentencing date, and notice of the victims' right to be heard with regard to the plea and sentence. The Report further recommended that if the Court were to reject any proffered plea, the Court should require notice to victims with respect to any further applications to exclude time under the Speedy Trial Act or to set or adjourn a trial date. The Magistrate Judge also directed that any objections to the Report be served on the identified victims of the crime by first-class mail or other reasonably equivalent method within ten days.

  The government does not object to the finding that Rule 11 has been satisfied or to the specific remedy recommended to address the failure in this case to timely and accurately notify the victims. However, the government objected to several findings of fact and conclusions of law contained in the Report that pertain to the government's use and operation of the Victim Notification System ("VNS") in this case and in general. The government's primary objection is that this part of the Report was unnecessary to the disposition of the case, and, as such, should be rejected as advisory in nature. The government also seeks relief from the portion of the Report that ordered objections to be served on all of the identified crime victims by first class mail.

  I. BACKGROUND

  The Indictment in this case charged eight defendants with thirteen various counts of Conspiracy to Commit Securities Fraud, Securities Fraud, Conspiracy to Commit Money Laundering, and Money Laundering. The indictment alleges that from May 1999 through July 2002, the Defendants devised and carried out a "boiler room" or "pump and dump" scheme, which involved acquiring and controlling large blocks of certain stocks. In such a scheme, large quantities of certain stocks were purchased by the securities firm Donald & Co. They were then manipulated to inflate the prices and then sold to unwitting customers. Two stocks that the indictment alleges the Defendants used in this scheme were Elec Communications and the Classica Group, Inc.

  In securities fraud cases such as the one alleged in the indictment, there is the real potential that hundreds or even thousands of unsuspecting shareholders have been victimized by the fraudulent scheme. In this case, the government was able to identify more than two hundred crime victims. In order to comply with the notification rights of the CVRA, the government applied for permission under the statute to provide notification to the crime victims by means of publication. On April 29, 2005, the Court rejected the government's initial application to rely on publication alone. Instead, the Court required the government to submit a proposed notice for review, and to provide the approved notice individually to each identified victim by mail by return receipt requested, and to notify the Court as to the number of returned acknowledgments of receipt. On August 1, 2005, the Court approved the government's proposed notice and request to be relieved from the return receipt portion of the Court's early order. In addition, the Court approved the government's request to, "if appropriate, . . . supplement the mailing by including notice of this case in an upcoming advertisement in national publication."

  On August 12, 2005, the government mailed to the victims a notice informing them of the case and advising the victims of their statutory rights. The notice informed the victims of the then pending September 7, 2005 trial date and that they could obtain current information about the case from VNS. The notice also gave each victim an identification number and a number to gain access to the system. In addition, the notice stated that due to the large number of victims in this matter, current information about the case would only be provided through the internet or from the VNS call center, and that it was not likely that additional letter notifications would be sent to them. On August 18, 2005, the government sent a second updated notification by mail. This mailing notified the victims that it was anticipated that three of the defendants in the case were going to take a guilty plea to the charges and set forth the dates and times for which those pleas were scheduled. However, the government admits that this update was not retained on the computer system's website.

  Also on August 18, 2005, the government published an advertisement in the USA Today notifying potential victims of the case. The advertisement directed victims to the website of the United States Attorney's Office for the Eastern District of New York. The website contains information concerning victims' rights and instructions on how to register as victims and obtain access to VNS. The website also provides a link for this case where the viewer can find the indictment and what the government claims to be updated information about the case. However, the Court has recently accessed the website and notes that the information is outdated. The notice currently states that a trial is scheduled to start on September 7, 2005 for three of the defendants.

  In reaching the recommendations in the Report, the Magistrate Judge thoroughly analyzed the government's compliance with the CVRA in this case, the government's use of the VNS, and the curative measures that may be taken to remedy any shortcomings under the CVRA. In addition, the Magistrate Judge addressed two issues that may develop if a victim asserts his or her rights under the CVRA: (1) whether the defendants have pleaded guilty to the "highest offense charged;" and (2) whether there was a violation of the Speedy Trial Act. The government agrees that there were flaws in the notification of victims in this case and has agreed to take all of the curative measures recommended by the Magistrate Judge. However, the government objects to the factual and legal conclusions that the Magistrate made in reaching the ultimate recommendation. The government argues that this Court should reject these legal conclusions as "advisory" without making a point-by-point analysis of the VNS used by the government.

  II. DISCUSSION

  A. THE STANDARD OF REVIEW

  The Federal Magistrates Act permits district judges to assign to magistrate judges "such additional duties as are not inconsistent with the Constitution and laws of the United States." 28 U.S.C. § 636(b)(3). The Second Circuit has held that this provision authorizes a district judge to assign a felony guilty plea allocution to a magistrate judge with the consent of the defendant. United States v. Williams, 23 F.3d 629, 632-34 (2d Cir. 1994). After the referral of the plea allocution, the magistrate judge reports to the district court and recommends whether to accept the guilty plea. Id. at 634. As such, the recommendation on whether to accept the plea is a dispositive issue, and any objections to the recommendation are subject to de novo review by the district court. See 28 U.S.C. § 636(b)(1). However, the Court is not required to review the factual or legal conclusions of the magistrate judge as to those portions of the report and recommendation to which ...


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