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United States v. Kerik

May 14, 2009

UNITED STATES OF AMERICA,
v.
BERNARD B. KERIK, DEFENDANT.



The opinion of the court was delivered by: Stephen C. Robinson, United States District Judge

OPINION AND ORDER

The defendant, Bernard Kerik, is charged with various federal crimes in a fifteen-count, omnibus Superseding Indictment. On September 22, 2008, Kerik filed a pretrial motion seeking to dismiss certain charges, to sever counts in the indictment, and to obtain additional discovery from the Government.*fn1 After the parties filed nearly 250 pages of briefing, the motion was fully submitted on January 23, 2009 and oral argument was heard on February 3, 2009. For the reasons set forth in this Opinion and Order, Kerik's various motions are granted in part and denied in part.

I. Background

Because Kerik moves to dismiss several charges by challenging the legal sufficiency of the Superseding Indictment, the Court begins by summarizing the allegations against the defendant.*fn2 For the purposes of resolving Kerik's pending motion to dismiss, the pertinent allegations in the Superseding Indictment are assumed to be true. Boyce Motor Lines v. United States, 342 U.S. 337, 343 n.16 (1952); United States v. Velastegui, 199 F.3d 590, 592 n.2 (2d Cir. 1999).

During the time period covered by the Superseding Indictment, Kerik held and sought various positions of public trust. From January 5, 1998 to August 20, 2000, Kerik served as the Commissioner of the New York City Department of Corrections ("DOC"), thereafter serving as the New York City Police Commissioner until January 1, 2002. Sup. Indict. ¶¶ 1-2. In 2003, he accepted the post of Senior Policy Advisor to the Interior Minister of the Coalition Provisional Authority of Iraq. In December 2004, the President of the United States nominated Kerik to serve as Secretary of the Department of Homeland Security, a position for which Kerik later withdrew from consideration. Sup. Indict. ¶ 50. Based on facts uncovered during that nomination process, the Bronx County District Attorney and the New York Department of Investigation opened an investigation into Kerik's activities. This investigation concluded in June 2006 upon Kerik's guilty plea to two unclassified misdemeanors in state court.

The federal government subsequently brought the following charges. In Count One, Kerik is charged with conspiracy to violate the mail and wire fraud statutes from 1998 to 2006, in violation of 18 U.S.C. § 1349. The Superseding Indictment alleges that Kerik conspired with at least two other unnamed individuals (principals of an anonymous XYZ Company) to defraud and deprive the City of New York and its citizens of their intangible right to Kerik's honest services as a government official. Sup. Indict. ¶ 5. Specifically, the conspirators agreed that Kerik would use his public office as Commissioner of Corrections, and subsequently as Police Commissioner, to "vouch" for XYZ in order to influence regulators and other public officials who were considering whether XYZ should be licensed to do business in New York City. Sup. Indict. ¶¶ 14-16. At that time, XYZ was seeking municipal-regulated business, including a permit from the New York City Department of Sanitation to operate a material fill transfer station on Staten Island. Sup. Indict. ¶ 6. The Superseding Indictment alleges that a part and object of the conspiracy was that XYZ would "obtain licenses, permits, clearances, and approvals to do business with one or more New York City agencies or within an industry regulated by the City," including the material fill transfer station permit. Sup. Indict. ¶ 7. In return, Kerik received approximately $255,000 in renovations to his apartment in Riverdale, New York, from John Doe #1, John Doe #2, and XYZ. Sup. Indict. ¶¶ 12-13, 29(a). Finally, the Government alleges that "it was a necessary part of the agreement to conceal the illegal payments [to Kerik] from New York City officials and regulators" while XYZ was seeking authorization from the City to obtain licenses and permits. Sup. Indict. ¶ 20.

Counts Two and Three charge Kerik with the substantive counts of mail and wire fraud, respectively, for the theft of Kerik's honest services as described in Count One, in violation of 18 U.S.C. §§ 2, 1341, 1343, and 1346. Sup. Indict. ¶¶ 21-24.

Count Four charges Kerik with corruptly obstructing and impeding the due administration of the federal tax laws. Sup. Indict. ¶ 27; 26 U.S.C. § 7212(a). First, Kerik failed to report as taxable income for 1999 and 2000 the renovation value to his Riverdale apartment worth $255,000. Sup. Indict. ¶ 29(a). Second, Kerik failed to report the apartment rental value of payments made on Kerik's behalf by a Manhattan realtor valued at $236,269.36 from 2001 through 2003. Sup. Indict. ¶ 29(b). Third, Kerik failed to report his consulting income of $20,000 from a computer software company in 2002. Sup. Indict. ¶ 29(c). Fourth, Kerik failed to report publishing royalties he received from 2002 through 2004 totaling $75,953. Sup. Indict. ¶ 29(d). Fifth, Kerik failed to report as taxable income in 2005 the use of a new luxury sedan provided by a car company as compensation for Kerik's services. Sup. Indict. ¶ 29(e). Sixth, in early 2003 Kerik falsely advised his accountant that he had made $80,000 in charitable contributions. Based on this information, Kerik signed a false U.S. Individual Income Tax Return that listed phony tax deductions of $80,000. Sup. Indict. ¶ 30(a). Seventh, Kerik claimed a false business expense deduction in 2003 for the use of a home office that he claimed to have maintained in the state of New Jersey. Sup. Indict. ¶ 30(b). Eighth, Kerik failed to report to the Internal Revenue Service in 2002 and 2003 that he employed a regular domestic employee as a nanny. Kerik also failed to remit any payroll taxes due and owing for his nanny, including Social Security and Medicare taxes. Sup. Indict. ¶ 31. Finally, the Government charges that Kerik structured his financial transactions in such a way to avoid alerting the IRS of his tax evasion. Sup. Indict. ¶ 28.

Counts Five through Seven charge Kerik with aiding and assisting in the preparation of false and fraudulent tax returns, in violation of 26 U.S.C. § 7206(2), and Counts Eight and Nine charge Kerik with subscribing to false income tax returns, in violation of 26 U.S.C. § 7206(1). These charges are premised on the same underlying tax allegations set forth above. Sup. Indict. ¶¶ 33, 35 (accompanying charts).

In Count Ten, Kerik is charged with misrepresenting a personal loan in September 1999 on an application for a mortgage from National Community Bank, a financial institution insured by the Federal Deposit Insurance Corporation. Specifically, Kerik accepted a personal loan of $28,000 from "John Doe #6," a Manhattan realtor who conducted business that required various approvals from New York City. Kerik falsely reported to National Community Bank that the funds were a wedding gift and failed to classify the loan as a liability on his mortgage application. Sup. Indict. ¶¶ 36-40.

Finally, Counts Eleven through Fifteen charge Kerik with making false statements to the federal government, in violation of 18 U.S.C. § 1001. As will be explained in greater detail in the Court's analysis below, Kerik is alleged to have misrepresented the following facts: (1) that Kerik did not employ any household employees on a regular basis; (2) that Kerik possessed no questionable business relationships or information that might cause embarrassment to himself or the President; (3) that Kerik did not have any liabilities in excess of $10,000 in November 2003; and (4) that Kerik, while serving as a public official, did not have any financial dealings with individuals seeking to do business with New York City. Finally, the Government charges that Kerik gave a false and misleading account of the true nature of his relationship with John Doe #3-an employee of XYZ-and the renovations to Kerik's Riverdale apartment.

II. Analysis

In the gravamina of this motion, Kerik challenges the sufficiency of particular charges in the Superseding Indictment. A defendant seeking to dismiss counts under Rule 12 must satisfy a "high standard." United States v. Lazore, 90 F. Supp. 2d 202, 203 (N.D.N.Y. 2000). As the Supreme Court of the United States has explained:

[A]n indictment is sufficient if it, first, contains the elements of the offense charged and fairly informs a defendant of the charge against which he must defend, and, second, enables him to plead an acquittal or conviction in bar of future prosecutions for the same offense. It is generally sufficient that an indictment set forth the offense in the words of the statute itself, as long as those words of themselves fully, directly, and expressly, without any uncertainty or ambiguity, set forth all the elements necessary to constitute the offence intended to be punished. Undoubtedly the language of the statute may be used in the general description of an offence, but it must be accompanied with such a statement of the facts and circumstances as will inform the accused of the specific offence, coming under the general description, with which he is charged.

Hamling v. United States, 418 U.S. 87, 117-18 (1974) (internal quotation marks and citations omitted); United States v. Alfonso, 143 F.3d 772, 776 (2d Cir. 1998). With this direction, each of Kerik's arguments is considered in turn below.

a. Validity of the Honest Services Fraud Charge

In short, sections 1341 and 1343 of Title 18 criminalize the use of the federal mails and wires, respectively, for the purpose of executing "any scheme or artifice to defraud." As 18 U.S.C. § 1346 helpfully clarifies, "For the purposes of this chapter, the term 'scheme or artifice to defraud' includes a scheme or artifice to deprive another of the intangible right of honest services." Equipped only with these 28 cryptic words, it is the duty of the courts to cast form out of the nebulous crime of honest services fraud.*fn3

Kerik argues that the conduct charged in the Superseding Indictment does not constitute a federal crime, and he moves to dismiss Counts One, Two, and Three for failure to state a claim for honest services fraud. In framing the issue for the Court, Kerik argues for "a sharp distinction between the use, or even misuse, of the influence of office in activities falling outside a defendant's official duties-which cannot support a prosecution for federal honest services fraud-and corruption in connection with the performance of a defendant's official duties- which can." Mem., pp. 21, 25 (collecting cases).*fn4 In sum, Kerik argues that no cases affirm a conviction for "influence peddling"*fn5 where the public official was acting outside the context of his official duties.*fn6 Mem., p. 31 (distinguishing cases). Because Kerik is alleged to have used his status as Commissioner of the DOC and Police Commissioner to "vouch" for XYZ in connection with business integrity investigations of that company being conducted by three independent agencies-not by any agency under Kerik's control-he urges the Court to dismiss the charges for honest services fraud.

Kerik offers United States v. Urciuoli, 513 F.3d 290 (1st Cir. 2008), as his leading case. In Urciuoli, the Court of Appeals for the First Circuit reversed the convictions of two hospital executives accused of conspiracy to deprive Rhode Island citizens of the honest services of a state legislator. The legislator was charged with failing to disclose his financial interest in the hospital on two specific occasions: (1) when lobbying mayors to "comply with Rhode Island law governing patient entitlement to be taken by ambulance to the hospital of the patient's choice," and (2) when negotiating a settlement between an insurance company and the hospital. 513 F.3d at 294. In this second instance, ...


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