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United States of America v. Courtney Dupree

July 27, 2011

UNITED STATES OF AMERICA,
v.
COURTNEY DUPREE, THOMAS FOLEY, AND RODNEY WATTS,
DEFENDANTS.



The opinion of the court was delivered by: Matsumoto, United States District Judge:

ORDER ADOPTING IN PART AND MODIFYING IN PART REPORT AND RECOMMENDATION

INTRODUCTION

Defendants Courtney Dupree ("Dupree"), Thomas Foley ("Foley") and Rodney Watts ("Watts") (together, "defendants") are charged together in three counts, Watts is charged in four counts, and Dupree is charged in all five counts of a five-count superseding indictment. (See ECF No. 155, Superseding Indictment ("Superseding Indictment").) Count One charges all defendants with Conspiracy to Commit Bank, Mail and Wire Fraud in violation of 18 U.S.C. §§ 1349, 3551 et seq. (Id. at ¶¶ 17-18.) Count Two charges all defendants with Bank Fraud in violation of 18 U.S.C. §§ 1344, 2, 3551 et seq. (Id. at ¶¶ 19-20.) Count Three charges defendants Dupree and Watts with making a False Statement in violation of 18 U.S.C. §§ 1014, 2, 3551 et seq. (Id. at ¶¶ 21-22.) Count Four charges all defendants with making a False Statement by "knowingly and intentionally [making] a false statement and report, and willfully overvalu[ing] property and security, for the purpose of influencing the action of Amalgamated Bank upon one or more loans . . ." in violation of 18 U.S.C. §§ 1014, 2, 3551 et seq. (Id. at ¶¶ 23-24.) Count Five charges only defendant Dupree with an additional count of Bank Fraud, in violation of 18 U.S.C. §§ 1344, 2, 3551 et seq. (Id. at ¶¶ 25-26.)

Currently before the court is defendant Watts' request that funds in the amount of $980,000 seized by the United States from accounts at J.P. Morgan Chase Bank in the name of Unalite Southwest LLC (the "USW Chase accounts") be released to fund his defense. Familiarity with the facts and prior opinions of this court in this matter is presumed and only the background relevant to this motion is set forth below. For the reasons set forth below, Magistrate Judge Azrack's Report and Recommendation is respectfully adopted in part and modified in part.

BACKGROUND

On July 21, 2010, the government applied for seizure warrants for funds in Amalgamated Bank accounts held by GDC and its subsidiaries. (ECF No. 57, Seizure Warrants dated July 21, 2010 ("7/21/10 Seizure Warrants").) In support of its application for seizure warrants, the government submitted several affidavits from Special Agent Gavin Shea. After providing a detailed description of defendants' allegedly fraudulent activities, Special Agent Shea affirmed that there "is probable cause to believe that any and all funds on deposit in the accounts listed below and in Exhibit B to this affidavit (collectively, the "SUBJECT ACCOUNTS") are subject to forfeiture pursuant to Title 18, United States Code, sections 981(a)(1)(C), 981(a)(1)(D), 982(a)(2), and Title 28, United States Code section 2461, as representing property which constitutes or is derived from proceeds traceable to a conspiracy to commit bank fraud, mail fraud, and wire fraud contrary to Title 18, United States Code, Sections 1344 (bank fraud), 1341 (mail fraud), and 1343 (wire fraud), respectively, all specified unlawful activities." (ECF No. 55, Affidavit in Support of Application for Search and Seizure Warrants dated July 21, 2010 ("Shea Aff.") at 2.)

In addition to his Affidavit in Support of Application for Search and Seizure Warrants dated July 21, 2010, Agent Shea also submitted additional affidavits in support of the seizure warrants that were ultimately issued on July 23 and July 27, 2010 to seize funds in GDC's and its subsidiaries' accounts at Amalgamated Bank and J.P. Morgan Chase Bank. (See Affidavit in Support of Application for Seizure Warrants dated July 23, 2010 ("7/23/10 Shea Seizure Aff."); Affidavit in Support of Application for Seizure Warrants dated July 27, 2010 ("7/27/10 Shea Seizure Aff.").) In these affidavits, Special Agent Shea provided the source of his information and his grounds for believing probable cause existed to seize the funds, including setting forth details of the scheme to defraud and the fraudulent financial statements. (Shea Aff. at ¶ 7; see also 7/23/10 and 7/27/10 Shea Seizure Affs.) Following the government's execution of the seizure warrants on July 23, 2010, and in further support of probable cause, Special Agent Shea affirmed that "[a]fter being placed under arrest, PATELLO, [GDC's] controller and chief financial officer ("CFO"), confirmed the statements of the CS-1 [Confidential Source] and stated that the fraud proceeds were initially deposited into an account held by GDC and then dispersed throughout the Subject Accounts as needed to run GDC and its subsidiaries. PATELLO further stated that the Additional Subject Accounts received fraud proceeds through the same process . . . . Specifically, PATELLO stated that the money was distributed to all other accounts held at Amalgamated and Chase Banks including Unalite accounts in Texas." (7/23/10 and 7/27/10 Shea Seizure Affs. at ¶ 32.)

Magistrate Judge Go signed two seizure warrants for accounts at Amalgamated and J.P. Morgan Chase Bank on July 21, 2010, and limited the seizures to $21,000,000. (7/21/10 Seizure Warrants.) Pursuant to these seizure warrants, sixteen bank accounts at Amalgamated were seized on July 23, 2010. (7/23/10 Shea Seizure Aff. at ¶ 3.) A second seizure warrant for five additional bank accounts at Amalgamated was signed by Magistrate Judge Reyes on July 23, 2010. The government subsequently learned that additional bank accounts and one of the original subject accounts were held at J.P. Morgan Chase Bank rather than at Amalgamated Bank as listed in the warrant. (7/27/10 Shea Seizure Aff. at ¶ 3.) Accordingly, on July 27, 2010, Magistrate Judge Reyes reissued the seizure warrant authorizing seizure of funds held at J.P. Morgan Chase Bank by Unalite Southwest LLC and Unalite NY, LLC (the "USW Chase accounts"). (ECF No. 60, Seizure Warrant dated July 27, 2010.) The funds in these accounts are the subject of the instant motion.

On January 10, 2011, defendant Watts filed, inter alia, a motion pursuant to United Statesv. Monsanto, 924 F.2d 1186 (2d Cir. 1991), to vacate the seizure of funds in the USW Chase accounts. (ECF No. 89, Notice of Motion Opposing Government's Unconstitutional and Unlawful Seizure and Restraint of Funds dated January 10, 2011.)

On March 18, 2011, the court denied defendant Watts' motion, holding that notwithstanding Watts' demonstrated financial need for the funds, the government had established probable cause to seize the funds based upon the sworn statement of Agent Shea in which he recounted statements of two confidential informants, who were employed by GDC and who had knowledge of the scheme, that the fraud proceeds from Amalgamated were deposited into an Amalgamated account and disbursed amongst all of the subject accounts to be seized, and then used to run GDC and the subsidiary businesses. (See generally ECF No. 133, Memorandum and Opinion dated March 18, 2011.)

On March 24, 2011, defendant Watts filed a motion for reconsideration of the court's denial of his motion for a Monsanto hearing. (ECF No. 143, Notice of Motion for Reconsideration and Re-Argument; ECF No. 143-1, Memorandum of Law in Support of Motion for Reconsideration or Re-Argument.) Defendant Watts attached to his motion bank records from the USW Chase accounts which purportedly showed that no proceeds from the Amalgamated loan were deposited into the accounts. (ECF No. 143, Exs. A and B.) The government opposed defendant Watts' motion, arguing that even if the seized funds in the USW Chase accounts were legitimate proceeds of the business, the funds are forfeitable because USW would not have obtained or retained the funds "but for" the criminal offense. (ECF No. 164, Memorandum of Law in Opposition to Defendants' Motion for Reconsideration or Re-Argument, at 9-10, citing, inter alia, United States v. Porcelli, 865 F.2d 1352 (2d Cir. 1989).) Defendant Watts submitted a reply in further support of his motion to reconsider. (ECF No. 168, Reply Memorandum of Law in Support of Motion for Reconsideration or Re-Argument.)

On April 25, 2011, the court heard oral argument on defendant Watts' motion to reconsider. Upon extensive argument, the court granted in part defendant Watts' motion for reconsideration and ordered:

Based upon the Unalite accounts records at

Chase Bank, which the court considered based on Watts' representation that he only recently obtained access to the bank records, the court granted defendants' motion to the limited extent of granting defendant Watts a hearing pursuant to United States v. Monsanto, 924 F.2d 1186 (2d Cir. 1991). The court denied defendants' motion on all other grounds.

The Monsanto hearing shall be limited to the narrow issue of whether the government can establish probable cause that the seized Unalite bank accounts at Chase Bank are forfeitable. (Minute Entry dated April 25, 2011.) In the same Minute Entry, the ...


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