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United States of America v. Dominick P. Carollo

August 25, 2011

UNITED STATES OF AMERICA
v.
DOMINICK P. CAROLLO, STEVEN E. GOLDBERG, AND PETER S. GRIMM, DEFENDANTS.



The opinion of the court was delivered by: Hon. Harold Baer, Jr., District Judge:

OPINION AND ORDER

Before the Court are three motions for which oral argument took place on Tuesday, August 9, 2011. On July 1, 2011, Dominick Carollo, Steven Goldberg and Peter Grimm ("Defendants") filed a Motion to Dismiss the superseding indictment filed on May 31, 2011 ("the Indictment") as barred by the statute of limitations and a Motion to Compel a Detailed Bill of Particulars, and Defendant Goldberg, joined by Defendant Carollo, filed a Motion to Dismiss several counts as multiplicitous. For the following reasons, the motions are granted in part and denied in part.

I. Factual Background

This case involves conspiracy and wire fraud in connection with various Guaranteed Investment Contracts ("GICs").*fn1 The Indictment charges Defendants with six counts of conspiracy (Counts 1 through 6) and one count of wire fraud (Count 7). The Indictment alleges that Defendants conspired with various GIC brokers and related entities to manipulate the bidding process to cause GICs to be awarded in a manner that defrauded the issuers and the IRS by artificially lowering the interest rates in the GICs and thereby depriving the issuers of revenue from higher interest rates and the United States from higher tax revenue.

II. Analysis

1.Motion to Dismiss the Superseding Indictment as Barred by the Statute of Limitations Wire fraud and general conspiracies carry a five-year statute of limitations, see 18 U.S.C. § 3282(a), while the statute of limitations on conspiracies to defraud the United States is six years. 26 U.S.C. § 6531(1). However, a ten-year statute of limitations applies "if the offense affects a financial institution." 18 U.S.C. § 3293(2).*fn2

The Defendants move on the grounds that either a five or six-year statute of limitations applies to all counts and that the conspiracies and wire fraud concluded when the GICs were awarded, and thus fall outside the applicable statute of limitations periods.*fn3 The government argues (a) that Counts 4, 5 and 7 are subject to the ten-year statute of limitations because the offenses affected a financial institution and (b) that the interest paid in connection with the GICs at issue in Counts 1 through 6 took place within the applicable statute of limitations period.

A.Whether a ten-year statute of limitations applies to Counts 4, 5, and 7.

The issue of whether a ten-year statute of limitations applies turns on whether the alleged facts in Counts 4, 5 and 7 "affect a financial institution" within the meaning of 18 U.S.C. § 3293(2). The government argues that during the time period between six and ten years before the filing of the Indictment, Financial Institutions A and B actively participated in the conduct alleged in Counts 4, 5 and 7 by facilitating illegal kickback payments, exposing those financial institutions to a risk of civil liability and related fines and expenses, and consequently fall within the scope of the language "affects a financial institution." The Defendants argue that the Indictment does not allege violations pursuant to § 3293, and even if the banks were involved in swaps that affected the fraud, there is no allegation that the banks suffered any actual loss, thus the alleged conspiracies fail the "affects a financial institution" test.

The law appears relatively clear that where illegal activity caused a financial institution to be susceptible to substantial risk of loss and that institution suffered actual loss, its participation in the fraud does not negate the applicability of the ten-year statute of limitations. In United States v. Bouyea, the Court of Appeals held that the word "affects" indicates Congress intended § 3293 to cover actions broader than simply where the financial institution is "the object of the fraud," but to include a situation where, for instance, a $150,000 loss to a subsidiary of a financial institution affects the parent-financial institution. 152 F.3d 192, 195 (2d Cir. 1998); see also United States v. Serpico, 320 F.3d 691, 695 (7th Cir. 2003) ("we find it hard to understand how a bank that was put out of business as a direct result of the scheme was not "affected," even if it played an active part of the scheme"); United States v. Daugerdas, et al., No. S3 09 Cr. 581 (WHP) (S.D.N.Y. Apr. 5, 2011) at *2 ("nothing in [§ 3293's] language precludes its application to a financial institution that participated in the fraud."); United States v. Ohle, 678 F. Supp. 2d 215, 228-29 (S.D.N.Y. 2010) (holding that a scheme affected a financial institution where a financial institution was "not only exposed to substantial risk but experienced actual losses").

However, the law is less clear regarding whether illegal activity that caused a financial institution to simply be susceptible to risk of loss but where no loss was caused falls within the scope of the language "affects a financial institution." In United States v. Agne, the First Circuit held that "even assuming, without deciding, that being exposed to a risk of loss is sufficient to 'affect' a bank . we cannot agree with the district court that this defendant created such a risk." 214 F.3d 47, 52 (1st Cir. 2000).

Here, the government does not allege that Financial Institutions A and B suffered any actual loss, and merely argues that the kickback arrangements exposed them to a risk of loss without providing much explanation as to what that risk is other than the expenses associated with litigation. Although Congress intended the language "affects a financial institution" to be broadly construed, Bouyea, 152 F.3d at 195, this Court cannot interpret § 3293 to be so broad as to allow a ten-year statute of limitations to apply where, as here, the government has not alleged that the financial institutions suffered any actual loss or at most the risk of loss is de minimis. Therefore, § 3293 is not applicable to the present case. Given that the government has not alleged facts that occurred within the applicable five year statute of limitations period with respect to the wire fraud count, which it conceded at oral argument, Count 7 is dismissed.

B.Whether the payment of artificially suppressed interest payments constitutes overt acts in furtherance of the conspiracies in Counts 1 through 6.

The issue of whether the payment of artificially suppressed interest constitutes overt acts in furtherance of the conspiracies alleged turns on the nature and object of the conspiracies. The government argues that the object of the conspiracies was to "deprive issuers of money by causing them to award investment agreements and other municipal finance contracts at artificially determined or suppressed rates, and to deprive the municipal issuers of the right to control their assets by causing them to make economic decisions based on false and misleading information" and to "defraud the United States . and the IRS by impeding . [the] collection of revenue due . from the municipal issuers." Indictment ΒΆΒΆ 19-20. The government contends that the payment of artificially suppressed interest ...


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