United States District Court, E.D. New York
Alixandra Eleis Smith, David Carey Woll, Karen R. Hennigan, Melanie Dyani Hendry, Winston M. Paes, United States Attorney's Office, Brooklyn, NY, for United States of America.
Jeffrey L. Kradel, Kradel Defense PLLC, Seattle, WA, Hugh Berry, HWB-Esq., PLLC, Mill Creek, WA, James M. Branden, Law Offices of James M. Branden, New York, NY, Richard D. Willstatter, Green & Willstatter, White Plains, NY, for Defendants.
MEMORANDUM AND ORDER
DORA L. IRIZARRY, District Judge:
The Superseding Indictment (" Indictment" ) filed in this matter charges Defendant Brad Russell (" Defendant" ) and others with securities fraud, conspiracy to commit securities fraud, and conspiracy to commit wire fraud. (Docket Entry No. 38.) Defendant moved to dismiss the Indictment, or alternatively, to suppress his grand jury testimony pursuant to Federal Rule of Criminal Procedure 12(b), the Fifth Amendment to the U.S. Constitution, and the court's supervisory powers. (Mem. of Law in Supp. of Pre-Trial Motions for Brad A. Russell (" Def. Mem." ), Docket Entry No. 89-2; Decl. of James M. Branden (" Branden Decl." ), Docket Entry No. 106.) The government opposes the motion. (Gov't Mem. of Law in Response to Def.'s PreTrial Motions (" Gov't Mem." ), Docket Entry No. 99.) For the reasons set forth below, Defendant's motion is denied in its entirety.
I. The Indictment
Several companies are connected to the fraudulent schemes charged in the Indictment, including, among others, Harbor Funding Group, Inc. (" HFGI" ), a company that was in the business of providing financing for real estate development projects, and Black Sand Mine, Inc. (" BSMI" ), a company that purportedly owned a large stake of a mining operation. (Indictment ¶¶ 1, 4.) Defendant purportedly was part of HFGI's management team and was employed by BSMI. ( Id. )
Count One of the Indictment alleges a fraudulent advance fee scheme involving HFGI. Specifically, the Indictment charges that Defendant and others offered loans through HFGI to land developers building in regions affected by Hurricane Katrina in exchange for a ten percent advance fee that would be placed in escrow and refunded if HFGI did not fund the project. ( Id. ¶¶ 5-6.) However, HFGI allegedly lacked funds to provide financing for any such projects, the ten percent fees were transferred almost immediately from the escrow account to accounts controlled by co-defendant William Lange, and the fees were never refunded even though HFGI did not fund the projects. ( Id. ¶ 6.) Defendant and others allegedly made false and material misrepresentations to land developers and clients in connection with the scheme. ( Id. ¶ 12.) Additionally, Defendant and others allegedly used more than $9 million collected in the form of advance fee payments to funnel money to other businesses owned or controlled by co-defendants William Lange and Joseph Pascua and to pay employees' salaries and co-defendant William Lange's vacations, mortgage payments, and personal expenses. ( Id. ¶ 7.)
Counts Two and Three address a fraudulent scheme involving BSMI. Specifically, Defendant and his coconspirators are charged with making false and material misrepresentations concerning BSMI to induce investors to invest thousands of dollars in the company. ( Id. ¶¶ 8-10.) Those false misrepresentations allegedly
included statements that HFGI had lent BSMI $900,000, BSMI had $850,000 available in total assets, and the investors' money would be used to pay expenses for fuel, food, transportation, labor, and insurance. ( Id. ¶ 9.) Contrary to these representations, most of the funds invested in BSMI purportedly were distributed among Defendant and his coconspirators. ( Id. ¶ 10.)
II. Defendant's Grand Jury Appearance
The following facts apparently are undisputed. Sometime in 2011, two FBI agents visited Defendant at his residence in Washington State. (Def. Mem. at 1; Gov't Mem. at 5.) The agents indicated that they were investigating matters related to William Lange and asked if Defendant would speak to them. (Def. Mem. at 1; Gov't Mem. at 5.) The agents added that speaking with them probably would obviate the need for Defendant to appear in New York to speak with representatives at the U.S. Attorney's Office or to testify in grand jury proceedings. (Def. Mem. at 1.) Defendant spoke with the agents for twenty to thirty minutes. ( Id. )
Shortly thereafter, the agents returned to Defendant's residence and served Defendant with a subpoena to testify before a grand jury empaneled in the Eastern District of New York (the " grand jury" ). (Def. Mem. at 1; Gov't Mem. at 5.) However, the agents neither provided Defendant with a target letter or advice of rights form, nor told Defendant he was a target of the investigation or gave him any warning concerning his Fifth Amendment rights. (Def. Mem. at 1-2.)
On April 6, 2011, Defendant testified before the grand jury concerning his involvement with and knowledge of HFGI and BSMI. After being sworn, the prosecutor advised Defendant that: (1) the grand jury was investigating allegations regarding criminal conduct involving violations of federal law; (2) he may refuse to answer any question, if he believed that a truthful answer would tend to incriminate him; and (3) anything he said could be used against him by a grand jury or in a subsequent legal proceeding. (Grand Jury Transcript (" Tr." ) at 3, Docket Entry No. 110.) Defendant stated he understood these warnings and confirmed that he had not been threatened or coerced to testify in a particular way and was not represented by counsel. ( Id. at 3-4.) However, the prosecutor did not inform Defendant that he was a target of the investigation or of his right to consult an attorney prior to or during the grand jury testimony. The relevant portion of Defendant's grand jury testimony reads as follows:
Q. Mr. Russell, before we start, I'd just like to give you some general warnings and some questions regarding whether you'll be able to answer the questions truthfully, okay? First, the grand jury is investigating some allegations regarding criminal conduct involving violations of federal law. I will ask questions of you, and the court reporter who's over here is recording those questions and answers. You may refuse to answer any question if you believe that a truthful answer will tend to incriminate you. Anything that you say may be used against you by the grand jury or in a subsequent legal proceeding. Do you understand all of what I just said?
Q. Has anyone made any promises to get you to testify in a ...