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United States v. Bonventre

United States District Court, S.D. New York

July 24, 2014

UNITED STATES,
v.
DANIEL BONVENTRE. et al.,

UNITED STATES ATTORNEY'S OFFICE, SOUTHERN DISTRICT OF NEW YORK, Matthew L. Schwartz, Esq., John T. Zach, Esq., Randall W. Jackson, Esq., New York, NY. LAW OFFICES OF ANDREW J. FRISCH Andrew J. Frisch, Esq., Jeremy B. Sporn, Esq., Amanda Bassen, Esq., New York, NY, Counsel for Daniel Bonventre.

SERCARZ & RIOPELLE, LLP, Roland G. Riopelle, Esq., New York, NY, Counsel for Annette Bongiorno.

DUANE MORRIS, LLP (NJ), Eric R. Breslin, Esq., Melissa S. Geller, Esq., Newark, NJ, Counsel for Jo Ann Crupi.

LAW OFFICES OF GORDON MEHLER, PLLC, Gordon Mehler, Esq., Sarah Lum, Esq., New York, NY, Counsel for Jerome O'Hara.

KRANTZ AND BERMAN, LLP, Larry H. Krantz, Esq., Kimberly A. Yuhas, Esq., New York, NY, Counsel for George Perez.

OPINION AND ORDER

LAURA TAYLOR SWAIN, District Judge.

After a more than five month trial, thirty-one counts of the above-captioned Superseding Indictment were submitted to the jury, and Defendants Daniel Bonventre ("Bonventre"), Annette Bongiorno ("Bongiorno"), Jo Ann Crupi ("Crupi"), Jerome O'Hara ("O'Hara") and George Perez ("Perez, " collectively, "Defendants") were convicted of each of the crimes which with they were charged. The charges included: conspiracy to defraud investment advisory clients and conspiracy to commit securities fraud; conspiracy to engage in accounting fraud and to defraud banks; conspiracy to commit tax fraud; securities fraud; falsifying the records of a broker-dealer; falsifying the records of an investment adviser; causing a false and misleading filing to be made with the Securities and Exchange Commission ("SEC"); bank fraud; making and subscribing to false income tax returns; corruptly obstructing the lawful administration of the internal revenue laws; and tax evasion. Fewer than all of the Defendants were charged in some of the counts.

The Defendants move, separately and, as to certain issues, jointly, pursuant to Federal Rule of Criminal Procedure 29, for a judgment of acquittal and, pursuant to Federal Rule of Criminal Procedure 33, for a new trial.[1] The Court has considered carefully the parties' voluminous submissions and arguments. For the following reasons, the Defendants' motions are denied in their entirety. Familiarity with the more than 12, 000-page trial record and the hundreds of thousands of pages of exhibits received in evidence is presumed.

I. BACKGROUND

The following brief overview of the charges and the trial proof is drawn from the trial record including exhibits and the S10 Indictment. In 1960, Bernard L. Madoff ("Madoff") founded Bernard L. Madoff Investment Securities ("Madoff Securities"), which, from at least around the late 1970s, functioned as a broker-dealer, in that it operated a market making business on behalf of its institutional investors and performed proprietary trading (i.e., traded its own holdings). These two lines of business constituted what was referred to as the "House 05" side of the firm. Madoff Securities also had an investment advisory business (the "IA business"), which managed accounts for individual clients under what was known as the "House 17" side of Madoff Securities. The charges in this case relate primarily to the IA business, which was run as a Ponzi scheme for several decades, perpetrated through the creation of fake trading and account records. At least as far back as 2002, the broker-dealer or House 05 side of the firm was insolvent and depended on infusions of cash from the IA business.

The Defendants each began working at Madoff Securities at different times. Bonventre and Bongiorno began working for Madoff Securities in the 1960s; Crupi joined in the early 1980s and O'Hara and Perez joined the firm in the early 1990s. All five Defendants were still employed at the firm in 2008, when Madoff was arrested. Bonventre worked as the self-titled "Director of Operations" for the enterprise, mainly with the House 05 business; Bongiorno and Crupi worked in the IA business; and O'Hara and Perez worked as computer programmers with duties relating to House 05 and House 17. The more than forty witnesses who testified at trial included other former Madoff Securities employees, many of whom had been charged with crimes and were testifying as cooperators; bank representatives who had worked with Madoff Securities; former clients of Madoff Securities; expert witnesses on fraud, computer programming and tax return preparation; government agents and private investigators who investigated the firm after Madoff's arrest; Defendants Bongiorno and Bonventre; and defense character witnesses. The Government also introduced hundreds of pages of exhibits relating to Madoff Securities' operation, how the fraud was committed, and the Defendants' involvement in criminal activities at the firm.

II. DISCUSSION

A. Rule 29 Motions for Judgment of Acquittal

Under Federal Rule of Criminal Procedure 29(a), at the conclusion of the Government's case-in-chief or after the close of all of the evidence, "the court on the defendant's motion must enter a judgment of acquittal of any offense for which the evidence is insufficient to sustain a conviction." The Court previously denied Rule 29(a) motions by Bonventre (on the tax counts against him); by Bongiorno (on the tax counts against her) and by Crupi (on the tax and bank fraud counts against her) (Counts Four, Five and Nineteen through Thirty-Three of the S10 Indictment). (See February 21, 2014, Order (docket entry no. 734) and February 25, 2014, Order (docket entry no. 740).)[2] The Court, however, reserved decision on the Defendants' other Rule 29(a) motions on the securities counts and on Bonventre's motion as to the bank fraud counts. When a court reserves decision on a Rule 29(a) motion, "it must decide the motion on the basis of the evidence at the time the ruling was reserved." Fed. R. Crim. P. 29(b). The Defendants renewed their Rule 29 motions on all counts at the close of the defense cases, pursuant to Rule 29(c).[3] (See Trial Transcript ("Tr.") 10730-32.) "Motions under Rule 29(c) are governed by the same standard as motions under Rule 29(a)." United States v. Martinez, 978 F.Supp.2d 177, 185 (E.D.N.Y. 2013). However, on a Rule 29(c) motion, the Court may consider all of the trial evidence and not only the evidence introduced during the Government's case-in-chief. See United States v. Jones, No. 02CR527 , 2003 WL 21362798, at *2 (E.D. Pa. June 10, 2003).

"In considering [a Rule 29] motion, the Court must determine whether, after viewing the evidence in the light most favorable to the prosecution, ... any rational trier of fact could [find] the essential elements of the crime beyond a reasonable doubt.'" United States v. Choullam, No. 05CR523-LTS, 2008 WL 3861356, at *1 (S.D.N.Y. Aug. 19, 2008) (citations omitted). "A defendant challenging the sufficiency of the evidence bears a heavy burden" United States v. Kozeny , 667 F.3d 122, 139 (2d Cir. 2011), because the evidence must be viewed in the light most favorable to the Government and with the assumption "that the jury resolved all questions of witness credibility and competing inferences in favor of the prosecution." United States v. Abu-Jihaad , 630 F.3d 102, 134 (2d Cir. 2010). "Viewing the evidence in the light most favorable to the government [also] means... recognizing that the government's evidence need not exclude every other possible hypothesis[.]" United States v. Persico , 645 F.3d 85, 104 (2d Cir. 2011) (internal quotation marks and citations omitted). "Nonetheless, a conviction based on speculation and surmise alone cannot stand." United States v. D'Amato , 39 F.3d 1249, 1256 (2d Cir. 1996) (citation omitted). The Court must apply the sufficiency test "to the totality of the government's case and not to each element, as each fact may gain color from others, " and "may enter a judgment of acquittal only if the evidence that the defendant committed the crime alleged is nonexistent or so meager that no reasonable jury could find guilt beyond a reasonable doubt." United States v. Guadagna , 183 F.3d 122, 130 (2d Cir. 1999) (internal quotation marks and citation omitted).

The credibility of a testifying witness is particularly within the province of the jury, not that of a reviewing court. See United States v. O'Connor , 650 F.3d 839, 855 (2d Cir. 2011) ("the jury and not the court [must] determine whether a witness who may have been inaccurate, contradictory and even untruthful in some respects was nonetheless entirely credible in the essentials of his [or her] testimony") (internal quotation marks and citations omitted). When a court reserves decision on a motion, under Rule 29(b), it must decide the motion on the basis of the evidence at the time the ruling was reserved, which here was at the close of the Government's case, but under Rule 29(c), the court may consider the defense case and if a defendant testifies, as Bonventre and Bongiorno did, the jury is entitled to draw negative inferences from the defendant's trial testimony or use it "to reach contrary conclusions." United States v. Roldan-Zapata , 916 F.2d 795, 803 (2d Cir. 1990). "By taking the stand and offering his [or her] own version of events, [the defendant] waive[s] any claim as to the sufficiency of the Government's case considered alone." Id . (internal quotation marks and citations omitted). A "jury is entitled to disbelieve the defendant's attempts at exculpatory explanation, [and] a testifying defendant might inadvertently add weight to the government's case" by "plac[ing] his own credibility in issue." United States v. Tran , 519 F.3d 98, 105 (2d Cir. 2008) (internal quotation marks and citations omitted).

1. Bonventre's Rule 29 Motion

Defendant Bonventre moves for acquittal on Counts Three, Six, Eight, Nine, Twelve, Fifteen and Eighteen, renewing his February 17, 2014, motion (see docket entry no. 719), on which the Court reserved decision, arguing that the evidence against him was insufficient to sustain the convictions.[4]

a. Bonventre's Rule 29 Motion: Counts Eight and Fifteen

Count Eight charges Bonventre with committing securities fraud by creating or aiding and abetting the creation of "false and misleading" Madoff Securities FOCUS Reports and annual financial statements that were provided to customers (S10 Indictment ¶ 98). Count Fifteen charges Bonventre with "willfully and knowingly" aiding and abetting the filing of a false and misleading FOCUS Report with the SEC in or about May 2006 (id. ¶ 112). The proof, viewed in the light most favorable to the Government, showed that the IA customer statements were false in that they misrepresented, inter alia, the execution of trading in the accounts, the holdings in individual accounts, and the timing of purported transactions in the accounts, and that the FOCUS Reports were false because, inter alia, they omitted banking information relating to the IA business, including loans that were on the books and records of Madoff Securities and assets and liabilities of the IA business. Both of these crimes require proof that the defendant acted "willfully and knowingly" rather than "mistakenly or inadvertently;" Bonventre argues that the Government did not prove this element.[5] According to Bonventre, the Government failed to establish his knowing participation in the creation and dissemination of annual financial statements to IA clients at Madoff Securities because he did not provide any statements to IA clients and there was no evidence that he had responsibility for the financial statements that were signed by David Friehling ("Friehling") and filed with the SEC. Bonventre testified that he had no involvement in the preparation, review or submission of the FOCUS reports, or in their ultimate filing. He argues that, even if he did send such reports to bank representatives, that does not mean that he knew the contents of the reports. Bonventre contends that the testimony of cooperating witness Enrica Cotellessa-Pitz ("Cotellessa-Pitz") corroborates his position that it was Cotellessa-Pitz who prepared the reports and not

Bonventre and that he was just a backup eFOCUS user, who never actually used the eFOCUS system.[6] (Tr. 9621-22, 9965-66, 10093.) Bonventre further contends that he did not think the firm was trying to hide the IA business from regulators because there was publicity regarding the business and the public figures, foundations and celebrities who were investors. (See Tr. 9619-24.) Thus, he argues, the Government did not prove his knowing and willful participation in the filing of false FOCUS Reports. "The relevant question' in this inquiry is whether, after viewing the evidence in the light most favorable to the [Government], any rational trier of fact could have found the essential elements of the crime beyond a reasonable doubt.'" United States v. Lorenzo , 534 F.3d 153, 159 (2d Cir. 2008) (citations omitted). A review of the evidence compels an affirmative answer. The evidence presented on the Government's case included, but was not limited to, the following: Friehling testified that Bonventre provided him with the information that Friehling used in compiling the financial statements. (Tr. 2877-78.) Bonventre supervised Cotellessa-Pitz, who filed the FOCUS reports. Bonventre knew that the FOCUS reports were submitted to the SEC (see Tr. 3269 (Monika Arora ("Arora"), Bank of New York Mellon ("BONY") representative, testifying that she spoke to Bonventre to arrange the bank's receipt of Madoff Securities FOCUS reports)). AlixPartners employee Meaghan Schmidt ("Schmidt") also testified about a conversation that she had with Bonventre regarding the FOCUS reports in which he explained to her how Madoff Securities calculated the regulatory capital figures on its FOCUS reports by omitting the IA business. (Tr. 788-81.) Thus, there was considerable evidence at trial in the Government's case alone from which a jury could reasonably infer that Bonventre was a knowing and willful participant in the false filings.

When Bonventre testified, he admitted that he was familiar enough with the content of the FOCUS reports to have known at the time that they did not include assets of the IA business, but said that he did not think that Madoff Securities was trying to hide the IA business because of the publicity surrounding the business and its high profile investors. (See Tr. 9624 (Q: Why did you believe that the FOCUS reports did not serve to hide Mr. Madoff's investment advisory business? A. It [referring to the FOCUS reports] clearly didn't include those - those figures and that activity [that were publicly reported].")) By testifying about his involvement with the FOCUS reports, Bonventre placed his own credibility at issue and a rational jury could have found his explanation incredible, as appears to have occurred here. A rational juror, taking all inferences in the light most favorable to the Government, could easily have found that Bonventre was knowingly involved in the creation of false Madoff Securities FOCUS reports and annual financial statements, which were provided to IA clients, and knowingly aided and abetted the filing of the false FOCUS reports with the SEC. Accordingly, Bonventre's motion is denied insofar as he seeks acquittal on Counts Eight and Fifteen.

b. Bonventre's Rule 29 Motion: Counts Six, Nine and Twelve

Count Six charges Bonventre with "participat[ing] in the creation and dissemination of records and documents that misrepresented to [IA] clients of Madoff Securities that various trading activity had occurred in their accounts." (S10 Indictment ¶ 94.) Counts Nine and Twelve, respectively, charge Bonventre with creating, or aiding and abetting the creation of, false trading records and false and fraudulent client account statements and trade confirmations between the early 1970s and 2008, in violation of recordkeeping requirements that applied to Madoff Securities in its roles as a broker-dealer and an investment adviser. (Id. ¶¶ 100, 106.) Bonventre contends that his lack of direct involvement in the preparation of client account statements or trade confirmations and representations made to IA clients precludes his conviction on Counts Six, Nine and Twelve as either a principal or an aider and abetter.[7] On a Rule 29 motion, "the absence of direct evidence establishing [Bonventre's] guilt is not dispositive. In fact, the government is entitled to prove its case solely through circumstantial evidence, provided, of course, that the government still demonstrates each element of the charged offense beyond a reasonable doubt." United States v. Rodriguez , 392 F.3d 539, 544 (2d Cir. 2004) (internal citations omitted). The fact that Bonventre did not personally speak to IA clients or personally provide them with account statements or confirmations does not preclude his conviction on these counts, especially in light of the evidence of Bonventre's extensive involvement in and supervision of both the House 05 and House 17 sides of the firm. Bruce Dubinksy ("Dubinsky") a certified fraud examiner, testified that the Chase 703 account, which Bonventre oversaw and carefully reconciled (see e.g., Tr. 1414-16, GX 105-c57), was critical to the perpetration of the fraud, as it propped up the Ponzi scheme, permitting customers to receive distributions and hiding the fraud (see, e.g., Tr. 1455-56; GX 5000-1 at 79, 142, 145, 147). As Friehling explained, Bonventre was "the one responsible [for] mantain[ing] the general ledger and the books and records" of Madoff Securities. (Tr. 2874.) The Government presented evidence that, inter alia, Bonventre concealed the IA business's assets on the firm's General Ledger even though expenses of the IA business were included; that Bonventre asked the IA employees to make corrections in the "checkbook" for the Chase 703 Account (Tr. 910-13); that Bonventre attempted to hide the Chase 703 account from auditors (see Gov't Opp. at 29 (reciting evidence and testimony)) and that Bonventre was involved in creating false documents to conceal the fraudulent IA business activity (e.g., he provided multiple versions of the same documents to tax auditors and helped Madoff and others create false DTC reports). There were also notes introduced as evidence at trial indicating Bonventre's involvement in backdating trades. For example, there was a note by Bongiorno that read "Dan [Bonventre] had me put through a profit trade for $399, 810.00 then add that figure to cap additions!" (GX 105-b6) and Bonventre wrote a note to Bongiorno stating that "per our phone conversation" he "need[ed] a long term capital gain of $449000" (GX 105-b24 at 4). Although these notes were specific to backdating trades in Bonventre's account, a rational jury could have inferred that Bonventre was also involved in the creation and dissemination of fake records and documents that misrepresented to clients that trading activity had occurred in their accounts. Bonventre also trained many of the people who now admit to having taken part in the fraud, including Frank DiPascali ("DiPascali"), who testified that Bonventre trained him in back office operations to fool auditors, and Cotellessa-Pitz. By training others to perpetrate the fraud, Bonventre was aiding in its commission. Taking all evidence in the light most favorable to the Government, the evidence supports a rational jury's inference that Bonventre is guilty beyond a reasonable doubt of the crimes charged in these counts. Accordingly, Bonventre's motion for a judgment of acquittal on Counts Six, Nine and Twelve is denied.

c. Bonventre's Rule 29 Motion: Counts Three and Eighteen

Bonventre also moves under Rule 29 as to Counts Three and Eighteen, which charge him with conspiracy to commit accounting fraud and to defraud banks. To prove that Bonventre committed bank fraud, the Government was required to demonstrate: (1) that he engaged in a course of conduct concerning a material matter designed to deceive a federally chartered or insured financial institution into releasing property and (2) that he intended to victimize the institution by exposing it to actual or potential loss. See United States v. Nkansah , 699 F.3d 743, 748 (2d Cir. 2012). At trial, the Government presented evidence that Bonventre misrepresented the purpose of bank loan applications and the ownership of bonds offered as security. Bonventre argues that the evidence did not show that he knew that the loan applications contained misrepresentations and, even assuming that he had sufficient knowledge that the loan applications contained misrepresentations about ownership of client bonds, the evidence did not show that he had any understanding as to the effect of those representations or that he knew that they were material.

However, witnesses from JP Morgan Chase and BONY testified that Bonventre was their sole or primary contact with Madoff Securities over several decades and had regularly lied to them in order to obtain loans for the firm. (Tr. 3264, 6346-7.) For example, Bonventre told Arora that he needed to extend Madoff Securities' line of credit to support a newly hired trading team, which was not true. (Tr. 3290-91, 3299.) There was also evidence that he offered the banks securities that he knew belonged to customers of the IA business as collateral for bank loans. (See Cotellessa-Pitz's Testimony, Tr. 3701 "we used securities that... belonged to customers that had investment advisory accounts, and we represented them as our own.") The bank witnesses testified that these were material matters and it was reasonable for the jury to infer that Bonventre understood that submitting an application to secure a loan with collateral that did not actually belong to Madoff Securities was a material misrepresentation, and that falsely stating the purpose of the loan was likewise a material misrepresentation. (See, e.g., Tr. 6354.) The Court finds that there is sufficient evidence in the record for a rational jury to have found Bonventre guilty beyond a reasonable doubt on these counts. Bonventre's Rule 29 motion is therefore denied in its entirety.

2. Bongiorno's Rule 29 Motion

Bongiorno also moves generally to dismiss all counts against her pursuant to Federal Rule of Criminal Procedure 29(c), to preserve her right to challenge the evidence on appeal, and specifically argues for a judgment of acquittal on the tax-related counts against her. The Court previously found that the evidence presented as to the tax counts on the Government's case, when viewed in the light most favorable to the Government, was sufficient to support a conviction. (See Feb. 21, 2014, Order at 15 (docket entry no. 734).) In her current motion, Bongiorno again argues that no Government witness actually opined that her regular withdrawals of thousands of dollars from the Special 1 and the Special 2 Accounts were taxable income; that she always had sufficient "capital" in all her Madoff Securities accounts to support the withdrawals from the Special 1 and Special 2 Accounts; that it was routine for accounts at Madoff Securities to be netted against each other; that Bongiorno's withdrawals were made openly so she could not have been hiding anything; and that Bongiorno routinely declared on her tax returns hundreds of thousands of dollars in income from her Madoff Securities accounts, so it does not make sense that she would refrain from declaring these withdrawals in order to conceal income she believed was taxable. In response to the Government's argument that Bongiorno's netting argument was belied by the full balance distribution checks prepared from her other accounts on the eve of Madoff Securities' collapse, she cites her own testimony that she needed to deposit checks drawn to her in order to write checks back to Madoff Securities to net out the balances that she owed in connection with the Special 1 and Special 2 Accounts (see Tr. 10579-80). She argues that the jury had no basis for finding that the checks drawn on the Special 1 and 2 Accounts were anything other than capital withdrawals, which were not taxable, or that she believed that they were anything else.

The Court previously denied Bongiorno's Rule 29 motion seeking acquittal on these tax fraud counts and there was no evidence presented in Bongiorno's defense case relating to the tax fraud counts aside from her own testimony, which the jury was entitled to reject. Moreover, "[b]y taking the stand and offering h[er] own version of events, [Bongiorno] waive[d] any claim as to the sufficiency of the Government's case considered alone, and the jury was entitled to conclude that [Bongiorno]'s version of the events was false and thereby infer h[er] guilt." See United States v. Adams, 216 F.3d 1073, 1073 (2d Cir. 2000) (internal quotation marks and citations omitted). At the most basic level, there never were any real investments, capital or income underlying Bongiorno's Madoff Securities accounts. If, as is clear from the convictions, the jury found that Bongiorno knew that the trading was false, the abundant evidence supporting the finding of that knowledge was more than sufficient to support a finding that Bongiorno's cash withdrawals were not legitimate non-taxable withdrawals of accumulated ...


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