United States v. Morelli , 169 F.3d 798 ( 1999 )

Opinions of the United
1999 Decisions States Court of Appeals
for the Third Circuit
3-9-1999
USA v. Morelli
Precedential or Non-Precedential:
Docket 96-5144,96-5389
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Filed March 9, 1999
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
NOS. 96-5144 and 96-5389
UNITED STATES OF AMERICA
v.
MORELLI, ANTHONY
(D.C. Crim. No. 93-cr-00210-1)
Appellant in No. 96-5144
(Amended per Clerk's order of 7/8/98)
UNITED STATES OF AMERICA
v.
IGOR ROIZMAN, a/k/a Little Igor
(D.C. Crim. No. 93-cr-00210-10)
IGOR ROIZMAN, Appellant in No. 96-5389
On Appeal From the United States District Court
For the District of New Jersey
District Judge: Honorable William G. Bassler
Argued: June 5, 1997
Reargued: September 8, 1998
Before: BECKER, Chief Judge, SCIRICA, Circuit Judge,
and KELLY, District Judge.*
(Filed March 9, 1999)
_________________________________________________________________
*Honorable James McGirr Kelly, United States District Judge for the
Eastern District of Pennsylvania, sitting by designation.
JUDD BURSTEIN, ESQUIRE
(ARGUED)
MARC FERNICH, ESQUIRE
Burstein & Fass LLP
1790 Broadway
New York, NY 10019
Counsel for Appellant
Igor Roizman
MICHAEL S. VOGEL, ESQUIRE
Allegaert, Berger & Vogel LLP
111 Broadway
New York, NY 10006
NICHOLAS A. GRAVANTE, JR.,
ESQUIRE (ARGUED)
Barrett, Gravante, Carpinello &
Stern LLP
1585 Broadway
New York, NY 10036
RICHARD A. REHBOCK, ESQUIRE
Law Office of Richard A. Rehbock
One Maple Run Drive
Jericho, NY 11753
Counsel for Appellant
Anthony Morelli
FAITH S. HOCHBERG, ESQUIRE
United States Attorney
GEORGE S. LEONE, ESQUIRE
Assistant United States Attorney
ELIZABETH S. FERGUSON,
ESQUIRE (ARGUED)
Assistant United States Attorney
970 Broad Street - Room 700
Newark, NJ 07102
Counsel for Appellee
United States of America
2
OPINION OF THE COURT
BECKER, Chief Judge.
These appeals by defendants Anthony Morelli and Igor
Roizman from judgments in a criminal case raise two
issues of criminal law and procedure. Morelli's appeal
centers on the interpretation of the federal money
laundering statute, 18 U.S.C. S 1956, in the context of wire
fraud. Roizman's appeal involves the question of ineffective
assistance of counsel where the defendant's attorney faces
a possible conflict of interest.
The scheme in which Morelli and Roizman were involved
engaged in a series of transactions that resulted in the
embezzlement of excise taxes from fuel sales. Each series
included a number of wire transfers, each of which
occurred after the money involved came into the possession
of those who controlled the scheme. At trial, the
government proved only that specific transfers had
occurred before the point at which the taxes should have
been collected for transmittal to the government. Morelli
argues that these series of transactions did not constitute
money laundering.
He claims initially that the government failed to prove
that any of the transactions involved proceeds of fraud,
since the government offered no proof of wire transfers
occurring after the point at which the taxes should have
been collected. He contends that the money did not become
the proceeds of fraud until after it should have been
collected for the government but was not. We reject this
conclusion because we believe that the money became the
proceeds of fraud as soon as it entered the hands of
members of the scheme. Alternatively, Morelli submits that
the money was not the proceeds of wire fraud because the
money came into the possession of the scheme as a result
of fraud before any of the wirings involving the money
occurred. But he ignores the fact that the scheme
succeeded as a result of each and every wiring within each
and every series of transactions. Accordingly, the money
within each series of transactions was the proceeds of wire
3
fraud because the fraud from which it resulted was
promoted by the wire transfers within the preceding series
of transactions.
Morelli also contends that the District Court erred in not
granting him a downward departure from the money
laundering guideline, U.S.S.G. S 2S1.1, because his conduct
did not fall within the "heartland" of money laundering. We
disagree, and dispose of this contention summarily in note
13 infra.
Roizman's appeal alleges that his attorney provided
inadequate assistance because of a conflict of interest.
Roizman's attorney represented both him and an individual
whose statements were introduced at trial as hearsay
evidence against him. Roizman first argues that his lawyer's
conduct was deficient since he faced an actual conflict of
interest to the extent that his ability to impeach the
witness's hearsay statements conflicted with his duties to
the witness as his client. The District Court rejected this
claim because it found that impeachment of the witness
was not a "plausible alternative defense strategy" for
Roizman. Because we agree with the District Court's
conclusion, and because such impeachment would not
have adversely affected the witness's interests, we reject
Roizman's argument.
Roizman also contends that his conviction should be
reversed on a potential conflict-of-interest theory. He claims
that the prosecutor, as well as his own attorney, knew of
the conflict his attorney faced and, thus, violated his
constitutional rights by not bringing it to the attention of
the District Court. We can only grant a reversal for a
potential conflict of interest, however, if the District Court
itself was or should have been aware of the conflict and
failed to address it. Since Roizman does not contend that
the District Court should have been aware of the conflict,
we reject his claim. We will therefore affirm the judgments
of the District Court.
I. Procedural History
Morelli, Roizman and a number of coconspirators
participated in a "daisy chain" scheme to evade excise taxes
4
on the sale of certain kinds of fuel. The elements of such
schemes have been detailed sufficiently elsewhere. See, e.g.,
United States v. Sertich, 95 F.3d 520, 522 (7th Cir. 1996),
cert. denied, 519 U.S. 1113 (1997); United States v. Veksler,
62 F.3d 544, 547 (3d Cir. 1995); United States v. Macchia,
35 F.3d 662, 665-66 (2d Cir. 1994); United States v.
Victoria-21, 3 F.3d 571, 573 (2d Cir. 1993); In re Assets of
Martin, 1 F.3d 1351, 1353 (3d Cir. 1993); United States v.
Tarricone, 996 F.2d 1414, 1416-17 (2d Cir. 1993); United
States v. Aracri, 968 F.2d 1512, 1514-17 (2d Cir. 1992);
United States v. Musacchia, 900 F.2d 493, 495-96 (2d Cir.
1990), vacated, 955 F.2d 3 (2d Cir. 1991). We will set forth
any relevant facts in our discussion of particular
substantive issues.
As a result of their activities, Morelli and Roizman were
charged in a forty four-count indictment, tried, and
convicted of some of the counts. Several other
coconspirators pleaded guilty at different times. Morelli was
convicted of a RICO conspiracy, racketeering, an extortion
conspiracy, extortion, mail fraud, and general conspiracy.
With respect to the RICO conspiracy, the jury found that
the government had proven money laundering as one of
many predicate acts. With respect to the general conspiracy
conviction, the jury found that one of the objects of the
conspiracy, among others, was money laundering. Morelli
was not named in any of the racketeering acts alleging
money laundering. However, he was sentenced under the
money laundering guideline, which provided the highest
offense level. He received a three-point enhancement
because he acted as a manager or supervisor of the money
laundering conspiracy. The District Court then departed
downward three levels, finding that the value of the funds
laundered detailed in the Presentence Investigation Report
overrepresented the crime. Morelli was sentenced to 240
months in prison. Roizman was convicted of RICO
conspiracy, mail fraud, and extortion, and was sentenced to
90 months in prison. These timely appeals followed. 1
_________________________________________________________________
1. The District Court properly exercised jurisdiction over the matter
under 18 U.S.C. S 3231. We exercise appellate jurisdiction over the final
judgment of the District Court under 18 U.S.C. S 3742 and 28 U.S.C.
S 1291.
5
In addition to the arguments outlined in the introduction,
the defendants each make a number of arguments that are
patently without merit; hence we identify them and dispose
of them summarily in the margin. Morelli contends that the
District Court erred in applying his Role in the Offense
adjustment to all of his offense groupings for sentencing
purposes.2 He also claims that he should not have been
convicted of RICO conspiracy because he did not commit or
agree to commit two predicate acts.3 Finally, Morelli insists
that his Sixth Amendment right to counsel was violated
because two cooperating witnesses, Dougherty and Zummo,
had previously participated in a joint defense agreement.4
Roizman adopts by reference those of Morelli's claims that
are relevant to him.5
Following the initial oral argument in this case in June of
1997, we placed it in abeyance pending the Supreme
Court's decision in Salinas v. United States, 522 U.S. 52_________________________________________________________________
2. Morelli submits that the Sentencing GuidelineS 3B1.1 enhancement
for "Role in the Offense" should have been applied only to the extortion
group of crimes, and not the money laundering or fraud groups. The
District Court concluded otherwise, and we see no error in its
conclusion. The evidence supports the conclusion that Morelli was a
"supervisor or manager" with respect to the fraud and money laundering,
as well as the extortion.
3. Morelli's appeal on this point rested on his argument that we should
reverse our decision in United States v. Adams, 759 F.2d 1099 (3d Cir.
1985). However, the Supreme Court has held that our conclusion in
Adams was correct. See Salinas v. United States, 522 U.S. 52 (1997).
4. The District Court found no such violation of Morelli's Sixth
Amendment rights. United States v. Morelli, Opinion & Order, Crim. No.
93-210 (D.N.J. Jan. 26, 1998). It concluded that"[t]here was no evidence
that either Dougherty or Zummo revealed any confidential defense
strategy or any other prejudicial information to the Government." Slip
op. at 7. We see no clear error in its finding, and accordingly affirm its
conclusion that Morelli's Sixth Amendment rights were not violated.
Morelli also argued that the government should have been directed to
produce its notes of its meetings with Dougherty and Zummo for
Morelli's inspection. Based on our in camera inspection of these notes we
agree with the District Court that they contained no information
pertinent to his claim.
5. Since we affirm the District Court's conclusions on all points, we need
not determine precisely which of Morelli's arguments Roizman adopts.
6
(1997). See supra note 3; see also United States v. Morelli,
Order, Nos. 96-5144 & 96-5389 (3d Cir. June 23, 1997). In
the meantime, we remanded certain issues to the District
Court for further factual findings. The Supreme Court has
now decided Salinas, see supra note 3, and the District
Court has certified its findings on the issues to which we
directed its attention, see supra note 4 & infra Part III.
Accordingly, the appeal is now ripe for decision.
II. Morelli's Appeal
A. Preservation of Issue for Review
We first take up Morelli's argument that the District
Court erred in calculating his sentence based primarily on
the money laundering guideline, U.S.S.G. S 2S1.1. He
contends that, as a matter of law, the facts do not support
the conclusion that money laundering occurred. Although
Morelli frames this submission as a challenge to his
sentence, it is in actuality a sufficiency of the evidence
argument. Morelli did not raise this in a Rule 29 motion,
which would ordinarily be required of a sufficiency claim.
See United States v. Powell, 113 F.3d 464, 466-67 (3d Cir.
1997) ("If a defendant fails to file a timely motion for
judgment of acquittal, we review sufficiency of evidence for
plain error." (citing United States v. Gaydos, 108 F.3d 505,
509 (3d Cir.1997))), cert. denied, 118 S. Ct. 454 (1997).
Nevertheless we find that it is properly before us on the
conventional direct appeal standard of review because of
the unusual procedural posture, i.e., that this issue is only
relevant for sentencing purposes.
Morelli was convicted of a multiple-object general
conspiracy and a RICO conspiracy with numerous predicate
acts. The jury found that these conspiracies had objects or
predicate acts other than money laundering that Morelli
does not challenge on appeal. Thus, even if he presented a
successful challenge to the money laundering allegations,
we would not reverse Morelli's conviction on the conspiracy
count because, as he concedes, he was involved in a
criminal conspiracy, albeit one to commit mail and wire
fraud and extortion. See Griffin v. United States, 502 U.S.
7
46 (1991); United States v. Conley (Conley II), 92 F.3d 157,
163 (3d Cir. 1996) ("It is clear that when a jury returns a
general verdict of guilty on a multi-object conspiracy count,
the conviction will stand over Fifth Amendment due process
objections so long as there is sufficient evidence to support
any one of the objects of the conspiracy."), cert. denied, 520
U.S. 1115 (1997). Likewise, he cannot challenge his RICO
conspiracy conviction, as he concedes numerous predicate
acts, including those same crimes, which are sufficient to
support the conviction. See United States v. Vastola, 989
F.2d 1318, 1330 (3d Cir. 1993) (applying the reasoning of
Griffin and concluding that the dismissal of one predicate
act did not require reversal of a racketeering conviction
where a sufficient number of other predicate acts on which
the jury's verdict could have rested remained).
Furthermore, determining the objects of a conspiracy and
the predicate acts of a RICO conspiracy for sentencing
purposes is the duty of the trial judge, not the jury. See
Conley II, 92 F.3d at 169 ("[T]he district court's
determination of the object of the conspiracy is wholly
independent of the jury's determination of the object of the
conspiracy."). Since this decision on the part of the District
Court is not bound up with the jury's verdict, it need not be
challenged in a Rule 29 motion for acquittal
notwithstanding the jury's verdict.6 Rather, a defendant
need only challenge the district court's findings as to the
objects of the conspiracy and the RICO predicate acts at
sentencing in order to preserve the issue for review.
Because Morelli raised his present claim in his sentencing
hearing, we conclude that it is appropriately before us.
"When [as here] the essential facts are not in dispute, our
review of the district court's interpretation of the
Guidelines, like our review of a statute's interpretation, is
plenary." United States v. Bogusz, 43 F.3d 82, 85 (3d Cir.
1994) (citing United States v. Rosen, 896 F.2d 789, 790-91
(3d Cir.1990)).
_________________________________________________________________
6. Unlike the verdict in Conley II, the jury in this case returned a
special
verdict concerning the objects of the conspiracy and the predicate acts
of the RICO conspiracy. Accordingly, the District Court's conclusion that
money laundering occurred is buttressed by the jury's special verdicts to
similar effect.
8
B. Money Laundering -- Facts and Legal Background
Because the facts of this case are somewhat complicated,
we will briefly review those revolving around the alleged
money laundering. The particular scheme in which the
defendants participated was termed "the Association." The
Association organized a group of companies, all of which it
controlled, into a "daisy chain," for the purpose of
embezzling the excise taxes on the sale of certain kinds of
fuel. Typically, the companies would sell oil down the chain
in a series of paper transactions, through what was referred
to as the "burn company." Eventually, the company at the
bottom of the chain, the "street company," would sell the oil
to a legitimate retailer, i.e., a particular gas station, for a
price slightly below the tax-included market price. This
retailer would pay money to the street company, which
would send money back up the chain in a series of wire
transfers.7
This scheme was illegal because it was set up as a means
to avoid excise taxes. The daisy chain was established so
that the burn company was the one legally responsible for
collecting the excise taxes on the fuel sales and
transmitting them to the government. In the Association's
scheme, the burn company would collect the taxes for a
time, and then disappear without ever paying the taxes to
the government. As a result, the Association could keep the
money representing the excise taxes without the
government being able to determine where it had gone. The
indictment charged, and the jury found, that this conduct
constituted both wire fraud and money laundering. It
charged the first wire transfer, from the street company to
the next company above it in the chain, as wire fraud. It
charged the second and subsequent wire transfers as
money laundering.
_________________________________________________________________
7. The money was not always wired back up the chain via each
individual company. Occasionally, a wire transfer would skip some
companies. In addition, the wire transfers apparently almost always
skipped the burn company. As the discussion below demonstrates,
however, these details need not concern us, because it is sufficient that
the money was wired at least once.
9
The money laundering statute, 18 U.S.C. S 1956(a)(1),
provides:
Whoever, knowing that the property involved in a
financial transaction represents the proceeds of some
form of unlawful activity, conducts or attempts to
conduct such a financial transaction which in fact
involves the proceeds of specified unlawful activity --
(A)(i) with the intent to promote the carrying on of
specified unlawful activity; or . . . (B) knowing that the
transaction is designed in whole or in part -- (i) to
conceal or disguise the nature, the location, the source,
the ownership, or the control of the proceeds of
specified unlawful activity . . . [is guilty of money
laundering].
The statute, in pertinent part, sets forth four elements of
the crime: (1) an actual or attempted financial transaction
(2) involving the proceeds of specified unlawful activity; (3)
knowledge that the transaction involves the proceeds of
some unlawful activity; and (4) either (a) an intent to
promote the carrying on of specified unlawful activity, or (b)
knowledge that the transaction is designed to promote the
underlying specified unlawful activity or "to conceal or
disguise the nature [or] the source . . . of the proceeds of
specified unlawful activity." 18 U.S.C. S 1956(a)(1). Morelli
does not contest the first and third elements. He also does
not contest the intent element of money laundering.8
The term "specified unlawful activity" is defined, in
pertinent part, by reference to those acts that constitute
"racketeering acts" under RICO. See 18 U.S.C.
S 1956(c)(7)(A) ("[T]he term `specified unlawful activity'
means any act or activity constituting an offense listed in
section 1961(1) of this title . . . ."). UnderS 1961(1), wire
_________________________________________________________________
8. He does complain, however, that it is unfair for the government to
charge both promotion and concealment with respect to the same
transactions. See United States v. Paramo, 998 F.2d 1212, 1218 (3d Cir.
1993) (noting that another court has observed that"conduct punishable
[as concealment] typically would not also be punishable [as promotion,
and vice versa]"). We have noted, however, that these two motivations are
not necessarily inconsistent, as "a finding of guilt [for concealment] is
not a defense to a prosecution [for promotion]." 998 F.2d at 1218 n.3.
10
fraud is a "specified unlawful activity," but tax fraud
simpliciter is not. See 18 U.S.C. S 1961(1)(B).
We have interpreted the money laundering statute several
times. See, e.g., United States v. Conley (Conley I), 37 F.3d
970 (3d Cir. 1994); United States v. Paramo, 998 F.2d 1212(3d Cir. 1993). Paramo focused solely on the fourth element
of the statute -- whether the defendant's actions
constituted sufficient evidence of the appropriate intent.
See 998 F.2d at 1216-18. In Conley I, we focused both on
this intent element and on the second element -- whether
the funds at issue were the "proceeds of a specified
unlawful activity." 37 F.3d at 977-81. Whether certain
money constitutes "proceeds of specified unlawful activity"
is the sole contested question presented in this case.
In Conley I, we held that "[a]lthough the money
laundering statute does not define when money becomes
`proceeds,' it is obvious to us that proceeds are derived from
an already completed offense, or a completed phase of an
ongoing offense . . . ." 37 F.3d at 980. This is true even if
the money laundering transaction can also be considered a
part of the continuing specified unlawful activity. In Conley
I, the defendant was charged with conspiracy to conduct an
illegal gambling business and to commit money laundering.
The conspiracy revolved around the distribution and use of
illegal video poker machines. The money laundering aspect
of the scheme derived from the retrieval and distribution of
the money deposited in the machines. We concluded that,
since the distribution and use of the machines alone
constituted an illegal gambling business, the specified
unlawful activity had been completed at the time the
conspiracy's activities resulted in proceeds. Accordingly, the
money retrieved from the machines was proceeds of the
illegal gambling business, even though the retrieval of the
money was also chargeable as part of the crime of
conducting the business. See 37 F.3d at 980.
This case forces us to decide the question we partially
(and tangentially) addressed in Conley I: whether the funds
involved in the alleged money laundering transaction were
"proceeds of specified unlawful activity." Morelli makes two
arguments. First, he contends that the money did not
become proceeds until after it passed through the burn
11
company. He alleges that this is significant because the
government offered no evidence as to how much money was
wired after it passed through the burn company, thus
failing to prove that money laundering occurred. In the
alternative, he claims that, if the money became proceeds
before it passed through the burn company, it did so as
soon as it came into the Association's control. Thus, it
cannot have been the proceeds of wire fraud, since the wire
fraud was predicated on the money being wired after it
entered the control of the Association. We address these
points in turn.
C. Did the Transactions Involve the Proceeds
of the Fraud?
The government only proved financial transactions, i.e.,
wirings of money up the daisy chain, occurring before the
money reached the burn company. Accordingly, if the
money did not become proceeds until after it passed
through the burn company, as Morelli contends, the
government's proof of money laundering would have failed
because it would not have proved a financial transaction
involving proceeds.
Morelli argues that the money did not become proceeds
until it moved past the burn company. In essence, he
contends that since the duty to pay the taxes lay with the
burn company, no fraud occurred until the burn company
itself failed to collect and pay the taxes. Hence, before the
burn company failed to do so, the money was entirely
legitimate. But the taxes were not, as Morelli claims,
collected and passed on, and then diverted. They were
never collected. The paperwork that indicated that the taxes
had been collected was falsified. The transactions going
down the chain --purporting to represent sales of fuel --
were fraudulent, and the payments going back up the chain
were proceeds of that fraud.
In our view, the key point is that the entire chain of
companies was operated by the Association; it was all part
of the conspiracy. Once the money entered the control of
the street company, it entered the control of the
Association. The Association never had any intention of
12
paying the taxes. It organized the chain precisely to avoid
having to do so. Although in a paperwork sense the taxes
were not embezzled until they passed the burn company,
the reality is that the taxes were embezzled as soon as the
funds entered the chain. The fact that the Association
organized the daisy chain to make it appear that distinct
companies were buying and selling the gas and that the tax
was collected at each step prior to the burn company does
not alter our conclusion. We conclude that the fraud was
completed when the money entered the control of the
Association acting through the street company, since at
that time it had no present intent to pay the taxes. Under
these circumstances, the taxing authorities were defrauded
out of their funds at the time the money entered the chain.
In sum, we find no reason to set aside the judge's and
jury's implicit conclusion that the money derived from this
scheme became proceeds for the Association as soon as it
entered the street company's hands. Legally, the money
was the proceeds of fraud as soon as it entered the hands
of the street company.
D. Was the Money the Proceeds of Wire Fraud?
We also think that the money was the proceeds of wire
fraud, and not simply tax fraud, which is not a specified
RICO predicate act and therefore not a specified unlawful
activity under S 1956. Morelli contends that, even if the
money became proceeds of some illegal activity at the time
it came into the possession of the street company, it was
only the proceeds of tax fraud. He argues that, at the time
the money entered the hands of the street company, no
wire fraud had occurred. Before it was wired, he says, the
money was the proceeds of tax fraud. After it was wired, the
argument continues, although a wire fraud may have been
committed, the money was not the proceeds of a wire fraud,
because the wiring itself had nothing to do with the
Association's coming into possession of the money.
As an initial matter, we think that Morelli would be
correct that the the money would not be the proceeds of
wire fraud if only one of these daisy chain series of
transactions had occurred. Proceeds are "[t]hat which
13
results, proceeds, or accrues from some possession or
transaction." Black's Law Dictionary 1204 (6th ed. 1990).
The transaction series in question here is the single series
of wirings of the funds from the street company up the
chain through the burn company to the top. We think it is
obvious that the money that the Association fraudulently
obtained does not "result, proceed, or accrue" from this
single series of wirings, and therefore the money is not the
proceeds of wire fraud. Within the individual series of
transactions, the money is the proceeds of fraud simpliciter
at the time it enters the Association's hands. The later
wirings do not change its character into the proceeds of
wire fraud.9
_________________________________________________________________
9. Accordingly, we disagree with the opinion of the Seventh Circuit in
United States v. Mankarious, 151 F.3d 694 (7th Cir.), cert. denied, 119
S. Ct. 621 (1998). That court, relying on inter alia Schmuck v. United
States, 489 U.S. 705 (1989), concluded that, unlike bank and wire fraud,
"[a] mail fraud scheme . . . can create proceeds long before the mailing
ever takes place." 151 F.3d at 705. We think that that court misreads
Schmuck. In Schmuck, the defendant created an ongoing fraudulent
scheme that involved a group of independent series of fraudulent
transactions. Each of these series ended with a mailing, which the
Supreme Court held could provide a basis for mail fraud convictions.
The Seventh Circuit apparently reads Schmuck as meaning that the
mailings rendered the individual series of transactions with which they
were associated mail fraud nunc pro tunc.
We disagree. As discussed in more detail below, the key in Schmuck
was not that the mailings increased the likelihood of success of the
individual fraudulent series of transactions. Rather, each individual
mailing contributed to the future success of the entire scheme. See 489
U.S. at 711-12 (although the mailings may not have contributed to the
success of the individual already-completed series of transactions, they
were "essential to the perpetuation of Schmuck's scheme"). Thus, we
think that Schmuck does not support the Seventh Circuit's
understanding of the term "proceeds" in the money laundering statute.
We also note that the court in Mankarious drew a false distinction
between wire and mail fraud. See Mankarious, 151 F.3d at 705. As we
have noted, the wire fraud and mail fraud statutes differ only in form,
not in substance, and cases such as Schmuck interpreting one govern
the other as well. See United States v. Frey, 42 F.3d 795, 797 & n.2 (3d
Cir. 1994) (citing United States v. Tarnopol, 561 F.2d 466, 475 (3d Cir.
1977) ("[T]he cases interpreting the mail fraud statute are applicable to
14
This does not get Morelli off the hook, however. We
believe that the money wired up from the street company
was, in fact, the proceeds of wire fraud, just not in the way
Morelli thinks it might have been. In order to understand
this, we must engage in a close reading of the wire fraud
statute, which reads as follows:
Whoever, having devised or intending to devise any
scheme or artifice to defraud, or for obtaining money or
property by means of false or fraudulent pretenses,
representations, or promises, transmits or causes to be
transmitted by means of wire, radio, or television
communication in interstate or foreign commerce, any
writings, signs, signals, pictures, or sounds for the
purpose of executing such scheme or artifice, shall be
fined under this title or imprisoned for not more than
five years, or both.
18 U.S.C. S 1343. Wire fraud consists of (1) a scheme to
defraud and (2) a use of a wire transmission for the
purpose of executing, or attempting to execute, the scheme.
See Frey, 42 F.3d at 797. Morelli concedes that the daisy
chain was a scheme to defraud. Furthermore, as discussed
above, the scheme produced proceeds. The question is, was
the scheme a wire fraud scheme in such a way that its
proceeds were the proceeds of wire fraud at the time the
Association conducted a financial transaction involving
them?
_________________________________________________________________
the wire fraud statute as well.")). Thus, the Seventh Circuit's conclusion
would -- if correct -- apply equally to cases involving wire fraud.
Finally, we observe that none of this implies that Morelli did not
conspire to commit wire fraud. A wiring could constitute wire fraud even
though it involved money that had already been obtained as a result of
fraud. See United States v. Allen, 76 F.3d 1348, 1362 (5th Cir. 1996)
(holding that "acts occurring after the defrauding defendant already
controls the proceeds of the fraud may . . . further the fraud" and
accordingly constitute wire fraud); cf. Schmuck, 489 U.S. at 712 (holding
that mail fraud occurs so long as the mailing is "incident to an essential
part of the scheme" (internal quotations omitted)). Clearly, the wirings
in
this case were "incident to an essential part of the scheme," the
transmittal of the money in a useable form to the members of the
Association.
15
We think the money was the proceeds of the entire
ongoing fraudulent venture in which the Association
engaged in creating the daisy chain scheme, and that this
venture was a wire fraud scheme. This ongoing venture
consisted of all the individual series of transactions upon
which Morelli focuses, not the discrete series of
transactions individually. Although each series may have
included discrete acts of wire fraud that followed the
creation of the proceeds related to that series, the fact is
that the entire program, encompassing all of the acts
charged in the indictment, constituted one large, ongoing
wire fraud scheme. Each wiring in each series furthered the
execution of each and every individual act of tax fraud, and
helped to create the proceeds involved in each succeeding
series of transactions. This is primarily because each
wiring, whether it occurred before or after a given act of tax
fraud, served to promote and conceal each individual
embezzlement of taxes, either ex ante or ex post. More
precisely, each wiring, including those that occurred before
a particular transaction, made it more difficult for the
government to detect the entire fraudulent scheme or any
particular fraudulent transaction or series of transactions.
In sum, the money gained in each series of transactions
(save the initial one) was the proceeds of wire fraud because
the money was the proceeds of a fraud that was furthered
by the prior wirings.10
This case is similar to Schmuck v. United States, 489 U.S.
705 (1989). In Schmuck, the Supreme Court upheld the
defendant's conviction for mail fraud. The defendant had
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10. We note that this means that the funds acquired in the first series
of transactions were not the proceeds of wire fraud. This is immaterial,
however, since the first series, as noted above, would still constitute
wire
fraud, and the aggregate amount of proceeds would not be reduced
significantly enough to reduce Morelli's sentence. No individual series of
transactions involved more than a few hundred thousand dollars,
whereas the ongoing scheme involved tens of millions of dollars. The
largest single wire transfer listed in the indictment was for $780,000.
Subtracting this amount from the total amount upon which Morelli's
sentence was based would not change the specific offense characteristic
category for the amount laundered. See U.S.S.G. S 2S1.1(b)(2).
Accordingly, any error in including the funds from the first series of
transactions was harmless.
16
created a scheme in which he would roll back the
odometers on cars and sell them as new to car dealers. As
with any car sale, each unwitting dealer would mail a title-
application form to the state government. The Court
concluded that this mailing was sufficient to support a mail
fraud conviction. In particular, the Court found that:
Schmuck's was not a "one-shot" operation in which he
sold a single car to an isolated dealer. His was an
ongoing fraudulent venture. A rational jury could have
concluded that the success of Schmuck's venture
depended upon his continued harmonious relationship
with, and good reputation among, retail dealers, which
in turn required the smooth flow of cars from the
dealers to their Wisconsin customers.
Under these circumstances, we believe that a rational
jury could have found that the title-registration
mailings were part of the execution of the fraudulent
scheme . . . . [A]lthough the registration-form mailings
may not have contributed directly to the duping of
either the retail dealers or the customers, they were
necessary to the passage of title, which in turn was
essential to the perpetuation of Schmuck's scheme.
489 U.S. at 711-12. In Schmuck, the Court recognized that,
even though each individual fraudulent transaction series
involved a mailing only after the fraud had already been
completed, each mailing contributed to the entire scheme
and made each other individual fraudulent transaction
series, particularly those occurring later, more likely to be
successful.11
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11. We recently distinguished Schmuck, although not in a way that is
relevant here. In United States v. Cross, 128 F.3d 145 (3d Cir. 1997),
cert. denied, 118 S. Ct. 1519 (1998), we reversed mail fraud convictions
based on the fact that, although the mailing at issue aided the success
of the fraud, the mailing would have occurred whether the fraud had
taken place or not. The alleged fraud involved fixing traffic court cases.
The mailings at issue were the routine transmissions of case dispositions
to the parties. We distinguished Schmuck on the ground that "the court
regularly mailed notices to parties and the DOT in every case, whether
or not the defendants had attempted to influence the result." 128 F.3d
at 152 n.4. There was no causal nexus between the fraud and the
mailings in Cross. Here, by contrast, the wirings, like the mailings in
Schmuck, would not have been made but for the existence of the
fraudulent scheme. Morelli's case is much more like Schmuck than
Cross.
17
This case is controlled by Schmuck. Each wiring
concealed and promoted each and every fraudulent series
of transactions by making the entire scheme less
detectable. Without the wirings to make it appear as if a
series of distinct transactions between independent
companies had occurred, the taxing authorities would have
had a much easier time tracking down the perpetrators of
the tax fraud scheme. Each wiring "was essential to the
perpetuation of [the Association]'s scheme." Schmuck, 489
U.S. at 712. Since each individual fraudulent series of
transactions other than the initial one was preceded by a
wiring that promoted it, we think that, within each
transaction series, the money was the proceeds of wire
fraud at the time it came into the hands of the Association
in the form of the street company. As soon as one wiring
took place, the entire tax fraud scheme became a wire fraud
scheme. Since the very first series of transactions involved
a wiring of the funds, every fraudulent acquisition of funds
thereafter was an acquisition of funds through wire fraud.
This conclusion is entirely consistent with Conley I. See
37 F.3d at 980 (requiring that proceeds be "derived from an
already completed offense, or a completed phase of an
ongoing offense"). The entire daisy chain was an ongoing
fraudulent venture. Each series of transactions within it
was a "completed phase" of the ongoing scheme. As we
discussed above, the phases were completed as soon as one
wiring occurred as part of the entire venture and the money
from the individual series of transactions came into the
possession of the street company aspect of the Association.
Morelli's case also resembles United States v. Massey, 48
F.3d 1560 (10th Cir. 1995). In Massey, the defendants
convinced a number of people to invest in their fraudulent
loan scheme. When some of the participants became
concerned that they had not received their loans, the
defendants sent them letters encouraging them not to
withdraw their money. Later, one of the defendants wired
some of the money to another defendant. The defendants
were convicted of mail fraud and money laundering. See 48
F.3d at 1565. The defendants claimed that none of the
money involved in the wiring came from victims who
received the mailings. Accordingly, the defendants argued
18
that the money wired could not have been the proceeds of
mail fraud.
The court of appeals upheld the conviction. While noting
that the defendants' assessment of the facts was correct, as
far as it went, it observed that at least two mailings had
been sent to victims prior to the wiring, albeit not to victims
whose money was transferred in the wiring. See 48 F.3d at
1566. The court concluded that these mailings not only
contributed to the success of the fraud with respect to the
victims who received them but also to the overall success of
the entire fraudulent loan program. See 48 F.3d at 1567("[T]he letters protected the plan to defraud all of the
victims and not just the victim to whom the letter was
sent."). In particular, if the letters had not been sent to the
other victims, the fraud with respect to the victims whose
money was wire transferred might not have been
successful. See 48 F.3d at 1566-67. Accordingly,
the jury could reasonably find that the fees deposited
in the bank account from which the wire transfer was
sent were derived from the fraudulent scheme that was
furthered by the lulling letters. The "proceeds" of mail
fraud are derived from the success of a fraudulent
scheme that has been facilitated through the use of the
mails. . . . Accordingly, we conclude that the jury had
sufficient evidence to conclude that the government
met all of the elements of money laundering . . . .
48 F.3d at 1567 (citations omitted).
We find Massey persuasive. Moreover, Morelli's case is
indistinguishable from Massey. Had some or all of the
wirings not occurred, some of the daisy chain transaction
series might have been detected by the taxing authorities
and the entire scheme would have been discovered sooner.
Each of the wirings made before each individual fraudulent
series of transactions contributed to the success of those
transactions. As in Massey, the money resulting from these
transactions was the proceeds of wire fraud at the time of
the wire transfers. Accordingly, we conclude that the jury
and the District Court had sufficient evidence to conclude
that the government met all of the elements of money
laundering under S 1956.12 Therefore, we think the District
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12. Both parties in this case cite a number of other cases that they
believe are relevant to the issue before us. See, e.g., United States v.
19
Court properly sentenced Morelli under the money
laundering guideline.13
_________________________________________________________________
Christo, 129 F.3d 578 (11th Cir. 1997); United States v. Allen, 76 F.3d
1348 (5th Cir. 1996); United States v. Savage, 67 F.3d 1435 (9th Cir.
1995); United States v. Kennedy, 64 F.3d 1465 (10th Cir. 1995); United
States v. Johnson, 971 F.2d 562 (10th Cir. 1992). We do not believe
these cases aid us in deciding the issue before us. They all involved the
temporal question whether, at the time the alleged money laundering
transaction occurred, the money involved in the transaction was
proceeds. See, e.g., Allen, 76 F.3d at 1362 ("In this case, the consultant
fees and loans left the control of First City Bank and reached the
accounts of the conspirators before the wire transfers occurred. The
charged transactions distributed the proceeds among the various
defendants and helped hide the fraud from First City auditors and
federal regulators."); Kennedy, 64 F.3d at 1478 ("[T]he illegal mailings
in
this case involved discrete, earlier mailings by Kennedy, rather than the
receipt of funds by Kennedy from his victims. It was the subsequent and
distinct transfers of funds that were alleged as the separate transactions
involving `proceeds of specified unlawful activity' which constituted the
alleged money laundering under S 1956."). This is the question we
addressed in Conley I, 37 F.3d at 980 (proceeds must be "derived from
an already completed offense, or a completed phase of an ongoing
offense"). The question before us today, on the other hand, is the more
abstract question whether the money was the proceeds of wire fraud.
These cases do not help us answer that question.
13. Morelli also contends that the District Court erred in failing to
grant
him a downward departure because, even if the conspiracy involved
money laundering, it was not within the "heartland" of money
laundering. He relies on proposed amendments to the money laundering
guidelines, which Congress rejected in 1995, that would have tied money
laundering sentences to the offense level of the underlying specified
unlawful activity. He also contends that he is entitled to a downward
departure because the government charged him, unlike others who
engaged in similar schemes but were prosecuted separately, with money
laundering. Morelli claims that this constitutes unfair sentence
manipulation.
The District Court did grant Morelli a downward departure on the
ground that the "value of the funds" adjustment under U.S.S.G.
S 2S1.1(b)(2) overstated the seriousness of the money laundering that
occurred. See United States v. Morelli, Opinion, Crim. No. 93-210, at 16-
19 (D.N.J. Feb. 26, 1996). If the District Court refused to grant a larger
downward departure in an exercise of its discretion, we have no
20
III. Roizman's Appeal
Roizman argues that his conviction should be reversed
because of an actual or potential conflict in his attorney's
representation of both him and one Igor Porotsky. Porotsky
was neither a codefendant nor a witness at trial, but his
statements were admitted as hearsay statements through
the testimony of other witnesses. In particular, various
witnesses testified that Porotsky had been involved in the
fuel business before the Association was created, and that
he had been involved with Morelli and other alleged
members of the Italian Mafia. At the time of trial, Larry
Silverman, who was then Roizman's attorney, was also
representing Porotsky in a separate matter.14 Roizman
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jurisdiction to consider Morelli's claim. See United States v. Khalil, 132
F.3d 897 (3d Cir. 1997); United States v. Miele, 989 F.2d 659, 668 n.11
(3d Cir. 1993); United States v. Parker, 902 F.2d 221, 222 (3d Cir. 1990).
On the other hand, if the sentencing court denied a larger downward
departure because it erroneously concluded it lacked legal authority to
consider a separate ground for departure, we have jurisdiction to review
the sentence. See United States v. Spiropoulos, 976 F.2d 155, 160 n.2
(3d Cir. 1992).
In this case, however, the District Court committed no error. Despite
Morelli's repeated and vociferous arguments, proposed amendments to
the Sentencing Guidelines do not provide independent legal authority for
a downward departure. See United States v. Anderson, 82 F.3d 436 (D.C.
Cir. 1996) (explaining persuasively why proposed crack cocaine
amendments did not provide independent authority for a downward
departure). Furthermore, Morelli's invocation of United States v.
Lieberman, 971 F.2d 989, 994-96 (3d Cir. 1992), in which we affirmed a
district court's grant of a downward departure for manipulation of the
indictment, does not help him since in that case the district court had
decided in its discretion that a downward departure was appropriate and
the question on appeal was whether the district court had authority to
do so. Here, by contrast, the District Court considered both of Morelli's
proposed grounds for departure and exercised its discretion to reject
them. Accordingly, since Morelli's argument is essentially a challenge to
the District Court's exercise of its discretion in denying him an
additional downward departure, we have no jurisdiction to consider his
claim.
14. We need not consider the much-debated issue of the precise scope of
this representation, however, since we conclude that, regardless of the
scope of the representation, cross-examining Porotsky was not a useful
alternative strategy and, at all events, doing so would not have
conflicted
with Silverman's duties to Porotsky.
21
argues that, as a result of this representation, Silverman
suffered a conflict and was unable to impeach Porotsky as
a hearsay declarant adequately. See Fed. R. Evid. 806
(permitting impeachment of the declarant of statements
admitted as hearsay). Roizman also contends that, even if
this was only a potential conflict, it merits a reversal
because counsel for the government should have been
aware of it at trial.
After we remanded Roizman's claims to the District
Court, the Court heard arguments and considered the
documentary evidence. For the reasons set forth infra, the
District Court rejected all of Roizman's claims regarding
Silverman's representation and alleged conflict of interest.
"We apply plenary review to the district court's application
of legal precepts, and clearly erroneous review to its factual
findings." United States v. Brink, 39 F.3d 419, 421 (3d Cir.
1994) (citations omitted).
A. Actual Conflict of Interest
An actual conflict claim arises after trial upon the
discovery of a previously unnoticed conflict of interest on
the part of trial counsel. "[A] defendant who raised no
objection at trial must demonstrate that an actual conflict
of interest adversely affected his lawyer's performance."
Cuyler v. Sullivan, 446 U.S. 335, 348 (1980). We have
elaborated on this as follows: "An actual conflict of interest
`is evidenced if, during the course of the representation, the
defendants' interests diverge with respect to a material
factual or legal issue or to a course of action.' " United
States v. Gambino, 864 F.2d 1064, 1070 (3d Cir. 1988)
(quoting Sullivan v. Cuyler, 723 F.2d 1077, 1086 (3d Cir.
1983)). In addition, we have noted that an actual conflict is
more likely to be found where "an attorney takes positive
steps on behalf of one client prejudicial to another" as
opposed to cases where "the attorney's actions are based on
inaction and are passive." Gambino, 864 F.2d at 1070.
Similarly, an actual conflict is more likely to occur in
cases of joint representation -- representation of more than
one defendant at the same trial -- rather than simply
multiple representation -- representation of defendants in
22
different trials -- as occurred here. In cases involving
multiple but not joint representation, and when an attorney
has in some way failed to act, we have adopted the
following standard:
In order to establish an actual conflict the petitioner
must show two elements. First, he must demonstrate
that some plausible alternative defense strategy or
tactic might have been pursued. He need not show that
the defense would necessarily have been successful if
it had been used, but that it possessed sufficient
substance to be a viable alternative. Second, he must
establish that the alternative defense was inherently in
conflict with or not undertaken due to the attorney's
other loyalties or interests.
Gambino, 864 F.2d at 1070 (quoting United States v. Fahey,
769 F.2d 829, 836 (1st Cir. 1985)); see also Hess v.
Mazurkiewicz, 135 F.3d 905, 910 (3d Cir. 1998). When an
actual conflict with an adverse effect, of the sort described
above, is demonstrated, the defendant is entitled to a
reversal for inadequate assistance of counsel without
demonstrating prejudice. See Strickland v. Washington, 466
U.S. 668, 692 (1984).15
The District Court found no actual conflict in Silverman's
representation of both Porotsky and Roizman. In particular,
the court found that Silverman's decision not to attempt to
impeach Porotsky was a reasonable strategic decision:
In this case, it is abundantly clear from an
examination of Mr. Roizman's claim in the larger
context of the trial that cross-examination of Mr.
Porotsky was not a plausible defense strategy that
"possessed sufficient substance" to raise a claim of
constitutional dimension. . . .
The Court's observations during the lengthy trial
confirm that Mr. Roizman's attorney pursued a
"wallflower" defense -- that is, that Mr. Roizman was
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15. Of course, if the defendant cannot prevail on an actual conflict
theory, the defendant can still bring a conventional ineffective
assistance
claim under Strickland, but the defendant must then show prejudice. See
Hess, 135 F.3d at 910.
23
an innocent operator who was a victim of intimidation
from other organized crime figures. To have vigorously
cross-examined Porotsky, a witness whose hearsay
testimony was cumulative and peripheral, and to
therefore have risked creating in the jurors' minds a
connection between Porotsky and Roizman, would have
been asinine in light of the strategy Mr. Roizman
pursued. The Court, drawing on its observation of the
strategy employed during the trial, as well as Mr.
Silverman's affidavit submitted herewith, concludes
that the decision not to cross-examine Mr. Porotsky's
hearsay statements was not tainted by a conflict of
interest. Rather, it was a sound decision, based on an
experienced trial lawyer's strategic considerations.
United States v. Morelli, Opinion & Order, Crim. No. 93-
210, at 7-8 (D.N.J. Oct. 16, 1997). As the District Court
also noted, this strategy was quite successful: "Of the
eighteen counts in the indictment against Mr. Roizman, he
was acquitted of 13, including the global conspiracy
charge." Id. at 7 n.5.
Roizman alleges that Porotsky's hearsay statements
incriminated him in several ways. The District Court
rejected this argument, finding that impeaching Porotsky
would have made Roizman's "wallflower defense" less
successful. See id. at 7. It also concluded that Porotsky's
statements were "so cumulative and peripheral" that
impeaching them would have at best made no difference.
Based on our review of the record, we find that the District
Court's conclusions were probably correct, and certainly
not clearly erroneous. Based on these facts, we agree with
the District Court's conclusion that cross-examination of
Porotsky was not an alternative strategy with "sufficient
substance to be a viable alternative." Gambino, 864 F.2d at
1070.
Even if we were to conclude that the District Court did
clearly err in its conclusions on the previous point, we
would still affirm its rejection of Roizman's claim. We do not
believe that the alleged alternative strategy of impeaching
Porotsky created a conflict between Silverman's duties to
Roizman and Porotsky. The key point, and one only
recognized in Gambino as far as we can tell, is that we
24
must look at the attorney's duties to both clients. An actual
conflict exists only if the proposed alternative strategy (a)
could benefit the instant defendant and (b) would violate
the attorney's duties to the other client. See Gambino, 864
F.2d at 1070.
In Gambino, the court rejected the defendant's actual
conflict claim because it found that the proposed strategy
would not have hurt the attorney's other client. Gambino
involved a drug distribution charge. The defendant
(Gambino) claimed that his attorney could have argued that
another of the attorney's clients, Mazzarra, might have
committed the crime with which Gambino was charged. But
Mazzarra was not a codefendant, and the proposed
argument would not have rendered Mazzarra directly liable
to punishment. Furthermore, the information Gambino
contended would have supported the strategy came from
the government's files. Exposing this evidence at trial would
not have given the government any new information that
would have made it more likely to charge Mazzarra. The
court concluded that no actual conflict existed because
"Mazzara would not have been prejudiced if Evseroff [the
attorney] had [tried to show he was the source of the
heroin] and thus it follows that appellant and Mazzara did
not have conflicting interests in Evseroff's performance at
trial." Gambino, 864 F.2d at 1071.
We think that this case is analogous to Gambino.
Porotsky was not a defendant in Roizman's case. While
Porotsky probably would not have wanted to be impeached
as a criminal, he had been convicted of various crimes, and
numerous other witnesses at trial had discussed his
criminal activities. (In fact, the impeachment would have
involved almost exclusively the evidence of these
convictions.) Furthermore, the evidence Silverman would
have used to impeach Porotsky's statements -- including
Porotsky's prior convictions and present indictments--
would most likely have come from the government. We do
not see how exposing such information, already in the
possession of the government, could have harmed
Porotsky's interests.16
_________________________________________________________________
16. Roizman also suggests that Silverman should have used information
he acquired from Porotsky during his representation of him to impeach
25
B. Potential Conflict of Interest
Roizman also claims that his conviction should be
reversed under a potential conflict theory. We reject this
claim as well.
When a district court is aware, or should be aware, of a
potential conflict of interest on the part of the defendant's
attorney, the court must inquire as to whether the
defendant is aware of and waives this conflict. See Wheat v.
United States, 486 U.S. 153 (1988); Wood v. Georgia, 450
U.S. 261, 272 (1981); United States v. Pungitore, 910 F.2d
1084, 1143 (3d Cir. 1990). Roizman argues that reversal is
required not only when the trial court is aware of such a
conflict and fails to act but also when the prosecutor and
defense attorney are aware of one. Although Roizman cites
several cases from courts within the Second Circuit in
support of this claim, see, e.g., United States v. Rahman,
861 F. Supp. 266, 278 (S.D.N.Y. 1994), the court of appeals
in that circuit has at most only exhorted prosecutors to
advise the trial courts when they are aware of conflicts, see
United States v. Stantini, 85 F.3d 9, 13 (2d Cir. 1996). See
also Cerro v. United States 872 F.2d 780, 787 (7th Cir.
1989) ("We do not disagree with the propriety of such a
recommendation under like circumstances, but we
conclude that it is not a constitutional requirement. In the
present case, the prosecutor was under no constitutional
duty to advise the trial court of a potential conflict based on
the information available to him."). They have not held, and
we do not hold, that a prosecutor's -- or a defense
attorney's -- failure in this respect is grounds for reversal.
Since Roizman makes no claim that the District Court was
or should have been aware of Silverman's potential conflict,
he is not entitled to a reversal on these grounds. 17
_________________________________________________________________
Porotsky. We reject this contention. If Silverman had not represented
Porotsky and thus created the alleged conflict of interest in this case,
he
would not have had access to this information. Roizman cannot prevail
on the argument that his interests were harmed by Silverman's failure to
use information he acquired in confidence from Porotsky to impeach
Porotsky. Accordingly, we conclude that no actual conflict with
Silverman's duties to Porotsky affected his representation of Roizman.
17. Finally, Roizman argues that we should reverse the District Court's
decision because it failed to conduct an evidentiary hearing on his
26
For all these reasons, the judgments of the District Court
with respect to both Morelli and Roizman will be affirmed.
A True Copy:
Teste:
Clerk of the United States Court of Appeals
for the Third Circuit
_________________________________________________________________
claims. Because we conclude that the District Court did not err in
rejecting Roizman's claims based on the documentary evidence before it,
we see no need for the court to have conducted further evidentiary
proceedings.
27