219 F.3d 145 (2nd Cir. 2000), 99-1236, United States v. Ferrarini

Docket Nº:Docket Nos. 99-1236, 99-1239, 99-1250, 99-1291
Citation:219 F.3d 145
Case Date:July 18, 2000
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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219 F.3d 145 (2nd Cir. 2000)




Docket Nos. 99-1236, 99-1239, 99-1250, 99-1291

United States Court of Appeals, Second Circuit

July 18, 2000

(Argued: March 8, 2000)


Appeal from judgments of conviction for conspiracy to commit insurance fraud and for various other substantive offenses, entered following a jury trial. On appeal, defendants-appellants contend that the district court's denial of one defendant's motion to sever or to adjourn the trial deprived that defendant of his right to testify, that the district court erroneously provided the jury with an instruction on conscious avoidance, when the evidence showed instead actual knowledge, and that the district court erred in concluding that a premium finance company is a "financial institution" within the meaning of U.S.S.G. §2F1.1(b)(7)(A).


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CHRISTOPHER W. CHAN, New York, NY, for Defendant-Appellant Ferrarini.

ARTHUR J. VIVIANI, New York, NY (Don D. Buchwald, James M. Keneally, New York, NY, on the brief), for Defendant-Appellant Vieira.

NATHAN Z. DERSHOWITZ,New York, NY (Glenn A. Garber, David B. Krauss, Alan M. Dershowitz, New York, NY, on the brief), for Defendant-Appellant Kagan.

LARRY H. KRANTZ, New York, NY (Mary Lou Chatterton, New York, NY, on the brief), for Defendant-Appellant Rumignani.

WILLIAM F. JOHNSON, Special Assistant United States Attorney, New York, NY (Mary Jo White, United States Attorney for the Southern District of New York, Robert S. Khuzami, Robert E. Rice, Assistant United States Attorneys, New York, NY, on the brief), for Appellee United States of America.

Before: CARDAMONE, CALABRESI, and PARKER, Circuit Judges.

CALABRESI, Circuit Judge:

Defendants Donald Ferrarini, Everett J. Vieira, A. Michael Kagan, and Bruno Rumignani appeal from their judgments of conviction after a jury trial in the United States District Court for the Southern District of New York (Denise Cote, Judge). Ferrarini, Vieira, Kagan, and Rumignani were all charged in a 82-count indictment alleging, inter alia, conspiracy to commit securities fraud, to make false statements to the Securities and Exchange Commission ("SEC"), to commit mail fraud, and to commit insurance fraud. All four defendants were convicted of conspiracy, in violation of 18 U.S.C. § 371, as well as of various substantive offenses. Thus, defendants Ferrarini and Rumignani were convicted of securities fraud, in violation of 15 U.S.C. § 78ff and 78j(b), of false statements to the SEC, in violation of 18 U.S.C.

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§ 1001, of mail fraud, in violation of 18 U.S.C. § 1341, and of insurance fraud, in violation of 18 U.S.C. § 1033(b)(1);1 defendant Kagan was convicted of mail fraud, in violation of 18 U.S.C. §§ 1341 and 2; and defendant Vieira was convicted of making false statements to the United States Attorney's Office and the FBI, in violation of 18 U.S.C. §§ 1001 and 2.

On appeal, defendants raise numerous challenges to their convictions and sentences, most of which we reject in an unpublished summary order, filed today. Three of their arguments, however, merit greater discussion. We write this opinion to address (1) defendant Kagan's contention that his heart condition precluded him from taking the stand at trial and that the district court's denial of his motion to sever or to adjourn the trial on medical grounds therefore deprived him of his constitutional right to testify, (2) the assertions of defendants Vieira and Kagan that the district court erred in instructing the jury on conscious avoidance, and (3) the arguments of all four defendants that a premium finance company does not fall under the definition of a "financial institution" in the Sentencing Guidelines. We affirm.


This case revolves around the frauds committed by Underwriters Financial Group ("UFG") from the early 1990s through mid-1995, when UFG filed for bankruptcy. During this time, Ferrarini was the President and Chief Executive Officer of UFG, as well as a shareholder. Rumignani, also a shareholder, was the Executive Vice President and Chief Operating Officer. Vieira, who did not own any shares in UFG, was employed as a business analyst for the firm. Kagan had no direct relationship to UFG; he was, however, on the Board of Directors of CPF Premium Financing ("CPF"), one of the companies defrauded by UFG.

Key to this story are also two accomplice witnesses. Mark Bailine was the Vice President of Finance and Administration of UFG who oversaw the accounting department. He was one of the central prosecution witnesses at trial, testifying pursuant to a cooperation agreement. Howard Miller, a Senior Vice President at UFG, oversaw sales and marketing and also testified for the government.2

Around 1970, Ferrarini, Rumignani, Miller, and one Burt Matfus began working together in a privately owned commercial insurance brokerage firm. The firm changed names several times, but finally became UFG in the early 1990s.3 As an insurance broker, UFG assisted its clients in obtaining insurance, collected from clients the annual insurance premiums that UFG then paid to the insurance carriers, and remitted any refunds or credits from the insurance carriers to the insureds (this could happen, for instance, if the amount of coverage was reduced and, hence, the price of the premium decreased, after it had already been paid). UFG also assisted its clients in obtaining loans from premium finance companies ("premium finance loans"). See infra Section I.B.1.

Starting in the mid-1980s, UFG encountered serious financial difficulties. In order to alleviate an expenses-greater-than -

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income problem, it merged with a publicly traded company to form another public company named Underwriters in the hope that stock offerings by the new company would produce an infusion of capital. Because Underwriters was a public company, it was obliged to file quarterly and annual reports with the SEC. In these reports, Underwriters was required to make various financial disclosures including information on the business operations of its wholly owned subsidiary, UFG.

After the merger, UFG continued in the commercial insurance brokerage business. The merger, however, did not have the desired ameliorative financial effects. The company with which UFG joined was saddled with approximately $8 million in prior debt, and this debt was assumed, under the merger agreement, by UFG. Against this backdrop of UFG's less than rosy financial picture, the frauds unfolded.

A. Embezzled Premiums and Credits

The evidence at trial, viewed in the light most favorable to the government, see United States v. Guadagna, 183 F.3d 122, 129 (2d Cir. 1999), revealed that over the course of eight years, from 1987 to 1995, Ferrarini, assisted by Rumignani, Matfus, and Bailine, embezzled more than $10 million from UFG's clients and from insurance carriers. As noted above, UFG, as an insurance brokerage firm, stood between its clients, the insureds, and insurance carriers. Accordingly, UFG's clients would forward their premium payments to UFG, which, after deducting its commission, would, in the ordinary course of events, pay the insurer. Similarly, insurance carriers generally transmitted through UFG any credits owed to the insureds. Rather than forwarding these sums to the insurance carrier or the insured to whom they were owed, however, UFG's accounting department, under Ferrarini's instruction, removed selected premiums and credits from its "accounts payable," issued itself a check in the same amount, and recorded these moneys as income. Ferrarini and Rumignani both signed such checks depositing the embezzled funds in UFG's account.

B. Fraudulent Premium Finance Loans

1. UFG loans from CPF, Imperial, and AI Credit

Commercial insurance premiums are often sizeable, for instance, as much as $1 million, and are due in a lump sum on the effective date of coverage. To aid insureds who lack that kind of capital, organizations called premium finance companies offer loans to insureds, who use the money lent to them to make full payment of the annual premium to the insurance carrier on the due date. These insureds then repay the premium finance company with an upfront down payment followed by monthly installments, typically over nine months. These loans are called premium finance loans and are at the heart of the frauds in this case.

If an insured defaults on the premium finance loan, the premium finance company has the right to retain the down payment, to cancel the insurance policy being financed, and to obtain from the insurance carrier, which had previously been paid in full for the entire policy year, any unearned premium, i.e., the premium pro rated for the balance of the year. Premium finance loans typically have low interest rates because they are fully secured with collateral (the down payment and the unearned premium).

Premium finance loans can be made in two ways: "care of" or "direct bill." "Care of" loans are submitted on behalf of the borrower (the insured who seeks to finance an insurance premium) by the insurance broker (e.g., UFG). Once the premium finance loan is approved, the premium finance company sends the loan proceeds, as well as all documentation relating to the loan, such as payment coupons, to the insurance broker. In a "direct bill" loan, the loan proceeds are still sent to the insurance

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broker, but the loan documentation is sent directly to the borrower.

From mid-1993 to mid-1995, when it filed for bankruptcy, UFG made 37 fraudulent premium finance loan applications...

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