United States v. Greenberg, s. 14-4208-cr(L)

• Decision Date: 31 August 2016
• Docket Number: August Term 2015,14-4278-cr(con),Nos. 14-4208-cr(L),s. 14-4208-cr(L)
• Citation: 835 F.3d 295
• Parties: United States of America, Appellee, v. Daniel Greenberg, Defendant-Appellant.
• Court: U.S. Court of Appeals — Second Circuit

835 F.3d 295

United States of America, Appellee,

v.Daniel Greenberg, Defendant-Appellant.

Nos. 14-4208-cr(L)

14-4278-cr(con)

August Term 2015

United States Court of Appeals, Second Circuit.

Argued: January 11, 2016

Decided: August 31, 2016

For Appellee : Charles N. Rose , David C. James, Walter M. Norkin, Assistant United States Attorneys, New York, N.Y., for Robert L. Capers, United States Attorney for the Eastern District of New York, for the United States of America.

For Defendant-Appellant : Eric M. Creizman , Creizman PLLC, New York, N.Y., for Daniel Greenberg.

Before: Straub, Livingston, and Chin, Circuit Judges.

Debra Ann Livingston

, Circuit Judge:

This appeal arises from Daniel Greenberg's conviction of wire fraud, access device fraud, aggravated identity theft, and money laundering in connection with a scheme to make unauthorized credit card charges to the credit cards of customers of Greenberg's digital retail company, Classic Closeouts, LLC (“CCL”). During the summer of 2008, there were approximately 77,000 unauthorized charges to these customer cards, totaling approximately $5 million, all supposedly related to a “Frequent Shopper Club” program at CCL. Following a civil case brought by the Federal Trade Commission (“FTC”) and a criminal investigation, the Government filed a Superseding Indictment, charging Greenberg with eight counts of wire fraud, in violation of 18 U.S.C. § 1343

; one count of access device fraud, in violation of 18 U.S.C. §§ 1029(a)(5) and 1029(c)(1)(A)(ii) ; one count of aggravated identity theft, in violation of 18 U.S.C. §§ 1028A(a)(1), 1028A(b), 1028A(c), and 1028A(c)(5) ; and three counts of money laundering through unlawful monetary transactions, in violation of 18 U.S.C. § 1957(a). Greenberg was convicted of all counts in January 2014, after a jury trial.

This opinion addresses two of Greenberg's arguments on appeal.¹ First, Greenberg contends that the district court erred in denying his motion to dismiss the Superseding Indictment for spoliation of evidence. Next, he argues that the wire fraud counts should have been dismissed because of a “lack of convergence” between the parties injured and those deceived by the “Frequent Shopper Club” scheme. We reject both arguments and, accordingly, affirm the judgment of conviction.

BACKGROUND

I. Factual Background²

From 2002 until 2009, Greenberg owned and operated CCL, an Internet retailer of discounted clothing and other merchandise. Greenberg served as CCL's president and managing member, and was the sole signatory on CCL's accounts. CCL operated from 110 West Graham Avenue in Hempstead, New York (“the Premises”). CCL maintained a website, classiccloseouts.com, from which it sold its merchandise.³ The website was certified by TRUSTe, an independent organization that certifies the privacy practices of its Internet licensees.⁴

In order to process credit or debit card charges for purchased items, CCL maintained a merchant account with Bank of America Merchant Services (“BAMS”).⁵ In 2006, CCL entered into an agreement with Cynergy Data, LLC (“Cynergy”) to serve as CCL's payment processor, an intermediary between the acquiring bank—BAMS—and the merchant—CCL. The agreement established a fee schedule that included a “rolling reserve,” an amount of money set in reserve by the payment processor to offset any “chargebacks” incurred by the merchant. A chargeback occurs when a cardholder contacts his issuing bank to dispute a charge appearing on his account statement, and the issuing bank charges that amount back to the acquiring bank. A “reversal” occurs when a merchant is able to prove the legitimacy of the initial transaction, and the charge reappears on the cardholder's account (thus reversing the chargeback).

A. The Scheme

In the first part of 2008, during a period of declining sales volume at CCL, Greenberg called Jason Mizrahi, a CCL graphic designer, to task him with creating a template, supposedly for distribution to customers, to promote a CCL “Frequent Shopper Club.” This was unusual, as Mizrahi generally received assignments from his direct supervisor, head graphic designer Lisa Chin, and not Greenberg. Mizrahi designed the promotion template and provided it to Greenberg, but the designer never saw his work product on the CCL website. Greenberg did, however, send the template to Venkata Chittabathini, a CCL computer programmer, and directed him to create a program for charging customer credit cards in connection with the membership program. Notably, despite these undertakings by Greenberg, other CCL employees who were otherwise heavily involved in CCL's marketing and sales (including CCL's customer service manager, Simcha Geller, its warehouse manager, Alejandro Rubenstein, and Chin) never discussed the Frequent Shopper Club with Greenberg or were ever directly informed of its existence.⁶

During the summer of 2008, CCL received an influx of complaints from customers asserting that their credit cards had been charged even though they had not placed an order with CCL. Customers making such complaints testified at trial that they had made at least one purchase from CCL in the past, and they were unaware that CCL had retained their credit card information. Numerous customers attempted to contact CCL about the charges during this period, but their calls and voicemails frequently went unanswered. Charged in amounts ranging from $29.99 to $79.99, various of these customers testified at trial that they had never joined a frequent shopper club and had never received promotional emails or any other communication from CCL concerning such a club.

As complaints mounted, Geller informed Greenberg about the influx sometime in June 2008.⁷ Greenberg responded that a computer programmer was working on the problem, a computer glitch. Even as Geller noted the questionable transactions continuing to increase—he testified that they eventually reached tens of thousands of dollars a day—Greenberg never mentioned the Frequent Shopper Club in his discussions with Geller about the issue.⁸ Greenberg, however, did ask Geller whether payment for these transactions had come into the company's bank accounts.

During this period, other companies that had a relationship with CCL—TRUSTe, Cynergy, and Shop.com—noticed increased consumer complaints regarding unauthorized charges and began to make inquiries. Greenberg provided inconsistent explanations to each company. Thus, Greenberg told a TRUSTe compliance officer that the charges were due to a computer glitch that had occurred over the Fourth of July weekend, affecting “at most 100 consumers,” all of whom had been or would be given chargebacks.⁹ App'x 261. In a follow-up email, Greenberg mentioned the Frequent Shopper Club, claiming that CCL had been offering it to customers “for years at various times and in various formats” and that “thousands of previous members [had] gladly paid and renewed yearly for several years already.” App'x 269. In July, Greenberg explained to Cynergy that the chargebacks were due to customers who initially joined the Frequent Shopper Club but were disgruntled because they were not able to get through to CCL's customer service department because of the flood of interest in the program. Last, when Shop.com inquired as to the “alarming number of inquiries from customers” about unauthorized charges, Greenberg explained that the charges resulted from “a promotion offering consumers a members only shipping benefit.” App'x 411-12. He specified that none of CCL's customers' personally identifiable information had been compromised. Ultimately, owing to continuing customer complaints and Greenberg's insufficient explanations, TRUSTe, Cynergy, and Shop.com all terminated their respective relationships with CCL.

Between June and August 2008, CCL customers incurred over 77,000 unauthorized charges, totaling approximately $5 million.¹⁰ Approximately 44,000 chargebacks in the total amount of about $3.3 million resulted from customers disputing the charges with the issuing banks. Greenberg defended the validity of the charges, however, causing approximately 19,000 of the chargebacks to be reversed, so that over $1.3 million of the unauthorized charges reappeared on customers' credit card statements. Between July and August 2008, Greenberg transferred nearly $1 million from his CCL merchant account to various other bank accounts which he controlled.

B. The FTC Action

On June 24, 2009, the FTC filed a civil action against both Greenberg and CCL in the United States District Court for the Eastern District of New York (Wexler, J. ). FTC v. Classic Closeouts, LLC , 09-cv-2692 (LDW). The FTC alleged that Greenberg and CCL had engaged in “unfair or deceptive acts or practices in or affecting commerce,” 15 U.S.C. § 45(a)

, in violation of Section 5 of the FTC Act, by repeatedly charging customers' credit cards without their authorization. On June 29, 2009, the district court entered a temporary restraining order (“TRO”) against CCL, and appointed a temporary receiver (the “Receiver”) to prevent, among other things, destruction of evidence.

The Receiver interviewed Greenberg at the Premises the very next day. According to the Receiver's account of that interview, presented in a report to the district court later that summer, Greenberg claimed that in January 2009, he sold CCL to Hazen NY Inc. (“Hazen”), a company owned by CCL's former warehouse manager, Jonathan Bruk. Greenberg indicated that after the sale he maintained his office at the Premises and worked as a consultant to Hazen.¹¹ The Receiver also reported that the FTC attempted to preserve evidence that day by imaging the hard drives of CCL computers, but FTC employees were unable to image everything owing to power failures. When the FTC's computer specialist returned the next day to complete the task, he was denied access to the premises.

In her report to the district court, dated August 20, 2009, the Receiver concluded that the sale of CCL to Hazen “may be a sham”...