National City Trading Corp. v. U.S.

• Decision Date: 28 November 1980
• Docket Number: D,No. 159,159
• Citation: 635 F.2d 1020
• Parties: NATIONAL CITY TRADING CORP., Ira J. Sands, and Michel Gharbi Caradimitropoulo, Petitioners-Appellants, v. UNITED STATES of America and the United States Attorney for the Southern District of New York, Respondents-Appellees. ocket 80-6093.
• Court: U.S. Court of Appeals — Second Circuit

Page 1020

635 F.2d 1020

NATIONAL CITY TRADING CORP., Ira J. Sands, and Michel Gharbi Caradimitropoulo, Petitioners-Appellants, v. UNITED STATES of America and the United States Attorney for the Southern District of New York, Respondents-Appellees.

No. 159, Docket 80-6093.

United States Court of Appeals Second Circuit.

Argued Oct. 2, 1980.

Decided Nov. 28, 1980.

Lawrence S. Bader, New York City (Marvin B. Segal, Edward M. Chikofsky, Segal & Hundley, New York City, of counsel), for petitioners-appellants.

Lesley Oelsner, Asst. U. S. Atty., New York City (John S. Martin, Jr., U. S. Atty. for the Southern District of New York, Richard F. Ziegler, Asst. U. S. Atty., New York City, of counsel), for respondents-appellees.

Before OAKES and NEWMAN, Circuit Judges, and COFFRIN, District Judge. ^*

OAKES, Circuit Judge:

This appeal is from a judgment of the United States District Court for the Southern District of New York, Pierre N. Leval, Judge, denying a petition by National City Trading Corporation (NCTC), Ira J. Sands (Sands), and Michel Gharbi Caradimitropoulo (Gharbi) under Federal Rule of Criminal Procedure 41(e) for the return of property seized pursuant to a search warrant for the premises at Suite 333, 515 Madison Avenue, New York, New York. The appellants urge that the warrant's description of the place to be searched a business suite including an attorney's office was insufficiently particular; that the warrant did not satisfy the Fourth Amendment's requirement of "reasonableness," see Cady v. Dombrowski, 413 U.S. 433, 439, 93 S.Ct. 2523, 2527, 37 L.Ed.2d 706 (1973); and that the warrant's description of the items to be seized was insufficiently particular. These objections are without merit and we affirm the judgment below.

FACTS

The warrant here, issued by Magistrate Nina Gershon, authorized the search of the premises in question for evidence and instrumentalities of violations of 7 U.S.C. § 6b(2) (antifraud provisions of the Commodity Exchange Act), 7 U.S.C. § 6c(c) (unlawfully engaging in transactions in commodity options), 18 U.S.C. §§ 1341 and 1343 (mail and wire fraud), and 18 U.S.C. § 371 (conspiracy to commit the foregoing offenses). According to the warrant, the evidence consisted of

property of National City Trading Corp. and persons associated with it, to wit, customer files, customer lists, personnel files, financial records, banking records including cancelled checks, telephone records, correspondence, mail and telegram records, sales literature, contracts, tape recordings, calendars, diaries, silver bullion and a "Polaroid" type photograph of a middle-aged man seated at a desk on which appears several-colored bars.

FBI agent William M. Mackey, who had investigated about twenty of the forty or so complaints received from NCTC customers, filed an affidavit in support of the search warrant. The affidavit fully described the operations of NCTC.

Gharbi was president of NCTC and Sands was serving as counsel at the time of the search. NCTC stock was wholly owned by Gharbi's wife and Sands's wife, and the company's offices were in Suite 333, though the name on the main door to the suite was only that of Ira J. Sands. NCTC employed a number of salesmen to conduct telephone solicitations and sales in which members of the public, believing they were buying a classic commodity option, were in fact being defrauded of substantial sums of money in connection with the trading of silver. Working by telephone, NCTC sales representatives solicited investments from potential customers throughout the United States. They advised customers that for a fixed, nonrefundable service fee or premium, paid at the outset of the transaction, the purchaser would have the right to buy a fixed amount of a commodity such as silver, at a fixed future time, at a fixed price, irrespective of any rise in price in the interval. Thus the customer was assured of a profit if the price of the commodity rose enough during the interval to cover the service fee.

The sales representatives told the customer that he would not have to pay anything more when the contract matured, and NCTC would simply send him a check for the difference between the price quoted at the time of the transaction and the price to which the commodity had risen. The service fee, however, had to be paid immediately. After receipt of a customer's money, NCTC sent out a "purchase confirmation slip," on the reverse side of which the fine print advised the customer that he had to take actual delivery of the commodity and implied that he would indeed have to pay the full purchase price. Mailgrams sent just before the maturity date were even more explicit, stating that the purchase price had to be paid on the maturity date of the contract even though the commodity would not be delivered until five days thereafter and that customers must also pay the 8% New York City sales tax. Some mailgrams advanced the maturity date of the contracts.

As a result of these practices, people who were unwilling or unable to pay the full purchase price of the commodity (the service fee was only a small percentage of the full price) forfeited the initial fee that they had paid to NCTC. But even NCTC customers who were willing to pay the full amount and take delivery of the commodity usually lost their initial payments because, when they tendered the full purchase price to NCTC, they were informed that they were too late NCTC had unilaterally advanced the payment date. For example, one customer, accompanied by agent Mackey in an undercover capacity, was prepared to tender the full purchase price to NCTC but was informed by Sands, who identified himself as NCTC counsel, that he was too late the date on which the customer was required to pay had been advanced by one week to the day of the visit and, because the banks had already closed for the day, the customer had defaulted on his contract, losing both his service fee and his right to profit from the appreciation in the price of silver during the period of the contract.

Another customer, also accompanied by an agent, had a December 5, 1979, maturity date. By mailgram on November 26 NCTC had accelerated the maturity date to November 28. The customer tendered a cashier's check for the purchase price, but this was rejected by Gharbi on the basis that payment on it could be stopped. Then, when Gharbi discovered the November 28 "revised" maturity date, he refused to return the service fee on the ground that to do so would violate regulations of the Commodities Futures Trade Commission. Only when the undercover agent suggested that Gharbi might be committing a crime did Gharbi refund the service fee.

A third customer, once again accompanied by an agent, had bought for a service fee of $1,080 a silver contract in September 1979 permitting him to control 1,000 ounces for four months. When advised that he would have to pay the full purchase price of over $15,000 if he wished to realize his profit, yet would have to wait until five days after payment to receive the silver, the customer decided not to risk the additional money and had to forego his service fee and the interim price appreciation.

The affidavit also described the physical layout of the NCTC premises. Offices within the suite were located on both sides of a central corridor which began at the end of the reception area. Down the corridor, after a left ninety-degree turn, two agents had been received with the customers they accompanied in a corner room with a red filing cabinet in which an NCTC representative had searched to find the customers' file folders. The room also had two telephones, each on a desk, as well as printed documents bearing the NCTC name. The third agent had met with Gharbi in one of two rooms to the left of the main corridor. The rooms were apparently connected and used as a law library. In one of these rooms agent Mackey observed two rows of five or six desks, with a telephone on each, giving the appearance of the typical telephone "boiler room." As for the fact that only Sands's name was on the outer door of the suite, Gharbi told one agent that NCTC obtained its office space free because Mrs. Sands was a stockholder.

Following the issuance of the warrant, agent Mackey prepared a memorandum regarding the contemplated search of Suite 333, a copy of which was given to each of the twenty-five agents assigned to participate in the search. The memorandum read as follows:

RE: NATIONAL CITY TRADING COMPANY

SUITE 333

515 MADISON AVENUE

NEW YORK, NEW YORK

Captioned company involved in selling fraudulent commodities contracts. On instant date, a search warrant was issued by US Magistrate, SDNY, for the premises of Suite 333, 515 Madison Ave. regarding the operation of National City Trading Company.

It is noted that National City Trading Company's offices are contained in a Suite of law offices belonging to attorney IRA J. SANDS. Although SANDS is the Corporate Attorney for NCTC, the search will only concern NCTC and not SANDS general law practice. We have authority to search the entire suite of offices. However, every effort should be made to avoid disrupting SANDS general law practice.

Beyond this, an Assistant United States Attorney instructed the agents on how the search warrant was to be executed and told them not to seize any documents that did not pertain to NCTC or to search any briefcases or bags of persons not associated with NCTC. The attorney further directed the agents, first, to secure each room within Suite 333; then to search the "boiler room," Gharbi's office, the controller's office, and Sands's office; and finally to search any other office which a cursory examination indicated might be connected to NCTC and to leave alone those offices which had no such connection.

Although appellants originally sought a hearing on whether the search had been properly conducted, they waived it when Sands was unavailable and they did not seek a...