U.S. v. Bernstein

• Decision Date: 04 March 1976
• Docket Number: Nos. 941,D,943 and 945,942,s. 941
• Citation: 533 F.2d 775
• Parties: UNITED STATES of America, Appellee, v. Harry BERNSTEIN et al., Appellants. ockets 74-2328, 74-2329, 74-2462, 74-2463 and 74-2464.
• Court: U.S. Court of Appeals — Second Circuit

Page 775

533 F.2d 775

UNITED STATES of America, Appellee, v. Harry BERNSTEIN et al., Appellants.

Nos. 941, 942, 943 and 945, Dockets 74-2328, 74-2329,

74-2462, 74-2463 and 74-2464.

United States Court of Appeals,

Second Circuit.

Argued June 9, 1975.

Decided March 4, 1976.

Frank G. Raichle, Buffalo, N. Y. (Raichle, Banning, Weiss & Halpern, R. William Stephens, Buffalo, N. Y., of counsel), for appellants Bernstein and Eastern Service Corp.

Henry J. Boitel, New York City, for appellant Behar.

John A. Kiser, New York City, for appellant Cardone.

Ronald E. DePetris, Asst. U. S. Atty., Brooklyn, N. Y. (David G. Trager, U. S. Atty., E. D. N. Y., Paul B. Bergman, Asst. U. S. Atty., Brooklyn, N. Y., of counsel; Gale A. Drexler, on the brief), for appellee.

Before FEINBERG, OAKES and VAN GRAAFEILAND, Circuit Judges.

OAKES, Circuit Judge:

This appeal is from convictions for "white collar" crimes in connection with the obtaining of Federal Housing Administration (FHA) guarantees on mortgage loans. For proof of the crimes involved, such a multiplicity of small transactions was necessary to be shown that the trial in the United States District Court for the Eastern District of New York, Anthony J. Travia, Judge, ^* took over eight months with a resultant 25,000-page transcript. The three types of offenses of which appellants were found guilty include conspiracy, 18 U.S.C. § 371, substantive bribery offenses, 18 U.S.C. § 201 and 18 U.S.C. § 2, and substantive false statement offenses in applications for mortgage insurance in violation of 18 U.S.C. § 1010 and 18 U.S.C. § 2. All appellants were convicted of conspiracy, all appellants except Melvin Cardona of bribery, and all appellants except Rose Bernstein of false statements. ¹ The appellants have launched a multiple attack on the convictions, their claims ranging, inter alia, from disqualification of the trial court and prosecutorial mismanagement to erroneous admission of evidence, insufficiency of evidence and erroneous instructions to the jury. While we find some of their arguments troublesome, we find none of them meritorious, and affirm the convictions.

I. Statement of Facts. The FHA is a division of the Department of Housing and Urban Development (HUD). FHA has a loan guarantee program well known to the public whereby it grants mortgage insurance to a lender-mortgagee who is thereby insured against loss if the mortgagor is unable to pay off the loan. The mortgage insurance in the instances here involved was obtained in a two-step procedure. The first step was for the mortgagee to apply to the FHA for an appraisal of the property; this was made on a "Form 2800." The second was the mortgagee's application for approval of the mortgagor's credit; this was made on a "Form 2900" and includes certain necessary information and exhibits including a credit report, verification of employment form, and the like. If an appraisal of the property is up to sufficient value, the FHA will issue a conditional commitment which it then makes firm if the mortgagor's credit is satisfactory and approved.

Eastern Service Corporation (ESC) was a lending institution wholly owned by appellant Harry Bernstein. It would initially loan money to home buyers and subsequently sell the mortgage loans to permanent lenders, such as savings banks, pension funds, and the Federal National Mortgage Association, while being retained, however, to perform the administrative tasks involved in servicing the mortgage.

ESC made its profit from two major sources the origination and sale of loans and the servicing of loans. On loan closings there was an origination or processing fee of one "point," i. e., one per cent of the mortgage amount. In addition the corporation would charge a certain number of "points" to the real estate broker or speculator who sold the home and, after the loan closed, the mortgage would be sold by ESC to a permanent lender at a discount of a certain number of points. Thus the profit for ESC was the difference between the points charged to the broker or speculator and the points at which the loan was discounted, plus the processing fee and any servicing fee, less expenses.

The Government's case, boiled down to the bare essentials, was that the Bernsteins procured on behalf of ESC favorable FHA appraisals by virtue of bribes to FHA staff appraisers working out of the Hempstead, New York, regional office. ESC also obtained approvals of individual mortgagors' credit by virtue of a number of false credit statements submitted and certified or processed by Florence Behar, who was an assistant vice president of ESC in charge of the processing section. A number of these were solicited by Melvin Cardona, one of approximately 12 to 14 mortgage solicitors employed by ESC, who also obtained false financial reports on the mortgagors' behalf.

Government proof on the bribery counts went to the very heart of the FHA office involved, located, as it happened, in the same building with ESC. One FHA staff appraiser receiving the bribes was Edward Goodwin, who performed and reviewed appraisals in Brooklyn; he was assigned appraisal applications from time to time by coconspirator Rose Cohen and his appraisals were reviewed by defendant Joseph Jankowitz, a senior FHA staff appraiser. Defendant Herbert Cronin, the chief underwriter of the FHA office, was responsible for overseeing all appraisals, and had the "chief underwriter's prerogative" (CUP) by which an FHA appraisal might be increased in his discretion up to a maximum of $500 on a particular property.

One of two principal real estate speculators active in Brooklyn and involved in the case was Jet Warehouse, Inc. (Jet), another wholly owned corporation of Harry Bernstein. Jet held second mortgages on a number of properties which were later refinanced by way of FHA-insured mortgages. Jet also loaned money to various real estate speculators to purchase properties, on which applications would be submitted to the FHA. The other such speculator was Ortrud Kapraki, who, along with Goodwin, was a chief Government witness and who in 1968-70 had approximately 200 closings at ESC, amounting to about five per cent of ESC's business in FHA-insured mortgages.

ESC was an FHA "approved mortgage lender" and as such, lending on an interim basis, it was able to make considerable profits with very little risk and with a limited use of capital. In the nature of economic life, once FHA mortgage insurance has been procured only low down payments are required, a permanent lender is readily available to purchase the mortgage from the interim lender, and if the mortgage goes into foreclosure the interim lender knows that the FHA will pay virtually full value on the outstanding loan so that there is no great risk of foreclosure. The risk is, in fact, for all practical purposes after assorted points are charged, close to zero. The Government proof adduced was also to the effect that at least as to the second phase of the mortgage insurance process the mortgagor's credit the FHA is dependent upon the approved mortgagee, and we may say upon the latter's integrity. This is so because only the mortgagee personally interviews the mortgagor and it is the mortgagee which has the obligation to obtain verification of employment and income and to obtain other credit information regarding a mortgagor's employment and income.

It was after the inner city riots in 1966 and FHA intervention to improve the inner cities that ESC and Jet really went into what was a new market. Government proof adduced was to the effect that after an initial approach by Harry and Rose Bernstein to Edward Goodwin, the latter, with the approval of Chief Underwriter Cronin but contrary to FHA policy, went to the Bernstein office, supposedly to pick up some keys to properties. In reality he was there approached with an arrangement whereby he would obtain $50 per property on any Bernstein "2800" form applications for appraisal. When Cronin asked Goodwin how he made out on the business of the "keys," Goodwin replied that there was no problem. After that meeting in March, 1967, Goodwin was "on the take" and he and Bernstein arranged a plan whereby in order to tell which houses were Jet's, Bernstein would identify them as "ORE," meaning "our real estate," not what the parties were to mine out of the federal government. According to Goodwin's testimony, Rose Bernstein encouraged him to accept the $200 proffered by Harry Bernstein for the first four top dollar appraisals. This was only the beginning, and Government proof was that bribes were proffered by the Bernsteins and taken by Goodwin on many occasions.

Providing an initial high appraisal was only part of the bribed services rendered, however, because in several cases when ESC submitted a request for a reevaluation Cronin would return the files to Goodwin, ask him to take another look at the value, saying in words to the effect of "Is that all it's worth? Take another look." Goodwin would take it to his desk, increase the value, and return the file to Cronin's office. Cronin would then exercise his prerogative, the CUP, and increase the value an additional $500 more. For four years, and through hundreds of these appraisals, ESC and the Bernsteins would obtain high initial appraisal, frequent upward reevaluation, and then the almost omnipresent CUP. On each of the bribery counts on which the various appellants other than Cardona were convicted, the Government proof established this with some clarity. ² Evidence indicated that Jet held second mortgages on nine and owned three of the properties involved in the bribery counts.

Bribery also occurred in reference to applications for appraisals on a number of the so-called Kapraki properties. In the summer of 1968 the other real estate speculator, Kapraki, began to submit an increased number of applications for appraisals to ESC, and appellant Behar told her that she should have the right appraiser and...