U.S. v. Calandrella

Decision Date31 August 1979
Docket NumberNos. 78-5341,78-5342,s. 78-5341
Citation605 F.2d 236
PartiesUNITED STATES of America, Plaintiff-Appellee, v. John B. CALANDRELLA, Defendant-Appellant. UNITED STATES of America, Plaintiff-Appellee, v. John A. KAYE, Defendant-Appellant.
CourtU.S. Court of Appeals — Sixth Circuit

Paul J. Redmond, (court appointed CJA) Lincoln, Mass., for defendant-appellant in No. 78-5341.

Kenny Grantz, M. Stephen Pitt, Tarrant, Combs & Bullitt, Louisville, Ky., for defendant-appellant in No. 78-5342.

Albert Jones, U. S. Atty., James H. Barr, Asst. U. S. Atty., Louisville, Ky., Andrew S. Gordon, c/o T. George Gilinsky, Washington, D. C., for plaintiff-appellee.

Before WEICK and CELEBREZZE, Circuit Judges and PECK, Senior Circuit Judge.

WEICK, Circuit Judge.

The defendants-appellants have filed separate appeals from judgments of conviction entered upon guilty verdicts of the jury in a joint trial on a three count superseding indictment. The indictment charged the defendants and five other co-defendants with conspiracy (18 U.S.C. § 371) to violate §§ 1014, 2314, 1341 and 1343 of 18 U.S.C. (Count 1) and with the substantive offenses of making or causing to be made materially false statements and reports in an application for a loan from a FDIC bank (18 U.S.C. § 1014) and aiding and abetting in the commission thereof (18 U.S.C. § 2) (Count 2), and fraud by wire (18 U.S.C. § 1343) and aiding and abetting in the commission thereof. (18 U.S.C. § 2) (Count 3).

The co-defendants, Carl Thomas Bannon, Jr. and Phillip Karl Kitzer, Jr., pleaded guilty and testified for the government at the trial. Co-defendants John Derek Packman, Pascal Cornaz and Jean-Claude Cornaz resided in foreign countries and were not extradited and did not attend the trial.

The two convicted defendants were each sentenced to consecutive terms of five years imprisonment on counts 1 and 3 and to concurrent terms of two years imprisonment on count 2, for a total sentence of 10 years each. The appeals were heard together.

In these appeals, in briefs, making virtually the same contentions, the appellants have argued a number of issues relating to the various phases of the case. Finding each of these claims ultimately to be without merit, we affirm the judgments of conviction.

I. Facts

This case involves a simple fraud perpetrated with the aid of an international conspiracy. The cast of characters includes several persons in addition to the appellants herein. One key figure is co-defendant Phillip Karl Kitzer, who testified as a government witness. During the period covered by the indictment, he was in the business of taking over or forming various financial institutions ("vehicles") in different countries and having them issue overvalued certificates of deposit (CD's) and other financial instruments. For a fee, generally 10% Of the face amount of the CD, Kitzer would provide a certificate to a "desperate" businessman who was having difficulty obtaining legitimate financing. Kitzer's CD's were at no time backed by sufficient funds to cover their face value. Because these instruments could not withstand close scrutiny by banking officials, purchasers were instructed that the CD's should only be used to improve a corporate balance sheet, and should not be pledged as collateral for a loan. If they were used as instructed, it was hoped that a bank considering a loan application would not bother to investigate the CD or its issuer too closely, since they were shown only on the books of the borrower.

Although Kitzer never expected to receive funds to pay the face amount of the certificates, he generally obtained a postdated check from the certificate purchaser in addition to his 10% Fee. This check would be written in an amount equal to the face amount of the CD purchased and would be postdated to the CD's maturity date. In this way, Kitzer felt protected if a holder ever demanded payment on the certificate.

At times relevant to this case, Kitzer was using his Seven Oak Finance Limited (Seven Oak), a financial institution of Kent, England, as his "vehicle" for issuing certificates of deposit. Unknown to Kitzer, however, two undercover FBI agents had infiltrated his organization. From February, 1977, until October, 1977, agents Brennan and Wedick were Kitzer's daily companions, serving as trusted apprentices in the enterprise.

In the typical transaction involving Seven Oak CD's, the "desperate" businessman would be placed in contact with Kitzer through a financial broker. Co-defendant Carl Thomas Bannon, who also testified as a government witness, was such an individual. For a fee he would attempt to secure funds from persons looking for investments for others looking for loans. Generally, he would attempt to arrange to have the chosen investor deposit funds in a selected commercial bank as a compensating balance to secure a bank loan to Bannon's fee-paying client. Bannon and the investor would then split the fee, and in addition, the investor would earn the applicable rate of interest on his deposited funds.

Defendant Kaye became a client of Bannon's in 1975. At that time, they were able to complete one such deal. Thereafter, and until Bannon entered prison on unrelated charges in January 1977, the two men were unsuccessful in their efforts to close other similar deals.

Kaye operated several enterprises, the principal one being Globe Natural Gas Company. Although Kaye was nominally only a "consultant" to Globe, it was plain that he not only controlled but actually ran the company. Over the period of his relationship with Bannon, Kaye had attempted to purchase several mineral properties. The deals could not be closed, however, because Kaye had been unable to arrange financing for the acquisitions. Several banks had refused to make loans to Kaye or to Globe, despite assurances from Bannon.

In December 1976, Bannon met Kitzer and was instructed on Kitzer's method of using Seven Oak CD's to improve the chances of obtaining a conventional bank loan. Kitzer also told Bannon that the CD's should not be used for collateral. Because of the repeated disappointments which Bannon had experienced in his attempts to help Kaye, and because Bannon was anxious to close a deal before he had to report to prison, he fully explained Kitzer's methods to Kaye. Bannon also told Kaye of Kitzer's restrictions on the use of the CD's.

With all of this knowledge, Kaye purchased a $100,000 Seven Oak CD on December 17, 1976. He sent Bannon two checks totalling $100,000, postdated to the maturity date of the CD. He also sent $11,000 to cover Kitzer's and Bannon's fees.

During the week following Christmas, 1976, Bannon learned that his earlier conviction had been affirmed and that he would have to report to prison. Pursuant to an earlier arrangement, defendant Calandrella was to take over the operation of Bannon's financial brokerage business, Bannon International. Calandrella was also in the brokerage business, and Bannon was impressed with his abilities. Since the well-being of Bannon's family depended on Calandrella's ability to run Bannon's business, Bannon explained as much as he could about the operation, including the details of the dealings with Kaye and with Kitzer. Bannon remained in contact with Calandrella while the former was in prison.

Armed with the Seven Oak CD, Kaye renewed his efforts to close various deals for the purchase of mineral property. Apparently ignoring Bannon's specific instructions, Kaye began offering to pledge the Seven Oak CD's as collateral. One bank that investigated the matter informed Kaye in March 1977 that the CD was worthless. Undaunted, Kaye attempted to negotiate another deal, which also collapsed.

Finally, Kaye attempted to close yet one more deal for the purchase of coal property, this time involving the Louisville Trust Bank. On March 31, 1977, Kaye met for the first time with officials of the bank, and attempted to negotiate a.$4.5 million dollar loan. At that time he presented the CD, a balance sheet for Globe, and a letter of introduction prepared by Calandrella acting for Bannon International. The letter explained that Seven Oak was committed to the issuance of up to $9 million in CD's on behalf of Globe and represented that the Union Bank of Switzerland, a well known institution, would guarantee all of the CD's including the one already issued. Kaye also at some point displayed a copy of an accountant's opinion letter concerning Globe that was purportedly prepared by one, Linden Headlee.

Unfortunately, for Kaye, evidence at trial showed that, even aside from the problems with the Seven Oak CD, the documents offered by Kaye either contained false statements or were fraudulent in their entirety. For example, a representative of the Swiss bank testified that the bank would not as a matter of policy guarantee CD's issued by another financial institution. Linden Headlee, the accountant, denied preparing the opinion letter submitted by Kaye, although he stated that he had done work for Kaye at an earlier time. Also, another accountant testified that a $20 million asset on the Globe balance sheet was overvalued under accepted accounting procedures.

Even before Kaye's arrival at the Louisville Trust Bank, certain bank officials had been warned that a man named Kaye might attempt to use a CD of questionable value to obtain a loan. The officials were instructed, however, to treat the transaction in a normal fashion. Indeed, a bank officer stated at trial that had their investigations proved favorable, they would have granted Kaye a loan despite the warning. Accordingly, the bank attempted to verify the validity of the CD and the integrity of its issuer. They encountered difficulty, however, in contacting either Bannon International or Seven Oak. Kaye then assisted by placing a telephone call to Calandrella and giving the receiver to bank vice president Hagan. Calandrella spoke to Hagan, repeating the...

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