U.S.A v. Dupree

• Decision Date: 18 March 2011
• Docket Number: Case:No 10-CR-627 (KAM)
• Parties: UNITED STATES OF AMERICA, v. COURTNEY DUPREE, THOMAS FOLEY, AND RODNEY WATTS, Defendants.
• Court: U.S. District Court — Eastern District of New York

UNITED STATES OF AMERICA,

v.COURTNEY DUPREE, THOMAS FOLEY, ANDRODNEY WATTS, Defendants.

Case: No 10-CR-627 (KAM)

UNITED STATES DISTRICT COURT

EASTERN DISTRICT OF NEW YORK

Dated: March 18, 2011

MEMORANDUM AND ORDER

MATSUMOTO, United States District Judge:

INTRODUCTION

A four-count indictment ("Indictment"), filed August 13, 2010, charges defendants Courtney Dupree ("Dupree"), Thomas Foley ("Foley") and Rodney Watts ("Watts")¹ (together, "defendants") with one count of Conspiracy to Commit Bank, Mail and Wire Fraud in violation of 18 U.S.C. §§ 1349, ² 3551 et seq., ³one count of Bank Fraud in violation of 18 U.S.C. §§ 1344, ⁴ 2, ⁵3551 et seq., and two counts of making False Statements, in violation of 18 U.S.C. §§ 1014, ⁶ 2, 3551 et seq. (See ECF No. 22, Indictment ("Indictment").) Defendant Dupree was the president and chief executive officer of GDC Acquisitions, LLC ("GDC"), and at different times relevant to the Indictment, defendant Foley was GDC's outside counsel and its chief operating officer and defendant Watts was GDC's chief financial officer and chief investment officer. (Indictment at ¶¶ 2, 3, 4.)

All defendants move (1) for an order seeking relief from the July 27, 2010 seizure of funds from bank accounts at J.P. Morgan Chase held by GDC and/or its subsidiaries; (2) to suppress evidence seized at the offices of GDC and its subsidiaries pursuant to a search warrant executed on July 23, 2010; and (3) for relief, including dismissal of the Indictment, due to alleged prosecutorial misconduct. The government opposes the motions. The court has carefully reviewed the parties' submissions, and for the reasons set forth below, defendants' motions seeking relief from the seizure of funds are denied. Defendants' motions to suppress evidence seized during the search of the offices of GDC and its subsidiaries are denied. Defendants' motions to dismiss the Indictment are also denied.

BACKGROUND

I. Charges

The allegations in the Indictment, the Complaint and the submissions of the government are as follows:

Between January 2007 and July 2010, defendants Dupree, Foley and Watts allegedly orchestrated a scheme to defraud Amalgamated Bank ("Amalgamated"), a financial institution, the deposits of which were insured by the Federal Deposit Insurance Corporation, and C3 Capital, LLC, a private equity investment firm ("C3 Capital"), by obtaining, and attempting to obtain, loans for GDC and its subsidiaries JDC Lighting, LLC, Unalite Electric and Lighting, LLC, and Hudson Bay Environments Group, LLC, TDC Acquisitions, LLC, Interconnect Lighting, LLC, Image Lighting Services, LLC, Image Lighting, LLC, Image Lighting Corp., Unalite Southwest, LLC, Unalite NJ, LLC, and Unalite Distribution, LCC (collectively, the "subsidiaries") on the basis of false financial statements and other material misrepresentations. (Indictment at ¶¶ 1, 8; ECF No. 1, Complaint and Affidavit in Support of Application for Arrest Warrants ("Shea Complaint Aff.") at ¶ 3 n.2.) Specifically, on or about August 29, 2008, the subsidiaries and Amalgamated Bank allegedly entered into an agreement under which the subsidiaries could borrow up to $21 million from Amalgamated Bank through a revolving credit loan and a term loan ("Agreement"), both ofwhich loans were guaranteed by GDC. (Indictment at ¶ 9.) Under the terms of the Agreement, the subsidiaries pledged their accounts receivable as security for the loans. (Id. at ¶ 10.) The Agreement further permitted the subsidiaries to borrow an amount equal to the sum of 75 percent of the subsidiaries' eligible accounts receivable plus the current value of the subsidiaries' inventory. (Id.) The Agreement required that the subsidiaries submit Borrowing Base Certificates ("BBCs"), certified as accurate by GDC, to Amalgamated Bank each month stating the total value of both the subsidiaries' accounts receivable and their current inventory so that Amalgamated Bank could determine the amount that the subsidiaries could borrow in any given month. (Id.)

According to the Indictment, the defendants allegedly "deliberately and falsely overstated the accounts receivable on the consolidated financial statements and BBCs that they supplied to Amalgamated Bank. They achieved this result by a variety of means, including: (a) booking fictitious sales, thereby creating fictitious accounts receivable; (b) 're-aging' the accounts receivable by issuing credits for old sales invoices, then re-booking the sales so that they appeared to have been incurred more recently, and were thus more valuable; (c) prematurely recognizing sales and the corresponding revenue, thereby creating accounts receivable before the appropriate timeunder generally accepted accounting principles; and (d) failing to reduce the accounts receivable with cash received from customers, and instead improperly booking the cash in another line item on the balance sheet." (Id. at ¶ 12.)

In addition, the Indictment charges that the Agreement limited the ability of GDC and the subsidiaries to make new capital investments while the loan was outstanding and required GDC to maintain a debt to equity ratio of not more than 3 to 1. (Id. at ¶ 13.) The Indictment charges that the defendants further defrauded Amalgamated Bank by covertly purchasing Image Lighting, Inc. ("Image Lighting") contrary to the terms to the terms of the Agreement. (Id.)

Finally, the Indictment charges that between October 2008 and October 2009, defendants "attempted to obtain approximately $5 million in funding from C3 Capital by submitting false financial statements and accounts receivable aging reports that inflated GDC's accounts receivable, " but C3 Capital ultimately did not lend money to GDC or the subsidiaries. (Id. at ¶ 14.)

II. Search Warrant

On July 21, 2010, the government applied for a warrant to search the offices of GDC and its subsidiaries at 47-07 32nd Place, Long Island City, New York (the "subject premises"). (ECF No. 56, Executed Search Warrant, filed July 27, 2010 (the"search warrant").) Exhibit A to the search warrant set forth the following list of items to be seized and the search, seizure and removal procedures for computerized electronic data:

1. The items to be seized are evidence or

instrumentalities of violations of 18 U.S.C. §§ 1341,

1343, 1344 and 1349, specifically:

a. All documents or other materials relating to loans or other extensions of credit to GDC Acquisitions, Inc. ("GDC") and its subsidiaries,

TDC Acquisitions, LLC,

Interconnect Lighting, LLC,

Image Lighting Services, LLC,

Image Lighting, LLC,

Image Lighting, Inc.,

Hudson Bay Environments Group,

LLC Unalite Electric & Lighting, LLC,

Unalite Southwest, LLC,

Unalite NJ, LLC,

Unalite Distribution, LLC, and

JDC Lighting, LLC,

(collectively, the "Subsidiaries"), such as loan agreements, loan applications, Borrowing Base Certificates, and other documents provided to creditors in support of extensions of credit from the following entities:

MVC Capital, Inc.,

C3 Capital LLC,

Steelcase Inc.,

Steelcase Financial Services, Inc., and

Amalgamated Bank,

(collectively, the "Creditors"), and all bank records, including, but not limited to, account statements and documents related to transactions in bank accounts such as canceled checks and wire transfer records, for the period from January 1, 2006 to the present;

b. All documents relating to assets, liabilities, income, expenses, sales and accounts receivable of GDC or the Subsidiaries, including, but not limited to, accounting records, general ledgers, work papers, journals relating to the receipt or disbursement — or anticipated receipt or disbursement — of money or property, financial statements, trial balances, records detailing the relative age of various accounts receivable, invoices, and federal and state tax records (including income tax records), for the time period from January 1, 2006 to the present;

c. All documents relating to any mail box located at a commercial mail receiving agency, including, but not limited to, customer applications and correspondence;

d. All documents relating to communications or contacts between the conspirators and any of their principals, employees, or agents, or the Creditors, including, but not limited to, letters, phone messages, e-mail, text messages, "chat, " or instant messages, including any attachments to such e-mails or messages, sent by or received by the user(s) of any computer located at the SUBJECT PREMISES, whether saved or deleted, and whether contained directly in an e-mail, text message, chat, or instant message account or in a customized "folder";

e. All documents relating to the conspirators', or any of their principals', employees', or agents' calendar, contact, or personal planner data or files including, but not limited to, data contained in Outlook, Lotus Notes, or Eureka, created or maintained by the user(s) of any computer located at the SUBJECT PREMISES.

2. The search procedure for electronic data contained in computer operating software or memory devices, whether performed on site or in a laboratory, or other controlled environment, may include seizure of any computer or computer-related equipment or data, including floppy diskettes, fixed hard drives, or removable hard disk cartridges, software or memory in any form containing material described above, and the removal thereof from the SUBJECT PREMISES for analysis by authorized personnel.

The government supported its search and seizure warrant request with an affidavit from FBI Special Agent Gavin Shea, which alleged that "there is probable cause to believe that there is presently located within the SUBJECT PREMISES evidence and instrumentalities, as set forth in Exhibit A to the Search Warrant attached hereto, of violations of federal law, including violations of 18 U.S.C. §§ 1341, 1343, 1344, 1349." (ECF No. 55, Affidavit in Support of Application for Search and Seizure Warrants, dated July 21, 2010 ("Shea Aff.") at ¶ 11.) The Shea Affidavit also incorporated as Exhibit...