U.S. v. Fahey

• Decision Date: 30 July 1985
• Docket Number: No. 84-1620,84-1620
• Parties: 18 Fed. R. Evid. Serv. 1141 UNITED STATES of America, Appellee, v. Joseph P. FAHEY, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

Page 829

769 F.2d 829

18 Fed. R. Evid. Serv. 1141

UNITED STATES of America, Appellee, v. Joseph P. FAHEY, Defendant, Appellant.

No. 84-1620.

United States Court of Appeals First Circuit.

Argued May 10, 1985.

Decided July 30, 1985.

William A. Brown, Boston, Mass., with whom Brown & Prince, Boston, Mass., was on brief, for defendant, appellant.

Peter A. Mullin, Asst. U.S. Atty., Boston, Mass., with whom William F. Weld, U.S. Atty., Boston, Mass., was on brief, for appellee.

Before BOWNES, Circuit Judge, VAN DUSEN, ^* Senior Circuit Judge, and BREYER, Circuit Judge.

BOWNES, Circuit Judge.

Joseph P. Fahey appeals his conviction on fourteen counts of mail and wire fraud in connection with sales and promotional efforts by the Fahey Company (company) in the precious metals market between July and November of 1982. Fahey contends on appeal that (1) he received ineffective assistance of counsel due to his lawyer's conflict of interest; (2) evidence discovered as a result of investigative efforts at a mine site were fruits of an illegal search and seizure and should have been suppressed; (3) the district court erred in admitting certain statements made by a codefendant under the coconspirator hearsay exemption and violated his rights under the confrontation clause; (4) evidence of a television program concerning the company's sales and mining activities was so prejudicial that it denied him a fair trial; and (5) the district court erred in refusing to strike alleged surplusage from the indictment. We affirm.

I. BACKGROUND

In 1978 Joseph Fahey founded Certified Commodities of New England (CCNE), an investment company in Waltham, Massachusetts, concentrating in commodity futures. In November of 1981, CCNE began selling an investment package known as "Special Project 501," a commodity pool in which investor's funds were used to purchase the marketing rights to the silver from a Nevada mine known as the "Ingalls Mine." CCNE planned to purchase the silver below spot price and sell it at or above spot price, with CCNE and the investors splitting the profits. ¹ The manager of the Ingalls Mine, however, misappropriated money given to him by CCNE to finance the mining. Rather than telling his clients that their investment had not panned out, Fahey developed a plan to raise new capital and delay the expected date of delivery. The plan involved: becoming a joint venturer in the Ingalls Mine in order to exert greater control over operations; changing the concept of the 501 program from an investment plan to a commodity sales program in which customers would purchase gold and silver outright; ² and moving to Boston under the name, "The Fahey Company." With the birth of the Fahey Company in late spring of 1982, CCNE ceased to exist.

Investors in CCNE's Special Project 501 were contacted by Fahey and encouraged to "roll over" their CCNE securities into Fahey Company commodities. The company "guaranteed" investors in Special Project 501 deliveries of gold or silver within a thirty-month period at prices that were comparable or better than those offered them in the previous investment pooling arrangement. It also mounted a high pressure selling campaign to procure new buyers who would supply the capital necessary to support the company, develop and operate the company's mining property, pay off the Special Project 501 investors, and mine and process the gold and silver that new buyers were purchasing at "producer" cost.

The Ingalls Mine was never operated. Instead, in July of 1982 the company entered into a joint venture agreement with three other individuals who owned a claim on a tract of land called the "Penny Mine" in Nevada. The three Nevada venturers had been trying to mine their property during the previous year but had run out of money. To try and interest new investors they had enlisted Wilfred Kerr, a mining engineer whose expertise was coal mining, not gold mining, to prepare a report on the ore content in the Penny Mine claim and two adjoining tracts in which Kerr and the others held an interest. The "Kerr report," a two-page handwritten document, had not been prepared for the Fahey Company and was based in large part on adjoining claims in which the company did not have an interest. Nonetheless, the company incorporated the statistics in the Kerr report into its sales literature and phone presentations to assure potential customers that sufficient gold and silver would be extracted from the mine to meet the company's guaranteed delivery promise. ³

In the course of its selling campaign, the company made a number of exaggerations, misleading statements, and omissions in its sales literature and phone presentations. It stated that the company was a retail wholesale broker of precious metals and typically sold gold and silver at spot price plus commission although it had never bought metal wholesale. Its literature portrayed the company as having "extensive experience with the precious metals mining areas of the west." In fact, its only previous experience was the Special 501 project. The sales literature stated that from "time to time" the company entered into joint ventures in mines to expand production or operate a mine and needed an infusion of capital to accomplish this. The company also stated that before it entered into a joint venture to mine a property, the property had to pass a "stringent criteria of evaluation established by independent engineering firms hired by the Fahey Company." The promotional material also stated that the company utilized a professional cost analysis to determine the profitability of a property. In actuality, the evaluation criteria had been written by a sales consultant for promotional purposes and no professional cost analysis was ever undertaken. According to the literature, the company presold approximately 5-10% of the ore likely to be produced in a mine at producer's cost in order to raise the capital needed to begin production. But, in fact, the company did not know what its production costs would be and did not in any way limit its offering to the number of investors needed to start up a mine. Although the sales presentation stated that all the money raised from investors would be used to "get the mine into production," more than half of the money raised was used to cover operating costs of the company headquarters and sales commissions. The company also represented that it had at least three properties from which it could obtain the necessary metal to meet its commitments: the Ingalls Mine, the Penny Mine, and a property called the "Pleasant Valley Mine" in South Dakota. In fact, the only efforts of the company to do any mining were undertaken at the Penny Mine.

The operation at the Penny Mine did not have an auspicious start. Bill Matovich, one of the coventurers and previous owners, had been hired to operate the Penny Mine. After several months, it became evident that Matovich was unqualified and incompetent. No ore had been processed. In October of 1982 Fahey hired a new manager with previous experience in the field and brought in some new equipment to try and get the mine into operation.

The Pleasant Valley Mine, one of the three mines frequently mentioned by company salesmen, was never mined for the benefit of company customers because the joint venture agreement that Fahey was negotiating with a subsidiary of AMG Energies fell through. Nonetheless, the selling continued.

Sometime in October of 1982 the FBI launched an investigation of the company's business practices and a well-known local television news reporter began an inquiry. Both the television crew and the FBI visited the Penny Mine site and the FBI took some samples for testing.

On November 15, 1982, the FBI executed a search warrant for the Fahey Company offices in Boston and seized a substantial number of business records. That same day the Massachusetts State Securities Division served Fahey and the company with a cease and desist order which prohibited further sales and froze the company bank account. ⁴ Needless to say, virtually all production work stopped after the cease and desist order. The first delivery of precious metals, which had been promised for May of 1983, never took place.

Shortly after the cease and desist order Fahey and four other key company employees were indicted on charges of mail and wire fraud and a conspiracy to defraud via the mail and wires. All of the defendants except Fahey were acquitted of all charges. Fahey was acquitted on the conspiracy counts.

II. INEFFECTIVE ASSISTANCE OF COUNSEL CLAIM

Fahey contends that he received ineffective assistance of counsel because his defense counsel, Richard Passalacqua, did not call as a witness Gerald Pearlstein, Fahey's business lawyer during the period of the alleged fraud. Fahey contends that defense counsel's failure to call Pearlstein was due to a conflict of interest; prior to the commencement of the trial, Passalacqua and Pearlstein had been partners in the same law firm. The record reveals that Fahey was aware of the previous association between the two lawyers and informed the district court on the record that, despite the possible conflict of interest, he wanted to retain Passalacqua. Fahey now contends that he would not have done so had he known Passalacqua would not call Pearlstein as a witness.

On appeal, Fahey urges us to overrule prior precedent and hold that the presence of a potential conflict of interest is a per se violation of a defendant's sixth amendment right to the effective assistance of counsel. Neither the Supreme Court nor any circuit court has adopted this inflexible position and, for a variety of reasons, we also decline to do so.

Since Glasser v. United States, 315 U.S. 60, 70, 62 S.Ct. 457, 465, 86 L.Ed. 680 (1942), the law has been settled that the sixth amendment right to effective assistance of counsel is breached where one lawyer is required to represent two defendants with competing...