U.S. v. Iacaboni

• Decision Date: 30 March 2004
• Docket Number: No. 02-2141.,02-2141.
• Citation: 363 F.3d 1
• Parties: UNITED STATES, Appellee, v. Frank IACABONI, Defendant, Appellant.
• Court: U.S. Court of Appeals — First Circuit

Page 1

363 F.3d 1

UNITED STATES, Appellee, v.Frank IACABONI, Defendant, Appellant.

No. 02-2141.

United States Court of Appeals, First Circuit.

Heard April 9, 2003.

Decided March 30, 2004.

Thomas J. Butters, with whom Butters, Brazilian & Small LLP, was on brief, for appellant.

Andrew Levchuk, Assistant U.S. Attorney, with whom Michael J. Sullivan, was on brief, for appellee.

Before BOUDIN, Chief Judge, LYNCH and HOWARD, Circuit Judges.

HOWARD, Circuit Judge.

In March 2002, Frank Iacaboni pleaded guilty to charges arising out of his operation of an illegal gambling business.He appeals the district court's subsequent forfeiture order, contending that the court erred in its determination that $384,245 should be forfeited.Concluding that the district court's reasoning is sound as to the bulk of the award, we affirm in part, but reverse and remand as to one category of funds included in the forfeiture.

I.Factual and Procedural Background

From 1995 through March 1998, Iacaboni conducted an illegal sports gambling operation in and around Leominster, Massachusetts.Iacaboni's business included a few different "offices" headed by individuals hired to take bets from gamblers over the telephone.Iacaboni also ran a "football ticket" business; bettors paid between $1 and $10 per "ticket," a card on which they checked off four or more predictions in dozens of upcoming games.

In May 2001, a grand jury indicted Iacaboni on charges of conspiracy to conduct an illegal gambling business (Count I), 18 U.S.C. § 371; operating an illegal gambling business (Count II), 18 U.S.C. § 1955; conspiracy to conduct an illegal gambling business involving interstate travel (Count III), 18 U.S.C. § 371; conspiracy to launder money from 1995 to March 1998(Count IV), 18 U.S.C. § 1956(h); and money laundering on December 23, 1997(Count V), 18 U.S.C. § 1956(a)(1)(A)(i).The indictment also included forfeiture allegations seeking "any property, real or personal, involved in" Iacaboni's violations of 18 U.S.C. § 1956. 18 U.S.C. § 982(a)(1).At his arraignment, Iacaboni entered a plea of not guilty on all charges.

On March 26, 2002, Iacaboni changed his plea to guilty on Counts I through IV of the indictment, and the government agreed to dismiss Count V. Iacaboni also pleaded guilty to a criminal information charging him with money laundering in violation of 18 U.S.C. § 1956(a)(1)(B)(i) in connection with the December 23, 1997 transaction that had been the subject of Count V.¹

In April 2002, the court held a bench trial on the forfeiture allegations.The government presented the testimony of two of Iacaboni's employees, Robert Bolaski and Ryan Gallagher.They described their day-to-day duties, the size of their typical client roster (40 to 50 for Bolaski, and 15 to 20 for Gallagher), and their weekly salaries (ranging from $300 to $350).Bolaski estimated that Iacaboni's business might owe approximately $15,000 to $20,000 to winning bettors during a bad week, and expect to collect $20,000 to $25,000 from losing bettors during a good week.Gallagher testified that his office paid out an average of approximately $10,000 per week to winning bettors over the course of a seventeen-week football season.Both Bolaski and Gallagher testified that the volume of betting varied.

Larry Landman, one of Iacaboni's bettors, also testified at trial.He testified that he bet every weekend during football season, and that occasionally when he owed money to Iacaboni, he would send "personal checks" made out to the defendant.²He sometimes made the notation "personal loan" on the checks, a practice that was his own idea, not one suggested by Iacaboni.Iacaboni deposited Landman's checks into his personal account.The government presented evidence of nineteen checks given to Iacaboni by Landman, only nine of which were relevant to the forfeiture analysis because of the applicable five-year statute of limitations.These nine checks, deposited between May 1996 and December 1996, totaled $7,385.³

The court also heard testimony from Robert Davies, an agent of Iacaboni's, and Tina LeClair, Iacaboni's former girlfriend.These witnesses, along with Bolaski, described the operation of the football ticket business, including how bets were placed and winnings distributed.

In June 2002, Iacaboni was sentenced to ten months in custody, a fine of $30,000, and three years' supervised release.The district court heard argument on the forfeiture allegations soon thereafter.In August 2002, the district court ordered Iacaboni to forfeit $384,245 pursuant to 18 U.S.C. § 982(a)(1).This amount included (1) $340,000 in funds paid to winning phone-in bettors over the 1996 and 1997 football seasons; (2) $10,000 in funds paid to winning football ticket bettors; (3) $10,000 representing funds involved in the December 23, 1997 transaction; (4) $7,495 in checks from Landman; (5) $16,150 in salaries; and (6) $600 in phone expenses.⁴The district court declined to order that Iacaboni forfeit his residence in Leominster, a penalty sought by the government.⁵This appeal followed.

II.Analysis

Iacaboni contends that the district court erred in its determination of the amount to be forfeited because (1) the payouts to winning bettors were integral to the illegal gambling business and therefore could not be considered property involved in money laundering; (2) there was insufficient evidence to support a finding that $340,000 was paid out to phone-in bettors; and (3) the Landman checks were not property involved in money laundering.

A.Payments to Winning Bettors

We review de novo the district court's determination of what constitutes forfeitable proceeds under 18 U.S.C. § 1956(a)(1)(A)(i).The court found that $350,000, an amount representing payments to winning bettors, should be forfeited.⁶The statute provides:

(a)(1) Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity

(A)(i) with the intent to promote the carrying on of specified unlawful activity;

shall be sentenced to a fine of not more than $500,000 or twice the value of the property involved in the transaction, whichever is greater[.]

18 U.S.C. § 1956.⁷

Looking to the language of the statute, we first consider whether the payments to winning bettors constituted financial transactions involving the proceeds of illegal gambling, a specified unlawful activity.Id.§ 1956(a)(1).The district court concluded that this portion of the statute had been satisfied, noting the breadth of the terms "financial transaction" and "proceeds."Iacaboni,221 F.Supp.2d at 111-12.

Iacaboni does not contest his participation in "financial transactions," but he does argue that "proceeds" refers to net income of the illegal gambling operation, not payouts, citing United States v. Scialabba,282 F.3d 475(7th Cir.2002), cert. denied,537 U.S. 1071, 123 S.Ct. 671, 154 L.Ed.2d 565(2002).There, the Seventh Circuit held that money paid to winning players in an illegal video poker scheme could not be considered proceeds, defining proceeds as net profits.We have previously rejected Iacaboni's interpretation of the term "proceeds" in the RICO forfeiture context.SeeUnited States v. Hurley,63 F.3d 1, 21(1st Cir.1995)(quoting legislative history of RICO forfeiture provisions for the proposition that "the term `proceeds' has been used in lieu of the term `profits' in order to alleviate the unreasonable burden on the government of proving net profits").Iacaboni has offered no rationale for abandoning that approach here.

Concluding that Iacaboni's financial transactions involved "proceeds" within the meaning of § 1956(a)(1), we turn to whether the transactions were intended to promote the gambling operation.Iacaboni asserts that payments to winning bettors cannot be considered "promotion" because these payments were an integral part of the illegal gambling business.Defining payouts as promotion, Iacaboni contends, is an impermissible alternative punishment for operating a gambling business.He argues for an interpretation of the statute that would require an additional promotional step beyond the mere operation of the illegal venture.

In addressing this argument, the district court opined that the payouts were not typical examples of promotion money laundering (such as the "plowing back" or reinvestment of criminal proceeds through the payment of business expenses, seeB. Frederic Williams, Jr. & Frank D. Whitney, Federal Money Laundering: Crimes and Forfeitures 137-39 (1999)).But the court nevertheless concluded that the transactions fell within the reach of § 1956(a)(1)(A)(i), in part because "[n]othing makes an illegal gambling operation flourish more than the prompt payment of winners,"id. at 114(citingUnited States v. Febus,218 F.3d 784, 790(7th Cir.2000)), and in part because it was not "fundamentally unfair to view as money laundering the conduct of defendant that took the proceeds of his illegal business and used them to increase the popularity and viability of his criminal operation by paying his winners."Id.

We agree with the district court, and affirm on the grounds set forth in its opinion, as well as the following considerations.Crimes such as the operation of an illegal gambling ring create huge sums of cash, the use or disposition of which can prove problematic for illegal gambling operators who wish to stay beneath the radar of law enforcement agencies.Depositing the funds with a financial institution can trigger currency transaction reporting requirements, seeHurley,63 F.3d at 12(citing31 U.S.C. § 5313), which in turn can bring the depositor the unwanted attention of the Internal Revenue Service or other government agencies.

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