U.S. v. Kahale

• Decision Date: 23 December 2009
• Docket Number: No. 09–cr–159 (KAM).,09–cr–159 (KAM).
• Citation: 789 F.Supp.2d 359
• Parties: UNITED STATES of Americav.Harry K. KAHALE, Harold Richard Graham, Gregory C. Scarlato, and Mitchell Reisman, Defendants.
• Court: U.S. District Court — Eastern District of New York

789 F.Supp.2d 359

UNITED STATES of America

v.Harry K. KAHALE, Harold Richard Graham, Gregory C. Scarlato, and Mitchell Reisman, Defendants.

No. 09–cr–159 (KAM).

United States District Court, E.D. New York.

Dec. 23, 2009.

Jonathan E. Green, Tanya Yvette Hill, United States Attorneys Office, Brooklyn, NY, for United States of America.

MEMORANDUM & ORDER

MATSUMOTO, District Judge:

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                ¦Contents:¦
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                       Introduction                                                     365
                       Background                                                       367
                       Discussion                                                       370
                

                       I.   Requests for Bills of Particulars                           370
                            Request to Strike Paragraph 12 of the Superseding
                       II.  Indictment                                                  378
                       III. Motion to Preclude Introduction of Evidence at Trial        379
                            Motions to Sever Trial or Alternatively to Exclude
                       IV.  Co–Defendant Statements at a Joint Trial                    386
                       V.   Motion for Expert Disclosure                                394
                

                       Conclusion                                                       394
                

INTRODUCTION

A seven-count superseding indictment ¹ (“Indictment”) filed September 2, 2009, charges defendants Harry K. Kahale (“Kahale”), Harold Richard Graham (“Graham”), Gregory C. Scarlato (“Scarlato”), and Mitchell Reisman (“Reisman”) with one count of conspiring to commit mail and wire fraud in violation of 18 U.S.C. §§ 1349,² 1341,³ 1343 ⁴ and 3551 ⁵et seq., five counts of mail fraud in violation of 18 U.S.C. §§ 1341, 2 ⁶ and 3551 et seq. and one count of wire fraud in violation of 18 U.S.C. §§ 1341, 2 and 3551 et seq. ( See Doc.⁷ No. 55, Superseding Indictment (“Ind't”).) The Indictment also contains a criminal forfeiture allegation pursuant to 18 U.S.C. § 981 ⁸ and 28 U.S.C. § 2461(c).⁹ Now before the court are omnibus pretrial motions by defendants Reisman ¹⁰ and Graham ¹¹ in which other defendants variously join.¹²

At a status conference on November 2, 2009, the parties agreed that the defendants' motions for Brady/Giglio material and notice pursuant to Federal Rule of Evidence 404(b) would become fully mooted by the government's subsequent scheduled submissions.¹³ Accordingly, defendants' outstanding motions, which are more fully outlined below, may be summarized as demands for: (1) bills of particulars; (2) striking paragraph 12 of the Indictment or language within it as surplusage; (3) precluding introduction of certain evidence related to Reisman's past business ventures under Federal Rules of Evidence 401 and 402, or alternatively under Federal Rule of Evidence 404(b), and precluding evidence of Reisman's and Kahale's prior convictions under Federal Rules of Evidence 403 and 404(b); (4) severance into four separate trials and, in the alternative, exclusion of certain out-of-court statements by various co-defendants; and (5) an order directing the government to disclose its experts under Federal Rule of Criminal Procedure 16(a)(1)(G). The government opposes defendants' motions in their entirety. ( See Doc. No. 49, Government's Memorandum of Law in Response to Defendants' Omnibus Pretrial Motions (“Gov. 8/26/09 Mem.”); Doc. No. 68, Government's Memorandum of Law in Response to Defendant Richard Graham, Harry K. Kahale and Gregory C. Scarlato's Omnibus Pretrial Motions (“Gov. 10/23/09 Mem.”); Doc. No. 100, Ltr. from Tanya Hill and Jonathan Green dated 12/4/09 (“Gov. 12/4/09 Ltr.”).)

For the reasons set forth below, defendants' motions for bills of particulars are granted to the extent they request the identity of unindicted co-conspirators. The motions for bills of particulars are otherwise denied. The motions to strike paragraph 12 of the Indictment or language within it are denied. The motion to preclude the government from introducing at trial evidence of Reisman's other business ventures is denied with respect to the Philippine Islands Recovery Project, the CLH Loan Transaction, and V–4's connection to the Crude Oil Deal, which, as to all defendants, is direct evidence of the crimes charged pursuant to Federal Rule of Evidence 402. The motions to preclude evidence of the prior convictions of Kahale and Reisman are also denied, and such evidence, as to all defendants, is direct evidence of the crimes charged pursuant to Federal Rule of Evidence 402. The motions to preclude evidence of the Congo Deal and the Able Income Fund LLC are denied as moot, given the government's stated intention not to introduce this evidence. The motion to preclude introduction of Reisman's other business ventures is otherwise granted. The motions to sever trial are denied and the motions to exclude the co-defendants statements at a joint trial are denied in part and granted in part. The portions of the co-defendants' statements which the government seeks to introduce are admissible, with limited exceptions discussed below. Finally, the motion to direct the government to disclose its experts under Federal Rule of Criminal Procedure 16(a)(1)(G) is denied as moot.

BACKGROUND

I. The Superseding Indictment

As alleged in the Indictment and the submissions of the government the facts are as follows:

Between 2003 and 2008, defendants and “others” allegedly conspired to fraudulently solicit investors and lenders to invest in the B.I.M. Mining Corporation (“B.I.M.”), a Nevada-based corporation which defendants falsely portrayed as a “robust mining concern.” (Ind't ¶¶ 1, 11; Gov. 10/23/09 Mem. at 13.) Kahale served as President, Chief Executive Officer and Treasurer of B.I.M., while Graham served as B.I.M.'s Secretary and Director. ( Id. ¶¶ 4–5.) Scarlato and Reisman acted as agents for B.I.M. by soliciting investments on its behalf.¹⁴ ( Id. ¶¶ 6–7.)

Claiming that B.I.M. possessed rights to mineral and precious metal resources such as gold and “nickel babbit” ¹⁵ located in various places around the world, defendants allegedly falsely represented that B.I.M. needed investor funds to process, transport and market those assets. ( Id. ¶ 11.) Defendants allegedly falsely promised investors and lenders that upon completion of these processes, the investments would yield significant returns. ¹⁶ In exchange for investor money, defendants allegedly issued fraudulent “gold delivery certificates” which promised investment returns within a specified period of time, usually between two and twelve months. ( Id. ¶ 13.) These returns never materialized. Rather, upon maturation of the gold delivery certificates, the Indictment claims that defendants sent the investors letters stating, in substance, that B.I.M. had experienced numerous delays, that B.I.M. was close to completion of the refinement process, and that the gold delivery certificates would be redeemed soon. ( Id. ¶ 14.) Specifically, the defendants allegedly mailed letters falsely attributing the delays to, among other things, Kahale's hospitalization, a delay in responses from federal agencies, fundraising for further overseas travel, and efforts to secure an additional diplomatic channel. (Gov. 10/23/09 Mem. at 6–7.)

In reality, rather than using investor funds as promised to develop gold and other mineral assets, defendants allegedly used the money to pay earlier investors and lenders and for defendants' own personal expenses. (Ind't ¶ 15.) For example, Scarlato allegedly kept the majority of the investment money he collected from victims. (Gov. 8/26/09 Mem. at 8.) Similarly, in one instance Reisman allegedly collected $100,000 from a victim and kept the entire amount for use on a down payment for his own house and to repay a prior debt. ( Id. at 9.)

As part of the scheme, in order to induce investors and lenders to invest in B.I.M., the defendants allegedly made false representations about B.I.M.'s assets, operations, and defendants' own backgrounds. (Ind't ¶ 12.) For example, defendants allegedly stated that B.I.M. owned mines and had relationships with entities such as mining companies and foreign government representatives and others. (Gov. 10/23/09 Mem. at 4.) Meanwhile, according to the government, B.I.M. neither possessed nor had any rights to gold or other precious metals. ( Id. at 5.) In addition, defendants allegedly represented that B.I.M. possessed assets in the hundreds of millions or billions of dollars, while in fact the government contends that B.I.M. rarely had a bank balance in excess of $100,000 and that it had no money that did not come from victims of the fraud. ( Id.; see also Gov. 8/26/09 Mem. at 6.) In addition, defendants allegedly falsely claimed that Kahale was a retired general in the United States military with overseas contacts. Reisman also allegedly claimed he was a Certified Public Accountant (“C.P.A.”); however, according to the government, Reisman previously had been convicted of theft by deception and securities fraud, barred from the investment industry,¹⁷ and forced to relinquish his C.P.A. license. (Gov. 8/26/09 Mem. at 7.)

In order to execute the fraudulent scheme, the Indictment charges that defendants engaged in mail and wire fraud. (Ind't Counts Two through Seven.) Specifically, the Indictment alleges that defendants mailed or caused to be mailed five letters and lists the approximate dates they were mailed, the point of origin, and destination. ( Id. at Counts Two through Five.) In addition, the Indictment alleges that defendants caused a check in the amount of $200,000 to be mailed from an investor in Falconer, New York to Scarlato in Slatington, Pennsylvania. ( Id. at Count Six.) Finally, the Indictment alleges that the defendants transmitted and caused to be transmitted a $900,000 wire transfer on or about October 27, 2005 from Commerce Bank in New Jersey to HSBC Bank in Brooklyn, New York. ( Id. Count Seven.)

II. The Civil Lawsuit and Criminal Investigation

All of the defendants here, with the exception...