U.S. v. Locascio

• Decision Date: 28 September 2004
• Docket Number: No. 03 CR 304 CBA.,03 CR 304 CBA.
• Citation: 357 F.Supp.2d 536
• Parties: UNITED STATES of America, Plaintiff, v. Salvatore LOCASCIO, et al., Defendants.
• Court: U.S. District Court — Eastern District of New York

357 F.Supp.2d 536

UNITED STATES of America, Plaintiff, v. Salvatore LOCASCIO, et al., Defendants.

No. 03 CR 304 CBA.

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

September 28, 2004.

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Eric P. Franz, Law Offices of Eric Franz, Maurice H. Sercarz, Sercarz & Riopelle, New York, NY, for Defendant.

Eric Ross Komitee, Jeffrey Alan Goldberg, Linda A. Lacewell, Thomas Alan Firestone, United States Attorney's Office, Brooklyn, NY, for Plaintiff.

MEMORANDUM & ORDER

AMON, District Judge.

Presently before the Court are a series of severance motions made by defendants Norman Chanes, Richard Martino, Thomas Campos, Daniel Martino, Thomas Pugliese, Lawrence Nadell, Yitzhak Levy, and Kenneth Schaeffer¹, and a motion by the government to disqualify Weil, Gotshal & Manges LLP ("Weil Gotshal") as defense counsel for defendant Norman Chanes. For the following reasons (1) the severance motion made by defendants Nadell, Schaeffer, and Levy pursuant to Rule 14 of the Federal Rules of Criminal Procedure is granted; (2) all other severance motions are denied; (3) and the government's motion to disqualify Weil Gotshal is granted.

THE INDICTMENT

The central charges in this case are alleged violations of the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq., ("RICO"). The indictment alleges that seven of the eleven defendants are either members or associates of the "Gambino Family of La Cosa Nostra," the alleged RICO enterprise. These seven defendants² (the "RICO Defendants") are charged with racketeering and racketeering conspiracy (Counts One and Two) and with money laundering and money laundering conspiracy (Counts 15-20). In addition, defendants Richard Martino, Daniel Martino, and Norman Chanes are alleged to have participated in mail and wire fraud in connection with two separate schemes: the first, outlined in Counts 3-10, involved the inclusion of charges on consumers' telephone bills for services which they had not requested ("the telephone cramming scheme"); the second, set forth in Counts 11-14, pertained to a scheme in which visitors to adult entertainment websites run by certain defendants were allegedly misled into believing that they were receiving a free tour, while in reality charges were levied to their credit cards, which they had provided for age verification purposes ("the internet scheme"). Zef Mustafa, Andrew Campos, and Thomas Pugliese, the remaining RICO defendants, are also charged with the telephone cramming scheme.

Defendants Schaeffer, Levy, Nadell, and USP & C are the only defendants not charged with either RICO violations or money laundering. Levy and Nadell are charged with involvement in both the telephone cramming and internet schemes to defraud, whereas defendants Schaefer and USP & C are only charged with involvement in the telephone cramming scheme.

I. The Racketeering Charges:

According to the indictment, the purpose of the Gambino Crime Family, the enterprise, was to "generate money for its members and associates through crime, including mail fraud, wire fraud, credit card fraud, money laundering and other crimes." (Ind. at ¶ 5.) The Family allegedly operates through groups of individuals referred to as "crews." Each crew is composed of "made" members of the Gambino Family referred to as "soldiers," and is headed by a "captain," or "capo." Captains received a share of the criminal proceeds obtained by their crews, in exchange for which they supervise the criminal activities and provide support and protection. Crewmembers are expected to pay "tribute" to their captains by providing them with a certain percentage of their illegal proceeds. (Ind. at ¶¶ 2-3, 5.) In this case, the indictment alleges that illegal proceeds which were obtained via the telephone cramming and internet schemes were laundered for the purpose of fulfilling the obligations of paying tribute to superiors in the family. (Ind. at ¶¶ 58-60.)

II. The Telephone Cramming Scheme:

This "cramming scheme" involved the use of USP & C, a corporation allegedly controlled by defendants Richard Martino, Daniel Martino, and Norman Chanes, to include unwarranted charges on consumers' telephone bills for services which they had not requested. (Ind. at ¶ 21.) The government alleges that defendants created advertisements promising free samples of adult entertainment phone services (the "marketing materials"). When a customer called the numbers in the advertisements, he allegedly began receiving recurring monthly charges on his telephone bill for a voice mail service which he had not requested. (Ind. at ¶¶ 22-23.) The indictment alleges that defendants prepared a set of advertisements and audio programs (the "approval materials") which differed from those used for marketing in that they appeared to properly seek the customers' authorization to charge a recurring fee for the voice mail service, which the material described fully. (Ind.¶ 25-26.) These "approval materials" were provided to the telephone companies that allowed the charges to be added to customers' bills, as well as to complaining customers and regulatory agencies, thereby preventing discovery of the fraud. (Ind. at ¶¶ 24-26.)

III. The Internet Scheme:

The internet scheme charged in the indictment involved the creation of a joint venture between two companies, Crescent Publishing and Lexitrans. Crescent Publishing created adult entertainment materials, which were then placed on websites by Lexitrans, a web hosting company controlled by Richard Martino; together they operated the adult entertainment websites. (Ind. at ¶¶ 42-44.) As previously noted, the alleged fraud involved visitors to the website being offered free tours after entering their credit card numbers for the alleged purpose of age verification. The websites were allegedly designed in such a manner as to trigger charges on the visitors' credit cards without their knowledge. (Ind. at ¶¶ 47-51.)

IV. Money Laundering Charges:

The final counts in the indictment allege that the RICO Defendants conspired to commit and actually did commit money laundering. According to the government, the proceeds from the allegedly fraudulent schemes described above were channeled through a series of companies — both shell companies and companies owned by certain defendants — in violation of 18 U.S.C. § 1956. Ultimately, the government alleges, substantial portions of these proceeds were funneled to Creative Program Communications, Inc., a company of which defendants Locascio and Mustafa together owned 75%, "in fulfillment of Richard Martino's obligation as a member of organized crime to share illicit proceeds with persons above him in the Gambino family." (Ind. at ¶ 60.)

THE SEVERANCE MOTIONS

Defendant Schaeffer seeks a severance on the grounds of improper joinder under Rule 8(b) of the Federal Rules of Criminal Procedure; all other motions are based on Rule 14 of the Rules.

I. Defendant Schaefer's Motion to Sever due to Improper Joinder Under Rule 8(b)

Rule 8(b) permits joinder of two or more defendants in the same indictment where "they are alleged to have participated in the same act or transaction or in the same series of acts or transactions constituting an offense or offenses."³ Fed.R.Crim.P. 8(b). The standard for joinder under Rule 8(b), as articulated in United States v. Attanasio, requires that the acts in which the defendants participated be "unified by some substantial identity of facts or participants" or "arise out of a common plan or scheme." 870 F.2d 809, 815 (2d Cir.1989) (citations omitted). In his motion to sever due to improper joinder, defendant Schaefer argues that he has only been charged with the telephone cramming scheme set forth in Counts 3-10 of the indictment, and that these charges are "completely distinct" from the internet fraud scheme. Because he is not charged in the RICO counts — which provide the link between the two schemes — and because the telephone and internet schemes do not arise out of a "common scheme or plan," as required, defendant Schaefer argues, they do not meet the requirements for proper joinder under Rule 8(b) and must therefore be severed. (Schaefer Mem. June 8, 2004 at 9-10.)

Although it is true that the internet and telephone cramming frauds involve different activities and, as such, are distinct, courts have on several occasions held that joinder under Rule 8(b) is proper where a defendant, although not charged in the RICO count itself, is charged in substantive offenses which also serve as predicate acts in the RICO count. United States v. Cervone, 907 F.2d 332 (2d Cir.1990); United States v. Gotti, 2004 WL 602689, *4, 2004 U.S. Dist. LEXIS 4950 at *12 (S.D.N.Y. Mar. 26, 2004) (citations omitted); see also United States v. Gallo, 668 F.Supp. 736, 748 (E.D.N.Y.1987) (holding that "[t]he three `non-RICO' defendants... are also properly joined, because the substantive counts with which they are charged are also predicate acts for other codefendants in the RICO conspiracy count.").

The principal Second Circuit case on this issue is United States v. Cervone, in which eighteen defendants were charged in a 102-count indictment with charges including RICO violations, RICO conspiracy, labor bribery, extortion, and other associated crimes. 907 F.2d 332. Anthony Perna one of the defendants, was not charged in the RICO conspiracy, but rather with only one count of bribery and one count of making false statements to law enforcement. Moreover, not only was Perna not charged in the RICO conspiracy count or in any of the underlying racketeering acts, but he was the only defendant not charged jointly in any count in the indictment with a defendant named in the RICO count, and the only defendant charged in the two counts that named him. Cervone, 907 F.2d at 341. Nevertheless, the court upheld the joinder on the grounds that a co-defendant had been charged in the RICO conspiracy and named in a predicate...