U.S. v. Mangone

• Decision Date: 09 October 1996
• Docket Number: No. 95-2102,95-2102
• Citation: 105 F.3d 29
• Parties: UNITED STATES, Appellee, v. Richard D. MANGONE, Defendant, Appellant. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 29

105 F.3d 29

UNITED STATES, Appellee, v. Richard D. MANGONE, Defendant, Appellant.

No. 95-2102.

United States Court of Appeals, First Circuit.

Heard Oct. 9, 1996.

Decided Jan. 28, 1997.

Bruce Green, Springfield, MA, for defendant, appellant.

Paul G. Levenson, Assistant United States Attorney, with whom Donald K. Stern, United States Attorney, and Victor A. Wild, Assistant United States Attorney, Boston, MA, were on brief for appellee.

Before TORRUELLA, Chief Judge, BOWNES, Senior Circuit Judge, and STAHL, Circuit Judge.

BOWNES, Senior Circuit Judge.

Defendant Richard D. Mangone was convicted after a lengthy jury trial on counts of conspiracy, bank fraud, unlawful receipt of monies by a credit union officer, and money laundering. He appeals both his conviction and the district court's decision to depart upward from the applicable Sentencing Guidelines range.

I Facts

In order to understand the issues properly, a thorough recitation of the scope of defendant's criminal conduct is required. We relate the facts in the light most favorable to the verdict. See United States v. Wihbey, 75 F.3d 761, 764 (1st Cir.1996). Between December 1985 and March 1991, defendant conspired with James Smith, Robert Cohen, and Ambrose Devaney to defraud two separate lending institutions, the Barnstable Community Federal Credit Union ("BCCU") and the Digital Employees Federal Credit Union ("Digital"). Defendant, president of Digital and a founder of BCCU, and Smith, a real estate developer and a founder of BCCU, were the primary organizers of the fraud. Robert Cohen was general counsel to both credit unions. Ambrose Devaney was a real estate developer on Cape Cod. This court's affirmance of the convictions and sentences of Smith, Cohen and Devaney is found at United States v. Smith, 46 F.3d 1223 (1st Cir.), cert. denied, --- U.S. ----, 116 S.Ct. 176, 133 L.Ed.2d 116 (1995).

Defendant and Smith used their control over the two credit unions to obtain tens of millions of dollars in loans for their own speculative real estate ventures. The loans were used in part to finance the purchase of commercial real estate on Cape Cod, usually motel properties or raw land for residential subdivisions. The loans were, in many instances, funded in amounts far in excess of the purchase price of the property, with much of the excess going directly into the pockets of defendant, Smith, and Devaney. In order to avoid the credit union's policies restricting "insider" loans as well as policies limiting maximum borrowing by an individual, the conspirators formed over a dozen nominee trusts to create the fiction that the loans were going to many different borrowers.

As president of Digital, which had experienced explosive growth since its founding in 1980, defendant enjoyed the confidence of that credit union's board of directors and staff. Defendant was therefore able to induce Digital to allocate approximately $20,000,000 for "investment" in participation loans with BCCU, without disclosing the fact that defendant himself was one of the ultimate borrowers of those funds. All of the participation loans were made to trusts owned by defendant and Smith (and in most cases Devaney). In each instance, the participation loans were funded in amounts far in excess of the actual purchase price of the commercial property. These excess funds, known as "pie," were siphoned off and diverted to accounts controlled by defendant or Smith for further distribution. The amount of "pie" varied but was generally between $75,000 and $200,000 per partner per loan.

For all of the participation loans and for many additional loans, defendant and his co-conspirators concealed their ownership interests by placing in BCCU's and Digital's files phony certificates of beneficial interest, falsely naming certain individuals as beneficiaries of the trusts. In order to obtain loans well in excess of the purchase price of the property, defendant and Smith forged and altered purchase and sale agreements, often inflating prices by over one million dollars. For most of the participation loans, defendant, Smith, and Lynn Vasapolle, an unindicted co-conspirator, prepared fake financial statements to create the false impression that the putative borrowers (the "trustees") were wealthy individuals capable of repaying the loans being extended.

Most of the participation loans were initially closed between December 1985 and October 1988, and were made with "interest only" notes for relatively short terms (1-2 years), with a balloon payment of the full principal due upon expiration. When they were unable to find legitimate buyers to whom they could sell the properties at a profit sufficient to cover both the original purchase price and the excess "pie" they had received, the conspirators began to pyramid their loans.

Beginning in 1986, as loans came due on subdivision properties, Cohen would draw up papers "selling" a portion of the original subdivision to a newly created trust. Defendant and Smith would then cause BCCU to make a loan to the new trust to finance the purchase. The new loan proceeds would then be used to pay off the proportionate share of the prior loan. Purchase "prices" were again artificially inflated so as to provide cash which was used to cover interest payments on the new loans and to help with debt service on the existing loans. By March 1991, when BCCU was seized by the National Credit Union Administration, the outstanding balance of the Mangone-Smith-Devaney loans amounted to between forty and sixty million dollars.

On September 12, 1992, defendant, Smith, Cohen, and Devaney were indicted for conspiracy (18 U.S.C. § 371) to commit bank fraud (18 U.S.C. § 1344); unlawful receipt of monies by a credit union officer (18 U.S.C. § 1006); and money laundering (18 U.S.C. § 1957). The case was tried on a redacted indictment that included a conspiracy count, seven bank fraud counts, seven parallel unlawful receipt counts (which concerned defendant alone) and the money laundering charges. Defendant was convicted on all counts. ¹ Defendant fled prior to sentencing and remained at large for eighteen months before he surrendered. On September 12, 1995, defendant was sentenced to twenty-four years of incarceration after the district court departed upward by two years from the maximum sentence under the Guidelines.

II The Bruton Error

Defendant appeals his conviction on the basis of alleged error under Bruton v. United States, 391 U.S. 123, 88 S.Ct. 1620, 20 L.Ed.2d 476 (1968). This issue has already been decided against defendant's co-conspirator Smith, who asserted a factually identical claim of Bruton error in his appeal, which we found to have been harmless error. Smith, 46 F.3d at 1229-30. Although we could dispose of defendant's claim on the ground of stare decisis, we provide a brief analysis.

The Supreme Court held in Bruton that, because of the substantial risk that the jury, despite instructions to the contrary, will look to a codefendant's incriminating extrajudicial statement in determining the defendant's guilt, admission of a codefendant's statement in a joint trial violates the defendant's right of cross-examination under the Confrontation Clause of the Sixth Amendment. Bruton, 391 U.S. at 126, 88 S.Ct. at 1622-23. The evidentiary basis for the Bruton claim is as follows.

On the last day of trial testimony, co-defendant Cohen called to the stand Professor Richard Huber, an authority on the professional responsibilities of attorneys. Testifying under the district court's limiting instruction that the testimony was relevant as to Cohen only, and had nothing to do with any of Cohen's co-defendants, Professor Huber reiterated the events of April 4, 1991, when Cohen met with him to obtain advice concerning his representation of BCCU, which by that time was in the hands of federal regulators. Huber testified that Cohen explained to him that Cohen's clients, "a former officer of the bank, a former director of the bank, and a bank manager came in and spoke to [Cohen] ... concerning activities that involved them and their work at the bank." Smith, 46 F.3d at 1228. According to Huber, Cohen stated that "certain documents had been changed, the information had been changed, figures had been changed, data had been changed [and] that this had been done after preparation by Mr. Cohen and after they had been presumptively completed." Id.

Like Smith before him, defendant asserts that Huber's testimony constitutes reversible Bruton error because it "expressly implicate[s] the defendant, leaving no doubt that it would prove powerfully incriminating." Id. (internal quotation marks and citations omitted) (alteration in original). In Smith, we assumed without deciding that the admission of Huber's testimony constituted Bruton error, but held that any such error was harmless beyond a reasonable doubt. 46 F.3d at 1229.

Relying on Chapman v. California, 386 U.S. 18, 87 S.Ct. 824, 17 L.Ed.2d 705 (1967), and related cases, defendant argues strenuously that the error was not harmless. We disagree. We remain convinced that any Bruton error that may have occurred below ² was harmless for the reasons stated in Smith:

The jury convicted all the defendants on the conspiracy count, and Cohen on most of the substantive counts. Even if the jury threw the curative instructions to the wind and considered the stricken testimony as evidence against [Mangone], ³ the scenario which implicates Bruton, it could not have believed Cohen's claim that the unnamed clients confessed to him at the close of the conspiracy. No one confesses to a partner in crime.

Admittedly, Cohen's statement might tend to incriminate [Mangone] and Devaney by showing that the coconspirators met to discuss damage control. In this sense, however, the statement falls far outside the pale of the "powerfully incriminating" evidence that produces Bruton errors. Vasapolle had already testified in detail to the...