U.S. v. Reese

• Decision Date: 25 August 1994
• Docket Number: D,No. 1327,1327
• Citation: 33 F.3d 166
• Parties: UNITED STATES of America, Appellee, v. Harry J. REESE, Defendant-Appellant. ocket 93-1630.
• Court: U.S. Court of Appeals — Second Circuit

Page 166

33 F.3d 166

UNITED STATES of America, Appellee, v. Harry J. REESE, Defendant-Appellant.

No. 1327, Docket 93-1630.

United States Court of Appeals, Second Circuit.

Argued March 28, 1994.

Decided Aug. 25, 1994.

Steven A. Feldman, Feldman and Feldman, Hauppauge, NY, for defendant-appellant Harry J. Reese.

Peter J. Tomao, Asst. U.S. Atty. E.D.N.Y., Brooklyn, NY (Peter A. Norling, Asst. U.S. Atty., Zachary W. Carter, U.S. Atty. E.D.N.Y., of counsel), for appellee U.S.

Before: TIMBERS, KEARSE and CARDAMONE, Circuit Judges.

CARDAMONE, Circuit Judge:

For a number of years beginning in the mid-1970s, defendant and his partner owned mortgage originating and real estate companies. When the partners encountered financial difficulties their business habits changed. Their business over the next five years consisted of utilizing those companies to perpetrate a series of frauds against the United States and certain banks. Their fraudulent schemes involved real estate transactions and they left tracks as plain as fox prints in newly fallen snow just outside the hen house, which ultimately led to the criminal charges that were filed against them.

Harry Reese appeals from a judgment entered September 13, 1993 in the United States District Court for the Eastern District of New York (Wexler, J.), convicting him following a jury trial of one count of conspiracy to defraud the United States and to defraud certain financial institutions in violation of 18 U.S.C. Sec. 371, and two counts of making false statements on a United States Department of Housing and Urban Development (HUD) Loan Application in violation of 18 U.S.C. Sec. 1001. We affirm.

BACKGROUND

A. Facts

For a number of years during the mid-1980s, defendant Harry Reese and his partner, Steven H. Deutsch, processed a series of fraudulent loan applications through a mortgage company they operated. The company, Vanguard Mortgage Corporation (Vanguard), was formed by Deutsch in 1963. Reese became a partner in 1976. Following an investigation by the New York State Attorney General with regard to its business practices in 1984, Vanguard changed its name to Turnpike Holding Corporation (Turnpike). Vanguard and Turnpike were both located in East Meadow, on Long Island, New York. These companies were in the mortgage origination business and were HUD approved lenders. They participated in a program under which they originated HUD-insured mortgages and endorsed HUD's insurance. HUD reviewed only a small percentage of the originated mortgages.

As participants in this program, Vanguard and Turnpike were expected to engage in good lending practices, including verifying an applicant's employment, income, and ability The two men also owned two other companies, Creative Brokerage Corporation (Creative Brokerage) and Bean Bag Holding Corporation (Bean Bag), real estate companies that they used to purchase real estate on speculation. Reese and Deutsch's fraudulent scheme involved, in essence, the multiple transfer of properties to obtain the cash proceeds of mortgages based on their purported sales prices. A typical scheme ran as follows: Creative Brokerage or Bean Bag would first buy a residential property. Then, when its value appreciated--usually aided by a questionable appraisal--the property would be sold either to Reese or Deutsch, and as an owner-occupied property, HUD insurance was greater.

to repay the requested mortgage loan. HUD-insured loans were only available for residential properties. Individuals could obtain such loans to purchase residential properties on speculation, but for this type of transaction HUD required the prospective purchaser to put down 25 percent of the purchase price. HUD insured just 75 percent of the value. This differed from the owner-occupied home loan for which HUD required only 5 percent down and insured the remaining 95 percent. In either case, HUD required an "arms length" transaction, that is, that the purchaser and buyer be totally unrelated. In the five years between 1983 and 1988 Turnpike originated and endorsed 834 HUD-insured mortgages totaling $50 million.

To finance the purchase, a mortgage processed by Turnpike would be taken out. As a "direct endorser" of HUD-insured mortgages, Turnpike could approve such mortgages independently. Deutsch and an employee of the company named Mary Mondanaro were "approved underwriters," meaning they could review and approve HUD-insured mortgages. Mondanaro worked under the direction of Reese. As a result, Deutsch's and Reese's own mortgages were frequently insured by HUD. The crux of the scheme hinged on the fact that with each sale of the property the dollar amount of the mortgages would increase, although in fact no money changed hands at the sale other than the funds received for the mortgage balance. After any outstanding debts were paid with the mortgage proceeds, the excess funds were appropriated by Reese and Deutsch.

The activities of the two men through their business enterprises ultimately prompted a government investigation and defendants' subsequent indictment. Reese and Deutsch were charged with one count of conspiracy to defraud the United States and to defraud financial institutions in violation of 18 U.S.C. Sec. 371, two counts of making false statements on a United States Department of Housing and Urban Development Loan Application in violation of 18 U.S.C. Sec. 1001, and two counts of executing a scheme or plan to defraud a financial institution in violation of 18 U.S.C. Sec. 1344.

Deutsch pled guilty to conspiracy to defraud the United States and to defraud financial institutions pursuant to a cooperation agreement with the government that provided he would testify at Reese's trial. That trial began on January 19, 1993 and lasted four days. The evidence at trial focused on five loan applications--three insured by HUD and two filed with private banks--involving three pieces of real estate: 22 Maida Avenue, Deer Park, New York; 71 Duke Street, Deer Park, New York; and 38 High Lane, Levittown, New York.

Deutsch testified for the government, as did Mary Mondanaro and HUD Criminal Investigator Michael Carlucci. Their testimony, along with substantial physical evidence and testimony from several other witnesses, demonstrated that with respect to HUD-insured mortgages and bank mortgages secured on these properties, Reese made false statements regarding such things as his income, his debts and the value of the properties. Because the details of these transactions are not relevant to the issues raised on appeal, we will not discuss them any further, but will instead simply describe the transactions relating to one property for illustrative purposes.

On April 2, 1984 Reese and Deutsch's company, Creative Brokerage, purchased for $46,000 the 22 Maida Avenue property. Creative Brokerage obtained the purchase money from a so-called "hard money lender," an entity that lends money at the highest In 1988 Reese sold the property to Deutsch. The two men prepared a sales contract that provided for a sale price of $139,990. The contract was submitted to Citibank, N.A. along with an application for a no-income check mortgage, i.e., a mortgage that is given based on the value of the property alone without reference to the mortgagor's income. The $139,000 sale price qualified Deutsch for a $104,000 mortgage. To convince Citibank that this was a legitimate sale, Deutsch wrote Reese a check for $5,000--using $5,000 Reese had given him for that purpose--ostensibly to represent a deposit. Ultimately, the only money that changed hands was the $104,000 in mortgage proceeds Citibank gave to Deutsch. The mortgage balance due Citibank at the time of trial, including interest and late charges, was over $149,000.

rates permitted by the usury laws. Three weeks after the purchase, Creative Brokerage sold the property to Reese, who financed the purchase with a mortgage of $71,200 procured from Vanguard. In 1986 Reese refinanced the property with a HUD-insured mortgage obtained from Turnpike for $74,800. In order to obtain the mortgage, Reese submitted an application to HUD, on which he stated that his salary was $50,000 per year, that he intended to live at the property, and that he did not have any debts. The application was approved by Turnpike employee Mondanaro. Pursuant to HUD regulations, Mondanaro secured a verification of Reese's employment from Turnpike that indicated he earned $50,000 per year. Mondanaro did not bother to substantiate that figure by consulting Turnpike's records because Reese himself was in charge of Turnpike's payroll. In fact, Reese's W-2 forms indicated salaries of $26,000 in 1985, and $34,500 in 1986. Similarly, Mondanaro made no attempt to verify whether Reese was free of debt. In fact, he was not. Reese also had a residence where he lived and which he had no intention of abandoning. Mondanaro processed the application, and HUD guaranteed the mortgage.

Reese does not challenge the sufficiency of the evidence that established the foregoing. Rather, he contests several procedural aspects of the trial and the sentence imposed on him. We briefly set forth the facts relating to these issues.

B. Jury Charge Regarding Reasonable Doubt

During the jury charge, Judge Wexler told the jury that Reese "is presumed to be innocent until his guilt has been proven beyond a reasonable doubt" and that "defendant never had the burden to prove his innocence, to produce any evidence at all, [or] even to testify." He defined reasonable doubt as "a doubt based on reason and common sense, a doubt which would make each of you hesitate to act in the more serious and important affairs of your own lives. This means after you've considered all the evidence in this case [if] you have a doubt about the defendant's guilt which appeals to your own experience, judgment and common sense, you must find the defendant not guilty."

After three hours of deliberations, the jury sent the judge a note...