United States v. Benny
| Decision Date | 23 February 1983 |
| Docket Number | No. CR-82-0620 RFP.,CR-82-0620 RFP. |
| Citation | 559 F. Supp. 264 |
| Court | U.S. District Court — Northern District of California |
| Parties | UNITED STATES of America, Plaintiff, v. George I. BENNY, et al., Defendants. |
Robert Feldman, Asst. U.S. Atty., San Francisco, Cal., for plaintiff.
Richard Jaeger, Feldman, Waldman & Kline, and Ephraim Margolin, San Francisco, Cal., for defendants.
The indictment in this case alleges three mail fraud schemes, four perjury violations, three tax violations, and a racketeering charge.
The first scheme is set forth in count one of the indictment, which alleges that: In 1977, defendant George I. Benny devised a scheme to defraud Wells Fargo Bank in connection with the purchase of Diamond Heights Village. Benny represented to Wells Fargo that he was purchasing DHV for $14.5 million and that he had placed a $2 million down payment in escrow, when, instead, the purchase price of DHV was $12.5 million and the $2 million check was written against insufficient funds. Neither Benny nor the escrow company notified Wells Fargo when the check was dishonored. On the basis of Benny's representations, Wells Fargo loaned Benny $13.5 million to buy DHV in November of 1977.
Counts two through nineteen set forth the second scheme as follows: In late 1979, the defendants Benny, Ariel Basse, James A. Fagerhaugh, James S. Urbanski and Robert M. Lawrence implemented a second scheme. They procured purported borrowers to submit loan applications to various lenders for the purported purchase of individual condominiums at DHV. Benny agreed to pay the downpayments into escrow and to make the monthly payments on the loans. Benny received the loan proceeds but kept the units.
The "straw sales" continued into 1981. During the course of the scheme, the defendants falsified financial information with respect to many of the purported borrowers to cause them to appear financially qualified for the loans, e.g., employment verifications and other documents reflecting income and assets. Many purported borrowers had multiple loans on DHV units which were concealed from the lenders. Furthermore, the defendants forged the names of purported borrowers on various documents.
Finally, the defendants inflated the purchase prices of the DHV units in order to obtain larger loans than otherwise would have been available. Since the "straw sales" involved no actual arm's length negotiations, Benny himself set the sales prices at levels which far exceeded the actual market value of the units. Believing these sales prices to be the result of arm's length transactions, appraisers for lenders and mortgage brokers relied upon them to determine the value of the units on which new loans were being sought, resulting in inflated appraisals. Consequently, banks and mortgage brokers made loans on the units in excess of the actual market value of the units.
The indictment alleges that the third scheme was perpetrated as follows: counts twenty through twenty-four assert that in December of 1980, Benny acquired a 160 unit condominium complex in Las Vegas known as the Casablanca condominium project. Shortly thereafter, Benny sought financing to enable him to purchase the 2300-acre Double Diamond Ranch six miles outside of Reno, Nevada, on which he intended to build a planned community. To finance the purchase of Double Diamond, Benny borrowed approximately $13 million from Nevada National Bank and other lenders. These loans were to be repaid through the sales of condominium units at Casablanca.
Instead, the defendants procured "straw" borrowers to apply for loans. Again, Benny agreed to make the downpayments and the monthly repayments of the loans. The purported borrowers executed quitclaim deeds to Benny. Thus, the Casablanca loans were used by Benny to repay the short-term loan from Nevada National. As in scheme two, the defendants falsified the financial information pertaining to the purported borrowers and forged numerous documents involved in the Casablanca loan applications. Defendants Lawrence and Fagerhaugh are not named in this scheme.
Defendant Fagerhaugh was an escrow officer at Chicago Title Insurance Company. The government alleges that Benny compensated Fagerhaugh for the latter's participation in the scheme by purchasing him a home and by repaying Fagerhaugh's loans. These fruits of the scheme are the items of income which were allegedly unreported on Fagerhaugh's income tax returns.
Fagerhaugh's alleged perjury relates to his participation in the scheme as a straw borrower. The indictment states that Fagerhaugh lied under oath in a deposition concerning the number and nature of his "straw purchases" of DHV condominiums.
The racketeering charge incorporates by reference the mail fraud counts and requires proof of at least two such counts. Defendant Lawrence is not named in this count.
Defendants have brought numerous motions to sever counts/defendants and motions to dismiss the mail fraud, perjury and RICO counts. We discuss only the RICO count in the present order; we have addressed the remaining motions in separate orders.
Defendant Benny brings this motion to dismiss count thirty-two of the indictment (the RICO count) for failure to charge an offense and for violation of the double jeopardy clause of the fifth amendment. As previously indicated, the indictment alleges that Benny and several of the other defendants induced lenders to finance two large land development projects and to disburse to the defendants funds to which the defendants were not entitled. On the basis of the above, Benny, Basse, Urbanski, and Fagerhaugh are charged with having violated the Racketeer Influenced and Corrupt Organizations Act, 18 U.S.C. § 1961 et seq. and the mail fraud statute, 18 U.S.C. § 1341. Benny contends that the Act does not contemplate, nor the constitution allow, an identification of the defendant and the "enterprise" element of the Act. That is, he asserts that a single entity or person cannot be both the defendant and the "enterprise."
Enacted as Title IX of the Organized Crime Control Act of 1970, RICO constituted "a full scale attack on organized crime," 116 Cong.Rec. 819 (1970) (remarks of Sen. Yarborough); its major purpose was "to address the infiltration of legitimate business by organized crime." United States v. Turkette, 452 U.S. 576, 591, 101 S.Ct. 2524, 2533, 69 L.Ed.2d 246 (1981). RICO consists of a complex panoply of criminal and civil provisions, with criminal penalties, the possibility of forfeiture of illicit gains, and civil remedies for the victims of racketeering. The defendants are charged with a violation of section 1962(c), which provides:
It shall be unlawful for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate or foreign commerce to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity or collection of unlawful debt.
Section 1962(c) encompasses several key terms. A "person" includes "any individual or entity capable of holding a legal or beneficial interest in property." 18 U.S.C. § 1961(3). An "enterprise" includes any "individual, partnership, corporation, association, or other legal entity, and any union or group of individuals associated in fact although not a legal entity." 18 U.S.C. § 1961(4). A "pattern of racketeering activity" "requires at least two acts of racketeering ... the last of which occurred within ten years ... after the commission of a prior act of racketeering activity." 18 U.S.C. § 1961(5). "Racketeering" is defined as any of several broad categories of crimes, of which mail fraud is one. 18 U.S.C. § 1961(1).
The proponents and drafters of RICO did not intend to visit overly harsh and unwarranted penalties on "ordinary criminals." The target of Title IX is not "sporadic activity." Report of the Senate Judiciary Committee on S.30, S.Rep. 91-617, 91st Cong., 1st Sess., p. 158. However, the term "organized crime" was too vague and illdefined to provide a meaningful criterion. United States v. Campanale, 518 F.2d 352, 363-64 (9th Cir.1978). Hence, the terms "pattern of racketeering" and "enterprise" serve to circumscribe the reach of the Act, providing the "factor of continuity plus relationship which combines to produce a pattern." Rep.Sen.Jud.Comm., supra.
However, the majority of courts which have dealt with the Act have held that a "pattern of racketeering" may be established by proof of two unrelated predicate acts. United States v. Welch, 656 F.2d 1039, 1060-62 (5th Cir.1981), cert. denied, 456 U.S. 915, 102 S.Ct. 1767, 72 L.Ed.2d 173 (1982); United States v. Rone, 598 F.2d 564, 571 (9th Cir.1979), cert. denied, 445 U.S. 946, 100 S.Ct. 1345, 63 L.Ed.2d 780 (1980). Thus, the only meaningful restraint upon the scope of the Act lies in the "enterprise" element; that element must be specifically proven.
In order to secure a conviction under RICO, the Government must prove both the existence of an "enterprise" and the connected "pattern of racketeering activity" .... While the proof used to establish these separate elements may in particular cases coalesce, proof of one does not necessarily establish the other. The "enterprise" is not the "pattern of racketeering"; it is an entity separate and apart from the pattern of activity in which it engages. The existence of an enterprise at all times remains a separate element which must be proved by the Government.
Turkette, supra, at 583, 101 S.Ct. at 2528.
A RICO count must therefore be more than the sum of its predicate acts (the "pattern of racketeering"). The government must also prove the "enterprise" element. Furthermore, numerous courts have held that, although the predicate acts need not...
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