United States v. Kaufman

Decision Date08 September 2021
Docket Number19-cr-504 (LAK)
CourtU.S. District Court — Southern District of New York

Dina McLeod Michael McGinnis Nicholas W. Chiuchiolo Assistant United States Attorneys Audrey Strauss United States Attorney

Nelson A. Boxer Christina Karam Paul-Gabriel D. Morales Petrillo Klein & Boxer LLP Attorneys for Defendant

Lewis A. Kaplan, United State District Judge

After a two-week jury trial, Alan Kaufman, the former chief executive officer and treasurer of Melrose Credit Union ("Melrose"), was convicted of two violations of 18 U.S.C. § 215(a)(2). The first involved Kaufman's corrupt acceptance of gratuities from one of Melrose's members. The second involved his corrupt acceptance of gratuities from certain of Melrose's vendors. Kaufman now moves under Federal Rule of Criminal Procedure 29 for judgments of acquittal or, in the alternative, for a new trial under Federal Rule of Criminal Procedure 33. For the following reasons, Kaufman's motion is denied in its entirety.

I. The Indictment

In July 2019, a grand jury indicted Kaufman on three counts.[1] Count One charged Kaufman with conspiring to commit bank bribery in violation of 18 U.S.C. § 371. Counts Two and Four charged him with corruptly accepting bribes and gratuities as an officer of a financial institution in violation of 18 U.S.C. § 215(a)(2). The indictment alleged that Kaufman participated in two bank bribery schemes as Melrose's chief executive officer and treasurer.

The first scheme was charged, in relevant part, in Counts One and Two. It alleged that Kaufman conspired to corruptly accept and corruptly accepted, "free housing," money, and other things of value from Tony Georgiton in exchange, or as a reward, for engaging Melrose in two groups of transactions that benefitted Georgiton.[2] It alleged that Kaufman gave Georgiton millions of dollars in loans with "favorable" interest rates and 50-year amortization periods, on which Melrose's loan supervisor refused to "sign off" because their interestrates were "too favorable" and because they "did not comply with [Melrose's] loan policy."[3] It alleged also that Kaufman caused Melrose to pay Georgiton's company $2 million to buy naming rights to an entertainment venue known as the "Melrose Ballroom," which Melrose's marketing director thought was of "minimal marketing value" to Melrose.[4]

The second scheme was charged in Count Four. It alleged that Kaufman corruptly accepted "lavish" vacations and other things of value from Melrose vendors, including CBS Radio, in exchange, or as a reward, for increasing Melrose's spending with such vendors.[5]

II. The Evidence

The trial took place from March 16 to March 31, 2021. Ten witnesses testified for the government, including an examiner from the National Credit Union Administration ("NCUA"), [6]a senior account executive from CBS Radio and Melrose's comptroller, director of marketing, loan department supervisor, general counsel, auditor, outside counsel, and two of its board members.[7]Kaufman called two witnesses and testified in his own defense.[8] The evidence viewed in the light most favorable to the government, established the following.

A. Melrose Credit Union

Melrose was a federally-insured, state-chartered credit union located in Briarwood, Queens.[9] It provided financial services and products to its customers - known as "members" - most of whom were taxi medallion owners.[10] One of Melrose's "specialties]" was taxi medallion lending.[11] Around 80 percent of Melrose's loans were issued to purchase taxi medallions.[12]

Kaufman spent most of his adult life working at Melrose. He started in the 1980s, while his father was the chief executive officer.[13] When his father retired in around 1998, Kaufman took over as chief executive officer and, at some point, became treasurer.[14] He held these roles until he was terminated in 2016.[15]

Kaufman was trained on Melrose's bank bribery policy, which prohibited all employees from "[soliciting" or "accepting anything of value from anyone in connection with the business of the Credit Union, either before or after a transaction is discussed or consummated."[16]Melrose' s bank bribery policy had limited exceptions, including for certain gifts of "modest value" under $100.[17] Credit union employees who received or were offered "something of value beyond what [wa]s expressly authorized by [the] policy," were required to disclose such instances to Melrose's board of directors.[18]

In line with the bank bribery policy, Melrose's employee handbook prohibited all employees from receiving "any gift or gratuity" worth over $100 from any of Melrose's members, vendors, and suppliers.[19] Kaufman confirmed that he understood the policies and rules outlined in the employee handbook by signing copies in 2002 and 2016.[20]

B. The First Bribery Scheme

The first scheme related to things of value Kaufman accepted from Georgiton, one of his close friends, in the period 2010 to 2015.[21] Georgiton had been a Melrose member since at least the early 1990s and was one of the credit union's largest taxi medallion borrowers.[22] He owned several businesses, including a taxi medallion leasing operation and an interest in an entertainment company, which he "grew" wHh Melrose's financial help.[23]

1. The Jericho Residence

Around the fall of 2010, Georgiton offered to buy Kaufman a house.[24] Kaufman, who was going through a divorce and purportedly having financial issues, accepted his offer.[25]Kaufman selected a house in a gated community with a pool and tennis courts in Jericho, Queens (the "Jericho Residence"), which Georgiton bought in his own name for $630, 000 in December 2010.[26] The closing - which Kaufman attended with Georgiton - occurred at a law firm on Park Avenue in Manhattan.[27] At Kaufman's request, Melrose's general counsel, Mitchell Reiver, represented Georgiton at the closing without charging a fee for his services.[28] Likewise, a member of Melrose's supervisory committee, Paul Cynamon, acted as the real estate broker.[29]

Kaufman lived at the Jericho Residence without paying rent for over two years, from around 2011 to 2013.[30] Despite the fact that Georgiton was one of Melrose's largest borrowers, Kaufman never disclosed to Melrose's board that he lived — without paying rent — in a house that Georgiton bought.[31] Moreover, although Kaufman apparently paid taxes and homeowners' association fees on the Jericho Residence while living there rent-free, Kaufman made it appear as if such payments had been made by Georgiton. To accomplish this, he opened an account at Melrose in Georgiton's name and deposited his own money into the account.[32] Kaufman then drew checks on the account, which he signed with Georgiton's name without power of attorney.[33] From 2011 to 2012, he did so on over 50 checks to pay taxes and fees on the Jericho Residence.[34]

2. Georgiton 's Melrose Loans

Before and while living at the Jericho Residence rent-free, Kaufman approved millions of dollars of loans for Georgiton and his companies. The government sought to prove that these loans were given as part of a corrupt quid pro quo - or in connection with a corrupt reward -because they had "favorable" 50-year amortization periods and did not comply with Melrose's policies. Accordingly, both parties presented a significant amount of evidence about Melrose's 50-year amortization loans and policies related to such loans.

a. 50-Year Amortization Loans

A loan's amortization period is the length of time used to calculate the borrower's monthly principal payments.[35] Loans with longer amortization periods require smaller monthly principal payments than loans with shorter amortization periods.[36] Longer amortization periods thus are more favorable to the borrower from a monthly payment perspective.[37] At Melrose, a typical taxi medallion loan included a 25-year amortization period and a three-year "balloon," which is the point at which the borrower either has to pay off the loan or refinance.[38]

Fifty-year amortization loans were not "common" or "regular" at Melrose.[39] They were also riskier to the credit union than loans with shorter amortization periods.[40] This was so because 50-year amortization loans required the borrower to pay off very little of the loan's principal balance on a monthly basis, resulting in higher outstanding loan balances for the credit union for longer periods of time.[41] Higher loan balances are correlated with higher risk that the value of the property securing the repayment of the loan - e.g., the taxi medallion- would drop below the loan's principal balance.[42] In such an instance, the credit union would be "[un] protected]" if the borrower defaulted.[43]

To mitigate this risk, Melrose's loan policies stated that 50-year amortization loans should be issued only if certain requirements were met.[44] These requirements included:

(i) the loan's "loan-to-vaiue" ratio - i.e., the ratio between the loan amount and the property value (typically the taxi medallion) - must not exceed 66 to 70 percent, [45]
(ii) the loan's balloon term must not exceed two years.[46]

Additionally, Melrose's policies required all loans' "debt service coverage" ratios - i.e., the ratio between the borrower's net income and the loan amount- to be at least one-to-one.[47]

There was evidence that Me hose offered 50-year amortization loans in lieu of interest-only loans, [48] which required the borrower to pay only the loan's interest on a monthly basis.[49] They thus have even smaller monthly payments than 50-year amortization loans.[50] Kaufman testified that some of Melrose's borrowers, including Georgiton, requested that...

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