United States v. Kubini, Criminal No. 11–14.
| Decision Date | 13 May 2014 |
| Docket Number | Criminal No. 11–14. |
| Parties | UNITED STATES of America, v. George KUBINI, Dov Ratchkauskas, Sandra Svaranovic, and Arthur Smith, Defendants. |
| Court | U.S. District Court — Western District of Pennsylvania |
UNITED STATES of America,
v.
George KUBINI, Dov Ratchkauskas, Sandra Svaranovic, and Arthur Smith, Defendants.
Criminal No. 11–14.
United States District Court, W.D. Pennsylvania.
Signed May 13, 2014
Motions granted in part, denied in part, and deferred in part.
[19 F.Supp.3d 583]
Brendan T. Conway United States Attorney's Office, Pittsburgh, PA, for United States of America.
Robert E. Stewart, Kevin R. Zinski, Pittsburgh, PA, for Defendants.
[19 F.Supp.3d 584]
AMENDED MEMORANDUM OPINION
NORA BARRY FISCHER, District Judge.
I. INTRODUCTION
Defendant Arthur J. Smith (“Smith”) is charged by way of a Superseding Indictment with allegedly committing thirteen separate criminal offenses, including: one count of wire and bank fraud conspiracy, in violation of 18 U.S.C. § 1349; five counts of wire fraud, in violation of 18 U.S.C. § 1343; three counts of bank fraud, in violation of 18 U.S.C. § 1344(1); one count of money laundering conspiracy, in violation of 18 U.S.C. § 1956(h); and three counts of failure to file income tax returns, in violation of 26 U.S.C. § 7203. (Docket No. 92). Presently before the Court are Smith's: Motion to Dismiss the Superseding Indictment; Motion to Sever; and Motion to Compel, (Docket Nos. 133, 151, 153), all of which are opposed by the Government, (Docket No. 180). In short, Smith moves to dismiss the Superseding Indictment based upon alleged prosecutorial misconduct committed by Government counsel; requests that the Court sever the tax counts from the fraud counts if the Superseding Indictment is not dismissed; and, further seeks an order compelling the Government to locate and produce alleged Brady materials, including suspicious activity reports (“SAR”) which the Government has acquired during its investigation. (Docket Nos. 133, 151, 153, 191, 250). The Government strongly denies any allegations that its counsel has committed prosecutorial misconduct and that dismissal of the Superseding Indictment is appropriate; advocates that the tax and fraud counts are sufficiently related to be joined and tried together; and contends that the alleged Brady materials identified by Smith are neither exculpatory nor improperly withheld under the applicable Rules of Criminal Procedure and the SAR regulations. (Docket Nos. 180, 251).
Smith's Motions have been fully and exhaustively briefed by the parties, including responses and replies as to each motion, along with documentary evidence with respect to the Motion to Dismiss and Motion to Compel. (Docket Nos. 133–34; 151–154; 180; 191). The Court also heard oral argument at a motion hearing conducted on December 2, 2013 and the transcript of those proceedings has been filed of record and reviewed by the Court. (Docket No. 248). The parties then filed post-hearing briefs on the applicability of the SAR regulations, (Docket Nos. 245, 247), as well as proposed findings of fact and conclusions of law and responses thereto regarding Defendant's Motion to Dismiss, (Docket Nos. 250, 251, 256, 257).
After reviewing the relevant filings and further consideration of the contested issues concerning the discoverability of the SARs, and whether they constitute Brady material, the Court accepted the Government's invitation to conduct an in camera review of the SARs to determine if the SARs and/or information contained therein should be produced to Smith. (Docket No. 258). In response to the Court's Order, the Government produced the requested documents in camera under a cover letter dated April 4, 2014. See 4/4/14 Letter from AUSA Conway to Court. Smith then submitted a second SAR filed by National City Bank regarding the activity in Smith's escrow account and relevant attachments for the Court's examination in camera. (Docket No. 259). The Government confirmed in its response to Smith's submission that the SAR filed by National City was previously provided to the Court and thus, asserted no objection to the Court's examination of the materials submitted by Smith. (Docket No. 260). The Government then filed a Supplement on May 12,
[19 F.Supp.3d 585]
2014, further advising the Court of its discovery production to Defendants. (Docket No. 261).
Having received and reviewed all of the foregoing materials,1 briefing, and the transcript of oral argument, Smith's Motions are now ripe for disposition. Upon consideration of all of the parties' submissions and for the following reasons, Smith's Motion to Dismiss and Motion to Sever are DENIED and his Motion to Compel is GRANTED, IN PART, and DENIED, IN PART, with the Court reserving its final ruling as to one particular issue on the Motion to Compel.
II. FACTUAL BACKGROUNDThe instant prosecution of Smith and codefendants George Kubini, Dov Ratchkauskas, and Sandra Svaranovic, (collectively, “Defendants”), arises out of a wide ranging investigation by the Western Pennsylvania Mortgage Fraud Task Force, which has already resulted in convictions of, among others: real estate brokers: Robert Arakelian, Eric Hall, Rhonda Roscoe, and Rochelle Roscoe; closing attorneys: James Steiner and Daniel Sporrer; closing agent, Karen Atkison; appraisers: Jason Moreno, Joel Reck and Howard Reck; and bank employees: Bartholomew Matto, Cynthia Pielin and Crystal Spreng. See Crim. Nos. 09–198 (Arakelian); 09–202 (Spreng); 09–223 (Atkison); 09–311 (Sporrer); 10–106 (Hall); 10–117 (Moreno); 10–232 (Howard Reck); 11–15 (Matto); 11–16 (Rhonda Roscoe); 11–17 (Rochelle Roscoe); 11–221 (Joel Reck); 11–255 (Pielin). This case was initially brought against Kubini and Ratchkauskas only on January 18, 2011, with the grand jury charging them with a single count of wire fraud conspiracy in violation of 18 U.S.C. § 1349. (Docket No. 1). While the Indictment was pending, the Government's investigation continued and culminated in the filing of a twenty-count Superseding Indictment on March 26, 2013, which includes charges of wire fraud conspiracy, wire fraud, bank fraud, and wire and bank fraud conspiracy against all Defendants, and separate tax counts against Kubini and Smith. (Docket No. 92). In short, the Government alleges that Defendants participated in a mortgage fraud scheme from November 2005 through December 2008, which involved 109 separate fraudulent loan transactions, violating a host of federal laws in the process. (Docket No. 154–7). According to the Government, real estate investors Kubini and Ratchkauskas and entities they controlled were involved as sellers of nearly all of the 109 properties; appraiser Svaranovic provided appraisals overstating the value of forty-nine (49) of the properties; and real estate attorney Smith knowingly participated in the fraud, acting as a closing agent for at least forty-three (43) of the deals.2 ( Id.).
[19 F.Supp.3d 586]
b. Search/Seizure Warrants and Execution Thereof at Smith's Law Office
On January 16, 2011, a few days before the grand jury returned its Indictment against Kubini and Ratchkauskas, Special Agent Daniel Fisher of the United States Secret Service obtained a search and seizure warrant for Smith's Law Office in order to obtain evidence of violations of federal law.3 (Docket No. 154–2). In his supporting affidavit, Special Agent Fisher noted that, among other things, the evidence obtained at Smith's Law Office would likely include: disbursement sheets; copies of checks and wire transfer information; instructions and correspondence with lenders; closing documents; title insurance documents; correspondence with mortgage brokers related to transactions; sales agreements; and evidence of payments for the settlement of the transactions. (Docket No. 154–2 at ¶ 119). Exhibit “A” to the affidavit details twenty-five specific transactions which Smith closed for Kubini and Ratchkauskas and the agents believe were fraudulent. ( Id. at 154–2 at 40–2). The affidavit explains with specificity the general mortgage and bank fraud scheme, advising that the agents had obtained evidence that numerous fraudulent documents were used during the twenty-five listed transactions, including: fake Uniform Residential Loan Applications (“1003s”); false verification of deposit forms (“VODs”); appraisals significantly misrepresenting the value of the properties and the conditions of same; and settlement statements, (“HUD–1s”), which did not properly inform the lenders of the true facts of the transactions. (Docket No. 154–2 at ¶¶ 20–21). In brief summary, Special Agent Fisher averred that the lenders were deceived into believing that they were financing eighty percent (80%) of the values of the properties in question and that buyers were making twenty percent (20%) down payments on each deal. ( Id. at ¶¶ 24–27). The lenders were also misled to believe that the properties were appropriately valued and in the condition stated on the appraisals and that the buyers were financially qualified for the loans they obtained. ( Id.). However, the “reality of the transactions,” which was not disclosed to the lenders, was that the lenders were financing 100% of the purchases of the properties, many of which were in very poor condition and worth far less than stated on the appraisals and approving loans for buyers who did not have the financial wherewithal to qualify for the loans. ( Id.).
Special Agent Fisher asserted that because the agents' search of Smith's Law Office necessitated review of an attorney's files, “law enforcement officers will encounter materials that may be covered by the attorney-client privilege or work product doctrine.” ( Id. at ¶ 106). He further advised that the search of any such materials would be conducted by a “Privileged Review Team” consisting of an attorney and agent “who are not involved in the underlying investigation.” ( Id. at ¶ 107). The affidavit also notes the procedures for dealing with privileged materials which may be uncovered, including that “[a]ll obviously privileged documents will remain at the Office, or if inadvertently seized...
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