United States v. Romano

• Decision Date: 27 July 2015
• Docket Number: Docket Nos. 14–858,14–1298.
• Citation: 794 F.3d 317
• Parties: UNITED STATES of America, Appellee, v. Michael ROMANO, William Kearney, a/k/a “Ed Thompson,” a/k/a “George,” Defendants–Appellants.
• Court: U.S. Court of Appeals — Second Circuit

794 F.3d 317

UNITED STATES of America, Appellee

v.Michael ROMANO, William Kearney, a/k/a “Ed Thompson,” a/k/a “George,” Defendants–Appellants.

Docket Nos. 14–858

14–1298.

United States Court of Appeals, Second Circuit.

Argued: Feb. 9, 2015.

Decided: July 27, 2015.

Lara Treinis Gatz, Assistant United States Attorney, Brooklyn, N.Y. (Loretta E. Lynch, United States Attorney for the Eastern District of New York, Susan Corkery, Emily Berger, and Diane Beckmann, Assistant United States Attorneys, Brooklyn, N.Y., on the brief), for Appellee.

Richard Levitt, Levitt & Kaizer, New York, N.Y. (Yvonne Shivers, Emily Golub, on the brief), for Defendant–Appellant Romano.

Matthew W. Brissenden, Garden City, N.Y., for Defendant–Appellant Kearney.

Before: KEARSE, LIVINGSTON, and CARNEY, Circuit Judges.

Opinion

KEARSE, Circuit Judge:

Defendants Michael Romano and William Kearney appeal from judgments of the United States District Court for the Eastern District of New York entered by Sterling Johnson, Jr., Judge, following a jury trial before Joseph F. Bianco, Judge, convicting defendants of conspiracy to commit mail and wire fraud in connection with the sale of coins, in violation of 18 U.S.C. § 1349, and conspiracy to engage in money laundering, in violation of 18 U.S.C. §§ 1956(a)(1)(A)(i) and 1956(h). Romano was sentenced principally to 240 months' imprisonment, to be followed by a five-year term of supervised release; Kearney was sentenced principally to 156 months' imprisonment, to be followed by a three-year term of supervised release; defendants were ordered, jointly and severally, to pay restitution in the amount of $9,139,727.10 and to forfeit $32,220,617. On appeal, defendants challenge their convictions principally on the grounds that the court failed to perform the necessary gatekeeping function before admitting the testimony of expert witnesses as to the grading and valuation of coins and that admission of one of the government's exhibits violated their rights under the Confrontation Clause. Kearney also argues that the evidence was insufficient to show that he knowingly and willingly participated in a conspiracy. Defendants challenge their sentences as procedurally and substantively unreasonable and contend that the district court erred in failing to conduct de novo review of the magistrate judge's recommendations for restitution and forfeiture. The government concedes that there should be a remand for consideration of defendants' objections to the magistrate judge's recommendations and the extent to which a certain property is forfeitable.

For the reasons that follow, we remand for de novo review of the magistrate judge's recommendations for restitution and forfeiture, including forfeitability of the property in question; in all other respects we affirm.

I. BACKGROUND

The present prosecution focused on the operations of a succession of three companies owned by Romano: Wall Street Rare Coins (or “WSRC”), which operated from approximately December 1990 until October 2004, Atlantic Coin Galleries (“ACG”), which operated from approximately October 2004 until August 2008, and Northeast Gold and Silver (“NEGS”), which operated from approximately September 2008 until November 2008 (collectively, “the Romano Companies”). Kearney was a salesman and sales manager at all three companies and was also a 50–percent owner of NEGS. Romano and Kearney were alleged principally to have engaged, through the Romano Companies, in a fraudulent scheme for sales of coins by telephone, making and causing the making of false representations to customers as to the grade and value of the coins they sold, the general profitability of coin sets, and the assistance the Romano Companies would provide to customers who later wished to sell coins bought from the Romano Companies.

A. The Government's Evidence at Trial

The government's evidence at trial consisted principally of testimony from several of the Romano Companies' former salesmen (“salesmen”), former suppliers (“suppliers”), and customers; government investigators; and three expert witnesses who testified about the grading and valuation of coins.

1. General Industry Practice and Procedures

The government's first expert witness, Scott Schechter, whose testimony is not challenged on these appeals, provided general information with respect to the rare coin market. Schechter was a vice president of Numismatic Guarantee Corporation (“NGC”), an independent (or third-party) coin grading service, i.e., an entity not in the business of buying or selling coins. He testified that NGC and its competitor Professional Coin Grading Service (“PCGS”) each have about 45 to 47 percent of the coin-grading market. (See Trial Transcript (“Tr.”) 1038.) He described general industry practices, and NGC's procedures, in the grading and certification of rare coins as follows.

Coins are generally graded on a 70–point scale, 1–70 (though not all numbers are used), called the Sheldon scale. The Sheldon scale has been in fairly common use since the middle of the 20th century. At NGC, each coin is graded seriatim by three experts who ultimately arrive at a consensus on the coin's grade. In evaluating some coins, two graders can reasonably differ in their opinions as to grade; at NGC a third grader examines all coins. The graders consider four attributes: the coin's luster, i.e., the sheen or vibrancy of its surface; its strike quality, i.e., how well the coin has been struck between the two dies that give the coin its details; the existence and number of contact marks, i.e., surface wear; and its eye appeal, i.e., how attractive the coin is. Eye appeal is the most subjective of these factors.

At the high end of the Sheldon scale are “mint state” (“MS”) coins that can be assigned a number from 60 through 70; they are considered “uncirculated” because they show no evidence of metal loss from having been circulated. The next lower range is for coins near uncirculated condition; they are called “about uncirculated” (“AU”) coins and can be graded 50, 53, 55, or 58. In addition, a “+” can be added to a coin's grade to indicate that the coin is in the top 15 percent of the pieces within that grade. Small differences in a coin's grade can result in substantial differences in the coin's market value.

Some collectors accumulate complete sets of coins that are of interest to them; that is the most common way to collect coins. However, a set has no greater monetary value than the total values of its individual coins.

“Certified” coins are coins that have been graded by a third-party grading service such as NGC or PCGS. After grading a coin, the grading service normally places it in a protective capsule, or “slab,” that is then sealed and difficult to open without a tool. An “unslabbed,” or “raw,” coin is one that is not certified by a grading service. NGC gives a guarantee for any coin it has certified (for so long as the coin remains in its slab), meaning that if a coin fails to trade in the marketplace for as much as the price associated with the grade given it by NGC, NGC either will buy the coin from the owner at the price associated with the certified grade or will regrade the coin, return it to the owner, and pay the owner the difference in value. NGC's grading is relied on in transactions between and among dealers and collectors; indeed, some buyers purchase coins sight unseen based solely on the grades given by NGC. PCGS gives similar guarantees.

2. Testimony by Romano Companies Suppliers or Salesmen

Suppliers to the Romano Companies testified that before purchasing coins from them, Romano examined the coins only briefly, if at all. (See Tr. 1583–86, 1878, 2392–93.) For example, one supplier, who over the years sold some $2,000,000 of coins to Romano, testified that Romano typically, without gloves or magnifier or other aid, would look at and purchase some 300–400 coins in 20–30 minutes. (See id. at 1583–86.) Romano would sometimes remove certified coins from their slabs and hand the coins to his secretary. When Romano had asked the supplier for rolls of coins, the supplier brought rolls and Romano bought them without looking at the coins; the grades of the coins were not discussed. (See, e.g., id. at 1584–86.)

Romano periodically created a coin inventory for the use of his salesmen, and during that process he assigned grades to the coins he had purchased. Former employees testified that when Romano took inventory he would call a particular salesman, usually Robert Lepolszki, to learn the current prices for a given coin at different grades. Lepolszki testified that once a week or twice a month, Romano would call, tell him to grab his coin-pricing book and turn to a particular page, and would ask, e.g., “what is the 1948 mint state 64 grade condition, what is a 65 grade condition. I would give him the prices” (Tr. 2291). Lepolszki would then hear Romano telling the secretary to “put it down mint state 64, $10,000, or whatever the amount [was]” (id. at 2291–92), but it was always at “[t]he high end” (id. at 2293). When Romano had all the prices, an inventory sheet would be printed and distributed to all the salesmen. All of the coins Romano and Lepolszki discussed would be on the inventory sheet; and they had been graded at the higher end of the prices Lepolszki had relayed. (See id. at 2294; see also id. at 1742–43 (Romano told one of the salesmen he “marked up the coins to the max”).)

A former secretary testified that in five years of working for Romano, she never saw him examine coins, either while he was taking inventory or at any other time. (See id. at 486.) Romano's salesmen used to joke “about Mike's grading practice” (Tr. 1157; see, e.g., id. at 1148; id. at 851 (it was “a running joke”)), and “even joke about customers, how gullible they [we]re” (id. at 1157).

Romano tended to assign particular grades for certain types of coins; these included Benjamin Franklin half dollars, of which the Romano Companies sold many rolls. All or nearly...