United States v. Schipani

• Decision Date: 26 July 1968
• Docket Number: No. 63 CR 237.,63 CR 237.
• Citation: 289 F. Supp. 43
• Parties: UNITED STATES of America, Plaintiff, v. Joseph F. SCHIPANI, Defendant.
• Court: U.S. District Court — Eastern District of New York

289 F. Supp. 43

UNITED STATES of America, Plaintiff, v. Joseph F. SCHIPANI, Defendant.

No. 63 CR 237.

United States District Court E. D. New York.

July 26, 1968.

Joseph P. Hoey, U. S. Atty., for the Eastern District of New York, Brooklyn, New York, for plaintiff; Eldon F. Hawley, U. S. Dept. of Justice, of counsel.

Jacob P. Lefkowitz, New York City, for defendant.

OPINION AND ORDER

WEINSTEIN, District Judge.

The Supreme Court, upon being informed by the Solicitor General that the defendant, Joseph F. Schipani, was a participant in a number of conversations which had been electronically monitored by agents of the Federal Bureau of Investigation and which led to the use of tainted evidence against the defendant, vacated the defendant's conviction for income tax evasion, and remanded "the cause to the district court for a new trial, should the Government seek to prosecute * * * anew." 385 U.S. 372, 87 S.Ct. 533, 17 L.Ed.2d 428. Following a detailed analysis of the hundreds of exhibits and the testimony of the many witnesses relied upon at the trial, the government concluded that none of the evidence that it utilized was tainted and that "the Solicitor General was in ERROR" when he informed the Supreme Court to the contrary. Government's Affidavit in Reply to Defendant's Motion for Suppression of Evidence, p. 2 (Emphasis in original). Consequently, it has decided to prosecute anew.

Defendant has moved to suppress and a full evidentiary hearing has been held. The Government has freely revealed all data available to it. It has presented all the surveillance logs of conversations in which the defendant participated or was mentioned, the files of the Federal Bureau of Investigation, the Alcohol and Tobacco Tax Division of the Treasury Department, the Intelligence Division of the Internal Revenue Service, and the Department of Justice, and the testimony of the many agents and attorneys in the 1961-1963 investigations of the defendant and the 1966 review of their work by the Department of Justice. In addition, the Federal Bureau of Investigation "case agent" assigned to the Schipani investigation reviewed all the Federal Bureau of Investigation reports relating to the defendant and underlined all information obtained as a result of electronic surveillance.

This evidence has been examined to obtain answers to two questions. First, whether individual items of evidence used at the first trial were obtained, either directly or indirectly, as a result of illegal monitoring. Second, whether the entire investigation of the defendant was tainted because its intensity was substantially affected by the electronic surveillance. For the reasons stated below, the first question is answered in the affirmative and the second in the negative.

I. FACTS

A. Prior Proceedings

On October 15, 1965, after a non-jury trial, the defendant was found guilty in this Court of willfully attempting to evade the payment of income taxes for the years 1956 through 1960. 26 U.S.C. § 7201. The case was tried on a "net worth" theory. The evidence showed that the defendant had a certain net worth at the beginning of 1956 and an increase in net worth at the end of that year and each succeeding year during the indictment period. The defendant kept no books, failed to file returns for any of the years covered by the indictment, and adduced no proof at the trial.

The defendant's financial practices were characterized by the trial court as being "marked by concealment through use of the names of others, failure to keep records in transactions when record keeping is usual and absence suspicious, extensive use of Manufacturers Trust Co. personal money orders, and large transactions in which currency was used." United States v. Schipani, 63-CR-237, October 15, 1965, E.D.N.Y., p. 7. The most damaging evidence against the defendant were the money orders. Through them were traced many of defendant's financial transactions and upon them the government based its computation of the defendant's yearly gross income. In addition, the trial court found that the defendant had likely sources of income from an interest in a restaurant and as a negotiator in labor-management relations.

The conviction was affirmed by the Second Circuit (362 F.2d 825). Certiorari was denied on November 7, 1966 (385 U.S. 934, 87 S.Ct. 293, 17 L.Ed.2d 214).

On November 30, 1966, the Solicitor General filed a supplemental memorandum with the Supreme Court which suggested that "the Court vacate . . . the judgment . . .." The basis for this recommendation was the discovery by attorneys in the Department of Justice that the defendant had been a participant in a number of conversations which had been electronically monitored as a result of a trespass by agents of the Federal Bureau of Investigation. This electronic surveillance began a short time prior to the commencement of the investigation of the defendant for tax violations and continued during the period when much of the evidence introduced at the defendant's trial was uncovered.

In his memorandum to the Supreme Court, the Solicitor General stated:

"The substance of the monitored conversations involving petitioner and others was recorded in logs kept by the F.B.I. agents who conducted the electronic surveillance and was reflected in various F.B.I. reports which came to the attention of those in charge of investigating and prosecuting petitioner for possible tax violations. The reports did not disclose the manner in which the information contained therein had been obtained.

"Unlike the situation in Black v. United States, 385 U.S. 26, 87 S.Ct. 190, 17 L.Ed.2d 26 (1966), we cannot say in the instant case that none of the evidence used by the government at petitioner's trial was obtained, either directly or indirectly, from an improper source. Some of the material in the F.B.I. reports (which were based in part on the electronic surveillance) provided investigatory leads and other information used in proceeding against petitioner. Since there was material evidence against petitioner which was tainted, his conviction cannot stand, and no purpose would be served here in having the district court conduct a collateral hearing, such as was suggested by the government in its memorandum in Black."

In addition, the Solicitor General disclosed that while his memorandum was being prepared, it was learned that the Alcohol and Tobacco Tax Division had engaged in electronic surveillance of another establishment frequented by the defendant. On the information available to him at that time, which admittedly was incomplete, the Solicitor General advised the Court that it "appears that * * * no relevant information" was obtained from this source.

B. Roles of Government Agencies in Case

Four government agencies played a role in the events which culminated in the prosecution of the defendant for income tax evasion—the Federal Bureau of Investigation (F.B.I.), the Organized Crime and Racketeering Section of the Justice Department (Organized Crime Section), the Intelligence Division of the Internal Revenue Service (Intelligence), and the Alcohol and Tobacco Tax Division of the Treasury Department (Alcohol Tax Division). The role of each of them in the Schipani case will be examined with a view towards determining what effect, if any, the information obtained by the F.B.I. had on the investigations being conducted by the other three agencies.

1. F.B.I.

The F.B.I. was the first government agency to take an interest in the defendant. It had been compiling information on him since 1958. In an F.B.I. report dated October 10, 1960 (the last F.B.I. report compiled on the defendant prior to the start of the electronic surveillance), the defendant was described by one source as "one of the most influential and powerful figures in the New York underworld" and considered to be associated with several of New York's top hoodlums. He was reported to have "inherited" the gambling interests of Joe Adonis and was suspected of being the owner of the Casa Bianca Restaurant and of having an interest in two others, the Hampshire House and the Gurney's Inn. An earlier F.B.I. report identified him as being in control of an association of private carting companies. During the period between 1958 and 1960, the F.B.I. appears to have pursued its investigation of the defendant without any intention of initiating a criminal prosecution.

In January of 1961 the F.B.I. acquired a new and productive source of information concerning the defendant's activities. As part of its investigation of one Michael Clemente, an associate of the defendant, the F.B.I. installed a microphone in the Prisco Travel Bureau, a "front" for Clemente's criminal activities and a meeting place for many of New York's top mobsters. This device was in operation from January 10, 1961 to January 31, 1963.

Although the defendant was not the subject of this electronic surveillance, nine conversations in which he was a participant and twenty-seven others in which he was discussed or his name was mentioned, were electronically monitored. The defendant's voice was first picked up on March 2, 1961; on three occasions prior to that date, beginning on January 12, 1961, his name was mentioned and his activities were discussed by Clemente and others.

The information obtained from this method of surveillance confirmed the F. B.I.'s belief that the defendant was intimately associated with many of the top figures in the Brooklyn underworld and revealed several of his current illicit activities. Numerous conversations were monitored concerning the defendant's role in a private association of New York carting companies and his concealed interest in one such concern. In addition, information was obtained concerning the defendant's involvement with the sale of Puerto Rican sweepstakes tickets on the New York docks, his partial ownership of the Casa Bianca Restaurant, and his control of a New York labor union local.

The...