United States v. Weigand
| Decision Date | 31 August 2020 |
| Docket Number | 20-cr-188 (JSR) |
| Citation | 482 F.Supp.3d 224 |
| Parties | UNITED STATES of America, v. Ruben WEIGAND and Hamid Akhavan, Defendants. |
| Court | U.S. District Court — Southern District of New York |
Christopher Joseph Dimase, Nicholas Folly, United States Attorney's Office, SDNY, Tara Marie La Morte, DOJ-USAO, New York, NY, for United States of America.
Katherine Talbot McCarthy, Wilson Sonsini Goodrich & Rosati, Michael J. Gilbert, Dechert LLP, Michael S. Sommer, Morris J. Fodeman, Wilson, Sonsini, Goodrich & Rosati P.C., New York, NY, for Defendants.
The indictment in this case alleges that many banks will not approve credit or debit card transactions for marijuana, even in states like California and Oregon that permit the sale of marijuana. To circumvent this, the indictment continues, defendants Ruben Weigand and Hamid Akhavan, and their co-conspirators, set up fictitious businesses, complete with websites and bank accounts, purporting to sell a host of products like dog food, face creams, green tea, carbonated drinks, and diving gear. They then used these fictitious businesses to fool the banks into approving marijuana credit card and debit card sales by disguising those transactions as sales of dog food and the like. As a result, the banks processed more than $100 million worth of transactions that they otherwise would have declined. Based on these allegations, the indictment here charges defendants with one count of conspiracy to commit bank fraud.
Now before the Court are defendants’ motions to dismiss the indictment, defendant Weigand's motion to suppress electronically stored information that the Government seized from him pursuant to a warrant, and defendants’ motions to compel certain discovery and to set pretrial disclosure deadlines.
The following allegations are drawn from the third superseding indictment. The Court accepts them as true for the purpose of evaluating the defendants’ motions to dismiss. See United States v. Goldberg, 756 F.2d 949, 950 (2d Cir. 1985).
A credit or debit card transaction generally involves five parties: the cardholder (here, the would-be purchaser of marijuana), the merchant, and three intermediaries -- the issuing bank, which issued the customer's card and funds the transaction; the processor (e.g., Visa), which processes the transaction; and the merchant's bank, also known as the "acquiring bank," which receives funds on behalf of the merchant.
S3 Superseding Indictment, ECF No. 16, at ¶¶ 7, 10. In the usual course, a cardholder initiates a transaction by seeking to purchase a good or service (such as here the purchase of marijuana) and offering a credit or debit card for payment. The merchant then transmits information regarding the transaction to the processor (or to the merchant's bank, which then passes the information on to the processor). This information includes a "merchant category code" ("MCC") that describes the category of product or service that the merchant sells. Id. ¶¶ 9, 10(d). The processor then passes that information to the issuing bank, which approves or declines the transaction. If the issuing bank approves the transaction, it then transfers funds through the processor to the merchant's bank. Finally, the merchant's bank credits the merchant's account, and the issuing bank debits the cardholder's account (in the case of a debit card) or includes the charge on the cardholder's next monthly statement (in the case of a credit card). See id. ¶ 11(b)-(d).
The indictment alleges that Weigand and Akhavan and their co-conspirators made use of an entity called the Online Marijuana Marketplace Company, which developed a website and mobile phone application through which customers in California and Oregon could order marijuana for delivery from a variety of retailers. Id. ¶¶ 1, 3. Many United States banks, however, are unwilling to process card payments for marijuana. Id. ¶ 1. Weigand and Akhavan, together with unnamed co-conspirators, allegedly deceived United States banks by disguising the transactions to create the false appearance that they were unrelated to the purchase of marijuana. Id. ¶¶ 1, 16.
To do so, Weigand, Akhavan, and their co-conspirators, beginning in 2016 and continuing through mid-2019, created a series of fictitious merchants purportedly selling legitimate goods including dog products, diving gear, carbonated drinks, green tea, and face creams (the "Phony Merchants"). The conspirators created web pages to support the illusion that the Phony Merchants had actually sold these legitimate goods. Id. ¶ 13. The conspirators worked with third-party payment processors and offshore merchant banks to create bank accounts for these Phony Merchants. Id. ¶ 12. The conspirators then applied incorrect MCCs to the Online Marijuana Marketplace Company transactions in order to create the appearance that the transactions were related to the Phony Merchants and unrelated to marijuana. Id. ¶ 14.
When cardholders attempted to use credit and debit cards to make marijuana purchases from the Online Marijuana Marketplace Company, the issuing banks, at least some of which were federally insured financial institutions, were tricked into believing that cardholders were purchasing legitimate goods from the Phony Merchants. Id. The issuing banks approved over $100 million of credit and debit card transactions for the Online Marijuana Marketplace Company. Id.
The defendants move to dismiss on three grounds: (A) failure to state an offense; (B) lack of specificity; and (C) violation of a provision in an appropriations act (the "Rohrabacher-Farr Amendment") that bars certain Government interference with state medical marijuana regimes. The Court addresses each argument in turn.
Defendants argue that the indictment does not state an offense, for three reasons:
As noted, this indictment charges defendants with conspiracy to commit bank fraud in violation of 18 U.S.C. § 1349. Bank fraud, in turn, is defined in 18 U.S.C. § 1344, as follows:
The bank fraud statute was modeled on prior federal fraud statutes, as a Senate Judiciary Committee Report explained:
The proposed bank fraud statute is modeled on the present wire and mail fraud statutes which have been construed by the courts to reach a wide range of fraudulent activity. Like these existing fraud statutes, the proposed bank fraud offense proscribes the conduct of executing or attempting to execute "a scheme or artifice to defraud" or to take the property of another "by means of false or fraudulent pretenses, representations, or promises."
S. Rep. No. 98-225, at 378 (1983); see also 18 U.S.C. § 1341 (); 18 U.S.C. § 1343 ().
To state a violation of Subsection 1 of the bank fraud statute, the Government must allege that a defendant (1) knowingly executed (or attempted to execute) a scheme to "deceive [a] bank,"2 (2) through "a misrepresentation or concealment of material fact,"3 and (3) to "deprive it of something of value,"4 with (4) "knowledge that [the defendant] would likely harm the bank's property interest" through the scheme.5
To state a violation of Subsection 2, the Government must allege that a defendant (1) knowingly executed (or attempted to execute) a scheme through which the defendant "intend[ed] to obtain any of the moneys ... or other property owned by, or under the custody or control of, a financial institution" (hereinafter, "bank property");6 (2) the defendant made "false or fraudulent pretenses, representations, or promises" (hereinafter, "misrepresentations");7 (3) the misrepresentations were "of material fact";8 and (4) the misrepresentations were the "means" by which defendant intended to obtain the bank property.9
Defendants first argue that the indictment must be dismissed for failure to allege an intent to harm. Defendants cite United States v. Miller, a Ninth Circuit opinion that reasoned in the case of wire fraud (but with frequent analogies to bank fraud) that "the government can[not] escape the burden of showing that some actual harm or injury [to the victim's money or property] was contemplated by the schemer." United States v. Miller, 953 F.3d 1095, 1102 (9th Cir. 2020) (quoting United States v. Regent Office Supply Co., 421 F.2d 1174, 1180 (2d Cir. 1970) ) (alterations in original). Defendants argue that here the indictment does not adequately allege an intent to impose "actual harm or injury" on the issuing banks.
In describing the sorts of harm that qualify, however, the Supreme Court's bank...
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