US v. Biaggi, 87 Cr. 265 (CBM).

Citation675 F. Supp. 790
Decision Date24 November 1987
Docket NumberNo. 87 Cr. 265 (CBM).,87 Cr. 265 (CBM).
PartiesUNITED STATES of America v. Mario BIAGGI, Stanley Simon, Peter Neglia, John Mariotta, Bernard Ehrlich, Richard Biaggi, and Ronald Betso.
CourtUnited States District Courts. 2nd Circuit. United States District Courts. 2nd Circuit. Southern District of New York

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Rudolph W. Giuliani, U.S. Atty., New York City by Edward J.M. Little, Mary T. Shannon, S. Alexander Planzos, Sp. Asst. U.S. Atty., for the U.S.

Slotnick & Baker, New York City by Mark Baker, for defendant Mario Biaggi.

Kramer, Levin, Nessen, Kamin & Frankel, New York City by Maurice N. Nessen, David Seide, for defendant Stanley Simon.

Kevin P. McGovern, Brooklyn, N.Y., for defendant Peter Neglia.

Skadden, Arps, Slate, Meagher & Flom, New York City by Jeffrey Glekel, David H. Hennessy, for defendant John Mariotta.

Kostelanetz, Ritholz, Tigue & Fink, New York City by Peter J. Driscoll, for defendant Bernard Ehrlich.

Dominick F. Amorosa, New York City, for defendant Richard Biaggi.

Buchwald & Kaufman, New York City by Alan R. Kaufman, for defendant Ronald Betso.

OPINION

MOTLEY, Senior District Judge.

This opinion is a final disposition of defendants' pretrial motions, on which oral argument was had on October 22 and 26, 1987. This opinion discusses only those motions as to which decision was reserved at oral argument. Motions denied at oral argument are catalogued but not discussed. In its discussion, the Court first considers motions and arguments common to several defendants before those made only by single defendants.

FACTS

The following brief summary of the facts relevant to the pretrial motions discussed and decided herein, assumed to be true for the purposes of this opinion only, is drawn primarily from the affidavit of Assistant United States Attorney Mary T. Shannon and from the second superseding indictment ("Indictment").

Welbilt Electronic Die Corporation (Welbilt) was founded as a privately held corporation in 1965 by defendant John Mariotta. From that time until early 1986, Mariotta served successively as the corporation's president, chief executive officer, and chairman of the board of directors. In 1970, Fred Neuberger purchased fifty percent of the corporation. From that date until early 1987, he served successively in various executive capacities. In or about 1981, Mario Moreno joined ownership and began his service in a series of executive positions. In the summer of 1983, Welbilt changed its name to Wedtech Corporation (Wedtech) and issued a public offering of approximately six million shares of Wedtech stock at $16 per share. By this point, Mariotta owned only about forty-five and a half percent of Wedtech. The corporation was at all times located in the South Bronx.

During the times relevant to the present indictment, Wedtech derived more than ninety percent of its gross revenues from contracts with the United States Department of Defense (DOD) to manufacture various sorts of equipment and from other Government contracts. All of the DOD contracts were awarded to Wedtech through a Small Business Administration (SBA) program that allowed qualified minority-owned and -operated companies to receive United States Government contracts without participating in competitive bidding. To be certified pursuant to this program, known as the Section 8(a) program, more than fifty percent of the company must be owned by an economically and socially disadvantaged member of a minority group. Wedtech first applied for and received Section 8(a) certification in 1975 on the basis of the disadvantaged status of John Mariotta, a Hispanic, who claimed to own more than fifty percent of Wedtech's stock. Wedtech was recertified repeatedly either by the SBA Regional Office responsible for contractors in New York or by the SBA National Office in Washington, D.C., based in part on the recommendations of the SBA District Office and Regional Office. Wedtech did not in fact qualify for Section 8(a) certification during the years that it was receiving DOD contracts on the no-bid basis, but it maintained its certification and the support of the SBA as a Section 8(a) contractor by employing numerous criminal devices including bribery, false statements, and fraud to deceive and ultimately to corrupt the SBA officials responsible for eligibility determinations.

One of the SBA officials involved in the certification process was defendant Peter Neglia. From 1981 until 1986, Neglia was employed as the SBA Regional Administrator for Region II, which comprises New York, New Jersey, and Puerto Rico. From 1984 until 1986, Neglia also served as Acting Chief of Staff for the SBA in Washington, D.C. In 1984, Wedtech paid $2,000 to the New York State Republican Committee Empire Club for Joseph and Peter Neglia and $1,000 to the National Republican Party Inner Circle for Neglia. In early 1985, Neglia asked for an option to purchase 20,000 shares of Wedtech stock. The option was issued in mid-1985 to Neglia in the name of defendant Ronald Betso, a personal friend.

From approximately 1978 until late 1986, Wedtech retained the law firm of Biaggi, Ehrlich & Lang (B & E) as its outside counsel. Between 1978 and 1986, B & E received over $900,000 in legal and other fees from Wedtech. Defendant Mario Biaggi was a partner in B & E from 1967 until 1978, and from 1978 until the date of this indictment, Mario Biaggi represented himself to be counsel to B & E. From 1969 until the present, Mario Biaggi was also a member of the United States House of Representatives representing a district that includes parts of Bronx County, New York. Defendant Richard Biaggi, the son of Mario Biaggi, was apparently associated with B & E from 1982 until the time of the indictment.

Defendant Bernard Ehrlich was a partner in B & E from 1967 until the date of this indictment. He performed almost all of the services provided by B & E to Wedtech. From approximately May through December 1986, Ehrlich also served as a member of Wedtech's Board of Directors. From around March 1986 until the time of this indictment, defendant Neglia was also counsel to B & E. In late 1985, Neglia and Ehrlich demanded that Wedtech pay fifty percent of Neglia's prospective salary at B & E.

In early 1983, Mario Biaggi, Richard Biaggi, and Ehrlich demanded five percent of Wedtech's outstanding stock. Mario Biaggi threatened that if Wedtech did not comply with this demand, he would withdraw B & E's representation of Wedtech before the SBA and withdraw the SBA's support of Wedtech. As a result, over $3,000,000 worth of stock was issued to defendants. Mario Biaggi's interest was concealed by having 112,500 shares of Wedtech stock issued in the name of Richard Biaggi and by failing to report the acquisition in several years of Ethics in Government-Financial Disclosure Statements. Another 112,500 shares were issued for Ehrlich. In 1984, Mario Biaggi demanded and received $50,000 from Wedtech disguised as a legal fee for, among other things, assisting Wedtech by contacting New York City officials. Defendants used the mails in connection with both of these schemes.

In late 1983, Mariotta, Ehrlich, and Richard Biaggi executed a sham "Stock Purchase Agreement" designed to deceive the SBA about the true extent of Mariotta's ownership interest in Wedtech. At about the same time, Mariotta, Neuberger, Moreno, Anthony Guarglia, and Lawrence Shorten —two Wedtech officers who were not named as defendants in the present indictment —also executed a sham "Stock Purchase Agreement" for the same purpose. Mariotta also concealed his real ownership interest by submitting to the SBA false personal financial statements reflecting a two-thirds ownership interest.

Defendant Stanley Simon was Bronx Borough President from January 1981 until March 1987. In the spring of 1981, Simon demanded that Wedtech hire his brother-in-law, Henry Bittman. Bittman was hired and continued as a Wedtech employee until 1986. From 1983 until mid-1984, Simon demanded that Wedtech pay periodic salary increases to Bittman. Bittman's salary rose to about $35,000 in July, 1984 and he ultimately received over $133,000 in wages from the corporation. In mid-1984, at about the time that Wedtech was attempting to acquire property owned by New York City, Simon demanded over $50,000 in campaign contributions from Wedtech. He instead accepted a commitment for $50,000 to be spent as he directed. Wedtech paid the $50,000 in cash, charitable and campaign contributions from early 1985 to early 1986.

Mariotta, Neuberger, and others used a checking account bearing the name of "F.H.J. Associates" to make the various payments by Wedtech mentioned above. "F.H.J." stood for the names "Fred" (Neuberger), "Helen" (Neuberger), and "John" (Mariotta). Mariotta and others used the account to divert approximately $5.5 million from Wedtech for their own personal use and for the illegal payments to public officials and others. Mariotta personally diverted over $1.15 million from Wedtech using the F.H.J. account.

Information regarding the criminal activity of persons associated with Wedtech began to surface in mid-1985. The DOD Criminal Investigative Service, the Department of Labor-Office of Labor Racketeering, and the United States Attorney for the Southern District of New York's Public Corruption Unit began an investigation of Wedtech, B & E, and Mario Biaggi.

In July 1986, grand jury subpoenas duces tecum were served on Wedtech and B & E. Shortly thereafter, Assistant United States Attorney Shannon, who was assigned to the Southern District's investigation, discovered that the Bronx District Attorney's Office was conducting a parallel investigation of Wedtech. The two offices then decided to conduct the investigation jointly. In October 1986, they discovered for the first time that the Manhattan District Attorney's Office was also investigating Wedtech.

For the next several weeks, Shannon spoke with Manhattan Assistant District Attorney John Moscow in an...

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