US v. Cannistraro

• Decision Date: 18 August 1988
• Docket Number: Crim. No. 87-193.
• Citation: US v. Cannistraro, 694 F. Supp. 62 (D. N.J. 1988)
• Parties: UNITED STATES of America, Plaintiff, v. Richard CANNISTRARO, Defendant.
• Court: U.S. District Court — District of New Jersey

694 F. Supp. 62

UNITED STATES of America, Plaintiff, v. Richard CANNISTRARO, Defendant.

Crim. No. 87-193.

United States District Court, D. New Jersey.

August 18, 1988.

COPYRIGHT MATERIAL OMITTED

Robert P. Warren, Asst. U.S. Atty., Newark, N.J., for Government.

Bruce M. Merrill, Fleming, Merrill, Roth & Russell, Newark, N.J., for defendant.

Barry R. Goldsmith, Deputy Chief Litigation Counsel, Div. of Enforcement, U.S. S.E.C., Washington, D.C., for the S.E.C., amicus curiae.

Thomas L. Morrissey, Carpenter, Bennett & Morrissey, Newark, N.J., Trustee.

OPINION

LECHNER, District Judge.

Richard S. Cannistraro ("Cannistraro") pled guilty to a nine count indictment including conspiracy to commit securities fraud, securities fraud, mail fraud, and obstruction of justice. He was sentenced to a term of imprisonment totalling eight years and to pay fines and restitution totalling approximately $725,000. Several motions are before the court: the motion of the United States seeking a turn over order pursuant to a writ of execution issued for money and assets which were placed with the court in connection with Cannistraro's bail; Cannistraro's motion for the return of money and assets which he deposited with the court in connection with his bail; and Cannistraro's motion challenging his sentence.¹

FACTS

On May 15, 1987, United States Magistrate Ronald J. Hedges of the District of New Jersey issued an arrest warrant for Cannistraro based on a criminal complaint alleging a conspiracy to commit securities fraud. On that day Cannistraro was arrested in California. On May 18, 1987, Cannistraro made his initial appearance before United States Magistrate Brown in the Central District of California. Magistrate Brown allowed the pretrial release of Cannistraro; bail was satisfied with $75,000 in cash and a $50,000 appearance bond secured by defendant's title to his 1985 928S Porsche automobile.

On May 28, 1987, a federal grand jury sitting in Newark, New Jersey returned a nine count indictment charging Cannistraro with conspiracy to violate the securities laws, securities fraud, mail fraud, interstate transportation of stolen property, and obstruction of justice. Specifically, the indictment alleged that between 1982 and 1983 Cannistraro entered into an arrangement with portfolio managers of mutual and bank funds whereby they agreed to assist him in manipulating the price of the securities of Liquidation Control, Inc. ("LCI") and Toxic Waste Containment, Inc. ("TWC"). According to the indictment, the portfolio managers agreed to buy large blocks of these stocks for their funds' accounts, in return for which Cannistraro agreed to establish "nominee" brokerage accounts for the fund managers to conceal their fundamental interest in the transactions. The indictment further alleged Cannistraro, who at the time was a securities analyst at Wood Gundy, Inc. ("Wood Gundy"), drafted a false and misleading Wood Gundy research investment report concerning TWC and distributed this report through the United States mails. Finally, the indictment alleged Cannistraro had provided money to a grand jury witness in an effort to have this witness lie under oath to the grand jury about the witness' stock nominee relationship with Cannistraro.

On June 12, 1987, Cannistraro was arraigned; he pled not guilty to the charges against him. Shortly before trial, however, on September 21, 1987, Cannistraro pled guilty to all nine counts of the indictment. There was no plea agreement with the Government.

On September 24, 1987, a hearing was held on the Government's motion for the detention of Cannistraro pending sentencing. After testimony from several witnesses was heard, Cannistraro was allowed to remain free on bail. In order to ensure Cannistraro's appearance for sentencing on November 2, 1987, his bail was increased by $450,000 and other conditions of release were imposed.² On September 25, 1987, Cannistraro executed a second appearance bond, and posted with the court various municipal bonds and certificates of deposit registered in his name which totalled approximately $455,000.³ Cannistraro also filed with the court an appropriate document to transfer to the United States legal title of the assets he posted.

On November 2, 1987, a hearing was held for the purpose of sentencing Cannistraro. In order to make the sentencing determination, a careful review was made of Cannistraro's lengthy sentencing memorandum submitted by his attorney (the "Memorandum") which described, presumably in a light most favorable to Cannistraro, the factual basis for his guilty pleas to all nine counts of the indictment.

The Memorandum discusses each of the counts to which Cannistraro pled guilty. In discussing count one, charging conspiracy to commit securities fraud, Cannistraro explains his relationship to the companies, LCI and TWC. Cannistraro was an officer and director of LCI and also owned 975,000 shares of LCI stock. Memorandum at 4. According to Cannistraro he was not an officer, director or insider of TWC. The Memorandum notes, however, that there were some common members of the LCI and TWC management teams and boards of directors. Id. at 5.

Cannistraro was a vice president and securities analyst at Wood Gundy. In the course of his duties he became acquainted with Bynum Vickory ("Vickory"), the portfolio manager of the Calvin Bullock Fund, and Bill Fritz ("Fritz"), the portfolio manager of the Marshall & Isley ("M & I") Fund. In separate conversations, Cannistraro told Vickory and Fritz that he was an officer of LCI and that it had just gone public; according to Cannistraro, the portfolio managers expressed some interest in buying LCI stock. In other conversations with the portfolio managers, Cannistraro told them that "TWC would be going public by Monarch Funding and that TWC could be a great success." Id. at 5-6.

According to Cannistraro, his

guilty plea to count one is based upon his mentioning the possibility of getting Vickory and Fritz, or friends of theirs, an allocation of a couple of thousand dollars in a future TWC offering. This served as an added inducement for their purchase of LCI and possibly TWC shares for their respective funds.

Id. at 6. Cannistraro further admits he aided Vickory and Fritz

in opening nominee accounts at Monarch by assisting in their obtaining new account forms, and he used his friendship with Leo Eisenberg, the president of Monarch, to obtain a $3000 allocation of TWC for Bill Fritz's nominee and a $1000 allocation of TWC for Bynum Vickory's nominee.

Id. at 7.

In discussing this count, the Memorandum indicates the M & I fund lost $124,375 in LCI and the Bullock fund lost $25,000 in LCI. Id. at 7, 13-14. The Memorandum also states that Cannistraro and his co-conspirators gained a total of $247,572 from their transactions in TWC and LCI stock. This total includes the nominee accounts in the names of Carl A. Key, Donna Lee Clarambeau, Edward Cannistraro, Mary Godano, Dennis Williams, and Harold Beyer. Id. at 10.

Counts two through six charged separate securities fraud offenses. The Memorandum states the basis for Cannistraro's guilty plea to count two was

his failure to disclose his partial beneficial ownership in the shares of the Mary Godano nominee account. As an officer and director of LCI, Cannistraro should have disclosed any additional shares in which he might have had a beneficial interest.

Id. at 17. The Memorandum explains Cannistraro assisted his father, Edward Cannistraro, in the opening of a nominee account in the name of Mary Godano through Monarch Funding. Cannistraro also asked Leo Eisenberg, the president of Monarch Funding, "to give an allocation in the initial public offering of LCI to ... Mary Godano." Id. at 15. Cannistraro had a partial beneficial interest in the Mary Godano account. Id.

The Memorandum indicates the basis for Cannistraro's guilty plea to count three was his failure to disclose the assistance he provided his father in opening an account at Monarch Funding and in obtaining an allocation in the initial public offering of LCI. Id. at 18. The death of Edward Cannistraro resulted in making Cannistraro a partial beneficial owner of the LCI shares. Id. at 19.

With respect to count four, Cannistraro admits he arranged for Donna Lee Claranbeau ("Claranbeau") to receive $5000 for the use of her name in a nominee account which he opened at Monarch Funding, and for which he obtained "a $10,000 allocation of TWC in the initial public offering." Id. at 22. Cannistraro details further that he borrowed $10,000 in cash from Monarch Funding which he gave to Claranbeau and which she used to purchase 40,000 units of TWC securities. Id.

Cannistraro directed the trading in the Claranbeau account. The account earned a profit of approximately $50,000. Id. Cannistraro states he pled guilty to count four because he did not disclose the Claranbeau nominee account in his Wood Gundy report recommending TWC. Id. at 23.

Similarly, with respect to count five, Cannistraro admits he arranged with Carl Alan Key ("Key") to open a nominee account at Monarch Funding to purchase TWC securities. Cannistraro borrowed $10,000 in cash from Monarch Funding which he gave to Key, instructing him to write a check to Monarch Funding to pay for 40,000 TWC units in the initial public offering. Id. at 24. The Key account earned a profit of $4,695. Id. Cannistraro states he pled guilty to count five because he did not disclose the Key nominee account in his Wood Gundy report which recommended TWC. Id. at 25.

With respect to count six, Cannistraro states that on April 19, 1983 he received a telephone call from a reporter for Ground Floor Publications regarding TWC. Cannistraro answered the reporter's questions and sent him a copy of the Wood Gundy report on TWC. Cannistraro, however, failed to disclose that nominee accounts had previously owned and sold TWC shares or the previous arrangements with the M & I Fund and the...