US v. Kennedy, Crim. A. No. 92-CR-227.

• Citation: 819 F. Supp. 1510
• Decision Date: 03 May 1993
• Docket Number: Crim. A. No. 92-CR-227.
• Parties: UNITED STATES of America, Plaintiff, v. William KENNEDY, et al., Defendants.
• Court: U.S. District Court — District of Colorado

819 F. Supp. 1510

UNITED STATES of America, Plaintiff, v. William KENNEDY, et al., Defendants.

Crim. A. No. 92-CR-227.

United States District Court, D. Colorado.

May 3, 1993.

COPYRIGHT MATERIAL OMITTED

Stephen Peters, Linda S. Kaufman, Asst. U.S. Attys., Denver, CO, for plaintiff.

David Lane, Joseph Swenson, Denver, CO, for William R. Kennedy, Jr.

Robert M. Maes, Denver, CO, Robert Sutton, Milwaukee, WI, for Jon Apelgren.

Charles Szekely, Asst. Federal Public Defender, Denver, CO, for Todd Brock.

Michael R. Enwall, Boulder, CO, for Larry Brokaw.

Leonard M. Chesler, John S. Tatum, Chesler Law Firm, Denver, CO, for Timothy Brown.

William Rapson, Steve Waters, J. Louise Betcher, Robinson, Waters, O'Dorisio & Rapson, P.C., Denver, CO, for Michael Byron.

Peter R. Bornstein, David H. Goldberg, Denver, CO, for Mark B. Cates.

Terri Harrington, Denver, CO, for Craig Collier.

Craig B. Shaffer, Gregory A. Ruegsegger, Welborn Dufford Brown & Tooley, P.C., Denver, CO, for James Dye.

John H. Schlie, Christopher C. Cross, J. Linden Hagans, Cross, Schlie & Heckenbach, P.C., Englewood, CO, for Murdeen Helm.

David Japha, Martha K. Horwitz, Denver, CO, for Michael Holtz.

Robert Berger, Denver, CO, for Terrance Jones.

Glen R. Anstine, Glen R. Anstine, P.C., Denver, CO, for Michael Martin.

John N. McNamara, Jr., John N. McNamara, Jr., P.C., Denver, CO, for Michael Oldewage.

Scott D. Wolfe, Denver, CO, Randy McDonald, Randy McDonald, P.C., Houston, TX, for Daniel Orick.

Forrest W. Lewis, Schoenwald & Lewis, P.C., Denver, CO, Wendell A. Odom, Jr., Houston, TX, for Terry Orick.

Frank Moya, Moya & Recht, Denver, CO, for David Tomsick.

Richard Stuckey, Denver, CO, for Gary Upperman.

Terry Wiggins, Karsh & Fulton, P.C., Denver, CO, for James Warren.

MEMORANDUM OPINION AND ORDER

BABCOCK, District Judge.

A hearing was held April 23, 1993 on the following pending motions in this case:

A) severance motions by the government and defendants Brown, Byron, Dye, Oldewage, D. Orick, and T. Orick;

B) defendants' various discovery motions;

C) government's pre-trial motions.

I.

This case involves nineteen defendants charged with one or more counts of racketeering, mail fraud, wire fraud or money laundering as a result of their employment or association with Western Monetary Consultants, Inc. (WMC), between January 1, 1984 and March 28, 1988. Defendant Kennedy had been the President and owner of WMC from 1979 through and including the date of the indictment.

Six of nineteen defendants — Kennedy, Apelgren, Brown, Byron, Dye, and Helm, are charged with participating in a racketeering enterprise during the four-year time period between January 1, 1984, and March 28, 1988 (the racketeering defendants). Three additional defendants charged with racketeering, Brokaw, Warren, and Tomsick, have entered guilty pleas to the racketeering charge, and the court has deferred sentencing on these three until after the trial of the remaining defendants. Essentially, the indictment charges that the racketeering defendants operated a Ponzi scheme in the unregulated sale of precious metals. The racketeering defendants are also charged with related violations of the mail fraud, wire fraud, and money laundering statutes.

The other ten defendants — Brock, Cates, Collier, Holtz, Jones, Martin, Oldewage, D. Orick, T. Orick and Upperman, are each charged with between three and eight counts of mail and wire fraud (the telemarketing defendants). These defendants functioned primarily as telemarketers for WMC, the alleged racketeering enterprise.

The stated purpose of WMC was to sell precious metals and rare coins to the public. The metals were sold with the promise that the price of the metal would be "locked in" at or about the time of the sale, and that WMC would purchase the metal immediately. The government charges that, in fact, WMC diverted its clients' money to other undisclosed uses, in many instances delayed the purchase of the metal, and in other instances failed to purchase the metal at all.

WMC sold precious metals to the general public over the phone and, beginning in about 1984, at "investment" seminars conducted throughout the United States. The seminars consisted of sophisticated sales presentations including geopolitical speeches designed to convince clients that world events warranted precious metals purchases as a hedge against inflation and the threat of communism. The defendants allegedly targeted wealthy, elderly clients who maintained conservative political and religious beliefs.

The affairs of WMC were managed at defendant Kennedy's direction by a committee first known as the Review Committee, and later called the Finance Committee or the Operations Committee. This committee was comprised of defendants Tomsick, Brown, Helm, Apelgren, Warren, and Byron. According to the government, this committee met on a regular basis to determine which purchase orders to fill, which orders to delay, and which orders not to fill. The committee also determined what amount of client money to divert to other purposes.

The alleged uses of diverted client money include but are not limited to, the payment of expenses necessary to run WMC, the purchase of and payment of expenses necessary to run the Conservative Digest magazine, the personal use by defendant Kennedy and his family, and the purchase, refurbishment and transport of a helicopter for the Nicaraguan freedom fighters in Central America.

In March, 1988, defendant Kennedy sent letters to WMC's clients representing that the failure to fill client orders resulted from the tremendous growth of the business and the pressures this put on his overworked staff, when, according to the government, WMC's failure was caused by speculative activities, the failure to secure metals to meet client obligations, and the diversion of client funds. On or about March 28, 1988, WMC filed for protection under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the District of Colorado. Over 600 clients were listed as creditors from whom WMC had received over $18,000,000 toward orders which were not filled. The market value of these unfilled orders at the time of the bankruptcy was approximately $37,162,000.

Four months have been reserved for trial beginning August 2, 1993.

II.

A. SEVERANCE

A total of seven severance motions are pending with defendant Collier joining in three of these motions. Defendants Brown, Byron and Dye have moved for separate trials on the grounds that they would be unfairly prejudiced by the evidence during either a joint trial or bifurcated trial. Defendant Oldewage contends that he would be unfairly prejudiced by the duration of a joint trial due to his business and family obligations. Defendants Daniel Orick and Terry Orick have moved for separate trials, but in the alternative they have requested the same relief which the government is seeking — a severance of the 6 remaining racketeering defendants from the other 10 defendants for a total of two separate trials.

The government proposes in its motion for severance that the racketeering defendants be tried together and severed from the remaining defendants. The telemarketers, then, should be tried together in a second trial. The government contends that the severance of the racketeering defendants from the other defendants would be both logical and supported by the case law. See U.S. v. Vastola, 670 F.Supp. 1244, 1262-63 (D.N.J.1987); U.S. v. Gallo, 668 F.Supp. 736, 748-51 (E.D.N.Y.1987).

Five defendants — Apelgren, Brock, Byron, Cates, and Dye (the responding defendants), have filed responses in opposition to the government's proposal for severance with defendants Holtz, Martin and Kennedy joining in one or more of such motions. Apelgren's response consists of a one-sentence declaration that any severance would deny him equal protection and due process of law. A common argument in the remaining 4 responses is that the government should be forced to try all 16 remaining defendants together because the government decided to join them in one indictment. Defendants Byron and Dye, however, also contend that they are entitled to separate trials.

In summary, three approaches to the trial of this case have been proposed: (1) that I try all defendants in one trial and deny all motions for severance; (2) that I grant individual trials to those defendants who allege prejudice pursuant to Rule 14; and, (3) that I bifurcate this case into two trials — one for the six racketeering defendants and one for the ten telemarketing defendants. I will hold two separate trials for the reasons set forth below.

1) Prejudice under Rule 14

There is a preference in the federal court system for joint trials of criminal defendants who are indicted together, given that joint trials promote efficiency and serve the interests of justice by avoiding inconsistent verdicts. Zafiro v. U.S., 506 U.S. ___, ___, 113 S.Ct. 933, 937, 122 L.Ed.2d 317, 324 (1993).

Rule 14 of the Federal Rules of Criminal Procedure permits a district court to grant a severance of defendants if it appears that a defendant or the prosecution is prejudiced by joinder. Rule 14 leaves the determination of risk of prejudice and the tailoring of the relief to be granted, if any, to the sound discretion of the district court. Zafiro, ___ U.S. at ___, 113 S.Ct. at 937, 122 L.Ed.2d at 325. The Supreme Court indicates that a district court should grant severance under Rule 14 only if there is serious risk that a joint trial would compromise a specific trial right of one of the defendants, or prevent the jury from making a reliable judgment about guilt or innocence. Id. at ___, 113 S.Ct. at 937, 122 L.Ed.2d at 325; accord, U.S. v. Youngpeter, 986 F.2d 349, 353 (10th Cir.1993). The Tenth Circuit requires a showing of real prejudice. U.S. v. Jones, 707 F.2d 1169, 1171 (10th Cir.), cert. denied, 464 U.S. 859, 104 S.Ct. 184, 78 L.Ed.2d 163 (1983).

The Zafiro Court offers...