US v. Zolp

• Decision Date: 30 April 1987
• Docket Number: Crim. A. No. 86-299.
• Parties: UNITED STATES of America, Plaintiff, v. Marshall A. ZOLP, et al., Defendants.
• Court: U.S. District Court — District of New Jersey

659 F. Supp. 692

UNITED STATES of America, Plaintiff, v. Marshall A. ZOLP, et al., Defendants.

Crim. A. No. 86-299.

United States District Court, D. New Jersey.

April 30, 1987.

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Jonathan Feld, and Faith S. Hochberg, Asst. U.S. Attys., Office of the U.S. Atty., Newark, N.J., for plaintiff.

Michael Pedicini, West Orange, N.J., for defendant Barbara Baker.

Alvin E. Entin, Entin, Schwartz, Barbakoff & Schwartz, Miami, Fla., for defendant Morton Berger.

John R. Wing, Weil, Gotshal & Manges, New York City, for defendant Philip A. Bernick.

Paul J. Hirsh, Whipple, Ross & Hirsh, Newark, N.J., for defendant Robert D. Boose.

Joseph E. Govlick, Montclair, N.J., for defendant Vincent Daniel Castellano.

Gerald Bouchal, Newton, N.J., for defendant Lorenzo Formato.

Bradford Bury, Bury, Czarnicki & Manahan, Mountainside, N.J., for defendant George Livieratos.

Chester Keller, Federal Public Defender, Newark, N.J., for defendant Thomas Quinn.

Robert Eugene Smith, Woodland Hills, Cal., for defendant Marshall Zolp.

OPINION

LECHNER, District Judge.

The Government charges many of the fourteen defendants in this action with engaging in a conspiracy and with carrying out fraudulent activities in connection with their dealings with a corporation, Laser Arms Corporation ("Laser Arms"), which at all relevant times is alleged to have had fictitious executives and no legitimate assets. More particularly, the Government charges certain of the defendants with conspiracy to defraud investors in Laser Arms, certain of the defendants with actually perpetrating the fraud and certain of the defendants with related unlawful actions. In addition, the Government charges some of the defendants with conspiracy to obstruct administration of justice, and some with a wire fraud violation. Some of the defendants in these last two charges are not formally charged with participating in the Laser Arms securities wrongdoings. Eight of the fourteen defendants named in the indictment have raised various pretrial motions. For the sake of convenience, I address all of these motions in a single opinion.

Factual Allegations¹

The defendants relevant for purposes of these motions are as follows. Marshall Zolp, who has numerous aliases, appears to be the principal defendant in this action. At all times relevant he is alleged to have wholly owned the Equities Processing and Clearing Corporation ("EPC"), and to have maintained an account at the United Bank of Lea County, located in Hobbs, New Mexico.² Barbara Baker is alleged to have been an associate of Zolp who, in May, 1986, posed as an owner of EPC and opened an EPC account at the Reliance Savings & Loan Association ("Reliance S & L"), located in Rahway, New Jersey. Morton Berger is alleged to have been an attorney representing Laser Arms and Zolp at all relevant times. Phillip Avery Bernick is alleged to have been employed as a stock trader in December, 1985 at S.W. Devanney and Co., a stock brokerage firm located in Denver, Colorado. In May, 1986, Bernick became president of Allison Securities, another Denver stock brokerage firm.

Robert Dean Boose is identified in the indictment simply as a stock broker. Vincent Castellano is alleged to have been an associate of Zolp who, with Baker, posed as an owner of EPC and the Reliance S & L account. George Livieratos is alleged to have been an associate of Zolp who, in May, 1986, promoted a fictitious product of Laser Arms at a press conference. Tommy Quinn is identified simply as having conducted business with another defendant under the name International Trade & Management ("ITM"), located at Route 206, Andover, New Jersey. The other defendants in the case are not participants in these motions.

The indictment charges that on December 26, 1985, Zolp and Bernick mailed an application to the National Quotations Bureau ("NQB"), a stock price quotation service for over-the-counter stocks, located in Jersey City, New Jersey. The Government charges that Zolp, Bernick and others, by submitting this application, intended "to deceive the NQB and regulatory agencies into permitting the sale of Laser Arms stock to the investing public when, in truth and in fact, said stock was neither registered nor exempt from registration as required by federal securities law." (Indictment at p. 6.) Zolp and others are alleged to have generated fictitious corporate documents, sold Laser Arms shares to stock brokerage houses when they knew Laser Arms had not been incorporated, and established brokerage accounts by which they secretly profited on trading Laser Arms stock. (Id. at pp. 6-7.)

In January and March, 1986, defendants are alleged to have fabricated "Reports to Shareholders" using photographs of unknown actors to depict the fictitious executives of Laser Arms. In February, 1986, Zolp and others allegedly issued a false press release stating Laser Arms had developed, and obtained a patent for, a self-cooling beverage can that would automatically chill its contents upon opening. On April 7, 1986, Zolp and others advertised this non-existent product in the Wall Street Journal. (Id. at p. 9.) Furthermore, on May 8, 1986, Zolp, Livieratos and others staged a press conference at the World Trade Center in New York to display a fraudulent prototype of the self-cooling can. (Id. at p. 7.) All of these activities allegedly were undertaken to promote the sale of Laser Arms' worthless stock to the investing public.

On April 21, 1986 the Securities and Exchange Commission ("SEC") suspended trading in Laser Arms stock for a ten day period. On April 30, 1986, the SEC obtained a court order from Judge Conner of the United States District Court for the Southern District of New York, freezing all of Zolp's and Laser Arms' assets. On May 16, 1986, Judge Conner entered a preliminary injunction continuing the freeze imposed upon the assets pending termination of the SEC's investigation. On June 23, 1986, Judge Conner extended the freeze order to include the $150,000.00 in the EPC account at the Reliance S & L. (Superseding Indictment at p. 4.)

On April 24, 1986, shortly after the SEC had suspended trading in Laser Arms stock, Zolp and another defendant allegedly caused others to open the EPC account at the Reliance S & L, by using "a fake signature of a fictitious person named `Morris Wallace,'" on the signature card submitted with the application to open the account. (Indictment at p. 17.) On April 24, 29 and 30, 1986, Zolp and Bernick transferred $300,000.00, "the proceeds of the Laser Arms fraud," from accounts in Hobbs, New Mexico and Denver, Colorado to the EPC account at the Reliance S & L in Rahway, New Jersey. (Superseding Indictment at p. 13.) On May 1, 1986, the $300,000.00 was withdrawn from the EPC account at the Reliance S & L, $50,000.00 in cash and $250,000.00 by bank check. (Id.) On May 8, 1986, Zolp and other defendants caused an additional $150,000.00 in cash to be deposited in the EPC account at the Reliance S & L. Also on May 8, 1986, at Zolp's instruction, Baker and Castellano portrayed themselves to Reliance S & L officials as independent new owners of EPC and the EPC account. (Indictment at p. 17.)

The record indicates Judge Debevoise, in an order signed on May 2, 1986, authorized Government officials to conduct surveillance of the ITM telephones in Andover, New Jersey for a thirty-day period. Subsequent orders, signed by Judge Debevoise on May 31 and June 30, 1986, Judge Fisher on July 30, 1986, and Judge Cowen on August 29, 1986, authorized extensions on the initial ITM wiretap application. Furthermore, in an order signed August 11, 1986, Judge Debevoise authorized Government officials to conduct telephone surveillance of Baker's home residence for a thirty-day period. Also, in an order signed June 10, 1986, Judge Griesa, District Judge from the Southern District of New York, authorized Government officials to conduct telephone surveillance of a certain office located in downtown Manhattan for a thirty-day period.³

In a telephone conference call intercepted by the Government at the ITM offices on May 12, 1986, Zolp, Baker, Castellano, Berger and another defendant, Lorenzo Formato, allegedly agreed to create a false explanation and false documents to explain to the SEC the source of the $150,000.00 deposited in the EPC account at the Reliance S & L on May 8, 1986. (Id. at p. 18.) Baker, on June 5, 1986, and Quinn, on June 13, 1986, allegedly gave false information to an SEC employee inquiring about Zolp and the EPC account. This misinformation served to conceal Zolp's whereabouts, and his control over EPC and its assets. (Id. at pp. 18-20.)

The Government filed its indictment in this case on September 18, 1986. Count one charges Zolp, Bernick, Boose, Livieratos and six others with combining and conspiring "to use and employ manipulative and deceptive devices and contrivances in connection with the purchase and sale of a security not registered on a national securities exchange," in violation of 17 C.F.R. § 240.10b-5 and 15 U.S.C. §§ 78j(b) and 78f(f). The count concludes the alleged actions violate the federal conspiracy statute, 18 U.S.C. § 371. Count two charges Zolp, Bernick, Boose, Livieratos and six others with using "manipulative and deceptive devices and contrivances ... in connection with the purchase and sale of a security not registered on a national securities exchange," contrary to 17 C.F.R. § 240.10b-5. The count concludes the alleged actions violate 15 U.S.C. §§ 78j(b) and 78f(f) and 18 U.S.C. § 2.

Count three charges Zolp and Bernick with devising a scheme and artifice to defraud "by selling to the investing public worthless stock of an unincorporated company with no management and no product," and with initiating the scheme by filing the Laser Arms application with the NQB. The count charges mail fraud in violation of 18 U.S.C. §§ 1341...