USA. v. Polichemi, s. 96-3866

• Decision Date: 13 January 2000
• Docket Number: 96-3869,96-3867,96-3868,Nos. 96-3866,96-3870,s. 96-3866
• Citation: 201 F.3d 858
• Parties: (7th Cir. 2000) United States of America, Plaintiff-Appellee, v. Joseph Polichemi, et al., Defendants-Appellants
• Court: U.S. Court of Appeals — Seventh Circuit

Page 858

201 F.3d 858 (7th Cir. 2000)

United States of America, Plaintiff-Appellee, v. Joseph Polichemi, et al., Defendants-Appellants.

Nos. 96-3866, 96-3867, 96-3868, 96-3869, 96-3870

In the United States Court of Appeals For the Seventh Circuit

Argued January 4, 1999

Decided January 13, 2000^*

Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 94 CR 555--William T. Hart, Judge.

Before Flaum, Rovner, and Diane P. Wood, Circuit Judges.

Diane P. Wood, Circuit Judge.

Not everyone has a perfect understanding of the complex workings of modern financial markets, and unfortunately, sometimes unscrupulous individuals manage to exploit that fact for a period of time. This case, at its outset, involved seven such individuals, who allegedly engaged in a breathtakingly ambitious phony investment scheme through which they bilked nearly 30 investors out of more than $15 million. Their largest patsy was the Chicago Housing Authority, which lost more than a third of its pension fund, some $13 million, in the scheme. The CHA's former director of employee benefits, John Lauer, landed in prison for fraud and related offenses as a result of these dealings. See United States v. Lauer, 148 F.3d 766 (7th Cir. 1998).

The present appeal comes to us from the convictions after a jury trial of four of the defendants, Joseph Polichemi, Lyle "Pete" Neal, Oscar William Olson, and Charles Padilla, on assorted counts of wire fraud, money laundering, conspiracy, and perjury. A fifth, Larry Oesterman, who pleaded guilty, argues that his sentence is too harsh. Although taken together the four who went to trial have raised nearly a score of issues for our consideration, we conclude that the trial court's handling of the defendants' effort to strike a juror for cause was an error that fundamentally tainted the fairness of the trial. Under this circuit's decision in United States v. Underwood, 122 F.3d 389 (7th Cir. 1997), we have no choice but to reverse and remand for a new trial. This error was irrelevant to Oesterman, because of his guilty plea. Finding no error in the district court's sentencing decision, we affirm Oesterman's sentence.

I

We need not delve into the details of the scheme, given the fact that they are not necessary for our analysis of the jury selection problem. Briefly, however, they are as follows. Polichemi, Neal, Olson, Padilla, and Oesterman, along with others not relevant here, devised a system under which they marketed so-called "prime bank instruments" to investors (i.e. victims). They described these "prime bank instruments" as multi-million-dollar letters of credit issued by the top 50 or 100 banks in the world. The defendants told their victims that they could purchase these instruments at a discount and then resell them to other institutions at face value; the difference in price represented the profits that would go to the defendants and their "investors." This was nothing more than a song and dance: the trades were fictional; there was no market for the trading of letters of credit; and nothing capable of generating profits ever occurred. Somehow, notwithstanding the implausibility of the "prime bank instruments" to one familiar with normal business practice for letters of credit, they managed to persuade their victims to give them money to finance the purchase of the phantom discounted instruments. While this did not earn a cent for any of the investors, it definitely changed the defendants' own lifestyles. Polichemi, for example, was living in his sister's 2-bedroom condominium in Florida when things began, but he ended up in a $6.2 million home. Olson's and Neal's stories were similar.

Between 1991 and 1994, the defendants collected more than $15 million in this way. As noted above, their largest source was the CHA, which turned over more than $13 million of its pension funds to the defendants, thanks in large part to the unfaithful Lauer. They passed the monies they received through various bank accounts (often Swiss), used some of the money to pay off prior investors and old debts, and spent the rest on themselves. Each person had his own role to play. Polichemi was the president of "Copol," a company that purportedly traded in the prime bank instruments. He held himself out to be one of a handful of people in the world with a license to trade these "securities." Neal was president of Konex Holding and Konex Marketing, companies that marketed Copol's product through a network of salespeople. Olson was an attorney for both Copol and Polichemi, in addition to being a participant in many of the deals at issue. Padilla was Copol's "stateside banker." He served as a reference for the other defendants and provided reassurance of Copol's soundness and success to potential investors. Oesterman was one of Neal's salespeople and a director at Konex marketing. These five were allegedly joined by Lauer, Edward Russey (another salesperson for Neal who pleaded guilty and testified pursuant to a plea agreement), and John DeVincens, a Konex attorney who was later acquitted on all charges by the jury.

II

In the end, the final benefit the defendants reaped from their scheme was an indictment from the grand jury in the Northern District of Illinois. Count 1 of the indictment charged the entire group with a scheme to defraud in violation of 18 U.S.C. sec.sec. 1343 and 2. Counts 2 through 15 charged the individual defendants with engaging in wire transmissions in furtherance of the fraud. Count 16 accused Polichemi, Neal, Olson, and DeVincens of conspiring to launder money in violation of 18 U.S.C. sec. 371, and Counts 17-26 charged that individual defendants had committed specific money laundering offenses in violation of 18 U.S.C. sec.sec. 1956(a)(1)(A)(i), 1956(a)(2)(B)(i), 1957, and 2. Finally, Counts 27-33 involved perjury charges against Padilla (27-29), DeVincens (30), and Neal (31-33), in violation of 18 U.S.C. sec. 1621(1). As noted above, DeVincens was acquitted; Russey pleaded guilty and is not involved in this appeal; Oesterman pleaded guilty and raises only sentencing challenges on appeal; and Polichemi, Neal, Olson, and Padilla (to whom we refer as the Polichemi defendants for convenience) were each convicted on some or all of the charges brought against them and appeal both their convictions and sentences.

III

At this court's direction, the Polichemi defendants filed one consolidated brief in which they addressed issues common to all four, and separate supplemental briefs on their individual issues. Oesterman, of course, filed his own brief. Because we find it dispositive of the appeals of the Polichemi defendants, we address first their complaint about the jury selection process. It centers on the district court's handling of their request to strike potential jurors Lorena Nape, John Buck, and David Maines for cause. Under the system the trial court adopted, the defendants were to have 10 peremptory challenges collectively, plus one additional challenge for each two jurors selected as alternatives. After sixteen potential jurors had been qualified, the judge would call for simultaneously submitted peremptory challenges and then empanel those who were not struck.

Jury selection began on May 15, 1996. A number of jurors were excused for cause during the morning session. Among the prospective jurors called after the lunch break were Nape, Buck, and Maines. Both Buck and Maines stated, in response to questions posed during the voir dire, that they would tend to credit testimony from a law enforcement officer more than testimony of a lay witness. Maines noted that his wife's side of the family included several police officers, but he indicated that he did not believe this would affect his ability to be fair and impartial. On the other hand, he said that he tended "to have a less scrutinizing point of view when it comes to government officials and police officers." Buck said that he would start out believing the testimony of a law enforcement agent more than the testimony of a lay witness. Faced with these damaging statements, the prosecutor elicited statements from both men that they could, in the final analysis, reach a verdict solely based on the evidence they heard in the courtroom. On that record, the court denied the defense motions to excuse Maines and Buck for cause, and the defendants used two of their remaining peremptory challenges to strike them from the panel.

Nape's situation was somewhat different. At the time of the trial, Nape was a 15-year employee of the U.S. Attorney's Office for the Northern District of Illinois, based in Chicago--precisely the same office from which the prosecuting attorneys came. At oral argument and in a letter filed after argument, the AUSAs (in response to questions posed by this court) indicated that the official who signed the indictment did not have supervisory authority over Nape, because she was a secretary in the Civil Division. Nonetheless, it also appears that the sharing of work from division to division within the U.S. Attorney's Office led to varying levels of communication between the employees of the Civil Division and of the Criminal Division. See Tr. 176-77 (when asked whether her work had involved any assignments from the Criminal Division, Nape responded "maybe in the asset forfeiture area, of course, that seems to be slowing down or going mostly criminal now."); Tr. 179 (Nape admitted to recognizing the names of the prosecuting attorneys in the case, and being aware that they worked in her office.). See generally Attorney General, Memorandum on Coordination of Parallel Criminal, Civil, and Administrative Proceedings (dated July 28, 1997), available at (calling for information-sharing among divisions during the investigation and prosecution of cases, in order for the government to allocate its resources efficiently and come to effective, comprehensive settlements).

Based on her...