Opinion
No. 00 Cr. 629 (TPG)
September 19, 2002
OPINION
Defendants Neil Wager and Karl Frederick Graff move to suppress the wiretap interceptions of Graff and the fruits thereof obtained through Title III surveillance. Defendants also move to dismiss the securities fraud counts in the indictment. Defendants further move to compel the Government to satisfy numerous discovery obligations.
The motion was initially filed on Graff's behalf on March 26, 2001. A letter dated May 1, 2001 was then submitted to the court indicating that Wager joined the motion. After the Government filed its opposition papers on May 11, 2001 movants were granted an extension of time until March 8, 2002 to reply to the Government's opposition papers. To date no reply has been filed, and movants have represented to the court that no reply will be filed.
Defendants' motion to suppress the wiretap interceptions and to dismiss the securities fraud counts in the indictment is denied. A conference will be held to address the discovery issues.
Facts
Defendants are charged with conspiracy to commit securities fraud, wire fraud, and commercial bribery, in violation of 18 U.S.C. § 371; 15 U.S.C. § 78j(b) and 78ff; and 18 U.S.C. § 1343. Specifically, defendants are charged with participating in an illegal scheme designed to allow Wager to sell 100,000 shares of Cybersentry common stock in an artificially inflated market by paying Graff, a stockbroker, undisclosed bribes in exchange for Graff's efforts to sell the stock to his retail clients.
The charges are based on evidence obtained through court authorized wiretaps between December 1, 1999 and May 4, 2000 at the offices of DMN Capital, Inc., an investment firm located at 5 Hanover Square in New York City. Judge Scheindlin approved the initial application on November 30, 1999 and applications for continued interception on January 3, 2000, February 2, 2000, and March 6, 2000. A fourth and final extension was authorized by Judge Schwartz on April 5, 2000. With the expiration of Judge Schwartz's order, the recordings ceased on May 4, 2000.
Wager was named as a subject in each order. Graff was named as a subject beginning with the March 6, 2000 order. In the course of the five month period, the Government compiled over 1100 hours of recordings. Movants allege that a total of three conversations involving Graff were intercepted.
As set forth in the applications for the interception orders, the investigation was principally aimed at detecting the influence of certain organized crime elements in the stock market. Jeffrey Pokross, who was an associate of the Bonanno Crime Family, cooperated with the Government's investigation. In 1999, Special Agent Kevin Barrows of the FBI assumed principal responsibility for the activities of Pokross. In a series of debriefings, Pokross described to Barrows his participation in stock manipulation schemes with James Labate and Salvatore Piazza, two partners at DMN Capital. Pokross had the impression that DMN Capital was operated under the aegis of Robert Lino, said to be a member of the Bonnano Crime Family.
The interception applications and the authorization orders dealt with communications within DMN Capital's offices relating to: (1) racketeering; (2) wire fraud; (3) money laundering; (4) extortion; and (5) extortionate extensions of credit. In addition, they noted that there was probable cause to believe that securities fraud was involved.
In a letter dated June 7, 2000 the Government sought permission to use information from the interceptions to charge additional crimes that had not been included in any of the previous applications or orders for interception. This application sought authorization to use intercepted conversations to charge the following offenses: (1) commercial bribery; (2) pension fund fraud; and (3) fraud by an investment advisor. The application also noted that the conduct that established each of these additional offenses also constituted evidence of one or more of the offenses that were specifically referred to in the wiretap orders, or were noticed in the applications as likely offenses, such as securities fraud. Judge Schwartz approved this application on June 8, 2000.
The applications for the initial authorization order and four extensions were supported by the affidavits of Agent Barrows. In his initial affidavit dated November 30, 1999 Agent Barrows stated his reasons for the unavailability of alternative investigative techniques. Agent Barrows described why physical surveillance, the use of telephone toll records, pen register devices, and the use of search warrants and a federal grand jury would not be productive methods in the context of this investigation.
Agent Barrows also explained in depth the reasons why the Government had concluded that using Pokross to make consensual recordings was too dangerous and impractical. He stated that the FBI could not conduct physical surveillance of Pokross while he was meeting with targets of the investigation in the offices of DMN Capital. Agent Barrows also stated that the installation of a recording device on Pokross's person presented an unacceptable danger to his physical safety because both Labate and Piazza maintained firearms in the office and Pokross was often greeted with physical contact such as hugs and pats on the back enabling the detection of any device.
Agent Barrows further stated that the use of a personal recording device would be of limited utility because the recording time of such devices is no more than five hours and it would be impractical and unsafe for Pokross to meet with FBI agents to replace the tape. Agent Barrows added that meetings often occurred without prior notice and agents would have had no opportunity to install a device on Pokross.
Agent Barrows also dismissed the possibility of installing a recording device in Pokross's briefcase as ineffective due to the limited recording time of such a device as well as Pokross's absence from meetings, and the possibility of an unintended violation of Title III in the event Pokross became separated from his briefcase.
Moreover, Agent Barrows highlighted his belief that meetings among the targets of the investigation took place out of the presence of Pokross, although Pokross usually learned the substance of those conversations later from Labate or Piazza.
Agent Barrows also discussed the alternative of installing closed circuit video monitoring coupled with a listening device in the premises, but discounted that method because Labate and Piazza, among others, were extremely surveillance-conscious and routinely inspected new fixtures in the office for hidden microphones and so forth.
Agent Barrows also explained that an undercover agent or informant could not be expected to infiltrate the Bonnano Crime Family primarily because the targets were unwilling to deal extensively with outsiders who were not members or associates of the family.
As the investigation progressed, Agent Barrows kept the court abreast of whether alternative techniques could be employed.
Discussion
18 U.S.C. § 2515, which is a part of Title III of the Omnibus Crime Control and Safe Streets Act, states that "[w]henever any wire or oral communication has been intercepted, no part of the contents of such communication and no evidence derived therefrom may be received in evidence in any trial, hearing, or other proceeding in or before any court, grand jury, department, officer, agency, regulatory body, legislative committee, or other authority of the United States, a State, or a political subdivision thereof if the disclosure of that information would be in violation of this chapter."
Defendants argue that the wiretap interception should be suppressed because the Government violated Title III. Defendants argue that the Government failed to demonstrate necessity for the wiretaps since it did not employ alternative investigative techniques. Defendants also argue that the Government failed to obtain authorization to use the interceptions in support of the securities fraud charges.
Additionally, defendants argue that the securities fraud counts in the indictment should be dismissed because the Government did not obtain permission to use the wiretap interceptions in support of these charges.
Standing
As a threshold argument, the Government contends that defendants do not have standing to seek suppression of the intercepted oral communications. The court disagrees. Wager and Graff were named as subjects in the orders authorizing the wiretaps and therefore have standing to contest the introduction of the interceptions into evidence.United States v. Caruso, 415 F. Supp. 847, 849 (S.D.N.Y. 1976) ("It is settled that only those whose conversations were intercepted or against whom the interception was directed, or on whose premises the conversations took place, may assert the unlawfulness of the interception").
Alternative Investigative Techniques
The procedure for securing judicial authority to intercept oral communications is governed by 18 U.S.C. § 2518. Section 2518(1)(c) requires that an application for electronic surveillance include "a full and complete statement as to whether or not other investigative procedures have been tried and failed or why they reasonably appear to be unlikely to succeed if tried or to be too dangerous." These circumstances are the prerequisites for authorization of a wiretap order. Section 2518(3)(c) requires the reviewing judge to find, as a condition of authorizing the surveillance, that such circumstances exist and therefore necessitate the wiretap. This "necessity" requirement is "designed to assure that wiretapping is not resorted to in situations where traditional investigative techniques would suffice to expose the crime."United States v. Kahn, 415 U.S. 143, 153 n. 12 (1974).
In view of the circumstances described above, these requirements of Title III have been met.
Use For Securities Fraud Charges
18 U.S.C. § 2517 (5) provides that evidence gathered through a lawful interception order that relates to offenses other than those specified in the order may only be disclosed when authorized or approved by a judge of competent jurisdiction. Section 2517(5) was enacted to prevent subterfuge searches.
Defendants argue that the Government was not authorized to gather evidence relating to securities fraud and subsequently failed to get authorization to disclose such evidence. Defendants therefore assert that the Government failed to comply with the requirements of § 2517(5) and contend that the wiretap interceptions should be suppressed and the resulting securities fraud counts of the indictment dismissed.
In United States v. Masciarelli, 558 F.2d 1064 (2d. Cir. 1977), the Second Circuit found that authorization for the use of intercepted conversations to charge an unenumerated offense was implicitly obtained by the Government when the issuing judge approved continuation of the wiretap after being fully advised of the essential facts constituting the unspecified violation. See also United States v. Tortorello, 480 F.2d 764 (2d Cir. 1973).
Agent Barrows revealed in the very first application and then in subsequent applications that there was probable cause to believe that the subjects of the investigation were engaged in securities fraud. The resulting interception orders each found probable cause to believe that the subjects being intercepted were committing those offenses. In addition, the interim reports and renewal applications contained numerous examples of intercepted conversations that evidenced securities fraud conduct. Further, the Government again referenced the securities fraud offenses in the June 7, 2000 application for expanded authorization, which was approved by Judge Schwartz.
Given these disclosures and findings, the court finds that Judges Scheindlin and Schwartz implicitly authorized the use of the wiretap evidence to charge defendants with the securities fraud offenses.
Conclusion
Defendants' motions to suppress the wiretap evidence and to dismiss the securities fraud counts are denied. The discovery requests will be dealt with in a conference.
SO ORDERED.