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United States v. Marren

decided: November 22, 1989.

UNITED STATES OF AMERICA, PLAINTIFF-APPELLEE,
v.
JOSEPH MARREN AND MICHAEL RUSSO, DEFENDANTS-APPELLANTS



Appeals from the United States District Court for the Northern District of Illinois, Eastern Division. No. 87 CR 501--Ann Claire Williams, Judge.

Cudahy, Flaum, Circuit Judges, and Grant, Senior District Judge.*fn*

Author: Flaum

FLAUM, Circuit Judge

Michael Russo and Joseph Marren, along with three others, were charged in a 27-count indictment filed in the United States District Court for the Northern District of Illinois with conspiracy to violate the Racketeer Influenced and Corrupt Organizations Act (RICO) (count 1), conspiracy to commit tax evasion (count 24), use of the telephone to promote a prostitution business (counts 2-23), and filing false federal income tax returns (counts 25-27), in violation of 18 U.S.C. § 1962(d), § 371 and § 1952, and 26 U.S.C. § 7201, respectively. Marren was named only in the two conspiracy counts while Russo was named in each of the counts. Following a joint jury trial, appellants and their three co-defendants were convicted on all counts. Russo was sentenced to concurrent terms of imprisonment for eleven years on count 1 and five years on counts 2-22 and 24-27, to be followed by five years of probation on count 23. In addition, the court assessed a $100,000 fine on the tax counts. Marren was sentenced to imprisonment for five years on count 1 and five years probation on count 24. We affirm on all counts.

I. FACTS

The convictions in this case arise from the institution and operation of a scheme which permitted customers of Michael's Magic Touch, a night club owned by Michael Russo, to pay for prostitution with credit cards. Michael's Magic Touch served alcoholic beverages and entertained its patrons with nude female dancers who, when not performing on stage, solicited the club's patrons to engage in sexual activities in rooms located above the club. Payments for such services were made to the club's waitresses who in turn handed the money over to one of the club's doormen. These payments were never placed in the lone cash register, situated at the bar. Until 1981, customers were required to pay for such services in cash.

In 1978, Thomas Gervais formed National Credit Services (NCS), a company that operated a scheme to assist merchants who otherwise could not receive authorization to accept credit cards. His company applied in the names of fictitious merchants to various banks in the Chicago area for authorization to accept credit card payments from patrons. Once the applications were approved, Gervais offered his credit card services to businesses whose illegal activities made them ineligible to accept credit cards. Businesses that accepted Gervais' services were given cards in the name of one of Gervais' fictitious merchants and used those names when accepting VISA or MasterCard charges made by customers. In return, Gervais processed the payments for his clients and received payment in the amount of 15% of the cost of the credit card charges that he processed.

All merchants who acquired authorization to accept credit cards were required to obtain approval for any sizeable transaction. The procedure for obtaining approval began with a call to an assigned telephone number. The operator answering the call received the information regarding the purchaser and entered that information into a computer. The computer transferred the information over telephone lines through a national network to the participating bank that had issued the credit card; in turn, the bank acquired approval from VISA's authorization center in San Mateo, California or MasterCard's authorization center in St. Louis, Missouri. The approval (or rejection) was transmitted from those centers, ultimately to the merchant via the computer and operator. The entire process was performed in a matter of seconds.

In the fall of 1980, Gervais was pressured by rival organized crime groups to allow them to provide protection for his business in exchange for a percentage of the profits. Gervais decided to seek protection, not from one of the organized crime factions, but from the FBI. He revealed his illegal activities to agent Larry Damron, who subsequently received official approval to work for NCS in an undercover capacity. Gervais remained with NCS for about six months for the purpose of acquainting Damron and two other agents with his operation. Then Gervais was phased out. In the interim period, Damron, using the name Larry Wright, was introduced to Gervais' customers as a partner in the business. Damron resolved the protection issue in favor of Victor Spilotro's organization. Spilotro, unaware of the government's newly acquired role in NCS, was to receive one-third of the profits for his role in ensuring the safety and continuity of the NCS Operation. In March 1981, Gervais telephoned Michael's Magic Touch and spoke with August Russo, Michael Russo's brother, about using credit cards at that business. August Russo rejected the idea.

Between March and October 1981, NCS operated its credit card program at a number of taverns and night clubs, including some that offered prostitution services. Michael's Magic Touch was not a client, however, and no effort was made to recruit that business during that period of time. Once immersed in the business of operating NCS, Damron became acquainted with appellant Joseph Marren, who at the time was employed at one of the clubs that was an NCS client for credit cards. In mid-1981, Marren left that employment and came to work for Michael Russo as a doorman at Michael's Magic Touch. On August 14, 1981, Marren revealed to Damron that he had been hired by Michael's Magic Touch and that although the club did not allow credit cards, Marren had been trying to persuade his supervisors to begin accepting them.

On October 7, 1981, Marren spoke with Damron on the telephone. Marren told Damron to meet with him that night at Michael's Magic Touch because he had finally convinced the management to accept credit cards. Marren advised Damron that the club was interested in VISA and MasterCard but not American Express. That evening Damron met with Marren, Michael Russo and August Russo in Michael Russo's office at Michael's Magic Touch. Michael Russo asked Damron to explain how the credit card reimbursement program operated. As Damron gave his explanation, Michael Russo appeared to have a previous familiarity with the procedures. Damron provided the Russos with an imprinter and credit card slips in the name of W.G. Enterprises. Damron explained that the company was a "front account," and that if the amount of the charge exceeded $50, a telephone call would have to be made to obtain an authorization number so that payment could be guaranteed. Michael Russo indicated to Damron that he understood. Marren remarked that he also understood Damron's explanation, that he had handled credit card charges before, and that he wanted to be certain that Damron was following the same procedure as in the past. Damron fully explained the procedures. A representative of NCS would come to the club each week to collect the completed credit card slips and would pay 85% of the amount charged on the slips. Payment would be made by check. Michael Russo told Damron to make the checks payable to cash.

The credit card system was an instant success at Michael's Magic Touch. For the remainder of 1981 Damron made weekly collections and wrote checks payable to cash that totalled more than $28,000. These checks were cashed at a nearby bank and bore the endorsement of August Russo.

On December 15, 1981, Damron and Gervais met with Marren who complained to them that for the past five weeks Michael Russo had refused to allow him to share in the credit card income. Marren remarked that he had a knack for making money for others and not profiting personally. Marren agreed with Gervais' comment that the Russos would not have as much income if they did not accept credit cards. In future meetings between these parties, Marren often complained to Damron about this predicament.

On April 27, 1982, Damron made his weekly trip to Michael's Magic Touch. He gave the club a check written on the fictitious merchant's account for $5,009.05. He also gave Marren $285 in cash, for credit card charges that Marren had concealed from Michael's Magic Touch. Between April and July, Marren received separate payments from Damron almost weekly; the amounts totalled $2,779.90.

During one of his weekly visits to Michael's Magic Touch in the summer of 1982, Marren asked Damron to explain to Michael Russo a money laundering scheme that would replace the weekly checks paid for credit card charges. Damron explained the laundering scheme and Michael Russo remarked that the advantage of the plan Damron had recommended was that there were no checks to sign. Russo asked whether any other clubs were considering the laundering scheme. Damron stated that others were involved but that he wanted to help Michael's Magic Touch because of past loyalties and financial success. Russo replied, "We're loyal because Joe [Marren] brought you in."

The credit card operations continued without incident until August of 1984. Damron, sometimes accompanied by fellow Agent George Transeth, visited Michael's Magic Touch weekly, met with a member of the Russo family and made their collections. The checks left behind were in amounts ranging from $525 to $6,486.

On August 10, 1984, agents representing the FBI and the Internal Revenue Service entered the premises of Michael's Magic Touch and conducted a search, supported by a valid warrant. Michael Russo was present at the time of the search. One agent went to the landing area and found a man and woman engaged in sexual activity in one of the rooms. Among the items seized were financial records, the merchants' copies of credit card transaction slips, three packets, each containing $5,000 in cash, another $8,543 found in a jacket hanging in the office, and records showing the work schedules of the various dancers and the amounts of cash paid to the dancers each evening. In addition, the agents discovered a schedule of credit card charges. The schedule contained seven columns, showing (1) the name of the patron, (2) the card number, (3) the date of the transaction, (4) the amount assessed as a service charge, (5) the amount retained by the "house," (6) the amount due to the prostitute and her name, and (7) the total amount of the transaction (adding together columns 4, 5 and 6).

Michael's Magic Touch resumed credit card transactions within days after the search and seizure. On August 21, Damron and Transeth made what was to be their final visit to Michael's Magic Touch as undercover officers. The conversation with Michael Russo centered around the undeclared income from the credit card transactions. Michael Russo asked for and received a detailed explanation of Damron's collection and payment procedure. Transeth suggested that in the future the income derived from the NCS checks should be recorded and used to pay legitimate club expenses. Michael Russo rejected that idea. Transeth asked, Are you gonna still keep doing, what you were doing?" Michael Russo replied, "Yeah."

Shortly thereafter the undercover operation came to an end. Marren and Russo, along with three co-defendants, were indicted by the 1986 Grand Jury. The 27-count indictment charged the five defendants with conspiracy to violate RICO (count 1), conspiracy to commit tax evasion (count 24), use of the telephone to promote a prostitution business (counts 2-23), and filing false federal income tax returns (counts 25-27), in violation of 18 U.S.C. § 1962(d), § 371 and § 1952, and 26 U.S.C. § 7201, respectively. Marren was named only in the two conspiracy counts while Russo was named in each of the counts. Following a joint jury trial, the five defendants were convicted on all counts. Russo was sentenced to concurrent terms of imprisonment for eleven years on count 1 and five years on counts 2-22 and 24-27, to be followed ...


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