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UNITED STATES v. DEMPSEY

August 14, 1990

UNITED STATES OF AMERICA, Plaintiff,
v.
MARTIN J. DEMPSEY, et al., Defendants


George M. Marovich, United States District Judge.


The opinion of the court was delivered by: MAROVICH

GEORGE M. MAROVICH, UNITED STATES DISTRICT JUDGE

 The original indictment in this case was handed down on August 2, 1989 naming eighteen commodities traders in the soybean futures pit at the Chicago Board of Trade ("CBOT") and a floor clerk as defendants. The indictment charged the defendants with 534 counts alleging violations of, inter alia, the Racketeer Influenced and Corrupt Organizations Act ("RICO"), the Commodities Exchange Act ("CEA"), and the mail and wire fraud statutes. Five of the traders and the floor clerk entered guilty pleas. The other thirteen traders pleaded not guilty to the charges against them. These thirteen defendants filed motions to dismiss various counts of the original indictment. On February 28, 1990, before this court ruled on those motions, the first superseding indictment in this case was handed down. The first superseding indictment charged the thirteen remaining defendants with 751 counts alleging violations of the same statutes. All defendants who filed motions to dismiss under the original indictment renewed those motions as they pertained to the first superseding indictment. In addition, some defendants filed new motions to dismiss. On July 12, 1990, the second superseding indictment was handed down. The second superseding indictment charged the thirteen defendants with 742 counts alleging violations of the same statutes. The second superseding indictment dropped nine counts, but is, in all other material respects except as otherwise indicated below, virtually identical to the first superseding indictment. For the sake of simplicity, all references in this opinion to "the indictment" or to specific count numbers refer to the second superseding indictment or counts therein unless otherwise indicated. Before the court are defendants' motions to dismiss various counts of the indictment, or alternatively as to some motions, to strike certain allegations. *fn1" For the following reasons, all of the motions are denied.

 I. MOTIONS TO DISMISS RICO COUNTS

 In counts 749, 750, and 751, defendants Nowak, Dempsey, and Bergstrom are charged with violating one of the three substantive RICO provisions, 18 U.S.C. § 1962(c). That provision makes it a crime

 
for any person employed by or associated with any enterprise engaged in, or the activities of which affect, interstate . . . commerce, to conduct or participate, directly or indirectly, in the conduct of such enterprise's affairs through a pattern of racketeering activity . . . .

 In count one, all defendants, except Anixter and Ryan, are charged with "conspiring to violate" § 1962(c) in violation of 18 U.S.C. § 1962(d).

 A. Vagueness

 Defendants Mittlestadt, Fetchenhier, Dempsey, and Nowak argue that the RICO statute is unconstitutional per se because the term "pattern of racketeering activity" is vague. "It is well established that vagueness challenges to statutes which do not involve First Amendment freedoms must be examined in the light of the facts of the case at hand." United States v. Mazurie, 419 U.S. 544, 550, 42 L. Ed. 2d 706, 95 S. Ct. 710 (1975). Since first amendment rights are not involved in this case, defendants' argument that RICO is unconstitutionally vague per se is without merit.

 The Supreme Court has never addressed the constitutionality of the RICO statute either per se or as applied. It has, however, defined the term "pattern of racketeering activity" in other contexts. In Sedima, S.P.R.L. v. Imrex Co., 473 U.S. 479, 87 L. Ed. 2d 346, 105 S. Ct. 3275 (1985), the issue before the Court was the scope of the express private right of action which the RICO statute affords private individuals. The Court acknowledged that the issue of "whether the commission of [the alleged predicate acts] fell into a pattern" was not before it. However, at footnote fourteen, the Court observed in dictum:

 
The definition of a 'pattern of racketeering activity,' . . . states that a pattern ' requires ' at least two acts of racketeering activity, . . . not that it 'means' two such acts. The implication is that while two acts are necessary, they may not be sufficient. Indeed, in common parlance two of anything do not generally form a 'pattern.' The legislative history supports the view that two isolated acts of racketeering activity do not constitute a pattern. As the Senate Report explained: 'The target of [RICO] is thus not sporadic activity. The infiltration of legitimate business normally requires more than one "racketeering activity" and the threat of continuing activity to be effective. It is this factor of continuity plus relationship which combines to produce a pattern.' S. Rep. No. 91-617, p. 158 (1969) . . . . Similarly, the sponsor of the Senate bill, after quoting this portion of the Report, pointed out to his colleagues that 'the term "pattern" itself requires the showing of a relationship. . . . Proof of two acts of racketeering activity, without more, does not establish a pattern. . . .' 116 Cong. Rec. 18940 (1970) . . . . Significantly, in defining 'pattern' in a later provision of the same bill, Congress was more enlightening: 'criminal conduct forms a pattern if it embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events.' 18 U.S.C. § 3575(e). This language may be useful in interpreting other sections of the Act. Cf. Iannelli v. United States, 420 U.S. 770, 789 [43 L. Ed. 2d 616, 95 S. Ct. 1284] (1975).

 Sedima at 496, n. 14 (emphasis in original).

 In H. J. Inc. v. Northwestern Bell Telephone Co., 492 U.S. 229, 109 S. Ct. 2893, 106 L. Ed. 2d 195 (1989), the Court held that a civil RICO plaintiff need not allege multiple schemes to sufficiently allege a "pattern of racketeering activity". In the course of reaching this conclusion, the Court noted that its footnote fourteen in Sedima had spawned various lower courts' attempts to define exactly what it is that constitutes such a "pattern". The Court then elaborated at length on what course of racketeering conduct constitutes a "pattern".

 
In normal usage, the word 'pattern' here would be taken to require more than just a multiplicity of racketeering predicates. A 'pattern' is an 'arrangement or order of things or activity,' 11 Oxford English Dictionary 357 (2d ed. 1989), and the mere fact that there are a number of predicates is no guarantee that they fall into any arrangement or order. It is not the number of predicates but the relationship that they bear to each other or to some external organizing principle that renders them 'ordered' or 'arranged'.

 Id., 109 S. Ct. at 2900. The Court then noted that the text of RICO "conspicuously fails anywhere to identify . . . forms of relationship or external principles to be used in determining whether racketeering activity falls into a pattern for purposes of the Act." Id. From this absence, the Court concluded as follows:

 
It is reasonable to infer . . . that Congress intended to take a flexible approach and envisaged that a pattern might be demonstrated by reference to a range of different ordering principles or relationships between predicates within the expansive bounds set [by § 1961(5) and the absence of a textual definition of "pattern"].

 Id. Turning to the legislative history of RICO, the Court observed as follows: "Congress[] intended that to prove a pattern of racketeering activity, a plaintiff or prosecutor must show that the racketeering predicates are related [to each other] and that they amount to or pose a threat of continued criminal activity." Id. (emphasis in original); see also Sedima at 496, n. 14. For assistance in defining the relationship element of a "pattern", the Court, picking up on its dictum in footnote fourteen in Sedima, turned to Congress' definition of the term "pattern of criminal conduct" in Title X of the Organized Crime Control Act of 1970 (of which RICO constitutes Title IX). That term is defined as follows: "'criminal conduct forms a pattern if it embraces criminal acts that have the same or similar purposes, results, participants, victims, or methods of commission, or otherwise are interrelated by distinguishing characteristics and are not isolated events.'" Id., 109 S. Ct. at 2901, quoting 18 U.S.C. § 3575(e). The Court concluded as follows: "We have no reason to suppose that Congress had in mind for RICO's pattern of racketeering component any more constrained a notion of relationship between predicates that would suffice." Id., 109 S. Ct. at 2901.

 Noting that § 3575(e) "is of no assistance" in defining the continuity element of "pattern", the Court defined that element on its own as follows:

 
'Continuity' is both a closed- and open-ended concept, referring either to a closed period of repeated conduct, or to past conduct that by its nature projects into the future with a threat of repetition . . . . It is, in either case, centrally a temporal concept and particularly so in the RICO context where what must be continuous, RICO's predicate acts or offenses, and the relationship these predicates must bear one to another, are distinct requirements. A party alleging a RICO violation may demonstrate continuity over a closed period by proving a series of related predicates extending over a substantial period of time. Predicate acts extending over a few weeks or months and threatening no future criminal conduct do not satisfy this requirement: Congress was concerned in RICO with long-term criminal conduct.

 Id. at 2902 (emphasis in original).

 Each of the more than 200 mail and wire fraud predicate acts charged in this indictment were allegedly committed by these same eleven defendants for the same purpose: to defraud customers and avoid liability for trading errors. The victims of the scheme in furtherance of which these mailings and/or wires were sent were also the same: brokers' customers. The trades which form the basis of the mail and wire fraud predicate acts were also "committed" by a similar method: by executing customers' orders, not competitively by open outcry, but noncompetitively, e.g., by prearrangement. The result of the scheme was also the same: the victim-customers lost money which would have been theirs if the defendants had executed their trades competitively. There is no doubt that the predicate acts in this case are "related" as the H. J. Inc. Court has defined that term. With regard to the "continuity" element of "pattern", the indictment alleges that the predicate acts were committed from December of 1986 through the date of the indictment. Even under the original indictment, that is a closed time period of more than two-and-a-half years. That is certainly a "substantial period of time" extending over more than "a few weeks or months." H. J. Inc. at 2902. A person of ordinary intelligence would be on notice that more than 200 related predicate acts committed over a two-and-a-half-year period fall into a "pattern". There is nothing vague about the term "pattern of racketeering activity" as applied to these defendants' alleged conduct.

 B. Failure to State Offense

 When ruling on a motion to dismiss charges in an indictment for failure to state an offense, the indictment must be examined as a whole in order to determine whether it adequately informs the defendant of the charges against him. United States v. Brack, 747 F.2d 1142, 1147 (7th Cir. 1984) (emphasis added). Furthermore, an indictment need only include those facts and elements which are necessary to state an offense and enable the defendant to prepare a defense and invoke the double jeopardy clause as a bar to a subsequent prosecution for the same conduct. Hamling v. United States, 418 U.S. 87, 117, 41 L. Ed. 2d 590, 94 S. Ct. 2887 (1974); United States v. Neapolitan, 791 F.2d 489, 501 (7th Cir. 1986). When analyzing a RICO indictment, it is important to note that the seventh circuit has repeatedly held that RICO is a broad statute which should be liberally construed to effectuate its remedial purpose. Neapolitan at 495.

 1. Enterprise Element

 Defendants Cox and Vercillo argue that the government has "abuse[d] the enterprise concept to improperly link multiple conspiracies." As such, they argue, the indictment violates their fifth amendment due process right to "fundamental fairness" and Fed. R. Crim. P. 8(b). Rule 8(b) provides in relevant part: "Two or more defendants may be charged in the same indictment . . . if they are alleged to have participated in the same act or transaction or in the same series of acts or transactions constituting an offense or offenses . . . ."

 Defendants' argument is that the government has defined the RICO enterprise "too broadly". The result of this, argue defendants, is that the indictment charges multiple separate conspiracies rather than one conspiracy in which all defendants participated. In Cox's words, "the only common agreement among the defendants is to participate in the business of the CBOT -- a legitimate and legal agreement." In the same vein, Vercillo argues that "the tie that supposedly binds these defendants is that they all worked within the soybean pit at the [CBOT]". According to Vercillo's reading of the indictment, the indictment "belies any allegation that all [eleven RICO] defendants agreed among each other to carry on illegal activity, suggesting only that unitary clusters of defendants engaged in their own patterns of illegal activity apart from the designs of others." Perhaps Cox and Vercillo skipped paragraph two of count one in their perusal of the indictment. That paragraph alleges that all eleven RICO defendants "conspire[d] and agree[d] with each other. . . to conduct and participate in the conduct of the affairs of the CBOT, directly and indirectly, through a pattern of racketeering activity . . . consisting of multiple acts of mail fraud and wire fraud." (Emphasis added). It may be true that the concept of enterprise liability enables the government to charge multiple conspiracies in a single indictment. Neapolitan at 501 (§ 1962(d) is "capable of providing for the linkage in one proceeding of a number of otherwise distinct crimes and/or conspiracies through the concept of enterprise conspiracy") (dictum). This court need not determine whether the fact that RICO may enable the government to charge multiple conspiracies violates any of defendants' constitutional or procedural rights, because the indictment in this case clearly alleges only one conspiracy to conduct and participate in the conduct of the affairs of a legitimate enterprise in an illegal manner. In this situation, joinder under Rule 8(b) is proper. United States v. Briscoe, 896 F.2d 1476, 1515 (7th Cir. 1990). At the pleading stage, the government need not demonstrate sufficient evidence supporting joinder, in this case that the defendants were members of a single conspiracy. Id. The government will have to so demonstrate at trial.

 Defendants Cox and Vercillo also argue that they are charged with RICO conspiracy simply because of their "status" as members of a legitimate enterprise, the CBOT. This argument ignores the "pattern of racketeering element" of RICO conspiracy. Defendants are charged with RICO conspiracy not because they are members of a legitimate enterprise, but because they allegedly conducted and participated in the affairs of a legitimate enterprise in an illegal manner.

 2. Pattern Of Racketeering Activity Element

 Defendant Kenney argues that count one fails to state an offense because it does not identify any predicate acts. The relevant charging language of count one is as follows: "[the predicate acts] consist[] of multiple acts of mail and wire fraud. . . as more fully described in the mail and wire fraud counts contained in this indictment." Kenney's argument is that "it is [irrelevant] that count [one] states that the mail and wire fraud acts are more fully described elsewhere in the indictment. Plainly, count [one] does not incorporate by reference other counts in the indictment." Thus, Kenney's argument is that since count one does not contain the magic words "incorporated by reference" in connection with the alleged mail and wire fraud predicates, count one does not allege any predicates. This argument is nonsensical. In any case, Kenney's argument was made towards the original indictment. In the superseding indictment, count one expressly incorporates the mail and wire fraud counts by reference using the magic words.

 Defendant Schneider also argues that count one fails to allege any predicate acts. Schneider's argument is that, for reasons stated in a separate motion filed by him, the mail and wire fraud counts of the indictment fail to properly charge those offenses. For the reasons explained infra in this memorandum opinion, the mail and wire fraud counts are properly pleaded and Schneider's argument is thus without merit.

 Although defendant Barcal argues that the RICO conspiracy count is unconstitutional as applied to him, his argument is really that that count fails to state an offense because it does not allege a "pattern of racketeering activity". Barcal's argument is that "trading at the CBOT is not a 'racketeering activity' as defined by 18 U.S.C. Section 1961(1)". Thus, reasons Barcal, no "pattern" of such activity can be established. Barcal and his co-defendants are not charged with simply "trading at the CBOT." They are charged with doing so in a manner which allegedly defrauded customers and threatened the integrity of the soybean futures market. Barcal's argument is without merit.

 Bergstrom argues that count one fails to state an offense because it "fails to identify the date, place, and persons involved in the purported agreement". Similarly, Kenney argues that "no meaningful particulars of the alleged criminal activity are alleged. Allegations such as times, dates, places and specific criminal acts, necessary to know the nature of the charges and prepare a defense, simply are lacking. . . ." This situation, argues Kenney, violates both the sixth amendment and Fed. R. Crim. P. 7(c)(1). The sixth amendment provides in relevant part: "In all criminal prosecutions, the accused shall enjoy the right . . . to be informed of the nature and cause of the accusation." U.S. Const. amend. VI. Rule 7(c)(1) requires that an indictment shall be "a plain, concise and definite written statement of the essential facts constituting the offense charged." The allegations in the indictment satisfy these requirements. Paragraph two of count one alleges that defendants Dempsey, Nowak, Bergstrom, Ashman, Barcal, Cox, Kenney, Mittlestadt, Fetchenhier, Schneider, and Vercillo (i.e., "the persons") "did knowingly conspire and agree with each other" "from in or about December 1986 through on or about the date of this indictment [i.e. the date] at Chicago . . . and elsewhere [i.e. the place]." Furthermore, since the indictment must be viewed as a whole to determine if it states an offense, United States v. Brack at 1147, the allegations in count two, the initial mail fraud count, are also relevant. The allegations in that count contain a myriad of detail about the "alleged criminal activity". Each subsequent mail and wire fraud count in turn details the date of each transaction and the parties involved. All of this information, taken together, constitutes enough "essential facts" to inform defendants of the "nature" of the RICO conspiracy charge against them.

 Defendant Ashman's motion, filed before the first superseding indictment was handed down, argues that count one does not properly charge him because it "does not allege that [he] agreed to the commission of any particular predicate act." At the time Ashman filed his motion, the only substantive counts charged against him were thirteen violations of the CEA and a false statement charge, none of which are predicate acts under RICO. The first superseding indictment added, inter alia, four mail fraud counts against him. Both the original and superseding indictments allege that he, in agreement with his alleged coconspirators, agreed to cheat customers and avoid liability for trading errors through a pattern of racketeering activity consisting of more than 200 counts of mail and wire fraud. That is enough to state a RICO conspiracy offense. He need not have agreed to the commission of any "particular predicate act". Even if there were such a requirement, however, he is now charged with actually committing four such acts. This fact eviscerates his argument that the indictment fails to allege that he agreed to the commission of any particular predicate act.

 Defendant Kenney argues that count one should be dismissed against him because it does not allege that he personally agreed to commit two predicate acts. Kenney acknowledges that the seventh circuit has held that such an agreement is not a prerequisite to RICO conspiracy liability, Neapolitan at 497-498, but "notes that there is a definite circuit split on the issue." A circuit split would concern this court only if the seventh circuit had not spoken on this issue.

 C. Prosecutorial Vindictiveness

 Defendant Barcal was not charged with RICO conspiracy in the original indictment. He was so charged in the first and second superseding indictments. He argues that

 
the only reason the Government chose to include [him] . . . in the RICO conspiracy . . . in the superseding indictment was because he would not acquiesce to the Government's proposals to plead guilty to the [original] indictment and cooperate with the Government's on-going investigation.

 Thus, reasons Barcal, he is being punished "for doing something the law plainly allows him to do, i.e. plead not guilty and assert his Fifth Amendment Rights." Barcal asserts that he is entitled to a presumption of prosecutorial vindictiveness, an evidentiary hearing to prove the truth of this presumption, and once he does just that, dismissal of count one against him.

 In United States v. Goodwin, 457 U.S. 368, 73 L. Ed. 2d 74, 102 S. Ct. 2485 (1982), the defendant was charged with various misdemeanor offenses, including assault, arising from a traffic stop and a subsequent high-speed chase. After the defendant demanded a jury trial, the prosecutor obtained another indictment which included a felony count of forcibly resisting an officer. A jury convicted the defendant of the felony count. The defendant asked the Supreme Court to apply the presumption of vindictiveness it had applied in Blackledge to the facts of his case. The Court declined to do so, distinguishing the facts of the case before it from Blackledge as follows:

 
At [the pretrial] stage of the proceedings, the prosecutor's assessment of the proper extent of prosecution may not have crystallized. In contrast, once a trial begins -- and certainly by the time a conviction has been obtained -- it is much more likely that the [government] has discovered and assessed all of the information against an accused and has made a determination, on the basis of that information of the extent to which he should be prosecuted. Thus, a change in the charging ...

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