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UNITED STATES v. LI

April 1, 1994

UNITED STATES OF AMERICA, Plaintiff,
v.
WILLIAM LI, DANNY HOGAN, and CHITOKI TOKUNAGA, Defendants.


Hart


The opinion of the court was delivered by: WILLIAM T. HART

Defendants William Li, Danny Hogan, and Chitoki Tokunaga (a/k/a Kito) have been charged in a four-count superseding indictment. The indictment alleges the following facts. Hogan is the business agent of General Services Employees Union Local 73 ("Local 73"). Local 73 had an ERISA welfare benefit plan known as the Local 73 Trust Fund (the "Trust Fund"). Pursuant to a service contract with Local 73, Health Administrators, Incorporated ("Health Administrators") provided dental services for union members through the Trust Fund. Li is a dentist and was the president of Health Administrators. Tokunaga was an employee of Health Administrators. *fn1" Li and Tokunaga paid, as a kickback to Hogan, a percentage of the premiums Health Administrators received from the Trust Fund. Defendants attempted to cover up the nature of the payments by making the payments to Morley Graphics and Associates ("Morley Graphics"), a firm owned by Hogan's wife, and by having the payments deposited into Morley Graphics' business account. It is also alleged that false invoices were issued to make it appear that the payments were for services provided by Morley Graphics. Count One charges a conspiracy in violation of 18 U.S.C. § 1954, which prohibits kickbacks to influence operations of ERISA benefit plans. Count Two charges Hogan with receiving a specific kickback in violation of § 1954. Count Three charges Li with a violation of § 1954 by paying the same kickback charged in Count Two. Count Four is against Hogan and Li and alleges the same kickback transaction as is charged in Counts Two and Three, but charges it as a violation of 18 U.S.C. § 1956(a)(1)(B)(i), which prohibits money laundering. Count Four also makes reference to the aiding and abetting statute, 18 U.S.C. § 2. Apparently, the government is contending in Count Four that Li aided and abetted Hogan's money laundering activity.

 Defendants move to dismiss the indictment on the ground of improprieties by the grand jury that returned the original and superseding indictments in this case. The improprieties, however, apply only to an indictment returned by the grand jury in another case. There is no evidence that the indictment returned in the present case has been subjected to outside influence or that the secrecy of the proceedings in this case were ever violated.

 One of the members of the grand jury that returned the indictments in this case was Robert Girardi. Girardi knew one of the defendants in United States v. Coffey, 854 F. Supp. 520 (N.D. Ill.), Richard Gelsomino. Girardi has recently been charged with soliciting bribes from Gelsomino and one of his codefendants, Richard Lantini, in return for not returning an indictment against these two. Gelsomino and Lantini reported the solicitation to federal authorities. Despite Girardi's solicitation, Gelsomino and Lantini were indicted by the grand jury. Defendants in the present case have provided Gelsomino's and Lantini's affidavits that they filed in moving to dismiss the indictment in 92 CR 203. Gelsomino states that Girardi told him that three other grand jurors were also willing to accept the bribes for not indicting him.

 Even in the Coffey case itself, the motion to dismiss the indictment was denied. See United States v. Coffey, 854 F. Supp. 520, 1994 U.S. Dist. LEXIS 4099, 1994 WL (N.D. Ill. 1994) (Plunkett, J.). While there is no dispute as to Girardi soliciting bribes in the Coffey case, there is nothing presented to show that Girardi solicited bribes from Li, Hogan, or Tokunaga. There is also no independent confirmation that there were actually three other grand jurors who were working along with Girardi. As stated by Judge Plunkett in the Coffey order, in camera submissions showed that an FBI investigation revealed no other grand jurors were involved. Also, Girardi himself has admitted no other grand jurors were involved. There is nothing to indicate that Girardi solicited bribes as to any other case other than the one in which he knew one of the potential defendants. Defendants in the present case do not represent that they received any solicitations and do not point to any evidence that secrecy was violated as to their own case. Defendants have not presented an adequate basis for permitting further inquiry of the grand jurors pursuant to Fed. R. Crim. P. 6(e). See United States v. Peters, 791 F.2d 1270, 1283-84 (7th Cir.), cert. denied, 479 U.S. 847 (1986). An indictment will not be dismissed based on grand jury improprieties unless the defendants were prejudiced. Bank of Nova Scotia v. United States, 487 U.S. 250, 254, 101 L. Ed. 2d 228, 108 S. Ct. 2369 (1988). Defendants have not shown how they could have been prejudiced by one grand juror soliciting bribes as to an unrelated indictment. Even if bribes had been solicited as to the present case, there would not necessarily have been any prejudice to defendants. Compare Coffey, supra. This indictment will not be dismissed based on grand jury improprieties and further discovery as to the grand jurors will not be permitted.

 Defendants Li and Hogan move to dismiss Count Four of the indictment. Defendants contend that there is no allegation of the laundering of illegal proceeds, only an allegation that the kickback payment itself was disguised. The statute provides: "Whoever, knowing that the property involved in a financial transaction represents the proceeds of some form of unlawful activity, conducts or attempts to conduct such a financial transaction which in fact involves the proceeds of specified unlawful activity knowing that the transaction is designed in whole or in part to conceal or disguise the nature, the location, the source, the ownership, or the control of the proceeds of specified unlawful activity" violates the law. 18 U.S.C. § 1956(a)(1)(B)(i). The government does not dispute that the money laundering must involve the disguising of proceeds, not merely the disguising of the illegal payment itself. The government, however, argues that the money laundering offense is the deposit of the check into the Morley Graphics bank account, not making the check itself payable to Morley Graphics.

 The elements of a § 1956(a)(1)(B)(i) money laundering offense are: (1) knowingly conducting a financial transaction; (2) known to involve and actually involving proceeds of specified unlawful activity; and (3) knowing that the transaction was designed to conceal or disguise the nature, location, source, ownership, or control of the proceeds. Hollenback v. United States, 987 F.2d 1272, 1274 (7th Cir. 1993). The government does not dispute that the financial transaction must involve proceeds and that the financial transaction must occur after the defendant has obtained possession of the proceeds. See United States v. Johnson, 971 F.2d 562, 569 (10th Cir. 1992).

 Defendants contend that the check did not become proceeds until it was deposited into the business account for Morley Graphics. A check, however, is a negotiable instrument with value of its own. A check does not need to be deposited in order to have value. It can be endorsed to a third party or cashed without being deposited. A check is no less proceeds than are stolen goods that have not yet been converted into cash. See, e.g., United States v. Griffith, 17 F.3d 865, 1994 U.S. App. LEXIS 3395, 1994 WL 55628 *11-12 (6th Cir. 1994). The Johnson case relied upon by defendants is distinguishable. There, the proceeds were paid by wire transfer and the wire transfer itself was also alleged to be the financial transaction. Cf. Griffith, supra, (limiting Johnson to its facts). Here, receipt of the check is distinct from the financial transaction of depositing the check into a bank account. When deposited into a Morley Graphics account, the deposit itself, not just the payee on the check, was also designed to disguise the nature, source, ownership, or control of the proceeds. The indictment adequately alleges a financial transaction involving unlawful proceeds. Count Four will not be dismissed.

 The government moves to admit certain other bad acts evidence as against Li and Tokunaga. The government seeks to present evidence purportedly showing that Li and Tokunaga paid bribes to an official of a trust fund of the National Production Workers Union ("NPWU") in order to obtain a contract to provide dental services through a union health benefits plan. The government contends that such evidence would be used to show intent, knowledge, or common scheme or plan. See Fed. R. Evid. 404(b).

 The only evidence that the government has to show the other bad acts are purported admissions of Li and Tokunaga. The government represents that it has the following evidence. Frank Stroud, a vice-president of NPWU, will testify that he met with Li and Tokunaga in February 1993. Stroud told Li and Tokunaga that he suspected illegal commissions were being paid to union members affiliated with benefit trust funds. Stroud inquired whether Li and Tokunaga were then paying commissions to Joseph Senese and Robert Mondo, NPWU members affiliated with an NPWU benefit fund. *fn2" Li responded by cursing and stating he wished he had never been involved in unions. Tokunaga denied making payments to Senese, but admitted giving something to Mondo. Tokunaga would not respond to specifics and the two defendants then cut off the conversation. The government seeks to present these admissions to prove the other bad acts; there is no contention that the government has any other evidence to show that the other bad acts were committed. The government also seeks to present letters Li and Tokunaga wrote to NPWU complaining about Stroud and denying his accusations. The government contends that the letters are part of a coverup and show a common scheme or plan in that Li sent a similar letter of denial to Local 73 after Local 73 officials made accusations as to Li.

 The test for admitting other act evidence is whether:

 
(1) the evidence is directed toward establishing a matter in issue other than the defendant's propensity to commit the crime charged, (2) the evidence shows that the other act is similar enough and close enough in time to be relevant to the matter in issue, (3) the evidence is sufficient to support a jury finding that the defendant committed the similar act, and (4) the probative value of the evidence is not substantially outweighed by the danger of unfair prejudice.

 United States v. Shields, 999 F.2d 1090, 1099 (7th Cir. 1993), cert. denied, 127 L. Ed. 2d 74, 114 S. Ct. 877 (1994) (quoting United States v. Zapata, 871 F.2d 616, 620 (7th Cir. 1989)). Defendants argue *fn3" that intent and knowledge are not necessarily an issue in this case; the acts are too far removed in time from the charges in this case; there is insufficient evidence to support that the acts occurred; and the jury might use the evidence to show propensity. Also, defendants contend that Stroud has made numerous accusations as part of a vendetta against NPWU officials and that cross examining him would require going into a number of side issues that would result in jury confusion.

 It is unnecessary to decide whether evidence of bribing officials of other benefit plans should be admissible against Li and Tokunaga under Rule 404(b) since the government does not point to sufficient evidence that such bribes occurred. It is true, as the government contends, that this court need not find that a preponderance of the evidence supports that the other acts were committed. It need only be found that there is sufficient evidence for a jury to find by a preponderance of ...


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