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United States v. Graffia

July 22, 1997

UNITED STATES OF AMERICA,

PLAINTIFF-APPELLEE,

v.

PAUL W. GRAFFIA AND LION BERNARD,

DEFENDANTS-APPELLANTS.



Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 93 CR 842 George M. Marovich, Judge.

Before CUMMINGS, FLAUM and EVANS, Circuit Judges.

CUMMINGS, Circuit Judge.

ARGUED MAY 20, 1997--

DECIDED JULY 22, 1997

On June 30, 1994, the grand jury returned a 16-count superseding indictment against defendants Paul W. Graffia, who lived in Illinois, and Lion Bernard, who lived in California, and two co-defendants, Roberto L. Ferrera and Jon Binette, relating to certain fraudulent schemes undertaken by the defendants in the Northern District of Illinois and elsewhere. Graffia was charged with conspiracy to commit wire fraud (Count One), four counts of wire fraud (Counts Two through Five), two counts of counterfeiting foreign securities (Counts Six and Seven), one count of filing a false income tax return (Count Nine), one count of failing to file an income tax return (Count Ten), and six counts of money laundering (Counts Eleven through Sixteen). Bernard was charged with one count of conspiracy to commit wire fraud (Count One), fours counts of wire fraud (Counts Two through Five), two counts of counterfeiting foreign securities (Counts Six and Seven), and one count of money laundering (Count Eleven). Graffia, Bernard and Binette were scheduled to stand trial beginning on April 1, 1996, with the tax return Counts severed from the trial. However, on that day, Binette became a fugitive. As a result, the district court issued a bench warrant for Binette's arrest and continued the trial until April 8, 1996.

On April 5, 1996, the district court severed Binette from Graffia's and Bernard's trial and dismissed Counts Five, Six and Seven of the superseding indictment as to Graffia and Bernard, all of which related to a scheme to defraud involving the printing and marketing of $11 billion of promissory notes that fraudulently purported to be guaranteed by the Mexican government. The court also struck all references to the fraudulent Mexican promissory notes in Counts One, Three and Four of the superseding indictment as to Graffia and Bernard.

On April 19, 1996, the jury returned guilty verdicts. Graffia was sentenced to 64 months' imprisonment and Bernard to 57 months' imprisonment.

The defendants make several challenges regarding the proceedings in the district court. First, they claim that the district court's April 5, 1996, order dismissing certain Counts of the superseding indictment and striking all references to a scheme to defraud involving the fraudulent Mexican promissory notes violated the Fifth Amendment because the narrowed charges were not resubmitted to the grand jury. Second, defendants assert that the district court improperly restricted the scope of their cross-examination of certain government witnesses. Finally, defendants contend that the district court erred in giving the jury an "ostrich instruction."

We affirm.

I.

The crimes of which Graffia and Bernard were convicted stemmed from three schemes to defraud that were carried out in 1990 and 1991. In the first two fraudulent schemes, the defendants used certain corporate shells-- American Credit Corporation ("ACC") and Union International Bank & Trust, Ltd. ("UIBT")--and promised Raymond Patrick and Gerald Green that they would obtain loans for them to finance certain real estate projects. Graffia and Bernard charged Patrick and Green fees ($480,000 and $125,000, respectively) to obtain these loans. After obtaining the fees, Graffia and Bernard did not provide the loans to Patrick and Green, nor did they return the fees.

In the first scheme, Patrick, who was in the construction business, had an opportunity to build a hotel and casino in Las Vegas, Nevada. He signed a lease agreement with United Gaming, Inc., pursuant to which he agreed to build the hotel and casino and lease it to a subsidiary of United Gaming. In order to fulfill his obligations under the lease, Patrick needed to obtain financing to build the hotel, which he estimated to be approximately $32 million. United Gaming agreed to give Patrick until 5:00 p.m. on August 24, 1990, to obtain the financing, and in exchange Patrick transferred his interest in the land that he had purchased to build the hotel to a subsidiary of United Gaming (which in turn gave him an option to repurchase if he got the financing in time).

Patrick, through a couple of people who acted as loan intermediaries, received two draft commitment letters from ACC for a loan. The second commitment letter proposed that ACC would lend $48 million, with a commitment fee of $480,000 payable directly to ACC upon issuance of the commitment. Notwithstanding an agreement between the parties that the $480,000 would be placed in escrow pending an endorsement from Dai-Ichi Bank, after the parties signed the commitment letter Bernard and Graffia insisted that the commitment fee not be placed in escrow. Both defendants told Patrick that ACC needed the $480,000 to purchase the endorsement from Dai-Ichi Bank. They gave Patrick the purported telephone number of the branch of Dai-Ichi Bank in Vancouver, Canada and told him to speak to Mr. Hazlewood, who was handling the endorsement. Hazlewood assured Patrick that the bank was ready to provide the endorsement once it received the $480,000 commitment fee. (Unknown to Patrick, Hazlewood was not affiliated in any way with Dai-Ichi Bank.) After much pressure from the defendants and following that phone call, Patrick paid the $480,000 directly to ACC. Patrick never received a binding endorsement from Dai-Ichi Bank nor did ACC fund the $48 million loan by 5:00 p.m. on August 24, 1990, as promised by Bernard and Graffia. What Patrick received on August 24 was a worthless letter purporting to be a valid bank endorsement issued by co-defendant Binette on behalf of UIBT. When Patrick attempted to contact Binette by telephone and facsimile using the numbers on the purported endorsement from UIBT, he received no answer. Finally, Patrick realized he had been defrauded, and he went to the FBI in September 1990.

The Green scheme involves a similar tale of fraudulent activity. Gerald Green is a movie producer who had plans to build a resort in Ixtapa, Mexico. In early 1990, Green began looking for $12.5 million in financing for the first phase of the project. Like Patrick, Green was put in touch with Graffia and Bernard through several intermediaries. After several meetings with the defendants and after receiving fraudulent financial information regarding ACC, Green entered into an agreement with ACC whereby ACC was obligated to fund a $12.5 million loan within ten working days of execution of the agreement and deposit of a commitment fee of $125,000 into a trust account. The agreement provided that the commitment fee would be placed in trust and that it would not be released from the trust account until Green received an endorsement by Dai-Ichi Bank. As in the Patrick transaction, Green was pressured by Graffia and Bernard to pay the $125,000 directly to ACC prior to receiving the endorsement. Like Patrick, Green was told that the fee was required in advance to pay Dai-Ichi Bank's fee for the endorsement. Green caved in to such pressure after he saw a letter that ...


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