The opinion of the court was delivered by: Blanche Manning, District Judge
Defendant Lloyd Baldwin was charged in a four-count indictment with devising, intending to devise, and participating in a scheme, from August 1993 to October 1995, to defraud Joseph Piscopo of $3 million dollars by means of false and fraudulent pretenses, representations, and promises transmitted by means of wires in interstate and foreign commerce from Chicago, Illinois to New York, New York (Count I) and from Zurich, Switzerland to Oakbrook, Illinois (Counts II, III, and IV), in violation of 18 U.S.C. § 1343 and 2.
On May 12, 2003, having been advised of his right to a jury trial and all related rights, Baldwin waived his right to a jury trial both orally and in writing. Upon the Government's consent to a bench trial and this Court's approval and finding that Federal Rule of Criminal Procedure 23(a) was complied with, this matter was tried before this Court without a jury.
Pursuant to Federal Rule of Criminal Procedure 23(c), after carefully observing the trial and reviewing the transcript and trial exhibits, the Court hereby enters the following written findings of fact and conclusions of law based upon consideration of all the admissible evidence as well as this Court's own assessment of the credibility of the trial witnesses. To the extent, if any, that findings of fact may be considered conclusions of law, they will be deemed conclusions of law. Similarly, to the extent that matters expressed as conclusions of law may be considered findings of fact, they will also be deemed findings of fact.
The victim in this case, Mr. Piscopo, who lives in Oak Brook, Illinois, first met Defendant Baldwin in the early 1970's at a computer software trade show. Piscopo was the owner and founder of Pansophic, a software company, while Baldwin was working as a representative for another software company. A few years later, in 1976, Piscopo hired Baldwin as an administrative vice-president at Pansophic, to handle personnel, accounting, and administrative matters. Piscopo testified that based on his dealings with Baldwin, he believed Baldwin was a "very honest" person. After two years, Baldwin left Pansophic on good terms, when his position was downsized.
After Baldwin left Pansophic, it grew into a successful company and in the early 1980's Piscopo sold his interest for $200 million. With the proceeds from the sale of his company, Piscopo became a venture capitalist, investing in start-up computer companies.
Although Baldwin had left Pansophic in 1978, he and Piscopo remained friendly and kept in touch over the years. In 1991, Baldwin asked Piscopo if he would be interested in an investment opportunity that Baldwin was then putting together. Piscopo, however, declined to invest in this venture.
In 1993, Baldwin again contacted Piscopo about an investment opportunity called a "prime bank funding program" ("the Program"). According to Baldwin, the Program involved making short-term loans to unnamed "large-scale" European banks to be kept by the banks as cash reserves. The banks would then be able to make loans for up to $100 for every $1 that they received in reserve. The funds received via the Program, however, would not be lent and would therefore be guaranteed because the money would be kept at the banks. Baldwin contended the Program offered a guaranteed return of 12% (for three weeks) to 36% (for 10 weeks) and that the principal would "never be at risk" because "they were never to leave the bank." Additionally, Baldwin offered a "personal guarantee." Baldwin told Piscopo that at the end of the investment period he could take out his money and that the profit would be "tax-free" because the proceeds would be paid into a trust account in the Cayman Islands. Baldwin stated that to invest in the Program, he needed to raise $40 million and that it was only "available to a select number of individuals."
Although he did not know the specifics of the Program, because of his faith in their 20 year friendship and his belief in Baldwin's honesty, Piscopo agreed to invest 1 million dollars for 9-10 weeks, which was guaranteed to earn him a 36% rate of return. Shortly thereafter, in August of 1993, Piscopo received a facsimile and a proposed joint-venture agreement ("the Agreement") from Floyd Reeves, who Piscopo had never met before. Baldwin told Piscopo that Reeves, who lived in California, was his partner in the Program. Subsequently, Piscopo and Reeves entered into the Agreement, which set out the details of the Program — e.g., principal invested, term, and rate of return. Pursuant to the Agreement, Piscopo had his bank in Chicago wire 1 million dollars to a Spanish Bank to an account in the name of Floyd Reeves.
During the period of Piscopo's investment (August 11 to October 14), Baldwin, who was in Spain and Switzerland, and Piscopo conversed via facsimile. Baldwin represented that the Program had earned Piscopo 40.04% instead of 36%, and therefore, he was looking at receiving $1,404 million. Instead of getting his money back, however, Piscopo agreed to "roll-over" the $1,404 million and to invest an additional 2 million dollars in the Program.
In making the additional 2 million dollar investment, Piscopo entered into a second joint-venture agreement ("the Second Agreement) with the Daric Corporation, a Cayman Island company, set up and controlled by Baldwin. The Second Agreement contained the same terms as the initial Agreement — ten weeks and a 36% rate of return on the 2 million dollars — and stated that the principal was guaranteed by a company call Equity Funding, which was another entity controlled by Baldwin. Subsequently, Piscopo had his bank in Chicago wire 2 million dollars to an off-shore European bank account owned by the Daric Corporation, which was then immediately wired to a bank account controlled by Baldwin in the Cayman Islands.
In January of 1994, near the end of the second investment period, Piscopo sent several faxes to Baldwin stating that he did not wish to reinvest his investment and wanted Baldwin to wire his principal ($3 million) and the return to his account with the Northern Trust Bank in Chicago. Unfortunately, Piscopo never received any of his investment (either the principal or the return). Instead, he was given the runaround by Baldwin for almost a year and a half, at which point Piscopo lost track of Baldwin in October 1995. Up until 1995, Baldwin, via faxes and telephone calls, promised that Piscopo's money was safe but that circumstances beyond his control prevented the return of the investment. These delays were allegedly caused by events such as bank holidays, deaths (such as the death of the fathers of an attorney and a trustee), and legal problems with the banks and accounts where the funds were allegedly being held. In the end, Piscopo never received any of his 3 million dollars let alone his guaranteed return.
The Government's expert witness, a professor of law with a speciality in commercial and financial fraud, after reviewing the documents and the Agreements, testified that the Program had many of the characteristics of a fraud known as a "prime investment scam."*fn1 A prime investment scam, like the Program, promises an extremely high rate of return in relation to the risk. The scheme promises that the principal investment is guaranteed because it is designated for reserves at a foreign bank. The professor stated that it is not possible for depositors to instruct banks to keep funds in reserve and that banks do not solicit short-term deposits from private investors to ensure that their reserves are at the required level. Instead, they get short-term loans from other banks and governments, i.e., the Federal Reserve. The professor also testified that persons who operate prime investment scams typically give the same excuses to the victims as to why they cannot return their investment, such as: the foreign banks are closed for holidays and that ...