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U.S. v. SEGAL

October 6, 2004.

U.S.
v.
MICHAEL SEGAL and NEAR NORTH INSURANCE BROKERAGE, INC.



The opinion of the court was delivered by: RUBEN CASTILLO, District Judge

MEMORANDUM OPINION AND ORDER

A jury found Defendant Michael Segal guilty of violating the Racketeer Influenced and Corrupt Organization Act ("RICO"), 18 U.S.C. §§ 1961-68. The jury also found that, pursuant to 18 U.S.C. §§ 1963(a)(1) and (3), Segal must forfeit $30 million in racketeering proceeds and interests and that, pursuant to 18 U.S.C. § 1963(a)(2), 60% of his interest in Near North Insurance Brokerage ("NNIB") or Near North National Group ("NNNG") (collectively "the enterprise") was criminally tainted and, therefore, subject to forfeiture. This Court then entered a Preliminary Forfeiture Order ("PFO") requiring Segal to forfeit his entire interest in the enterprise and $30 million in racketeering proceeds and interests.

Segal objects to the PFO. (R. 353-1, Def.'s Objections.) After reviewing Segal's numerous objections, we modify the PFO in the following way. We exclude the following seven companies from the enterprise: (1) North Son, Inc.; (2) International Film Guarantors; (3) Settlement Planning Associates; (4) Fine Arts Risk Management; (5) Near North National Exchange Company; (6) Prime Source Financial Corporation; and (7) Home Warranty of America, LLC. We otherwise affirm the PFO. We will enter a final forfeiture order once we complete all necessary ancillary third-party proceedings. ANALYSIS

  I. Forfeiture of Segal's Interest in the Enterprise

  Segal objects to the forfeiture of his entire interest in the enterprise. He claims that the PFO exceeds the jury's verdict and therefore violates the Fifth Amendment's due process and double jeopardy clauses and his Sixth Amendment right to a jury trial. He also claims that it violates the Eighth Amendment's prohibition on excessive fines. Before we can address his constitutional objections, we must determine whether, as Segal alleges, the jury found that 60% of his interest in the enterprise was subject to forfeiture.

  A. The Jury's Verdict

  The forfeiture verdict form had five questions. (R. 341, Forfeiture Verdict Form.) The first three questions addressed Segal's racketeering proceeds and interests, and the final two questions — (d) and (e) — addressed Segal's interest in the enterprise. (Id.) Question (d), seeking a yes or no answer, was:
We, the jury, find that MICHAEL SEGAL held an interest in, security of, claim against, or property affording a source of influence over an enterprise that defendant SEGAL operated, controlled, conducted, and participated in the conduct of, in violation of 18 U.S.C. § 1962(c).
(Id.) The jury answered "Yes." By statutory mandate, this answer subjects Segal's entire interest in the enterprise to forfeiture regardless of the extent to which the enterprise was tainted by criminal activity. RICO's enterprise forfeiture provision, 18 U.S.C. § 1963(a)(2), states that:

  Whoever violates any provision of section 1962 . . . shall forfeit to the United States . . . any — interest in; security of; claim against; or property or contractual right of any kind affording a source of influence over; any enterprise which the person has established, operated, controlled, conducted, or participated in the conduct of, in violation of section 1962. . . . 18 U.S.C. § 1963(a)(2) (emphasis added and internal numbering omitted).*fn1 The Eighth Amendment, as discussed below, is the only constitutional provision that can limit the application of RICO's enterprise forfeiture provision. See Busher, 817 F.2d at 1413; Sarbello, 985 F.2d at 724.

  Question (e), which was used over the Government's objection, is the source of this dispute over the meaning of the jury's verdict. It stated:
If the answer to subparagraph (d) above is "Yes," please write the percentage of defendant SEGAL's interest in NNIB or NNNG that were tainted by criminal activity in violation of 18 U.S.C. § 1962, and are, therefore, subject to forfeiture.
(R. 341, Forfeiture Verdict Form.) The final clause of this question, "and are, therefore, subject to forfeiture" is legally incorrect because, as stated above, RICO's enterprise forfeiture provision requires a defendant to forfeit his entire interest in the enterprise regardless of the extent to which the enterprise is tainted by criminal activity.*fn2 The parties have two distinct interpretations of question (e). Segal asserts that the jury found that 60% of his interest was subject to forfeiture, while the Government asserts that the jury advised the Court whether the application of RICO's enterprise forfeiture provision would violate the Eighth Amendment's prohibition on excessive fines. While we are hesitant to base such an important decision on the rules of grammar, our analysis must focus on the actual language of the forfeiture verdict form. In this Court's view, question (e) only asked the jury to "write the percentage of defendant SEGAL's interest in NNIB or NNNG that were tainted by criminal activity in violation of 18 U.S.C. § 1962. . . ." The final clause — "and, are therefore, subject to forfeiture" — did not ask the jury to find an additional fact. Instead it explained the result (according to our erroneous instruction) of the jury's criminal-taint finding. The inclusion of the word "therefore" and the comma between "18 U.S.C. § 1962" and the word "and" indicate that forfeiture is the immediate and direct consequence of the jury's criminal-taint finding. The question's structure limits it and the jury's factual finding to the percentage of Segal's interest that was criminally tainted. Accordingly, the jury simply found that 60% of Segal's interest in the enterprise was criminally tainted; it did not legally find that only 60% of Segal's interest in the enterprise was subject to forfeiture. Therefore, the jury's verdict does not limit the percentage of Segal's interest that is subject to forfeiture.*fn3 Segal posits that the jury's verdict, rather than being a "`pure' determination of fact," might represent a mixed question of fact and law. (R. 388, Def.'s Reply at 5.) We cannot speculate as to what the jury was thinking when it answered question (e) because we must assume that it followed this Court's instruction and answered the specific question on the forfeiture verdict form. See United States v. Bell, 980 F.2d 1095, 1098 (7th Cir. 1992). We acknowledge that question (e) could be loosely interpreted to have asked the jury to make a legal determination as to the percentage of Segal's interest that is subject to forfeiture. Yet the very first jury instruction provided:
You have two duties as a jury. Your first duty is to decide the facts from the evidence in the case. This is your job, and yours alone. Your second duty is to apply the law that I give you to the facts. You must follow these instructions, even if you disagree with them.
(R. 331, Jury Instructions at 2.) The jury is not empowered to decide legal questions, such as how much of Segal's interest in the enterprise is subject to forfeiture. More importantly, Congress answered this legal question when it enacted RICO by mandating that a racketeer forfeit his entire interest in the enterprise. We cannot accept a grammatically-incorrect interpretation that would undermine Congress's "express admonition that RICO is to `be liberally construed to effectuate its remedial purposes.'" Sedima, S.P.R.L. v. Imrex Co., Inc., 473 U.S. 479, 498 (quoting Pub.L. 91-452, § 904(a), 84 Stat. 947).

  We are also unpersuaded that this one inaccurate jury instruction (including the final clause of question (e)) automatically invalidates the jury's verdict. An inaccurate jury instruction is harmless unless it appears beyond a reasonable doubt that it contributed to the verdict. See Neder v. United States, 527 U.S. 1, 15-16 (1999). The jury's answer to question (d), which is unaffected by our instruction, requires the forfeiture of Segal's entire interest in the enterprise. We are convinced beyond a reasonable doubt that the jury's answer to question (d) was unaffected by our instruction. Because we must assume that the jury followed our instructions and answered the actual question on the verdict form, we are also convinced that the jury's answer to question (e) was unaffected by the one partially misleading instruction. Finally, Segal has not asserted that he was prejudiced, nor can we conceive of how he could have been prejudiced, by the inaccurate instruction. See United States v. Fiedeke, ___ F.3d ___ (7th Cir. 2004) (stating that problems with jury instructions will only disturb a criminal conviction if the defendant was prejudiced).

  B. Eighth Amendment Gross Disproportionality Analysis

  The Eighth Amendment prohibits this Court from imposing an excessive criminal forfeiture order. Alexander v. United States, 509 U.S. 544, 558-59 (1993). A criminal forfeiture order is unconstitutionally excessive if it is "grossly disproportionate to the gravity of the offense." United States v. Bajakajian, 524 U.S. 321, 334 (1998). Even though RICO's enterprise forfeiture provision mandates that a defendant forfeit his entire interest in the enterprise regardless of the percentage of the enterprise that was tainted by criminal activity, this Court has a "constitutional responsibility to [e]nsure that the forfeiture does not inflict excessive punishment." United States v. Vriner, 921 F.2d 710, 712 (7th Cir. 1991). Therefore, this Court must determine whether the application of RICO's forfeiture provision in this case violates the Eighth Amendment.*fn4 To determine the gravity of Segal's offense we consider: (1) the nature of his offense; (2) the circumstances surrounding it, including any other illegal activity; (3) the magnitude and type of harm it caused; (4) the defendant's motive; (5) the benefits he obtained; (6) the extent to which his interest is tainted by criminal activity; and (7) other available or relevant penalties.*fn5 See Towers v. City of Chi., 173 F.3d 619, 625 (7th Cir. 1999); Vriner, 921 F.2d at 713, n. 5 (citing Busher, 817 F.2d at 1415); Sarbello, 985 F.2d at 724. Segal was convicted of running a criminal enterprise: an exceedingly serious offense as evidenced by RICO's expansive forfeiture provision. See United States v. Ginsburg, 773 F.2d 798, 802 (7th Cir. 1985). The duration of the criminal enterprise and the number of predicate acts (fifteen) also indicate that his offense was serious. Segal's racketeering is indirectly connected to many additional crimes: insurance fraud, embezzlement, and tax fraud. In this way, Segal exemplifies the criminal for which the RICO statute was "principally designed." See Bajakajian, 524 U.S. at 338.

  Segal has repeatedly soft-pedaled the harm caused by his fraudulent scheme by asserting that it only created an unrealized risk of loss. (R. 353, Def.'s Objections at 10.) Yet the magnitude of this unrealized risk of loss counsels against treating it differently than an actual loss. Segal's punishment should not be mitigated because he was able to prevent the realization of a risk of loss that he deliberately created through fraud. Segal also asserts that he obtained no direct benefit and little indirect benefit from his offense. (Id.) The jury's verdict that he obtained $30 million in racketeering proceeds, and the trial evidence on which the verdict was based, directly contradicts this claim. It is beyond dispute that Segal continually reaped immense economic benefits from his fraudulent conduct. The evidence showed that Segal used special fiduciary funds as his personal, unlimited bank account.

  Segal's offense was exceedingly serious, so justice requires a serious punishment. He deliberately used money that others had entrusted to him to finance a criminal enterprise. He reaped significant personal benefits while simultaneously exposing others to substantial risks. Full forfeiture is a severe punishment, but it is a punishment that Congress decided was appropriate. See Bajakajian, 524 U.S. at 336 (stating that "judgments about the appropriate punishment for an offense belong in the first instance to ...


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