Petition for Writ of Certiorari — Grasso v. United States
Supreme Court brief2005
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Supreme Court of the “inited States
MICHAEL J. GRASSO, JR.,
Petitioner,
UNITED STATES OF AMERICA,
Respondent.
ON PETITION FOR WRIT OF CERTIORARI
TO THE UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Petition for Writ of Certiorari
With Appendix
Walter M. Phillips, Jr.
Counsel of Record
HOYLE, FICKLER,
HERSCHEL & MATHES
One South Broad ‘a
Suite 1500 REC
Philadelphia, Pennsylvania 19107
(215) 981-5700 | DEC 23 2008
tae OFFICE VF TRE CLERK
Counsel for Petitioner |_SUPREME COURT. US,
THE LEX GROUP ¢ 1108 East Main Street @ Suite 1400 Richmond, VA 23219
(804) 644-4419 @ (800) 856-4419 Fax: (804) 644-3660 ¢ www.thelexgroup.com
QUESTIONS PRESENTED
a Whether a defendant can be convicted of and
sentenced for money laundering under 18 USC. §
1956(a)(1)(A)(i) for reinvesting the proceeds of specified
unlawful activity, where the government's proof fails to
show that the money allegedly laundered represented the
proceeds, or net profits, from the unlawful activity as
opposed to gross receipts or revenue, showing instead that
they were merely ongoing business expenses.
2. Whether, in light of the this Court's decision
in Blakely v. Washington, 124 S. Ct. 2531 (2004), the
enhancement of a defendant's sentence based on the amount
of money laundered violated the defendant's Sixth
Amendment right to a jury trial where the jury did not have
to determine that the defendant had laundered the full
amounts charged in each count of the indictment in order to
find him guilty.
TABLE OF CONTENTS
PAGE
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CONSTITUTIONAL, STATUTORY, AN D
GUIDELINES PROVISIONS INVOLVED.............ccscesssesssseseeees 1
STATEMENT... siesiseslaiedipe sana elie hha diecnasaalbniociiaiiionpiianieasitiaibe 2
REASONS FOR GRANTING THE PETITION ............ecsceeeeeee 6
A. There Is A Split In The Circuits
Regarding The Interpretation Of The
Term “Proceeds” In The Money
TANI FING ni scscsnssicsnscvscicssesenseceesssstenee 7
B. The Court Of Appeals’ Decision
Incorrectly Interpreted The Term
“Proceeds” In The Money Laundering
IT cainiinecnicsniwssnbheriosacsinlicincnipalietiiaisanivipeansiel 9
C. The Question Presented Is Of
Recurring Importance .............0rcssserscsorseseresees 15
D. The Third Circuit Should Have
Considered The Impact Of This
Court’s Decision In Blakely v.
Washington On The Constitutionality
Of Mr. Grasso’s Money Laundering
I <aisiticenscitinsnsitensicoisiiaiiit pebitauieibbniviGaiis 18
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iv
TABLE OF AUTHORITIES
PAGE(S)
CASES:
Barnes v. Cohen,
FED FAG VOOD (36 Cp, TIO sicssisinsrveniniconesiscnsivninnetivens 12
Blakely v. Washington,
TABS. GE Fae Give tenistirrcninesiiieanomaniiu 6, 18
Griffith v. Kentucky,
SFO ID, FE IIE?) wresisscacsctaisinisncseiaasvaoecinasincnpeiniataie 18
Hughen v. United States,
DF TD GEE CI cccerctesisssconcnepsacicseslatigiiiccsaiipumeanmuiias 12
United States v. 122,942 Shares of Common Stock,
847 F. Sapp. 105 (N.D. TEL T9996) .ncccsescesccoscosesenesevsnsosese 11
United States v. Akintobi,
T5D BOG GE Ge Cie. TI) ecerjuorpevcnisiannisinsgcinivncsintineninth 9
United States v. Bockius,
SAB F Sk SI (GG. CA. ZO pce sinieteninennconisialineecabibonaveion 13
United States v. Cleveland,
Crim. A. No. 96-207, 1997 WL 837707
(ED. Lin. Amite, 20s, SOT) cccoesniaisicisanictedeptncsissitietinnnins 10-11
United States v. Edgmon,
952 F.2d 1206 (10th Cir. 1991).......c-cr.secsssereserosesenes soe
United States v. Grasso,
SB1 F.Sek 160 Cok Cie, BIDE) ecinscntsiionsinovcsinsitisanactitcnstieanenan 1
United States v. Haun,
90 F.3d 1096 (6th Cir. 1996)..scssssssssssssssesee
United States v. Hurley,
63 F.3d 1 (1st Cir. 1995) ccecsessssssssssssssssssseee
United States v. Iacaboni,
363 F.3d 1 (1st Cir.),
reh’g and reh’g en banc denied(1st Cir.),
cert denied, 125 S. Ct. 480 (2004)............004
United States v. LeBlanc,
24 F.3d 340 (1st Cir. 1994) ooo eeeeeeees
United States v. Lizza Indus.,
775 F.2d 492 (2d Cir. 1985) .vcccsscssscsesese
United States v. Masters,
924 F.2d 1362 (7th Cir. 1991)..............css000
United States v. Milicia,
769 F. Supp. 877 (E.D. Pa. 1991)............0
United States v. Scialabba,
282 F.3d 475 (7th Cir.),
reh’g and reh’g en banc denied (7th Cir.),
cert. denied, 537 U.S. 1071 (2002) ..rssssssss
United States v. Simmons,
154 F.3d 765 (8th Cir. 1998)... eee
United States v. Twelve Firearms,
16 F. Supp. 2d 738 (S.D. Tex. 1998), -
aff d without opinion,
2002 WL 31688616 (5th Cir. Oct. 28, 2002)
CONSTITUTIONAL PROVISION:
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STATUTES:
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Be a BR Ni vertissvhicisstnvinndiinisvaithbvciniadindlinansistiatiiaa 10
BAe UE Aart GF Bp evvicesviiinasslctibicasiiinessoelentsiinnscadnsiaiamibicaldciasiuises 1
RULE:
POU, Th. FA Fy Be ikivcnctertcrcccin sv cdeicniendisiaaaead 6, 18
GUIDELINES:
Ap tte pr 5.) SaaeRameenesennnpa ule Kens 2000S / nora isartan nteR aC y een 18
Ca BR EI a inevsvsssnscsennsinianintncguecncionsadulcnsiicppnnibeesenloass 18
OTHER AUTHORITIES:
132 Cong. Rec. H408-01 (Feb. 6, 1986) ........sssssssessssssssssecesnees 14
132 es Rec. $12221-01 (Sept. 10, 1986)..............ccccsecsessseees 15
Black's Law Dictionary GE UR, SII i directness 10
Brief for the United States in Opposition,
United States v. Iacaboni, 125 S. Ct. 480 (Nov. 8, 2004)
CO II) vines vscvissiniavisisnicostnriviaciliaallceesueabaddasnpiielanteds 7, 8, 16
John Berlau, Money Laundering and Mission Creep,
Insight on the News (Dec. 23, 2003) at
http:/ / www.insightmag.com/news/2004/01/06/
National/ Money.Laundering.And.Mission.Creep-
AE A stirinttinsacisnsinenerhinnenniiinbiniaticciaetiinietintinwntnins 17
Money Laundering Control Act of 1986,
PU LPOG, Fee BG NG, Fale eccesieccsspsotaceneonsennvmerineciionininnsii 16
Webster's Third New International Dictionary (1986)......... 10
No. 04-
In the Supreme Court of the United States
Michael J. Grasso, Jr.
Petitioner,
Vv.
United States of America,
Respondent.
On Petition for a Writ of Certiorari to the
United States Court of Appeals for the Third Circuit
PETITION FOR A WRIT OF CERTIORARI
OPINION BELOW
The opinion of the court of appeals (App. 1a-22a) is
reported at 381 F.3d 160.
JURISDICTION
The judgment of the court of appeals was entered on
August 23, 2004. App. la-22a. A petition for rehearing was
denied on September 21, 2004. Avp. 43a-44a). The
jurisdiction of this Court is invoked under 28 U.S.C. §
1254(1).
CONSTITUTIONAL, STATUTORY, AND
GUIDELINE PROVISIONS INVOLVED
The relevant constitutional, statutory and sentencing
guideline provisions are set forth in an appendix to the
petition. App. 45a-47a.
STATEMENT
After a jury trial in the United States District Court
for the Eastern District of Pennsylvania, petitioner Grasso
was convicted of 10 counts of mail fraud, 2 counts of wire
fraud and 482 counts of money laundering. App. 23a.
Using the money laundering sentencing guidelines, the
court sentenced Mr. Grasso to 97 months of imprisonment,
to be followed by 3 years supervised release, fined $150,000
and ordered to pay $761,126.39 in restitution.! App. 23a-43a.
The United States Court of Appeals for the Third Circuit
affirmed Mr. Grasso’s conviction and sentencing under the
money laundering guidelines but remanded the matter to
the district court to reconsider its order regarding restitution
and fine.
i. From early 1997 until late 1999, the period
charged in the fraud/money laundering indictment,
Michael Grasso ran MJG Advertising, a sole proprietorship,
from an office in Spring House, Pennsylvania. Its principal
but not sole business was to advertise, solicit and sell work-
at-home programs and mailing lists. Individuals who
purchased the programs after seeing them advertised in
national magazines or being solicited directly by Mr. Grasso
paid between $17.95 and $39, plus a $3 mailing fee,
depending on which program they purchased. The
programs had colorful names to differentiate them, such as
IMEX, Mesa, GSECO, Rynex, Hazel Peppergood, among
others. :
L Under a separate indictment, Mr. Grasso pled guilty to
obstruction of justice and forgery of a judge’s signature and was
sentenced to 15 months imprisonment (10 months to run concurrently
with the money laundering sentence and 5 months to run consecutively),
3 years of supervised release and a fine of $30,000.
The advertisements for these programs could be
found in publications such as The Star, Redbook and other
magazines sold at virtually every newsstand. The ads made
various pitches, one of the most common being: “Earn Up
To $3,000.00 Weekly Stuffing Envelopes [Or Stapling
Booklets] At Home.” Some of Mr. Grasso's solicitations
consisted of offering for sale nothing more than a booklet
listing companies which offered work that could be done at
home, along with a description of the work to be done or the
product to be produced.
Mr. Grasso was convicted on 10 counts of mail fraud
and 2 counts of wire fraud. It was the government's theory
at trial that the defendant's sales pitches were fraudulent,
because rather than being paid over $150,000 per year to
stuff envelopes or staple booklets, those who purchased the
stuffing envelope or stapling booklet program were instead
asked to participate in what amounted to a chain letter
scheme. That is, they were instructed to solicit other people
to purchase the exact same program they did for similar
amounts that would be split with Mr. Grasso.
Mr. Grasso was also convicted on 482 counts of
money laundering. The money laundering counts consisted
solely of Mr. Grasso paying his printing, postage,
advertising and stationery bills, a total of over $2.8 million.
Each count represented the payment of a separate bill. The
work and supplies covered by the bills had been completed
or delivered when Mr. Grasso paid the bills, and his method
of payment was with a credit card, a personal check or a
wire transfer from his bank account. Both the credit cards
and his bank account were in the name either of himself or
his business.
2. The federal money laundering statute provides,
in relevant part:
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 -
(A)(i) with the intent to promote the
carrying on of specified unlawful
activity; or * * *
(B) knowing that the transaction is
designed in whole or in part -
(i) to conceal or disguise the nature, the
location, the source, the ownership, or
the control of the proceeds of
specified unlawful activity .. . . [is
guilty of a crime].
18 U.S.C. § 1956(a)(1). The statute does not define the word
“proceeds”, i.e., whether gross receipts or net income.
3. The court of appeals affirmed Mr. Grasso’s
conviction for money laundering and his sentence under the
money laundering guidelines. The court characterized the
government's money laundering case as simply that Mr.
Grasso “paid for his business expenses with the receipts
from his sales.” App.6a.
Mr. Grasso contended that the term “proceeds” in
the money laundering statute means “profits” or “net
income,” arguing that the language of the statute, the
purpose of the statute, its congressional history and the Rule
of Lenity all support such an interpretation. Mr. Grasso also
relied on the Seventh Circuit's decision that “proceeds” in
the money laundering statute means net profits. United
States v. Scialabba, 282 F.3d 475 (7th Cir.), reh’g and reh’g en
banc denied (7th Cir.), cert. denied, 537 U.S. 1071 (2002).
Therefore, since the government offered no proof of his
business's profits, argued Mr. Grasso, his conviction on
money laundering should be reversed and he should k> re-
sentenced under the fraud guidelines based on his mail and
wire fraud convictions.
In holding that “proceeds” means “gross receipts”,
the Third Circuit discussed a number of points, none of
which resolved the issue. The court initially noted that the
statute does not define “proceeds”. App.13a. The court
said that several definitions in secondary sources undercut
Mr. Grasso’s interpretation, although acknowledging that
these definitions were “neither uniform nor dispositive.” Id.
The court then noted that judicial definitions of “proceeds”,
albeit under the RICO statute, are generally more expansive
than Mr. Grasso’s interpretation. App.13a-14a. The court
pointed out that the Seventh Circuit was alone in defining
“proceeds” under the money laundering statute as “profits”.
App.14a.
After finding no clear answer from the sources it
cited, the Third Circuit examined the money laundering
statute to discern the intended scope of the term proceeds.
App.l5a. The court did not find help in the statute’s
language, but it nevertheless attacked the Seventh Circuit's
interpretation of the statute. The court first characterized
the Seventh Circuit’s opinion as reasoning “that proceeds
must be limited to net profits because money laundering is
about concealment and only profits need be concealed.”
App.15a-16a. The Third Circuit found that the money
laundering statute makes both concealment and promotion
illegal, and therefore proceeds must be something more
than profits; yet it offered little rationale for reaching this
conclusion. App.16a.
The court also never addressed the Rule of Lenity,
which requires that ambiguities in criminal statutes be
interpreted in favor of the defendant and which played an
important part in the Seventh Circuit reaching the decision
it did in Scialabba.
After oral argument in the Third Circuit and before
the panel filed its opinion, this Court rendered its decision
in Blakely v. Washington. Mr. Grasso submitted a letter
pursuant to Rule 28(j) of the Federal Rules of Appellate
Procedure, informing the panel of the impact of Blakely on
his case, contending that his money laundering sentence
was unconstitutional because he received an 18 level
increase based on the $2.8 million allegedly laundered, ¢ '».
not necessarily found by the jury. The court did not address
the Blakely issue in its opinion.
Mr. Grasso petitioned for rehearing and rehearing en
banc, both of which were denied. App. 43a-44a.
REASONS FOR GRANTING THE PETITION
There is an irreconcilable split in the circuits
regarding the interpretation of the term “proceeds” in the
money laundering statute. The Seventh Circuit has held
that “proceeds” means “net income” or “profits”, while the
First and now the Third Circuit have held that “proceeds”
means “gross receipts.” United States v. Scialabba, 282 F.3d
475 (7th Cir.), reh’g and reh’g en banc denied (7th Cir.), cert.
denied, 537 U.S. 1071 (2002); United States v. Iacaboni, 363 F.3d
1 (1st Cir.), reh’g and reh’g en banc denied (1st Cir.), cert denied,
125 S. Ct. 480 (2004). In a recent filing in this Court, the
government acknowledged that this conflict “raises an issue
of recurring importance that warrants the Court's review in
an appropriate case.” Brief for the United States in
Opposition at 11, United States v. lacaboni, 125 S. Ct. 480
(Nov. 8, 2004) (No. 04-183).2 The government even
suggested in its brief that Mr. Grasso’s case is an
appropriate case for review. Id. at 11-14.
A. There Is A Split In The Circuits Regarding The
Interpretation Of The Term “Proceeds” In The
Money Laundering Statute
The Seventh Circuit in United States v. Scialabba, 282
F.3d 475 (7th Cir. 2002), reh'g and reh'g en banc denied (7th
Cir.), cert. denied, 537 U.S. 1071 (2002), held that a defendant
cannot be convicted of money laundering unless the
government proves that the proceeds in question
represented net income, as opposed to gross receipts, of the
underlying unlawful activity engaged in by the defendant.
In Scialabba, the defendants were charged with illegal
_ gambling through the use of video poker machines which
they placed in bars and restaurants, and with money
laundering on the ground that they shared with the bar
owners the take from the machines, using their share to
meet expenses in operating, fixing and replacing the
machines when necessary. The Seventh Circuit, in an
opinion by Judge Frank Easterbrook, threw out the money
laundering convictions on the ground that the government
failed to show that the money the defendants were charged
with laundering represented net income, as opposed to
gross receipts. The court held that without a specific
definition in the statute of the word “proceeds”, “at least
when the crime entails voluntary, business-like operations,
‘proceeds’ must be net income; otherwise the predicate
crime merges into money laundering (for no business can be
- This brief is available on the Solicitor General’s web site.
http:/ / www.usdoj.gov/osg/ briefs /2004/Oresponses/2004-0183.resp. pdf.
carried on without expenses) and the word ‘proceeds’ loses
operational significance.” 282 F.3d at 475.
The Seventh Circuit concluded that Congress had to
have intended “proceeds” to mean net profits or net income,
since money laundering is a distinct and separate crime
from the underlying specified unlawful activity, and if
“proceeds” is to be read as gross income or gross receipts,
there would be an overlapping of criminal statutes, thereby
raising the issue of whether a person can be convicted of
multiple offenses when different statutes are violated by the
same conduct. 282 F.3d at 477. This overlapping can be
avoided by reading “proceeds” to mean net profits realized
from the underlying activity. Id. The court analogized
money laundering to a congressional levy of a tax on the
“proceeds” of a casino, pointing out that the common
understanding of such a tax would be that it would be on
the net profits of the business, not on the total amount that
was wagered at the casino. Id. Similarly, money laundering
was designed by Congress to punish wrongdoing separate
and apart from the underlying transaction, that is, on the
_ reinvestment in legitimate businesses in order to launder or
whitewash the illicit funds. If the focus is entirely on the
disposition of gross revenues, as it was in Scialabba and was
here, it loses sight of the purpose for which the money
laundering statute was passed by Congress.
In United States v. lacaboni, 363 F.3d 1 (1st Cir. 2004),
cert. denied, 125 S. Ct. 480 (2004), the First Circuit concluded
that “proceeds” in the money laundering statute means
gross receipts, relying solely on its interpretation of
“proceeds” under the RICO statute. Id. at 4 (citing United
States v. Hurley, 63 F.3d 1, 21 (1st Cir. 1995). lacaboni was a
forfeiture case and did not involve a term of imprisonment.3
B. The Court Of Appeals’ Decision Incorrectly
Interpreted The Term “Proceeds” In The Money
Laundering Statute
The government here, completely contrary to what
Congress intended when it passed the current money
laundering statute, turned a garden variety fraud case with
no hint of organized crime involvement into a 482 count
money laundering case. It is undisputed that the
government made no effort to prove that the money Mr.
Grasso was charged with laundering represented the profits
of his work-at-home schemes. Each of the money laundering
counts charged Mr. Grasso with paying bills for the
purchase of envelopes, for printing and for advertising. Mr.
Grasso paid these bills with checks, credit cards or wire
transfers in his or his business’s name. While the payments
were made during the course of the fraudulent scheme as
charged in the indictment, that is, from early 1997 through
late 1999, the government never presented any evidence that
the payments came from the net profits of the fraudulent
scheme as opposed to the gross receipts realized by that
scheme, and this is where the government ran afoul of
congressional intent and the plain meaning of the word
“proceeds.” As a result, Mr. Grasso should not have been
sentenced for money laundering, and the judgment of
conviction for money laundering should be set aside, as
should the forfeiture of $2.8 million.
3 The decisions of other circuits, which are sometimes cited as
resolving the definition of “proceeds”, are not on point. The Sixth
Circuit’s decision in United States v. Haun, 90 F.3d 1096, 1101 (6th Cir.
1996) involved the narrow issue whether a stolen check could constitute
proceeds. The Ninth Circuit's decision in United States v. Akintobi, 159
F.3d 401, 403 (9th Cir. 1998), addressed whether the money laundering
statute was unconstitutionally void for vagueness. Neither court was
asked to decide whether proceeds should be net or gross.
10
The money laundering statute under which Mr.
Grasso was charged and convicted provides, in relevant
part:
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 -- with the intent to promote the
carrying on of specified unlawful activity ....
[is guilty of a crime].
18 U.S.C. § 1956(a)(1)(A)(i). Conspicuously missing from
the statute is any definition of the word “proceeds”, i.e.,
whether it means gross receipts or net income. The plain
and ordinary meaning of “proceeds” found in English
dictionaries, intended by Congress and as interpreted by
federal courts, we submit, is net income or profits.
Many secondary sources define “proceeds” as profits
or net income. Webster's Third New Dictionary includes
two definitions of proceeds as the net amount received after
expenses -- “net profit made on something” and “the net
sum received (as for a check, a negotiable note, and an
insurance policy) after deduction of any discount or
charges.” Webster's Third New International Dictionary
1807 (1986). Black's Law Dictionary also defines “proceeds”
as a net return -- “the funds received from the disposition of
assets or from the issue of securities (after deduction of all
costs and fees).” Black's Law Dictionary 1204 (6th ed. 1990).
Defining proceeds to mean net rather than gross
income is also consistent with the decisions of other courts
addressing this issue, albeit in other contexts. See United
States v. Cleveland, Crim. A. No. 96-207, 1997 WL 837707, at
11
*7 (E.D. La. Aug. 26, 1997) (“net proceeds, not gross
proceeds ... are the relevant figure for forfeiture....”); United
States v. 122,942 Shares of Common Stock, 847 F. Supp. 105, 107
(N.D. Ill. 1994) (proceeds are the net revenues or profits
under the forfeiture statute); United States v. Milicia, 769 F.
Supp. 877, 889 (E.D. Pa. 1991) (finding “proceeds,” under
forfeiture statute, means revenue from illegal drug sales
minus the direct costs of purchasing the prescription drugs).
The Third Circuit's reliance on the generally more expansive
definition given to “proceeds” in the RICO forfeiture context
is misplaced, because RICO is a separate statute which
Congress instructed must be construed broadly.*
Congress has defined “proceeds” as a form of profits
in other statutes. For example, the civil forfeiture statute,
which was not addressed by the panel, breaks the term
“proceeds” into either “gross” or “net” depending on the
underlying crime. 18 U.S.C. § 981(a)(2)(A). Under that
statute, if the crime involved an illegal good, such as
narcotics, any property obtained as a result of the offense
can be forfeited and it “is not limited to the net gain or profit
realized from the offense.” 18 U.S.C. § 981(a)(2)(A). On the
other hand, if the crime involved a lawful good sold in an
illegal manner, proceeds then means the amount of money
acquired minus the direct costs of providing the good, i.e.,
4 Several of the courts cited - the Second Circuit, Seventh Circuit
and a lower court in the Third Circuit - have defined “proceeds” as some
form of profits. United States v. Masters, 924 F.2d 1362, 1369-70 (7th Cir.
1991); United States v. Lizza Indus., 775 F.2d 492, 497-99 (2d Cir. 1985);
United States v. Milicia, 769 F. Supp. 877, 888 (E.D. Pa. 1991). The
remaining RICO cases cited rely on the unique legislative history of the
RICO statute indicating that Congress used the term “proceeds” in that
statute to mean something other than net profits. E.g., United States v.
Simmons, 154 F.3d 765, 770-71 (8th Cir. 1998). These cases address the
RICO forfeiture provision which Congress intended to be a broad and
expansive remedy for the activities of organized crime. See id. (Congress
specifically instructed that this statute must be liberally construed). Such
an expansive reading, however, is not warranted where a person’s liberty
is at stake.
12
the net gain or profit. 18 U.S.C. § 981(a)(2)(B). Here, the
product Mr. Grasso was selling is not contraband and hence
would come under the second civil forfeiture provision,
making the manner in which Mr. Grasso conducted his
business illegal, not the product he sold.
While the Third Circuit acknowledged that there
exist conflicting interpretations of proceeds, the court did
not address the Rule of Lenity. The conflicting definitions
and caselaw clearly indicate that the term “proceeds” is
ambiguous and must, according to the Rule of Lenity, be
read as “net income” or “profits” -- the narrower definition
of “proceeds” under the money laundering statute. Under
the Rule of Lenity, any ambiguity must be construed against
the government and in favor of a defendant in a criminal
case. Hughen v. United States, 495 U.S. 411, 422 (1990) (lenity
principles “demand resolution of ambiguities in criminal
statutes in favor of the defendant.”); see also Barnes v. Cohen,
749 F.2d 1009, 1014 (3d Cir. 1984) (split in authority suggests
that reasonable people can disagree as to the interpretation
of a statute); United States v. Twelve Firearms, 16 F. Supp. 2d
738, 740 (S.D. Tex. 1998) (finding statute ambiguous where
there are conflicting interpretations by the courts), affd
without opinion, 2002 WL 31688616 (5th Cir. Oct. 28, 2002).
The Rule of Lenity played a role in the court's decision and
rationale in Scialabba. As Judge Frank Easterbrook pointed
out when he said that had Congress intended gross
proceeds to be the subject of money laundering, “it would
have been easy enough to write’ ‘receipts’ in lieu of
‘proceeds’ in § 1956(a)(1), and the Rule of Lenity counsels
against transmuting the latter into the former and catching
people by surprise in the process.” 282 F.3d at 477.
An interpretation of “proceeds” as “profits” is also
supported by the congressional record. When Congress
passed § 1956 as part of the Money Laundering Control Act
of 1986, Pub. L. No. 99-50, 100 Stat. 3207, it did so “to fill the
13
gap in the criminal law with respect to the post-crime hiding
of ill-gotten gains.” United States v. Bockius, 228 F.3d 305, 310
(3d Cir. 2000) (quoting United States v. LeBlanc, 24 F.3d 340,
346 (1st Cir. 1994)) (emphasis added).
The congressional record is quite clear that
Congress’s intent in passing the money laundering statute
was to address the conduct, particularly engaged in by
organized crime, of transforming illegal profits into
legitimate income, which is the very essence of money
laundering. Throughout the money laundering debate in
Congress, the record is replete with references to “profits”
generated by illicit activity, and it is clear that what
Congress meant in addressing the issue was net profits from
organized criminal activity finding its way into a legitimate
business. Gross receipts cannot make that transformation
unless and until the costs of the illicit activity in question
have been taken care of and do not exceed the gross
proceeds or revenues. Otherwise, there would be nothing to
invest, or spend, to promote further unlawful activity.
Following is a sample of some of the comments made by the
members of Congress during the debate:
Gangsters and drug traffickers have
demonstrated the importance they attach to
money laundering by making it so pervasive
and sophisticated that it has become a threat
to the reputation of America's banking
system. True, launderers do resort to casinos
and other vehicles to hide their illegal profits.
But they do not hesitate to employ local
banks, banks with international customers,
brokerage houses, and indeed America's
financial networks.
14
The crime chieftains are using a variety of
techniques and a variety of locations to inject
their profits into the American financial
system.
132 Cong. Rec. H408-01 (Feb. 6, 1986) (Statement of Rep.
Lundgren).
Simply, [money laundering] is a process by
which criminals can take their illegal profits
and give them the appearance of being
earned legitimately.
132 Cong. Rec. H408-01 (Feb. 6, 1986) (Statement of
Representative Meyers).
Eliminating money laundering, therefore,
would help to take profit out of the crime...
. [AJ]n attack on money laundering is an
attack on the profit of drug trafficking and
other organized crimes.
132 Cong. Rec. H408-01 (Feb. 6, 1986) (Statement of
Representative Fish). Finally, Senator Trible, while
commenting on international money laundering, remarked
that the money laundering statute was focused on
transactions involving the profits of an illegal enterprise:
The methods by which drug runners conceal
their illicit profits and reinvest them in the
drug trade are a vital part of the overall drug
problem. The Senate recognized this reality
when it voted 98-0 recently for a bill making
willful laundering of profits from criminal
enterprises a federal offense.
15
132 Cong. Rec. S12221-01 (Sept. 10, 1986) (statements of Sen.
Trible).
When drafting the money laundering statute,
Congress intended to create a distinct offense with s»arate
penalties, and not simply to increase the penalties for
existing crimes. United States v. Edgmon, 952 F.2d 1206, 1213-
14 (10th Cir. 1991). Thus, money laundering requires
conduct different from that which constitutes the
underlying crime, such as the concealment of the nature or
source of the profits from that crime. The government's case
against Mr. Grasso was that he paid the bills of his business
with the receipts from his business. This is not conduct
distinct from the mail fraud scheme, because any scheme to
defraud lasting more than a few days will undoubtedly
involve the payment of expenses. Thus, Mr. Grasso’s
payment of his printing, advertising and envelope bills was
nothing more than a part of the scheme to defraud, and not
money laundering.
If “proceeds” is interpreted to mean “gross receipts,”
then every crime with ongoing expenses will necessarily be
a money laundering case, and Congress surely did not
intend that money laundering occurs every time a bill is
paid. The primary evil the statute sought to address is the
reinvesting of the profits of crime into a legitimate
enterprise, thereby laundering or cleansing those profits; or
back into a criminal enterprise to grow that enterprise, not
just to pay its outstanding bills. By reading “proceeds” to
mean “profits”, Congress's intent is fulfilled.
C. The Question Presented Is Of Recurring
Importance
The interpretation of “proceeds” in the money
laundering statute presents a question of recurring
importance. This is now the third case to arrive at this
16
Court in the past two years; the Court denied the petitions
for certiorari in Scialabba and Iacabont.
The government has previously indicated that this is
an issue of recurring importance and has noted that Mr.
Grasso’s case is an appropriate case for review. In its prior
submissions to this Court, the government said that the
conflict over the definition of “proceeds” warrants the
Court’s review in an appropriate case. The government
sought review in Scialabba. In Iacaboni, the government
suggested that Mr. Grasso’s case is appropriate for review
because, unlike Iacaboni, this case involves both a money
laundering conviction with a substantial prison sentence
and there is a thorough discussion of the issue in the court
below. Brief for the United States in Opposition at 11-14,
United States v. Iacaboni, 125 S. Ct. 480 (Nov. 8, 2004) (No. 04-
183).
The broad interpretation of the term “proceeds”
permits prosecutors to expand the reach of the moncy
laundering statute far beyond its original purpose.
Prosecutors have sought to broaden the statute’s reach
because money laundering sentences are traditionally much
more severe than sentences imposed for the underlying
crimes. Thus, prosecutors are motivated to turn virtually
every fraud case into a money laundering case. The
expansion of the money laundering statute has long
troubled criminal practitioners. For example, Edwin Meese,
the Attorney General when Ronald Reagan signed the
Money Laundering Control Act of 1986, has said:
I think there have been instances in which
money-laundering laws have been used in
circumstances that are considerably different
from the original intent of the law. When
money-laundering statutes are used simply
to pile on charges where major financial
aa a la hse iui a i at aa 2 ig LON watts ae ge eer
17
manipulation was not the intent nor was it
related to syndicated crime, then I think the
statutes would be misused.
John Berlau, Money Laundering and Missio.. Creep, Insight on
the News (Lec. ys iM 2003), at
http:/ / www. insightmag.com/news/2004/01/06/ National
/Money.Laundering.And.Mission.Creep-578104.shtml.
It is quite apparent, when one examines the
applicable guidelines for both money laundering and fraud,
why the government chose to indict Mr. Grasso on 482
counts of money laundering rather than on the same
number of mail fraud counts, which it clearly could have
done given the number of mailings involved in his scheme.
The 1998 sentencing guidelines, on the facts of this case,
called for a guideline range of 97 to 121 months for money
laundering versus 51 to 63 months for fraud. A comparison
of two other work-at-home criminal cases that were brought
in the same district where Mr. Grasso was prosecuted
highlights the disparity. In United States v. Reutt, Crim. A.
No. 00-476 (E.D. Pa.), the defendant, Hans Reutt, received a
two-year prison sentence for engaging in exactly the same
type of scheme, ie., selling work-at-home programs,
although on a somewhat less grand scale than Mr. Grasso.
Michael Frumin in United States v. Frumin, Crim. A. No. 00-
619 (E.D. Pa.), also received a two-year sentence, despite the
fact that his scheme spanned three years, that it defrauded
people of some $1.5 million, and that he continued to
engage in his scheme after he was indicted. Neither Reutt
nor Frumin were charged with money laundering, even
though their schemes were identical in every way to Mr.
Grasso’s. The sentencing guidelines were designed to
ensure uniformity in sentencing, but when the government
turns a fraud case into a money laundering case in one
instance, but elects not to in two others, uniformity in
sentencing becomes illusory.
18
D. The Third Circuit Should Have Considered The
Impact Of This Court’s Decision In Blakely v.
Washington On The Constitutionality Of Mr.
Grasso’s Money Laundering Sentence
After oral argument before the Third Circuit, this
Court decided Blakely v. Washington, 124 S. Ct. 2531 (2004),
which cast serious doubt on the continued viability of the
federal sentencing guidelines. Pursuant to Rule 28(j) of the
Federal Rules of Appellate Procedure, Mr. Grasso submitted
a letter to the Third Circuit alerting the panel to Blakely and
its impact on Mr. Grasso’s appeal. The Third Circuit did not
address the Blakely issue in either its opinion or the denial of
Mr. Grasso’s petition for rehearing.5
In Blakely, this Court struck down the Washington
state sentencing guidelines because they allowed a
defendant's sentence to be enhanced by factors not found by
the jury. This Court heard argument in two cases, United
States v. Booker, No. 04-104, and United States v. Fanfan, No.
04-105, to address the effect of Blakely on the federal
sentencing guidelines, and the cases are pending.
Mr. Grasso’s 97 month sentence for money
laundering violates Blakely because it was based on facts not
necessarily or clearly found by the jury. Mr. Grasso’s
offense level was increased 18 levels based on the amount of
money he allegedly laundered while paying for stamps,
envelopes, printing and advertising in the ordinary course
of his business. U.S. Sentencing Guidelines Manual §§
2B1.1(b)(1), 2S1.1(a)(2) (2001). The jury was not asked to and
did not have to make findings as to the amount of money
laundered in order to find Mr. Grasso guilty of the charges,
5 The rule in Blakely and this Court’s decision in Booker/Fanfan
would apply retroactively to Mr. Grasso’s case, which is pending on
direct appeal. Griffith v. Kentucky, 479 U.S. 314 (1987).
19
because it was charged that it need not find that the total
amount alleged in each count of the indictment was
laundered in order to find the defendant guilty, but only
“that at least part of the property represents such proceeds.”
In using the $2.8 million figure to enhance Mr. Grasso’s
sentence from a level 12 to a level 30, the district court made
a factual finding, namely that Mr. Grasso had laundered the
total amount of $2.8 million charged in the indictment. Yet
the jury, per the court’s charge, did not have to find, and
may well not have found, that this amount was in fact
laundered by Mr. Grasso. Accordingly, under the rationale
of Blakely, the district court denied Mr. Grasso his Sixth
Amendment right to a trial by jury. U.S. Const. Amend VI.
CONCLUSION
The petition for a writ of certiorari should be
granted.
Respectfully submitted,
/s/ Walter M. Phillips, Jr.
Walter M. Phillips, Jr.
Counsel of Record
HOYLE, FICKLER,
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TABLE OF CONTENTS
PAGE
Opinion of
The United States Court of Appeals
for the Third Circuit
Re: Affirming Conviction and Sentencing
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Re: Denying Defendant's Motion and Sentence
entered January 15, 2008 ............c.csccsssssssssesssserersssesers 35a
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PRECEDENTIAL
UNITED STATES
COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 03-1441 / 03-1442
UNITED STATES OF AMERICA
v.
MICHAEL J. GRASSO, JR.,
Appellant
On Appeal from the
United States District Court
for the Eastern District of Pennsylvania
D.C. Criminal Action Nos.
00-cr-00051-1/01-cr-00783-1
(Honorable Berle M. Schiller)
Argued December 12, 2003
Before: AMBRO, FUENTES
and GARTH, Circuit Judges
(Opinion filed August 23, 2004)
[ENTERED: August 23, 2004]
ee
2a
Walter M. Phillips, Jr., Esq. (Argued)
Kevin J. Kotch, Esq.
Hoyle, Fickler, Herschel & Mathes
One South Broad, Suite 1500
Philadelphia, PA 19107
Attorneys for Appellant
Patrick L. Meehan
United States Attorney
Laurie Magid
Deputy United States Attorney
for Policy and Appeals
‘Robert A. Zauzmer
Assistant United States Attorney
Senior Appellate Counsel
Anne Whatley Chain (Argued)
Assistant United States Attorney
Peter F. Schenck, Esq.
Office of United States Attorney
615 Chestnut Street, Suite 1250
Philadelphia, PA 19106
Attorneys for Appellee
OPINION OF THE COURT
AMBRO, Circuit Judge
Michael J. Grasso appeals his conviction and
sentence for money laundering. He argues that the term
"proceeds" in the money laundering statute, 18 U.S.C. §
1956, encompasses only the net profits, and not the gross
receipts, of criminal activity. This proposed statutory
construction is incompatible with the text of the statute as
well as existing case law in our Circuit. We therefore affirm
3a
Grasso's conviction. However, we do remand for the District
Court to reconsider its restitution award.
I. Factual and Procedural History
Grasso sold various fraudulent work-at-home
schemes from early 1997 until late 1999. The programs,
which were advertised in national magazines, purported to
enable purchasers to earn substantial payments for at-home
work, with profits to be divided between the participants
and Grasso. In reality, the programs simply instructed
purchasers to solicit new customers who would purchase
the same programs for similar amounts.!
In February 2000, Grasso was indicted for mail
fraud, wire fraud, and money laundering, in Criminal No.
00-51. The money laundering counts charged that he
funded his ongoing criminal activity with the proceeds of
his fraudulent schemes. Grasso allegedly reinvested the
proceeds of his criminal activity to cover advertising,
printing, and mailing expenses. Nine months later, a
superseding indictment was filed, which added a count for
obstruction of justice based on Grasso's attempt to access
frozen funds and slightly modified the money laundering
charges.? In December 2002, Grasso was indicted yet again,
for forgery and obstruction of justice, in Criminal No. 01-
783.3 In February 2002 the District Court severed the
1 In addition to fraudulently promoting work-at-home
employment schemes, Grasso allegedly sold mailing lists and engaged in
other illegal activity. He contests many of the representations made by the
Government. Because these factual matters do not affect our resolution of
the issues on appeal, we do not discuss them.
2 The original indictment contained 508 counts alleging money
laundering, whereas the superseding indictment included 482 counts.
3 The indictment charged that Grasso forged the signatures of a
district judge and a deputy clerk in conjunction with fictitious letters
directing various financial institutions to release his frozen funds.
4a
obstruction of justice count in the superseding indictment in
Criminal No. 00-51, which involved Grasso's first attempt to
obtain frozen funds, and consolidated that count with the
proceeding in Criminal No. 01-783.
Trial on the superseding indictment took place in
February 2002. At the close of the Government's case,
Grasso moved orally for judgment of acquittal on the mail
ad wire fraud counts, as well as four of the money
laundering counts. The motion was denied, and thereafter a
jury convicted Grasso on all charges.* He subsequently pled
guilty to the obstruction of justice count originally filed in
Criminal No. 00-51, and the cases were consolidated for
sentencing.
Payment of defense counsel fees was a recurring
issue during the criminal proceedings. In March 2000,
Grasso filed a motion to release funds from his frozen
accounts to pay defense counsel fees and expenses, and the
motion was denied. The case was assigned to another judge
in March 2001, and in December 2001 that judge ordered
the release of $200,000 toward these expenses. In March
2002, defense counsel sought the release of additional funds
from frozen accounts for payment of counsel fees. As a
result, Grasso was ordered to provide documentation
related to one of the non-frozen accounts, and the Probation
Office examined his income and assets. The subsequent
investigation of his accounts revealed that he had deposited
more than $800,000 into his non-frozen accounts after the
entry of a preliminary injunction in i 999, which was
intended to protect his assets for distribution to victims.
Prior to sentencing, Grasso objected to the
Government's proposed sentencing order on various
grounds. He moved for a downward departure and
4 Two money laundering counts were dismissed during the course
of the trial.
5a
submitted a memorandum in support of a "renewed"
motion for judgment of acquittal on the money laundering
counts, relying on the Seventh Circuit's recent decision in
United States v. Scialabba, 282 F.3d 475 (7th Cir.), cert, denied,
537 U.S. 1071 (2002). Although Grasso suggested in the
memorandum that he had submitted an earlier motion for
acquittal on all money laundering counts, that motion
challenged the sufficiency of the evidence as to Counts 444
through 447 only, and for factually specific reasons.
The District Court sentenced Grasso for the fraud
and money laundering convictions to 97 months
incarceration, three years supervised release, a fine of
$150,000, restitution in the amount of $761,126.39, and a
special assessment of $49,500. The Court made no findings
in support of its award of restitution. In addition, for the
obstruction of justice plea, Grasso received 15 months
imprisonment (five months of which would run
consecutively to the first sentence), a fine of $30,000, and a
$300 special assessment. The restitution, fines, and special
assessments, as well as $100,000 in counsel fees, were to be
paid from the frozen funds. Grasso appeals.5
II. Discussion
We address two principal issues. First, did the
Government need to establish that Grasso's money
laundering transactions were conducted with the net
profits, as opposed to gross receipts, of his illegal activity?
Second, did the District Court err by failing to specify in its
order of restitution the manner and schedule of payment?
5 The District Court exercised jurisdiction over this case pursuant
to 18 U.S.C. § 3231. We have appellate jurisdiction under 18 U.S.C. § 3742
and 28 U.S.C. § 1291.
6a
A. Money Laundering Convictions and Sentence
Grasso alleges that the Government transformed a
"garden variety fraud case with no hint of organized crime
involvement into a 482 count money laundering case."
Grasso's conviction for money laundering was based on his
"reinvestment of proceeds" for the purchase of
advertisements, telephone services, printing, envelopes,
and other materials in furtherance of his fraudulent activity
by means of wire transfer, checks, and credit cards. Simply
put, Grasso paid for his business expenses with the receipts
from his sales.6 The relevant sta’ste, 18 U.S.C. § 1956,
provides:
(a)(1) 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 —
(A)(i) with the intent to promote the carrying
on of specified unlawful activity; or
(ii) with intent to engage in conduct
constituting a violation of section 7201 or
7206 of the Internal Revenue Code of 1986; or
(B) knowing that the transaction is designed
in whole or in part—
6 Grasso argues that the payments were made for past purchases.
The Government disputes this claim as a factual matter. We have held, in
any case, that it is possible to "promote" unlawful activity, within the
meaning of the money laundering statute, even if it has already been
completed. United States v. Paramo, 998 F.2d 1212, 1218 (3d Cir. 1993).
7a
(i) to conceal or disguise the nature, the
location, the source, the ownership, or the
control of the proceeds of specified unlawful
activity; or
(ii) to avoid a_ transaction reporting
requirement under State or Federal law,
[commits a felony].
The statute does not define "proceeds." Grasso contends that
the term should be understood—as a matter of textual
interpretation, congressional intent, and policy—to mean
"net profits." The Government, by contrast, urges us to
adopt a broader definition encompassing all gross receipts
of illegal activity.
1. Standard of Review
Grasso has framed the question presented in his
appeal as "[w]hether a defendant can be convicted of and
sentenced for money laundering under 18 USC. §
1956(a)(1)(A)(i) for reinvesting the proceeds of specified
unlawful activity, where the government's proof fails to
show that the money allegedly laundered represented the
proceeds, or net profits, from the unlawful activity as
opposed to gross receipts or revenue." At its core, Grasso's
appeal challenges the sufficiency of the evidence upon
which he was convicted.” In other words, "[h]e contends
that, as a matter of law, the facts do not support the
conclusion that money laundering occurred." United States v.
Morelli, 169 F.3d 798, 802 (3d Cir. 1999) (classifying as a
"sufficiency of the evidence" argument the defendant's claim
that his conviction for money laundering was premised ona
7 It is undisputed that the Government presented no evidence
suggesting that Grasso's payments and expenditures were funded with
net profits of the fraudulent scheme rather than gross receipts.
8a
faulty statutory construction). While Grasso urges us to
review the District Court's judgment de novo, the
Government contends that we should review it for plain
error because he failed to raise his statutory argument in a
Rule 29 motion for judgment of acquittal and therefore
forfeited it.
The Federal Rules of Criminal Procedure dictate
when a criminal defendant may challenge a conviction that
is based on insufficient evidence. Rule 29 provides that a
defendant must make an appropriate motion within seven
days after a guilty verdict is entered, or within an extended
time specified by the Court during the seven-day period. If a
defendant fails timely to raise an argument that may
establish his or her innocence, the court is unlikely to find it
persuasive at a later time. See, e.g., United States v. Powell, 113
F.3d 464, 466-67 (3d Cir. 1997) ("If a defendant fails to file a
timely motion for judgment of acquittal, we review
sufficiency of evidence for plain error.").
The jury convicted Grasso on February 25, 2002. He
did not file a motion within seven days of the verdict, nor
did the Court extend the applicable period. On October 9,
2002, however, he filed a memorandum including an
argument in support of his "renewed motion for judgment
of acquittal on the money laundering counts." Although it
was clear that Grasso had failed to file a timely Rule 29
motion,’ the parties agreed at oral argument that the District
Court would consider the "renewed" motion "for the limited
purpose of determining whether Defendant should be
sentenced under the money laundering or fraud guidelines.
8 As already noted, at the close of the Government's case the
defense moved for judgment of acquittal on four of the money laundering
charges. The motion did not allege that the Government had failed to
demonstrate the use of net proceeds.
9a
"9 That motion did not serve to preserve the statutory
argument for de novo review.
9 Grasso has framed his argument as a challenge to his sentence
rather than his conviction. As a general matter, "[w]e review the district
court's application of the sentencing guidelines de novo." See United States
v. Omoniyi, 260 F.3d 291, 297 n.8 (3d Cir. 2001). We thus may vacate a
sentence if we find that it was improperly entered. But in this case the
District Court had no choice but to sentence Grasso for money
laundering. "In cases ... in which several counts, including fraud and
money laundering, have been grouped, ... the count carrying the highest
applicable offense level must apply to the entire group for sentencing
purposes. Under the guidelines as amended, ... courts have no discretion
to decide that the money laundering guideline is inappropriate or not the
most applicable guideline on the facts of a given case." United States v.
Diaz, 245 F.3d 294, 303 (3d Cir. 2001) (citation omitted). Plenary review of
the sentence alone does Grasso no good, because we may inquire only
whether, assuming he was lawfully convicted of money laundering, the
District Court properly calculated his sentence. Upon the facts presented,
there is no doubt that it did.
Grasso's strategy, of course, is slightly outside the letter of Diaz.
He urged the District Court to sentence him for fraud rather than money
laundering not because the sentencing guidelines applicable to the latter
more appropriately reflected the scope of his criminal activity, but rather
because he contended he should not save been convicted of money
laundering in the first place. Were we to accept this gambit, we would
permit Grasso to end-run the principle that a court should not disturb a
jury verdict unless the defendant timely objects. See Carlisle v. United
States, 517 U.S. 416, 433 (1996) (holding that a district court is without
discretion to grant a defendant's untimely motion for judgment of
acquittal pursuant to Rule 29).
In a similar vein, Grasso relies heavily on our decision in United
States v. Morelli, 169 F.3d 798, 801 (3d Cir. 1999), in which we held that the
defendant was not obligated to challenge his money laundering
conviction in a Rule 29 motion. In Morelli, the jury found that money
laundering was merely one among several bases for his RICO conspiracy
conviction. Because the conviction rested on independent predicate acts,
any contemporaneous objection to the money laundering allegations
would have been futile; even if the court had agreed that the money
laundering statute was inapplicable, there were adequate alternative
bases to sustain the conviction. Consequently, the defendant's
interpretation of the money laundering statute affected only his sentence,
and the District Court's decision at sentencing was "not bound up with
10a
The forfeiture principle may lead to harsh results.
No procedural principle is more familiar to this Court than
that a constitutional right,’ or a right of any other sort, 'may
be forfeited in criminal as well as civil cases by the failure to
make timely assertion of the right before a tribunal having
jurisdiction to determine it.'" United States v. Olano, 507 U.S.
725, 731 (1993) (citing Yakus v. United States, 321 U.S. 414,
444 (1944)). Its effects are mitigated, however, by Federal
Rule of Criminal Procedure 52(b), which permits a court of
appeals to consider a "plain error that affects substantial
rights ... even though it was not sedi il to the court's
attention."10
Grasso failed to file a Rule 29 motion within the
designated time. His claim does not fall within any of the
recognized exceptions to the forfeiture rule. We therefore
review his argument for plain error. We note, however, that
the standard of review is ultimately irrelevant to our
resolution of this case. Because we conclude that the District
the jury's verdict." Id. at 803. In our case, by contrast, the jury specifically
found that Grasso was guilty of money launderigg. The District Court
could not hawe modified Grasso's- — Without disturbing the
underlying conviction. ~ :
10 "Rule 52(b) leaves the decision to correct the forfeited error
within the sound discretion of the court of appeals." Olano, 507 U.S. at
732. Nonetheless, we "should not exercise that discretion unless the error
seriously affects the fairness, integrity or public reputation of judicial
proceedings." Id. (citations omitted). The Supreme Court has clarified that
we may "correct the error (either vacating for a new trial, or reversing
outright)" only if it is "plain" and "affects substantial rights." Id. (emphasis
in original).
lla
Court properly construed § 1956, we would affirm even
under de novo review.
_ Definition of "Proceeds"
Under the plain error standard, the defendant
ordinarily bears the burden of proving that: (1) the court
erred; (2) the error was "plain" at the time of appellate
consideration; and (3) the error affected substantial rights,
usually meaning that the error "must have affected the
outcome of the district court proceedings." Olano, 507 U.S. at
734; see also Johnson v. United States, 520 U.S. 461, 466-68
(1997). "If all three conditions are met, an appellate court
may then exercise its discretion to notice a forfeited error,
but only if (4) the error seriously affects the fairness,
integrity, or public reputation of judicial proceedings."
Johnson, 520 U.S. at 467 (citation omitted). Grasso cannot
meet the first and most important element because the
District Court did not err. Thus we need go no further.
We agree with the District Court that sentencing
Grasso for money laundering was within the scope of the
money laundering statute. Grasso contends, citing the
Seventh Circuit's recent decision in United States v. Scialabba,
282 F.3d 475 (7th Cir.), cert, denied, 523 U.S. 1071 (2002), that
he was improperly convicted of and sentenced for money
laundering because the Government failed to establish that
the money allegedly laundered derived from the net profits
of his illegal activity. The Seventh Circuit held in Scialabba
" Grasso argues that the Court may exercise plenary review of his
claim even if he forfeited it, because it is based on statutory interpretation.
This proposition is inconsistent with the Supreme Court's decisions in
Olano, 507 U.S. 725 (applying plain error review to interpretation of the
Federal Rules of Criminal Procedure), and Johnson v. United States, 520
U.S. 461 (1997) (reviewing for plain error the district court's failure to
submit to the jury the question whether a false statement was material
despite intervening Supreme Court case deciding as a matter of
constitutional law that materiality is a jury question).
12a
that when a "crime entails voluntary, business-like
operations, 'proceeds' must be net income; otherwise the
predicate crime merges into money laundering (for no
business can be carried out without expenses) and the word
'proceeds' loses operational significance." Id. at 475.
In Scialabba, the defendants were convicted of
operating an unlawful gambling business, filing false tax
returns, conspiring to defeat tax collection, and money
laundering. The last charge was based on the defendants'
use of revenue from their gambling operations to meet the
expenses of the business. As in our case, conviction for
money laundeiing substantially increased the defendants'
prison terms, and they therefore appealed their convictions
under the money laundering statute, § 1956(a).
The Seventh Circuit rejected the Government's
argument that use of gross receipts to fund ongoing criminal
activity constituted money laundering. The Court explained
that accepting the Government's theory would be
"equivalent to saying that every drug dealer commits money
laundering by using the receipts from sales to purchase
more stock in trade, that a bank robber commits money
laundering by using part of the loot from one heist to rent a
getaway car for the next, and so on." Id. at 476. Transactions
of this nature, the Court explained, do not implicate the
concerns underlying the statute—namely, they are not
"financial transactions to hide or invest profits in order to
evade detection, the normal understanding of money
laundering." Id.
While Judge Easterbrook's opinion in Scialabba is
well-argued and intuitively appealing, we believe it reaches
an incorrect result. We consider various interpretations of
proceeds in light of the conventional understanding of the
term, the text and purpose of § 1956, and existing case law
in our Circuit. In so doing, we conclude that "proceeds," as
13a
that term is used in the money laundering statute, means
gross receipts rather than profits.
Section 1956 does not define proceeds. Judge
Easterbrook assumed that "most speakers of English would
understand" the term proceeds to reach only the "profits of
the business." Scialabba, 282 F.3d at 477. Viewed in a
vacuum, however, we discern no clear meaning of the term.
Congress might easily have used "gross receipts" if it so
intended. Cf Scialabba, 282 F.3d at 477 ("It would have been
easy enough to write 'receipts' in lieu of 'proceeds' in §
1956(a)(1).") But it might just as readily have used the term
"profits."
Secondary sources defining the word "proceeds"
undercut Grasso's proposed interpretation based on
Scialabba. For example, the Uniform Commercial Code
defines "proceeds" as "whatever is acquired upon the sale,
lease, license, exchange, or other disposition of collateral. . .
" U.C.C. § 9-102(64)(A). Similarly, Black's Law Dictionary
1222 (7th ed. 1 999) defines "proceeds" as "the amount of
money received from a sale" and lists "net proceeds" as a
distinct sub-entry under "proceeds." Nonetheless, dictionary
definitions are neither uniform nor dispositive. Webster's
first definition of proceeds is "the total amount brought in,"
but the second is "net profit," and the third is "the net sum
received .. . after deduction of any discount or charges."
Webster's Third New International Dictionary 1807 (1986).
Judicial definitions of "proceeds" in other contexts
also vary, though they are generally more expansive than
the interpretation Grasso urges. In construing the scope of
criminal forfeiture of "proceeds" under the Racketeer
Influenced and Corrupt Organizations ("RICO") Act, most
courts have held that proceeds involve more than net
profits. In fact, the Seventh Circuit was unique in holding
otherwise. See United States v. Masters, 924 F.2d 1362, 1369-70
14a
(7th Cir. 1991). The Second Circuit and a District Court in
our Circuit have held that proceeds represent "gross profits,"
meaning total revenues minus marginal costs, but not fixed
costs. United States v. Lizza Indus., Inc., 775 F.2d 492, 497-99
(2d Cir. 1985); United States v. Milicia, 769 F. Supp. 877, 888
(E.D. Pa. 1991). The First, Fourth, and Eighth Circuits
understand the term to mean "gross revenues." United States
v. Hurley, 63 F.3d 1, 21 (1st Cir. 1995); United States v. McHan,
101 F.3d 1027, 1041-43 (4th Cir. 1996); United States v.
Simmons, 154 F.3d 765, 770-71 (8th Cir. 1998). See generally
Anup Malani, The Scope of Criminal Forfeiture Under RICO:
The Appropriate Definition of "Proceeds," 66 U. Chi. L. Rev.
1289 (1999).
Turning to the money laundering statute, the
Seventh Circuit is alone in its restrictive definition of
"proceeds." The Sixth Circuit has noted that "proceeds," as
used in § 1956, is a "commonly understood word in the
English language," and includes "what is produced by or
derived from something (as a sale, investment, levy,
business) by way of total revenue." United States v. Haun, 90
F.3d 1096, 1101 (6th Cir. 1996) (quoting Webster's Third New
International Dictionary 1807 (1971)). Similarly, the Ninth
Circuit has adopted an expansive definition of "proceeds" as
it is used in the money laundering statute, relying on
dictionary definitions to assign it the "broad[] meaning of
that which is obtained ... by any transaction." United States v.
Akintobi, 159 F.3d 401, 403 (9th Cir. 1998) (internal citation
omitted).
Only one Circuit has explicitly considered the
Seventh Circuit's decision in Sciallaba. In United States v.
Iacaboni, 221 F. Supp. 2d 104,112 (2002), reversed in part on
other grounds by 363 F.3d 1 (1st Cir. 2004), the United States
District Court for the District of Massachusetts rejected the
Seventh Circuit's conclusion that proceeds should be
interpreted as profits rather than total revenue. In March
i hg OY,
15a
2004, the First Circuit approved the District Court's
reasoning, noting simply: "We have previously rejected
[Appellant's] interpretation of the term 'proceeds' in the
RICO forfeiture context. [He] has offered no rationale for
abandoning that approach here." 3 63 F.3d at 4 (citation
omitted).
Given the many definitions of "proceeds" and the
uncertain value of congressional records in choosing among
them,!2 the best approach, we believe, is to examine the
statute itself for indications of the intended scope of the
term. The Seventh Circuit's opinion reasons that proceeds
must be limited to net profits because money laundering is
about concealment and only profits need be concealed. But
the wording of the statute suggests that concealment is only
one of the statute's two purposes. The "normal
understanding of money laundering" may entail "hid[ing] or
invest[ing] profits in order to evade detection," as the
Seventh Circuit posited, Scialabba, 282 F.3d at 476, but the
bifurcated text of the statute strongly suggests that Congress
had a broader definition of money laundering in mind.
To be sure, 18 U.S.C. § 1956 criminalizes financial
transactions that satisfy the conventional understanding of
money laundering—namely, transactions intended "to
conceal or disguise the nature, the location, the source, the
ownership, or the control of the proceeds of specified
12 Grasso presents extensive evidence that Congress intended the
Money Laundering Control Act of 1986, of which § 1956 is part, "to fill the
gap in the criminal law with respect to the post-crime hiding of ill-gotten
gains." United States v. Bockius, 228 F.3d 305, 310 (3d Cir. 2000) (quoting
United States v. LeBlanc, 24 F.3d 340, 346 (1st Cir. 1994)). "But that was not
the sole purpose of the statute." Jd. Other rationales undercut this theory.
See, e.g., lacaboni, 221 F. Supp. 2d at 112 n.2 ("[The Seventh Circuit's
interpretation would imply that] so long as the illegal enterprise had no
net profit, no money laundering prosecution would be possible. Because
Congress could not have intended such a result, the court follows the
majority of circuits in holding that 'proceeds' should be interpreted as
‘total revenue' rather than 'net profits.'").
16a
unlawful activity." 18 U.S.C. § 1956(a)(1)(B)(i). But it is
equally unlawful under the statute to engage in a financial
transaction, knowing that the property involved represents
the proceeds of unlawful activity, "with the intent to
promote the carrying on of specified unlawful activity." 18
U.S.C. § 1956(a)(1)(A)(i). In other words, the money
_laundering statute prohibits not only the concealment of
proceeds, but also the promotion of illegal activity. By
reinvesting the proceeds of his fraudulent scheme in order
to sustain it, Grasso promoted unlawful activity within the
meaning of the statute—regardless whether the funds were
profits or gross receipts.15
Finally, we note that we have explicitly rejected one
of the principal factors cited by the Seventh Circuit in
support of its construction of the statute. The Court
commented in Scialabba: "If ... the word 'proceeds' is
synonymous with gross income, then we would have to
decide whether, as a matter of statutory construction
(distinct from double jeopardy), it is appropriate to convict a
person of multiple offenses when the transactions that
violate one statute necessarily violate another." Scialabba, 282
F.3d at 477 (internal citations omitted). Our Court, however,
has concluded that § 1956 may subject an individual to
multiple penalties based on the same crime without
violating either double jeopardy or the principles governing
statutory interpretation.
3 Because we believe the meaning of "proceeds" is clear from the
text of § 1956, we need not consider the related policy arguments. We
note, however, that various factors favor adoption of a broad definition of
the term. For example, it would be very difficult to prove that "profits"
were used to promote an illegal venture, since criminals rarely keep
records of the overhead expenses of their illegal activities. Similarly, in an
ongoing criminal business, it would be difficult to determine at what
point a defendant had netted out all business expenses. When do criminal
businesses operate by recognized auditing standards?
ic aaa a 0 eh)
17a
In United States v. Conley, 37 F.3d 970, 978-79 (3d Cir.
1994), we held that prosecution for both gambling and
money laundering did not implicate double jeopardy
because the statutory elements of the offenses differ; an
individual is guilty of money laundering only if he or she
intended to conceal or promote unlawful activity. The
Seventh Circuit distinguished our decision in Conley,
suggesting that if "proceeds" is interpreted broadly, the
similarity between money laundering and the underlying
criminal activity is problematic as a matter of statutory
construction. But our Court has resolved the latter issue as
well. In United States v. Omoruyi, 260 F.3d 291, 295 (3d Cir.
2001), we recognized that "conduct constituting the
underlying offense conduct may overlap with the conduct
constituting money laundering." An individual may be
convicted for money laundering as long as the financial
transactions are conducted with proceeds of the illegal
transaction and with the intent to promote the underlying
offense. Id.
We have regularly upheld money laundering
prosecutions based on the reinvestment ("plowing back") of
proceeds. See, e.g., United States v. Diaz, 245 F.3d 294, 305 (3d
Cir. 2001); United States v, Cefaratti, 221 F.3d 502, 511 (3d Cir.
2000); Conley, 37 F.3d at 972. And we have never suggested
that proceeds must be net. We see no reason to adopt such a
requirement now. We therefore hold that "proceeds," as that
term is used in § 1956, means simply gross receipts from
illegal activity. An individual may engage in money
laundering regardless whether his or her criminal endeavor
ultimately turns a profit.
Thus we conclude that Grasso was properly
convicted and sentenced for money laundering in violation
of § 1956. In the context of our review standard, he has.
failed to establish error of any sort, let alone plain error.
18a
B. The District Court's Award of Restitution
We next address Grasso's contention that the District
Court erred by ordering him to pay restitution because it
failed to make factual findings in support of the award. We
remand for clarification.
The context is that at the time of Grasso's sentencing,
the Court ordered payment of $49,800 in special
assessments, $180,000 in fines, $100,000 in counsel fees, and
$761,126.39 in restitution to victims of Grasso's crimes.’
According to the pre-sentence report, Grasso at one time
had assets of $1,127,691.79, of which $900,000 was in "frozen
funds." But because most of the frozen funds were in
market-sensitive securities and brokerage funds, they
fluctuated in value. Indeed, from the time of the pre-
sentence report's calculation to the date of sentencing the
funds' value had decreased by more than $200,000, resulting
in an apparent shortfall for the payment of restitution.
“4 18 U.S.C. § 3612(c) sets the priority for payments by defendants
ordered at sentencing:
Any money received from a defendant shall be
disbursed so that each of the following obligations is
paid in full in the following sequence:
(1) A penalty assessment under section 3013 of title 18,
United States Code.
(2) Restitution of all victims.
(3) All other fines, penalties, costs, and other payments
required under the sentence.
Id. The District Court's judgment provided for the payment of special
assessments, fines, and counsel fees from the frozen funds, with the
restitution ordered in Criminal No. 00-51 to be paid out of the balance. On
remand, the order of payment should be reset per § 3612.
19a
The Mandatory Victims Restitution Act ("MVRA"),
18 U.S.C. §§ 3663A-3664, enacted in 1996, requires a
sentencing court to order full restitution to identified
victims of certain crimes and to specify the manner and
order in which restitution is to be paid. The MVRA
amended the provisions for restitution set out previously in
the Victim and Witness Protection Act, 18 U.S.C. § 3663 et
seq., pursuant to which district courts had discretionary
authority to award restitution and were required to consider
such factors as the defendant's financial ability to pay. See
United States v. Coates, 178 F.3d 681, 683 n.3 (3d Cir. 1999).
Under the amended provision, the discretion of a
district court in awarding restitution is limited. Coates set
out two steps for application of the statute. First, the court
must order full restitution!’ "without consideration of the
economic circumstances of the defendant." Coates, 178 F.3d
at 683 (citing 18 U.S.C. § 3664(f)(I)(A)). Second, "[a]fter
ordering full restitution, the district court 'shall specify in
the restitution order the manner in which, and the schedule
according to which, the restitution is to be paid.' In so doing,
the district court is required to consider the financial
resources, projected earnings, and financial obligations of
the defendant." Coates, 178 F.3d at 683 (citation omitted).'¢
Clearly it makes no sense, when the mandatory restitution
sums will be paid entirely from frozen funds, to require a
district court to consider the defendant's financial resources
and responsibilities. While in Coates we held that such
15 Grasso's suggestion that a preliminary determination must be
made whether each individual qualifies for restitution is plainly incorrect.
Each individual who made a payment was "directly and proximately
harmed as a result of the commission of the offense" within the meaning
of 18 U.S.C, § 3663A(a)(2) and is consequently entitled to restitution.
16 Thus, while full restitution is mandatory, "[t]he court may order
the defendani to make a lump-sum payment, reasonable periodic
payments, or, if the defendant is indigent, nominal periodic payments."
Id. at 683-84.
20a
determinations were necessary to satisfy § 3664's mandate,
id., the defendant there had no frozen funds to which the
restitution claimants could look. We now hold that when
frozen funds are adequate to satisfy restitution, a district
court may stop short of Coates' second step. Here we have
frozen funds. But we do not know their precise value, nor
the number of claims to be satisfied. At the sentencing
colloquy, the Government reported that the value of the
frozen funds had decreased to $693,467.21, and counsel for
Grasso explicitly noted that they would not cover the
ordered expenditures.!”? We are therefore persuaded that a
remand is necessary.
7 The transcript of oral argument contains the following
confusing exchange:
The Court: All right. Mr. Phillips, any reason you know
of why this sentence I've just stated should not be
imposed?
Mr. Phillips: Your Honor, the only question I have had
to do I guess with the items you listed, fine, restitution,
attorney's fees, special assessment. When you add
those numbers up, they're more than what is available
of the frozen assets.
The Court: That's correct. The balance goes to
restitution.
Mr. Phillips: Oh, it was the balance.
The Court: Right.
Mr. Phillips: Oh, okay. I'm—
The Court: Whatever's left after those monies are paid
is for restitution.
Arguably the District Court intended restitution to be paid only to the
extent of the frozen funds. As § 3664 requires full restitution, however,
this interpretation too would necessitate remand.
21a
On remand, if the District Court should determine
that the frozen funds are adequate to satisfy the full amount
of restitution (after payment of $49,800 in special
assessments), nothing further need be found to comply with
the MVRA requirements. If, however, the funds are
inadequate, the District Court should proceed in accordance
with 18 U.S.C. § 3664(f)(2) to determine the manner in
which, and schedule according to which, restitution is to be
paid.18
18 Three additional issues bear consideration on remand. First, the
Government contends that Grasso failed to claim that payment of
$180,000 in fines impaired his ability to pay restitution and that he must
therefore pay the fines from assets outside the frozen funds. In United
States v. Torres, 209 F.3d 308, 312 (3d Cir. 2000), we noted that "the
defendant has the burden of proving his or her ability to pay [fines]."
Moreover, "[w]here ... a defendant did not at sentencing raise the issue of
his or her inability to pay, a sentencing court's decision to impose a fine
and the amount of the fine is reviewed for plain error." Id. at 313.
Nonetheless, we were careful to note in Torres that the defendant had not
argued that the District Court failed to consider his overall ability to pay a
fine. Rather, he argued only that "the record before the District Court did
not establish whether he had the earning capacity to pay a fine while on
supervised release." Id. Applied to our case, if on remand there is
determined to be a shortfall of funds available for fines (obviously the
case if the funds are insufficient to pay restitution amounts), the District
Court should consider Grasso's ability to pay this amount as well.
Second, it is apparent from the record that the District Court
intended to order the payment of restitution to the 30,007 victims
identified by the Government. The judgment, however, states that the
restitution shall be paid to "any payees" identified by the Government.
We presume that these payees are in fact the identified victims.
Finally, we note a discrepancy between the District Court's
remarks during the sentencing colloquy and the payment terms set forth
in the judgment. We glean from one statement by the Court at sentencing
that it intended Grasso, upon his release from custody, to pay $100 per
month toward any outstanding financial obligations. This provision,
however, was not included in the written order. If on remand there is a
shortfall to pay restitution, the Court should justify the schedule of
payment by reference to Grasso's financial resources and obligations,
pursuant to § 3664.
22a
II. Conclusion
Reviewing for plain error, we conclude that the
District Court's interpretation of "proceeds" in the money
laundering statute was correct, and we therefore affirm
Grasso's conviction and sentence. On the issue of restitution,
we vacate the District Court's order and remand for
reconsideration in light of the value of the frozen funds. If
the Court determines that those funds are inadequate to pay
restitution in the priority scheme set by 18 U.S.C. § 3612, it
should follow the requirements of 18 U.S.C. § 3664(f)(2).
Pe een Tee
23a
Sheet 1
UNITED STATES DISTRICT COURT
Eastern District of Pennsylvania
JUDGMENT IN A CRIMINAL CASE
(For Offenses Committed On or After November 1, 1987)
Entered February 4, 2003
UNITED STATES CASE NUMBER:
OF AMERICA 00-51-1
V.
MICHAEL J. GRASSO, JR.
Walter M. Phillips, Jr.
Defendant's Attorney
THE DEFENDANT:
pleaded guilty to count(s) 13s
UO pleaded nolo contendere to count(s)
which was accepted by the court.
ES) was found guilty on count(s) 1s - 12s; 14s - 157s 159s
- 195s; 197s - 495s_ after a plea of not guilty.
ACCORDINGLY, the court has adjudicated that the
defendant is guilty of the following offense(s):
Title & Section Nature of Offense
18: U.S.C. §1341 and 2 Mail Fraud; Aiding and Abetting
; 18: U.S.C. §1343 and2 Wire Fraud; Aiding and Abetting
18: U.S.C. §1503(a) Obstruction of Justice
18: U.S.C. §1956 Money Laundering; Aiding and
(a)(1)(A)(i) and 2 Abetting
Date Offense Count Number(s)
Concluded
9/16/99 1s - 9s, 11s
24a
4/13/99 10s, 12s
2/1/00 13s
2/20/98 14s - 157s
159s - 195s
197s - 495s
The defendant is sentenced as provided in pages 2
through 8 of this judgment. The sentence is imposed
pursuant to the Sentencing Reform Act of 1984.
O The defendant has been found not guilty on count(s)
O Count(s) CJ is LJ are dismissed on the motion
of the United States.
IT IS ORDERED that the defendant shall notify the
United States Attorney for this district within 30 days of any
change of name, residence, or mailing address until all fines,
restitution, costs and special assessments imposed by this
judgment are fully paid. If ordered to pay restitution, the
defendant shall notify the court and United States attorney
of any material change in the defendant’s economic
circumstances.
Defendant's So. Sec. No.: February 3, 2003
168-52-4934 Date of Imposition
of Judgment
Defendant's Date \s\ Berle M. Schiller
of Birth: Signature of Judicial Officer
3/18/59
Defendant's USM No.: Berle M. Schiller, U.S. District
53988-066 Juge
Name and Title of Judicial
Officer
25a
Defendant's Residence 2/4/03
Address: Date
F.D.C. at Philadelphia
P.O. Box 562
Philadelphia, PA 19106
Defendant's Mailing
Address
Same as above.
Sheet 2 - Imprisonment
Judgment - Page 2 of 8
DEFENDANT: MICHAEL J. GRASSO, JR.
CASE NUMBER: 00-51-1
IMPRISONMENT
The defendant is hereby committed to the custody of
the United States Bureau of Prisons to be imprisoned for a
total term of 97 months
60 months on each of counts One through Thirteen.
97 months on each of counts 14 -157, 159-68, 169-195, 197-
394 395-447. 448-495. All counts shall be served
concurrently.
& The court makes the following recommendations to
the Bureau of Prisons: The defendant be
incarcerated at a boot camp at F.C. Fort Dix or
Minersville.
‘= The defendant is remanded to the custody of the
United States Marshal.
O The defendant shall surrender to the United States
Marshall for this district:
O at QOam.0) p.m.on
26a
CO as notified by the United States Marshall.
O The defendant shall surrender for service of sentence
at the institution designated by the Bureau of
Prisons:
before 2:00 p.m. on
as notified by the United States Marshall.
as notified by the Probation or Pretrial Services
Office.
OOO
RETURN
I have executed this judgment as follows:
Defendant delivered on to at
, with a certified copy of this judgment.
UNITED STATES MARSHAL
By
DEPUTY UNITED STATES MARSHALL
Sheet 3 - Supervised Release
Judgment - Page 3 of 8
DEFENDANT: MICHAEL J. GRASSO, JR.
CASE NUMBER: 00-51-1
SUPERVISED RELEASE
Upon release from imprisonment, the defendant
shall be on supervised release for a term 3 Years.
The defendant shall report to the probation office in
the district to which the defendant is released within 72
hours of release from custody of the Bureau of Prisons.
27a
The defendant shall not commit another federal,
state or local crime.
The defendant shall not illegally possess a controlled
substance.
For offenses committed on or after September 13, 1994:
The defendant shall refrain from any unlawful use of
a controlled substance. The defendant shall submit to one
drug test within 15 days of release from imprisonment and
at least two periodic drug tests thereafter, as directed by the
probation officer.
O The above drug testing condition is
suspended based on the _ court's
determination that the defendant poses a low
risk of future substance abuse.
x The defendant shall not possess a firearm,
destructive device, or any other dangerous
weapon.
If this judgment imposes a fine or a restitution
obligation, it shall be a condition of supervised release that
the defendant pay any such fine or restitution that remains
unpaid at the commencement of the term of supervised |
release in accordance with the Schedule of Payments set
forth in the Criminal Monetary Penalties sheet of this
judgment.
The defendant shall comply with the standard
conditions that have been adopted by this court (set forth
below). The defendant shall also comply with the
additional conditions on the attached page.
1)
7)
3)
4)
8)
9)
28a
STANDARD CONDITIONS OF SUPERVISION
the defendant shall not leave the judicial district
without the permission of the court or probation
officer;
the defendant shall report to the probation officer
and shall submit a truthful and complete written
report within the first five days of each month;
the defendant shall answer truthfully all inquiries by
the probation officer and follow the instructions of
the probation officer;
the defendant shall support his or her dependents
and meet other family responsibilities;
the defendant shall work regularly at a lawful
occupation unless excused by the probation officer
for schooling, training, or other acceptable reasons;
the defendant shall notify the probation officer at
lease ten days prior to any change in residence or
employment;
the defendant shall refrain from excessive use of
alcohol and shall not purchase, possess, use,
distribute, or administer and controlled substance or
any paraphernalia related to any controlled
substances, except as prescribed by a physician;
the defendant shall not frequent places where
controlled substances are illegally sold, used,
distributed, or administered;
the defendant shall not associate with any persons
engaged in criminal activity, and shall not associate
10)
11)
12)
13)
29a
with any person convicted of a felony unless granted
permission to do so by the probation officer;
the defendant shall permit a probation officer to visit
him or her at any time at home or elsewhere and
shall permit confiscation of any contraband observed
in plain view of the probation officer;
the defendant shall notify the probation officer
within seventy-two hours of being arrested or
questioned by a law enforcement officer;
the defendant shall not enter into any agreement to
act as an informer or a special agent of a law
enforcement agency without the permission of the
court.
as directed by the probation officer, the defendant
shall notify third parties of risks that may be
occasioned by the defendant's criminal record or
personal history or characteristics, and shall permit
the probation officer to make such notifications and
to confirm the defendant's compliance with such
notification requirement;
Sheet 3 - Supervised Release
Judgment - Page 4 of 8
DEFENDANT: MICHAEL J. GRASSO, JR.
CASE NUMBER:00-51-1
ADDITIONAL SUPERVISED RELEASE TERMS
The defendant shall not illegally possess a controlled
substance.
30a
The defendant shall not possess a firearm or other
dangerous weapon.
The defendant shall provide the probation officer with
access to any requested financial information and shall file a -
detailed monthly financial statement with the probation
office. The financial statement shall include copies of bank
statements for all accounts (personal, commercial, and
investment), and shall also include a detailed accounting of
the defendant’s business income and expenditures, in
addition to information concerning personal expenses and
expenses to which he contributes on behalf of his
dependants.
The defendant shall not incur new credit charges or open
additional lines of credit (business or personal) without the
prior approval of the probation officer.
The defendant shall not mail, contract the mailing, or direct
the mailing of any solicitation pertaining to “work-at-home”
employment opportunities.
Prior to contracting a mailing, personally directing, or
mailing, any solicitation, or before placing any
advertisement in the form of any printed, video or electronic
medium, the defendant shall provide the probation office
and the Court with a copy of the proposed solicitation and
or advertisement for review and final approval.
The defendant shall provide the U.S. Probation Office with
access to any requested personal and/or business financial
information. The probation office is authorized to release
pre-sentence and post-sentence financial information
submitted by the defendant to the U.S. Attorney’s Office for
use in the collection of any unpaid fine or restitution. If
restitution or a fine is owed, the defendant shall notify the
U.S. Probation Office of any assets received and shall not
3la
disburse his interest in any assets, including, but not limited
to, income tax refunds, inheritance, insurance and lawsuit
settlements, or gambling winnings without the approval of
the U.S. Probation Office. ;
Upon release from imprisonment the defendant shall pay
$100.00 per month toward any outstanding financial
obligation, of any remain.
Sheet 5 - Criminal Monetary Penalties
Judgment - Page 5 of 8
DEFENDANT: MICHAEL J. GRASSO, JR.
CASE NUMBER: 00-51-1
CRIMINAL MONETARY PENALTIES
The defendant shall pay the following total criminal
monetary penalties in accordance with the schedule of
payments set forth on Sheet 5, Part B.
Assessment Fine Restitution
Totals: $49,500.00 $150,000.00 $761,126.39
OC The determination of restitution is deferred
until __. An Amended Judgment in a
Criminal Case (A O 245C) will be entered after
such determination.
O The defendant shall make restitution
(including community restitution) to the
following payees in the amount listed below.
If the defendant makes a partial payment,
each payee shall receive an approximately
proportioned payment, unless _ specified
otherwise in the priority order or percentage
32a
payment column below. However, pursuant
to 18 U.S.C. § 3664(i), all nonfederal victims
must be paid in full prior to the United States
receiving payment.
Name of Payee *Total
Amount of Loss
Amount of Priority Order or
Restitution Ordered Percentage of Payment
TOTALS $ $
C If applicable, restitution amount ordered pursuant to
plea agreement $
O The defendant shall pay interest on any fine or
restitution of more than $2,500, unless the fine or
restitution is paid in full before the fifteenth day after
the date of the judgment, pursuant to 18 U.S.C. §
3612(f). All of the payment options on Sheet 5, Part
B may be subject to penalties for delinquency and
default, pursuant to 18 U.S.C. § 3612(g).
O The court determined that the defendant does not
have the ability to pay interest, and it is ordered that:
O the interest requirement is waived for the 0
fine and/or CU restitution.
O the interest requirement for the OU fine
and/or UC) restitution is modified as follows:
* Findings for the total amount of losses are required under
Chapters 109A, 110, 110A, and 113A of Title 18, United
33a
States Code, for offenses committed on or after September
13, 1994 but before April 23, 1996.
Sheet 6, Part B - Criminal Monetary Penaltie
Judgment - Page 6 of 8
DEFENDANT: MICHAEL J. GRASSO, JR.
CASE NUMBER: 00-51-1
SCHEDULE OF PAYMENTS
Having assessed the defendant's ability to pay,
payment of the total criminal monetary penalties shall be
due as follows:
A.O Lump sum payment of $ due
immediately, balance due
O not later than , or
CJ in accordance with CL] C, 0 D, or UE below,
or
B. & Payment to begin immediately (may be combined
with 0 C, OD, or & E below); or
C. O Payment in (e.g., equal, weekly, monthly,
quarterly) installments of $ over a period of
(e.g., months or years), to commence
(e.g., 30 or 60 days) after the date of this
judgment;or
D. O Payment in _ (&g:, equal, weekly, monthly,
quarterly) installments of $ over a period of
(e.g., months or years), to commence
(e.g., 30 or 60 days) after release from
imprisonment to a term of supervision; or
E. & Special instructions regarding the payment of
criminal monetary penalties:
34a
Payment of the Special Assessment, Fine, and
Counsel Fees shall be made from the defendant's
frozen account.
Restitution shall be paid from the balance of the
frozen account to any payees the U.S. Attorney’s
Office identifies.
Unless the court has expressly ordered otherwise in the
special instruction above, if this judgment imposes a period
of imprisonment, payment of criminal monetary penalties
shall be due during the period of imprisonment. All
criminal monetary penalties, except those payments made
through the Federal Bureau of Prisons’ Inmate Financial
Responsibility Program, are made to the clerk of the court,
unless otherwise directed by the court, the probation officer,
or the United States attorney.
The defendant shall receive credit for all payments
previously made toward any criminal monetary penalties
imposed.
‘= Joint and Several
Defendant Name, Case Number, and Joint and
Several Amount:
The defendant shall pay the cost of prosecution.
The defendant shall pay the following court cost(s):
The defendant shall forfeit the defendant's interest in
the following property to the United States:
OOO0
Payments shall be applied in the following order: (1)
assessment, (2) restitution principal, (3) restitution interest,
(4) fine principal, (5) community restitution, (6) fine interest
(7) penalties, and (8) costs, including cost of prosecution and
court costs.
35a
IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF PENNSYLVANIA
UNITED STATES
OF AMERICA CRIMINAL ACTION
v. NO. 00-CR-51
NO. 01-CR-783
MICHAEL J. GRASSO, JR. :
MEMORANDUM AND ORDER
[ENTERED: January 15, 2003]
SCHILLER, J. January 15, 2003
On November 19, 2000, in connection with Criminal
Number 00-CR-51, a grand jury issued a 495-count
Superseding Indictment against Defendant Michael Grasso,
Jr., charging him with mail fraud, wire fraud, money
laundering, and obstruction of justice.! This matter was tried
before Judge Kauffman and on February 25, 2002, a jury
found Defendant guilty on all counts.2 On December
20,2001, in connection with Criminal Number 01-CR-783,
which was assigned to Judge Schiller, Mr. Grasso was
indicted for forgery and obstruction of justice. Mr. Grasso
pled guilty to these charges on June 19, 2002. Judge Schiller,
1 On February 7, 2002, Judge Kauffman severed Count 13 (the
obstruction of justice count) from Criminal Number 00-CR.-051 and
ordered it consolidated with Criminal Number 01-CR-783 (Criminal
Number 01-CR-783, docket no. 84).
2 This does not include the obstruction of justice count that was
severed and the money laundering counts (158 & 196) that were
dismissed on February 8, 2002 (Criminal Number 00-CR-51, docket no.
88).
36a
by way of an Order dated June 21, 2002, consolidated both
of these cases for the purposes of sentencing.? On November
20, 2002, both cases were reassigned from Judge Kauffman
to Judge Schiller.
Now before the Court is Defendant's Motion for
Judgment of Acquittal on the Money Laundering Counts
and the Government's Reply Memorandum.‘ Defendant
contends that he cannot be sentenced under the money
laundering statute, 18 US.C. § 1956, because the
government failed to prove (1) the promotion prong on of
the money laundering statute and (2) that the monies
expended by Mr. Grasso in the money laundering counts
represented net income. For the reasons stated below I will
deny Defendant's Motion and will sentence Defendant
tinder the money laundering guidelines.
BACKGROUND
Between early 1997 and late 1999, Defendant
operated a series! of massive "work-at-home" schemes. (N.T.
2/25/02, pp. 20). Using various business names, Defendant
placed advertisements and sent direct mailings offering
3 These two cases were consolidated for the administrative
convenience of the Court.
‘ Mr. Grasso contends that his October 9,2002 Motion (Criminal
Number 00-CR-51, docket no. 128) is a renewed motion for Judgment of
acquittal on the money laundering Counts. Ordinarily, a motion for
judgment of acquittal under Rule 29 must be made within 7 days after the
verdict or within such time as the Court may fix during the 7-day period.
See FED. R. CRIM. P. 29(c). However, at oral argument, the parties agreed
that Defendant's motion would be considered for the limited purpose of
determining whether Defendant should be sentenced under the money
laundering or fraud guidelines.
5 These names included Alternatives, Financial Enterprises,
Financial Publishers, Greenhouse, GSECO, Hazel Peppergood, Imex,
Mesa, Modem Mailers, PMG Associates, Rod Enterprises, Rynex, Welsh
Associates, and others. (N.T. 2/25/02, pp. 22-26).
7
37a
work-at-home employment. (Id. pp. 20-26). These
advertisements and mailings stated that, for a fee ranging
from ten to forty dollars, readers could become employed
stuffing envelopes and stapling booklets at home. (Id.)
When readers mailed in their money, they received in
return a set of written instructions that explained how they
too could place advertisements offering work-at-home
employment similar to those to which they had responded.
(Id., pp. 31-32). In other words, Defendant's customers could
make money working at home only if they themselves
perpetrated the same scheme on others.
Between September 1997 and September 1999,
Defendant deposited over ten million dollars into various
bank accounts. (Id, pp. 36). Additionally, the Superseding
Indictment identifies 482 separate transactions (Counts 14
through 495) in which Defendant paid for advertisements,
telephone services, printing, envelopes, and other materials
with the proceeds of his enterprise, (Superseding Indictment
Counts 14-495, 95) (N.T. 2/25/02, pp. 51-53). The four
entities identified in the money laundering counts are
Americans Classified, Lelli Printing, Western States, and
Spare Time Magazine. (N.T. 2/25/02, pp. 52-53).
DISCUSSION
A. Promotion Prong
"Section 1956(a)(1)(A)(i) makes it unlawful to
conduct a financial transaction involving the proceeds of
unlawful activity 'with the intent to promote the carrying on
of specified unlawful activity.'" United States v. Paramo, 998
F.2d 1212, 1216 (3d Cir. 1993). The Superseding Indictment,
upon which Defendant was convicted, states that Defendant
conducted numerous financial transactions (i.e., payments
to vendors for advertising, printing, and supplies) involving
the proceeds of unlawful activity (i.e., mail and wire fraud)
38a
with the intent to promote unlawful activity (i.e., further
mail and wire fraud).
Mr. Grasso now argues that payments made to
America's Classified, Lelli Printing, Western States, and
Spare Time Magazine, for printing, advertising, postage,
and supplies cannot be considered transactions designed to
promote future specified unlawful activity or to achieve the
success of completed or ongoing criminal activity, because
the activity, i.e., mail and wire fraud, was already complete
at the time payment was made.‘ In other words, Mr. Grasso
contends that his payment for services rendered cannot be
considered promotion of an already completed fraud.
Defendant's argument must fail for two reasons.
First, contrary to Mr. Grasso's representations, not all the
payments to vendors were for work previously preformed.
A substantial number of the financial transactions were
payments for the promotion of ongoing or future fraudulent
activity. For example, because he was such a large customer,
America's Classifieds required Mr. Grasso to pay by wire
transfer when he approved advertising to eliminate the risk
that it would not be paid-after the advertising was placed,
(N.T. 2/20/02, pp. 99-101), Lelli Printing charged Mr.
Grasso for postage as it was being used for a specific project
(N.T. 2/13/02, p 155) and Spare Time Magazine billed Mr.
Grasso for advertising to be placed in multiple future issues
(N.T. 2/21/02, p.117-119).
Second, and more importantly, it is irrelevant
whether the payments were made before, during, or after
the fraudulent activity. The Third Circuit Court of Appeals
6 The Court notes that this argument is similar to the one
presented before Judge Kauffman in Defendant's Motion to Dismiss the
Money Laundering Counts. There, Defendant unsuccessfully argued that
the payment to the vendors was not money laundering because the fraud
could not be considered complete until the vendors were paid.
39a
has held that "a defendant can engage in financial
transactions that promote not only ongoing or future
unlawful activity, but also prior unlawful activity." Paramo,
998 F.2d at 1218. In an ongoing fraudulent scheme like the
one for which Defendant was convicted, money laundering
occurs when proceeds of an illegal act are used to further
the unlawful scheme. See, e.g., United States v. Cefaratti, 221
F.3d 502, 511 (3d Cir. 2000) (holding that-the defendant
laundered money when he reinvested fraudulently obtained
educational loan money into his school); United States v.
Conley, 37 F.3d 970, 980 (3d Cir. 1994} (holding that the
defendant laundered money when he used money collected
from illegal poker machines to purchase more poker
machines). Defendant was therefore promoting his
fraudulent scheme by paying the bills necessary to keep the
fraud alive and growing.
B. Net Income v. Gross Receipts
Mr. Grasso next argues that the government has
failed to establish money laundering because it did not
prove at trial that the transactions with America's Classified,
Lelli Printing, Western States, and Spare Time Magazine
were conducted with "net income " In support of his
position, Mr. Grasso cites a recently decided Seventh Circuit
case, United States v. Scialabba, 282 F.3d 475 (7 Cir. 2002). In
Scialabba, the Seventh Circuit vacated the money laundering
convictions of defendants - who illegally furnished video
poker machines to bars and restaurants - where evidence
established only that defendants used the money deposited
in the poker machines to meet expenses of the business and
to pay the owners of the establishments in which the
machines were operated. Scialabba stated that when "a crime
entails voluntary, business-like operations, 'proceeds' must
be net income; otherwise, the predicate crime merges into
money laundering (for no business can be carried on
40a
without expenses) and the word 'proceeds' loses operational
significance." Scialabba, 282 F.3d at 475.
I decline follow the reasoning set forth in Scialabba as
it is susceptible to criticism on several grounds. First, the
Seventh Circuit's definition of "proceeds" runs contrary to
authorities on the plain meaning of the word. See, e.g.,
BLACK'S LAW DICTIONARY 1222 (7th ed. 1999) (listing "net
proceeds" as a separate entry under "proceeds"). Second,
limiting "proceeds" to "net profits" as the Seventh Circuit has
done, may lead to curious results. Specifically, under the
rationale set forth in Scialabba,"[o]ne could argue that so long
as the illegal enterprise had no net profit, no money
laundering prosecution would be possible. Because
Congress could not have intended such a result, the court
follows the majority of circuits in holding that 'proceeds'
should be interpreted as "total revenue" rather than ‘net
profits."' United States v. Iacaboni, 221 F. Supp. 2d 104,112 (D.
Mass. 2002) (citing United States v. Hurley, 63 F.3d 1, 21 (1st
Cir. 1995)).
The Third Circuit has decided numerous cases in
which it has read the money laundering statute to prohibit
transactions undertaken to promote additional criminal
conduct by reinvesting the proceeds of criminal conduct.
Cefaratti, 221 F.3d at 511; Conley, 37 F.3d at 980; United States
v. Diaz, 245 F,3d 294, 305 (3d Cir. 2002); United States v.
Smith, 186 F.3d 290, 298 (3d Cir. 1999). In these opinions, the
Third Circuit has never intimated that the term "proceeds"
in 18 U.S.C. § 1956(a)(1) should be read as "net proceeds". I
will not deviate from the Third Circuit's reading of the
"money laundering statute.
4la
CONCLUSION
For the foregoing reasons, I will deny Defendant's
Motion and sentence Mr. Grasso under the money
laundering guidelines. An appropriate order follows.
42a
IN THE UNITED STATES DISTRICT COURT FOR THE
EASTERN DISTRICT OF PENNSYLVANIA
UNITED STATES :
OF AMERICA : CRIMINAL ACTION
V. : NO. 00-CR-51
NO. 01-CR-783
MICHAEL J. GRASSO, JR. :
ORDER
AND NOW, this _15 _ day of January, 2003, upon
consideration of Defendant Michael Grasso's Motion for
Judgment of Acquittal on the Money Laundering Counts
(Criminal Number 00-CR-51, docket no. 128), the
Government's Reply Memorandum (Criminal Number 00-
CR-51, docket no. 133), and following oral argument therein,
it is hereby ORDERED that:
Defendant's Motion is DENIED. Accordingly,
Defendant will be sentenced under the money laundering
counts in connection with Criminal Number 00-CR-51.
BY THE COURT:
/s/ Berle M. Schiller
BERLE M. SCHILLER, J.
LT
43a
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
Nos. 03-1441/ 03-1442
UNITED STATES OF AMERICA
v.
MICHAEL J. GRASSO, JR.,
Appellant
Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Criminal Action Nos. 00-cr-00051-1/01-cr-00783-1)
District Judge: Honorable Berle M. Schiller
Argued December 12, 2003
[ENTERED: September 21, 2004]
Present: SCIRICA, Chief Judge. SLOVITER, NYGAARD,
ALITO, ROTH, McKEE, RENDELL, BARRY, AMBRO,
FUENTES, SMITH, CHERTOFF, FISHER, VAN
ANTWERPEN and GARTH’, Circuit judges
SUR PETITION FOR PANEL REHEARING WITH
SUGGESTION FOR REHEARING EN BANC
: Judge Garth's vote is limited to panel rehearing only.
44a
The petition for rehearing filed by Appellant having
been submitted to the judges who participated in the decision
of this Court, and to all the other available circuit judges in
active service, and no judge who concurred in the decision
having asked for rehearing, and a majority of the circuit
judges of the Circuit in regular active service not having
voted for rehearing by the court en banc, the petition for
rehearing is DENIED.
By the Court,
/s/ Thomas L. Ambro, Circuit Judge
Dated: September 21,2004
LML/cc Walter M. Phillips Jr., Esq.
(Anne W. Chain, Esq.
(Peter F. Schenck, Esq.
U.S. Const. Amend. VI:
In all criminal prosecutions, the accused shall enjoy the right
to a speedy and public trial, by an impartial jury of the State
and district wherein the crime shall have been committed,
which district shall have been previously ascertained by
law, and to be informed of the nature and cause of the
accusation; to be confronted with the witnesses against him;
to have compulsory process for obtaining witnesses in his
favor, and to have the Assistance of Counsel for his defense.
18 U.S.C. § 1956(a)(1). _Laundering of monetary
instruments:
(a)(1) 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 -
(A)(i) with the intent to promote the carrying on of
specified unlawful activity; or
(ii) | with intent to engage in conduct constituting
a violation of section 7201 or 7206 of the Internal Revenue
Code of 1986; or
(B) knowing that the transaction is designed in
whole or in part -
(i) to conceal or disguise the nature, the location,
the source, the ownership, or the control of the proceeds of
specified unlawful activity; or
' (ii) to avoid a transaction reporting requirement
under State or Federal law,
shall be sentenced to a fine of not more than $500,000
or twice the value of the property involved in the
transaction, whichever is greater, or imprisonment for not
more than twenty years, or both.
46a
U.S. Sentencing Guidelines Manual § 2B1.1(b)(1) (2001):
Larceny, Embezzlement, and Other Forms of Theft; Offenses
Involving Stolen Property; Property Damage or Destruction;
Fraud and Deceit; Forgery; Offenses Involving Altered or
Counterfeit Instruments Other than Counterfeit Bearer
Obligations of the United States
* * &*
(b) Specific Offense Characteristics
(1) If the loss exceeded $5,000, increase the
offense level as follows:
Loss(Apply the Greatest) Increase in Level
(A) $5,000 or less no increase
(B) More than $5,000 add 2
(C) More than $10,000 add 4
(D) More than $30,000 add 6
(E) More than $70,000 add 8
(F) More than $120,000 add 10
(G) More than $200,000 add 12
(H) More than $400,000 add 14
(I) More than $1,000,000 add 16
J) More than $2,500,000 add 18
K) = More than $7,000,000 add 20
L) = More than $20,000,000 add 22
M) More than $50,000,000 add 24
N) More than $100,000,000 add 26
47a
U.S. Sentencing Guidelines § 2S1.1:
Laundering of Monetary Instruments; Engaging in
Monetary Transactions in Property Derived from Unlawful
Activity
(a) Base Offense Level:
(1) The offense level for the underlying offense
from which the laundered funds were derived if (A) the
defendant committed the underlying offense (or would be
accountable for the underlying offense under subsection
(a)(1)(A) of §1B1.3 (Relevant Conduct)); and (B) the offense
level for that offense can be determined; or
(2) 8 plus the number of offense levels from the
table in §2B1.1 (Theft, Property Destruction, and Fraud)
corresponding to the value of the laundered funds,
otherwise.
(b) Specific Offense Characteristics
(1) If (A) subsection (a)(2) applies; and (B) the
defendant knew or believed that any of the laundered funds
were the proceeds of, or were intended to promote (i) an
offense involving the manufacture, importation, or
distribution of a controlled substance or a listed chemical;
(ii) a crime of violence; or (iii) an offense involving firearms,
explosives, national security, terrorism, or the sexual
exploitation of a minor, increase by 6 levels.
(2) (Apply the Greatest):
(A) _ If the defendant was convicted under
18 U.S.C. § 1957, increase by 1 level.
(B) If the defendant was convicted under 18
U.S.C. § 1956, increase by 2 levels.
(C) __ If (i) subsection (a)(2) applies; and (ii)
the defendant was in the business of laundering funds,
increase by 4 levels.
(3) If (A) subsection (b)(2)(B) applies; and (B) the
offense involved sophisticated laundering, increase by 2
levels.
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.