Free Response to Motion - District Court of Colorado - Colorado

Case 1:04-cr-00103-REB

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO

Criminal Action No 04-cr-00103-REB UNITED STATES OF AMERICA Plaintiff, v. 1. NORMAN SCHMIDT, 2. GEORGE ALAN WEED, 3. PETER A.W. MOSS, 4. CHARLES LEWIS, 5. JANNICE McLAIN SCHMIDT, 6. MICHAEL SMITH, 7. GEORGE BEROS, Defendants. _____________________________________________________________________ GOVERNMENT'S RESPONSE TO DEFENDANT LEWIS' MOTION TO DISMISS COUNTS 1, 7, 8 and 9 OF SECOND SUPERSEDING INDICTMENT (joined by Defendants Norman Schmidt & George Beros) _____________________________________________________________________ The Government, by Wyatt Angelo and Matthew T. Kirsch, the undersigned Assistant United States Attorneys, respectfully requests that defendant Lewis' Motion to Dismiss [Doc. # 605] be denied on the grounds set forth below. SUPPLEMENTAL STATEMENT OF FACTS 1. The Second Superseding Indictment expanded the duration of the alleged conspiracy to October, 2004, or approximately 7 months following the arrest of the defendant Lewis. This was based on mailings of monthly statements, Ponzi payments, and correspondence by defendant Jannice McLain Schmidt to three

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investors from April to October, 2004. (Second Superseding Indictment, Counts 1, 7, 8, 9, 17 and 29 [Doc. # 604]). 2. All of these investors had invested in the high yield investment scheme prior to the arrest of defendants Lewis and Norman Schmidt. The government contends that Lewis, as well as Norman Schmidt, participated in the marketing of the fraudulent high yield investment scheme after the execution of search warrants on March 7, 2003 through the date of their arrest, and that the three individual investors linked to the above counts had been receiving monthly statements or Ponzi payments prior to and after defendants Schmidt's and Lewis' arrests. Counts 7, 8, and 9 do not reflect new investments, but a continuation of the practice of mailing account related materials to investors to "lull" them into a belief that the investment program was legitimate, that their invested funds were secure, and thereby avoid investor complaints and resulting government scrutiny. DEFENDANT LEWIS' MOTION IS PREMATURE 3. Whether a defendant's incarceration constitutes a withdrawal from the conspiracy and ends Pinkerton liability is a fact-specific issue and must be decided by the jury or by the Court at mid-trial. United States v. Flaharty, 295 F.3d 182,192-193 (2d Cir. 2002) (issue of withdrawal to be decided by jury in light of length and location of the internment, the nature of the conspiracy and other available evidence); United States. v. Urrego, 853 F. Supp. 646, 650 (E.D.N.Y. 1994); United States v. Escobar, 842 F. Supp. 1519, 1528 (E.D.N.Y. 1994).

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4.

Specifically, withdrawal is an affirmative defense, United States v. Eisen, 974 F.2d 246,268 (2d Cir. 1992), cert. denied, 507 U.S. 1029 (1993), on which the defendant bears the evidentiary burden. United States v. United States Gypsum Co. , 438 U.S. 422, 464 (1978); United States v. Parnell, 581 F.2d 1374, 1384 (10th Cir. 1978). This is a trial issue, and the Court should reserve decision until the time of trial. ARREST OF CONSPIRATOR DOES NOT CONSTITUTE WITHDRAWAL WHEN POST-ARREST ACTS WERE INTEGRAL TO THE CONSPIRACY

5.

The arrest of a conspirator simply terminates a defendant's active role in the conspiracy. Arrest alone does not absolve a co-conspirator of subsequent acts of co-conspirators. See United States v. Melton, 131 F. 3d 1400, 1405 (1997) (deciding whether losses resulting from acts of co-conspirators after arrest of conspirator are attributable to arrested conspirator under Sentencing Guidelines). The continuing membership of a conspirator in the conspiracy is presumed to continue until the last overt act by any of the co-conspirators. Flaharty, 295 F. 3d at 192.

6.

Defendant Lewis' assertion that arrest alone constitutes withdrawal from the conspiracy mis-perceives the holdings in the two New York District Court cases, Escobar and Urrego. These cases do not deal with the issue of whether a defendant must still adduce evidence of some affirmative act to withdraw from the conspiracy. That question was answered in United States v. Diaz, 176 F.3d 52, 98 (2nd Cir. 1999), which held that incarceration alone is insufficient to establish withdrawal and that the defendant must still bear the burden of showing 3

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more than just incarceration as evidence thereof. See also, United States v. Zarnes, 33 F.3d 1454, 1468 (7th Cir. 1994). 7. The mailings underlying Counts 7, 8, and 9 are a continuation of the conspirators' pre-arrest practice of mailing monthly statements, Ponzi payments, and account-related correspondence to investors. Defendants Schmidt and Lewis were fully familiar with this practice and the reasons behind it. As principals in the conspiracy, it was they who institutionalized the practice and directed the mailing of those materials to investors. The mailings were an integral part of the conspiracy. (See Second Superseding Indictment, ¶ 2(b).) 8. When a defendant sets in motion a train of events, he cannot escape liability therefor by quitting or even expulsion from a conspiracy. United States v. Paladino, 401 F.3d 471, 479 (7th Cir. 2000). The same should be true upon arrest. Without some affirmative action to withdraw from the conspiracy and prevent further loss or damage, absolution from post-arrest crimes which are part of that "train of events" would be inconsistent with Pinkerton liability. Based on the manner and means of the conspiracy, the post arrest mailings by a coconspirator were clearly foreseeable to Schmidt and Lewis as a continuation of past practice. 9. As counts 7,8, and 9 represent a continuation of the practices instituted and followed by Schmidt, Lewis, and their agents prior to their arrest, the jury is required to consider that evidence as part of the "nature of the conspiracy, and . . . other available evidence" in determining whether Schmidt and Lewis are

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accountable for those acts regardless of when they were arrested or imprisoned. Flaharty, 295 F.3d at 193-194. CONCLUSION 10. Withdrawal from conspiracy is not the proper subject of a motion to dismiss. It is a matter to be determined by the jury in light of all the evidence, specifically: the roles of Schmidt and Lewis in the conspiracy; the practices of the conspirators and their purpose in sending mailings of the kind described above, and; the fact that Lewis and Schmidt were both active (and undetained) members of the conspiracy at the time the three individuals made their investments. Respectfully submitted this 18th day of January, 2006, WILLIAM J. LEONE United States Attorney

s/ Wyatt Angelo WYATT ANGELO MATTHEW T. KIRSCH Assistant U.S. Attorneys 402 Rood Avenue, Suite 220 Grand Junction, CO 81501 Telephone: (970) 241-3843 Fax: (970) 248-3630 E-Mail: [email protected]

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Case 1:04-cr-00103-REB

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CERTIFICATE OF SERVICE (CM/ECF) I hereby certify on this 18th day of January, 2006, I electronically filed the foregoing GOVERNMENT'S RESPONSE TO DEFENDANT LEWIS' MOTION TO DISMISS COUNTS 1, 7, 8 and 9 OF SECOND SUPERSEDING INDICTMENT with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the following e-mail addresses: Peter Bornstein, Esq. [email protected] Thomas Hammond, Esq. [email protected] Declan J. O'Donnell, Esq. [email protected] Ronald Gainor, Esq. [email protected] Daniel T. Smith, Esq. [email protected] Thomas Goodreid, Esq. [email protected] Robert Patrick Sticht, Esq. [email protected] Paul B. Daiker, Esq. [email protected]

s/ Wyatt Angelo WYATT ANGELO MATTHEW T. KIRSCH Assistant U.S. Attorneys 402 Rood Avenue, Suite 220 Grand Junction, CO 81501 Telephone: (970) 241-3843 Fax: (970) 248-3630 E-Mail: [email protected]

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