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Ostrer v. United States

decided: April 18, 1978.

LOUIS OSTRER, PETITIONER-APPELLANT,
v.
UNITED STATES OF AMERICA, APPELLEE



Appeal from an order of the Southern District of New York, Charles L. Brieant, Jr., Judge, denying after a hearing appellant's petition under 28 U.S.C. § 2255 to vacate his conviction of conspiracy to violate federal securities laws and mail and wire fraud statutes, and of substantive violations. Affirmed.

Moore, Smith and Mansfield, Circuit Judges. Moore, Circuit Judge concurring.

Author: Mansfield

MANSFIELD, Circuit Judge:

On January 26, 1973, Louis Ostrer was convicted by a jury in the Southern District of New York, David N. Edelstein, Chief Judge, after a three-week trial on 11 counts of a 40-count indictment charging him with conspiring in violation of 18 U.S.C. § 371 to violate certain provisions of the federal securities laws and regulations, 15 U.S.C. §§ 77q(a), 77x, 78j(b), 78ff, Rule 10b-5, 17 C.F.R. 240.-10b-5, and the federal mail and wire fraud statutes, 18 U.S.C. §§ 1341, 1343, and with substantive violations of these securities and mail fraud statutes. Chief Judge Edelstein sentenced him to a term of three years imprisonment and to pay fines of $55,000. We affirmed his conviction in United States v. Dioguardi, 492 F.2d 70 (2d Cir.), cert. denied, 419 U.S. 829, 95 S. Ct. 49, 42 L. Ed. 2d 53 (1974).

After pursuing other post-conviction relief without success*fn1 Ostrer, who has now been free on bail for more than five years, was scheduled to commence service of his sentence on April 15, 1977. However, on April 14, 1977, he filed in the district court a petition to vacate his conviction pursuant to 28 U.S.C. § 2255 on the ground that the Government had not disclosed at Ostrer's trial certain information required by Brady v. Maryland, 373 U.S. 83, 10 L. Ed. 2d 215, 83 S. Ct. 1194 (1963), and 18 U.S.C. § 3500, and that additional evidence had been acquired concerning the mental instability of a person who had served on his trial jury. After an evidentiary hearing, the petition was denied. We affirm.

The evidence at Ostrer's trial showed that he and several others, including his co-defendant John Dioguardi, were involved in a scheme to raise artificially the price of the stock of the Belmont Franchising Corporation (Belmont). The cornerstone of the Government's case against Ostrer was the testimony of Michael Hellerman, a participant with Ostrer and Dioguardi in the Belmont fraud. Ostrer's defense at trial consisted primarily of an attempt to impeach Hellerman's credibility. See United States v. Dioguardi, supra, 492 F.2d at 73-74 (2d Cir. 1974).

The present appeal is concerned principally with evidence of two incidents known to the Government prior to Ostrer's trial, but which were not discovered by Ostrer until recently. He contends that this evidence should have been made available to him as Brady material before trial because it amounted to benefits given to Hellerman by the Government in return for his cooperation and testimony, which Ostrer's counsel could have exploited in his cross-examination of Hellerman to show a further motive for Hellerman to lie.

The first of these incidents is the so-called "Natco Episode." While Hellerman was cooperating secretly as a Government informant in 1970-71 he advised the United States Attorney's Office that he and several other individuals were involved in a fraud designed to drive Natco, Inc. ("Natco"), and Merchandise Plus, Inc., two Long Island-based companies, into bankruptcy. As the companies went bankrupt, Hellerman and others, including Steven Schustek, the president of Natco, planned to steal the companies' assets and leave the creditors empty-handed.

Hellerman informed the Government that part of this fraud involved the cashing of an $80,000 check through a casino in the Bahamas. Acting on Hellerman's information, FBI agents were able to thwart this aspect of the fraud by preventing the check from being cashed. As a result, however, the Government found itself in possession of corporate funds belonging to Natco.

Robert Morvillo, formerly chief of the Criminal Division of the U.S. Attorney's Office for the Southern District of New York, testified at the hearing on appellant's § 2255 petition that the Government did not feel that it could maintain control over this money for fear of accelerating Natco's decline into bankruptcy and of possibly becoming entangled in litigation with Natco or its creditors. The situation was complicated by Hellerman, who was deeply in debt to several loansharks and had suggested to Morvillo that the Government give him the money to pay his debts.

Morvillo rejected this suggestion but told Hellerman that the Government would release the money to a lawyer representing Natco on the assurance that the funds would be placed in the corporation's account. Both Morvillo and Hellerman testified that Morvillo warned Hellerman and Schustek that they would be prosecuted if the money was later diverted by them to non-corporate purposes.

On February 1, 1971, Edward Kurland, a lawyer retained by Schustek for the sole purpose of retrieving the $80,000, presented to the U.S. Attorney's Office a written demand on behalf of Natco for the funds, which were then released to him and deposited in a corporate account, according to Morvillo's instructions. Within a few weeks, however, the money was transferred to another account, and Schustek then withdrew all but a few dollars of the full amount, at least a portion of which was used by Hellerman to pay his debts.

Morvillo could not recall whether he learned prior to Ostrer's trial that Hellerman had been able to pay his debts from the $80,000; and Hellerman did not recall ever so informing Morvillo. The record contains an uncontradicted affidavit, which the district court credited, from the Assistant U.S. Attorney who prosecuted Ostrer in 1973 to the effect that prior to Ostrer's trial he knew nothing of Natco or of the $80,000 transaction. However, the record also contains a memorandum dated April 26, 1971 (less than three months after Morvillo gave the Natco check to Kurland) sent to Morvillo from the Assistant U.S. Attorney directly responsible for Hellerman-related investigations in 1971, which describes Schustek's transfer of the money from the corporate account and his withdrawal of "all but $23 of the $80,000 in cash - $100 bills." On the basis of this memorandum the district court found that the Government knew, or should have known, as early as April, 1971, that Schustek and Hellerman had not heeded Morvillo's instructions concerning the proper disposition of the Natco funds.

Although Judge Brieant found that Ostrer had failed to establish that the $80,000 was "intentionally released to Hellerman so he could pay loansharks," he also concluded that the Government's decision had in effect made it possible for Hellerman to gain a benefit ...


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