Defendant was convicted, after a jury trial in Suffolk County Court, of 13 counts of grand larceny in the second degree and 2 counts of grand larceny in the third degree. Subsequently, he was convicted of 36 counts of grand larceny in the second degree and 4 counts of grand larceny in the third degree in a nonjury trial in County Court, Nassau County.
On these appeals, defendant contends that the People failed to prove his guilt of the crime of larceny by false promise, beyond a reasonable doubt. Specifically, he maintains that the People’s proof failed to exclude to a moral certainty every hypothesis but that at the time defendant or his authorized agents induced people to invest money with him by promising them an inordinately high rate of return in a short period, he had no intention of fulfilling his promises.
A Nassau County Criminal lawyer said that the true manner in which defendant obtained possession of the money and the uses to which those funds were applied was revealed through the testimony of his agents, as well as the statements and actions of the defendant himself. The defendant’s chief associate and supervisor of his sales force, testified that when he met the defendant in late 1971 he was immediately impressed with his aura of prosperity. Offered a position as a solicitor of investor funds, Merlo was informed that although Associates and its subsidiaries stood behind the investments, the key to the continued success of the scheme was the constant accretion of new investment funds into the plan. He initially attracted a number of new investors, trading on the appearance of prosperity surrounding Associates and the defendant together with the promise of a large rate of return on a short-term investment.
The mechanics of investment in the plan were essentially constant. In return for their money, depositors were given a promissory note signed by the criminal defendant specifying the date payment was due and the gross amount to be paid. Merlo would collect the money for the new investments on Thursday and bring it to defendant. The following day, defendant would give the associate the funds needed to distribute to clients withdrawing funds from the program. The associate was told by defendant that he drove to Philadelphia to invest the money on Thursday evenings where he picked up the funds necessary for distribution the following day.
Accordingly, over a two-year period, the project expanded with amazing rapidity. In keeping with the production-oriented nature of the plan, new agents were enlisted to collect and distribute investor funds. Defendant instructed the agents to inform investors that for a 12-week investment, 30% Interest would be returned by Associates. The agents were told to inform investors that Associates would invest their money in short-term real estate and performance bonds as well as various real or imagined subsidiaries.
The plan operated to the apparent satisfaction of all concerned until February 11, 1974 when the Nassau County Police, armed with a warrant, arrested an agent of defendant, searched his home and seized records relating to the operation of the plan. Visibly upset, defendant told the associate to destroy any records relating to the scheme in his possession and to instruct the other agents to do the same. The following morning, the criminal defendant fled to home in New Jersey after first burning his own records.
There then ensued what can best be described as a mad scramble to secure the funds necessary to pay the investors. During that period, defendant assured his agents that all investors would be paid and to continue to take in new funds. On February 28, 1974, defendant and associate Merlo met at New Jersey to arrange for the payment of investors.
After his arrest by Interpol on June 29, 1974, defendant was returned to the United States that October in the custody of detectives from Nassau and Suffolk Counties. On the flight back, he remarked that he was familiar with the life and that when he first started his plan he realized it would grow, but “he never dreamed it would ever catch on and grow like wildfire the way it did”.
Subsequent investigation revealed that many of criminal defendant’s representations concerning his corporate holdings and investments were at least misleading, and oftentimes simply false. For instance, most of the subsidiaries of Associates were simply shells, having no assets and doing no business. Each of the corporations that were in operation were doing so at a loss and were subsidized by investor funds.
A number of the concerns had already gone out of business at the time defendant represented them as viable entities; others never existed at all. Associates, the jewel of defendant’s empire, had never turned a profit and was used as a vehicle through which investor’s money flowed to its subsidiaries. In short, none of defendant’s putatively legitimate enterprises could have returned any funds to investors; in fact, those that did exist were draining investor money simply to stay in business.
As noted, both prosecutions proceeded under the theory that defendant’s conduct constituted the crime of larceny by false promise. Unknown to the common law, the crime of larceny by false promise is committed when a person “pursuant to a scheme to defraud obtains property of another by means of a representation, express or implied, that he or a third person will in the future engage in particular conduct when he does not intend to engage in such conduct”. The People maintain that to induce his victims to part with their money, defendant falsely promised to invest their funds in certain specified enterprises so as to generate a 30 to 40% Return in a 12-week period. There is no real dispute as to whether these promises were made. The People’s cases rested on the proposition that these promises were materially false for, in reality, defendant was engaged in a Ponzi scheme, whereby he took the investments from a subsequent group of individuals and used a portion of those funds to meet his obligations to earlier investors, retaining the difference.
A conviction of the crime of larceny by false promise cannot rest on mere probabilities; indeed, the standard of proof the People must satisfy is more burdensome than that of most crimes. Because the failure to perform a promise may ordinarily be redressed in the civil forum, the statute set forth ” a high standard of proof for establishment of the defendant’s intent”.
Accordingly, the mere fact that the criminal defendant’s promise was not performed, standing alone, is insufficient to sustain a conviction of larceny by false promise. A finding that the defendant obtained property by means of a promise to perform in the future when he had no intention of doing so at the time the promise was made “may be based only upon evidence establishing that the facts and circumstances of the case are wholly consistent with guilty intent or belief and wholly inconsistent with innocent intent or belief, and excluding to a moral certainty every hypothesis except that of the defendant’s intention or belief that the promise would not be performed”.
Only rarely is there any direct proof as to the intent of a criminal defendant at the time the promise was made. Of necessity, criminal intent must be inferred from the actions of a defendant after the promise was made, the nature of the promise and relevant circumstances surrounding it, and the actions of the defendant after his failure to perform.
In making this inquiry, however, great care must be exercised by the trier of fact so as to ensure that mere suspicion is not elevated into a finding of larcenous intent. Instead, a finding of larcenous intent may be made only where that determination flows naturally and reasonably from the facts in evidence and must exclude to a moral certainty any implication that the defendant has committed a mere civil wrong. Burglary was not involved.
That burden has been met here. The evidence discloses the existence of many circumstances beyond the mere failure of this defendant to perform his promise by his failure to pay his investors. The conclusion that defendant was engaged in a fraudulent Ponzi scheme is inescapable. Defendant represented to his associates, agents and investors that the funds placed with him would be invested in various enterprises whose business would be sufficient to generate an extraordinarily large profit within a brief period of time.
Indeed, the very size of the promised return on investment funds is indicative of larcenous intent. The investment program was not represented as a speculative venture. Instead, investors were guaranteed at the time they gave defendant their money that a large profit would be available to them in a matter of weeks. Typically, investors were promised a 30 to 40% Return in 12 weeks. To constitute a viable investment program, the profits from the funds invested by defendant must have been sufficient to return the profits guaranteed to investors, pay out 10% Of the principal sum invested to agents as well as cover the losses sustained by Associates and its subsidiaries.
Thus, there is simply no other conclusion but that defendant was using funds invested by subsequent investors to meet his prior obligations. Investors who wished to withdraw funds from the plan were paid from funds supplied by incoming investors. Hence, defendant’s ability to fulfill his promises was premised solely on the illegal continuation and expansion of receiving increased investment funds, which continuation was in jeopardy from the inception. The finding that defendant was conducting a fraudulent scheme rather than a legitimate investment program is further bolstered by his boast to associate that if his conduct became known, the Ponzi scheme would thereafter be known as the scheme.
Further evidence of defendant’s fraudulent intent may be inferred from his actions after the arrest of one of his Nassau County agents. When the scheme began to fall apart, defendant fled to New Jersey, stating that he did not want to be bothered by the District Attorney. He destroyed his records relating to the plan and instructed his agents to do likewise. Defendant hoped that by raising the funds necessary to pay back investors he would be able to stave off any larceny charges.
And, of course, defendant’s voluntary statements after his arrest in Sweden destroy any claim that he was merely an overly optimistic investment advisor whose fortunes plunged due to an unexpected downturn in the market.
It is true that defendant’s operations assumed some of the forms of a legitimate business venture. Nevertheless, beneath it all the manner in which he obtained possession of the money of his victims was by means of false promise. No other conclusion can be drawn from the record but that defendant plainly intended from the inception, and at every stage of his operation, to obtain the money of others by means of fraudulent devices and then appropriate that money to his own use. In sum, the evidence in these cases is wholly consistent with guilty intent and excludes to a moral certainty every hypothesis except that the criminal defendant intended to perform.
As an additional ground for reversal, defendant maintains that principles of both statutory and constitutional double jeopardy precluded his trial in Nassau County in connection with drug charges arising out of the same plan which was the predicate for his prior Suffolk County convictions. The flaw in these arguments lies in the fact that each larceny was an independent criminal transaction which can be prosecuted independently. Inasmuch as none of the victims named in the Suffolk County indictment were subjects of the subsequent Nassau County prosecution, there was no bar to the second trial.
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