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UNITED STATES v. CAPUTO

April 28, 1986

UNITED STATES OF AMERICA
v.
CHARLES N. CAPUTO, LEONARD L. MARTINO



The opinion of the court was delivered by: O'NEILL

O'NEILL, J.

 MEMORANDUM

 A grand jury returned a sixteen-count indictment against defendants Charles N. Caputo and Leonard L. Martino. Caputo was Executive Director of the State Government Committee of the Pennsylvania House of Representatives; Martino is a former member of the Legislature.

 Count One charges that defendants engaged in a conspiracy to suborn and commit perjury, and to obstruct justice in violation of 18 U.S.C. § 371. Count Two charges that they obstructed justice in violation of 18 U.S.C. § 1503. The remaining fourteen counts charge perjury in violation of 18 U.S.C. § 1621: Counts Three through Five charge that Caputo committed perjury before the grand jury on February 11, 1985; Counts Six through Eleven charge that Martino committed perjury before the grand jury on the same date; and Counts Twelve through Sixteen charge that Caputo committed perjury before the grand jury on March 11, 1985.

 Defendants have moved for dismissal of the indictment or, in the alternative, suppression of their February 11, 1985, grand jury testimony. For the reasons set forth herein, we will grant the motions to dismiss Counts I and II and suppress certain evidence; in all other respects, the motions will be denied.

 I

 From 1982 until February 1985, the FBI conducted an extensive undercover "sting" operation known as Operation Gallstone. Gallstone involved the use of a number of cooperating individuals, and resulted in numerous indictments. Using the pseudonym Wayne Hess, FBI agent James Vaules, with the assistance of others, pretended to be engaged in the insurance business and held himself out as being interested in participating in a variety of illegal schemes.

 From April 1982 to February, 1985, Vaules and other undercover agents met with defendants on numerous occasions and engaged in more than 100 conversations with them, virtually all of which were audio tape recorded. Stipulation para. 3. *fn1" According to the government, those conversations related to, inter alia, (1) defendants' request for a $5,000 cash payment to be given to a member of the state legislature and to others to procure the issuance of a license to an undercover company, American Diversified Insurance Company (ADIC), to write insurance in Pennsylvania; (2) defendants' fraudulent "padding" of ADIC's books with worthless mine leases and securities; and (3) defendants' ability to cause, by means of campaign contributions, United States Congressmen to write letters to the U.S. Parole Commission and the Bureau of Prisons requesting a furlough for Jack Goepfert. Goepfert was serving a five-year sentence for conspiracy to commit mail and wire fraud and conspiracy to make fraudulent use of the mails for interstate transportation of false securities.

 "As of mid-January, 1985, it was the judgment of Mr. Welsh that, although there existed probable cause to indict the defendants for their activities during the undercover operation, Mr. Welsh believed that the defendants could not be successfully prosecuted because of insufficient evidence to rebut possible defenses that could be raised by the defendants. Therefore, it was Mr. Welsh's judgment that they could not be indicted for such activities." Stipulation para. 4.

 At the same time, the government developed a plan to determine how defendants would react to being questioned by FBI agents, acting as such, about their conversations and conduct with the FBI undercover personnel during the preceding three years. In accordance with the plan, defendants were interviewed in late January and early February, 1985. The agents did not reveal that defendants had been the subject of a three-year investigation or that their prior conversations had been recorded. The agents filed FBI 302 reports purporting to state what defendants had said during their interviews. Government's memorandum in opposition to defendant Caputo's omnibus pretrial motion, Exhibits C, D, and E.

 The FBI and the prosecutor concluded that defendants had lied about the content of their previous conversations with the undercover agents. In late January 1985, the FBI and the prosecutor decided to issue grand jury subpoenas for the appearances of defendants and a sham grand jury subpoena for the appearance of "Hess" (Vaules). After issuance of the subpoenas, defendants and Vaules discussed what the three would tell the grand jury concerning their relationship in the preceding three years. Stipulation para. 11.

 Defendants appeared before the grand jury on February 11, 1985. No evidence had been presented to any grand jury with respect to the subject matter of the investigation of defendants. The prosecutor believed that there was a substantial likelihood that defendants would lie to the grand jury concerning the content of their conversations with Vaules and Goepfert during the preceding three years. This belief was based on defendants' FBI interviews and their statements to Vaules after the grand jury subpoenas were issued. The prosecutor also recognized that defendants might invoke their Fifth Amendment privilege against self-incrimination. Stipulation para. 12.

 On the morning of February 11, 1985, FBI Agent Kenney testified about defendants' involvement in the schemes to make a payment to obtain favorable treatment from the Insurance Commission for ADIC and political contributions to secure a furlough for Goepfert. Testimony of Francis J. Kenney before Grand Jury, February 11, 1985, at 12, 15-22.

 Near the conclusion of Kenney's testimony, the prosecutor offered the following explanation of how the government would proceed with defendants.

 
"The agent has told you that it is based upon the evidence or the statements of Caputo and Martino only that one may conclude that there are corrupt state and federal officials. That is what we were interested in and that is what we are looking into and are investigating.
 
"As of now, the next step we propose to take is to bring in Caputo and Martino and ask them if they, in fact, did arrange these bribes, the bribe pertaining to the Pennsylvania insurance matter and the bribe pertaining to Goepfert's furlough. "You see then that as of now, there is evidence from which you could conclude that there is -- there are potentially dishonest public officials here, at least we have these letters being sent by Congressman . . . which suggests somebody in his office may have been involved but as of now, the government, respectfully to the Congressmen, will proceed the only way available and that is to attempt to seek testimony from Caputo and Martino concerning what they did."

 Id. at 21-22.

 Thereafter, Kenney testified that defendants had been questioned by FBI agents with respect to ADIC's application for a license. He said that defendants' answers were vague; that defendants had acknowledged that they knew and had met with Goepfert and Hess concerning ADIC; and that defendants stated they had not received money from Goepfert or Hess for favorable action on ADIC's application or for any other matter. Finally, Kenney testified that, to his knowledge, defendants were not questioned specifically about the furlough matter. Id. at 22-23.

 The prosecutor then informed the grand jury that he intended to ask defendants about their previous statements and said:

 
"In fairness to Caputo and Martino, I think that I'd like to be as specific as possible to [sic] the questions I'm going to ask. I recommend that if you have questions you want to ask them, that we discuss it.
 
* * * *
 
"But for right now, it is the government's theory that the most reasonable step to determine whether or not there are corrupt federal or state officials is to ask these people about it in the absence of any other ideas as to what direction we can take."

 Id. at 23-24. He stated that he did not know what the defendants would say, but that they might provide testimony which would incriminate a Congressman in the Goepfert scheme and a state legislator in the insurance licensing scheme. He also stated that:

 
"On the other hand we may not get honest testimony today, which is a factor that you ought to be forewarned about. They did lie to the agents, it appears, and it's possible. Now, if they do lie, it's likely that we'll bring them back and see if they want, after being confronted with the fact of all the tape recordings, see whether they want to change or see if they want to assist or plead guilty or who knows what."

 Id. at 29.

 Defendants had been subpoenaed to appear at 2:00 p.m. ...


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