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U.S. v. Moscony

filed: March 8, 1991.


On Appeal from the United States District Court for the Eastern District of Pennsylvania; D.C. Criminal Action No. 88-258.

Stapleton, Greenberg, and Weis, Circuit Judges.

Author: Greenberg


GREENBURG, Circuit Judge


This case is before the court on appeal by John P. Moscony from numerous convictions for offenses which he committed in the operation of his real estate business, arising from home mortgage insurance programs of the United States Department of Housing and Urban Development/Federal Housing Administration. Under these programs, see 24 C.F.R. §§ 203 et seq., §§ 221 et seq., there are, inter alia, three requirements: (1) the buyer must, in essence, put down at least 3% cash toward the cost of acquisition (the "minimum borrower investment"), 24 C.F.R. §§ 203.19(a)(1), 221.50(a); (2) the buyer must use the home as a residence to qualify for a 97% loan-to-value mortgage, 24 C.F.R. §§ 203.18(c), 221.20(a); and (3) the buyer must have an income sufficient to make the mortgage reasonably sound to insure, 24 C.F.R. §§ 203.33, 221.60(e). Information regarding the buyer's compliance with these requirements, and other buyer-related information, is in part received by the FHA on mortgage applications, so-called "FHA 2900's," which bear this warning:

Federal Statutes provide severe penalties for any fraud, intentional misrepresentation, or criminal connivance or conspiracy purposed to influence the issuance of any guarantee or insurance by . . . the HUD, FHA Commissioner.

Buyer information and the particulars of the proposed transaction is also garnered through the purchase agreement -- which, inter alia, discloses the names of the parties and the purchase price --, and through real estate broker "escrow letters" in which the broker sets forth the amount of cash that the buyer has on deposit with the real estate agency to use as a down payment.

Under the FHA mortgage insurance program as applied to the transactions relevant to this case, after a mortgage application was approved on the basis of the buyer/borrower information contained in the FHA 2900, the purchase agreement, the escrow letter, and any additional papers, the FHA agreed to insure the mortgage. The mortgage, in turn, was taken by an independent mortgage company for the loan to the buyer, and the loan check was written out to the abstract company from the mortgage company's account in either New Jersey or Texas. The abstract company would then deposit the loan check in its account in Pennsylvania and, acting as settlement agent at closing, would write all the necessary checks from its settlement account. The seller received the balance of the loan proceeds after the claims of all interested parties were paid, and the settlement agent then filled out and sent to the FHA a settlement sheet showing the final particulars of the transaction -- including the payments made at closing, and how much cash the buyer actually brought to the closing. Starting in 1984, under a so-called "direct endorsement" program, the initial decision to guarantee a mortgage based on all of the information submitted was delegated by the FHA to the mortgage companies, with the FHA retaining ultimate authority and responsibility over the guarantee.

Appellant John P. Moscony -- real estate broker, real estate speculator, and homeowners' insurance salesman -- came under investigation when it was noticed that he had been involved in a large number of FHA-backed real estate transactions in which the buyers defaulted on the mortgages. After a lengthy grand jury investigation, in June of 1988, Moscony, and his chief salesman, partner, and co-conspirator, Thomas Cullen, were indicted in multiple counts, of orchestrating an intricate and protracted fraud upon the FHA and the Internal Revenue Service. Cullen ultimately pled guilty and testified for the government at Moscony's trial.

Count 1 of the redacted indictment charged Moscony with conspiracy to defraud the United States, in violation of 18 U.S.C. § 371. Two different methods of fraud were alleged -- fraud by impeding HUD's proper functioning of the FHA mortgage insurance program, and fraud by impeding the proper functioning of the IRS. The jury, by special interrogatory, found that Moscony had conspired to defraud the United States through both methods.

As the detailed evidence at trial revealed overwhelmingly, the conspiracy that Moscony directed against the FHA involved numerous acts of fraud by Moscony and others. To conceal the buyer's or his own failure to produce the 3% minimum borrower's investment, Moscony sent the mortgage company false escrow letters grossly overstating the amount the buyer had on deposit at Moscony Real Estate. In this connection, Moscony often withheld from the mortgage company promissory notes that had been executed between the buyers and Moscony Real Estate which represented the difference between the money actually in escrow and the amount stated in the escrow letters. The evidence at trial strongly suggested that no effort was made to collect on these promissory notes, as they were nothing more than a sham. It was Moscony Real Estate office policy not to send these notes on to the mortgage company. Also in connection with the buyer's noncompliance with the 3% requirement, Moscony arranged, and arranged to conceal in several ways, "seller assists," whereby the seller essentially kicked back to the buyer part of the purchase price, or assented to accept a lower gross amount for the home than that stated by the purchase agreement, to make it appear that the buyer had met the 3% minimum required investment. Although the FHA did not forbid seller assists per se, such arrangements had to be disclosed to ensure that the buyer, on his own, was still putting down at least 3% of the total acquisition cost of the home. Under Moscony's scheme, agreements for these "seller assists" were made in endorsements to the purchase agreements. It was Moscony Real Estate office policy not to send these endorsements on to the mortgage company.

Moscony also lied, or caused his clients to lie, about whether the home was to be used as a primary residence, about whether the FHA-guaranteed mortgage was an original mortgage or was to be used to refinance, and about the borrower's assets, liabilities, and income. Moscony also caused fraudulent settlement sheets to be executed at closings by cooperative settlement agents so that his various manipulations could be hidden. The evidence at trial showed that this "got to be an automatic thing . . . ." Finally, but not exhaustively, because of the routine use of aliases throughout the transactions, Moscony-committed and Moscony-directed forgery was pervasive in connection with purchase agreements, FHA 2900's, escrow letters, settlement sheets, and checks. The net result of Moscony's activities was that the FHA insured the loans of persons, real and fictitious, which would not have been insured had the true state of affairs been properly revealed.

The fraud perpetrated upon the IRS generally involved transactions in which Moscony and Cullen were the sellers: the home would be sold under an alias and side checks for phony debts to fictitious third persons were used to draw off and conceal the proceeds of the sale. Additionally, the evidence at trial revealed that it was routine office practice at Moscony Real Estate not to report to the IRS commissions made by Moscony and Cullen in deals involving homes owned by them.

Continuing with the indictment, Count 2 charged Moscony with violating the Racketeer Influenced and Corrupt Organizations Act (RICO), 18 U.S.C. § 1962(c). "Moscony Real Estate" was alleged as the enterprise, and 79 individual racketeering acts were submitted to the jury, all of which were unanimously found by special interrogatory to have been proven beyond a reasonable doubt. Racketeering acts 1-18 were linked to Counts 3 through 22, which charged Moscony with separate violations of interstate transportation of money taken by fraud, 18 U.S.C. §§ 2314, 2 (Counts 3 through 20) -- predicated upon the loan checks being drawn from the mortgage company's out-of-state account and being deposited in the abstract company's in-state account --, and with money laundering, 18 U.S.C. § 1956(a)(1)(B) (Counts 21 and 22) -- predicated upon two incidents of drawing off and concealing profits through the issuance and cashing of checks written to fictitious persons from the loan proceeds. Racketeering Acts 19-20 were linked to Counts 23 and 24, which charged Moscony with obstruction of justice, 18 U.S.C. § 1503, in connection with destruction or concealment of materials subpoenaed by the grand jury. Racketeering Acts 21-97 alleged an additional 59 non-substantively-charged violations of interstate transportation of money taken by fraud.*fn1

Counts 25 through 39 charged Moscony with making false statements, 18 U.S.C. §§ 1001, 2, in connection with 15 different false escrow letters. Counts 40, 44 and 47 through 54 charged Moscony with further false statements in connection with 10 different occasions of Moscony lying, or causing his customers to lie, on forms submitted to the FHA. 18 U.S.C. §§ 1001, 2. Finally, Counts 55 through 57 charged Moscony with filing false income tax returns, 26 U.S.C. § 7206(1), for 1983-1985.*fn2

Upon being convicted of all counts presented to the jury, Moscony was sentenced to a total of 80 months' imprisonment, 3 years' supervised release, a fine of $150,000, restitution to the United States of $418,000, and forfeiture of $250,000. The 80 months was imposed on the RICO count and, while there were custodial sentences on other counts as well, the 80 months was the effective sentence, as all custodial sentences were for less than 80 months and were concurrent with the RICO sentence.


We deal first with an issue with respect to Moscony's representation at trial. During the great part of the grand jury investigation phase of this case, from December of 1986 through approximately June 30, 1987, Moscony and Cullen, together with other Moscony employees including Elizabeth Thiel, Patrizia Napolitano, and Rosemary Siermine, were all represented by J. Shane Creamer of Sprague, Higgins and Creamer -- this, despite several warnings from the government that the multiple representation might pose a conflict of interest. Shortly after the grand jury indicted Moscony and Cullen on June 22, 1988, the government, recognizing that Thiel, Napolitano, and Siermine were expected to be called as witnesses at trial, moved to disqualify the Sprague firm from representing Moscony. Thiel, Napolitano and Siermine joined in this motion and Thiel and Napolitano moved to suppress affidavits which they signed at Moscony's request and which he notarized. The affidavits were drawn up by Creamer based on ...

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