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v. FRANK DIPASCALI, JR., Defendant.

09 Cr. 764 (RJS) ECF Case


MARC L. MUKASEY BRACEWELL & GIULIANI LLP 1177 Avenue of the Americas New York, New York 10036 (212) 508-6134 (telephone) Marc.Mukasey@bgllp.com

TABLE OF CONTENTS Page I. II. III. PROCEDURAL HISTORY............................................................................................... 1 THE PROPOSED BAIL CONDITIONS........................................................................... 2 FINANCIAL DISCLOSURES OF THE PROPOSED CO-SIGNORS............................. 3 (a) Co-Signor 1 and Co-Signor 2 ....................................................................................... 4 (b) Co-Signor 3 and Co-Signor 4....................................................................................... 5 (c) Co-Signor 5 .................................................................................................................. 6 (d) Co-Signor 6, Co-Signor 7, Co-Signor 8 and Co-Signor 9 ........................................... 6 (e) Financially Responsible Person 10............................................................................... 7 IV. V. THE COURT SHOULD ADJOURN SENTENCING UNTIL MR. DIPASCALI'S COOPERATION IS COMPLETE..................................................................................... 9 CONCLUSION................................................................................................................ 13


Defendant Frank DiPascali, Jr., by his attorneys, Bracewell & Giuliani LLP, respectfully submits this memorandum in further support of his application for bail. At the most recent hearing in connection with Mr. DiPascali's bail application, on October 28, 2009, the Court reserved judgment pending further submissions by the parties regarding (1) the background and financial circumstances of the individuals who are prepared to co-sign a bond on Mr. DiPascali's behalf, (2) Mr. DiPascali's potential value as a cooperating witness in Madoff-related investigations and prosecutions, and (3) the proposed application of Fed. R. Cr. P. 35(b) ("Rule 35(b)") to Mr. DiPascali's scheduled sentencing. This memorandum addresses the background and financial circumstances of the proposed co-signors, as well as the potential application of Rule 35(b) to Mr. DiPascali's case. We anticipate the Government will file a separate submission, ex parte and under seal, addressing Mr. DiPascali's current and anticipated value as a cooperating witness.1 I. Procedural History On August 11, 2009, Mr. DiPascali entered into a cooperation agreement with the Government and, pursuant to that agreement, pled guilty to a ten-count information. Following the plea, the Court remanded Mr. DiPascali over the objections of Mr. DiPascali and the

The Court indicated that the parties may make applications under seal to protect confidential information. This memorandum and the referenced exhibits, in accordance with Fed. R. Cr. P. 49.1(g), are submitted in redacted form. Pursuant to Rule 49.1(g), counsel for Mr. DiPascali hereby moves this Court to order the sealed filing of a reference list identifying each item of redacted information and specifying an appropriate identifier that uniquely corresponds to each item listed. See United States v. Amodeo, 71 F.3d 1044, 1051 (2d Cir. 1995) ("the privacy interests of innocent third parties . . . should weigh heavily in a court's balancing equation," and "family affairs . . . and similar matters will weigh more heavily against access"); United States v. Connolly (In re Boston Herald, Inc.), 321 F.3d 174, 184 (1st Cir. 2003) (personal financial records, such as account balances, are universally presumed private, and innocent third parties, like defendant's family members, have increased privacy interests); see also United States v. Strevell, 2009 U.S. Dist. LEXIS 19020, at *13 (N.D.N.Y Mar. 3, 2009) ("Numerous courts have found privacy interests worthy of protection such as . . . financial records, account information, personal identifiers, [and] third-party letters of support . . . ."). 1

Government. The Court, however, invited the parties to raise the bail issue again at a future time. Transcript of Proceedings dated August 11, 2009 ("Tr.") at 93. Accordingly, on October 16, 2009, the parties each filed a respective Motion for Reconsideration of Mr. DiPascali's Bail Conditions ("Motions for Reconsideration"). On October 28, 2009, the Court heard argument in support of the Motions for Reconsideration and reserved judgment pending further submissions by the parties. As set forth herein, the issues on which the Court requested briefing weigh heavily in favor of admitting Mr. DiPascali to bail and allowing his cooperation and sentencing to follow the traditional course. II. The Proposed Bail Conditions The proposed bail conditions provide clear and convincing evidence that Mr. DiPascali does not pose a risk of flight, and should be granted bail pending sentencing. See 18 U.S.C. § 3141 et seq. Moreover, the extraordinary cooperation Mr. DiPascali is anticipated to provide and the effect that cooperation may have in reducing his sentence further incentivizes Mr. DiPascali not to flee. It is respectfully submitted that Mr. DiPascali should be admitted to bail upon satisfaction of the following conditions: (a) (b) execution of a $10 million personal recognizance bond; the bond will be co-signed by nine financially responsible persons, including Mr. DiPascali's two adult children, his sister, his wife and his mother; the bond will be secured by approximately $2,000,000, including: (i) (ii) three family homes with total equity of approximately $600,000; approximately $500,000 in retirement savings belonging to Mr. DiPascali's sister; and $1,000,000 from a non-family member's retirement funds;





Mr. DiPascali will remain confined to his home at all times, save for Court appearances and travel to the U.S. Attorney's Office as directed by that Office (or such other location relevant to his cooperation as the US Attorney's Office or the FBI directs him), as well as any medical emergencies; Mr. DiPascali will be fitted with an electronic monitoring device with global positioning satellite tracking capability; Mr. DiPascali will only be permitted to leave his residence under the escort of at least one Federal Bureau of Investigation Special Agent; Mrs. DiPascali will surrender her travel documents and not apply for new travel documents; routine home inspection by the FBI; and strict supervision by Pretrial Services, including daily monitoring if practicable.




(h) (i) III.

Financial Disclosures of the Proposed Co-signors Nine financially responsible persons have agreed to co-sign the proposed $10 million

bond in support of Frank DiPascali's bail application. Each of these financially responsible people understands that (1) Mr. DiPascali pled guilty to ten felonies; (2) he faces certain life imprisonment absent cooperation; and (3) the Court has expressed concerns that Mr. DiPascali poses a risk of flight. Nevertheless, these financially responsible persons each have agreed to cosign a $10 million bond and pledge approximately $2 million in assets -- including three homes and retirement accounts -- to secure Mr. DiPascali's bond. None of the assets being pledged in support of the bond are fruits of the Madoff fraud.2

The FBI has interviewed and approved each of the individuals to sign the bond. The only co-signor who once unwittingly received fraud proceeds from Mr. DiPascali -- Co-Signor 5 -- is in the process of forfeiting to the Government the precise amount of that transfer, plus interest. Further, the amount of that forfeiture already has been subtracted from the individual's "assets" for the purposes of calculating her potential contribution to Mr. DiPascali's bail package.



All of the proposed co-signors are either Mr. DiPascali's relatives or relatives of his spouse. The financial condition and general background information of each co-signor is set forth below, as well as the specific contribution of each person to the proposed bond securing Mr. DiPascali's release.3 If Mr. DiPascali fails to honor the conditions of his release, each cosignor will face certain financial ruin. None of the co-signors is wealthy enough to avoid a lifetime encumbrance by the financial burden that Mr. DiPascali's flight would heave upon them, and none is able to avoid the burden due to lack of assets.4 Put simply, Mr. DiPascali's flight would devastate them all. (a) Co-Signor 1 and Co-Signor 2

Co-Signor 1 and Co-Signor 2 are close relatives of Mr. DiPascali's wife. They have been married to each other for over fifty years. They are currently retired. Co-Signor 1 is a former sales manager and Co-Signor 2 is a former administrative assistant. They have known the DiPascali family for thirty years. The two families are close and have always been actively involved in each others' lives. They celebrate holidays together and have participated in each others' children's significant life events, such as birthday parties, communions, and school and community activities, such as sporting events.

Documents supporting the co-signors' financial information are attached hereto and redacted pursuant to Rule 49.1(g) of the Federal Rules of Criminal Procedure. As set forth above, counsel for Mr. DiPascali will submit a sealed reference list to the Court should the Court enter an order permitting a sealed submission. Counsel recognizes that 18 U.S.C. § 3142(c)(1)(B)(xii) generally requires that the bond be signed by financially responsible persons with an aggregate net worth sufficient to secure the full amount of the bond. In this case, the parties have agreed to a larger bond amount to ensure the financial ruin of Mr. DiPascali's entire family in the event Mr. DiPascali fails to honor the conditions of his release. Moreover, the larger bond also will obligate Mr. DiPascali's children to work their entire lives to raise money for the Government if Mr. DiPascali flees -- in essence, putting his children into bankruptcy before they join the workforce. -44


Co-Signor 1 and Co-Signor 2 own their house in New Jersey with approximately $250,000 in equity. They also own approximately $550,000 (combined) in three different Morgan Stanley investment accounts and approximately $15,000 in a checking/savings account. Neither Co-Signor 1 nor Co-Signor 2 has ever received money from Mr. DiPascali and they have not relied on him to assist with their personal finances. Co-Signor 1 and Co-Signor 2 agreed to co-sign the $10 million bond and pledge their home to secure the bond.5 If Mr. DiPascali fails to adhere to the restrictions of the proposed bail package, Co-Signor 1 and Co-Signor 2 will lose their house and retirement savings. They have no other assets. Nonetheless, they trust Mr. DiPascali to comply with the conditions of his release. (b) Co-Signor 3 and Co-Signor 4

Co-Signor 3 and Co-Signor 4 are close relatives of Mr. DiPascali's wife. They have been married to each other for almost thirty years. Co-Signor 3 is a Certified Public Accountant and a partner in an accounting firm. Co-Signor 4 is an office manager. Like Co-Signors 1 and 2, CoSignor 3 and Co-Signor 4 have known the DiPascalis for approximately thirty years. Further, like Co-Signors 1 and 2, throughout those thirty years, Co-Signor 3 and Co-Signor 4 have been close to the DiPascalis and have joined them to celebrate most holidays and significant life events, including birthday parties, communions, and school and community sporting events. Co-Signor 3 and Co-Signor 4 own their house in New Jersey. They have approximately $223,000 of equity in the home. They also own approximately $110,000 in retirement accounts and other assets. They have never received any money from Mr. DiPascali, and they have not


Financial documents provided by Co-Signors 1 and 2 are attached as Exhibit A. -5-

relied on him to assist with their personal finances. Co-Signor 3 and Co-Signor 4 are co-signing the proposed bond and are pledging their home as security.6 If Mr. DiPascali fails to adhere to the restrictions of the proposed bail application, they will lose their house and their retirement savings. Nonetheless, they have agreed to co-sign Mr. DiPascali's proposed bond. (c) Co-Signor 5

Co-Signor 5 is one of Mr. DiPascali's relatives. She holds a managerial position at a financial institution, where she has been employed for thirty-three years. Co-Signor 5 owns a house in New Jersey with approximately $169,000 in equity.7 She also owns approximately $500,000 in investment and retirement accounts. In addition to cosigning the bond, Co-Signor 5 is pledging her home and her retirement accounts as security.8 If Mr. DiPascali fails to adhere to the restrictions of the proposed bail application, she will lose her house and all her retirement savings. She has no other significant assets. Nonetheless, she has agreed to trust Mr. DiPascali to honor the proposed conditions of his release. (d) Co-Signor 6, Co-Signor 7, Co-Signor 8 and Co-Signor 9

Co-Signors 6, 7, 8 and 9 are members of Mr. DiPascali's immediate family. Co-Signor 6 is Mr. DiPascali's mother. She resides in New Jersey with one of Mr. DiPascali's sisters.9 CoSignor 7 is Mr. DiPascali's wife. Co-Signor 8 is Mr. DiPascali's twenty-four year old daughter. Co-Signor 9 is Mr. DiPascali's twenty-two year old son.

Financial documents provided by Co-Signors 3 and 4 are attached as Exhibit B.

This amount reflects a recent reduction to account for assets subject to the related forfeiture order.
8 9


Financial documents provided by Co-Signor 5 are attached as Exhibit C. Financial documents provided by Co-Signor 6 are attached as Exhibit D. -6-

As an initial matter, there is no dispute that Co-Signors 6, 7, 8 and 9 were unaware of, and uninvolved in, Mr. DiPascali's criminal conduct. Nor should the Court be concerned that these Co-Signors are enjoying the fruits of Mr. DiPascali's criminal conduct. The Government already has commenced forfeiture proceedings against assets that are fruits of Mr. DiPascali's crimes; therefore any tainted assets held by Co-Signors 6, 7, 8 and 9 are subject to forfeiture by the Government upon the Court's entry of an order. Specifically, the Government already has forfeited and sold a fishing vessel that was in Co-Signor 7's name and the Government is in the process of forfeiting the home in which Co-Signor 7 has resided since 2000. Co-Signor 7 recently has found a job in Somerset County, New Jersey and has begun the next stage of her life, where she no longer needs to rely on Mr. DiPascali for financial support. Co-Signor 8 and Co-Signor 9 do not, at present, possess significant financial assets. (CoSignor 9's apartment is subject to forfeiture). Co-Signor 8, however, is currently in her first year of law school in New York City and intends to complete her Juris Doctor degree in 2012. CoSignor 9 is expected to graduate from college next May with a Bachelor of Arts in Economics. Both children's degrees will render them employable for the next fifty years, starting in the summer of 2010. If Mr. DiPascali fails to adhere to the restrictions of the proposed bail application, his mother, his wife, and his two oldest children will be financially ruined and their earning potential will be permanently destroyed. Nonetheless, they trust Mr. DiPascali to honor the proposed bail conditions and have agreed to co-sign the bond. (e) Financially Responsible Person 10

A tenth financially responsible person ("FRP 10"), a relative of Mr. DiPascali's wife, has agreed to pledge assets in support of Mr. DiPascali's bail application. Since 2006, he has been


part-owner of three businesses. Like Co-Signors 1 through 4, he has known the DiPascalis for thirty years and he is the godfather to one of the DiPascali's children. FRP 10 has agreed to pledge his 401k retirement account (approximately $1,000,000) to secure the $10 million bond. Aside from his 401k account, FRP 10 owns approximately $300,000 in personal assets. He also owns an additional (approximate) $700,000 in business partnership assets. He has never received money from Mr. DiPascali and has not relied on him to assist with his personal finances.10 If Mr. DiPascali fails to adhere to the restrictions of the proposed bail package, FRP 10 will lose approximately 50% of his net worth -- and substantially all of his savings. Nonetheless, he has agreed to support Mr. DiPascali. * * *

Ultimately, the nine co-signors and one individual who are prepared to secure Mr. DiPascali's bond provide the most powerful moral suasion available over Mr. DiPascali and will help ensure he does not flee. The nine people to whom Mr. DiPascali is closest in the world -his immediate family and other close family members -- would be left impoverished and homeless if Mr. DiPascali were to flee; another relative would be left without substantially all of his savings; and, perhaps most significantly, Mr. DiPascali's two oldest children -- age twentytwo and twenty-four -- would be crippled before their careers begin, and compelled to forfeit their earnings for the rest of their lives. Accordingly, and as set forth in the initial Motions for Reconsideration, the conditions of the proposed bail package present clear and convincing evidence that Mr. DiPascali is not a risk of flight.


Financial documents provided by FRP 10 are attached as Exhibit E. -8-


The Court Should Adjourn Sentencing Until Mr. DiPascali's Cooperation Is Complete At the bail hearing on October 28, 2009, the Court asked the parties to consider whether

it may be appropriate to sentence Mr. DiPascali before his cooperation is complete. The Court explained that if Mr. DiPascali were sentenced imminently and thereafter continued to provide substantial assistance in the investigation and prosecution of others, the Government could submit an application pursuant to Rule 35(b) requesting a sentence modification. After giving much consideration to the Court's suggested approach, we respectfully submit that proceeding in such a manner could irreparably prejudice Mr. DiPascali and deprive him of the opportunity to obtain the full benefit of the cooperation agreement. Mr. DiPascali's bargained-for cooperation agreement requires the Government, at the time of sentencing, to evaluate whether he provided "substantial assistance in an investigation or prosecution," and whether he "has fully complied with the understandings specified in [the cooperation agreement]." Cooperation agreement at 5. The discussions that led to the cooperation agreement assumed the completion of cooperation prior to sentencing. The Government never raised the possibility that it would ask the Court to sentence Mr. DiPascali before his cooperation was complete. The plain language of the cooperation agreement makes no mention of Rule 35; it contemplates that Mr. DiPascali's cooperation will be complete at the time of sentencing. Indeed, Mr. DiPascali may well be in breach of the agreement if he does not provide thorough cooperation or consent to any request by the Government to adjourn sentencing. Cooperation agreement at 4, 5. There can be no doubt that Mr. DiPascali already has provided substantial assistance to the Government. Though most of the information Mr. DiPascali has provided to the Government remains confidential at this time, some of the fruits of his assistance are public: information he


provided contributed to the arrest of three individuals to date. The complaints against these individuals relied, in part, on Mr. DiPascali. In United States v. O'Hara et al., No. 09-mj-20484 (S.D.N.Y.), the Complaint noted that "DiPascali has provided reliable information to the FBI that has been corroborated by documentary evidence, evidence found on BLMIS computer systems and/or storage devices, and information obtained from other witnesses." Further, we understand that the Government is filing a sealed ex parte submission reflecting its expectations for Mr. DiPascali's continued valuable cooperation. Accordingly, we believe that under the terms of the cooperation agreement, the assistance Mr. DiPascali already has rendered and that which he will render in the future would require the Government to move for a sentence reduction pursuant to 5K1.1 at the time of sentencing. If Mr. DiPascali is sentenced before his cooperation is complete, he only can receive credit for the remainder of his cooperation if the Government subsequently decides to move for a sentence reduction pursuant to Rule 35(b). The Government, however, does not have a contractual obligation to seek a further reduced sentence under Rule 35(b). And, as the Court well knows, a sentencing reduction under Rule 35(b) can only be made "[u]pon the government's motion." Rule 35(b)(1). Furthermore, Mr. DiPascali cannot compel the Government to file a Rule 35(b) motion on his behalf. United States v. Defeo, 2008 U.S. Dist. LEXIS 49469 (S.D.N.Y. June 24, 2008) (the Government may refuse to file a Rule 35(b) motion unless that refusal is based on an unconstitutionally suspect motive, such as race or religion); compare United States v. Leonard, 50 F.3d 1152, 1157 (2d Cir. 1995) ("[W]here a plea agreement provides that the government will file a 5K1.1 motion if it determines that the defendant has provided substantial assistance, . . . the government [must] live[] up to its end of the bargain"). If


the Court sentences Mr. DiPascali before his cooperation is complete, Mr. DiPascali may be deprived of the full benefits specifically contemplated in his cooperation agreement. Accordingly, we respectfully submit that the Court should defer Mr. DiPascali's sentencing until the Government determines, in good faith and pursuant to the cooperation agreement, that Mr. DiPascali's cooperation is complete. There is an additional obstacle to filing a 5K1.1 motion followed by a subsequent Rule 35(b) motion. At least one Circuit Court of Appeals has held that it is improper to evaluate a 5K1.1 motion with the expectation that a Rule 35(b) motion will follow. In United States v. Awad, 371 F.3d 583 (9th Cir. 2004), the United States Court of Appeals for the Ninth Circuit specifically determined that "the possibility of Rule 35(b) relief in the future cannot influence the government's or the district court's decision at sentencing about § 5K1.1 relief," and held that the lower court's "decision to sentence in the face of an incomplete § 5K1.1 motion undermined the clear temporal framework established by the interplay of § 5K1.1 and Rule 35(b)." Id. at 587, 589. Sentencing Mr. DiPascali before his cooperation is complete exposes him to additional prejudice if he is sentenced later under Rule 35(b). Courts have consistently rejected Rule 35(b) motions for post-sentencing cooperation that is anticipated at the time of sentencing. For example, in United States v. Gangi, 881 F. Supp. 820 (E.D.N.Y. 1995), the defendant received a sentence reduction pursuant to 5K1.1. Id. at 823. Although the defendant continued to cooperate after sentencing, the court later denied the Government's Rule 35(b) motion because the defendant's post-sentencing cooperation had been "anticipated" pre-sentencing even though "the prosecution may not have fully debriefed Gangi as to his knowledge of these individuals and their past events at the time of the original sentencing." Id. at 825. See also United States v.


Rasco, 1991 U.S. Dist. LEXIS 10365 (S.D.N.Y. July 26, 1991) (the defendant received a sentence reduction pursuant to 5K1.1 and could not compel the Government to make a Rule 35(b) motion in spite of post-sentencing cooperation). In this case, if Mr. DiPascali's sentencing is not adjourned, the Government will be forced to file an incomplete 5K1.1 motion at sentencing. Mr. DiPascali could subsequently be denied an additional sentence reduction if either the Government decides to not file a Rule 35(b) motion or the Court determines that Mr. DiPascali's post-sentencing cooperation was "fully anticipated." Rasco, 1991 U.S. Dist. LEXIS 10365, at *8. Finally, Mr. DiPascali also might be prejudiced in the future if the sentencing judge determines that Rule 35(b) is inapplicable by its plain language. Rule 35(b) is designed to reward defendants who provide "new information" after sentencing, not for cooperation provided before a plea is entered. Under Rule 35(b)(1), "[t]he court may reduce a sentence if the defendant, after sentencing, provided substantial assistance in investigating or prosecuting another person." Rule 35(b)(2) is limited only to information that is (1) unknown before one year after sentencing, (2) not useful to the Government before one year after sentencing, or (3) that could not have been anticipated as useful before one year after sentencing. See Rule 35(b)(2).11 To the extent Mr. DiPascali already has provided substantial assistance to the Government at the time of his sentencing, he could find himself cooperating for years after he is sentenced only to be legally precluded from any additional sentence reductions.

Rule 35(b)(3) permits the Court to consider pre-sentencing cooperation in connection with a post-sentencing Rule 35(b) motion for a reduced sentence; however, pre-sentencing cooperation cannot be included in a Rule 35(b) analysis if the sentencing court has already reduced the defendant’s sentence pursuant to 5K1.1. See Gangi, 881 F. Supp. 820 (Rule 35(b) motion was denied because post-sentencing cooperation was anticipated pre-sentencing); Rasco, 1991 U.S. Dist. LEXIS 10365, at *7-8 (defendant who benefited from 5K1.1 motion could not have compelled Government to make Rule 35(b) motion where post-sentencing testimony was "fully anticipated" by the sentencing court). -12-

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