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United States v. Cook

United States District Court, D. Delaware

January 3, 2019

UNITED STATES OF AMERICA
v.
WILLIAM COOK, Defendant.

          Whitney C. Cloud, Lesley F. Wolf, Assistant United States Attorneys, Wilmington, Delaware Counsel for United States of America

          Thomas E. Carluccio, LAW OFFICE OF THOMAS E. CARLUCCIO, Plymouth Meeting, Pennsylvania; Frank G. Fina, LAW OFFICE OF FRANK G. FINA, Plymouth Meeting, Pennsylvania Counsel for Defendant

          MEMORANDUM OPINION

          CONNOLLY, UNITED STATE DISTRICT JUDGE

         The government has filed a Motion in Limine Re: 404(b) Evidence (D.I. 70), by which it seeks to admit evidence relating to certain contacts Defendant William Cook had with an individual named John Annetta. Cook opposes the motion. D.I. 77, 87. For the reasons discussed below, I will deny the government's motion.

         I. BACKGROUND

         A. The Superseding Indictment

         Cook has been charged by Superseding Indictment with one count of bank fraud, four counts of making false statements to a bank, and one count of money laundering. D.I. 36. The charges arise out of a line of credit extended by Artisans' Bank (the "Bank") to Cook's food broker business, AJJ Distributing, LLC, between 2008 and 2013. The line of credit was secured in part by accounts receivable owed to AJJ. Under the terms of the line of credit, the amount of money AJJ could borrow from the Bank was dependent on the value of "eligible items," a term which the line of credit agreement defined as "accounts receivable and inventory aged less than 90 days." Id. ¶ 11. Cook was contractually obligated to submit to the Bank on a weekly basis and when he sought withdrawals from the line of credit Borrowing Base Certificates ("BBCs") that listed AJJ's "eligible items." Id. ¶¶ 13, 14.

         The bank fraud count in the Superseding Indictment accuses Cook of "engag[ing] in a scheme and artifice to defraud the Bank whereby Cook submitted and caused to be submitted over 200 false and fraudulent BBCs to the Bank." Id. ¶ 32. The false statement counts are based on allegations that Cook provided the Bank on four occasions with BBCs that listed certain accounts receivable that in fact were no longer owed to AJJ. See Id. ¶¶ 46, 48, 50 and 52 (alleging Cook "provided the Bank with [ ] BBC[s] listing [million-dollar sums] in accounts receivable, which falsely inflated monies owed to AJJ").

         In paragraphs 23 through 30 of the bank fraud count, under the heading "The BBCs Included Reconciled Accounts Receivable from AJJ's Main Customer," the Superseding Indictment alleges the following:

23. AJJ's primary customer was a large wholesale food distributor based out of New York, referred to herein as "Wholesaler." 24. From at least 2008 forward, AJJ and an employee of Wholesaler developed a trading relationship to allow AJJ to take advantage of special discounts only available to Wholesaler's retail supermarket customers.
25. Under this trading relationship, AJJ would buy items from Wholesaler, take ownership of such items, and then sell the same items back to Wholesaler.
26. Employees of Wholesaler identified this trading relationship as unusual; other retail supermarket customers did not generally sell items back to Wholesaler.
27. As a result of this trading relationship, over time AJJ would simultaneously both owe money to Wholesaler for accounts payable and be owed money by Wholesaler for accounts receivable.
28. Between 2009 and 2013, Cook reconciled, or "netted" the accounts payable and receivable with employees of Wholesaler's accounting department on a weekly basis via spreadsheets that Cook populated and sent to Wholesaler for verification.
29. If AJJ owed money to Wholesaler as a result of the reconciliation of accounts payable and receivable, then AJJ would timely transfer money to Wholesaler.
30. Between 2009 and 2013, the BBCs submitted by Cook to the Bank each included dozens of accounts receivable from Wholesaler that had already been reconciled and were no longer owing to AJJ.

Id. at ¶¶ 23-30.

         Although the Superseding Indictment alleges that employees of Wholesaler "identified [A]J's] trading relationship [with Wholesaler] as unusual," it does not allege to whom the employees made this "identification" nor does it allege or even suggest how the employees' characterization of the trading relationship as "unusual" bears in any way on the fraudulent scheme or false statement charges. Notably, the Superseding Indictment does not allege that the AJJ/Wholesaler trading relationship was fraudulent or even that it was part of the scheme and artifice to defraud alleged in the bank fraud count. Other than in the eight paragraphs quoted above, the AJJ/Wholesaler trading relationship is not mentioned in the 58 paragraphs of the Superseding Indictment.

         B. Cook's Contacts With John Annetta

         The government has identified John Annetta as "the employee of Wholesaler" who is alleged in paragraph 24 of the Superseding Indictment to have "developed a trading relationship [between Wholesaler and AJJ] to allow AJJ to take advantage of special discounts only available to Wholesaler's retail supermarket customers." D.I. 70 at 2.

         1. The Cook-Annetta Relationship as Described in the Government's Motion

          In its motion, the government described the AJJ/Wholesaler relationship and Annetta's role in that relationship as follows:

The Defendant worked with accounting employees ... at [Wholesaler] to determine, on a weekly basis, whether [Wholesaler] or AJJ owed money that week. They accomplished this by using "netting sheets." After the accounting employees and Defendant reconciled the accounts payable and accounts receivable, generally Defendant would owe [Wholesaler] money, and he would promptly wire money to [Wholesaler]'s account at Bank of America. Despite the fact that those accounts had already been satisfied by the time Defendant submitted the Borrowing Base Certificates ("BBCs") to [the] Bank, Defendant nonetheless listed these already satisfied accounts as [Wholesaler] "accounts receivable." By inflating his accounts receivable, Defendant was able to further draw down on his line of credit or avoid making payments in order to bring the line into compliance with the terms of his loan agreement. This is the core fraud alleged in the Indictment.
At the heart of the unusual trading relationship with [Wholesaler] was Defendant's personal friendship with Annetta, who was until 2013 a Senior Vice President at [Wholesaler]. Sometime prior to 2009, Annetta classified AJJ as a [Wholesaler] customer eligible for special manufacturer discounts. Unlike retail store customers (the intended beneficiaries of the manufacturer discounts) that bought the goods to stock their shelves for shoppers, Defendant would turn around and sell [Wholesaler] the same goods AJJ had bought -at a slight markup. In addition to the special pricing AJJ received, [Wholesaler] would receive a rebate from the manufacturer. As long as the rebate amount exceeded the markup on the repurchase of the same goods from AJJ, ...

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