New York Federal Criminal Practice Blog

Recently in the Bail category:


In an important decision on the “design to conceal” element of the money laundering statute, the Second Circuit has reversed the defendant’s convictions for money laundering in United States v. Ness, 2009 WL 1259081 (2d Cir. May 8, 2009).  While there was plenty of concealment here – the defendant, after all, ran a highly secretive armored car carrier business – the Court found insufficient evidence of the required “design to conceal” the identity of tainted money.  Applying the Supreme Court’s holding in Cuellar v. United States, 128 S.Ct. 1994 (2008), the Court distinguished between the fact of concealment – however elaborate – and a purpose to conceal. “How” the defendant moved money is an entirely separate issue to “why” he moved money.  

The case is notable too because the district court had denied Ness’ motion for bail pending appeal (see here), in part because the court believed there was sufficient evidence to sustain the conviction.  The case is therefore a precedent for erring on the side of granting motions for bail pending appeal where the question of whether the appeal raises a close question is . . . a close one. 


Ness ran an armored car carrier business, which was used to transport millions of dollars in narcotics proceeds from drug traffickers.  Ness’s dealings with the traffickers allegedly involved a high level of secrecy, including “clandestine meetings to transfer large sums of concealed cash, the use of coded language, and the scrupulous avoidance of a paper trail.”  He was convicted after trial of one substantive count of engaging in a money laundering transaction, and one count of conspiracy to commit money laundering transactions and money laundering transportation.  The Second Circuit had previously affirmed the convictions, but this decision was vacated by the Supreme Court and remanded for further consideration in light of its holding in Cuellar – a case which held that the concealment element of a money laundering transportation charge requires a showing that the purpose of the transportation was to conceal or disguise the identity of the proceeds.    


On remand, the Second Circuit reversed, rejecting the government’s argument (and the holding of the district court in the bail pending appeal motion) that the surreptitious nature of Ness’s transportation activities established that “the drug proceeds were delivered to his company at least in part for purposes of concealment:”

While such evidence may indicate that Ness was concealing the nature, location, or source of the narcotics proceeds, it does not prove that his purpose in transporting the proceeds was to conceal these attributes. It evidences not “why” he moved the money, but only “how” he moved it. Ness’s avoidance of a paper trail, hiding of the proceeds in packages of jewelry, and use of code words show only that he concealed the proceeds in order to transport them. Under Cuellar, such evidence is not sufficient to prove transaction or transportation money laundering offenses.

The Court also reversed the substantive money laundering conviction under 18 U.S.C. § 1957(a), holding that there was insufficient evidence that either Ness or his company constituted a “financial institution” as defined in the statute.


The money laundering statute is a key component in the government’s charging arsenal to compel plea bargains.  The fact that it is tagged on regularly in prosecutions involving all sorts of crimes was a factor in the Supreme Court’s important decisions in Cuellar, and its companion, SantosNess is a significant development in this judicial effort to reign in indiscriminate use of the money laundering statute and its heavy sanctions.  Notably (to the extent there is any issue about this), Ness applies Cuellar’s ruling not just to transportation money laundering charges, but also to charges involving transaction money laundering.

Lawyers: Vivian Shevitz, Esq., and Jane Simkin Smith, Esq. (Defendant); AUSAs Jocelyn Strauber, Karl Metzner

Robert Culp, Esq. writes:

Like Ivan Boesky, Mike Milken and others before him, Bernie Madoff has become a white collar pariah who needs no introduction.  Such criminal defendants have the ability to define their times, and the public’s thirst for justice is understandable.  But, as is often the case, notoriety and the rule of law sometimes find themselves in tension.  This can be seen in the Second Circuit’s affirmance of SDNY Judge Chin’s denial of Madoff’s application for bail, United States v. Madoff, 2009 WL 728379 (2d Cir. March 20, 2009). 
The denial of bail to Madoff after his plea when he had been granted bail before the plea (see here), with the Second Circuit’s approval, is not unusual.  While white collar criminal defense lawyers are certainly accustomed to having their clients surrender after sentencing, the stipulation to guilt in the plea combined with the certainty of a lengthy sentence clearly changes the legal and equitable calculus.  What is noteworthy, however, about the Second Circuit’s brief unpublished affirmance is the Court’s seemingly unnecessary flirtation with debatable legal principles concerning bail. 
Incentive to Flee
First, the district had denied bail in part on the basis of Madoff’s “incentive to flee,” a consideration Madoff argued was improper.  Finding this consideration “permissible under the [bail] statute and reasonable under the circumstances,” the Second Circuit explained that “such an incentive naturally bears upon and increases the risk of flight.”  While it is difficult to quarrel with this conclusion on a practical level, the opinion could invite bail denials on the more amorphous and ever-present “incentive” basis, rather than the more defendant-specific “risk of flight” consideration.  After all, what defendant facing time doesn’t have an “incentive” to flee?  The issue is and should remain whether this particular defendant is likely (and has the capability) to flee.  The Second Circuit’s decision in Madoff affirms this principle, but the prominence given to the concept of “incentive” in its discussion may lead to a subtle loosening of the applicable standard.
“Economic Danger” to the Community
Second, and more significantly, the Court noted Madoff’s failure to prove that he did not pose a “pecuniary” or “economic” danger to the community.  The Court cited a 1992 decision of the Ninth Circuit and interjected the word “pecuniary” into the Bail Reform Act to make it read: “pose a danger to the [pecuniary] safety of any other person or the community if released....”  28 U.S.C. § 3143(a)(1).  Magistrate Judge Ellis had rejected this economic harm argument in his pre-plea decision granting Madoff bail, noting that while the statute’s legislative history did allow for a concept of non-corporeal “danger,” there must still be a showing of additional likely criminal wrongdoing, and the government had failed to establish how some possible, future dissemination of Madoff’s assets could rise to the level of harm under the statute.  In its brief order, however, the Second Circuit raised the notion of economic harm without exploring these distinctions, finally acknowledging that it did not need to rely on this ground, given the risk of flight determinations. 
While the bail order here is not slated for formal publication, anything involving Bernie Madoff will be watched very closely.  Ordinarily, a court would have disincentives to make prominent mention of a new and largely undefined concept of “economic harm” in the bail setting.  These include the general injunction to avoid unnecessary dictum and the obligation to construe criminal statutes strictly.  The concept of “pecuniary danger” is perhaps all too real in a practical sense, and to that extent a valid issue in these times.  Introduced as a legal concept in this high profile case, however, it arguably comes off as open-ended and vague, almost a trial balloon that could float in different directions.  Certainly, this was not the Court's intention, but it cannot be predicted whether prosecutors will seek to exploit the reference and ratchet bail standards towards detention, perhaps beyond the purposes of the Bail Reform Act.  Conversely, will defense attorneys counter with arguments against detaining breadwinners in economic times?   Regardless, it can certainly be argued, given that bail was denied for other reasons, that no reference at all to “economic danger” in bail decision making would have been preferable to casual introduction.   
Lawyers: Ira Sorkin, Dickstein Shapiro LLP (Defendant); AUSAs Marc Litt, Lisa Baroni

Pretrial detention at the Metropolitan Correctional Center is bad enough, but the first two weeks can be especially unbearable, since they are usually spent in the Special Housing Unit (segregated housing) while the BOP finds the inmate a bed in general housing and conducts some other routine processing like checking his gang affiliations.  Now, that policy has become one of the bases for SDNY Judge Baer to order a trial continuance.  In United States v. Gloss, 2009 WL 161063 (S.D.N.Y. January 21, 2009), the court granted the government’s application to revoke Gloss’s bail two weeks before trial and a day after a superseding indictment had been filed.  Defense counsel moved for a continuance of the trial date, and the court granted it in part because Gloss’s “substantially curtailed communication and visitation privileges” in the SHU would adversely impact his ability to prepare his defense. 

The BOP’s policy of segregating new prisoners at MCC for up to two weeks should get a lot more attention than it does.  There is no reason why the processing of new prisoners needs to take this long, and that two weeks without visits, calls and often necessary medication can take a considerable toll on newly arrested individuals.  In cases where bail is set and it is likely that the defendant will meet the conditions, the policy should be cited as a reason for immediate release.  Why subject a defendant to this kind of onerous detention when no-one seriously doubts that the formalities of the bail conditions will be satisfied? 

Once again, a high-profile fraud case has yielded a notable decision on a defendant’s right to bail.  Granting the bail reduction motion of Marc Dreier, the once high-flying lawyer now charged with “colossal criminality,” SDNY Judge Rakoff gives life both to the presumption of bail in federal criminal cases and the constitutional principle that bail should not be excessive.  Accepting Dreier’s argument that all of his assets are frozen and he has no “cash hoard,” Judge Rakoff reduced his bail from a $10M cash bond to a $10M personal recognizance bond, along with a series of other conditions, including 24-hour home detention and supervision by armed body guards.  The full decision is available here.  

“Genuine Risk of Flight”

Bail in this case is a significant victory for Dreier, given the fact that his alleged fraud was extensive, exposes him to a long prison sentence, and allegedly involved bizarre acts of impersonation, which even his own lawyer conceded were “desperate.”  Judge Rakoff concluded that the government had more than satisfied its burden of proving that Dreier “would pose a genuine risk of flight” if released without conditions.  But, he concludes, Dreier’s proposed bail package “goes far to minimize this risk.”  A key component of the victory was new testimony from the court receiver appointed in a parallel SEC proceeding that the bulk of funds at issue in the alleged fraud were accounted for and Dreier had no “cash hoard.”  The other key component was Dreier’s proposal that he be detained at home with round-the-clock supervision by armed body guards, paid for by his relatives.  

Private Jails for the Rich

The decision is especially interesting for its discussion of the concept of monied defendants escaping pretrial detention by setting up a private jail at their homes with armed guards.  Judge Rakoff acknowledges that this procedure is “controversial” – it “gives people of means . . . an opportunity for release that poorer people could never obtain” – but the fact that “many kinds of bail conditions favor the rich . . . is not a reason to deny a constitutional right to someone who, for whatever reason, can provide reasonable assurances against flight.”  He points out that the Bail Reform Act itself contemplates that a defendant may be released into “the custody of a designated person[ ] who agrees to assume supervision.”  


This is an important precedent to support bail in a multitude of cases where bail is often denied: cases where the defendant is accused of deception (even at his own bail hearing) and impersonation; cases where the defendant may once have had access to large sums of money but now his assets are frozen and claims of secret stashes are purely speculative; and cases where the defendant proposes some alternative system of detention and supervision.  While few can afford private body guards for the duration of their pretrial proceedings (estimated by Dreier’s lawyers at $70,000 per month), release on electronic monitoring with assurances from relatives and friends that they will also personally monitor/supervise the defendant may in some cases be an adequate alternative.
Despite the apoplectic public and media outrage over Bernard Madoff’s pretrial detention at his penthouse while his victims are “headed to the poorhouse,” SDNY Magistrate Judge Ronald Ellis has issued an important and courageous decision on the parameters of the Bail Reform Act.  Denying the government’s motion to revoke Madoff’s bail based on his alleged dissipation of assets while on release in United States v. Madoff, 08 Mag 2735 (S.D.N.Y. January 12, 2009), Judge Ellis held that these changed circumstances did not alter the calculus on Madoff’s risk of flight, did not indicate a serious risk that he would obstruct justice in the future, did not rise to the level of danger to the community as contemplated under the Bail Reform Act, and, in any event, could easily be addressed by additional bail restrictions.  The case is notable for its rejection of the government’s claim that “economic harm” in the form of potential dissipation of restitution assets constitutes “danger to the community” in the context of bail determinations – a concept that usually means physical harm.  It is also an important iteration of the principle that release is the presumptive option under the Bail Reform Act.  Those who find the decision disappointing can take solace in the fact (if solace is to be gained from this fact) that imprisonment is the presumptive option upon conviction in the federal system.  As noted here, in fact only 7.7% of federal offenders sentenced in 2007 received a sentence of straight probation.  


As our readers no doubt need no introduction, Madoff has apparently admitted to orchestrating the largest Ponzi scheme ever, and after being arraigned on a federal complaint charging him with one count of securities fraud on December 11, 2008, he was released on bail that day with the government’s consent on a secured $10M bond.  About a week later, a number of bail conditions were added, including home detention under the supervision and protection of 24-hour armed security guards.  On Christmas Eve, Madoff and his wife mailed approximately $1M worth of valuable jewelry and other items to friends and relatives.  Arguing that this was in violation of a restraining order in place in a related SEC proceeding, and that it represented obstruction of justice and danger to the community (i.e. the community of Madoff’s victims who seek restitution), the government moved to revoke Madoff’s bail.  The government conceded, however, that Madoff had not actually violated the specific conditions of his bail in the criminal case.  


The court begins its analysis by pointing out that bail is not about punishment, however much the media and Madoff’s victims may wish it is – it’s about assuring Madoff’s continued appearance in court and protecting the community from danger.  The court reminds us that “[i]n most cases, release is the presumptive state,” and that “only a limited group of offenders [.] should be denied bail pending trial.”  With that caveat, the court proceeded to the first step of the inquiry: to determine if Madoff presented a serious risk of flight or obstruction of justice.  

1.    Risk of Flight or Obstruction of Justice

The problem for the government in the risk of flight analysis is that most of the facts justifying detention for this reason (the extraordinary size and depth of Madoff’s fraud scheme, the likely sentence he faced, the fact that most of his ties to the community – including his relationship with his sons – had apparently been severed, and the fact that almost $200M in signed checks to relatives, friends and charities were discovered in his desk) were known to the government when the current bail conditions were set, and clearly, did not impact its decision to consent to bail at that point.  (Of course, the government consented to release before the public outcry, and a cynic would say that the revocation motion has less to do with assets than reputations.)  As a result, in its revocation motion, the government needed to argue changed circumstances, but the only changed circumstance here was the holiday mailing, and “the Government fails to explain how the transfers in question change the calculus with respect to the risk of flight.”  In any event, the Bail Reform Act requires a “serious risk of flight,” and the government effectively conceded no such risk existed when it argued that the bail conditions in existence “[did not] make the flight risk zero.”  This is not the correct legal standard, Judge Ellis points out: “The Act does not require that the risk be zero, but that conditions imposed ‘reasonably assure’ appearance.”

Alternatively, the government argued that the holiday mailing represented obstruction of justice, either on the theory that it makes it harder for the government to recover forfeitable assets for victims, or because it violated an injunction in place in the related SEC proceeding.  Even if the government was right, Judge Ellis points out, this only gets the government halfway: “The question is not simply whether Madoff’s actions can be considered obstruction, but whether there is a serious risk of obstruction in the future.  The statute, by its nature, is always looking forward.”  Noting it was a substantial question whether the government had met its burden of showing a serious risk of obstruction in the future, the court held it was not necessary to decide that issue, since the government had failed to satisfy the second prong of the bail inquiry: whether any conditions may be set to reasonably assure the safety of the community and the presence of the defendant at trial.

2.     Safety of the Community

As a threshold issue, the court considered the government’s relatively novel claim that economic harm – specifically the harm that Madoff would distribute restitution assets – is a danger to the community recognized by the Bail Reform Act.  Judge Ellis was hesitant to adopt the government’s “broad construction” of the Act’s “safety of the community” language, pointing out that the legislative history relied upon by the government suggested that Congress’s focus was only on activities that are in fact crimes.  Moreover, the only cases where courts have acknowledged economic harm as a possible detention factor have ultimately made their decisions based on flight risk.  

Judge Ellis concludes, however, that while there is some support for the position that economic harm may be considered in evaluating a defendant’s danger to the community in the bail context (and that the presumption of innocence should be factored into how much weight this factor gets), the government “fails to provide sufficient evidence that any potential future dissemination of Madoff’s assets would rise to the level of an economic harm cognizable under . . . the Bail Reform Act.”  

Finally, even if dissipation of assets was harm to the community for bail purposes, the government failed to carry its burden (by “clear and convincing evidence”) that no conditions or combination of conditions will reasonably assure the safety of the community.  Madoff’s lawyers pointed out in their papers that he was effectively imprisoned in his home both by the hired guards and his notoriety, without access to bank accounts or any power to dispose of his real property, which had already been pledged as collateral to the government.  In addition, his wife had voluntarily agreed not to dispose of any of her personal property.  Under these circumstances, it was hard to see “why Madoff’s detention would markedly ameliorate any alleged danger to the community that may result from dissipation of his assets.”  The court added some additional bail conditions, including the requirement that the security firm providing Madoff’s round-the-clock supervision will do a regular inventory of valuable items in his home and search all outgoing mail.  


Legally, this was an easy case, but symbolically it was a hard one – afterall, the image of a confessed fraudster living in luxury, gifting to friends and relatives the very kinds of heirlooms his victims are now struggling to pawn, is not easy to swallow.  If a cursory review of the comments on the New York Times website is anything to go by, it took courage to deny the government’s motion here.  There would have been no public outcry if Judge Ellis had sent Madoff directly to jail, in a decision that could have changed the bail landscape for many far more deserving non-violent offenders.  Those who criticize the decision are unlikely to take the trouble to read his carefully analyzed 22-page decision.  But if the principle of the presumption of innocence is to have any meaning, the presumption of bail must have meaning, and certainly, bail should not be revoked because of a defendant’s violation of an economic order in a related civil proceeding, particularly where restrictions can be added to ensure that he does not have the opportunity to do this again.  The case will no doubt become an important precedent in support of bail in non-violent, non-presumption cases generally, and white collar cases in particular.
As the world awaits the decision on the government’s bail revocation motion in the Madoff case [update: 12:16 p.m. it is just being reported that he will remain free], another SDNY magistrate issued a notable bail decision recently in a case that involves a similar collision between public opinion and the Bail Reform Act’s principles favoring the least restrictive form of pretrial release.  In United States v. Arzberger, 08 cr. 894 (AKH/JCF), 2008 WL 5453739 (S.D.N.Y. December 31, 2008), the defendant, who faced charges of receipt and possession of child pornography, opposed the government’s motion to modify the terms of his bail by adding certain non-discretionary conditions set forth in the Adam Walsh Amendments to the Bail Reform Act, including a curfew, electronic monitoring, a direction to avoid contact with any potential witnesses and prohibition from possession of any dangerous weapon.  Arzberger challenged the provisions as unconstitutional under the Fifth and Eighth Amendments, both facially and as applied, and that they violated the Separation of Powers Doctrine.

In a lengthy decision, Magistrate Judge Francis first reviewed the sparse precedents on the issue (three of the four of which had found the Amendments unconstitutional), and then analyzed each proposed condition separately under the Due Process clause.  He concludes: “The Adam Walsh Amendments are unconstitutional on their face to the extent that they would impose conditions that infringe protected liberty interests without providing the accused with an individualized assessment of the need for such conditions.”  The court rejected the defendant’s facial challenge under the Eighth Amendment, held the as-applied challenge under the Eighth Amendment was premature, and also held that the Adam Walsh Amendments do not violate the Separation of Powers Doctrine.

It is heartening to see reason prevail in an area of the criminal law that one Sixth Circuit judge wrote in a dissenting opinion is approaching the hysteria of the Salem Witch trials.  In United States v. Paull, No.07-3482 (6th Cir. January 9, 2009), as highlighted on Professor’s Berman’s website here, Judge Merritt filed an opinion that dissents from the court’s decision to affirm a 17.5 year sentence in a child pornography possession case.  Judge Merritt begins:

As a recent October 23, 2008, Wall Street Journal article by Amir Efrati points out, our federal legal system has lost its bearings on the subject of computer-based child pornography.  Our “social revulsion” against these “misfits” downloading these images is perhaps somewhat more rational than the thousands of witchcraft trials and burnings conducted in Europe and here from the Thirteenth to the Eighteenth Centuries, but it borders on the same thing.  In 2008 alone the Department of Justice has brought 2,200 cases like this one in the federal courts. 

The Bail Reform Act in the federal system represents a delicate balance between the presumption of innocence and the need to assure the presence of a criminal defendant at subsequent court appearances.  This balance was sorely tested in a meticulously analyzed decision in United States v. Jones, 08 Cr. 0535(VM), 2008 WL 2796543 (S.D.N.Y. July 17, 2008), a case involving death eligible murder charges against an individual with a decidedly checkered past, but where there were also “persuasive arguments” from the defense on the weight of the evidence against him (including eye witness testimony that arguably excluded the defendant from the murder scene, alibi evidence from witnesses - albeit ones with credibility issues - and a potentially exculpatory statement obtained by a government agent from an eye witness).  This evidence suggested a high potential for establishing reasonable doubt at trial, but as Judge Marrero emphasizes in Jones, guilt or innocence is not the issue in bail determinations. 

Analyzing the bail factors in the case – the circumstances of the offense charged, the defendant’s history, any potential danger to the community and the weight of the evidence – Judge Marrero, in a de novo review, affirmed the magistrate’s conclusion that the defendant had not rebutted the presumption.  (Because of the charges the defendant faced, there was a rebuttable presumption that no bail conditions would assure the defendant’s presence in court.)

What is most interesting is the court’s analysis of the “weight” factor.  Quoting a Ninth Circuit case, the court pointed out that “because the Bail Reform Act ‘neither requires nor permits a pretrial determination that the person is guilty,’ the Court’s function in examining the weight of the evidence is not to determine guilt or innocence.”  The court continues: “[t]he Weight Factor ‘may be considered only in terms of the likelihood that the person will fail to appear or will pose a danger to any person or to the community.’”  Thus, “c]ourts generally consider the Weight Factor as the ‘least important’ of the Factors.”

Here, the court concluded “although both parties made persuasive arguments regarding the weight of the evidence, this factor, even if all credibility issues were viewed in a light favorable to [defendant] Jones, does not tip the balance in favor of allowing his release on bail.”

This case will be an especially useful case in close bail cases where the evidence against the defendant is strong, but the other bail factors militate in favor of release. 

12/29/2008 Update: In United States v. Jones, 2008 WL 4702742 (SDNY October 22, 2008), the court held that new evidence purporting to establish that the co-defendant to whom the defendant allegedly passed a firearm was not actually present at the scene of the murder now meant that the weight of the evidence overcame the presumption of detention, warranting granting the defendant’s renewed motion for bail.

See Archives for all posts since September 2007.