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United States v. Renzi

April 7, 2010

UNITED STATES OF AMERICA, PLAINTIFF,
v.
TODD RENZI, BERNADINO J. PAVONE, JR., ABOOD SAMAAN, AND GLORIA TACTAC, DEFENDANTS.



The opinion of the court was delivered by: Hon. Nancy G. Edmunds

OPINION AND ORDER DENYING DEFENDANTS' RENEWED JOINT MOTION TO DISMISS [100]

This matter comes before the Court on Defendants' renewed joint motion to dismiss the Indictment due to the government's destruction of evidence, pursuant to Federal Rule of Criminal Procedure 12(b)(2). On March 24, 2010, and continued on March 30, 2010, the Court held an evidentiary hearing on Defendants' motion. For the reasons set forth below, Defendants' motion is DENIED.

I. Facts

On September 15, 2004, an indictment was unsealed which charged Bernadino Pavone, Todd Renzie, Abood Samaan and Gloria Tactac (Defendants) with thirty counts of mail fraud in violation of 18 U.S.C. § 1341. [Docket Text #3.] The Indictment generally charges that Defendants executed a scheme to defraud individuals by claiming that their company, ICR, employed an exclusive computer program that was capable of erasing negative and derogatory information from credit reports.

A. ICR and NCER

All four Defendants are principals of ICR, a Michigan corporation in the business of selling "credit repair." All four defendants are also involved in a related company claiming to be the "educational arm" of ICR, NCER, but only Pavone and Renzi are principals.

ICR is organized as a "multi-level" marketing business, much like Avon or Tupperware. ICR recruited representatives who in turn recruited other representatives to sell the credit repair product. This representative structure is called a "genealogy" or "downline." Representatives are compensated by receiving a commission each time the credit repair product is sold. The higher up the representative is in the downline, the greater the compensation for its representatives.

As the business of ICR increased, it became more difficult to track customers, representatives, commissions and income. In September 1998, ICR purchased and began using JENKON software*fn1 to document customer and representative information,*fn2 to manage genealogies including downlines and commissions, and to generate IRS 1099 forms at the end of the year.

B. Grand Jury Subpoenas

The government's investigation of ICR and its principals, Pavone, Tactac, Samaan, and Renzi, began in April 2000. During the course of the government's investigation, both before and after the Indictment, numerous subpoenas were directed to ICR. Six of these subpoenas are particularly relevant.

1. May 4, 2000 Subpoena

A subpoena issued on May 4, 2000 commanded the production of "[a]ny and all records for the period January 1995 to present for ICR." (Pl.'s Resp., Ex. A [Docket Text # 51].) This specifically included a "[l]ist of all current and past representatives... all receipts and expenditures for ICR... [including] commissions... paid... to representatives." (Id.)

According to the government, Defendants complied in part with the subpoena. However, "nothing as comprehensive as the information maintained in the JENKON system was produced... Although it now appears that JENKON reports containing this information could easily have been run at the time the subpoena was issued." (Pl.'s Resp. at 3 [Docket Text # 51].)

2. March 5, 2001 Subpoena

On March 5, 2001, a subpoena was issued commanding the production of "[a]ny and all records regarding... representatives including but not limited to... notes, correspondence to or from... representative... for the period of January 1999 through present." (Pl.'s Resp., Ex. B [Docket Text # 51].)

Again, the government contends that Defendants only complied in part with the subpoena. However, "the type of disciplinary notes and impeaching evidence the defendants claim was kept in the JENKON system, although covered by this subpoena, was not produced. The only possible exceptions are three hard copy files containing information on four terminated representatives. These files were not produced in compliance with any grand jury subpoena, but as a result of the defendants' effort to convince the government that it was relying on untrustworthy witnesses." (Pl.'s Resp. at 3-4 [Docket Text # 51].)

3. October 14, 2003 Subpoenas

Allegedly concerned that Defendants had not fully complied with prior subpoenas, on October 14, 2003, the government issued two more subpoenas commanding the production of many of the same records previously sought "for the period January 1, 1996 to present." (Pl.'s Resp., Ex. C [Docket Text # 51].)

On January 22, 2004, Defendants responded to the subpoenas and delivered various documents memorialized in a letter from defense counsel dated January 23, 2004. (Id., Ex. D.)

4. July 22, 2004 Subpoenas

According to the government, by the spring of 2004 it had been made aware of ICR's use of the JENKON system and its ability to store data related to ICR's business operations. On July 22, 2004, two more subpoenas were issued commanding information that allegedly would have been contained in the JENKON system. Although the JENKON system was not specifically mentioned by name, the subpoena commanded that "[a]ny and all records regarding... representatives... in whatever form found for the period January 1996 to the present." (Pl.'s Resp., Ex. E (emphasis added).)

By the time the July 22, 2004 subpoenas were served, the government informed defense counsel that it was aware of ICR's use of the JENKON system and the type of information contained therein. (Id. at 6.) At some point between July 22, 2004 and July 26, 2004, Defendant Renzi received a phone call from defense counsel informing him that the government was demanding that Defendants produce the JENKON system. (Evid. Hr'g Tr. at 74, Feb. 21, 2007.) Renzi thereafter instructed Ian Bible, ICR's network administrator, to remove three COMPAQ hard drives containing the programs and data files for the JENKON system (JENKON disks). According to Bible, he warned Renzi "that the system would not work anymore without those drives, and then anybody trying to recover data off them, because of the way the drivers were set up, it would be difficult in doing... [Renzi responded] that nobody was using it anyway so just go ahead and pull it."*fn3

(Evid. Hr'g Tr. at 141, Feb. 20, 2007.) Bible then removed the JENKON disks and gave them to Renzi.*fn4

On July 26, 2004, Renzi delivered the JENKON disks to FBI Special Agent Mark Benston. (Evid. Hr'g Tr. at 75, Feb. 21, 2007.) Prior to this date-and, as discussed below, despite Defendants' current contention as to the extent of the information contained on the JENKON disks and despite the fact that Defendants regularly relied upon printed reports generated from the JENKON system to conduct the daily business operations of ICR-almost no documents or reports generated from the JENKON system was ever produced to the government.*fn5

C. Accessibility of JENKON Disks

According to Defendants, at the time the JENKON disks were delivered to the government they were operational and accessible. The government, on the other hand, contends that it has "never... been able to open or access data on the JENKON system." (Pl.'s Resp. at 9 [Docket Text # 51].)

The JENKON disks were sent to the Michigan State Police (MSP) to have a forensic software program "image" the files. (Pl.'s Resp. to Defs.' Mot. for Disc. at 2 [Docket Text # 35].) On November 9, 2004, the MSP "imaged" the JENKON disks using a DOS boot CD and Encase v4.20.

Each of the [JENKON disks] was imaged using a forensic stand-alone system and no errors were reported during the imaging process.

The integrity of each image was checked after all imaging was complete. (Defs.' Mot., Ex. A [Docket Text # 100].) The images were also copied onto two forensic hard drives.

On November 15, 2004, one of the two copies of the JENKON disks-reproduced by the MSP on November 9, 2004-was provided to Defendants (First Copy). According to Defendants, the copy of the JENKON disks that they were provided, the First Copy, was not operational nor accessible.

Because of the difficulty in reading the JENKON disks, the original and the copy retained by the government (Second Copy) were sent, on February 24, 2005, to the corporate offices of Jenkon International. The Jenkon International employees were "unable to [open the files] because they felt it was necessary to have the server that the software had been used on, and [the government] did not have that server having not subpoenaed it at that point." (Tr. from Continued Hr'g on Defs.' Mot for Disc. Re: JENKON Disk at 6 [Docket Text # 39].)

On April 18, 2005, Defendants filed a motion for return of property specifically requesting the return of the original JENKON disks. [Docket Text # 27.]

On May 19, 2005, the original JENKON disks were returned to Defendants. According to Defendants, the original JENKON disks-like the First Copy-were not operational nor accessible.

On July 14, 2005, Defendants filed a motion for discovery "re: JENKON disk." [Docket Text # 33.] In that motion, Defendants requested the Court to order the Government to produce:

a) The Chain of Evidence from the time the JENKON disk(s) were provided pursuant to the Grand Jury subpoena;

b) Copy of any "E" files which were created from the disks;

c) Name of any software that was used for forensic imaging; and

d) Copies of any documents or information from the JENKON disk(s) that the government intends to use at trial. (Defs.' Mot. for Disc. at 1-2 [Docket Text # 33].)

A hearing on Defendants' motion for discovery "re: JENKON disk" was conducted on July 20, 2005. At the hearing, the government offered to assist Defendants in opening and retrieving the information on the JENKON disks.

If [Defendants] want to go to Michigan State Police and have their copy [of the JENKON disks] opened and review it and have copies made of what's on it, if they can't open theirs, then we will make that available.... If they still can't open it, they can't make it work, then they're ...


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