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. e du/thir dc ir c uit_1999/59Filed March 9, 1999

UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

NOS. 96-5144 and 96-5389

UNITED STATES OF AMERICA

v.

MORELLI, ANTHONY (D.C. Crim. No. 93-cr-00210-1) Appellant in No. 96-5144

(Amended per Clerk's order of 7/8/98)

UNITED STATES OF AMERICA

v.

IGOR ROIZMAN, a/k/a Little Igor (D.C. Crim. No. 93-cr-00210-10) IGOR ROIZMAN, Appellant in No. 96-5389

On Appeal From the United States District Court For the District of New Jersey District Judge: Honorable William G. Bassler

Argued: June 5, 1997 Reargued: September 8, 1998

Before: BECKER, Chief Judge, SCIRICA, Circuit Judge
, and KELLY, District Judge.*

(Filed March 9, 1999)

___________________________________________________ ______________

*Honorable James McGirr Kelly, United States Distri ct Judge for the Eastern District of Pennsylvania, sitting by design ation.JUDD BURSTEIN, ESQUIRE

(ARGUED)
MARC FERNICH, ESQUIRE
Burstein & Fass LLP 1790 Broadway New York, NY 10019

Counsel for Appellant Igor Roizman

MICHAEL S. VOGEL, ESQUIRE Allegaert, Berger & Vogel LLP 111 Broadway New York, NY 10006

NICHOLAS A. GRAVANTE, JR., ESQUIRE (ARGUED) Barrett, Gravante, Carpinello &

Stern LLP 1585 Broadway New York, NY 10036

RICHARD A. REHBOCK, ESQUIRE
Law Office of Richard A. Rehbock One Maple Run Drive Jericho, NY 11753

Counsel for Appellant Anthony Morelli

FAITH S. HOCHBERG, ESQUIRE United States Attorney
GEORGE S. LEONE, ESQUIRE Assistant United States Attorney
ELIZABETH S. FERGUSON, ESQUIRE (ARGUED) Assistant United States Attorney
970 Broad Street - Room 700 Newark, NJ 07102

Counsel for Appellee
United States of America

2OPINION OF THE COURT

BECKER, Chief Judge.

These appeals by defendants Anthony Morelli and Igo r Roizman from judgments in a criminal case raise two issues of criminal law and procedure. Morelli's app eal centers on the interpretation of the federal money laundering statute, 18 U.S.C. S 1956, in the contex t of wire fraud. Roizman's appeal involves the question of in effective
assistance of counsel where the defendant's attorne y faces a possible conflict of interest.

The scheme in which Morelli and Roizman were involv ed engaged in a series of transactions that resulted i n the
embezzlement of excise taxes from fuel sales. Each series included a number of wire transfers, each of which occurred after the money involved came into the pos session of those who controlled the scheme. At trial, the government proved only that specific transfers had occurred before the point at which the taxes should have been collected for transmittal to the government. M orelli argues that these series of transactions did not co nstitute money laundering.

He claims initially that the government failed to p rove that any of the transactions involved proceeds of f raud, since the government offered no proof of wire trans fers occurring after the point at which the taxes should have been collected. He contends that the money did not become the proceeds of fraud until after it should have be en collected for the government but was not. We reject this conclusion because we believe that the money became the proceeds of fraud as soon as it entered the hands o f members of the scheme. Alternatively, Morelli submi ts that the money was not the proceeds of wire fraud becaus e the money came into the possession of the scheme as a r esult of fraud before any of the wirings involving the mo ney occurred. But he ignores the fact that the scheme succeeded as a result of each and every wiring with in each and every series of transactions. Accordingly, the money within each series of transactions was the proceeds of wire

3fraud because the fraud from which it resulted was

promoted by the wire transfers within the preceding series
of transactions.

Morelli also contends that the District Court erred in not granting him a downward departure from the money laundering guideline, U.S.S.G. S 2S1.1, because his conduct did not fall within the "heartland" of money launde ring. We disagree, and dispose of this contention summarily in note
13 infra.

Roizman's appeal alleges that his attorney provided inadequate assistance because of a conflict of inte rest. Roizman's attorney represented both him and an indi vidual
whose statements were introduced at trial as hearsa y evidence against him. Roizman first argues that his lawyer's
conduct was deficient since he faced an actual conf lict of interest to the extent that his ability to impeach the witness's hearsay statements conflicted with his du ties to the witness as his client. The District Court rejec ted this claim because it found that impeachment of the witn ess was not a "plausible alternative defense strategy" for Roizman. Because we agree with the District Court's conclusion, and because such impeachment would not have adversely affected the witness's interests, we reject Roizman's argument.

Roizman also contends that his conviction should be reversed on a potential conflict-of-interest theory . He claims that the prosecutor, as well as his own attorney, k new of the conflict his attorney faced and, thus, violated his constitutional rights by not bringing it to the att ention of the District Court. We can only grant a reversal fo r a potential conflict of interest, however, if the Dis trict Court
itself was or should have been aware of the conflic t and
failed to address it. Since Roizman does not conten d that
the District Court should have been aware of the co nflict, we reject his claim. We will therefore affirm the j udgments
of the District Court.

I. Procedural History

Morelli, Roizman and a number of coconspirators participated in a "daisy chain" scheme to evade exc ise taxes

4on the sale of certain kinds of fuel. The elements of such

schemes have been detailed sufficiently elsewhere. See, e.g., United States v. Sertich, 95 F.3d 520, 522 (7th Cir . 1996), cert. denied, 519 U.S. 1113 (1997); United States v . Veksler, 62 F.3d 544, 547 (3d Cir. 1995); United States v. M acchia, 35 F.3d 662, 665-66 (2d Cir. 1994); United States v

. Victoria-21, 3 F.3d 571, 573 (2d Cir. 1993); In re Assets of Martin, 1 F.3d 1351, 1353 (3d Cir. 1993); United St ates v. Tarricone, 996 F.2d 1414, 1416-17 (2d Cir. 1993); U nited States v. Aracri, 968 F.2d 1512, 1514-17 (2d Cir. 1 992); United States v. Musacchia, 900 F.2d 493, 495-96 (2 d Cir. 1990), vacated, 955 F.2d 3 (2d Cir. 1991). We will set forth any relevant facts in our discussion of particular
substantive issues.

As a result of their activities, Morelli and Roizma n were charged in a forty four-count indictment, tried, an d
convicted of some of the counts. Several other coconspirators pleaded guilty at different times. M orelli was convicted of a RICO conspiracy, racketeering, an ex tortion conspiracy, extortion, mail fraud, and general cons piracy. With respect to the RICO conspiracy, the jury found that the government had proven money laundering as one o f many predicate acts. With respect to the general co nspiracy conviction, the jury found that one of the objects of the conspiracy, among others, was money laundering. Mor elli was not named in any of the racketeering acts alleg ing money laundering. However, he was sentenced under t he money laundering guideline, which provided the high est offense level. He received a three-point enhancemen t because he acted as a manager or supervisor of the money laundering conspiracy. The District Court then depa rted downward three levels, finding that the value of th e funds laundered detailed in the Presentence Investigation Report overrepresented the crime. Morelli was sentenced to 240 months in prison. Roizman was convicted of RICO conspiracy, mail fraud, and extortion, and was sent enced to 90 months in prison. These timely appeals followed. 1

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1. The District Court properly exercised jurisdicti on over the matter under 18 U.S.C. S 3231. We exercise appellate juris diction over the final judgment of the District Court under 18 U.S.C. S 37 42 and 28 U.S.C.
S 1291.

5In addition to the arguments outlined in the introd uction,

the defendants each make a number of arguments that are patently without merit; hence we identify them and dispose of them summarily in the margin. Morelli contends t hat the District Court erred in applying his Role in the Of fense adjustment to all of his offense groupings for sent encing purposes.2 He also claims that he should not have b een convicted of RICO conspiracy because he did not com mit or agree to commit two predicate acts.3 Finally, Morel li insists that his Sixth Amendment right to counsel was viola ted because two cooperating witnesses, Dougherty and Zu mmo, had previously participated in a joint defense agre ement.4 Roizman adopts by reference those of Morelli's clai ms that
are relevant to him.5

Following the initial oral argument in this case in June of 1997, we placed it in abeyance pending the Supreme Court's decision in Salinas v. United States, 522 U .S. 52

___________________________________________________ ______________

2. Morelli submits that the Sentencing GuidelineS 3 B1.1 enhancement for "Role in the Offense" should have been applied only to the extortion group of crimes, and not the money laundering or fr aud groups. The District Court concluded otherwise, and we see no e rror in its conclusion. The evidence supports the conclusion th at Morelli was a "supervisor or manager" with respect to the fraud a nd money laundering,
as well as the extortion.

3. Morelli's appeal on this point rested on his arg ument that we should reverse our decision in United States v. Adams, 759 F.2d 1099 (3d Cir. 1985). However, the Supreme Court has held that our conclusion in Adams was correct. See Salinas v. United States, 52 2 U.S. 52 (1997).

4. The District Court found no such violation of Mo relli's Sixth Amendment rights. United States v. Morelli, Opinion & Order, Crim. No. 93-210 (D.N.J. Jan. 26, 1998). It concluded that"[t ]here was no evidence that either Dougherty or Zummo revealed any confide ntial defense strategy or any other prejudicial information to th e Government." Slip op. at 7. We see no clear error in its finding, and accordingly affirm its conclusion that Morelli's Sixth Amendment rights we re not violated. Morelli also argued that the government should have been directed to produce its notes of its meetings with Dougherty an d Zummo for Morelli's inspection. Based on our in camera inspec tion of these notes we agree with the District Court that they contained n o information pertinent to his claim.

5. Since we affirm the District Court's conclusions on all points, we need not determine precisely which of Morelli's argument s Roizman adopts.

6(1997). See supra note 3; see also United States v. Morelli,

Order, Nos. 96-5144 & 96-5389 (3d Cir. June 23, 199 7). In the meantime, we remanded certain issues to the Dis trict Court for further factual findings. The Supreme Cou rt has now decided Salinas, see supra note 3, and the Dist rict Court has certified its findings on the issues to w hich we directed its attention, see supra note 4 & infra Pa rt III. Accordingly, the appeal is now ripe for decision.

II. Morelli's Appeal

A. Preservation of Issue for Review

We first take up Morelli's argument that the Distri ct Court erred in calculating his sentence based prima rily on the money laundering guideline, U.S.S.G. S 2S1.1. H e contends that, as a matter of law, the facts do not support the conclusion that money laundering occurred. Alth ough Morelli frames this submission as a challenge to hi s sentence, it is in actuality a sufficiency of the e vidence argument. Morelli did not raise this in a Rule 29 m otion, which would ordinarily be required of a sufficiency claim. See United States v. Powell, 113 F.3d 464, 466-67 ( 3d Cir. 1997) ("If a defendant fails to file a timely motio n for judgment of acquittal, we review sufficiency of evi dence for plain error." (citing United States v. Gaydos, 108 F.3d 505, 509 (3d Cir.1997))), cert. denied, 118 S. Ct. 454 ( 1997). Nevertheless we find that it is properly before us on the conventional direct appeal standard of review becau se of the unusual procedural posture, i.e., that this iss ue is only relevant for sentencing purposes.

Morelli was convicted of a multiple-object general conspiracy and a RICO conspiracy with numerous pred icate acts. The jury found that these conspiracies had ob jects or predicate acts other than money laundering that Mor elli does not challenge on appeal. Thus, even if he pres ented a successful challenge to the money laundering allega tions,
we would not reverse Morelli's conviction on the co nspiracy count because, as he concedes, he was involved in a criminal conspiracy, albeit one to commit mail and wire fraud and extortion. See Griffin v. United States, 502 U.S.

746 (1991); United States v. Conley (Conley II), 92 F.3d 157,

163 (3d Cir. 1996) ("It is clear that when a jury r eturns a general verdict of guilty on a multi-object conspir acy count,
the conviction will stand over Fifth Amendment due process objections so long as there is sufficient evidence to support any one of the objects of the conspiracy."), cert. denied, 520 U.S. 1115 (1997). Likewise, he cannot challenge his RICO conspiracy conviction, as he concedes numerous pred icate acts, including those same crimes, which are suffic ient to support the conviction. See United States v. Vastol a, 989 F.2d 1318, 1330 (3d Cir. 1993) (applying the reason ing of Griffin and concluding that the dismissal of one pr edicate act did not require reversal of a racketeering conv iction where a sufficient number of other predicate acts o n which the jury's verdict could have rested remained).

Furthermore, determining the objects of a conspirac y and the predicate acts of a RICO conspiracy for sentenc ing purposes is the duty of the trial judge, not the ju ry. See Conley II, 92 F.3d at 169 ("[T]he district court's determination of the object of the conspiracy is wh olly independent of the jury's determination of the obje ct of the conspiracy."). Since this decision on the part of t he District Court is not bound up with the jury's verdict, it n eed not be challenged in a Rule 29 motion for acquittal notwithstanding the jury's verdict.6 Rather, a defe ndant need only challenge the district court's findings a s to the objects of the conspiracy and the RICO predicate ac ts at sentencing in order to preserve the issue for revie w. Because Morelli raised his present claim in his sen tencing hearing, we conclude that it is appropriately befor e us. "When [as here] the essential facts are not in disp ute, our review of the district court's interpretation of th e Guidelines, like our review of a statute's interpre tation, is plenary." United States v. Bogusz, 43 F.3d 82, 85 ( 3d Cir. 1994) (citing United States v. Rosen, 896 F.2d 789, 790-91 (3d Cir.1990)).

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6. Unlike the verdict in Conley II, the jury in thi s case returned a special verdict concerning the objects of the conspiracy an d the predicate acts of the RICO conspiracy. Accordingly, the District C ourt's conclusion that money laundering occurred is buttressed by the jury 's special verdicts to
similar effect.

8B. Money Laundering -- Facts and Legal Background

Because the facts of this case are somewhat complic ated, we will briefly review those revolving around the a lleged money laundering. The particular scheme in which th e defendants participated was termed "the Association ." The Association organized a group of companies, all of which it controlled, into a "daisy chain," for the purpose o f embezzling the excise taxes on the sale of certain kinds of fuel. Typically, the companies would sell oil down the chain in a series of paper transactions, through what was referred to as the "burn company." Eventually, the company a t the bottom of the chain, the "street company," would se ll the oil to a legitimate retailer, i.e., a particular gas st ation, for a price slightly below the tax-included market price. This retailer would pay money to the street company, whi ch would send money back up the chain in a series of w ire

transfers.7

This scheme was illegal because it was set up as a means to avoid excise taxes. The daisy chain was establis hed so that the burn company was the one legally responsib le for collecting the excise taxes on the fuel sales and transmitting them to the government. In the Associa tion's scheme, the burn company would collect the taxes fo r a time, and then disappear without ever paying the ta xes to the government. As a result, the Association could keep the money representing the excise taxes without the government being able to determine where it had gon e. The indictment charged, and the jury found, that this c onduct constituted both wire fraud and money laundering. I t charged the first wire transfer, from the street co mpany to the next company above it in the chain, as wire fra ud. It charged the second and subsequent wire transfers as money laundering.

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7. The money was not always wired back up the chain via each individual company. Occasionally, a wire transfer w ould skip some companies. In addition, the wire transfers apparent ly almost always skipped the burn company. As the discussion below d emonstrates, however, these details need not concern us, because it is sufficient that the money was wired at least once.

9The money laundering statute, 18 U.S.C. S 1956(a)(1 ),

provides:

Whoever, knowing that the property involved in a financial transaction represents the proceed s of some form of unlawful activity, conducts or attem pts to
conduct such a financial transaction which i n fact involves the proceeds of specified unlawful activity -- (A)(i) with the intent to promote the carryi ng on of specified unlawful activity; or . . . (B) kn owing that the transaction is designed in whole or in part -- (i) to conceal or disguise the nature, the location , the source, the ownership, or the control of the proceed s of specified unlawful activity . . . [is guilty of money laundering].

The statute, in pertinent part, sets forth four ele ments of the crime: (1) an actual or attempted financial tra nsaction (2) involving the proceeds of specified unlawful ac tivity; (3) knowledge that the transaction involves the proceed s of some unlawful activity; and (4) either (a) an inten t to promote the carrying on of specified unlawful activ ity, or (b) knowledge that the transaction is designed to promo te the underlying specified unlawful activity or "to conce al or disguise the nature [or] the source . . . of the pr oceeds of specified unlawful activity." 18 U.S.C. S 1956(a)(1 ). Morelli
does not contest the first and third elements. He a lso does not contest the intent element of money laundering. 8

The term "specified unlawful activity" is defined, in pertinent part, by reference to those acts that con stitute "racketeering acts" under RICO. See 18 U.S.C. S 1956(c)(7)(A) ("[T]he term `specified unlawful ac tivity' means any act or activity constituting an offense l isted in section 1961(1) of this title . . . ."). UnderS 196 1(1), wire

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8. He does complain, however, that it is unfair for the government to charge both promotion and concealment with respect to the same transactions. See United States v. Paramo, 998 F.2d 1212, 1218 (3d Cir. 1993) (noting that another court has observed that" conduct punishable [as concealment] typically would not also be punish able [as promotion, and vice versa]"). We have noted, however, that the se two motivations are not necessarily inconsistent, as "a finding of guil t [for concealment] is not a defense to a prosecution [for promotion]." 99 8 F.2d at 1218 n.3.

10fraud is a "specified unlawful activity," but tax f raud

simpliciter is not. See 18 U.S.C. S 1961(1)(B).

We have interpreted the money laundering statute se veral times. See, e.g., United States v. Conley (Conley I ), 37 F.3d 970 (3d Cir. 1994); United States v. Paramo, 998 F. 2d 1212 (3d Cir. 1993). Paramo focused solely on the fourth element
of the statute -- whether the defendant's actions constituted sufficient evidence of the appropriate intent. See 998 F.2d at 1216-18. In Conley I, we focused bo th on
this intent element and on the second element -- wh ether the funds at issue were the "proceeds of a specifie d unlawful activity." 37 F.3d at 977-81. Whether cert ain money constitutes "proceeds of specified unlawful a ctivity" is the sole contested question presented in this ca se.

In Conley I, we held that "[a]lthough the money laundering statute does not define when money becom es `proceeds,' it is obvious to us that proceeds are d erived from an already completed offense, or a completed phase of an ongoing offense . . . ." 37 F.3d at 980. This is tr ue even if the money laundering transaction can also be consid ered a part of the continuing specified unlawful activity. In Conley I, the defendant was charged with conspiracy to con duct an illegal gambling business and to commit money laund ering. The conspiracy revolved around the distribution and use of illegal video poker machines. The money laundering aspect
of the scheme derived from the retrieval and distri bution of the money deposited in the machines. We concluded t hat,
since the distribution and use of the machines alon e constituted an illegal gambling business, the speci fied unlawful activity had been completed at the time th e conspiracy's activities resulted in proceeds. Accor dingly, the money retrieved from the machines was proceeds of t he illegal gambling business, even though the retrieva l of the money was also chargeable as part of the crime of conducting the business. See 37 F.3d at 980.

This case forces us to decide the question we parti ally (and tangentially) addressed in Conley I: whether t he funds involved in the alleged money laundering transactio n were "proceeds of specified unlawful activity." Morelli makes two arguments. First, he contends that the money did no t become proceeds until after it passed through the b urn

11company. He alleges that this is significant becaus e the

government offered no evidence as to how much money was wired after it passed through the burn company, thu s failing to prove that money laundering occurred. In the alternative, he claims that, if the money became pr oceeds before it passed through the burn company, it did s o as soon as it came into the Association's control. Thu s, it cannot have been the proceeds of wire fraud, since the wire fraud was predicated on the money being wired after it
entered the control of the Association. We address these points in turn.

C. Did the Transactions Involve the Proceeds

of the Fraud?

The government only proved financial transactions, i.e., wirings of money up the daisy chain, occurring befo re the money reached the burn company. Accordingly, if the money did not become proceeds until after it passed through the burn company, as Morelli contends, the government's proof of money laundering would have f ailed because it would not have proved a financial transa ction involving proceeds.

Morelli argues that the money did not become procee ds until it moved past the burn company. In essence, h e contends that since the duty to pay the taxes lay w ith the burn company, no fraud occurred until the burn comp any itself failed to collect and pay the taxes. Hence, before the burn company failed to do so, the money was entirel y legitimate. But the taxes were not, as Morelli clai ms, collected and passed on, and then diverted. They we re never collected. The paperwork that indicated that the taxes
had been collected was falsified. The transactions going down the chain --purporting to represent sales of f uel -- were fraudulent, and the payments going back up the chain were proceeds of that fraud.

In our view, the key point is that the entire chain of companies was operated by the Association; it was a ll part of the conspiracy. Once the money entered the contr ol of the street company, it entered the control of the Association. The Association never had any intentio n of

12paying the taxes. It organized the chain precisely to avoid

having to do so. Although in a paperwork sense the taxes were not embezzled until they passed the burn compa ny, the reality is that the taxes were embezzled as soo n as the
funds entered the chain. The fact that the Associat ion organized the daisy chain to make it appear that di stinct companies were buying and selling the gas and that the tax was collected at each step prior to the burn compan y does
not alter our conclusion. We conclude that the frau d was completed when the money entered the control of the Association acting through the street company, sinc e at that time it had no present intent to pay the taxes . Under these circumstances, the taxing authorities were de frauded out of their funds at the time the money entered th e chain.

In sum, we find no reason to set aside the judge's and jury's implicit conclusion that the money derived f rom this scheme became proceeds for the Association as soon as it entered the street company's hands. Legally, the mo ney was the proceeds of fraud as soon as it entered the hands of the street company.

D. Was the Money the Proceeds of Wire Fraud?

We also think that the money was the proceeds of wi re fraud, and not simply tax fraud, which is not a spe cified RICO predicate act and therefore not a specified un lawful activity under S 1956. Morelli contends that, even if the money became proceeds of some illegal activity at t he time it came into the possession of the street company, it was only the proceeds of tax fraud. He argues that, at the time the money entered the hands of the street company, no wire fraud had occurred. Before it was wired, he sa ys, the money was the proceeds of tax fraud. After it was w ired, the argument continues, although a wire fraud may have been committed, the money was not the proceeds of a wire fraud, because the wiring itself had nothing to do with th e Association's coming into possession of the money.

As an initial matter, we think that Morelli would b e correct that the the money would not be the proceed s of wire fraud if only one of these daisy chain series of transactions had occurred. Proceeds are "[t]hat whi ch

13results, proceeds, or accrues from some possession or

transaction." Black's Law Dictionary 1204 (6th ed. 1990). The transaction series in question here is the sing le series of wirings of the funds from the street company up the chain through the burn company to the top. We think it is obvious that the money that the Association fraudul ently obtained does not "result, proceed, or accrue" from this single series of wirings, and therefore the money i s not the proceeds of wire fraud. Within the individual serie s of transactions, the money is the proceeds of fraud si mpliciter
at the time it enters the Association's hands. The later wirings do not change its character into the procee ds of
wire fraud.9

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9. Accordingly, we disagree with the opinion of the Seventh Circuit in United States v. Mankarious, 151 F.3d 694 (7th Cir. ), cert. denied, 119 S. Ct. 621 (1998). That court, relying on inter ali a Schmuck v. United States, 489 U.S. 705 (1989), concluded that, unlike bank and wire fraud, "[a] mail fraud scheme . . . can create proceeds lo ng before the mailing ever takes place." 151 F.3d at 705. We think that t hat court misreads Schmuck. In Schmuck, the defendant created an ongoi ng fraudulent scheme that involved a group of independent series of fraudulent
transactions. Each of these series ended with a mai ling, which the Supreme Court held could provide a basis for mail f raud convictions. The Seventh Circuit apparently reads Schmuck as mea ning that the mailings rendered the individual series of transact ions with which they were associated mail fraud nunc pro tunc.

We disagree. As discussed in more detail below, the key in Schmuck was not that the mailings increased the likelihood of success of the
individual fraudulent series of transactions. Rathe r, each individual mailing contributed to the future success of the en tire scheme. See 489 U.S. at 711-12 (although the mailings may not have contributed to the success of the individual already-completed series of transactions, they were "essential to the perpetuation of Schmuck's sc heme"). Thus, we think that Schmuck does not support the Seventh Cir cuit's understanding of the term "proceeds" in the money l aundering statute.

We also note that the court in Mankarious drew a fa lse distinction between wire and mail fraud. See Mankarious, 151 F. 3d at 705. As we have noted, the wire fraud and mail fraud statutes differ only in form, not in substance, and cases such as Schmuck interpr eting one govern the other as well. See United States v. Frey, 42 F. 3d 795, 797 & n.2 (3d Cir. 1994) (citing United States v. Tarnopol, 561 F .2d 466, 475 (3d Cir. 1977) ("[T]he cases interpreting the mail fraud sta tute are applicable to

14This does not get Morelli off the hook, however. We

believe that the money wired up from the street com pany was, in fact, the proceeds of wire fraud, just not in the way Morelli thinks it might have been. In order to unde rstand this, we must engage in a close reading of the wire fraud statute, which reads as follows:

Whoever, having devised or intending to dev ise any scheme or artifice to defraud, or for obtain ing money or property by means of false or fraudulent pre tenses, representations, or promises, transmits or c auses to be transmitted by means of wire, radio, or tele vision communication in interstate or foreign comme rce, any writings, signs, signals, pictures, or sound s for the purpose of executing such scheme or artifice , shall be fined under this title or imprisoned for not more than five years, or both.

18 U.S.C. S 1343. Wire fraud consists of (1) a sche me to defraud and (2) a use of a wire transmission for th e purpose of executing, or attempting to execute, the scheme. See Frey, 42 F.3d at 797. Morelli concedes that the daisy chain was a scheme to defraud. Furthermore, as disc ussed above, the scheme produced proceeds. The question i s, was the scheme a wire fraud scheme in such a way that i ts proceeds were the proceeds of wire fraud at the tim e the
Association conducted a financial transaction invol ving

them?

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the wire fraud statute as well.")). Thus, the Seven th Circuit's conclusion would -- if correct -- apply equally to cases invol ving wire fraud.

Finally, we observe that none of this implies that Morelli did not conspire to commit wire fraud. A wiring could const itute wire fraud even though it involved money that had already been obta ined as a result of fraud. See United States v. Allen, 76 F.3d 1348, 13 62 (5th Cir. 1996) (holding that "acts occurring after the defrauding defendant already controls the proceeds of the fraud may . . . furthe r the fraud" and accordingly constitute wire fraud); cf. Schmuck, 48 9 U.S. at 712 (holding that mail fraud occurs so long as the mailing is "i ncident to an essential part of the scheme" (internal quotations omitted)). Clearly, the wirings
in this case were "incident to an essential part of th e scheme," the transmittal of the money in a useable form to the m embers of the
Association.

15We think the money was the proceeds of the entire

ongoing fraudulent venture in which the Association engaged in creating the daisy chain scheme, and tha t this venture was a wire fraud scheme. This ongoing ventu re consisted of all the individual series of transacti ons upon which Morelli focuses, not the discrete series of transactions individually. Although each series may have
included discrete acts of wire fraud that followed the creation of the proceeds related to that series, th e fact is that the entire program, encompassing all of the ac ts charged in the indictment, constituted one large, o ngoing wire fraud scheme. Each wiring in each series furth ered the execution of each and every individual act of tax f raud, and helped to create the proceeds involved in each succ eeding series of transactions. This is primarily because e ach wiring, whether it occurred before or after a given act of tax fraud, served to promote and conceal each individua l embezzlement of taxes, either ex ante or ex post. M ore precisely, each wiring, including those that occurr ed before a particular transaction, made it more difficult fo r the government to detect the entire fraudulent scheme o r any particular fraudulent transaction or series of tran sactions. In sum, the money gained in each series of transact ions (save the initial one) was the proceeds of wire fra ud because the money was the proceeds of a fraud that was furt hered by the prior wirings.10

This case is similar to Schmuck v. United States, 4 89 U.S. 705 (1989). In Schmuck, the Supreme Court upheld th e defendant's conviction for mail fraud. The defendan t had

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10. We note that this means that the funds acquired in the first series of transactions were not the proceeds of wire fraud . This is immaterial, however, since the first series, as noted above, wo uld still constitute
wire fraud, and the aggregate amount of proceeds would n ot be reduced significantly enough to reduce Morelli's sentence. No individual series of
transactions involved more than a few hundred thous and dollars, whereas the ongoing scheme involved tens of million s of dollars. The largest single wire transfer listed in the indictme nt was for $780,000. Subtracting this amount from the total amount upon which Morelli's sentence was based would not change the specific of fense characteristic category for the amount laundered. See U.S.S.G. S 2 S1.1(b)(2). Accordingly, any error in including the funds from the first series of
transactions was harmless.

16created a scheme in which he would roll back the

odometers on cars and sell them as new to car deale rs. As with any car sale, each unwitting dealer would mail a titleapplication form to the state government. The Court concluded that this mailing was sufficient to suppo rt a mail fraud conviction. In particular, the Court found th at:

Schmuck's was not a "one-shot" operation in which he sold a single car to an isolated dealer. His was an ongoing fraudulent venture. A rational jury could have

concluded that the success of Schmuck's vent ure depended upon his continued harmonious relat ionship with, and good reputation among, retail deal ers, which in turn required the smooth flow of cars fro m the
dealers to their Wisconsin customers.

Under these circumstances, we believe that a rational jury could have found that the title-registr ation mailings were part of the execution of the f raudulent scheme . . . . [A]lthough the registration-f orm mailings may not have contributed directly to the dup ing of either the retail dealers or the customers, they were necessary to the passage of title, which in turn was essential to the perpetuation of Schmuck's s cheme.

489 U.S. at 711-12. In Schmuck, the Court recognize d that, even though each individual fraudulent transaction series involved a mailing only after the fraud had already been completed, each mailing contributed to the entire s cheme
and made each other individual fraudulent transacti on series, particularly those occurring later, more li kely to be
successful.11

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11. We recently distinguished Schmuck, although not in a way that is relevant here. In United States v. Cross, 128 F.3d 145 (3d Cir. 1997), cert. denied, 118 S. Ct. 1519 (1998), we reversed m ail fraud convictions based on the fact that, although the mailing at iss ue aided the success of the fraud, the mailing would have occurred wheth er the fraud had taken place or not. The alleged fraud involved fixi ng traffic court cases. The mailings at issue were the routine transmission s of case dispositions to the parties. We distinguished Schmuck on the gro und that "the court regularly mailed notices to parties and the DOT in every case, whether or not the defendants had attempted to influence th e result." 128 F.3d
at 152 n.4. There was no causal nexus between the f raud and the mailings in Cross. Here, by contrast, the wirings, like the mailings in Schmuck, would not have been made but for the exist ence of the
fraudulent scheme. Morelli's case is much more like Schmuck than

Cross.

17This case is controlled by Schmuck. Each wiring

concealed and promoted each and every fraudulent se ries of transactions by making the entire scheme less detectable. Without the wirings to make it appear a s if a series of distinct transactions between independent companies had occurred, the taxing authorities woul d have had a much easier time tracking down the perpetrato rs of the tax fraud scheme. Each wiring "was essential to the perpetuation of [the Association]'s scheme." Schmuc k, 489
U.S. at 712. Since each individual fraudulent serie s of transactions other than the initial one was precede d by a wiring that promoted it, we think that, within each transaction series, the money was the proceeds of w ire
fraud at the time it came into the hands of the Ass ociation in the form of the street company. As soon as one w iring took place, the entire tax fraud scheme became a wi re fraud scheme. Since the very first series of transactions involved a wiring of the funds, every fraudulent acquisition of funds thereafter was an acquisition of funds through wire fraud.

This conclusion is entirely consistent with Conley I. See 37 F.3d at 980 (requiring that proceeds be "derived from an already completed offense, or a completed phase of an ongoing offense"). The entire daisy chain was an on going
fraudulent venture. Each series of transactions wit hin it was a "completed phase" of the ongoing scheme. As w e discussed above, the phases were completed as soon as one wiring occurred as part of the entire venture and t he money
from the individual series of transactions came int o the possession of the street company aspect of the Asso ciation.

Morelli's case also resembles United States v. Mass ey, 48 F.3d 1560 (10th Cir. 1995). In Massey, the defendan ts convinced a number of people to invest in their fra udulent loan scheme. When some of the participants became concerned that they had not received their loans, t he defendants sent them letters encouraging them not t o withdraw their money. Later, one of the defendants wired some of the money to another defendant. The defenda nts were convicted of mail fraud and money laundering. See 48
F.3d at 1565. The defendants claimed that none of t he money involved in the wiring came from victims who received the mailings. Accordingly, the defendants argued

18that the money wired could not have been the procee ds of

mail fraud.

The court of appeals upheld the conviction. While n oting

that the defendants' assessment of the facts was co rrect, as far as it went, it observed that at least two maili ngs had been sent to victims prior to the wiring, albeit no t to victims whose money was transferred in the wiring. See 48 F .3d at 1566. The court concluded that these mailings not o nly contributed to the success of the fraud with respec t to the
victims who received them but also to the overall s uccess of the entire fraudulent loan program. See 48 F.3d at 1567 ("[T]he letters protected the plan to defraud all o f the victims and not just the victim to whom the letter was sent."). In particular, if the letters had not been sent to the other victims, the fraud with respect to the victim s whose money was wire transferred might not have been successful. See 48 F.3d at 1566-67. Accordingly,

the jury could reasonably find that the fees deposited
in the bank account from which the wire tran sfer was
sent were derived from the fraudulent scheme that was furthered by the lulling letters. The "proce eds" of mail
fraud are derived from the success of a frau dulent scheme that has been facilitated through the use of the mails. . . . Accordingly, we conclude that t he jury had sufficient evidence to conclude that the gov ernment met all of the elements of money laundering

. . . .

48 F.3d at 1567 (citations omitted).

We find Massey persuasive. Moreover, Morelli's case is indistinguishable from Massey. Had some or all of t he wirings not occurred, some of the daisy chain trans action series might have been detected by the taxing autho rities
and the entire scheme would have been discovered so oner. Each of the wirings made before each individual fra udulent
series of transactions contributed to the success o f those transactions. As in Massey, the money resulting fro m these transactions was the proceeds of wire fraud at the time of the wire transfers. Accordingly, we conclude that t he jury
and the District Court had sufficient evidence to c onclude that the government met all of the elements of mone y laundering under S 1956.12 Therefore, we think the District

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12. Both parties in this case cite a number of othe r cases that they believe are relevant to the issue before us. See, e .g., United States v.

19Court properly sentenced Morelli under the money

laundering guideline.13

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Christo, 129 F.3d 578 (11th Cir. 1997); United Stat es v. Allen, 76 F.3d 1348 (5th Cir. 1996); United States v. Savage, 67 F .3d 1435 (9th Cir. 1995); United States v. Kennedy, 64 F.3d 1465 (10th Cir. 1995); United States v. Johnson, 971 F.2d 562 (10th Cir. 1992). W e do not believe these cases aid us in deciding the issue before us. They all involved the temporal question whether, at the time the alleged money laundering transaction occurred, the money involved in the tra nsaction was proceeds. See, e.g., Allen, 76 F.3d at 1362 ("In th is case, the consultant fees and loans left the control of First City Bank and reached the accounts of the conspirators before the wire transf ers occurred. The charged transactions distributed the proceeds among the various defendants and helped hide the fraud from First Cit y auditors and federal regulators."); Kennedy, 64 F.3d at 1478 ("[ T]he illegal mailings
in this case involved discrete, earlier mailings by Ke nnedy, rather than the receipt of funds by Kennedy from his victims. It wa s the subsequent and distinct transfers of funds that were alleged as th e separate transactions involving `proceeds of specified unlawful activity' which constituted the alleged money laundering under S 1956."). This is t he question we addressed in Conley I, 37 F.3d at 980 (proceeds mus t be "derived from an already completed offense, or a completed phase of an ongoing offense"). The question before us today, on the oth er hand, is the more abstract question whether the money was the proceed s of wire fraud. These cases do not help us answer that question.

13. Morelli also contends that the District Court e rred in failing to grant him a downward departure because, even if the consp iracy involved money laundering, it was not within the "heartland" of money laundering. He relies on proposed amendments to the money laundering guidelines, which Congress rejected in 1995, that w ould have tied money laundering sentences to the offense level of the un derlying specified unlawful activity. He also contends that he is enti tled to a downward departure because the government charged him, unlik e others who engaged in similar schemes but were prosecuted sepa rately, with money laundering. Morelli claims that this constitutes un fair sentence manipulation.

The District Court did grant Morelli a downward dep arture on the ground that the "value of the funds" adjustment und er U.S.S.G. S 2S1.1(b)(2) overstated the seriousness of the mon ey laundering that occurred. See United States v. Morelli, Opinion, Cr im. No. 93-210, at 16- 19 (D.N.J. Feb. 26, 1996). If the District Court re fused to grant a larger downward departure in an exercise of its discretion , we have no

20III. Roizman's Appeal

Roizman argues that his conviction should be revers ed because of an actual or potential conflict in his a ttorney's representation of both him and one Igor Porotsky. P orotsky was neither a codefendant nor a witness at trial, b ut his statements were admitted as hearsay statements thro ugh the testimony of other witnesses. In particular, va rious witnesses testified that Porotsky had been involved in the fuel business before the Association was created, a nd that he had been involved with Morelli and other alleged members of the Italian Mafia. At the time of trial, Larry Silverman, who was then Roizman's attorney, was als o representing Porotsky in a separate matter.14 Roizm an

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jurisdiction to consider Morelli's claim. See Unite d States v. Khalil, 132 F.3d 897 (3d Cir. 1997); United States v. Miele, 98 9 F.2d 659, 668 n.11 (3d Cir. 1993); United States v. Parker, 902 F.2d 2 21, 222 (3d Cir. 1990). On the other hand, if the sentencing court denied a larger downward departure because it erroneously concluded it lacke d legal authority to consider a separate ground for departure, we have j urisdiction to review the sentence. See United States v. Spiropoulos, 976 F.2d 155, 160 n.2 (3d Cir. 1992).

In this case, however, the District Court committed no error. Despite Morelli's repeated and vociferous arguments, propos ed amendments to the Sentencing Guidelines do not provide independen t legal authority for a downward departure. See United States v. Anderson , 82 F.3d 436 (D.C. Cir. 1996) (explaining persuasively why proposed cr ack cocaine amendments did not provide independent authority fo r a downward departure). Furthermore, Morelli's invocation of Un ited States v. Lieberman, 971 F.2d 989, 994-96 (3d Cir. 1992), in which we affirmed a district court's grant of a downward departure for manipulation of the indictment, does not help him since in that case th e district court had decided in its discretion that a downward departure was appropriate and the question on appeal was whether the district cou rt had authority to do so. Here, by contrast, the District Court consid ered both of Morelli's proposed grounds for departure and exercised its di scretion to reject them. Accordingly, since Morelli's argument is esse ntially a challenge to
the District Court's exercise of its discretion in denying him an additional downward departure, we have no jurisdict ion to consider his
claim.

14. We need not consider the much-debated issue of the precise scope of this representation, however, since we conclude tha t, regardless of the scope of the representation, cross-examining Porots ky was not a useful alternative strategy and, at all events, doing so w ould not have
conflicted with Silverman's duties to Porotsky.

21argues that, as a result of this representation, Si lverman

suffered a conflict and was unable to impeach Porot sky as a hearsay declarant adequately. See Fed. R. Evid. 8 06 (permitting impeachment of the declarant of stateme nts admitted as hearsay). Roizman also contends that, e ven if this was only a potential conflict, it merits a rev ersal because counsel for the government should have been
aware of it at trial.

After we remanded Roizman's claims to the District Court, the Court heard arguments and considered the documentary evidence. For the reasons set forth inf ra, the District Court rejected all of Roizman's claims reg arding Silverman's representation and alleged conflict of interest. "We apply plenary review to the district court's ap plication of legal precepts, and clearly erroneous review to its factual findings." United States v. Brink, 39 F.3d 419, 421 (3d Cir. 1994) (citations omitted).

A. Actual Conflict of Interest

An actual conflict claim arises after trial upon th e discovery of a previously unnoticed conflict of int erest on the part of trial counsel. "[A] defendant who raise d no objection at trial must demonstrate that an actual conflict of interest adversely affected his lawyer's perform ance." Cuyler v. Sullivan, 446 U.S. 335, 348 (1980). We ha ve elaborated on this as follows: "An actual conflict of interest `is evidenced if, during the course of the represen tation, the defendants' interests diverge with respect to a mat erial factual or legal issue or to a course of action.' " United States v. Gambino, 864 F.2d 1064, 1070 (3d Cir. 198 8) (quoting Sullivan v. Cuyler, 723 F.2d 1077, 1086 (3 d Cir. 1983)). In addition, we have noted that an actual c onflict is more likely to be found where "an attorney takes po sitive steps on behalf of one client prejudicial to anothe r" as opposed to cases where "the attorney's actions are based on inaction and are passive." Gambino, 864 F.2d at 107 0.

Similarly, an actual conflict is more likely to occ ur in cases of joint representation -- representation of more than one defendant at the same trial -- rather than simp ly multiple representation -- representation of defend ants in

22different trials -- as occurred here. In cases invo lving

multiple but not joint representation, and when an attorney has in some way failed to act, we have adopted the following standard:

In order to establish an actual conflict the petitioner must show two elements. First, he must demon strate that some plausible alternative defense stra tegy or tactic might have been pursued. He need not show that the defense would necessarily have been succ essful if it had been used, but that it possessed suff icient
substance to be a viable alternative. Second , he must
establish that the alternative defense was i nherently in
conflict with or not undertaken due to the a ttorney's other loyalties or interests.

Gambino, 864 F.2d at 1070 (quoting United States v. Fahey, 769 F.2d 829, 836 (1st Cir. 1985)); see also Hess v

. Mazurkiewicz, 135 F.3d 905, 910 (3d Cir. 1998). Whe n an actual conflict with an adverse effect, of the sort described above, is demonstrated, the defendant is entitled t o a reversal for inadequate assistance of counsel witho ut demonstrating prejudice. See Strickland v. Washingt on, 466 U.S. 668, 692 (1984).15

The District Court found no actual conflict in Silv erman's representation of both Porotsky and Roizman. In par ticular,
the court found that Silverman's decision not to at tempt to impeach Porotsky was a reasonable strategic decisio n:

In this case, it is abundantly clear from a n examination of Mr. Roizman's claim in the la rger context of the trial that cross-examination of Mr. Porotsky was not a plausible defense strateg y that "possessed sufficient substance" to raise a claim of
constitutional dimension. . . .

The Court's observations during the lengthy trial confirm that Mr. Roizman's attorney pursued a "wallflower" defense -- that is, that Mr. Ro izman was

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15. Of course, if the defendant cannot prevail on a n actual conflict theory, the defendant can still bring a conventiona l ineffective
assistance claim under Strickland, but the defendant must then show prejudice. See Hess, 135 F.3d at 910.

23an innocent operator who was a victim of int imidation

from other organized crime figures. To have vigorously cross-examined Porotsky, a witness whose hea rsay testimony was cumulative and peripheral, and to therefore have risked creating in the jurors ' minds a connection between Porotsky and Roizman, wou ld have been asinine in light of the strategy Mr. Ro izman pursued. The Court, drawing on its observati on of the strategy employed during the trial, as well as Mr. Silverman's affidavit submitted herewith, co ncludes
that the decision not to cross-examine Mr. P orotsky's hearsay statements was not tainted by a conf lict of interest. Rather, it was a sound decision, b ased on an experienced trial lawyer's strategic conside rations.

United States v. Morelli, Opinion & Order, Crim. No . 93- 210, at 7-8 (D.N.J. Oct. 16, 1997). As the District Court also noted, this strategy was quite successful: "Of the eighteen counts in the indictment against Mr. Roizm an, he was acquitted of 13, including the global conspirac y charge." Id. at 7 n.5.

Roizman alleges that Porotsky's hearsay statements incriminated him in several ways. The District Cour t rejected this argument, finding that impeaching Por otsky
would have made Roizman's "wallflower defense" less
successful. See id. at 7. It also concluded that Po rotsky's statements were "so cumulative and peripheral" that impeaching them would have at best made no differen ce. Based on our review of the record, we find that the District Court's conclusions were probably correct, and cert ainly not clearly erroneous. Based on these facts, we agr ee with
the District Court's conclusion that cross-examinat ion of Porotsky was not an alternative strategy with "suff icient substance to be a viable alternative." Gambino, 864 F.2d at
1070.

Even if we were to conclude that the District Court did clearly err in its conclusions on the previous poin t, we would still affirm its rejection of Roizman's claim . We do not believe that the alleged alternative strategy of im peaching Porotsky created a conflict between Silverman's dut ies to Roizman and Porotsky. The key point, and one only recognized in Gambino as far as we can tell, is tha t we

24must look at the attorney's duties to both clients. An actual

conflict exists only if the proposed alternative st rategy (a) could benefit the instant defendant and (b) would v iolate the attorney's duties to the other client. See Gamb ino, 864
F.2d at 1070.

In Gambino, the court rejected the defendant's actu al conflict claim because it found that the proposed s trategy would not have hurt the attorney's other client. Ga mbino involved a drug distribution charge. The defendant (Gambino) claimed that his attorney could have argu ed that another of the attorney's clients, Mazzarra, might have committed the crime with which Gambino was charged. But Mazzarra was not a codefendant, and the proposed argument would not have rendered Mazzarra directly liable to punishment. Furthermore, the information Gambino contended would have supported the strategy came fr om the government's files. Exposing this evidence at t rial would not have given the government any new information t hat would have made it more likely to charge Mazzarra. The
court concluded that no actual conflict existed bec ause "Mazzara would not have been prejudiced if Evseroff [the attorney] had [tried to show he was the source of t he heroin] and thus it follows that appellant and Mazz ara did not have conflicting interests in Evseroff's perfor mance at trial." Gambino, 864 F.2d at 1071.

We think that this case is analogous to Gambino. Porotsky was not a defendant in Roizman's case. Whi le Porotsky probably would not have wanted to be impea ched as a criminal, he had been convicted of various cri mes, and
numerous other witnesses at trial had discussed his criminal activities. (In fact, the impeachment woul d have involved almost exclusively the evidence of these convictions.) Furthermore, the evidence Silverman w ould have used to impeach Porotsky's statements -- inclu ding Porotsky's prior convictions and present indictment s-- would most likely have come from the government. We do not see how exposing such information, already in t he possession of the government, could have harmed Porotsky's interests.16

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16. Roizman also suggests that Silverman should hav e used information he acquired from Porotsky during his representation of him to impeach

25B. Potential Conflict of Interest

Roizman also claims that his conviction should be reversed under a potential conflict theory. We reje ct this
claim as well.

When a district court is aware, or should be aware, of a potential conflict of interest on the part of the d efendant's attorney, the court must inquire as to whether the
defendant is aware of and waives this conflict. See Wheat v. United States, 486 U.S. 153 (1988); Wood v. Georgia , 450 U.S. 261, 272 (1981); United States v. Pungitore, 9 10 F.2d 1084, 1143 (3d Cir. 1990). Roizman argues that reve rsal is required not only when the trial court is aware of such a conflict and fails to act but also when the prosecu tor and defense attorney are aware of one. Although Roizman cites
several cases from courts within the Second Circuit in support of this claim, see, e.g., United States v. Rahman, 861 F. Supp. 266, 278 (S.D.N.Y. 1994), the court of appeals in that circuit has at most only exhorted prosecuto rs to advise the trial courts when they are aware of conf licts, see United States v. Stantini, 85 F.3d 9, 13 (2d Cir. 1 996). See also Cerro v. United States 872 F.2d 780, 787 (7th Cir. 1989) ("We do not disagree with the propriety of su ch a recommendation under like circumstances, but we conclude that it is not a constitutional requiremen t. In the present case, the prosecutor was under no constitut ional duty to advise the trial court of a potential confl ict based on the information available to him."). They have not held, and we do not hold, that a prosecutor's -- or a defense attorney's -- failure in this respect is grounds fo r reversal.
Since Roizman makes no claim that the District Cour t was or should have been aware of Silverman's potential conflict, he is not entitled to a reversal on these grounds. 17

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Porotsky. We reject this contention. If Silverman h ad not represented Porotsky and thus created the alleged conflict of i nterest in this case,

he
would not have had access to this information. Roiz man cannot prevail on the argument that his interests were harmed by S ilverman's failure to use information he acquired in confidence from Poro tsky to impeach Porotsky. Accordingly, we conclude that no actual c onflict with Silverman's duties to Porotsky affected his represe ntation of Roizman.

17. Finally, Roizman argues that we should reverse the District Court's
decision because it failed to conduct an evidentiar y hearing on his

26For all these reasons, the judgments of the Distric t Court

with respect to both Morelli and Roizman will be af firmed.

A True Copy:

Teste:

Clerk of the United States Court of Appeals
for the Third Circuit

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claims. Because we conclude that the District Court did not err in rejecting Roizman's claims based on the documentary evidence before it,

we see no need for the court to have conducted furt her evidentiary proceedings.

27