United States v. Iacaboni

United States Court of Appeals
For the First Circuit

No. 02-2141

UNITED STATES,

Appellee,

v.

FRANK IACABONI,

Defendant, Appellant.

APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF MASSACHUSETTS

[Hon. Michael A. Ponsor, U.S. District Judge]

Before

Boudin, Chief Judge,

Lynch and Howard, Circuit Judges.

Thomas J. Butters, with whom Butters, Brazilian & Small LLP
was on brief, for appellant.
Andrew Levchuk, Assistant U.S. Attorney, with whom Michael J.
Sullivan was on brief, for appellee.

March 30, 2004
 HOWARD, Circuit Judge. In March 2002, Frank Iacaboni

pleaded guilty to charges arising out of his operation of an

illegal gambling business. He appeals the district court's

subsequent forfeiture order, contending that the court erred in its

determination that $384,245 should be forfeited. Concluding that

the district court’s reasoning is sound as to the bulk of the

award, we affirm in part, but reverse and remand as to one category

of funds included in the forfeiture.

I. Factual and Procedural Background

From 1995 through March 1998, Iacaboni conducted an

illegal sports gambling operation in and around Leominster,

Massachusetts. Iacaboni's business included a few different

"offices" headed by individuals hired to take bets from gamblers

over the telephone. Iacaboni also ran a "football ticket"

business; bettors paid between $1 and $10 per "ticket," a card on

which they checked off four or more predictions in dozens of

upcoming games.

In May 2001, a grand jury indicted Iacaboni on charges of

conspiracy to conduct an illegal gambling business (Count I), 18

U.S.C. § 371; operating an illegal gambling business (Count II), 18

U.S.C. § 1955; conspiracy to conduct an illegal gambling business

involving interstate travel (Count III), 18 U.S.C. § 371;

conspiracy to launder money from 1995 to March 1998 (Count IV), 18

U.S.C. § 1956(h); and money laundering on December 23, 1997 (Count

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V), 18 U.S.C. § 1956(a)(1)(A)(i). The indictment also included

forfeiture allegations seeking "any property, real or personal,

involved in" Iacaboni's violations of 18 U.S.C. § 1956. 18 U.S.C.

§ 982(a)(1). At his arraignment, Iacaboni entered a plea of not

guilty on all charges.

On March 26, 2002, Iacaboni changed his plea to guilty on

Counts I through IV of the indictment, and the government agreed to

dismiss Count V. Iacaboni also pleaded guilty to a criminal

information charging him with money laundering in violation of 18

U.S.C. § 1956(a)(1)(B)(i) in connection with the December 23, 1997

transaction that had been the subject of Count V.1

In April 2002, the court held a bench trial on the

forfeiture allegations. The government presented the testimony of

two of Iacaboni's employees, Robert Bolaski and Ryan Gallagher.

They described their day-to-day duties, the size of their typical

client roster (40 to 50 for Bolaski, and 15 to 20 for Gallagher),

and their weekly salaries (ranging from $300 to $350). Bolaski

estimated that Iacaboni's business might owe approximately $15,000

to $20,000 to winning bettors during a bad week, and expect to

collect $20,000 to $25,000 from losing bettors during a good week.

1
The December 23, 1997 transaction involved an attempted
transfer of $10,000 to an individual the government alleged to be
an organized crime figure. United States v. Iacaboni, 221 F. Supp.
2d 104, 109-10, 117 (D. Mass. 2002). Because Iacaboni does not
contest the inclusion of these funds in the forfeiture order, the
details of this transaction are not recounted here.

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Gallagher testified that his office paid out an average of

approximately $10,000 per week to winning bettors over the course

of a seventeen-week football season. Both Bolaski and Gallagher

testified that the volume of betting varied.

Larry Landman, one of Iacaboni's bettors, also testified

at trial. He testified that he bet every weekend during football

season, and that occasionally when he owed money to Iacaboni, he

would send “personal checks” made out to the defendant.2 He

sometimes made the notation "personal loan" on the checks, a

practice that was his own idea, not one suggested by Iacaboni.

Iacaboni deposited Landman's checks into his personal account. The

government presented evidence of nineteen checks given to Iacaboni

by Landman, only nine of which were relevant to the forfeiture

analysis because of the applicable five-year statute of

limitations. These nine checks, deposited between May 1996 and

December 1996, totaled $7,385.3

2
These payments were technically made by personal money order,
but were commonly referred to by the parties as "checks." Because
the distinction is insignificant in our analysis, we adopt the
“check” label used below.
3
The district court found that the government had presented
evidence of twenty-one checks, ten of which fell within the statute
of limitations and totaled $7,495. Iacaboni, 221 F. Supp. 2d at
108. Our review of the record reveals that evidence of only
nineteen transactions was introduced by the government, and that
the district court mistakenly counted a $110 cash deposit as a
tenth "check" in its calculation of amounts paid by Landman.

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 The court also heard testimony from Robert Davies, an

agent of Iacaboni's, and Tina LeClair, Iacaboni's former

girlfriend. These witnesses, along with Bolaski, described the

operation of the football ticket business, including how bets were

placed and winnings distributed.

In June 2002, Iacaboni was sentenced to ten months in

custody, a fine of $30,000, and three years' supervised release.

The district court heard argument on the forfeiture allegations

soon thereafter. In August 2002, the district court ordered

Iacaboni to forfeit $384,245 pursuant to 18 U.S.C. § 982(a)(1).

This amount included (1) $340,000 in funds paid to winning phone-in

bettors over the 1996 and 1997 football seasons; (2) $10,000 in

funds paid to winning football ticket bettors; (3) $10,000

representing funds involved in the December 23, 1997 transaction;

(4) $7,495 in checks from Landman; (5) $16,150 in salaries; and (6)

$600 in phone expenses.4 The district court declined to order that

Iacaboni forfeit his residence in Leominster, a penalty sought by

the government.5 This appeal followed.

4
On appeal, Iacaboni does not contest the forfeitability of
items (3) and (6), the $10,000 in funds transferred on December 23,
1997, see n.1, above, and the $600 in phone expenses.
5
The government had argued that the property was subject to
forfeiture under 18 U.S.C. § 1956. The district court disagreed,
concluding that "it is not enough merely to show that the Union St.
property was involved in the gambling operation; the Government
must demonstrate that the house was involved in money laundering."
Iacaboni, 221 F. Supp. 2d at 116. Although the government
initially cross-appealed, United States v. Iacaboni, No. 02-2259,

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 II. Analysis

Iacaboni contends that the district court erred in its

determination of the amount to be forfeited because (1) the payouts

to winning bettors were integral to the illegal gambling business

and therefore could not be considered property involved in money

laundering; (2) there was insufficient evidence to support a

finding that $340,000 was paid out to phone-in bettors; and (3) the

Landman checks were not property involved in money laundering.

A. Payments to Winning Bettors

We review de novo the district court's determination of

what constitutes forfeitable proceeds under 18 U.S.C. §

1956(a)(1)(A)(i). The court found that $350,000, an amount

representing payments to winning bettors, should be forfeited.6

The statute provides:

(a)(1) Whoever, knowing that the property
involved in a financial transaction represents
the proceeds of some form of unlawful
activity, conducts or attempts to conduct such
a financial transaction which in fact involves
the proceeds of specified unlawful activity
(A)(i) with the intent to promote the carrying
on of specified unlawful activity;
shall be sentenced to a fine of not more than
$500,000 or twice the value of the property

that appeal was later voluntarily dismissed.
6
Although the forfeiture of funds a defendant has transferred
away may seem an unusual concept, detailed statutory provisions
have been designed to accomplish this very end in drug and money
laundering cases, and the defendant has not argued that these
provisions are inapplicable. See 18 U.S.C. §§ 982(a), (b)(1); 21
U.S.C. § 853(p).

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 involved in the transaction, whichever is
greater[.]

18 U.S.C. § 1956.7

Looking to the language of the statute, we first consider

whether the payments to winning bettors constituted financial

transactions involving the proceeds of illegal gambling, a

specified unlawful activity. Id. § 1956(a)(1). The district court

concluded that this portion of the statute had been satisfied,

noting the breadth of the terms "financial transaction" and

"proceeds." Iacaboni, 221 F. Supp. 2d at 111-12.

Iacaboni does not contest his participation in “financial

transactions,” but he does argue that "proceeds" refers to net

income of the illegal gambling operation, not payouts, citing

United States v. Scialabba, 282 F.3d 475 (7th Cir. 2002), cert.

denied, 537 U.S. 1071 (2002). There, the Seventh Circuit held that

money paid to winning players in an illegal video poker scheme

could not be considered proceeds, defining proceeds as net profits.

We have previously rejected Iacaboni’s interpretation of the term

“proceeds” in the RICO forfeiture context. See United States v.

Hurley, 63 F.3d 1, 21 (1st Cir. 1995)(quoting legislative history

of RICO forfeiture provisions for the proposition that “the term

7
Section 1956(a)(1)(A)(i) prohibits conduct sometimes referred
to as "promotional" money laundering. Unlike "concealment" money
laundering (i.e. financial transactions designed to conceal the
source of the funds or to avoid transaction reporting
requirements), which is governed by 18 U.S.C. § 1956(a)(1)(B), an
intent to conceal is not an element of the crime.

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‘proceeds’ has been used in lieu of the term ‘profits’ in order to

alleviate the unreasonable burden on the government of proving net

profits”). Iacaboni has offered no rationale for abandoning that

approach here.

Concluding that Iacaboni’s financial transactions

involved “proceeds” within the meaning of § 1956(a)(1), we turn to

whether the transactions were intended to promote the gambling

operation. Iacaboni asserts that payments to winning bettors

cannot be considered "promotion" because these payments were an

integral part of the illegal gambling business. Defining payouts

as promotion, Iacaboni contends, is an impermissible alternative

punishment for operating a gambling business. He argues for an

interpretation of the statute that would require an additional

promotional step beyond the mere operation of the illegal venture.

In addressing this argument, the district court opined

that the payouts were not typical examples of promotion money

laundering (such as the “plowing back” or reinvestment of criminal

proceeds through the payment of business expenses, see B. Frederic

Williams, Jr. & Frank D. Whitney, Federal Money Laundering: Crimes

and Forfeitures 137-39 (1999)). The court also opined that, under

the logic advanced by the government, "any illegal gambling

operation would also be a money laundering operation." Iacaboni,

221 F. Supp. 2d at 113. But the court nevertheless concluded that

the transactions fell within the reach of § 1956(a)(1)(A)(i), in

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part because "[n]othing makes an illegal gambling operation

flourish more than the prompt payment of winners,” id. at 114

(citing United States v. Febus, 218 F.3d 784, 790 (7th Cir. 2000)),

and in part because it was not "fundamentally unfair to view as

money laundering the conduct of defendant that took the proceeds of

his illegal business and used them to increase the popularity and

viability of his criminal operation by paying his winners." Id.

We agree with the district court, and affirm on the

grounds set forth in its opinion, as well as the following

considerations. Crimes such as the operation of an illegal

gambling ring create huge sums of cash, the use or disposition of

which can prove problematic for illegal gambling operators who wish

to stay beneath the radar of law enforcement agencies. Depositing

the funds with a financial institution can trigger currency

transaction reporting requirements, see Hurley, 63 F.3d at 12

(citing 31 U.S.C. § 5313), which in turn can bring the depositor

the unwanted attention of the Internal Revenue Service or other

government agencies.

Criminals dealing in large amounts of cash who wish to

avoid the risks and practical difficulties of “putting it in the

mattress” have thus developed strategies to avoid the creation of

a paper trail that can lead to apprehension. They frequently

“structure” their cash deposits so as to avoid reporting

requirement triggers, see United States v. Saccoccia, 58 F.3d 754,

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762 n.1 (1st Cir. 1995) (describing subdivision of cash into

“smaller, unreportable amounts,” a process also known as

“smurfing”); use the cash to purchase valuables, see id.

(recounting scheme whereby proceeds from Columbian drug cartel were

laundered through purchases of gold); and use the cash to promote,

or “move forward,” Webster's Third New International Dictionary

1815 (1993), the unlawful scheme by which the cash was derived or

another unlawful scheme, see United States v. London, 66 F.3d 1227,

1242-43 (1st Cir. 1995) (upholding money laundering conviction of

operator of check-cashing business whose intentional failure to

file currency transaction reports benefitted his bookmaking

clientele). Recognizing the prevalence of these evasionary

strategies, Congress in 1986 enacted § 1956 to outlaw (1) the

structuring of financial transactions so as to avoid currency

reporting requirements or to conceal the source of the funds, and

(2) the promotion of unlawful activity through financial

transactions involving the proceeds of a specified unlawful

activity (of which running an unlawful gambling operation is one,

see United States v. LeBlanc, 24 F.3d 340, 346 (1st Cir. 1994)).

Thus the statute’s two “prongs.” See n.7, above.

In our view, Iacaboni misses the point in asserting that

defining the payouts as promotion would constitute an impermissible

alternative punishment for an act that is an integral component of

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an unlawful gambling business.8 Targeting the payouts reflects the

decision of Congress (embodied in § 1956) to proscribe not only

certain unlawful cash-generating schemes, but also the means by

which they are practically carried out and hidden from

investigators. See LeBlanc, 24 F.3d at 346 (“Congress intended to

criminalize a broad array of transactions designed to facilitate

numerous federal crimes, including illegal gambling.”). Such a

proscription empowers law enforcement to combat such schemes not

only from a direct operational perspective, but also from the more

indirect financial angle. Viewed in this light, the district

court’s decision to forfeit the payouts to winning gamblers is

consonant with the purposes for which Congress enacted 18 U.S.C. §

1956(a)(1)(A)(i).9 We hasten to add that we are only deciding

8
Of course, as we read the statutes, a gambling operation and
money laundering will often occur together but each requires an
element that the other does not, United States v. Conley, 37 F.3d
970, 978-79 (3d Cir. 1994), thereby satisfying the Blockburger
test. Blockburger v. United States, 284 U.S. 299 (1932). We do
not share the Seventh Circuit's doubts on this issue expressed in
United States v. Scialabba, 282 F.3d 475, 477 (7th Cir. 2002).
There might, of course, be concerns if the government sought to
forfeit the same property twice, but that is not a problem
presented in this case. Cf. United States v. Cunan, 156 F.3d 110,
116 (1st Cir. 1998).
9
In his brief, Iacaboni ends his argument regarding the
improper characterization of payouts as promotion with the
statement: "For the same reason, the Court should also vacate the
District Court's forfeiture order as it pertains to the $16,150 in
salaries paid to agents." Iacaboni Br. at 22-23. Even if we
consider this issue despite Iacaboni's failure to brief it
properly, see United States v. Zannino, 895 F.2d 1, 17 (1st Cir.
1990), the argument has no merit. The payment of salaries of
employees is a common example of promotion within the meaning of

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whether the facts of this case come within the term "promote" as

used in this statute, and not as that term may have been used by

Congress elsewhere in federal law.

B. Calculation of Amount of Payments to Winning Phone-In
Bettors

Iacaboni contends that even if the payments to winning

bettors are properly characterized as promotion money laundering

and thus forfeitable, the district court erred in calculating the

amounts paid to winning phone-in bettors. The court found that

Gallagher testified credibly that his office paid out an average of

approximately $10,000 per week during the seventeen-week football

season. The court concluded therefore that approximately $170,000

was paid out during each football season, totaling $340,000 over

the course of two years. This calculation was based on Gallagher's

office only,10 and did not include bets on the playoffs or the Super

Bowl. Likewise, it included only wagers on football games,

although the Iacaboni operation also took bets on baseball, hockey

the statute. See Febus, 218 F.3d at 790; United States v. Leonard,
61 F.3d 1181, 1186 (5th Cir. 1995); see also B. Frederic Williams,
Jr. & Frank D. Whitney, Federal Money Laundering: Crimes and
Forfeitures 137 (1999) (“A manufacturer of cars would think it
strange if one asserted that the payment of wages for its workers
on the assembly line and for steel or other raw materials were not
intended to help promote the company’s continuation and success in
the car industry.”). We uphold the district court’s finding that
$16,150 in salaries is subject to forfeiture.
10
The district court heard testimony that there were at least
three offices in addition to Gallagher's within the Iacaboni
operation.

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and basketball.

The district court's factual findings regarding the

amounts paid to winning phone-in bettors are reviewed for clear

error. See United States v. 15 Bosworth Street, 236 F.3d 50, 53

(1st Cir. 2001)(noting, in civil forfeiture context, that "the

appellate process ought to respect the trial judge's superior feel

for the case and his enhanced ability to weigh and evaluate

conflicting evidence" (internal quotation omitted)). The findings

were based in part on a credibility determination to which we

extend great deference, and in part on commonsense extrapolation.

We conclude that the district court's findings were sound in light

of the small segment of Iacaboni's business on which they were

based. Indeed, the amount ordered forfeited appears to be a

reasonable and fair estimate.

C. Landman Checks

Iacaboni contests the district court's finding that

$7,495 in checks Landman paid to Iacaboni were forfeitable,

alleging that the court improperly relied on a theory of

concealment money laundering, 18 U.S.C. § 1956(a)(1)(B)(i), when

Iacaboni pleaded guilty only to promotion money laundering. Id. §

1956(a)(1)(A)(i). The government concedes that a variance

occurred, but contends that it did not affect Iacaboni’s

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substantial rights.11

Here, the indictment alleged promotion money laundering,

Iacaboni pleaded guilty to promotion money laundering, but -- to

the extent the Landman checks are included in the forfeiture -- the

sentence was based on a concealment money laundering theory. See

Iacaboni, 221 F. Supp. 2d at 117 (“[T]he court finds that the

defendant’s purpose in depositing these funds in his general bank

account was to conceal their illegal nature. Commingling tainted

funds with legitimate funds ‘for the purpose of concealing the

nature or source of the tainted funds’ constitutes concealment

money laundering” (citation omitted)). The district court’s

forfeiture of the Landman checks on the basis of concealment money

laundering, a charge that the government conceded at oral argument

was not included in Count IV of the indictment, effectively altered

the terms of the indictment. This alteration is a per se

prejudicial “constructive amendment.” See United States v. Fisher,

3 F.3d 456, 462-63 (1st Cir. 1993)(“A constructive amendment occurs

11
The government also argues that the issue was not preserved
on appeal, and should therefore be subject only to plain error
review. We do not agree. In his proposed findings of fact and
conclusions of law submitted prior to sentencing, Iacaboni
contended that the government had not charged any form of money
laundering on the basis of Landman’s checks. See Def’s. Proposed
Findings of Fact and Conclusions of Law No. 28. Iacaboni urged the
district court to find that “[n]othing about these checks suggests
that they were involved in a money laundering transaction. Indeed,
the government has not even suggested that they were money
laundering transactions, as they were not so charged in the
Indictment.” See Def’s. Proposed Findings of Fact and Conclusions
of Law No. 61.

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when the charging terms of the indictment are altered, either

literally or in effect, by the prosecution or court after the grand

jury has last passed upon them.” (internal quotation omitted)).

Accordingly, we reverse the district court order to the extent the

Landman checks are included in the forfeiture.12

III. Conclusion

For the foregoing reasons, we affirm the district court’s

order of forfeiture but reverse and remand to the extent that the

Landman checks are included in the forfeiture.

It is so ordered.

12
We decline the government’s invitation to affirm on the
alternative ground, adverted to only in passing in its brief, that
the depositing of the checks constituted promotion money
laundering. The government has not identified any portion of the
record that would justify such a conclusion by this court or any
further consideration of the issue on remand.

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