Jury Wants to Reduce Penalty in Newport Case

A federal jury said Wednesday that the six defendants found guilty in the Princeton/Newport Limited Partners securities fraud trial should forfeit $3.8 million to the government under the racketeering law, far less than the $22 million that prosecutors had demanded.

But U.S. District Judge Robert L. Carter said he almost certainly will overturn the jury’s findings and grant the prosecutors’ request for the full $22 million.

The quick turn of events first raised the spirits of the defendants and their families, who had expected the worst after Monday’s guilty verdict. But the judge’s comments on taking the full $22 million erased their relief and left them bewildered.

The six were found guilty by the same jury Monday on 63 counts, including racketeering, racketeering conspiracy, securities fraud and mail fraud. The government charged that the six arranged sham trades of securities so that Princeton/Newport could claim phony tax losses. The case was noteworthy because it marked the first use of the racketeering law against top executives of a securities firm.

Called ‘Exorbitant’

Under the federal Racketeer Influenced and Corrupt Organizations Act, or RICO, defendants found guilty of participating in a continuing criminal enterprise can be forced to forfeit to the government their full financial interest in the enterprise, including amounts gained from legitimate activities.

But the jurors indicated by their verdict Wednesday that they felt that taking the full amount wouldn’t be appropriate in this case. After the forfeiture verdict, juror Michelle Rodriguez said in a brief interview on the courthouse steps that “we thought what the government asked was exorbitant.” She declined to elaborate, however, on how the jurors arrived at precise figures for each defendant.

Judge Carter said that, because of his interpretation of the RICO law, he almost certainly will grant prosecutors’ request for the full $22 million, representing salaries, management fees and partnership interests in Princeton/Newport and related companies.

Pleased by Ruling

As part of the verdict returned Wednesday, the jurors formally found that the defendants did have a financial interest in the criminal enterprise. The judge said once the jurors decided that, it was unnecessary for them to determine amounts, since the law provides for forfeiture of the full amount of their interest. “As I understand the law, interest in the enterprise is totally forfeitable,” the judge said.

It wasn’t clear why the judge, given his view of the law, had permitted attorneys to make arguments to the jury about the amounts and had given jurors a blank verdict form, with a space to write in the amounts for each defendant. The judge said he will rule on the issue after he receives written arguments from both sides.

Defense lawyers in the case said they were pleased by the jury’s ruling on the amounts of money. They said they believed that an appellate court would reinstate the jury’s findings if Judge Carter carries out his preliminary decision to overturn them. Defense lawyers had argued that full forfeiture would be “Draconian” and would amount to cruel and unusual punishment. Defense lawyers said the amounts demanded by the government would wipe out the entire net worth of several of the defendants.

Robert H. Schwartz, lawyer for defendant Jack Z. Rabinowitz, a Princeton/Newport general partner, said that in the aftermath of the guilty verdict, the jury’s decision on the amounts of money “looks to me like an apology.”

The defendants are due to be sentenced Oct. 16 and face the possibility of lengthy prison terms and fines in addition to the forfeiture. Defense lawyers said they plan to appeal the conviction.

The jury decided that Rabinowitz and defendants Charles M. Zarzecki, Paul A. Berkman and Bruce L. Newberg should forfeit only $200,000 each. Prosecutors claimed that they should each give up amounts ranging from $2.57 million for Newberg to $1.24 million for Rabinowitz.

The government had demanded that James Sutton Regan, the managing general partner of Princeton/Newport, give up $15.96 million, but the jury said he should pay only $3 million. The government had asked that Steven B. Smotrich, the Princeton/Newport controller, pay $124,585, but jurors came up with a very precise figure on how much they thought he should pay: $1,245.85.

Juror Rodriguez said jurors came up with that amount for Smotrich because it represents 1% of what the government had asked for, and “we felt he was 1% guilty.” But she refused to explain further.

Firm Is Defunct

Five of the defendants had been officials of Princeton/Newport, which had offices in Newport Beach and Princeton, N.J. The firm went out of business after the indictment. Newberg had been a trader at Drexel Burnham Lambert Inc. and is also a defendant in the case against former Drexel junk bond chief Michael Milken. The indictment in that case includes charges that overlap with the Princeton/Newport indictment.

In a telephone interview after the jury was dismissed, juror Joseph Pastina, 66, a retired manager of a delicatessen, said he wouldn’t be disturbed if the judge overturns the jury’s findings on the forfeiture.

“I figured it should have been left to the judge to begin with,” he said. “That’s what we all felt. I don’t know why we should have been burdened with it.”