Case3:00-cr-00284-CRB Document1311 Filed04/04/08 Page1 of 9
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`IN THE UNITED STATES DISTRICT COURT
`
`FOR THE NORTHERN DISTRICT OF CALIFORNIA
`
`UNITED STATES OF AMERICA,
` Plaintiff,
`
` v.
` PAVEL LAZARENKO,
`Defendant.
` /
`
`No. CR-00-0284 MJJ
`ORDER GRANTING PETER
`KIRITCHENKO’S REQUEST FOR
`RESTITUTION
`
`INTRODUCTION
`Before the Court is Peter Kiritchenko’s request for restitution pursuant to 18 U.S.C. § 3663A
`and 18 U.S.C. § 3663(a). Kiritchenko contends that he was the victim of Lazarenko’s extortion
`demands, as alleged in the Second Superceding Indictment, and that he made payments to Lazarenko
`in the amount of $30,000,000.00 (Thirty Million) and no less than $19,473,309.00, over the period
`of the extortion.1 Defendant Pavel Lazarenko objects to Kiritchenko’s request on a number of legal
`and factual bases as more fully discussed below.
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`1The minimum amount of restitution sought by Kiritchenko has changed during the pendency of this litigation. In
`his initial filing, Kiritchenko sought restitution in the amount of $17,363,309.00, calculated as follows: $9,538,309.00, in
`payments made by Kiritchenko to Lazarenko identified by the Office of General Prosecutor in its February 2002 Resolution
`Declining to Initiate a Criminal Action Against Kiritchenko (hereinafter “GPOU Resolution’) and $7,825,000.00 in profits
`paid to Lazarenko from Kiritchenko’s partnership with Mitchum Associates. Declaration of Dan Ray and Supporting
`Exhibits dated June 16, 2006. On August 24, 2006, Kiritchenko submitted a letter brief to the Court seeking restitution in
`the amount of $18,823,209.00. The August 24th request identified an additional $1,460,000.00, in extortion payments made
`by Kiritchenko to Lazarenko. Finally, on November 9,2006, Kiritchenko’s counsel, George Niespolo, submitted a declaration
`seeking additional restitution in the amount of $650,000.00 for extortion payments made by Kiritchenko to Lazarenko. The
`payments identified in the August 24th letter and the November 9th declaration were the subject of Kiritchenko’s April 7, 2004
`trial testimony. Declaration of George Niespolo in Support of Request for Restitution at Para.4-5.
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`For the Northern District of California
`For the Northern District of California
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`United States District Court
`United States District Court
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`Case3:00-cr-00284-CRB Document1311 Filed04/04/08 Page2 of 9
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`George Niespolo, Esq. appeared on behalf of Peter Kiritchenko (hereinafter “Kiritchenko”)
`and Doron Weinberg, Esq. appeared on behalf of Defendant Pavel Lazarenko (hereinafter
`“Lazarenko”).2
`The Court has reviewed the briefs submitted by the parties, the exhibits and testimony
`offered at the evidentiary hearings in this matter and the arguments of counsel. After careful
`consideration of the record in this matter, the Court hereby GRANTS Kiritchenko’s request for the
`reasons set forth below.
`
`FACTUAL BACKGROUND
` Lazarenko was charged in the Second Superceding Indictment with: conspiracy to commit
`
`Money Laundering, in violation of 18 U.S.C. 1956(h) (Count One); money laundering in violation of
`18 U.S.C. § 1956(a)2 and (a)1(B) (Counts Two through Eight); wire fraud in violation of 18 U.S.C.
`§§ 1343 and 1346 (Counts Nine through Thirty); and illegal transportation of stolen property in
`violation of 18 U.S.C. § 2314 (Counts Thirty One through Fifty Three). The Government generally
`asserted that Lazarenko, while a government official in the Ukraine, obtained property including
`money and ownership interests in certain companies, from individuals and entities and, inter alia,
`that he induced Kiritchenko, through threats, to transfer 50% of the profits from Kiritchenko’s
`businesses to Lazarenko. With respect to the money laundering counts, the Indictment also alleged
`that Lazarenko conspired to and did, through the abuse of his public office, engage in money
`laundering wherein the specified unlawful activity involved fraud, transportation of stolen property
`and extortion of monies from Kiritchenko and others.
`Trial commenced in this matter on or about March 15, 2004. In May 2004, at the close of the
`Government’s case in chief, the Court granted in part, and denied in part, Lazarenko’s motion for
`judgment of acquittal pursuant to Rule 29(a). Accordingly, the Court dismissed Counts Nine
`through Nineteen, Count Thirty and Counts Thirty-Two through Fourty-Two of the Indictment. See
`
`2Assistant Unites States Attorney, Peter Axelrod represented the United States in the criminal prosecution of Pavel
`Lazarenko. Mr. Axelrod appeared at the status conferences and evidentiary hearing pertaining to Kiritchenko’s request for
`restitution and took the position that the Government neither endorsed or objected to Kiritchenko’s restitution request.
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`Docket no.774.3 Thereafter, on June 3, 2004, the jury returned verdicts on the remaining counts and
`entered factual findings as more fully set forth below:
` a. Guilty - conspiracy to commit money laundering and substantive money laundering (Counts One
`through Eight). The jury also made a factual finding that Lazarenko conspired to and did launder the
`proceeds of specified unlawful activity related to foreign extortion; (See Special Verdict, Docket no.
`812).
`b. Guilty - wire fraud (Counts Twenty through Twenty Nine). The jury also made a factual finding
`that Lazarenko had engaged in a scheme to defraud Ukranian citizens of their right to honest
`services relating to Kiritchenko, Id.; and,
`c. Guilty - transportation of stolen property, (Counts 31 and Forty-Three through Fifty Two). The
`jury also made a factual finding that stolen property was derived from property extorted from
`Kiritchenko under threat of economic harm. Id.
`Subsequent to his conviction, Lazarenko filed a renewed motion for judgment of acquittal
`pursuant to Rule 29(a) and a motion for new trial. On or about May 20, 2005, the Court granted in
`part and denied in part Lazarenko’s motion for judgment of acquittal dismissing Counts 20-24, the
`stolen property counts with the exception of Count 31 and denied his motion for new trial. (Docket
`No. 877.)
`Counts One, Two through Eight, conspiracy to engage in and substantive money laundering,
`Counts Twenty Five through Twenty-Nine, wire fraud, and Count 31, transportation of stolen
`property survived the Court’s Rule 29 rulings.
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`Sentencing in this matter required the resolution of a number of novel and complicated
`legal/factual issues and, as such, the hearing was continued for several months. A sentencing
`hearing was held on August 25, 2006. Lazarenko filed his Sentencing Memorandum on or about
`August 4, 2006 (Docket No. 991) and the Government filed its Sentencing Memorandum on or about
`August 11, 2006 (Docket No. 1031.) On or about August 15, 2006, Kiritchenko filed with the Court
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`3On May 7, 2004, the Court also granted Defendant’s Rule 29 motion as to Count 53. See Docket no. 777.
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`a memorandum in support of his request for restitution from Lazarenko.4
`On August 25, 2006, after full consideration of all issues pertaining to sentencing in this
`matter, the Court sentenced Lazarenko to a total term of 108 months in prison and a term of
`supervised release. The Court requested supplemental briefing regarding Kiritchenko’s request for
`restitution and continued the matter for restitution hearing. Pursuant to the Court’s request for
`further briefing, on September 7, 2006, Lazarenko filed an opposition to Kiritchenko’s August 15,
`2006 request for restitution and, on September 14, 2006, Kiritchenko filed his reply (Docket Nos.
`1058 and 1064). On November 15, 2006, the Court conducted the first of several hearings regarding
`Kiritchenko’s request for restitution. At the conclusion of the November 15, 2006 evidentiary
`hearing, the Court informed the parties that it would rule on the legal challenges raised by Lazarenko
`to the request for restitution and, depending upon the Court’s ruling, conduct an evidentiary hearing
`allowing the parties to present live witness testimony and exhibits relevant to Kiritchenko’s
`restitution request. On or about December 8, 2006, the Court filed its Memorandum and Order
`overuling several legal objections tendered by Lazarenko to Kiritchenko’s request for restitution
`(Docket No. 1109). Thereafter, on May 1, June 6, and November 15, 2007, the Court conducted
`evidentiary hearings and heard final argument pertaining to Kiritchenko’s request for restitution.
`The matter is now ripe for resolution.
`
`LEGAL STANDARD
`Kiritchenko’s request for restitution is governed by two statutory enactments. 18 U.S.C §
`3663A (hereinafter “MVRA”) mandates that the court shall order ... the defendant make restitution
`to the victim of the offense. 18 U.S.C. § 3663A (a)1. The MVRA includes within its definition of
`the term victim, those persons directly or proximately harmed as a result of the commission of an
`offense including, in the case of an offense that involves as an element a scheme, conspiracy or
`pattern of activity, any person directly harmed by defendant’s criminal conduct in the course of
`the scheme, conspiracy or pattern ... . 18 U.S.C. § 3663A(a)2 (emphasis added). The MVRA
`
`4Lazarenko filed with this Court letter briefs dated August 15, 22 and 24, 2006, addressing, in part, issues
`pertaining to Kiritchenko’s request for restitution. Kiritchenko submitted a letter brief dated August 24, 2007, in response
`to Lazarenko’s letter briefs. The Court has also considered each of these filings in resolving the issues raised by Kiritchenko’s
`request for restitution.
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`applies in all sentencing proceedings for convictions of ... an offense against property under this title
`.. . including any offense committed by fraud or deceit. Alternatively, 18 U.S.C § 3663 (a) (1) (A)
`(hereinafter “VWPA”) affords the Court discretion to enter an order of restitution for offenses under
`Title 18 that are not offenses against property or committed by fraud or deceit. However the VWPA
`requires that the court consider the financial resources of the defendant, the financial needs and
`earning ability of the defendant and the defendant’s dependants and other factors as the court deems
`appropriate. 18 U.S.C. § 3663(a)(1) (B). With this legal framework in mind, the Court now turns to
`the question of what, if any, restitution Kiritchenko is due.
`ANALYSIS
`As indicated above, Lazarenko raised a number of legal challenges to Kiritchenko’s request
`for restitution. The Court ruled on these challenges in its Memorandum and Order dated
`December 8, 2006, but summarizes its previous rulings here. First, the Court rejected Lazarenko’s
`contention that the trial record establishes that Kiritchenko is not a victim within the meaning of
`MVRA and/or the VWPA. The Court also rejected Lazarenko’s assertion that Kiritchenko’s
`restitution claim was limited to the counts of conviction and, as such, no claim could be made for
`monies transferred from Paddox Industries’ accounts for the benefit of Lazarenko. Finally, the
`Court ruled that the determination of restitution was not of such complexity that the need to provide
`restitution was outweighed by the burden associated with determining restitution in the context of
`the sentencing process. (See Memorandum and Order, dated December 8, 2006, Docket No. 1109.)
`In rejecting Lazarenko’s legal challenges, the Court specifically reserved ruling on credibility and
`reliability challenges raised by Lazarenko and afforded both parties a chance to augment the record
`at the evidentiary hearing. The Court conducted several evidentiary hearings and admitted exhibits
`tendered by Kiritchenko and Lazarenko.
`Having reviewed the record and exhibits tendered by the parties, the Court first addresses
`Kiritchenko’s request for restitution in the amount of $30,000,000.00. The Court finds that
`Kiritchenko has not established, by specific and reliable evidence that he is entitled to an award of
`$30,000,000.00. The Court reaches this conclusion for several reasons. First, while Kiritchenko
`testified at trial that the total amount of payments made to Lazarenko, as a result of the extortion,
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`was approximately $30,000,000.00, he has failed to submitted sufficient evidence (i.e., bank records
`or the like) that support an award of restitution in this amount. The record does not disclose the
`specific amounts nor the dates of transfer to substantiate his claim for $30,000,000.00. Moreover,
`Kiritchenko’s reliance on the jury verdict to establish a restitution award of this stature is misplaced
`as the jury did not make a specific finding as to the amount of money involved in Lazarenko’s
`extortion of Kiritchenko. United States v. Swanson, 394 F.3d 520, 525-526 (7th Cir. 2005).
`Therefore, on this record, the Court finds that an award in the amount of $30,000,000.00 has not
`been established by a preponderance of the evidence.
`Having rejected Kiritchenko’s request for an award of $30,000,000.00, the Court now turns
`to evaluate the record regarding his request for an award of $19,473,309.00. Here, unlike
`Kiritchenko’s request for $30,000,000.00, the record supports his request for $19,473,309.00, based
`upon his submission of specific and credible evidence namely; his testimony given during the course
`of the evidentiary hearings, his testimony given at trial in April 2004, the GPOU Resolution,
`prepared by the Office of the General Prosecutor of the Ukraine dated February 14, 2002, summaries
`of disbursements from and into various accounts prepared by FBI Special Agent Tonna (See
`Kiritchenko Restitution Hearing Exhibits 1-5 ) and the affidavits of Dan Ray, George Niespolo and
`Kiritchenko. The totality of the evidence before the Court is more than sufficient to provide a
`credible and reliable basis to support Kiritchenko’s request. For example, Dan Ray, a certified
`public accountant, former FBI Agent and Forensic Consultant, reviewed each of financial
`transactions identified by Kiritchenko during the latter’s interview before the GPOU in February
`2002, and located corresponding disbursements from Kiritchenko’s accounts to accounts held for the
`benefit of Lazarenko in the amount of $9,538,309.00. Dan Ray, also reviewed bank records with
`Kiritchenko and documented transfers from Mitchum Associates to Paddox Industries to accounts
`held for the benefit of Lazarenko in the sum of $16,650,000.00, half of which ($7,825,000.00)
`Kiritchenko testified was remitted to Lazarenko as a result of extortion demands. (See Affidavit of
`Dan Ray, dated June 16, 2006, Exhibits C, D and E.) The GPOU’s Resolution also provides an
`additional measure of reliability in support of Kiritchenko’s claim. (Affidavit of Dan Ray, dated
`June 16, 2006, Exhibit B.) Moreover, Kiritchenko submitted excerpts of his trial testimony, given
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`on April 2004, wherein he identified transfers in the amount of $1,460,000.00 and $650,000.00, as
`profits from his business enterprises that he deposited into accounts maintained for the benefit of
`Lazarenko. (See Decl. of George Niespolo and Exhs. A and B, attached thereto).
`Therefore, there is ample evidentiary support for Kiritchenko’s request for restitution in the
`amount of $19,473,309.00.
`Lazarenko’s fact based challenges focus largely on Kiritchenko’s credibility. For example,
`Lazarenko argues that the February 2002, GPOU Resolution does not reference payments from
`Paddox Industries to Lazarenko controlled accounts and the absence of these references establishes
`that Kiritchenko never made payments from Paddox Industries’ accounts as a result of extortion
`demands. Lazarenko also draws the Court’s attention to Kiritchenko’s deposition testimony, given
`in the matter of Universal Trading & Investment Company v. Petro Kiritchenko, United States
`District Court No: 99-3073, wherein Kiritchenko testified that he did not recall making transfers
`from Paddox Industries accounts to Lazarenko’s daughter, Tamara Lazarenko; that he did not recall
`making monetary transfers from his Orphin account into his Paddox account; that he did not know
`who owned Mitchum Associates and was equivocal with respect to the types of goods Paddox sold
`to Mitchum Associates, the existence of contractual agreements between Paddox and Mitchum
`Associates and his recollection of money being transferred from Mitchum Associates to Paddox
`Industries. (Def’s Exh. F.)
`The Court has reviewed each of Lazarenko’s challenges to Kiritchenko’s credibility but finds
`that the evidence supporting Kiritchenko’s request for restitution is reliable for several reasons.
`First, Lazarenko’s evidence does little to undermine the payments identified by the GPOU’s Report
`of February 2002, which were corroborated by Daniel Ray’s review of the relevant bank records.
`Moreover, while it is true that Kiritchenko was equivocal with respect to his knowledge of the
`ownership of Mitchum Associates, and several specific payments flowing from Mitchum into
`Paddox accounts and ultimately to Lazarenko, Kiritchenko also testified at that same deposition that
`he (Kiritchenko) had a business relationship with Mr. Grigorishin of Mitchum Associates. As
`importantly, Kiritchenko also testified during the same deposition that he and Mr. Grigorishin joined
`forces, through Mitchum Associates to supply energy to enterprises and thereafter would take goods,
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`sell them and split the profit from these transactions in half. (Defendant’s Exhibit F.) Additionally,
`during the evidentiary hearing in this matter, Kiritchenko testified that in 1994-1995 time frame he
`was involved in the acquisition of energy from nuclear waste plants and, at some point, he joined
`forces with Mr. Grigorishin in the acquisition of energy to sell to power plants in return for the
`receipt of metals. The metals received in return for supplying energy to power plants would be sold
`through Kiritchenko’s Orphin account with the assistance of Mitchum Associates. Kiritchenko
`further testified that the deals involving the acquisition and sales of energy were in the tens of
`millions of dollars and that he (Kiritchenko) paid half of the profits realized on these sales to
`Lazarenko. (Defendant’s Exhibit F.) In the Court’s view, while Kiritchenko may not have been
`fluent with respect to the ownership of Mitchum or the scope of it’s business endeavors he has
`consistently and credibly identified the source of the amounts paid to Lazarenko from his energy
`supply business and the Court finds him credible.
`Lazarenko also points to a disbursement from the Paddox account to Tamara Lazarenko that
`exceeds 50% extortion demand make by Lazarenko and he posits that transfers out of the Paddox
`account total 11.8 million dollars, a figure inconsistent with Kiritchenko’s claim that 15 million
`dollars of profit were deposited into the Paddox account. Lazarenko contends that the evidence
`establishes that Kiritchenko was, in fact, involved in a partnership with Lazarenko and that the
`deposits into the Paddox account for the benefit of Lazarenko were the proceeds of legitimate
`business activities. The Court disagrees. As Kiritchenko testified during the restitution hearing, he
`employed the “pocket theory” in making extortion payments to Lazarenko and accordingly,
`Kiritchenko would make payments out of several accounts to meet the 50% extortion threshold.
`Therefore, Kiritchenko’s inability to trace every dollar deposited, withdrawn and/or payments made
`to third parties from the Paddox accounts does not undermine the reliability of the amount of
`restitution sought here.
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` Finally, the Court also notes that the jury in this matter found Kiritchenko credible in
`rendering it’s verdict of guilt with respect to the counts of conviction for money laundering and
`made specific findings that Lazarenko engaged in foreign extortion and transportation of stolen
`property with a specific finding that the stolen property was derived from property extorted from
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`Kiritchenko. This finding, while not dispositive of the credibility issues now before this Court,
`supports the Court’s finding that Kiritchenko is entitled to restitution in this matter. Therefore, the
`Court finds that Kiritchenko has satisfied his burden of establishing by a preponderance of the
`evidence his entitlement to restitution in the amount of $19,473,309.00.5
`CONCLUSION
`For the foregoing reasons, and pursuant to 18 U.S.C. § 3663A and 18 U.S.C § 3663(a), the
`Court GRANTS Kiritchenko’s request for restitution in the amount of $19,473,309.00.
`IT IS SO ORDERED.
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`Dated: April 3, 2008
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`MARTIN J. JENKINS
`UNITED STATES DISTRICT JUDGE
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`5The record evidence does not support a finding that Mr. Lazarenko lacks the requisite financial ability to preclude
`an order of restitution under VWPA and no objection has been tendered to the Court on this ground.
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