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Court Leaves $25 Million Fine Intact for Check-Kiting Fraud

May 31, 1988

WASHINGTON (AP) _ The Supreme Court today left intact a $25 million fine against a businessman for what prosecutors called the biggest check-kiting fraud in the history of American banking.

The court, citing the lack of a ″substantial federal question,″ rejected a challenge to a New York law that says those convicted in such schemes may be forced to pay fines equal to twice the amount gained through their criminal conduct.

Edward J. Halloran was convicted of defrauding Marine Midland, a New York City bank, of $23 million through a complex, synchronized drawing and depositing of some 15,000 checks.

The evidence showed that Halloran had accounts at Marine Midland and Citibank, and that he kept shifting funds from one to the other for a one-year period that began April 1, 1983.

His admitted aim was to save his financial empire, including the Taft Hotel in New York, a Holiday Inn in Fort Washington, Pa., and several concrete companies.

Halloran was sentenced to six months in jail and fined $25 million. Harold F. Madden, a co-defendant who was not involved in the appeal acted on today, was ordered to perform 120 hours of community service and was fined $100,000.

Halloran said his fine is excessive and violates his constitutional rights. He denied that he made anything like a $25 million profit from the check- kiting scheme.

But state Judge Carol Berkman, in upholding the fine, said prosecutors demonstrated that the fraud enabled Halloran not only to save his empire without paying interest but also that his holdings substantially increased in value.

Halloran’s ″gain″ from the fraud was said to be more than $22 million.

Moreover, the judge said, ″At trial, to avoid a grand larceny conviction, the defendants were eager to show the health of Halloran’s financial empire.″

Afterward, the judge said, ″The empire became moribund: its gains limited to the amount pumped in from the kite; its losses oppressive and all but wiping out any capital gains.″

″These self-serving arguments and conclusions at sentence did not rebut the people’s evidence that defendants’ gains went well beyond the monies taken in the course of the kite and returned to Marine Midland Bank upon discovery of the fraud,″ the judge said.

Halloran argued that he ″borrowed″ the money from the bank and intended to repay it.

He repaid Marine Midland some $23 million after a shortfall in that amount was discovered in his account at the bank.

In urging the Supreme Court to hear Halloran’s appeal, his lawyers said the case could have a bearing on government seizures of property and profits from illegal drug operations and other criminal enterprises covered by the federal Racketeer Influenced and Corrupt Organizations Act.

″Constitutional questions concerning the applicable standard of proof and the permissible limits of the term ‘gain’ are both important and recurring,″ they said.

The lawyers said it is unconstitutional for a defendant to be ordered to pay a fine up to twice the amount of the alleged gain when proof of that gain is based only on ″a preponderance of the evidence″ - the standard used in the New York law. Most often used in criminal cases is the more stringent ″beyond a reasonable doubt″ standard of proof.

The case is Halloran vs. New York, 87-1595.

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