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Page 5 of 9 
730 F.Supp. 30 
730 F.Supp. 30 
(Cite as: 730 F.Supp. 30) 
ted in the serious bodily injury or death 
of another. 
THREE: It is also understood that, if it is 
determined that you have intentionally 
given false, misleading or incomplete in-
formation or violated any other term of 
this agreement, then: 
(I) You will be subject to prosecution 
for any criminal violations of which the 
United States or the State of Texas may 
have knowledge from any source what-
soever, including your own admissions; and 
(2) All statements made by you to the 
United States and/or any other law en-
forcement officials, and all testimony 
given by you, and all leads from such 
statements or testimony, will be admiss-
ible in evidence against you. It is the in-
tent of this agreement that you waive 
any and all rights which you may have 
under the United States Constitution, any 
statute or any Federal rule to seek sup-
pression of these statements in the event 
that you violate any of the terms of this 
agreement. 
After signing the Proffer Agreement on February 
16, 1989," Defendant spent several days provid-
ing information to the government. Several weeks 
later, however,*32 Wood decided that he no longer 
wished to cooperate and attempted to avoid giving 
any further information to law enforcement author-
itics.ENI Sometime after his release from incarcer-
ation, Wood left Texas to avoid giving testimony 
before a federal grand jury to which he had been 
subpoenaed to testify." 
FN2. The Court finds that Defendant vol-
untarily and knowingly entered into this 
agreement, having discussed it with his 
own counsel, having negotiated modifica-
tions to the agreement, and having counsel 
Page 4 
present at the time of execution. See De-
fendant's Motion at 2, 8; Government's Re-
sponse at 3, 9-10. 
F143. 
See Affidavit of Special Agent 
Robert Blecksmith, attachment B to the 
Government's 
Response. 
Among 
other 
things, Wood: 
(I) failed on more than one occasion to 
meet a police detective, as promised, to 
accept service of a grand jury subpoena 
(Blecksmith Aff.11 3, 4); 
(2) failed to meet government attorneys, 
as promised, on the day prior to his 
scheduled 
grand 
jury 
appearance 
(Blecksmith MITI 5, 6); 
(3) failed to appear for his scheduled 
grand jury appearance on May 3, 1989 
(Blecksmith Aff. 1 7); 
(4) attempted to avoid service of a fur-
ther 
subpoena 
on 
May 
16, 
1989 
(Blecksmith Aff. 1 9); 
(5) failed to appear for the rescheduled 
grand jury appearance on May 25, 1989 
(Blecksmith Aft ¶ 11); 
(6) was convicted of violating 18 U.S.C. 
§ 1074, unlawful flight to avoid prosecu-
tion, for leaving Texas; in the factual re-
sume accompanying his plea of guilty, 
which plea Defendant made before this 
very Court, Defendant specifically ad-
mitted leaving Texas to avoid testifying 
before the federal Grand Jury. See Factu-
al Resume filed September 7, 1989 in 
United States v. Wood, CR3 89-211-H. 
FN4. See supra n. 3. 
Wood moves the Court to dismiss the present in-
dictment against him in the belief that the govern-
ment 
impermissibly 
used 
the 
statements 
he 
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730 F.Supp. 30 
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provided under the Proffer Agreement as evidence 
to support his indictment. Alternatively, the De-
fendant moves to suppress any statements, oral or 
written, that he made to law enforcement officials 
pursuant to the agreement and any evidence derived 
therefrom. The government responds asserting that 
the agreement permits the use of Wood's statements 
and urging the Court to deny Defendant's motion in 
total. 
II. DISCUSSION 
A. Breach of the Proffer Agreement 
[I][2][3] Pretrial agreements, like plea bargains, are 
contractual in nature. United States v. Fn/bright, 
804 F.2d 847, 852 (5th Cir.1986). Although prin-
ciples of contract law generally apply to such 
agreements, 
the constitutional ramifications of 
these agreements require judicial supervision in or-
der to safeguard a defendant's rights. United States 
v. Calabrese, 645 F.2d 1379, 1390 (10th Cir.1981), 
cert. denied, 454 U.S. 831, 102 S.Ct. 127, 70 
L.Ed.2d 108 (1982). When the government believes 
that a defendant has breached the terms of a proffer 
agreement and then wishes to rescind its part of the 
bargain, the government may not make this determ-
ination unilaterally. Instead, the government must 
prove to the court by a preponderance of the evid-
ence that the defendant materially breached the 
agreement. United States v. Packwood, 848 F.2d 
1009, 1011 (9th Cir.1988); United States v. Ver-
rusio, 803 F.2d 885, 891 (7th Cir.1986).*19 Where 
the facts arc not in dispute, the court may determine 
breach as a matter of law. Calabrese, supra, 645 
F.2d at 1390. 
INS. Courts are not unanimous about the 
precise level of the government's burden of 
persuasion on the issue of breach. See, e.g., 
United States v. Gonzalez-Sanchez, 825 
F.2d 572, 578 (1st Cir.), (burden of proof 
by "adequate evidence"), cert. denied, 484 
U.S. 989, 108 S.Ct. 510, 98 L.Ed.2d 508 
Page 6 of 9 
Page 5 
(1987); United States 
v. 
Skalsky, 616 
F.Supp. 676, 681 (D.N.J.1985) (proof by 
clear and convincing evidence), affd, 857 
F.2d 172 (3d Cir.1988). However, this 
Court is in agreement with the Seventh and 
Ninth Circuits that adequate protection for 
a defendant's rights is provided for by the 
preponderance standard, since the govern-
ment must still establish beyond a reason-
able doubt that the defendant did in fact 
commit the offense so charged. See Pack-
wood, supra, 848 F.2d at 1109; Verrusio. 
supra, 803 F.2d at 890-91. 
[4] It is uncontroverted that the Defendant breached 
the agreement by a failure to meet his obligations 
required thereunder. Although Wood characterizes 
his actions as an "inarticulate way of withdrawing 
from an agreement about which he had regrets," 
this phraseology does not conceal the fact that De-
fendant does not actually contest the government's 
evidence of breach (e.g., failure to cooperate by 
meeting with government representatives, failure to 
appear before grand jury). Indeed, *33 the Defend-
ant has admitted to perhaps the most egregious as-
serted breach-that he fled Texas to avoid testifying, 
an admission of which the Court takes judicial no-
tice. See supra n. 3. Because Wood refused to co-
operate by failing to meet with government repres-
entatives, failing to testify before the grand jury, 
and eventually fleeing the jurisdiction to avoid co-
operation altogether, the Court holds as matter of 
law that Wood has substantially and materially 
breached the Proffer Agreement. See United 
States v. Donahey, 529 F.2d 831, 832 (5th Cir.) (per 
curiam) ( defendant breached cooperation agree-
ment by giving evasive and misleading answers 
and refusing to answer certain questions), cert. 
denied, 429 U.S. 828, 97 S.Ct. 85, 50 L.Ed.2d 91 
(1976); United States v. Reardon, 787 F.2d 512, 
516 (10th Cir.1986) ( defendant breached agree-
ment by failing to provide full accounting of his 
own activities); United States v. Irvine, 756 F.2d 
708, 710-11 (9th Cir.1985) ( defendant breached 
cooperation agreement by soliciting bribe even 
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730 F.Supp. 30 
(Cite as: 730 F.Supp. 30) 
though agreement only required defendant to be 
truthful; defendant's acts subverted "overriding 
purpose" of agreement). 
B. The Government's Remedy. 
[5][6][7] Plea and non-prosecution agreements 
must be interpreted according to objective stand-
ards. Johnson v. Belo, 466 F.2d 478, 480 (5th 
Cir.1972) (per curiam). Where a non-prosecution 
agreement confers immunity for a defendant, the 
parties must look to and are governed by the agree-
ment for their remedies arising from a breach. 
United States v. CasteMilano, 643 F.Supp. 965, 969 
(E.D.N.Y.1986). Thus, where a cooperation agree-
ment so provides, the government may use the de-
fendant's statements against him in the event of a 
defendant's breach. Irvine, supra, 756 F.2d at 712; 
United States v. Doe, 671 F.Supp. 205, 208 
(E.D.N.Y.I987); Castelbuono, 643 F.Supp. at 969; 
United States v. Skalsky, 616 F.Supp. 676, 680 
(D.N.J.1985), affd, 857 F.2d 172 (3d Cir.I988). 
[8] Wood argues that the government has adequate 
remedies other than using his statements to prosec-
ute him, and that use of his statements would allow 
the government to have the benefit of the bargain 
while depriving Wood of the same. Specifically, the 
Defendant contends that the appropriate remedy is 
to hold him in contempt for failure to testify before 
the grand jury under a grant of immunity, as would 
be the case had the Defendant been granted 
"statutory immunity" pursuant to 18 U.S.C. §§ 
6002-6003. 
18 U.S.C. §§ 6002 and 6003 set forth a procedure 
whereby, upon request of the United States Attor-
ney, a court may order the testimony of an indi-
vidual who asserts his or her fifth amendment priv-
ilege. However, the statute provides that no testi-
mony or other information compelled under the or-
der, or any information directly or indirectly de-
rived therefrom, may be used against the individual 
in any criminal case, with this exception: where a 
defendant, granted statutory immunity, testifies un-
Page 7 of 9 
Page 6 
truthfully or refuses to testify the statute limits the 
government's remedy to a prosecution for perjury or 
contempt. The reason for this is clear: since the wit-
ness is compelled to testify over his or her fifth 
amendment privilege, the statute is constitutional 
"only if the immunity granted is equal to the consti-
tutional protection it supplants." Irvine, 756 F.2d at 
712. 
Unlike statements given by a defendant pursuant to 
statutory immunity, however, those given by Wood 
under the Proffer Agreement were made voluntarily 
in exchange for a promise of nonprosecution. 
Wood's fifth amendment rights are not implicated 
in this situationfl* As the government points out, 
it was only willing to take Mr. Wood's statements 
and promise not to prosecute him under the condi-
tions that the statements were made voluntarily and 
that Wood acknowledged that a breach of the *34 
agreement's terms would result in a waiver of any 
rights to suppress the statements. The government 
was at all times prepared to give the Defendant the 
benefit of the bargain and continued to make at-
tempts to get him to fulfill the agreement.F" 
FN6. See Irvine, 756 F.2d at 712: 
[The defendant] testified pursuant to an 
agreement entered into freely on his own 
initiative and for his own purposes. [He] 
was free to agree to conditions that could 
not have been imposed upon him had he 
chosen to claim his Fifth Amendment 
privilege. 
FN7. See supra n. 3. 
Thus, Defendant's complaint that the government is 
"having its cake and eating it too" is specious. As 
the Court stated in Irvine,"[t]here is no issue of 
compelled self-incrimination in this case. [The de-
fendant] was not required to testify." Irvine, 756 
F.2d at 712. He did testify, freely and voluntarily, 
and his failure to continue testifying before the 
grand jury and his ultimate refusal to cooperate 
should not limit the government's remedies to those 
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730 F.Supp. 30 
730 F.Supp. 30 
(Cite as: 730 F.Supp. 30) 
provided for in a grant of statutory immunity."'" 
FNB. Furthermore, should the government 
be deprived of using Wood's statements, 
then Wood and other defendants might at-
tempt 
to manipulate investigations and 
prosecutions without fear of any con-
sequences. 
As 
the 
Castelbuono 
court 
noted, this would 
result in a bad public policy.... If this 
Court held that the Government was lim-
ited to a prosection for perjury or false 
statement in those cases where defend-
ants in bad faith did not fully comply 
with their obligations, the Government 
would be reluctant ever to enter into a 
cooperation agreement and a useful in-
vestigative tool would be lost. Defend-
ants facing the possibility of extensive 
criminal charges would be eager to enter 
into 
cooperation 
agreements 
knowing 
that if they were poorly drafted ... and 
did not specify with particularity the 
consequences related to every possible 
breach, it might be possible in bad faith 
not to comply with the demands of the 
agreement and still limit one's exposure 
to a charge of perjury. Also, a defendant 
could make no false statement at all, 
simply refuse to cooperate or cooperate 
in a very limited way, thereby selectively 
immunizing himself and face little, if 
any, penalty. The Court will not encour-
age such absurd results. 
Castelbuono, 
643 
F.Supp. 
at 
969-70 
(emphasis added). 
Instead, the remedial provisions contained in the 
Proffer Agreement govern the consequences result-
ing from Wood's breach, and they should be given 
effect." 
As 
one 
court 
noted, 
proffer 
agreements"cannot be unilaterally broken with im-
punity or without consequence." Reardon, supra, 
787 F.2d at 516 (citing Calabrese, 645 F.2d at 
Page 7 
1390). Having failed to perform his obligations, the 
Proffer Agreement provides that the Defendant is 
no longer entitled to the government's promise of 
non-prosecution or the promise that his statements 
would not be used against him.r"10 See Castel-
buono, 643 F.Supp. at 969. Thus, the Defendant's 
indictment was wholly proper even if it was issued 
as a result of statements he made under the agree-
ment and his request that these statements be sup-
pressed must be denied."'" 
FN9. See supra p. 33. 
FN 10. See supra n. 2. 
FN I 1. Defendant's reliance on United 
States 
v. 
Brown, 
801 F.2d 352 (8th 
Cir.1986), is misplaced. In Brown, the 
Eighth Circuit determined that the defend-
ant had breached a cooperation agree-
ment, thus permitting the government to 
prosecute him for the criminal conduct 
forming the basis of the agreement. The 
court also ruled that the government could 
not use any information, directly or indir-
ectly, that was obtaincd under the plea 
agreement including the defendant's ad-
missions. Although the court did not expli-
citly say so, this result was dictated by the 
fact that the agreement specifically pro-
hibited the use of these statements except 
in a prosecution for perjury or false state-
ment. Id. at 353. Again, the remedies 
available upon the occurrence of a breach 
were prescribed by the agreement itself 
like Sections TWO and THREE of Wood's 
proffer agreement, the "non-use" provi-
sion in the Brown case was a post-breach 
remedial provision but in that case limited 
the government's remedies. 
C. Fed.R.Crim.P. 11(e)(6). 
[9] Federal Rule of Criminal Procedure I 1(e)(6) of-
fers no help to the Defendant. This rule prohibits 
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730 F.Supp. 30 
730 F.Supp. 30 
(Cite as: 730 F.Supp. 30) 
admission of "any statement made in the course of 
plea discussions with an attorney for the govern-
ment which do not result in a plea of guilty or 
which result in a plea of guilty later withdrawn." 
Rule Il(eX6), however, applies only to those state-
ments leading up to the agreement and not those 
made subsequent to it. United States v. Stirling 571 
F.2d 708, 731-32 (2d Cir.) (purpose of the rule is to 
facilitate free and fearless negotiations to encourage 
pleas; policy not served by ruling inadmissible 
testimony given after •35 agreement reached), cert. 
denied, 439 U.S. 824, 99 S.Ct. 93, 58 L.Ed.2d 116 
(1978); see also United States v. Davis, 617 F.2d 
677, 685 (D.C.Cir.1979) (ruling post-agreement 
statements inadmissible would permit defendant to 
"renounce the agreement and return to the status 
quo ante whenever he chose, even though the Gov-
ernment has no parallel power to rescind the com-
promise unilaterally"; holding that drafters of Rule 
I l(e)(6) could not have contemplated such a res- ult). 
Since the Defendant and the government attorneys 
negotiated, modified, and signed the Proffer Agree-
ment prior to Wood's making of the statements and 
notes sought to be suppressed, these statements 
were not made in the course of plea discussions. 
Consequently, Fed.R.Crim.P. 11(e)(6) does not pro-
tect them from evidentiary use. 
III. CONCLUSION 
For the reasons stated above, no hearing is neces-
sary to resolve Defendant Wood's Motion to Dis-
miss Indictment or to Suppress Statements. The un-
disputed facts and arguments before the Court dic-
tate that Defendant's Motion be, and it is hereby, 
DENIED. 
SO ORDERED. 
N.D.Tex.,1990. 
U.S. v. Tarrant 
730 F.Supp. 30 
END OF DOCU 
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Westlaw 
908 F.Supp. 1265 
908 F.Supp. 1265 
(Cite as: 908 F.Supp. 1265) 
H 
United States District Court, 
S.D. New York. 
UNITED STATES of America, 
v. 
Steven HOFFENBERG, Defendant. 
No. 94 Cr. 0273 (RWS). 
Dec. 18, 1995. 
After government terminated cooperation agree-
ment with defendant due to defendant's untruthful-
ness, defendant moved to enforce agreement. The 
District Court, Sweet, J., held that: (I) defendant 
breached agreement, and (2) government did not act 
in bad faith in refusing to move for downward de-
parture after learning of defendant's untruthfulness. 
Motion denied. 
West Headnotes 
111 Criminal Law 110 (C='273.1(2) 
110 Criminal Law 
I IOXV Pleas 
I I 0k272 Plea of Guilty 
110k273.1 Voluntary Character 
Il0k273.1(2) 
k. 
Representations, 
Promises, or Coercion; Plea Bargaining. Most Cited 
Cases 
Party who materially breaches cooperative or plea 
agreement may not claim its benefits. 
121 Criminal Law 110 4C
1615 
110 Criminal Law 
I I 0XX X Post-Conviction Relief 
I I 0XXX(C) Proceedings 
110XXX(C)2 Affidavits and Evidence 
1 I 0kI615 k. Degree of Proof. Most 
Cited Cases 
(Formerly 1101(997.15(6), I 10k997.15(2)) 
Page I 
At postconviction hearing, government has burden 
to prove breach of plea agreement by preponder-
ance of evidence; such standard is consistent with 
standard of proof courts have required to resolve 
other postconviction disputes, such as disputed sen-
tencing issues. 
131 Criminal Law 1104::=273.1(2) 
I I0 Criminal Law 
I I0XV Pleas 
1101(272 Plea of Guilty 
I 0k273. I Voluntary Character 
I10k273.1(2) 
k. 
Representations, 
Promises, or Coercion; Plea Bargaining. Most Cited 
Cases 
Where defendant has promised to disclose truth-
fully all information about which government in-
quires, any false statement, misleading statement, 
or omission concerning defendant's activity for area 
about which government has inquired, is material 
breach of plea agreement. 
141 Criminal Law I10 liC=2731(2) 
110 Criminal Law 
II 0XV Pleas 
I 10k272 Plea of Guilty 
10k273.1 Voluntary Character 
I 10k273. I (2) 
k. 
Representations, 
Promises, or Coercion; Plea Bargaining. Most Cited 
Cases 
Even though government did not specifically ask 
about defendant's involvement with collections 
agencies, defendant breached terms of plea agree-
ment, which obligated him to truthfully disclose all 
information concerning matters about which the 
government inquired, to inform government of any 
new business ventures, and to refrain from commit-
ting further crimes, where he lied about his involve-
ment in the operation of a collections agency and 
about the independence of its president, and he 
failed to disclose his involvement in a second col-
lections agency. 
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Page 3 of 20 
908 F.Supp. 1265 
908 F.Supp. 1265 
(Cite as: 908 F.Supp. 1265) 
151 Criminal Law 110 C=42.5(3) 
110 Criminal Law 
1 1011 Defenses in General 
I1 0k42 Immunity to One Furnishing Inform-
ation or Evidence 
110k42.5 Agreements Granting Immunity 
I 10k42.5(3) 
k. 
Performance 
and 
Breach. Most Cited Cases 
(Formerly 110k42) 
Opportunity to cure doctrine does not apply to co-
operation agreements, as that doctrine operates 
only in civil contexts. 
161 Criminal Law 110 te=42.5(3) 
110 Criminal Law 
I l0ll Defenses in General 
I 10k42 Immunity to One Furnishing Inform-
ation or Evidence 
I I 0k42.5 Agreements Granting Immunity 
II0k42.5(3) 
k. 
Performance 
and 
Breach. Most Cited Cases 
(Formerly I 10k42) 
Before terminating cooperation agreement due to 
breach, government was only required to give de-
fendant opportunity to confront allegations that he 
had breached agreement and provide innocent ex-
planation. 
171 Sentencing and Punishment 350H 4C:=)947 
3501-1 Sentencing and Punishment 
3S0HIV Sentencing Guidelines 
35011IV(H) Proceedings 
3501-11V(H)1 In General 
350Hk947 k. Effect of Cooperation 
Agreement or Other Promise or Representation. 
Most Cited Cases 
(Formerly 110k 1306) 
When cooperation agreement allows for a substan-
tial assistance motion contingent upon the govern-
ment's evaluation of defendant's cooperation, gov-
ernment has wide discretion in determining whether 
to make such a motion. U.S.S.G. § 5K I .1, 18 
U.S.C.A. 
Page 2 
181 Sentencing and Punishment 350H €=,947 
35011 Sentencing and Punishment 
350141V Sentencing Guidelines 
350H1V(H) Proceedings 
350HIV(I 01 In General 
350Hk947 k. Effect of Cooperation 
Agreement or Other Promise or Representation. 
Most Cited Cases 
(Formerly 110k I 306) 
Where government declines to make a substantial 
assistance motion pursuant to cooperation agree-
ment, district court may review decision only to de-
termine whether government based its decision on 
impermissible criteria, such as race or religion, or 
whether government acted in bad faith. U.S.S.G. § 
5K1.1, 18 U.S.C.A. 
191 Criminal Law 110 €=>273.1(2) 
110 Criminal Law 
110XV Pleas 
110k272 Plea of Guilty 
110k273.1 Voluntary Character 
110k273.1(2) 
k. 
Representations, 
Promises, or Coercion; Plea Bargaining. Most Cited 
Cases 
Sentencing and Punishment 350H €:=947 
35011 Sentencing and Punishment 
350HIV Sentencing Guidelines 
35011IV(-I) Proceedings 
350111V(1-1)1 In General 
350Hk947 k. Effect of Cooperation 
Agreement or Other Promise or Representation. 
Most Cited Cases 
(Formerly 110k1306) 
Government may not refine to make a substantial 
assistance motion by relying on facts which it knew 
at time it entered into agreement; such decision 
would amount to fraudulently inducing defendant's 
plea with promise that government already knew it 
would not keep. U.S.S.G. § 5K 1.1, 18 U.S.C.A. 
1101 Criminal Law 110 e=i273.1(2) 
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908 F.Supp. 1265 
908 F.Supp. 1265 
(Cite as: 908 F.Supp. 1265) 
110 Criminal Law 
I I0XV Pleas 
II0k272 Plea of Guilty 
110k273.1 Voluntary Character 
II0k273.1(2) 
k. 
Representations, 
Promises, or Coercion; Plea Bargaining. Most Cited 
Cases 
Sentencing and Punishment 350H tit=)947 
35011 Sentencing and Punishment 
350H I V Sentencing Guidelines 
350111V(H) Proceedings 
350111V(H)1 In General 
350Hk947 k. Effect of Cooperation 
Agreement or Other Promise or Representation. 
Most Cited Cases 
(Formerly 110k1306) 
Where government enters into cooperation agree-
ment in good faith, believing defendant's represent-
ations, and government subsequently learns that de-
fendant has lied and breached terms of agreement, 
government's dissatisfaction with defendant's per-
formance, and a refusal to make a substantial assist-
ance motion, are justified. U.S.S.G. § 5K1.1, 18 
U.S.C.A. 
1111 Sentencing and Punishment 350H 4C=>947 
350H Sentencing and Punishment 
350H IV Sentencing Guidelines 
350H IV(H) Proceedings 
3501IIV(H)1 In General 
350Hk947 k. Effect of Cooperation 
Agreement or Other Promise or Representation. 
Most Cited Cases 
(Formerly II0k1306) 
Sentencing and Punishment 350H O=989 
35011 Sentencing and Punishment 
35011IV Sentencing Guidelines 
350H IV(H) Proceedings 
350H IV(H)3 Hearing 
350Hk989 k. Necessity for Hearing. 
Most Cited Cases 
Page 4 of 20 
Page 3 
(Formerly 1 I 0k1316) 
When defendant claims that government has acted 
in bad faith in refusing to move for downward de-
parture, as agreed upon in cooperation agreement, 
government may then rebut allegation, explaining 
its reason for refusing to so move; defendant must 
then make some showing of bad faith to trigger 
hearing on issue. U.S.S.G. § 5K 1.1, 18 U.S.C.A. 
1121 Sentencing and Punishment 350H 4
947 
350H Sentencing and Punishment 
3501IlV Sentencing Guidelines 
350111V(H) Proceedings 
35011 W(11)1 In General 
350Hk947 k. Effect of Cooperation 
Agreement or Other Promise or Representation. 
Most Cited Cases 
(Formerly II0k1306) 
Despite some early knowledge of defendant's 
breach of cooperation agreement, government did 
not act in bad faith in finally terminating agreement 
and in refusing to move for downward departure 
from Sentencing Guidelines, since defendant's 
failure to comply with agreement, by repeatedly 
correcting and changing his story and helping sub-
orn perjury, made his information not entirely use-
ful. U.S.S.G. § 5K 1.I, 18 U.S.C.A. 
1131 Sentencing and Punishment 350H 4C=+947 
350H Sentencing and Punishment 
350H IV Sentencing Guidelines 
350111V(H) Proceedings 
350141V(H)1 In General 
350Hk947 k. Effect of Cooperation 
Agreement or Other Promise or Representation. 
Most Cited Cases 
(Formerly 110k1306) 
Claim that defendant merely provided substantial 
assistance to government pursuant to cooperation 
agreement will not entitle defendant to remedy for 
government's failure to move for downward depar-
ture. U.S.S.G. § 5K1.I, 18 U.S.C.A. 
1141 Sentencing and Punishment 35011 4
947 
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908 F.Supp. 1265 
908 F.Supp. 1265 
(Cite as: 908 F.Supp. 1265) 
3501-1 Sentencing and Punishment 
350111V Sentencing Guidelines 
3501I1V(H) Proceedings 
3501-IIV0-DI In General 
3501-1k947 k. Effect of Cooperation 
Agreement or Other Promise or Representation. 
Most Cited Cases 
(Formerly I 10k1306) 
In evaluating degree of defendant's cooperation un-
der plea agreement, it is proper for government to 
consider defendant's truthfulness; defendant must 
be honest if he hopes to achieve benefit of provi-
sion for motion for downward departure of senten-
cing. U.S.S.G. § 51( 1.1, 18 U.S.C.A. 
1151 Criminal Law 110 €=:•273.1(2) 
110 Criminal Law 
I I 0XV Pleas 
I 10k272 Plea of Guilty 
I I 0k273.1 Voluntary Character 
110k273.1(2) 
k. 
Representations, 
Promises, or Coercion; Plea Bargaining. Most Cited 
Cases 
Under cooperation agreement, government may 
permit defendant to cure his dishonesty, but it is not 
required to do so and need not do so continuously. 
1161 Sentencing and Punishment 350H €=,947 
3501-1 Sentencing and Punishment 
3501-11V Sentencing Guidelines 
350111V(H) Proceedings 
350HIV(H)1 In General 
350Hk947 k. Effect of Cooperation 
Agreement or Other Promise or Representation. 
Most Cited Cases 
(Formerly 110k1306) 
Even if defendant's untruths are not central to co-
operation agreement with government, if lies are 
deemed material to evaluation of truthfulness, gov-
ernment, absent unconstitutional or bad faith motiv-
ation, is free not to move for downward departure 
of sentencing. U.S.S.G. § 5K1.1, 18 U.S.C.A. 
*1266 Mary Jo White, United States Attorney for 
Southern District of New York, New York City, for 
Page 4 
United States of America; Amy E. Millard, Jonath-
an Rosenberg, Assistant U.S. Attorney of counsel. 
Hoffman & Pollok New York City, for defendant; 
Jeffrey Hoffman, Susan C. Wolfe, of counsel. 
SWEET, District Judge. 
The defendant Steven Hoffenberg ("Hoffenberg") 
has moved under the unusual circumstances de-
scribed below to enforce the Cooperational Plea 
Agreement 
of 
September 
23, 
1993 
(the 
"Agreement") between lioffenberg and the United 
States Attorneys for the Southern District of New 
York and the Northern District of Illinois (the 
"Government"). 
Upon the hearing on contested facts, the prior pro-
ceedings and the facts and conclusions set forth be-
low, the motion is denied. 
The Issues 
This proceeding sets the framework for the final 
resolution of the responsibility of Hoffenberg for 
the massive frauds at his company, Towers Finan-
cial Corporation ("Towers") in the early 90's which 
resulted in more than $400 million in losses. While 
other cases involving the fraud remain open, Hof-
fenberg's sentence upon his criminal liability may 
well turn upon the applicability of the Section 
5K 1.1(8)(1)-(5) 
exception 
to 
the 
Sentencing 
Guidelines which he has sought to enforce in this 
proceeding. 
This determination must resolve the following is-
sues: (I) the applicable standard and procedures for 
the enforcement of cooperation agreements, (2) the 
factual findings as to the conduct of Hoffenberg 
and the Government, (3) the effect of any partial 
*1267 performance by the Government, and (4) the 
propriety of the Government's refusal to comply 
with the Agreement. It is anticipated that with these 
determinations in hand the Government and Hof-
fenberg will proceed to a sentencing hearing. 
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908 F.Supp. 1265 
(Cite as: 908 F.Supp. 1265) 
Prior Proceedings 
The prior proceedings have been described in prior 
opinions of this Court familiarity with which is as-
sumed. See United States v. Hoffenberg, 859 
F.Supp. 698 (S.D.N.Y.1994) (the "July Opinion"), 
United States v. Hoffenberg, 1995 WL 10840 
(S.D.N.Y. Jan. 12, 1994). Some restatement is re-
quired in the interest of continuity. 
Sometime prior to 1991, Hoffenberg and a number 
of corporate entities with which he was associated, 
including Towers, and others, came under investig-
ation by the Securities & Exchange Commission 
("SEC"). The SEC filed an action in this District 
against Hoffenberg and others on February 8, 1993, 
and on February 17, 1993, Hoffenbcrg and certain 
other defendants agreed to a preliminary injunction 
issued by the Honorable Whitman Knapp (the 
"Consent Order") which, among other things, en-
joined Hoffenberg and "each of his controlled, re-
lated, or affiliated entities ... to hold and retain 
within their control, and otherwise prevent any 
withdrawal, transfer, pledge, encumbrance, assign-
ment, dissipation, concealment, or other disposal of 
any funds, or other properties." It also allowed for 
"ordinary living and business expenses...." 
In 1993 the United States Attorney for the Southern 
District of New York began a criminal investigation 
against Hoffenberg and others for conspiracy to ob-
struct the SEC's investigation during 1991 and 
1992, and for various other criminal violations of 
the securities laws. 
In March 1993 Hoffenberg, through counsel, initi-
ated a number of meetings which culminated in an 
oral understanding. Pursuant to that understanding, 
Hoffenberg agreed to talk to representatives of the 
United States Attorney's Office for the Southern 
District of New York and the Northern District of 
Illinois, the FBI, and the SEC (collectively, the 
"Government"). In return, the Government agreed 
to grant Hoffenberg limited immunity for each of 
his proffers or debriefings. 
Page 6 of 20 
Page 5 
On September 24, 1993, Hoffenberg and the Gov-
ernment entered into the Agreement dated Septem-
ber 23, 1993. 
On January 27, 1994, and on February 14, 1994, the 
Government confronted Hoffcnberg with allega-
tions that he had violated his obligations under the 
Agreement. On February 17 he was advised that the 
Agreement had been terminated, and he was arres-
ted. 
On April 19, 1994 he was indicted in the Northern 
District of Illinois on fraud charges. On April 20, 
1994 he was indicted in the Southern District of 
New York and charged with the four counts con-
templated in the Agreement, as well as six addition-
al counts alleging substantive securities fraud viola-
tions in connection with the sale of notes and bonds 
of Towers; additional violations of the mail fraud 
statute, and obstruction of justice by disobeying an 
order of the United States District Court for the 
Southern District of New York. 
Hoffcnberg moved to enforce the Agreement and 
by opinion dated July 21, 1994 (the "July Opin-
ion"), see United States v Holienberg, 859 F.Supp. 
698 (S.D.N.Y.I994), his motion was denied as pre-
mature. He then moved to reargue his earlier mo-
tion and to suppress the statements which he had 
made in reliance upon the Agreement, which mo-
tion was denied by an opinion rendered on January 
I I, 1995 (the "January Opinion"). 
After the filing of the Indictment against him, the 
Government continued to permit him to plead to the 
charges as had been set forth in the Agreement and 
on April 20, 1995, Hoffenbcrg entered a guilty plea 
to four counts: (i) conspiracy to violate the securit-
ies laws by fraudulently selling securities; (ii) mail 
fraud, (iii) conspiracy to obstruct justice; and (iv) 
tax evasion. 
The Government continued also its previously 
stated refusal to file a motion to advise the senten-
cing judge of Hoffenberg's cooperation and to re-
quest sentencing in the light of the factors set forth 
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908 F.Supp. 1265 
(Cite as: 908 F.Supp. 1265) 
in Section 5K1.1(a)(I)-(5) of the 
Sentencing 
Guidelines (the "SKI Letter"). The parties in a pre-
trial conference*1268 agreed upon the necessity of 
a hearing to resolve the factual contentions. From 
June 5 to June 14, 1995, the parties submitted evid-
ence by way of testimony and exhibits. Post hearing 
briefs were filed. On September 12, 1995 final ar-
gument was heard. A final submission was made to 
the Court on December I, 1995 and the issues were 
considered fully submitted at that time. 
Facts 
The Background and the Agreement 
Sometime in 1991 Hoffenberg and a number of cor-
porate entities with which he was associated, in-
cluding Towers, came under investigation by the 
SEC for securities fraud arising out of the affairs of 
Towers. On February 8, 1993, the SEC filed an ac-
tion in this District. See SEC v. Towers Financial 
Corporation, et at, 93 Civ. 0744, 1993 WL 276935 
(1993) (WK) (the "SEC Action"). As it related dir-
ectly to Hoffenberg, the complaint alleged that he 
violated the anti-fraud provisions of the securities 
laws by false and misleading statements to in-
vestors who had purchased $215 million in promis-
sory notes issued by Towers. The SEC also charged 
Hoffenberg with failing to register the offerings of 
promissory notes with the SEC, and selling his 
Towers common stock while in possession of inside 
information that the stock was worthless. 
In early 1993, the United States Attorney for the 
Southern District of New York commenced the 
criminal investigation against Hoffenberg and oth-
ers for conspiracy to obstruct the SEC's investiga-
tion during 1991 and 1992 and for various other 
criminal violations of the securities laws. An in-
vestigation was also commenced in the Northern 
District of Illinois with respect to a scheme to de-
fraud the Illinois Department of Insurance and two 
Illinois insurance companies acquired by Towers. 
In March 1993, Hoffenberg and the Government 
Page 7 of 20 
Page 6 
agreed that Hoffenberg would talk to representat-
ives of the United States Attorney's Office for the 
Southern District of New York and Northern Dis-
trict of Illinois, the FBI and the SEC and receive 
limited immunity for these proffers. On at least 22 
separate occasions, Hoffenberg and his counsel met 
with representatives of the Government who were 
interested in the subject matter of Hoffenberg's de-
briefings. 
On September 24, 1993, the parties entered into the 
Agreement, dated September 23, which provided 
that Hoffenberg would be charged with the four 
felony counts in a Southern District Information. It 
was further agreed that Hoffenberg would plead 
guilty to and be sentenced in this District on an in-
formation filed in the Northern District of Illinois, 
charging him with one count of mail fraud. 
The Agreement also provided in relevant part as 
follows: 
If Steven Hoffenberg fully complies with the under-
standings specified in this Agreement, he will not 
be further prosecuted by the Offices for any crimes 
related to his participation in: (i) the fraudulent sale 
of unregistered debt securities, namely, promissory 
notes and bonds, of Towers Financial Corporation 
("Towers") from in or about 1986 through in or 
about February 1993; (ii) making illegal payments 
to representatives of pension funds to induce the 
purchase of Towers' securities, from in or about 
1989 to in or about February, 1993; (iii) making il-
legal payments to representatives of a foreign coun-
try in order to secure a loan to Towers from that 
country's bank, from in or about 1989 to in or about 
February 1993; (iv) obstructing the Securities and 
Exchange Commission's investigation of the fraud-
ulent sale of Towers' securities from in or about 
1988 to in or about September 1993; (v) a scheme 
to illegally convert to Towers' use monies collected 
by Towers as collection agent for its clients, from 
in or about 1980 to in or about April 1993; (vi) the 
failure to report on his Individual U.S. Income Tax 
Returns for the calendar years 1987 through 1991 
income Steven Hoffenberg obtained by having cor-
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908 F.Supp. 1265 
(Cite as: 908 F.Supp. 1265) 
porate entities controlled by him pay his personal 
expenses; and (vii) a scheme to defraud, misappro-
priate, and misuse the funds and assets of two 
Chicago insurance companies, from in or about Oc-
tober 1987 to in or about 1992. In addition, if 
Steven Hoffenberg fully complies with the under-
standings specified in *1269 this agreement, no 
testimony or other information given by him (or 
any other information directly or indirectly derived 
from such testimony or other information) will be 
used against him in any prosecution for criminal tax 
violations not described above. This Agreement 
does not provide any protection against prosecution 
for any crimes except as set forth above. 
11%e understandings are that Steven Hoffenberg 
shall truthfully disclose all information with respect 
to the activities of himself and others concerning all 
matters about which the Offices inquire of him, 
shall cooperate filly with the Offices, the Securities 
and Exchange Commission, the Federal Bureau of 
Investigation, the Internal Revenue Service, the 
United States Postal Inspection Service and any 
other law enforcement agency so designated by the 
Offices, shall attend all meetings at which his pres-
ence is requested with respect to the matters about 
which the Offices inquire of him, and further, shall 
truthfully testify before the grand jury and/or at any 
trial or other court proceeding with respect to any 
matters about which the Offices may request his 
testimony. Any assistance Steven Hoffenberg may 
provide to federal criminal investigators shall be 
pursuant to the specific instructions and control of 
the Offices and those investigators. This obligation 
of truthful disclosure includes an obligation upon 
Steven Hoffenberg to provide to the Offices, upon 
request, any document, record or other tangible 
evidence relating to matters about which the Of-
fices or any designated law enforcement agency in-
quires of him. 
It is further understood that the sentence to be im-
posed upon Steven Hoffenberg is within the sole 
discretion of the sentencing judge. The Offices can-
Page 8 of 20 
Page 7 
not and do not make any promise or representation 
as to what sentence Steven Hoffenberg will receive, 
nor will they recommend any specific sentence to 
the sentencing judge. However, the Offices will in-
form the sentencing judge and the Probation De-
partment of: (i) this Agreement; (ii) the nature and 
extent of Steven Hoffenberg's activities with re-
spect to this case; and (iii) the full nature and extent 
of Steven Hoffenberg's cooperation with the Of-
fices and the date when such cooperation com-
menced. In addition, if it is determined by the Of-
fices that Steven Hoffenberg has provided substan-
tial assistance in an investigation or prosecution, 
and if Steven Hoffenberg has otherwise complied 
with the terms of this Agreement, the Offices will 
file a motion, pursuant to Section 5K I. I of the Sen-
tencing guidelines, advising the sentencing judge of 
all relevant facts pertaining to that determination 
and requesting the Court to sentence Steven Hof-
fenberg in light of the factors set forth in Section 
.5K I .1(a)( I)-(5). 
* • • • 
It is further understood that Steven Hoffenberg 
must at all times give complete, truthful, and accur-
ate information and testimony and must not commit 
any further crimes whatsoever. Should Steven Hof-
fenberg commit any further crimes or should it be 
determined that he has given false, incomplete, or 
misleading testimony or information, or should he 
otherwise violate any provisions of this Agreement, 
Steven Hoffenberg shall thereafter be subject to 
prosecution for any federal criminal violation of 
which the Offices have knowledge, including, but 
not limited to, perjury and obstruction of justice. 
(emphasis added). 
The Cooperation 
During the period from March 1993 to February 
1994 Hoffenberg responded to all inquiries put to 
him by the Government concerning the affairs of 
Towers. He was interrogated principally by Assist-
ant United States Attorney Daniel A. Nardello 
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908 F.Supp. 1265 
908 F.Supp. 1265 
(Cite as: 908 F.Supp. 1265) 
("Nardello") who was responsible for the criminal 
investigation surrounding the affairs of Towers. He 
also testified before the grand jury on January 13 
and 14, 1994 and at the Government's direction en-
gaged in recorded conversation. 
The Government does not contend that Hoffenberg 
failed to perform the agreement by refusing to give 
information with respect *1270 to Towers or to per-
form requested acts. However, during the latter 
quarter of 1993 and the early part of 1994, agents 
of the SEC advised the United States Attorney's Of-
fice that Hoffenberg was not complying with the 
Consent Order of February 17, 1993, but rather that 
he made statements and representations which were 
false in connection with ongoing matters involving 
the Consent Order and thereby violated the Agree-
ment. 
The Representations 
Throughout 1993 the Government remained con-
cerned about Hoffenberg's compliance with the 
Consent Order entered in the SEC Action which 
had required Hoffenberg to provide an accounting 
of all his assets. Of particular concern was Hoffen-
berg's involvement with Diversified Credit Corpor-
ation ("DCC"), another collections corporation 
which Hoffenberg set up prior to the termination of 
his relationship with Towers. DCC was to do busi-
ness in a manner similar to that conducted by 
Towers. A second area of concern relating to the 
Consent Order related to certain payments made to 
Floffenbcrg and finally his relationship to Stratford 
Credit Corporation ("Stratford") which was started 
in December 1993. 
a. DCC 
Following his termination from Towers, Hoffen-
berg represented that his involvement in DCC was 
limited to "sales consultant," that he was only in-
volved in DCC's sales in its New York office and 
had no involvement in DCC's collections or opera-
tions which were conducted in its Long Island of-
Page 8 
face, nor any real influence over DCC's independent 
president, Lawrence Lowy ("Lowy"). 
These representations were significant. In a collec-
tion business, such as had been conducted by DCC 
or its predecessor Towers, the operations side con-
trolled the money collected on behalf of clients. 
According to the SEC and the Government, certain 
of the fraudulent activity at Towers centered around 
the failure of operations employees, at the direction 
of Hoffenberg and his co-conspirators, to remit 
funds to Towers' clients. By the representation of 
separation from the collections side of DCC, Hof-
fenberg gave assurances that (I) he would not de-
fraud DCC collections clients as he had done at 
Towers, and (2) DCC would not be used as a 
vehicle to violate the Consent Order. 
In June 1993, Hoffenberg told Nardello that he was 
not receiving any money from DCC. At a proffer 
session on August 25, 1993, Nardello again con-
fronted Hoffenberg with concerns that his role at 
DCC was greater than he had revealed. As of Au-
gust 25, 1993, the SEC had provided Nardello with 
a list of questions and allegations to use in con-
fronting Hoffenberg on the issue of whether DCC 
fell within the Consent Order with respect to assets. 
In addition, on August 25, 1993, the SEC faxed to 
Nardello a summary of allegations concerning the 
issue of Hoffenberg's control of DCC. That sum-
mary included allegations (I) that Hoffenberg 
provided funding for DCC, a fact that Hoffenberg 
had already told the Government, and (2) that Hof-
fenberg made decisions at DCC. The allegations 
about Hoffenberg's decision-making at DCC came 
from an officer of DCC who worked in the Midwest 
who stated that (I) he and Hughes reported to Hof-
fenberg, (2) at a meeting on Hoffenberg's boat, 
Hoffenberg said he owned DCC and had put his 
money into it, and (3) Hoffenberg represented him-
self to DCC's clients as the decision-maker. 
At that proffer session on August 25, 1993, when 
Nardello confronted Hoffenberg with his concerns 
that Hoffenberg's role was greater than he had re-
vealed, Hoffenberg admitted that DCC had been 
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908 F.Supp. 1265 
908 F.Supp. 1265 
(Cite as: 908 F.Supp. 1265) 
paying for his chauffeur, his maids, and his boat 
captain, but denied any greater involvement in the 
company than what he had already revealed. lie in-
sisted that he was not involved in collections or op-
erations. Hoffenberg stated at this meeting that he 
held preferred, non-voting stock in DCC and there-
fore could not make the financial decisions. He ac-
knowledged his desire to protect his substantial in-
vestment and his hope that, if DCC were success-
ful, he could ultimately reach an agreement with the 
SEC allowing him to earn money from DCC. Nar-
dello told Hoffenberg that his use of DCC to pay 
his expenses constituted a violation of the Consent 
Order, that it would have to be disclosed to the 
SEC, and that it would have to "stop *1271 imme-
diately." Hoffenberg's admission that he had viol-
ated the Consent Order with specific payments sup-
ported the Government's view that Hoffenberg then 
understood his obligations under the Agreement. 
Nardello agreed to execute the Agreement with 
Hoffenberg one month later after obtaining Hoffen-
berg's assurances that he understood his obligations 
under the Agreement, that he would thereafter walk 
the straight and narrow, and that he had disclosed 
all his bad acts. 
Hoffenberg maintained throughout his meetings 
with Nardello that Lowy was "running" DCC, that 
Lowy was independent, and that Hoffenberg could 
not influence Lowy's decisions. When DCC went 
out of business in or about January 1994, Hoffen-
berg stated that Lowy had "run it into the ground." 
Hoffenberg stated that when he had met with Lowy 
in connection with the latter's testimony he had 
done so only to refresh Lowy's recollection. 
On January 27, 1994, when confronted with in-
formation indicating his representations relating to 
DCC were false, Hoffenberg told Nardello that his 
attorneys at Anderson, Kill, Olick & Oshinsky 
("Anderson Kill") had built a figurative "Chinese 
Wall" between him and Lowy at the Long Island 
office to ensure that Hoffenberg would remain un-
involved with collections. 
Page 9 
b. Stratford 
Nardello was concerned about the potential impact 
of any new business venture on Hoffenberg's utility 
as a witness and cooperator. His compliance with 
the Consent order, as the Government saw it, re-
quired that any new business venture had to be 
cleared with the SEC in order to ensure that such 
venture did not violate the Consent Order and that 
Hoffenberg was not positioning himself to revert to 
the criminal practices he had purported to leave be-
hind. Consequently, Nardello instructed Hoffenberg 
that he notify the Government of any contemplated 
business venture. In October 1993, Nardello gave 
this specific instruction and Hoffenberg agreed. 
In December 1993, as DCC became insolvent, Hof-
fenberg started a new collections company, Strat-
ford Credit Corporation. Hoffenberg did not advise 
Nardello that he had started Stratford. 
On December 22, 1993 Nardello asked Hoffenberg 
what businesses in which he was participating or 
had an interest. Hoffenberg stated Hcr New York 
and Haley Capital and omitted any mention of 
Stratford. 
When questioned point blank about Stratford, Hof-
fenberg stated that he had been "approached by oth-
ers" to join Stratford, which he characterized as an 
ongoing business, formed by some ex-Towers em-
ployees, and that nothing had come of it. Nardello 
instructed Hoffenberg not to take any further action 
in Stratford until the matter could be considered 
further. 
The Falsity of the Representations 
Throughout 1993 the SEC had continued its invest-
igation into Hoffenberg's compliance with the Con-
sent Order. At the same time the United States At-
torney's Office continued its investigation into the 
affairs of Towers. Meanwhile, Towers had filed a 
petition in bankruptcy, a Trustee had been appoin-
ted, and he too conducted hearings related to 
Towers' assets. As a consequence of these investig-
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908 F.Supp. 1265 
908 F.Supp. 1265 
(Cite as: 908 F.Supp. 1265) 
ations, the misrepresentations of Hoffenberg were 
discovered. 
a. DCC 
In May 1993, Hoffenberg was advised by one of his 
counsel, Martin Brecker of Anderson Kill that in 
order to avoid the terms of the Consent Order with 
respect to DCC, Hoffenberg needed to establish 
that, notwithstanding the legalities, Hoffenberg did 
not, in fact, control DCC. Further, in order to avoid 
losing DCC to the Towers Trustee in bankruptcy, 
Hoffenberg needed to show that he was not using 
DCC for his own benefit to the detriment of DCC. 
Hoffenberg instructed employees at the Long Island 
office to tell the public that he was just a consultant 
and that his only office was in New York. 
However, Hoffenberg closely supervised DCC's 
collections activities at the Long Island office. Re-
gina Loveless ("Loveless") was an employee in the 
Long Island office from March 1993 through *1272 
the middle of October 1993. She testified that be-
ginning in May and continuing until she left DCC, 
Hoffenberg was actively involved in the supervi-
sion of the office's collections activities. According 
to Loveless, although Lowy was running the Long 
Island office while Towers was still in business, be-
ginning in May 1993, it seemed "like there was a 
higher management above Larry and Brian [Lowy]." 
During his first meeting with Loveless, Hoffenberg 
discussed with her "strategy and tactics" for the ac-
counts assigned to her, instructed her to be more 
aggressive with debtors and to refer more cases to 
litigation, and to obtain the litigation fees from the 
DCC creditors, and directed her to provide him 
with a weekly status report on all cases referred to 
the legal department. In June 1993, Hoffenberg in-
stalled his longtime confidante Michael Rosoff as 
the head of the DCC legal department. Hoffenberg 
told Loveless that whenever she needed to discuss a 
collections matter and could not reach Rosoff, she 
should call Hoffenberg. But for any settlement over 
Page 10 
$50,000, Hoffenberg instructed Loveless to confer 
with him, whether or not Rosoff was available. 
Hoffenberg also instructed Loveless not to discuss 
settlements with clients. 
From May 1993 until her departure in October 
1993, Loveless spoke with Hoffenberg over the 
telephone about her cases three to four times per 
month. Hoffenberg also visited the Long Island of-
fice once or twice per week for several hours a vis-
it. During those visits, Hoffenberg regularly met 
with John Hannon, the manager of the collections 
staff, and would conduct detailed debriefings of 
Hannon regarding the status of collections. If any 
large collection matter was pending, Hoffenberg 
would go directly to the collector assigned to the 
account and obtain detailed information. During his 
visits, Hoffenberg would walk around the office 
asking collectors "how much did you collect for me 
today?" 
Beginning in May 1993, the same time that Hoffen-
berg became involved with operations at the Long 
Island office, Loveless was instructed at least once 
a month by Sidney Friedfertieg, the manager of 
customer service, "not to tell the clients about any 
payments we received." Friedfertieg told Loveless 
to lie to clients inquiring about their money by 
telling them that "the computer was down." When 
Loveless asked why she should conduct business 
this way, Friedfertieg responded that it was what 
Hoffenberg wanted. In addition, Hoffenberg was 
present when Lowy instructed Loveless not to in-
sert in DCC's computer records DCC's collection of 
more than $100,000 for Loew's Hotel Corporation. 
According to Lowy, soon after Hoffenberg was dis-
charged by the Towers bankruptcy Trustee in April 
1993, and continuing until the fall of 1993, 
He [Hoffenberg] wanted to know the amount of 
collections everyday, he wanted to know what the 
deposits were everyday. He came out usually once 
or twice a week at that time and took payroll re-
gisters and sometimes the registers in the check-
book to see what was being deposited. 
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908 F.Supp. 1265 
908 F.Supp. 1265 
(Cite as: 908 F.Supp. 1265) 
Lowy further testified that in approximately August 
1993, Hoffenbcrg replaced him as head of the Long 
Island 
office 
with 
Charles 
Chugerman 
("Chugerman"), an associate of Hoffenberg at 
Towers. Thereafter, Chugerman supervised Love-
less's accounts, and told Loveless that she should 
call Hoffenberg on any matter whenever she could 
not reach Chugemian or Rosoff. 
Martin Brecker never mentioned to Hoffenberg the 
term "Chinese Wall." 
Lowy was not independent but was dominated by 
Hoffenberg. Lowy had worked for Hoffenberg for 
years and owed essentially his entire career to Hof-
fenberg. 
Hoffenberg controlled Lowy's activities at DCC 
from small management decisions, such as chan-
ging the name of Frederick Lawrence Associates to 
DCC, to hiring employees. 
In April 1993, Hoffenberg "basically took over the 
company," according to Lowy, and thereafter Lowy 
reported to him on nearly every detail of DCC's 
business. When a group of Towers employees in-
dicated that they did not want to work at DCC if it 
meant working for Lowy, Hoffenberg assured them 
that they would be working for him. Beginning in 
May 1993, the ultimate authority to *1273 whom 
DCC collectors in the Long Island office were sup-
posed to report was Hoffenberg, not Lowy. When 
Lowy complained to Hoffenberg about the bur-
geoning payroll in the spring of 1993, Hoffenberg 
rebuffed him by saying it was his company. When 
Hoffenberg needed employees for Hcr New York, 
he took them from DCC. When Hoffenberg felt it 
appropriate to oust Lowy as a supervisor in the 
Long Island office, he did so, and installed Chuger-
man. 
Lowy retained Alan Fraade for DCC's corporate 
work. Fraade had a longstanding relationship with 
Hoffenberg and was described as Hoffenberg's 
"house counsel" at Towers. Hoffenberg selected 
and discharged lawyers to defend Lowy's depos-
Page II 
ition before the SEC. When Lowy spoke with Frank 
Wohl about the nature of his representation of 
Lowy, Hoffenberg instructed Lowy never to speak 
with a lawyer outside his presence, and discharged 
Wohl. Lowy accepted Brecker's representation, 
who had been selected by Hoffenberg, notwith-
standing his knowledge that Brecker had a preexist-
ing relationship with Hoffenberg, and that if a con-
flict arose, Brecker would represent Hoffenberg. 
Thereafter, Hoffenberg frequently discussed with 
Brecker the status of Brecker's representation of 
Lowy, including whether Lowy should refuse to 
testify based on his Fifth Amendment privilege. 
Hoffenberg also involved his long-time associate 
and counsel Michael Rosoff into Lowy's represent-
ation. 
Hoffenberg also extracted money from DCC in 
ways not revealed to Nardello. Hoffcnberg obtained 
blank checks from DCC, which he used for his own 
personal benefit, which was not disclosed until 
January 27, 1994, when he was again confronted by 
Nardello and told that the Government was contem-
plating the repudiation of the Agreement. Hoffen-
berg also arranged for DCC to pay certain of his 
personal American Express bills. Additionally, 
Hoffenberg obtained free labor at DCC's expense 
by using several employees on DCC's payroll to do 
the work of his publication, Her New York. This in-
formation was admitted by Hoffenberg at his Feb-
ruary 14, 1994 session. 
Hoffenberg had met with Lowy in May 1993 and 
knew that meeting with a witness to influence his 
future testimony was criminal conduct. Hoffenberg 
knew that Lowy's truthful testimony regarding their 
activities at DCC would be harmful to his litigation 
position and therefore told Lowy what to say. 
In the spring of 1993, before Lowy had any rela-
tionship with the Government, Lowy told Loveless 
that he had an illicit agreement with Hoffenberg to 
mischaracterize Hoffenberg's status at DCC. Lowy 
stated, in substance, that because Hoffenberg had 
taken care of him in the past, Lowy would now take 
care of lloffenberg by characterizing him to the 
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public as just a DCC consultant. 
Lowy and Joseph Hughes ("Hughes") testified 
falsely before the Towers' Trustee in bankruptcy. 
Each, at Hoffenberg's behest, minimized the ap-
pearance of Hoffenberg's control of, and role in, 
DCC. At his SEC deposition on May 26, Lowy test-
ified as to Hoffenberg's role as a sales consultant. 
Lowy testified on September 28 before the bank-
ruptcy trustee that Frederick Lawrence Associates 
was a successful business doing "several million 
dollars a year in gross sales" before it became 
DCC, that Hoffenberg had no control over the dis-
position of Diversified Holding's funds, that those 
funds were solely within Lowy's control, that Lowy 
ran DCC, and that Lowy had no substantive discus-
sion with Hoffenberg about his deposition testi-
mony. 
Hughes testified that Lowy ran the New York office 
of DCC, that Hoffenberg did not have an office at 
DCC, and that Hughes had not spoken to Hoffen-
berg about his deposition. 
Hughes and Lowy had previously made false state-
ments and covered up for Hoffenberg. During the 
1980's, when Hoffenberg's business, Westwood Pa-
per and Hardware, was in bankruptcy, Lowy 
obeyed Hoffenberg's instructions to destroy the 
company's books and records. In 1992, when 
Towers was in litigation with Dunn & Bradstreet, 
Hughes followed Hoffenberg's and Rosoffs instruc-
tions to perjure himself in deposition testimony and 
affidavits. 
•1274 Hughes testified that Hoffenberg influenced 
his testimony and that during early 1994, Hoffen-
berg and Rosoff arranged for him and two others to 
sign affidavits falsely characterizing the respective 
roles of Hoffenberg and Lowy at DCC and that in 
the period from April to July 1993 he met with 
Hoffenberg and gave false testimony in a depos-
ition before the trustee in Bankruptcy, at Hoffen-
berg's behest regarding the management of DCC, 
including the party line that he (Hoffenberg) was 
merely a consultant, and that his January 4, 1994 
Page 12 
affidavit was prepared by Rosoff and that the affi-
davit was false. On January 5, 1994, Hughes swore 
to a false affidavit which characterized his activities 
at DCC in sales as being supervised by Lowy and 
later by Chugerman. 
Hughes testified in this proceeding that he had in 
fact reported to Hoffenberg, contrary to his affi-
davit of January 4, 1994 which he had signed at 
Hoffenberg's request 
b. Stratford 
By November 1993, Chugerman had closed the 
DCC sales offices and terminated much of the sales 
force. Notwithstanding, remittances were not being 
made to the DCC clients, which resulted in a state 
investigation and indictment to which Lowy pled 
guilty. He also pled guilty under a cooperation 
agreement to charges of obstructing the SEC and 
bankruptcy investigation. 
Both Lowy and Hughes demonstrated a willingness 
to falsify testimony but their testimony concerning 
Hoffenberg's influence on their testimony is con-
firmed by Loveless and by Hoffenberg's admission 
that he met with Lowy before the latter testified. On 
this issue the balance of credibility tilts in favor of 
Lowy and Hughes. 
Hoffcnberg started Stratford in early December 
1993 without first notifying the Government. In ap-
proximately November 1993, one month after Hof-
fenberg had signed the Agreement, Hoffenberg 
called Hughes into a meeting with Rosoff and 
stated that he was starting a new collections busi-
ness. Hoffenberg further indicated his desire to 
move quickly with this new collections business by 
asking Rosoff "(w]here is it faster to incorporate, 
New York or Delaware?" Hoffenberg selected 
Hughes as president. When Hughes declined the ap-
pointment, Hoffenberg stated, "lyleah, 1 guess 
you're right, you have too much baggage." 
Hoffenberg then selected Steven Dryfus ("Dryfus") 
to run the new company. Dryfus had previously 
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worked for Hoffenberg at Towers and was now 
working for Hoffenberg at Haley Capital, which 
was located in the Trump Tower. In late December 
1993, Hoffenberg took Dryfus into the hallway 
where he could not be overheard and asked Dryfus 
to be the executive of his new collections company. 
That company, which Hoffenberg had by then in-
corporated, was Stratford. Hoffenberg made Myna 
president 
of Stratford, 
and 
Gene 
Sherman 
("Sherman"), Hoffenberg's uncle, vice-president. At 
DCC, Sherman had blank checks available for Hof-
fenberg and put up the money to start Her New 
York and had made payments on Hoffenberg's 
apartment and boat mortgage. Stratford started op-
erations in late December 1993 by taking on a few 
collections claims. 
Hoffenberg instructed Dryfus in early January 1994 
to mischaracterize Hoffenberg's participation in 
Stratford as minimal. Hoffenberg preferred the ap-
pearance of having "no role" in Stratford, but be-
cause Hoffenberg was physically present in Strat-
ford's office every day, he took on the title of con-
sultant, as he had at DCC. As Dryfus put it, "that 
was the spin. He was not a principal with the firm, 
but he was working as a consultant." In accordance 
with Hoffenberg's instructions, Dryfus told a Wall 
Street Journal reporter in January 1994 that he, not 
Hoffenberg, was running Stratford. Hoffenberg in-
structed Dryfus to tell counsel that Hoffenberg was 
just a consultant and that Dryfus was in business 
with members of Hoffenberg's family. Dryfus fol-
lowed Hoffenberg's instructions. 
In January and February 1994, Hoffenberg spoke 
with Dryfus "every day" about Stratford's business. 
He kept track of how much money Stratford was 
collecting, performed weekly audits of the com-
pany, supervised the collectors, and kept apprised 
of, and signed off on the company's business *1275 
development. Hoffenberg funded the business by 
infusing approximately $50,000 in cash during late 
January and early February. Dryfus testified that all 
of this occurred before the Government's February 
17, 1994 announcement of the termination of Hof-
Page 13 
fenberg's cooperation. 
Hoffenberg's infusion of cash into Stratford in 
January and February 1994 further violated the 
Consent Order and Nardello's instructions. The 
business was operated by avoiding the use of 
checks and resorting to cash deliveries. 
Dryfus testified that Hoffenberg gave him $24,000 
in cash from an accordion folder, that he and Hof-
fenberg counted the money in a storage room after 
the other employees left for the day, and that Dry-
fus then took the money home and at Hoffenberg's 
direction, used it to pay Stratford's bills. 
Approximately three to five days later, Hoffenberg 
gave Dryfus a sealed, unaddressed, Federal Express 
package containing $26,000 in cash. Dryfus also 
used these funds to pay Stratford's bills, including 
Hoffenberg's $250 per month parking expenses. 
In his affidavit of November 28, 1994, in this pro-
ceeding, Hoffenberg admitted that he "disregarded 
[Nardello's] instructions to avoid any involvement 
with that business." He related how difficult it was 
for him, even months after he signed the Agree-
ment, to break the habit of conducting business dis-
honestly. 
The Performance of the Agreement 
As set forth above, there is no evidence in this re-
cord that Hoffenberg failed to perform his agree-
ment with respect to the affairs of Towers. It is his 
failure to perform the Agreement with respect to his 
own affairs in 1993 that is at issue. 
The Government also acted in conformity with the 
Agreement throughout 1993 from September 24 
when the Agreement was entered into until Decem-
ber 22, there were no inquiries to Hoffenberg con-
cerning DCC or Stratford. 
However, the SEC had continued its investigation 
which produced certain of the facts set forth above 
which were confirmed by Lowy, Hughes and Dry-
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fus. Lowy's cooperation began in November, and he 
was interviewed by an Assistant United States At-
torney on December 22. Hughes recounted his re-
collection of events to James Nauwens, an investig-
ator of the United States Attorney's Office on 
December 27, 1993. 
Nardello was on vacation and upon his return on 
January 10, 1994, he arranged to have lioffenberg 
testify before the grand jury on January 14, 1994. 
He did not obtain Nauwcns' information nor learn 
of Lowy's cooperation until after Hoffenberg's 
grand jury appearance. 
The Government thus called upon Hoffenberg to 
perform the Agreement with knowledge in its pos-
session that Hoffenberg had lied about DCC and 
Stratford and after it had procured statements from 
Hughes and Lowy on the subject. When Nardello 
learned of Lowy's and Hughes' cooperation, he 
challenged Iloffenberg on January 24, and Hoffen-
berg conceded certain of the information relating to 
his involvement in Stratford and sought to " cure" 
his conduct. Nardello met with Hoffenberg again on 
January 27 and February 14, and recommended that 
the Agreement be terminated. Hoffenberg was ar-
rested on February 17. 
Discussion 
The Government in Refusing to Perform the 
Agreement Acted in Good Faith 
[I] A party who materially breaches a cooperation 
or plea agreement may not claim its benefits. 
United States v. Merritt, 988 F.2d 1298, 1313 (2d 
Cir.), cert. denied 508 U.S. 961, 113 S.Ct. 2933, 
124 1,.Ed.2d 683 (1993); United Slates v. Tilley. 
964 F.2d 66, 70 (1st Cir.1992) (if defendant fails to 
fulfill his or her promises, the Government is re-
leased from its obligations under the agreement); 
United States v. Gonzalez-Sanchez, 825 F.2d 572, 
578 (1st Cir.), cert. denied, 484 U.S. 989, 108 S.Ct. 
510, 98 L.Ed.2d 508 (1987). 
Page 14 
has the burden to prove breach of a plea agreement 
by a preponderance of the evidence. United States 
v. Verrusio, 803 F.2d 885, 894 (7th Cir.1986) 
(Government "must prove that the defendant 
breached the •1276 plea bargain by a preponder-
ance of the evidence"); United States v. Tilley, 964 
F.2d at 71. Such a standard is consistent with the 
standard of proof courts have required to resolve 
other post-conviction disputes, such as disputed 
sentencing issues. United States v. Guerra, 888 
F.2d 247, 251 (2d Cir.1989), cert. denied, 494 U.S. 
1090, 110 S.Ct. 1833, 108 L.Ed.2d 961 (1990); see 
United States v. Merritt, 988 F.2d at 1313. 
Hoffenberg suggests that United States v. Leonard, 
50 F.3d 1152, 1158 (2d Cir.I995), suggests a high-
er standard of proof. In Leonard, the Second Circuit 
instructed that "the district court should consider 
any evidence with a significant degree of probative 
value, and should rest its finding on evidence that 
provides a basis for [appellate] review." Leonard, 
50 F.3d at 1157. A requirement that evidence have 
a significant degree of probative value is not equi-
valent to the enunciation of an enhanced standard 
of proof. It is similar to the requirement described 
by the Guidelines for resolution of disputed senten-
cing issues, clearly governed by a preponderance of 
the evidence standard. Guidelines, § 6A1.3. ("[T]he 
court may consider relevant evidence without re-
gard to its admissibility ... provided that the inform-
ation has sufficient indicia of reliability to support 
its probable accuracy."). 
Hoffenberg has also cited United States v. Martin, 
25 F.3d 211, 217 (4th Cir.1994). There, at the time 
of sentence, the Government announced that it 
would make a motion, pursuant to Fed.R.Crim.P. 
35(b) within the year because the defendant had co-
operated fully before sentence, but it was hoped 
that he would provide additional cooperation fol-
lowing sentence. Technically, there was no mech-
anism for the Court to provide post-sentencing re-
lief for the pre-sentencing cooperation. The Court 
of Appeals held that the Government's failure to 
make the motion at sentencing resulted in a 
[21 At post-conviction hearings, the Government 
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deprivation of the defendant's due process rights, 
and remanded for resentencing. In Martin, there 
were no disputed issues, leaving nothing to be re-
solved in any hearing. It is undisputed that Martin 
reiterated the Circuit's position that the burden of 
proving a breach is on the party that alleges the 
breach. 
[3J Courts have generally looked to the terms of the 
agreement itself and to the parties' anticipated bene-
fits to determine whether a material breach has oc-
curred. See, e.g., United States v. Crawford, 20 
F.3d 933, 934-35 (8th Cir.1994); United States v. 
Tilley, 964 F.2d at 71; United States v. Wood, 780 
F.2d 929, 931 (11th Cir.1986), cert. denied, 479 
U.S. 824, 107 S.Ct. 97, 93 L.Ed.2d 48 (1986). 
Where, as here, a defendant has promised to dis-
close truthfully all information about which the 
Government inquires, any false statement, mislead-
ing statement, or omission concerning the defend-
ant's activity or an area about which the Govern-
ment has inquired, is a material breach of the agree-
ment. 
[4] By the terms of the Agreement, Hoffenberg was 
obligated to "truthfully disclose all information 
with respect to the activities of himself and others 
concerning all matters about which the Offices in-
quire of him" to "cooperate fully with the Offices, 
the Securities and Exchange Commission ..." and 
that Hoffenbcrg "must at all times give complete, 
truthful, and accurate information" and "must not 
commit any further crimes." Authorities dealing 
with similar breaches include United States v. 
Crawford, 20 F.3d at 934-35 (in non-prosecution 
agreement, defendant agreed to provide complete 
and truthful cooperation; Government justified in 
holding defendant in breach where Government 
dubious about defendant's reliability after he im-
plicated co-defendant in interview with agents, but 
admitted sole responsibility for crime in conversa-
tions with others); United States v. Gerant, 995 
F.2d 505, 507-08 (4th Cir.1993). When defendant 
agreed to cooperate fully and provided substantial 
information about drug operations, defendant 
Page 15 
breached agreement by lying about his role in two 
deals, amount of money he earned, and status as 
Government informant); United States v. Tilley, 
964 F.2d at 71 ( defendant agreed to testify fully, 
honestly, truthfully and completely; defendant 
breached agreement by false testimony as to his 
additional involvement in drug deal); United States 
v. Britt, 917 F.2d 353, 355-56, 360-61 (8th 
Cir.1990) ( defendant agreed to fully and com-
pletely cooperate with the United States and, * over 
the course of a year, had several debriefings, recor-
ded phone conversations, participated in controlled 
buy; defendant breached agreement by not dis-
closing the full extent of his drug dealing), cert. 
denied, 498 U.S. 1090, III S.Ct. 971, 112 L.Ed.2d 
1057 (1991); United States v. Gonzalez Sanchez, 
825 F.2d at 579; United States v. Wood, 780 F.2d at 
931; United Slates v. Patrick, 823 F.Supp. 583 
(N.D.111.1993). See also United States v. Hon, 17 
F.3d 21, 24-26 (2d Cir.1994) (upholding Govern-
ment's refusal to file SKI letter for cooperator who 
delayed his testimony, thereby breaching his oblig-
ation to "fully cooperate"). 
As found above, from the beginning of his proffer 
sessions in April 1993 through his final meeting on 
February 14, 1994, Hoffenberg lied to the Govern-
ment about his involvement in the operation of 
DCC, about Lowy's "independence" as president of 
the company, and failed to disclose his involvement 
in Stratford. 
According to Hoffenberg, because the Government 
did not focus his attention on DCC until meetings 
in late January 1994, his failure to describe accur-
ately his role at DCC was not a breach. Before he 
entered into the Agreement, however, Hoffenberg 
had been fully and pointedly questioned specific-
ally about DCC, his role in the company, and 
whether he was receiving any payments from the 
company. Although the Government relied on his 
representations, Hoffenbcrg misled the Government 
when questioned. 
Hoffenberg 
argues 
that 
whether 
or 
not 
he 
"controlled" DCC is a legal question, not a factual 
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