United States v. Sterling Islands, Inc.

491 F.Supp.3d 1010

UNITED STATES of America, Plaintiff,

v.STERLING ISLANDS, INC.; Al-Zuni Global Jewelry, Inc.; Jawad "Joe" Khalaf; Nader Khalaf; Nashat "Nash" Khalaf; and Taha "Tom" Shawar, Defendants.

No. CR 18-4176 JB

United States District Court, D. New Mexico.

Filed August 18, 2020

John C. Anderson, United States Attorney, Jonathan M. Gerson, Kristopher N. Houghton, Sean J. Sullivan, Assistant United States Attorneys, United States Attorney's Office, Albuquerque, New Mexico, Attorneys for the Plaintiff.

Mark T. Baker, Matthew M. Beck, Peifer, Hanson & Mullins and Baker, P.A., Albuquerque, New Mexico --and-- Carter B. Harrison, IV, Harrison & Hart, Albuquerque, New Mexico, Attorneys for Defendants Sterling Islands, Inc., Jawad Khalaf, and Zaher Mostafa.

Hope Eckert, Albuquerque, New Mexico, Attorney for Defendant Al Zuni Global Jewelry, Inc.

Ahmad Assed, Richard J. Moran, Law Office of Ahmad Assed, Albuquerque, New Mexico, Attorneys for Defendant Nader Khalaf.

John W. Boyd, Nancy Hollander, Karen Grohman, Freedman Boyd Hollander Goldberg Urias & Ward, P.A., Albuquerque, New Mexico, Attorneys for Defendant Nashat Khalaf.

MEMORANDUM OPINION AND ORDER

James O. Browning, UNITED STATES DISTRICT JUDGE

THIS MATTER comes before the Court on: (i) the Objections to the Presentence Report [Doc. 125] on Behalf of Nashat Khalaf, filed July 31, 2020 (Doc. 134)("N. Khalaf Objections"); and (ii) the United States’ Objections to Nashat Khalaf Presentence Report [Doc. 125], filed July 31, 2020 (Doc. 137)("United States N. Khalaf Objections"). The primary issue is whether Defendant Nashat "Nash" Khalaf's relevant offense conduct -- selling Southwestern-style art that he falsely conveyed was American Indian-made -- resulted in a loss amount of $543,747.00 under the United States Sentencing Guidelines Manual ("Guidelines" or "U.S.S.G.") § 2B1.1, as the United States Probation Office ("USPO") contends, or if he is responsible for a loss amount less than $6,500.00, as the United States and Nashat Khalaf agree. The Court concludes that the preponderance of the evidence shows that Nashat Khalaf's relevant offense conduct caused a loss of less than $6,500.00, and that the USPO draws impermissible inferences from unrelated conduct. Accordingly, the Court sustains N. Khalaf Objections and the United States’ N. Khalaf Objections.

FACTUAL BACKGROUND

On December 19, 2018, a federal Grand Jury issued a five-count Indictment against Defendants Sterling Islands, Inc., Al-Zuni Global Jewelry, Jawad Khalaf, Nader Khalaf, Nashat Khalaf, Zaher Mostafa, and Taha "Tom" Shawar. Indictment at 1, filed December 19, 2018 (Doc. 2). The Indictment charges that, between 2009 and 2015, the Defendants conspired to import from the Republic of Philippines counterfeit American Indian-style art and jewelry that they then sold in New Mexico and Arizona, passing the art and jewelry off as genuinely Native American. See Indictment ¶¶ 5-9, at 2-8. Sterling Islands is a corporation registered in the Commonwealth of Virginia, with its primary business office in Albuquerque, New Mexico.

See Indictment ¶ 1, at 1. Sterling Islands imports Native American-style jewelry, arts, and crafts, from a factory in the Philippines -- a manufacturer called Fashion Accessories 4 U ("Fashion Accessories") -- into the United States, and sells the imported merchandise to wholesale and retail businesses in the State of New Mexico and elsewhere. Indictment ¶ 1, at 1. J. Khalaf is Sterling Islands’ owner and president, and Nader Khalaf is a manager. See Indictment ¶ 1, at 1. Al-Zuni Global is a registered corporation in New Mexico, operating as a wholesale business in Gallup, New Mexico, "specializing in Native-American style jewelry, arts, and crafts." Indictment ¶ 2, at 1-2. N. Khalaf is Al-Zuni Global's owner and president, and Mostafa is its vice president. See Indictment ¶ 2, at 2. Shawar owns Bullion Jewelers, Inc., "a retail store in Breckenridge, Colorado, specializing in the sale of Native American-style jewelry." Indictment ¶ 3, at 2.

The Indictment alleges that the Defendants imported Native American-style jewelry, arts, and crafts without legally required indelible markings and that they sold the imported merchandise to customers, falsely representing that Native Americans made the merchandise. See Indictment ¶ 4, at 2. According to the Indictment, from approximately 2009 to October, 2015, Sterling Islands, Al-Zuni Global, J. Khalaf, Nader Khalaf, Nashat Khalaf, Mostafa, and Shawar

knowingly, unlawfully, and willfully combined, conspired, confederated, agreed, and acted interdependently with one another and with others known and unknown to the Grand Jury to commit the offenses of smuggling goods into the United States, contrary to 18 U.S.C. § 545, and violating the Indian Arts and Crafts Act, contrary to 18 U.S.C. § 1159.

Indictment ¶ 5, at 2.

The Indictment states that Sterling Islands purchased Native American-style jewelry, arts, and crafts from Fashion Accessories and imported them into the United States. See Indictment ¶ 6a, at 3. Al-Zuni Global received and distributed wholesale quantities of the imported merchandise. See Indictment ¶ 6b, at 3. The imported merchandise bore no permanent country-of-origin markings, and the Defendants sold the imported merchandise to wholesale and retail customers in New Mexico, including to customers who placed orders to "copy and reproduce jewelry, arts, and crafts made by Indian artists." Indictment ¶¶ 6c-e, at 3. The Defendants provided wholesale customers with Native American-style jewelry, arts, and crafts, some of which had "removable stickers indicating the items were made in the Philippines," and some of which had permanent country-of-origin markings. Indictment ¶¶ 6f-g, at 3. Al-Zuni Global stocked both American Indian-made goods and non-American Indian-made goods, many of which it labeled as imported but, in one instance, it displayed "in a manner that suggested they were Indian made." United States N. Khalaf Objections at 3. "An examination of Sterling[ Islands’] financial records ... reveals $6,355.599.89 in payments from Sterling Islands to [Fashion Accessories] from June 18, 2010, to July 17, 2014." Presentence Investigation Report ¶ 17, at 6, filed July 9, 2020 (Doc. 125)("N. Khalaf PSR"). Between 2010 and 2014, Fashion Accessories made 298 shipments to Sterling Islands, five of which the United States Fish and Wildlife Services intercepted. See N. Khalaf PSR ¶ 22, at 8. Between 2012 and 2015, Nashat Khalaf "sent checks to Sterling Islands totaling $543,747.00 in exchange for goods." N. Khalaf PSR ¶ 28, at 10.

The United States’ investigation revealed, however, that Al-Zuni Global and its employees "often told purchasers that goods under discussion were imported." United States’ N. Khalaf Objections at 3. While "undoubtedly" some purchasers of the non-American Indian-made goods were deceived into believing they were purchasing genuine Indian art and crafts, "the government has no reliable way to calculate how many such purchasers there were, who they were, or how much they spent." United States N. Khalaf Objections at 3-4. The United States and the USPO thus agree that J. Khalaf and N. Khalaf engaged in a mix of permissible sales and impermissible, misleadingly labeled sales, although the United States has indicated that it has evidence of only one instance of misleading labeling. See United States J. Khalaf Objections at 3-4.

According to the United States, on or about September 10, 2012, Sterling Islands received a shipment from Fashion Accessories, containing approximately sixty Navajo-style canteens -- ornately decorated and engraved silver in the shape of canteens -- lacking permanent country-of-origin markings. See Indictment ¶ 14, at 5. The United States says that, on or about October 13, 2012, Nader Khalaf emailed Fashion Accessories, attaching photographs pursuant to an email request from J. Khalaf. See Indictment ¶ 15, at 5. According to the United States, Al-Zuni Global displayed the imported miniature, Navajo-style canteens, lacking permanent country-of-origin markings, for sale in its shop in Gallup. See Indictment ¶ 24, at 6. The United States says that, on November 24, 2014, Al-Zuni Global sold four of the canteens to an undercover United States Fish and Wildlife Service agent without clarifying that they were not Navajo-made. See Indictment ¶ 25, at 6.

In Count 2, the Indictment charges that, from approximately August 30, 2009, until approximately October 28, 2015, Sterling Islands, J. Khalaf, and Nader Khalaf

did willfully, fraudulently, and knowingly import and bring into the United States certain merchandise, that is Native American-style jewelry, arts, and crafts, contrary to law, in that the merchandise was not indelibly marked with the country of origin by cutting, die-sinking, engraving, stamping, and some other permanent method ... [i]n violation of 18 U.S.C. § 545 and 18 U.S.C. § 2 and 19 C.F.R. § 134.43.

Indictment ¶ 32, at 7. In Count 3, the Indictment charges that, from approximately August 3, 2012, until approximately October 28, 2015, Al-Zuni Global, Nashat Khalaf, and Mostafa

did willfully, fraudulently, and knowingly receive, conceal, buy, sell, and facilitate the transportation, concealment, and sale of merchandise imported contrary to law, that is Native American-style jewelry, arts, and crafts, after the importation thereof, the defendants then knowing that said merchandise had been imported and brought into the United States contrary to law, in that the merchandise was not indelibly marked with the country of origin by cutting, die-sinking, engraving, stamping, and some other permanent method ... [i]n violation of 18 U.S.C. § 545 and 18 U.S.C. § 2 and 19 C.F.R. § 134.43.

Indictment ¶ 33, at 7-8. Counts 4 and 5 are levied against all the Defendants with the exception of Shawar (the "Sterling and Al-Zuni Defendants"). Indictment ¶¶ 34-35, at 8-9. Count 4 charges that the Sterling Islands and Al-Zuni ...