After Zhadanov's arrest, federal agents began contacting his customers, informing them of the charges against him. Becton-Dickinson terminated its relationship with Vortex. A deal with Hammacher Schlemmer, which had planned to carry Zhadanov's shower attachment, fell through. Zhadanov received an anxious letter from a Russian businessman who had ordered 10,000 shower attachments from Vortex. "I am alarmed by the extent of your legal problems," he wrote. "The cause of my concern is a most unpleasant phone call that I received last night at my residence from [a] U.S. government agent....For now I will keep my obligations, but if they continue to harass me, I will have no alternative but to cancel the order." In this manner, the government undermined what was left of Zhadanov's business.
The charges against Zhadanov were certainly alarming. The government estimated that Vortex produced more than 200 million vials, each of which might ultimately contain at least half a gram of crack. Hence Zhadanov was charged with participating in a conspiracy to distribute 10,000 kilograms of crack. He was also charged with 69 money-laundering counts, based mostly on the checks that he received from Belkin and Edelson and from Srebrianski, which he deposited in Vortex's bank account. Although this might seem like a pretty inept way to launder money, since it left a clear paper trail, the government argued that a financial transaction can be considered money laundering even when it could not realistically be expected to hide the proceeds of illegal activity.
Zhadanov was initially determined to go to trial, since he felt he had done nothing wrong. But under pressure from the prosecutors, who he feared might bring charges against his wife, and at the urging of his attorney, Peter Ginsberg, who said it was the best way to avoid a long prison term, Zhadanov signed a plea agreement in December 1993. He pleaded guilty to the conspiracy charges and to most of the money-laundering counts. He agreed to give up all of his assets, except for half of the proceeds from the sale of the Vortex factory, which the government agreed to let his wife keep. (As it turned out, this money was claimed by the IRS, which argues that Anna Zhadanov is liable for back taxes, interest, and penalties related to the Vortex money that the Zhadanovs had kept in the safe.) The prosecution agreed to certify that Zhadanov had been cooperative and was therefore eligible for a reduction in his sentence. Ginsberg says it was also understood that Anna Zhadanov would not face criminal charges.
After Zhadanov pleaded guilty but before he was sentenced, the government ordered Chemical Bank to freeze any funds in the account of Gold & Wachtel, Peter Ginsberg's firm, coming from a Swiss bank account held jointly by Sam, Anna, and Eli Zhadanov. The account contained money that belonged to several of Eli Zhadanov's business associates who had given it to him for safekeeping because of the political unrest in Russia. He planned to borrow the money to pay his father's legal fees. But the government claimed the account had been contaminated by money from vial sales. The order freezing the money was entered on March 23, 1994, and lifted two days later. Ginsberg says he persuaded the prosecutors that the freeze threatened Zhadanov's ability to retain legal counsel, and they agreed to split the money with him. "The government may have been able to forfeit the entire amount," he says, "but they chose not to." Thus Ginsberg had to depend on the prosecutors' discretion for his income while he was still representing Zhadanov.
Meanwhile, the prosecutors continued to play up Zhadanov's role in the case, arguing for a substantial prison sentence. They insisted that he must have known he was making crack vials, and they portrayed him as eager for the work, although the record shows he resisted taking cash and repeatedly threatened to stop production. They said Zhadanov had not honestly sought legal advice to clarify his situation but had framed his inquiry in a way that underplayed his knowledge of how the containers were used. They dismissed his lease arrangement with Srebrianski, confirmed by Srebrianski's grand-jury testimony, as a charade designed to distance Zhadanov from production of the vials. They asserted that Zhadanov was always in charge of setting prices and dividing the money. They cited the $50 price increase as evidence of both his greed and his knowledge of the risk involved in making the containers. They called Zhadanov's profits "staggering," estimating that his cost per case was $28, while he sold each case for as much as $250. Gray says he doesn't recall where the cost estimate came from but that it was probably based on Vortex's records. The Zhadanovs say the actual cost was about $170 per case.
The probation officer who prepared the presentence investigation report accepted the prosecution's version of events. Nevertheless, he wrote that "the defendant is considered to have a minor role in the offense of conviction....While the defendant may have held a managerial position within the vial making and distribution activity, his guidelines are predicated upon the distribution of cocaine base--an offense with which he is associated in only the most peripheral way. As such, he is eligible for a significant role reduction, the greatest of which may not even appropriately address this role." (Emphasis added.) In other words, the probation officer suggested that the lowest possible sentence under the guidelines was too high, since it was inappropriate to treat Zhadanov like a crack dealer.
Noting Zhadanov's impressive accomplishments, his impeccable record, and the punishment he had already suffered as a result of the arrest, the loss of his property, and the damage to his reputation, Ginsberg asked for a sentence of probation. In his statement just before sentencing, Zhadanov tried to explain where he had gone wrong: "If somebody come to me and say, make this....I make it. I don't care what this product used for. And this was my mistake. Because I have to care. I never knew what this means, conspiracy. Now I know."
Then he appealed to U.S. District Judge Thomas N. O'Neill to let
him remain free: "When I come to this country 20 years ago, I have
in my pocket $300. And I started work. Take a look at my hands. I
cannot make it straight, my hand. I work for 16 hours in the
machine shop to make everything, and I don't know how to spend the
money. All the money I spent for the business.
...I don't care about the money at all. I care about my life.
Because my life, this is my work. OK? You put me in the prison, I
will go to the prison, but I will die."
Citing "the enormity of the offense, the harm that was done, the profit [that] was materialized, and, most of all, the necessity for deterrence of others who might be tempted by greed to engage in this endeavor," Judge O'Neill imposed a sentence of five years for each count, to be served concurrently.
"Unfortunately," Ginsberg says, "the government decided to make an example in this case."
By contrast, the informant Roni Moshe, who was in a much better position than Zhadanov to know who bought the containers and for what purpose, was sentenced to a year in a halfway house and a year of home detention. Srebrianski was sentenced to 18 months in prison, while Edelson, who was on probation for the earlier paraphernalia conviction, got four years. As of this writing, Belkin has yet to be sentenced. Zhadanov has hired a new attorney to appeal his sentence, arguing that the judge misapplied the federal sentencing guidelines and that the prosecution did not allege sufficient factual basis for the money-laundering counts.
Before he reported to prison, Zhadanov put most of his time and effort into the business his son has established to market his inventions. He sold what little equipment the government allowed him to keep to the new business, which rents an industrial space in Linden, New Jersey.
During an interview at the new factory in late December, Anna Zhadanov proudly shows off her husband's patents. Sam eagerly explains some of his recent projects, including an improved blood lance for diabetics and a new kind of flavored plastic toothpick. But when he considers the looming prison term, Zhadanov turns somber. "Right now, I feel very badly, because I don't know where I stand, or what kind of person I am anymore," he says. "I don't know who I am today."
To Gray, Sam Zhadanov is a confessed felon. "He's been treated fairly for what he did," the prosecutor says. "He admitted that he made hundreds of millions of crack vials. That's the extent of the issue, as far as we're concerned."
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