*The HONORABLE WILLIAM W. SCHWARZER, United States

District Judge for the Northern District of California,

sitting by designation.

__________________________________

Nos. 95-2694, 95-2778, and 95-2781

__________________________________

United States of America, *

*

Plaintiff - Appellee, *

*

v. *

*

Ferrell Travis Riley; Cheryll *

S. Coon; Jack L. Brown, *

*

Defendants - Appellants, *

*

The Direct Holding Company, * Appeals from the United States

d.b.a. Direct Data Processors; * District Court for the

L.F.B. Insurance and * Western District of Missouri.

Reinsurance, a division of *

La Fenix Boliviana S.A. De *

Seguros Y Reaseguros; National *

and International Company; *

Buffalo Lodge and Resorts *

Management Company, Inc.; *

Business First Entertainment, *

*

Intervenors - Appellants. *

___________

Submitted: December 13, 1995

 Filed: March 11, 1996

___________

Before BOWMAN and LOKEN, Circuit Judges, and SCHWARZER,*

District Judge.

___________

LOKEN, Circuit Judge.

A criminal defendant convicted of violating the Racketeer Influenced

and Corrupt Organizations Act ("RICO") "shall forfeit"
 Meadowlark is a surplus lines insurer. Magnolia is a premium 1

finance company. M & M manages Meadowlark and other insurers.

Commercial Indemnity is Meadowlark's successor. 

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his or her interests in the RICO enterprise, assets acquired in violation

of the Act, and any proceeds of racketeering activity. 18 U.S.C. §

1963(a). After a RICO indictment, but prior to the defendant's conviction,

the district court may enter orders "to preserve the availability" of

property subject to forfeiture. § 1963(d)(1). These appeals challenge

preconviction orders appointing a monitor, and later a receiver, to manage

companies allegedly owned or controlled by RICO defendants Ferrell Riley,

Cheryll Coon, and Jack Brown. Appellants are these defendants plus

affected companies that were not named in the RICO indictment (the

"Intervenor Companies"). 

At oral argument, counsel for the government could not identify what

property is subject to forfeiture if defendants are convicted, could not

refer us to record evidence establishing the extent of defendants'

interests in the affected companies, and could not reconcile the relevant

statutory language with the preconviction restraints the government had

obtained. Accordingly, we immediately issued an Order vacating the

district court's monitor and receiver orders. We now explain the reasons

underlying our disposition of these appeals.

I.

Count One of the November 16, 1994, indictment charged Riley, Coon,

and Brown with violating RICO by using Meadowlark Insurance Company,

Magnolia Acceptance Corporation, M & M Management Company, and Commercial

Indemnity Assurance (the "Named Companies") as an enterprise through which

defendants bribed state officials and defrauded insurance regulators, a

group health care insurance plan, and a podiatrists' association. At the 1

end of the lengthy
 Given the plain language of § 1963(d)(1)(A), we question

2

whether a preconviction restraining order may affect property not

fairly encompassed within the forfeiture allegations of the

indictment, particularly given the forfeiture pleading requirements

of Fed. R. Crim. P. 7(c)(2). See United States v. Sarbello, 985

F.2d 716, 719-20 n.8 (3d Cir. 1993). However, as appellants have

not raised that issue, we leave it for another day. 

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indictment, the government stated its "intent to forfeit . . . at least $28

million and all interests and proceeds traceable thereto, including but not

limited to real property, automobiles, bank accounts and personal

property." An FBI agent later testified that $28 million is the

government's estimate of the Named Companies' gross receipts during the

1988 to 1992 period. 

After the indictment issued, the government immediately applied for

an order restraining defendants from dissipating, encumbering, or disposing

of specific enumerated assets that the government alleged are subject to

forfeiture -- real property, automobiles, and financial institution

accounts. On November 21, 1994, the district court issued that order, and

it later extended this restraint to additional enumerated financial

institution accounts. Defendants do not challenge these restraints on

appeal, and our prior order left them in place.2

The government next moved for appointment of a monitor to examine the

affairs of the Named Companies and the Intervenor Companies in order to

prevent "dissipation of the restrained assets and/or the neglect of the

ongoing businesses." Following an evidentiary hearing, the district court

issued orders appointing a monitor and granting the monitor broad powers

to investigate the Named Companies and the Intervenor Companies, to account

for and take control of the funds of those companies, to require reports

and information, and to disapprove broad categories of business activity,

including routine insurance transactions. 
 The government argues that these appeals are in large part

3

untimely because they were not filed within the ten days prescribed

for commencing a criminal appeal. See Fed. R. App. P. 4(b).

However, Rule 4(a), which governs civil appeals, applies if the

order being appealed is "essentially a civil proceeding arising

from a criminal one." United States v. Brown, 835 F.2d 176, 179

(8th Cir. 1987). The merits of a preconviction order restraining

forfeitable assets are governed by the civil standards for

temporary restraining orders and preliminary injunctions. See

United States v. Lewis, 759 F.2d 1316, 1324-25 (8th Cir.), cert.

denied, 474 U.S. 994 (1985). And postconviction proceedings to

recover forfeited property are considered civil for purposes of

Rule 4, whether commenced by the criminal defendant or by a third

party. See United States v. Mosquera, 845 F.2d 1122, 1125 (1st

Cir. 1988); United States v. Lavin, 942 F.2d 177, 181 (3d Cir.

1991). We conclude that an order imposing preconviction restraints

prior to forfeiture is, in substance, a civil proceeding for

purposes of Rule 4. Therefore, these appeals are timely.

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On June 21, 1995, at the request of the monitor, the district court

converted the monitor to a receiver, giving him even broader powers of

investigation plus total control over the day-to-day operations of the

Named Companies and the Intervenor Companies. Defendants and the

Intervenor Companies appeal these monitor and receiver orders.3

II.

The lengthy monitor and receiver orders do not discuss the

relationship between the Named Companies, the Intervenor Companies, and the

specific assets that the district court initially restrained, or the extent

to which assets of these companies might ultimately be subject to RICO

forfeiture. Nor do these orders discuss the statutory authority for the

virtually unlimited powers granted to the monitor, and then to the

receiver, to manage the affairs of these companies, many of which are

engaged in insurance businesses that are subject primarily to state

regulation by reason of the McCarran-Ferguson Act, 15 U.S.C. § 1012(b). 
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Preconviction restraints are extreme measures. Before a

preconviction restraint may issue, the government must demonstrate at a

hearing that the RICO defendant is likely guilty and that the property to

be restrained will be subject to criminal forfeiture. See Lewis, 759 F.2d

at 1324. And the preconviction restraint order should include specific

findings permitting an appellate court to determine whether the property

restrained is subject to forfeiture. See In re Assets of Martin, 1 F.3d

1351, 1361-62 (3d Cir. 1993). The government virtually ignored these

procedural safeguards in this case. A brief review of the relevant

statutes and the rather barren record on appeal reveals that serious error

resulted.

We begin with the statute authorizing preconviction restraints, 18

U.S.C. § 1963(d)(1):

Upon application of the United States, the court may enter a

restraining order or injunction . . . or take any other action

to preserve the availability of property described in

subsection (a) for forfeiture under this section --

(A) upon the filing of an indictment or information

charging a violation of section 1962 of this chapter and

alleging that the property with respect to which the order is

sought would, in the event of conviction, be subject to

forfeiture under this section.

This provision was added to RICO in 1984 to give the court power "to assure

the availability of the property [subject to forfeiture] pending

disposition of the criminal case." S. Rep. No. 225, 98th Cong., 2d Sess.

204, reprinted in 1984 U.S.C.C.A.N. 3182, 3387. Appellants concede that

the term "any other action" in § 1963(d)(1) includes the discretion to

appoint a monitor or receiver when appropriate. However, these types of

preconviction restraints are "strong medicine and should not be used where

measures that are adequate and less burdensome" are available. United

States v. Regan, 858 F.2d 115, 121 (2d Cir. 1988). Cf. Aviation Supply

Corp. v. R.S.B.I. Aerospace, Inc., 999 F.2d 314, 316-17 (8th Cir. 1993).
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Preconviction restraints may only be used to preserve the

availability of property subject to forfeiture under § 1963(a), that is:

(1) any interest the [RICO violator] has acquired or

maintained in violation of section 1962;

(2) any--

 (A) interest in;

 (B) security of;

 (C) claim against; or

 (D) property or contractual right of any kind

 affording a source of influence over;

any enterprise which the [RICO violator] has established,

operated, controlled, conducted, or participated in the conduct

of, in violation of section 1962; and

(3) any property constituting, or derived from, any

proceeds which the [RICO violator] obtained, directly or

indirectly, from racketeering activity or unlawful debt

collection in violation of section 1962.

In this case, the government never identified what assets of the

Named Companies and the Intervenor Companies are subject to forfeiture

under § 1963(a). Under § 1963(a), only defendants' interests in the RICO

enterprise and the proceeds from their racketeering activity are subject

to forfeiture. Though the indictment alleged that the Named Companies are

an enterprise through which defendants conducted their racketeering

activities, an allegation that an enterprise was used to commit RICO

violations is not enough to make the enterprise forfeitable, only

defendants' interests in that enterprise. RICO's criminal forfeiture is

an in personam remedy to punish the RICO defendants. See United States v.

Conner, 752 F.2d 566, 576 (11th Cir. 1985). It does not permit the

government to seize control of an enterprise that defendants used to

accomplish their racketeering.

The government's allegation in the indictment that it intends to

forfeit "at least $28 million" does not cure this deficiency. 
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The $28 million is the estimated total receipts of the Named Companies

during the course of defendants' alleged RICO conspiracy. These revenues

are not forfeitable under the "proceeds" provision of § 1963(a)(3). "[T]he

statute says that it is the proceeds received by the defendants, not by

their enterprise, that are forfeitable." United States v. Masters, 924

F.2d 1362, 1370 (7th Cir.), cert. denied, 500 U.S. 919 and 502 U.S. 823

(1991). See United States v. Olson, 22 F.3d 783, 785 (8th Cir.), cert.

denied, 115 S. Ct. 320 (1994) (bank officers' salaries and bonuses are

subject to forfeiture, not the bank depositors' funds). Even if the

government had included the Named Companies as RICO defendants, its

assertion that $28 million is subject to forfeiture would be absurd. A

corporate defendant's racketeering "proceeds" are subject to forfeiture.

However, while Congress used that term to spare the government the burden

of proving net profits, see S. Rep. No. 225 at 199, 1984 U.S.S.C.A.N. at

3382, "proceeds" means something less than the gross receipts of a

defendant's insurance business because an insurer's gross receipts would

include, for example, amounts needed to pay policyholder claims. See

Masters, 924 F.2d at 1370; United States v. Lizza Indus., Inc., 775 F.2d

492, 497-98 (2d Cir. 1985), cert. denied, 475 U.S. 1082 (1986). 

Finally, the government failed to explain how assets of the

Intervenor Companies could be subject to forfeiture. The government argued

that defendants own or control the Intervenor Companies and that defendants

have commingled assets of the Named Companies and the Intervenor Companies.

But the statute does not authorize preconviction restraints on substitute

assets. See United States v. Field, 62 F.3d 246, 248-49 (8th Cir. 1995).

Thus, the conclusory testimony of the government investigators fell far

short of the showing needed to impose a preconviction monitor or
 After conviction, substitute assets may be forfeited in the 4

circumstances described in § 1963(m). Some circuits therefore

permit preconviction restraints on substitute assets. But those

courts require a showing that assets forfeitable under § 1963(a)

are unavailable, a showing the government did not make in this

case. See In re Billman, 915 F.2d 916 (4th Cir. 1990), cert.

denied, 500 U.S. 952 (1991).

 See 15 U.S.C. § 1012(b). Obviously, the federal government 5

may prosecute mail and wire fraud committed upon state insurance

regulators, and other criminal exploitation of an insurance

company. See, e.g., United States v. Sylvanus, 192 F.2d 96, 100

(7th Cir. 1951), cert. denied, 342 U.S. 943 (1952) (mail fraud);

United States v. Cavin, 39 F.3d 1299, 1305 (5th Cir. 1994) (fraud

on regulators and policyholders). But in our view, the criminal

forfeiture of policyholder premiums, either without regard to the

payment of insurance claims, or with the assertion of federal

authority to decide which claims to pay, runs a significant risk of

conflict with the McCarran-Ferguson Act's grant of primary control

over the business of insurance to the States.

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receiver on the activities of companies that were not even named in the

indictment. 

4

We are also concerned that the powers assumed by the monitor and

receiver exceeded the statutory authority for preconviction restraints.

The government initially requested appointment of a monitor in response to

defendants' request that the specific initial restraints be relaxed so as

to permit the payment of insurance claims. The government explained that

a monitor was needed in part to prevent "the neglect of the ongoing

businesses." This position appears to reflect a belief that RICO

prosecutors are the proper persons to run defendants' insurance businesses

and to determine which insurance claimants and creditors should be paid.

They are not. Insurance regulation is the prerogative of the States. And 5

if it were not, federal bankruptcy law would provide the proper forum for

distributing the inadequate assets of defendants' failed or neglected

businesses. RICO provides only an in personam forfeiture remedy,

permitting preconviction restraint and postconviction seizure of

defendants' ownership interests in, and any proceeds they have drained

from, the RICO enterprise. The
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government here seemingly lost sight of this statutory limit on its

authority.

III.

For the foregoing reasons, we have vacated the monitor and receiver

portions of the district court's preconviction restraint orders. On

appeal, appellants further argue that the monitor's investigatory powers

afforded the prosecution an improper discovery and evidence-gathering tool,

and violated the Intervenor Companies' Fourth Amendment rights. Although

these are legitimate concerns, we are satisfied that the district court

properly took them into account, and we reject these contentions. 

This opinion finally disposes of these appeals. Our orders of

December 22, 1995, and January 16, 1996, remain in effect. The remainder

of our mandate shall issue forthwith.

A true copy.

Attest:

CLERK, U. S. COURT OF APPEALS, EIGHTH CIRCUIT.