Source: https://lawprofessors.typepad.com/whitecollarcrime_blog/forfeiture/
Timestamp: 2019-04-20 13:02:12+00:00

Document:
Consider the facts of Luis. There the government established probable cause to believe that the defendant obtained more in illegal proceeds than she currently possesses.
Under Luis, she can use her innocent/substitute assets to pay her attorneys a reasonable fee. But under Billman and its progeny the relation-back doctrine of 853(c) applies to all of those innocent/substitute assets such that, if she is convicted, the government’s ownership interest in all of her assets will be deemed to have vested before she paid her attorneys.
Therefore, if she is convicted, the government can forfeit all funds paid for legal services, despite that a court authorized those payments under the Sixth Amendment.
Section 853(n) does not help because the lawyer’s right vested after the property became forfeitable and because the lawyer had reason to believe that the property was subject to forfeiture. And since forfeiture is mandatory, the court could not exempt those funds from forfeiture.
This would create the same Sixth Amendment problem that Luis solved—people being unable to use their innocent assets to hire counsel. It would also force lawyers to take such cases on contingency, which is ethically improper.
Here are the government and defense briefs and Judge Howard's opinion. U.S. v. Chamberlain - Gov Application Restraining Order, U.S. v. Chamberlain - Response in Opposition to Gov Motion for Restraining Order, U.S. v. Chamberlain-Government's Reply Memorandum, U.S. v. Chamberlain-Defendant's Sur-Reply, U.S. v. Chamberlain-Order Granting Government's Motion.
Judge Howard's Order is being appealed to the Fourth Circuit.
In Kaley v. United States (12-464, decided February 25, 2014) (see here), the Supreme Court by a 6-3 vote extended the rulings of United States v. Monsanto, 491 U.S. 600 (1989) and Caplin & Drysdale v. United States, 491 U.S. 617 (1989) by determining that a grand jury finding of probable cause that a federal defendant committed a crime was conclusive in any effort by that defendant to secure funds out of temporarily restrained assets to hire a private attorney of his choice. A defendant seeking release of funds may still be able to challenge the grand jury determination that there was probable cause that the assets seized resulted from or were involved in the purported criminal activity, but not that the activity was criminal.
The opinion, written by Justice Kagan, exalts the inviolability of the grand jury and demonstrates a naive misunderstanding of (or lack of concern about) the reality of its role in the determination of probable cause, ignores the presumption of innocence, and denigrates the importance of independent defense counsel in the criminal justice system. It tilts the playing field of justice in the government's favor by giving the government, in some cases, the option to deprive the defendant of the counsel he has selected or intends to select.
Essentially, the premise of the opinion is that since grand juries historically have the unreviewable power to determine probable cause to indict and require a person to stand trial and thus derivatively to deprive him of pre-trial liberty, they similarly have the power derivatively to deprive him of his right to counsel of choice. Justice Kagan, worrying that a different decision would be incongruous and unsymmetrical, seems more concerned with the effect of the decision on the pillars of architecture of the criminal justice system than the pillars of justice and fairness.
The underlying (but unspoken) foundation of the opinion is essentially fraudulent: the legal fiction that federal grand juries actually make independent, considered determinations of probable cause necessary to indict. Every experienced federal prosecutor, defense attorney, or judge knows otherwise; grand juries, especially federal ones, are virtually invariably merely "rubber stamps" for the prosecution. The government -- not the grand juries -- makes the actual decision who and for what to indict.
Former New York Court of Appeals Chief Judge Sol Wachtler famously said, "A grand jury would indict a ham sandwich" -- referring to a grand jury in a state where prosecutors are constrained because they know that judges are mandated by law upon defense motion to review the grand jury minutes to determine whether the evidence presented was legally sufficient and to dismiss the indictment if not, and where hearsay evidence is not admissible. In contrast, in federal courts, as stated in Kaley (quoting United States v. Williams, 504 U.S. 36, 54 (1992)), "a challenge to the reliability or competence of the evidence supporting a grand jury's finding of probable cause will not be heard" (and an indictment may be, and sometimes is, based wholly on hearsay, often from a single government agent). A federal prosecutor thus has no such constraint as his New York State counterpart; he knows that no matter how flimsy or inadmissible the evidentiary basis for an indictment may be, that basis is unchallengeable. Thus, if a New York State grand jury would indict a ham sandwich, a federal grand jury would indict a slice of bread.
[F]ew things could do more to undermine the criminal justice system's integrity than to allow the Government to initiate a prosecution and, then, at its option, disarm its presumptively innocent opponent by depriving him of his counsel of choice -- without even an opportunity to be heard. . . . [I]t is fundamentally at odds with our constitutional tradition and basic notices of fair play. . . .
The issues presented here implicate some of the most fundamental precepts underlying the American criminal justice system. A person accused by the United States of committing a crime is presumed innocent until proven guilty beyond a reasonable doubt. But he faces a foe of powerful might and vast resources, intent on seeing him behind bars. That individual has the right to choose the advocate he believes will most ably defend his liberty at trial. . . .
In my view, the Court's opinion pays insufficient respect to the importance of an independent bar as a check on prosecutorial abuse and government overreaching. Granting the Government the power to take away a defendant's chosen advocate strikes at the heart of that significant role.
Following Monsanto, which explicitly left open the question as to whether a hearing on the provenance of seized funds was required, the federal courts divided on the issue. Some prosecutors had chosen to allow defendants to pay from restrained funds reasonable and legitimate fees to counsel of choice. Most had done so in order to avoid giving the defendant a preview of their case; others had done so out of respect for the constitutional right to counsel and a robust adversary system -- a right apparently not as much respected by the Court majority -- and a preference for a fair fight where the accused is not hampered by denial of his choice of counsel.
The elimination of the requirement in many courts for what was called "a Monsanto hearing" (a term likely to be soon forgotten) will undoubtedly eliminate, or at the very least severely limit, the opportunity for defendants in federal courts to pay counsel of choice from seized funds. Prosecutors who had chosen to allow defendants to pay counsel from restrained assets in order to avoid discovery of their cases will no longer have that reason to do so. Those who used the avoidance of discovery as a cover out of respect for the constitutional right to counsel of choice or the adversary system will no longer be able to do so. Pre-trial forfeiture claims will now in some cases offer a prosecutor a potential bonus beyond the stated goals of depriving a defendant of wrongfully-gained assets and using them for governmental purposes -- the elimination of a top-notch adversary. Thus, there is now a tactical trial benefit to the prosecutor to institute pre-trial asset restraint. In white-collar cases, where the prosecutor often knows who will probably represent the defendant from pre-indictment discussions, his determination to seek pre-trial restraint may be affected by whether he likes or dislikes the attorney, whether the attorney is dogged and aggressive, or whether the attorney is likely to give the defendant a better chance of success than a replacement.
The Kaley decision will also have a severe harmful effect on the finances of an already financially-distressed private middle-class (other than big-firm) criminal defense bar, which will (as will large firms) be deprived of a considerable number of well-paying clients because of lack of available assets outside of those seized. Defendants -- generally either drug or white-collar defendants, those who had a considerable amount of money prior to pre-trial seizure -- will be deprived of representation by the most experienced and successful criminal defense lawyers. They will be represented by court-appointed public defenders, institutional or private appointed attorneys, or less expensive private attorneys -- often, but not always, experienced, dedicated and able, but generally less so than high-profile, high-paid private attorneys, and almost always with more cases and clients and less time and resources to devote to them than well-compensated private attorneys (and it is unlikely that government funding will be increased to provide public defenders those resources). The ability, energy and knowledge of who represents them will often depend on the luck of the draw from assigned counsel lists, rather than their considered choice. The gulf between counsel of choice and public defenders is greatest in white-collar cases since few public defenders have experience in these cases, or ample resources to defend them.
As Chief Justice Roberts said, "The possibility that a prosecutor could elect to hamstring his target by preventing him from paying his counsel of choice raises substantial concerns about the fairness of the entire proceeding." Just as a basketball team opposing the Miami Heat might choose, if it could, that LeBron James sit out the game, so too a prosecutor, if he could, might now choose to seek pre-trial restraint to keep a first-rate private lawyer on the bench.
On Friday, the Second Circuit held that 18 U.S.C. Section 982(a)(2) requires forfeiture of the gross receipts of a criminal violation, rather than the mere profits. The case is United States v. Peters.
It is hard to argue against the idea of criminal forfeiture; fairness demands that one convicted of a crime give up his ill-gotten gains. A recent article in the New York Times seemed to give its full unstinting approval to federal asset forfeiture (see here).
However, asset forfeiture, aside from its several unfair procedural aspects, has its downsides. It has to an extent diverted prosecutorial resources from investigation and prosecution of more serious cases to "sitting duck" targets involved in lucrative but arguably harmless violations of law, such as offshore gambling enterprises.
And, primarily because of pre-trial restraints, it has, with the 5-4 imprimatur of the Supreme Court in Caplin & Drysdale v. United States, 491 U.S. 617 (1989), and United States v. Monsanto, 491 U.S. 600 (1989), turned the presumption of innocence on its head and allowed pre-trial restraint of funds to leave many defendants without sufficient funds to hire experienced, able (and often expensive) counsel of choice. While court-appointed counsel assigned to represent those now-indigent defendants are generally competent or better than competent, they often lack the experience, resources, aggressiveness and time to provide a first-rate defense. Thus, asset forfeiture often tilts the board in the prosecutor's favor.
Prosecutors are obviously aware that broad pretrial restraint of assets may skew the results of a litigation by preventing the defendant from hiring top-notch counsel. While I do not believe that prosecutors often seek pre-trial restraint for that reason, eliminating experienced and able counsel is an obvious byproduct of many such restraints.
Even in New York State, where the Legislature has, alone among the 50 states, specifically provided for expenditures of seized funds to pay reasonable legal fees, some prosecutors, notably the New York County District Attorney, have taken a strong position, "play[ing] hardball" in the words of a senior forfeiture prosecutor, against release of seized funds for legal fees to private counsel. In New York County, a defendant seeking release of restrained funds for private counsel must initially fill out a sworn 40-page detailed financial questionnaire to demonstrate her lack of access to funds for legal fees. On the other hand, a defendant in New York County who seeks assigned counsel paid for by public funds needs only to say he cannot afford counsel, and such a statement is rarely questioned.
The District Attorney in New York and many places elsewhere receives a portion of forfeited funds; thus, he has an extra incentive to fight the release of funds for private counsel, as well as to prosecute those with substantial assets. An objective observer might question whether the crucial decision whether to prosecute should be made by one with a financial interest in the proceeds of the prosecution. Compare Tumey v. Ohio, 273 U.S. 510 (1927) (conviction at trial by magistrate/mayor where municipality retains part of fine proceeds violates due process).
What If Ruth and Bernie Madoff Had Divorced?
White-collar defense attorneys are often asked by clients accused of or investigated for theft or fraud, or by their client’s spouses, what could be done to protect the spouse financially. My advice had always been for the spouse to seek advice from a knowledgeable and independent debtor-creditor attorney. As a result of the New York Court of Appeals ruling in CFTC v. Walsh last week, my current advice is to consult with a knowledgeable and independent matrimonial attorney.
In that case, the CFTC and SEC attempted to claw back from a divorced "innocent spouse" funds allegedly stolen by her ex-husband that she received in a divorce settlement. The state court, basing its decision largely on issues of finality and fair consideration (and perhaps that a different ruling would disproportionately harm women), ruled that a wife uninvolved and unaware of her husband’s criminality could not be required to disgorge the proceeds to the theft victims.
The case came to the New York court in a peculiar posture. The federal Second Circuit Court of Appeals referred the case to the New York State court to answer two questions of law, one of which the state court modified before answering.
I am far from sure that the Second Circuit will be comfortable ratifying the state court’s ruling, which I personally find questionable on both logical and policy grounds. If, however, the Second Circuit does accept the state court’s reasoning and precludes disgorgement from the wife, fraudsters fearful of eventual apprehension and considerate of their spouses might seek or encourage divorce to assure the spouse’s secure financial future. And if Bernie and Ruth Madoff had been divorced before Bernie’s fraud was revealed, under such a ruling Ruth Madoff (presumably an "innocent spouse") would now be a very, very, very rich woman.
Here is the SDNY's press release regarding the civil forfeiture complaints filed yesterday against property "traceable" to Bernard Madoff's Ponzi scheme "and paid to or on behalf of" former Bernard L. Madoff Investment Securities LLC ("BLMIS") employees, Annette Bongiorno and Joann Crupi. Here is the Bongiorno-related complaint and here is the Crupi-related complaint.
It is clear from the complaints that the government believes Bongiorno and Crupi were knowing participants in Madoff's fraud. They each allegedly "knowingly perpetuated the fraud" by, among other things, overseeing, preparing, or assisting in the preparation of fabricated account statements and other documents.
By proceeding civilly against the properties at this time, the government lowers its burden of proof and puts the longtime, back-office BLMIS employees in the unenviable position of possibly incriminating themselves if they seek to retain their assets through the in rem forfeiture litigation. Hat tip to forfeiture expert David B. Smith of English and Smith for pointing out to me that invocation of the Fifth Amendment in the context of a civil forfeiture proceeding may not automatically result in the drawing of an adverse interest.
Over the last ten years, and particularly as a result of the indictment of prominent Miami Attorney Ben Kuehne, criminal defense counsel have had cause to be concerned that they could be the subject of prosecution solely for taking a legitimate legal fee. In this morning’s presentation by Jane Moscowitz and Martine Pinales, lawyers found reasons to be hopeful that such fears may be overblown, at least as to potential prosecution. Forfeiture of fees, on the other hand, remain a significant concern.
The Kuehne prosecution is an instance of ideology trumping common sense. Benedict P. Kuehne is the most unlikely of government targets. As Jane Moscowitz, who is one of his attorneys observed, Ben is the best of all of us. He is not just a leader of the bar—having been the President of the Miami-Dade County Bar Association and a member of the Board of Governors of the Florida Bar—he has devoted countless hours to pro bono activities on behalf of organizations representing the interests of African-Americans, Hispanics, Gays and others. He was also one of Al Gore’s principal attorneys during the Florida recount. Not surprisingly, he was Roy Black’s choice for counsel when Roy Black needed an attorney to vet the legal fees he was to be paid to represent notorious Colombian cartel leader Fabio Ochoa.
Roy Black was ultimately paid $5 million for his representation of Ochoa. Ben Kuehne earned approximately $175,000 for vetting this fee. Ben was indicted for conspiracy to launder, what the government recognized, and the indictment stated, was a bona fide legal fee. This is despite the fact that the money laundering statute 18 U.S.C. Sec. 1957 contains a specific exemption for the receipt of funds necessary to preserve the Sixth Amendment. It was the government’s position before the District Court and just recently before the Eleventh Circuit in their appeal from the dismissal of this count, that the decision of the Supreme Court in Caplin and Drysdale nullified this exemption. The district court, however, was persuaded that it was the intent of Congress to protect counsel from prosecution, even if attorney’s fees could be forfeited. It appears from the tenor of the oral argument, which I was present to see, that the government’s theory is being met with the same level of skepticism that it received by Judge Cooke.
Martin Pinales discussed his experience dealing with government efforts to seize legal fees. Even in instances where the AUSA states that she has no intent to seize fees, counsel can be faced with a post trial effort by the government’s money laundering/forfeiture counsel to claw back those fees. Strategies were discussed for dealing with that problem. One way is to be paid by a third party from monies totally unconnected to any alleged criminal activity. Where money is obtained from the defendant, it is important to insure that the money did not come from any source named in a forfeiture count. And counsel should do due diligence even as to assets that could be later characterized as a substitute asset. It was also important to have your retainer agreement tie fees received to services provided. Where the funds are clearly substitute assets, counsel who takes these steps will have a better chance of demonstrating that they are bona fide purchasers for value in later forfeiture proceedings.
During the seminar, other important issues were raised. In many districts, counsel do not have to worry about their fees if their clients cooperate. Doesn’t that create a conflict of interest? You can charge a flat fee so long as you can demonstrate that it was earned. But don’t call it non-refundable (unless you practice in Florida, but it still has to be reasonable). The final irony, and outrage, discussed was the fact that the indictment against Ben also includes forfeiture count. The government is seeking to forfeit from Ben, the $5 million that Roy Black received.
I was recently hired to do something different in a federal criminal case, represent a third party claimant in a criminal forfeiture proceeding. After the defendants pled guilty in a large fraud case, items of their real property were criminally forfeited to the government. As you may know, federal forfeiture statutes attempt to protect innocent lien holders (claimants) in these circumstances, but in doing so, impose strict requirements. A very recent Eleventh Circuit Opinion, U.S. v. Marion, required full compliance with the statute as a condition of a claimant obtaining relief.
Bottom line: Federal statutes setting forth time or technical requirements must be fully reviewed and complied with before any claim thereunder is filed. In 2007, the U.S. Supreme Court in Bowles v. Russell dismissed an appeal in a death case because the petition was three days late. Marion follows that trend. Potential serious consequences loom for those who do not understand and comply with the dictates of these laws.
The criminal forfeiture order, negotiated between the defendant and the government w/o input from the victims as guaranteed by the CVRA (see 18 USC 3664(d) and FedRCrimP 32(i)(4)(B)), ensures Mrs. Madoff a couple of million to live on for the rest of her lonely life. It takes all of the defendant's assets and makes them property of the United States. (It also disregards the binding Santos definition of "proceeds," but never mind that.) By leaving the defendant with nothing, it prevents him from making restitution to any victim (although he can and will be ordered to make restitution, he won't have a penny other than prison earnings with which to comply). While a victim can apply to the Attorney General for a partial "remission" of the forfeiture (see 21 USC 853(i)(1)(incorporated by reference into other forfeiture laws), there are no governing standards, no due process, and no judicial supervision -- it is 100% in the discretion of the DOJ. Section 3572(b) of title 18, however, prohibits the judge from ordering any "financial penalty" (which would include criminal forfeiture) if doing so would impair the ability of the defendant to pay restitution. On that basis, I believe the forfeiture order in Madoff's case is illegal. I wonder if any victim will take that position and file a mandamus under the CVRA ((3771(d)(3) & FedRCrimP. 60 (b)(5)(B)) against it?
The Preliminary Order on Forfeiture has been issued. See here. Commentary to follow.

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