Opinion ID: 4537743
Heading Depth: 2
Heading Rank: 2

Heading: The NASD Arbitrations, Criminal Indictments,

Text: and Criminal Forfeitures and Penalties In 2002, after the value of the Adkinses’ investments had fallen below $10,000, Mr. Adkins conducted some research and realized that he was being defrauded. Id. at 302. Shortly thereafter, on February 7, 2002, the Adkinses submitted a statement of claim to the NASD in support of their demand for arbitration against Donald & Co. and David Stetson, Slava Volman, and Steven Ingrassia (collectively, the “named principals”), three of the four principals at Donald & Co. Id. at 303. The Adkinses alleged that the respondents manipulated the value of the MyTurn stock, causing the Adkinses to incur substantial losses. Id. The Adkinses did not include Marc Freeman (the remaining principal at Donald & Co.), Robert Kozak (an employee of Donald & Co.), or Otto Kozak (collectively, “the Kozaks”) in their complaint. Id. The Adkinses represented that they did not include Freeman because they did not believe he was actively involved in any of their MyTurn stock trades, Case: 19-1356 Document: 37 Page: 7 Filed: 05/29/2020 ADKINS v. UNITED STATES 7 or that he had any substantial role in the fraudulent scheme. Indeed, Mr. Adkins testified that he did not know who Mr. Freeman was. J.A. 1733 (“[Mr. Adkins]: I didn’t know anything about Marc Freeman whatsoever. He wasn’t involved in my case. As far as I knew, he wasn’t involved in the stocks I dealt with.”). See also Adkins v. United States, No. 19-1356, Oral Arg. at 5:35–6:33, available at http://oralarguments.cafc.uscourts.gov/default.aspx ?fl=2019-1356.mp3 (“[Freeman’s] name appeared on maybe a few trading slips but [Mr. Adkins] never really knew who he was . . . [Mr. Adkins] went after [Stetson, Volman, and Ingrassia] and not the lesser players. His view was that Mr. Freeman was not a very important part of the scheme.”). Mr. Adkins explained that they decided not to add the Kozaks to their arbitration claim because Otto Kozak had advised Mr. Adkins and their arbitration attorney that they “didn’t have any money.” Adkins II, 140 Fed. Cl. at 303. Indeed, when Otto Kozak and Robert Kozak were eventually brought to court in 2004 in connection with the criminal proceedings against them, attorneys were appointed for them pursuant to the Criminal Justice Act of 1964, which provides for the appointment of counsel “for any person financially unable to obtain adequate representation.” Id. at 303–04; see 18 U.S.C. § 3006A(a) (2000). On March 24, 2003, one of the Adkinses’ arbitration attorneys sent a letter to the NASD, requesting that the NASD adjourn the arbitration hearing scheduled for April 1, 2003. Id. at 304. The letter explained that Donald & Co. “ha[d] not responded fully to [the Adkinses’] demands for discovery and [was] no longer in business.” 3 Id. He explained that the Adkinses needed additional time for discovery in order to proceed with the hearing. The letter 3 Mr. Adkins testified that Donald & Co. had not re- plied at all to the Adkinses’ discovery requests. Adkins II, 140 Fed. Cl. at 304 n.16. Case: 19-1356 Document: 37 Page: 8 Filed: 05/29/2020 8 ADKINS v. UNITED STATES explained, moreover, that Mr. Adkins had been contacted by the Department of Justice, which was investigating Donald & Co. and certain persons associated with it. Id. The Adkinses had been informed that “an indictment [would] be handed down in the case” and were told that the U.S. Attorney would ask that “all civil litigation involving Donald & Co., including arbitrations, be stayed pending disposition of the criminal case.” Id. Based on the circumstances described in the NASD letter, the Adkinses’ arbitration attorneys advised their clients that their claim likely would be forestalled based on the pending indictment and that, without discovery, the arbitration could not proceed. Id. The attorneys suggested, however, that the Adkinses leave their arbitration claim open in case the criminal proceedings revealed pertinent information that might enhance their arbitration position. Id. Mr. Adkins did not object to this suggestion, but informed his attorneys that, while awaiting the indictments, he “wasn’t going to pay them anymore and there’s no real need to pursue it.” Id. In May 2004, a federal grand jury in the Eastern District of New York returned the first of the predicted indictments against several principals and employees of Donald & Co, including Ingrassia, Volman, and the Kozaks, for “conspiracy to commit securities fraud” and “securities fraud related to the Elec and Classica stocks.” Id. at 305. There was no charge in the indictment pertaining to fraud with respect to the MyTurn stock. Id. Ingrassia and Volman were also indicted for money laundering. Id. The indictment contained two criminal forfeiture allegations. Id. The first, which pertained to the securities fraud charges, indicated that the government intended, upon the criminal defendants’ convictions, to seek the forfeiture “of any property constituting or derived from proceeds obtained directly or indirectly as a result of such offenses” pursuant to 18 U.S.C. Case: 19-1356 Document: 37 Page: 9 Filed: 05/29/2020 ADKINS v. UNITED STATES 9 § 981(a)(1)(C) and 28 U.S.C. § 2461(c), or if necessary, the forfeiture of substitute property pursuant to 21 U.S.C. § 853(p). The second, which pertained to the money laundering charges, indicated that the government intended, upon the criminal de- fendants’ convictions, to seek the forfeiture of all property involved in the offenses, as well as all property traceable to that property, pursuant to 18 U.S.C. § 982, or, if necessary, the forfeiture of substitute property pursuant to 21 U.S.C. § 853(p). Id. (internal citations omitted). Marc Freeman was not named in this indictment. After discussing the 2004 indictment with counsel, Mr. Adkins concluded that the criminal forfeiture sections reflected the government’s intention to seize “any document concerning the identity and ownership of the criminal defendants’ assets.” Id. Without these documents, the Adkinses would be unable to prove the existence of a theft loss or locate assets that could be used to reimburse the Adkinses for their theft loss. Id. Mr. Adkins also believed that, based on the indictment, the government intended to seize “all of the criminal defendants’ assets, preventing plaintiffs from attaching those assets to recover their theft loss.” Id. On September 21, 2004, Stetson was charged with “conspiracy to commit securities fraud, securities fraud related to the Classica stock, and money laundering conspiracy.” Id. at 306. Like Ingrassia and Volman’s indictment, Stetson’s indictment contained the same two criminal forfeiture allegations. Id. And, like the prior indictment, there was no mention of the MyTurn stock and no charges against Freeman. Mr. Adkins was told in 2004 of the criminal case against Stetson and the fact that it contained forfeiture counts, but Mr. Adkins did not see the actual charging document until after the 2004 tax year. Id. Case: 19-1356 Document: 37 Page: 10 Filed: 05/29/2020 10 ADKINS v. UNITED STATES In September 2004, Ingrassia and Stetson agreed to plead guilty to securities fraud conspiracy, securities fraud, and money laundering conspiracy. Id. The following month, Volman agreed to plead guilty to the same charges. Id. at 307. Consequently, the named principals received terms of imprisonment and supervised release. Id. The defendants were subject to fines exceeding $1.75 million and mandatory restitution in an amount to be determined later by the court after assessment of all losses incurred regarding the identified stocks. Id. With respect to forfeiture, the three criminal defendants agreed to entry of forfeiture money judgments against them in which Ingrassia would forfeit $100,000, Volman would forfeit $300,000, and Stetson would forfeit $150,000 to the United States. Id. The three criminal defendants’ plea agreements remained under seal until August 26, 2005. Id. Mr. Adkins learned in 2004 from his arbitration attorneys and Otto Kozak, however, that all of the criminal defendants intended to plead guilty. Id. That same year, the named principals were barred by the SEC from acting as brokers or dealers in securities. Id. The Adkinses learned about these SEC orders from their arbitration attorneys in 2004. Id. Mr. Adkins believed that, as a result of these orders, the criminal defendants’ earning power would be cut off. Id. By the end of 2004, Ingrassia, Volman, and Otto Kozak had not paid the Adkinses anything for their losses, and the district court had not entered a restitution order. Id. Criminal proceedings for the other Donald & Co. brokers continued in 2005. In August 2005, the Kozaks agreed to plead guilty to the securities fraud conspiracy and securities fraud charges filed against them. Id. at 307–08. Otto Kozak was sentenced in July 2006 and ordered to pay restitution in the amount of $631,482.26. Id. at 308. Robert Kozak was sentenced in August 2006 and ordered to pay restitution in the amount of $231,641.80. Id. Like the Case: 19-1356 Document: 37 Page: 11 Filed: 05/29/2020 ADKINS v. UNITED STATES 11 named principals’ indictment, the Kozaks’ indictment did not mention MyTurn stock. Id.; J.A. 1410. In August 2005, Freeman—the only principal of Donald & Co. not charged in the 2004 indictments—was charged with conspiracy to commit securities fraud, securities fraud, and money laundering conspiracy. Adkins II, 140 Fed. Cl. at 307. Freeman’s indictment did not mention MyTurn stock. Id.; J.A. 1410. Freeman agreed to plead guilty to all three charges, to forfeit $50,000 to the United States, and to pay restitution in the amount of $4,243,858. Adkins II, 140 Fed. Cl. at 307. The named principals were sentenced a few years later. Ingrassia was sentenced in December 2009 and directed to pay restitution in the amount of $4,243,858.44. Id. at 308. Stetson was sentenced in March 2011 and directed to pay restitution in the amount of $3,590,466.50. Id. Volman was sentenced in July 2012 and directed to pay restitution in the amount of $3,590,466.50. Id. Despite these substantial judgments, however, the criminal defendants made almost no payments toward restitution. By the time Otto Kozak passed away in April 2011, he had made restitution payments totaling $255. Id. And as of January 28, 2014, the named principals and Freeman had paid a combined total of only $7,093.27 toward their obligations. Id. In an August 12, 2005 letter to the Adkinses, the Victim Witness Coordinator from the United States Attorney’s Office (“USAO”) advised them of the charges filed against the Donald & Co. brokers and the Adkinses’ “right to full and timely restitution as provided in law.” Id. The Adkinses decided that they did not want to be officially identified as victims, however, because (1) the indictment did not mention MyTurn stock, which represented the vast percentage of their losses; and (2) the Adkinses wanted to avoid any accompanying embarrassing public exposure. Id. Accordingly, they were not included on the victim lists submitted to the federal district court for purposes of Case: 19-1356 Document: 37 Page: 12 Filed: 05/29/2020 12 ADKINS v. UNITED STATES receiving restitution with respect to their Classica and Elec stocks. Id. at 308–09. As the case stands, “[c]urrently, there are no funds available from the convicted Donald & Co. brokers to pay restitution to plaintiffs.” Id. at 310. None of the named victims of the Donald & Co. pump-and-dump scheme have been fully reimbursed for their losses; indeed, none have received anything more than de minimis reimbursement and there is no evidence that the convicted Donald & Co. brokers or principals possess assets sufficient to pay restitution or any judgment against them. Id. The Adkinses do not have “insurance or [any] other vehicle for recovery for [their] loss.” Id.