As readers who waste some of their lives reading this blog know all too well, we have two court systems in this country where criminal cases arise: the federal system that is in all 50 states, and the separate systems used in each of those 50 states (plus the District of Columbia, Puerto Rico, Guam and a few other smaller locations).  Asset forfeitures arise in both federal criminal cases as well as the counterpart state criminal matters that I regularly handle in the Georgia court system. While there are many parallels, there also are some differences.

Asset forfeiture is the process by which the government basically takes property, and says that the property belongs to the government because that property was used in,  derived from, or is replacement of property used in or derived from a crime.  The legal theory behind forfeiture is that the property reverted over to the government at the very point when the criminal conduct took place.  As with many parts of the law, the theory and the practice are often very different.

I see a couple of recurring themes in asset forfeiture matters.  One thing that occurs regularly is that the asset forfeiture is more and more becoming a part of the criminal case itself.  The paper that is linked above describes this process.  I see this more and more in federal criminal cases, especially economic crimes like healthcare fraud, white collar crimes and public  corruption crimes such as bribery.  Asset forfeiture is a matter that more and more federal criminal defense lawyers need to keep in mind.  A “deal” in a federal criminal case might not look as good if the client comes to find out that he or she needs to forfeit a substantial amount of money along with going to prison for a while.  Furthermore, more and more federal criminal cases include multiple financial punishments along with prison time or even if the client receives probation.  We see an increasing number of federal criminal cases in which the Judge imposes forfeiture of assets, a fine, AND restitution, which seems like an unnecessary triple punishment from my vantage point.

Another thing I see more and more often is that a Defendant who pleads guilty to a federal economic crime is required to agree to complete “financial disclosure.” The paper linked above has an example of a federal plea agreement that required the Defendant to provide all documents and sit for a financial deposition.  This can be very dangerous, a government lawyer asking my client about his or her finances right after that same client just pled guilty to committing an economic crime.  You can imagine that some clients try to protect their assets from being used to pay a fine, forfeiture or restitution, yet at the same time a false statement can ratchet up the prison time for that client.  This requires a lot of work by the federal criminal defense attorney when advising a client in such a situation.

Asset forfeiture in Georgia state cases is often more straightforward than the federal cases I handle.  For one thing, Georgia more or less requires a full civil trial before the State can forfeit an asset (unless, of course, the Defendant agrees to pay that asset as part of an overall settlement and plea agreement).  However, these civil trials are only in front of a Judge, and a jury therefore cannot protect an aggrieved property owner from whom the State has taken property.  Also, the State rarely has Assistant District Attorneys who are as well-schooled in the intricacies of asset forfeiture as are the federal Financial Litigation Unit attorneys I see on a regular basis in my federal matters.  This often gives defense counsel a slight advantage in State court cases.

Raul Gutierrez committed fraud when constructing the airport on the island nation of Trinidad and Tobago, and somehow the decidedly unfriendly federal prosecutors were able to bring federal criminal charges against him in south Florida.  Raul pled guilty in 2006, and as I have discussed on earlier occasions, the Judge imposed the usual financial penalties, such as restitution, along with a hefty prison sentence.  Raul had some real estate in Florida, the judge “forfeited ” the property, and later the nation of Trinidad and Tobago wanted to get the land as a “victim” of the offense.  Time passed, the island got the judge to let them weigh in on whether they could go after the property, and then, a magical thing happened.  A company that was once associated with our friend Raul claimed that they held a “security interest” in the property, even though no one had ever mentioned this million dollar “interest” nor recorded it in the preceding decade.  In other words, years later, friends of Raul claimed they held a piece of paper that said they had a superior interest in the particular piece of real estate.

The U.S. government and the island nation smelled a rat, and asked for a trial.  The Judge decided to split the trial into two parts: first, a trial on whether the document was “authentic”, and if so, what impact that had on the real estate.  The Judge said the document did not pass the smell test (was not authentic) , and that the holder of the document had no rights to the property. The beneficiaries of the document appealed, and the 11th Circuit affirmed.

The important part of the case discusses how the trial judge is basically the fact finder on whether a particular piece of evidence can be used.  Here, the islands’ lawyers pointed to the supposedly suspicious nature of the document, including that it was never previously recorded nor mentioned, that the person who found it supposedly made a previously inconsistent statement, and perhaps most importantly, that Mr. Gutierrez’s credibility was suspect.  In other words, when one side presents a document or piece of evidence, the trial judge is almost always the final word on whether that item can be used as evidence in a federal trial.

The Court of Appeals kind of criticized the trial judge for using the wrong standard of admissibility, but then came to the same result using the old “harmless error” rule.  To be clear, the appellate court reminded all of us that the standard for deciding authenticity is whether the proponent of the item presents “‘sufficient evidence to make out a prima facie case that the proffered evidence is what it purports to be.”  Then, “the ultimate question of authenticity of the documents is left to the fact-finder.”  In other words, if you cannot convince the trial judge that the item is real, you are not going to get that item into evidence.  Kind of seems obvious, but too many lawyers forget this rule, and fail to get crucial evidence into court.

Forfeiture is a very old concept we inherited (like so many legal principles) from ancient English law.  The basic idea is that if property is used in or obtained from criminal conduct, the King could take the property.  They created a legal fiction by which title to the property actually turned over to the King at the point when the crime happened.

Fast forward to our incredibly bad War on Drugs beginning back in the 1970’s. Congress began re-tooling the ancient forfeiture concepts to let federal prosecutors go after dope dealers’ assets.  That is all fine and good, in theory.  However, many readers know that law enforcement and government officials began taking these rules to the extreme, taking property barely associated with a crime or taking money far greater than what was involved in any crime.  The United States Supreme Court recently heard arguments in a case out of Indiana exemplifying this issue.  Justin Timbs carried some drugs in his Range Rover and got caught.  The maximum fine for the crime was $5,000, but the state prosecutors seized and forfeited the $42,000 vehicle.  Oh yeah, Mr. Timbs proved that he bought the Range Rover with the money he got from his Dad’s life insurance policy.  Here is the usual excellent analysis from Scotusblog.com describing the case and the issues involved.  

Criminal forfeitures generally involve the property used in a crime.  Sometimes, prosecutors go after property that is called a “substitute asset.”  Under this theory, for example, the prosecutor claims that a business person received a million dollars as part of a fraud.  However, that million dollars was moved through business bank accounts, often being used to pay ongoing and regular business expenses.  Those specific “dollars” are gone, so under the substitute assets statute, a federal prosecutor can go after the Defendant’s other assets of an equal value.

Criminal defense attorneys who regularly handle federal cases are often called on to provide advice or guidance long before trial to their clients who may face potential forfeiture of substitute and other assets.  If the person has been formally notified he or she will or already has been indicted, the attorney cannot counsel the client to hide or impermissibly transfer assets.  Alternatively, if the client seeks legal counsel at an early enough phase of the matter so that charges have not yet been filed, then the lawyer very well may provide advice for moving assets so as to better protect the client.  Another one of the Supreme Court’s forfeiture cases, Kaley v. United States, involved some clients who did exactly that.  The lawyer’s advice was sound, but the prosecutors were nevertheless allowed to “restrain” the substitute assets prior to the trial.  Those same lawyers went back to the Supreme Court two years later and won a case that says prosecutors cannot restrain ahead of trial assets that have nothing to do with the crime.

Criminal forfeiture of assets is becoming a regular feature of federal criminal practice.  Anyone involved in such a matter, whether as part of an investigation or defending an actual case, needs advice from legal counsel who is familiar with this growing area of the law and how forfeitures impact the defense against the criminal charges themselves.

As a quick recap, the Kaleys were under federal investigation. They denied they had done anything wrong, so they went looking for a great federal criminal defense lawyer. As we know, specialists are expensive, and lengthy white collar federal criminal cases chew up lots of time, energy, and money. The Kaleys therefore borrowed $500,000, and stuck it into the bank to fund the fight for their lives. The feds got an indictment, but also wanted to “forfeit” all of the Kaleys’ assets, including the half-million sitting in the bank. Prosecutors got an order from the judge freezing the money in the bank, and this happened right after the indictment was issued, meaning the Kaleys do not have access to these funds to defend themselves at trial. The issue before the Supreme Court is whether they at least have a right to a hearing before the trial in order to challenge the freezing of the assets, or whether the mere fact that a grand jury issued an indictment based on probable cause is sufficient to justify holding their money.

The justices started off with hard questions for the very capable lawyer representing Mr. and Mrs. Kaley. They noted that a grand jury’s finding of probable cause has long been sacrosanct, and pointed out that an indictment results in a presumption that certain defendants should be detained without bail pending trial. A few questions from the justices noted that the Kaleys’ position would lead to an anomaly: even thought a grand jury found probable cause for the indictment, what is the judge supposed to do at a pretrial hearing on the restraint of assets if the judge concludes there was NOT probable cause? Justice Ginsburg wondered what the trial judge is supposed to do in that situation.

There were additional questions directed to the Kaleys’ attorney. Justice Alito looked at the additional work caused by and possible damage from a pretrial hearing. For example, Alito wanted to know if Defendants could subpoena witnesses or require the government to disclose the names of its witnesses at such a proposed pretrial hearing. Justice Kagan noted that the courts that allow such hearings over the past 25 years have just about always ruled for the government, so she wondered, “what are we going through all this rigamorole for?”

It did not get any easier when the lawyer for the government stepped up to the podium. The Chief Justice quickly suggested that this case might be different because it went to a Defendant’s ability to hire counsel of his or her choosing to keep him or her out of jail. Justice Breyer seemed sympathetic with this point, noting that the Kaleys’ case is “pretty complicated” and that they can’t fight the charges “without a good lawyer.” Justice Scalia wondered why, when the government is freezing the assets that a defendant needs to hire his counsel of choice, courts can’t require more than probable cause.

A few members of the Court appeared unconvinced by the government’s claim that the costs of the additional hearing to the government dwarfed the benefits to the defendant. When talking about the fact that most such hearings appear to go in favor of the prosecution, the Chief Justice pointed out that “it may be that the government believes it isn’t worth it to go through” with the hearing in some cases. When the government lawyer asserted that the government needed to freeze the assets so that they can be used to pay restitution, the Chief Justice responded that “there are no victims in this case.” Justice Anthony Kennedy looked to the fact that courts already hold pretrial detention hearings, where the weight of the evidence is used in part to determine whether or not the Defendant can be released on bail. Kennedy suggested that if judges are already making those determinations in the detention context, why can’t they do them with regard to asset freezes?

Again, this is an important decision we will continue to follow.

Ms. Kaley was in the business of selling medical equipment. She and her husband apparently made a good living selling equipment that certain manufacturers no longer wanted. The federal authorities claimed these practices were fraudulent, and indicted the couple. Prosecutors also filed an ex parte request to restrain and freeze much of the couple’s assets, claiming that the money they had in the bank and which they’d used to buy their house was obtained as proceeds of the fraudulent conduct charged in the indictment. A Federal Magistrate Judge agreed, and issued an order freezing their assets so they could not be used by the couple to defend themselves. The case has had a complex history, with two trips already to the Court of Appeals here in Atlanta before the defense team finally got the Supreme Court to agree to hear the case.

Under 18 U.S.C. §853(e), when a Defendant has already been charged in an indictment the prosector can file an ex parte motion seeking restraint of assets that are subject to forfeiture upon conviction. The law does not specifically allow for a pretrial adversarial hearing where the indicted defendant may challenge the propriety of the restraints.

Back in 1989, the Supreme Court rejected the idea that such pretrial restraint violated either the Fifth or Sixth Amendments. United States v. Monsanto, 491 U.S. 600 (1989). However, a footnote in that case explicitly left open the question as to whether the Due Process Clause requires a hearing before a pretrial restraining order can be imposed. Since that time, the courts have issued contrary rulings resulting in a firmly entrenched split among the eleven circuits that have addressed the issue.

Ms. Kaley’s defense team convinced the Supreme Court to accept her case in order to answer the following question:

“When a post-indictment, ex parte restraining order freezes assets needed by a criminal defendant to retain counsel of choice, do the Fifth and Sixth Amendments require a pretrial, adversarial hearing at which the defendant may challenge the evidentiary support and legal theory of the underlying charges?”

This case has huge ramifications in situations where the feds go after Defendants with enough funds to hire good lawyers, but those attorneys cannot be paid because a judge agrees with the prosecutors to freeze the assets even without hearing from the defense. We will follow the case closely.

Two brothers (we will call them #1 and #2) owned separate jewelry stores here in Atlanta. Brother #1 was caught in an undercover sting operation selling $22,000 in jewelry to a person he thought was a drug dealer. He agreed to accept more than $10,000 in cash from the person he thought was a drug dealer, and also agreed to not file the IRS forms that are required in this situation. Brother #1 was charged with and convicted of money laundering.

The government also charged the corporation that owned Brother #2’s store with similar crimes. This was one of those relatively rare situations where the prosecutors went after a corporate entity. The prosecutors got convictions against the corporation that owned #2’s store based on the fact that some of Brother#1’s dealings were done in the store owned by #2.

The government convinced the trial judge to impose a total financial penalty of over $1.9 million against the corporation that owned the store operated by Brother #2 in a case where Brother #1 sold $22,000 in jewelry to an undercover agent. The judge ordered a $100,000 fine, restitution of $22,000 and forfeiture of the entire jewelry inventory, valued at over $1.7 million.

The corporation appealed to the Eleventh Circuit, sensibly arguing that this financial penalty was grossly disproportionate with the crime and the harm caused by Brother #1. The Court of Appeals disagreed, holding that this was OK because these were serious crimes and Congress had authorized substantial financial penalties in such cases.

This case is a lesson for lawyers who handle serious federal criminal cases. We need to fight not only jail sentences, but also battle against the government’s increasing inclination to try and bankrupt our clients and everyone near them.

Mr. Friske lives in Wisconsin, but his friend (Erickson) got busted in Florida for drug crimes. Law enforcement listened to calls Erickson made from jail to Friske where he asked the latter to do a “repair job” and remove “three things” buried near Erickson’s pool. Agents got there before Friske, and found $375,000 buried in that location. Later, they observed Friske coming away from the pool area, covered in dirt. Friske made some baloney statements to the police, and later conceded he was just “trying to help a friend.”

The government indicted Friske for attempting to obstruct an official proceeding by attempting to hide and dispose of assets involved in a forfeiture case, in violation of 18 U.S.C. §1512(c)(2). The Eleventh Circuit joined other appellate courts by holding there is a “nexus” requirement in this statute which requires a connection between the obstructive conduct and the proceeding in question. Stated another way, “if the defendant lacks the knowledge that his actions are likely to affect the judicial proceeding, he lacks the requisite intent to obstruct.”

The Eleventh Circuit then turned to the evidence in Mr. Friske’s trial. They noted that he certainly acted “suspiciously” in digging around Erickson’s pool shortly after getting the recorded calls. However, there was not one “scintilla” of evidence that in performing these suspicious acts Friske knew of a forfeiture proceeding against Erickson’s property. As a result, the appellate court reversed the convictions based on the insufficiency of the evidence.

We are always pleased to see courts uphold the law and require that prosecutors prove their case. Likewise, we think this ruling makes great sense, so as to prevent the conviction of innocent persons.