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United States v. Swenson

United States District Court, Ninth Circuit

July 1, 2013

UNITED STATES OF AMERICA, Plaintiff,
v.
DOUGLAS L. SWENSON, MARK A. ELLISON, DAVID D. SWENSON, JEREMY S. SWENSON, Defendants.

MEMORANDUM DECISION AND ORDER

B. LYNN WINMILL, Chief District Judge.

INTRODUCTION

Before the Court is Defendant Douglas Swenson's Motion to Dissolve Seizure Warrant (Dkt. 23). The 89-count superseding indictment, returned on May 17, 2013, charges Defendants Douglas L. Swenson, Mark A. Ellison, David D. Swenson, and Jeremy S. Swenson with substantive counts of securities fraud, wire fraud, mail fraud, bank fraud, interstate transportation of stolen property, as well as multiple counts of conspiracy to commit securities fraud, wire fraud, mail fraud, interstate transportation of property taken by fraud, and money laundering.

The superseding indictment also includes two criminal forfeiture allegations. The first forfeiture allegation alleges that at least $169 million in cash, two homes, and approximately $1.5 million in funds held in investment and management accounts at TD Ameritrade, Inc. are subject to forfeiture as (1) property involved in violations of 18 U.S.C. § 1956(h), pursuant to 18 U.S.C. § 982(a)(1); (2), as property traceable to such property, and (3) as proceeds of the violations charged in the Superseding Indictment, pursuant to 18 U.S.C. § 981(a)(1)(C) and 28 U.S.C. § 2461.

Defendant Douglas Swenson moves for an order to dissolve the seizure warrant obtained by the government allowing it to seize Swenson's assets at TD Ameritrade prior to trial. Defendants David and Jeremy Swenson joined the motion. David and Jeremy Swenson also argue that the lis pendens recorded on their homes are improper. For the reasons set forth below, the Court will deny the motion. Defendants may file a motion to return the property under Rule 41(g) of the Federal Rules of Criminal Procedure. The motion must be supported by detailed affidavits showing: (1) Defendants need the funds to retain private counsel, and (2) a substantial basis exists to question the probable cause finding that the seized funds may be subject to forfeiture. If Defendants' affidavits contain sufficient allegations and create a factual issue, the Court must and will schedule a probable cause hearing.

BACKGROUND

The government alleges that Douglas L. Swenson, Mark A. Ellison, Gary Bringhurst, [1] and Swenson's two sons, David D. Swenson and Jeremy S. Swenson, perpetrated a massive securities fraud through their operation of DBSI, Inc. These individuals operated DBSI, a sprawling real estate investment empire comprising hundreds of corporations and properties, until 2008, when various DBSI entities filed for bankruptcy in the District of Delaware. The government alleges that Defendants represented to investors that DBSI was a highly profitable company with a net worth in excess of $105 million, and that it operated a successful business model that minimized risk to its investors yet paid fixed returns as high as 9.5%. In reality, according to the government, the DBSI entities operated as nothing more than an elaborate pyramid or "Ponzi" scheme to defraud DBSI investors.

The government paints Defendants, who each have Master's degrees in Accounting, as sophisticated businessmen who used deceptive accounting practices to conceal DBSI's financial losses and negative net worth. These deceptive practices, says the government, allowed DBSI to represent DBSI's net worth as $105 million in 2007 and 2008, even though DBSI was supposedly insolvent by 2007. The government maintains that, in 2007 and 2008, "virtually all funds coming into DBSI were obtained by fraud, and all funds leaving DBSI were proceeds of fraud." Govt's Resp. at 3, Dkt. 49.

During this period the Defendants allegedly continued taking funds out of DBSI, typically in the form of salaries or distributions, and they deposited these funds into bank accounts held at Key Bank. The Key Bank funds were then transferred into accounts at Washington Mutual Bank and/or accounts held by TD Ameritrade Inc. The Washington Mutual accounts and main TD Ameritrade accounts were held in the names of "Code Six LLC" and "Code Six Trading Co, LLC." The Code Six entities were created one month before DBSI filed bankruptcy. The government says these proceeds, ultimately transferred to TD Ameritrade accounts, are fraud proceeds, and Defendants concealed the Code Six entities, "using them to hide and protect millions of dollars in ill-gotten gains." Id.

On April 9, 2013, the Honorable Candy W. Dale, United States Chief Magistrate Judge for the District of Idaho, issued a seizure warrant authorizing the seizure of all assets held in six accounts at TD Ameritrade, Inc. The warrant was based on the Application and Affidavit of IRS Criminal Investigation Special Agent Keith Tippets. The allegations detailed in Special Agent Tippets affidavit mirrored the allegations contained in the original multi-count indictment.

Based on the seizure affidavit, Magistrate Judge Dale found that the government had met its burden of establishing probable cause to believe that the assets being seized were subject to forfeiture, because each account held funds traceable in whole or in part to DBSI, or to accounts associated with the various Code Six entities, which were created and funded with DBSI monies obtained prior to DBSI's bankruptcy in November 2008. Magistrate Judge Dale also found that the property may not be available for forfeiture unless seized by warrant. The warrant specifically states that the TD Ameritrade accounts were:

Subject to seizure under 21 U.S.C. 853(f) and (l) as incorporated in 18 U.S.C § 982(b)(1) as property which would, in the event of a conviction of the defendants, be subject to forfeiture, and which may not be available for forfeiture unless seized by warrant which property is described as:
Monies, funds, and financial instruments deposited or credited to TD Ameritrade, Inc.... I find that the affidavit(s) and any recorded testimony ...

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