United States District Court, D. Idaho
FINDINGS OF FACT, CONCLUSIONS OF LAW AND ORDER
B. LYNN WINMILL, Chief District Judge.
The Court has before it the Government's Motion for Preliminary Order of Forfeiture (Dkt. 517). The Court has already entered stipulated orders of forfeiture for defendants Mark Ellison, David Swenson and Jeremy Swenson. Thus, the pending motion relates only to defendant Doug Swenson. The Court conducted a forfeiture hearing on June 9, 2014. The parties subsequently filed their proposed findings of fact and conclusions of law, and the Court now enters its Findings of Fact, Conclusions of Law, and Order.
Defendant Doug Swenson was charged with, and convicted of, 34 counts of wire fraud, in violation of 18 U.S.C. § 1343, and 44 counts of securities fraud, in violation of 15 U.S.C. § § 78j(b) and 78ff. He was acquitted of 1 count of conspiracy to commit securities fraud, wire fraud or mail fraud, and 1 count of conspiracy to commit money laundering.
In the Superseding Indictment, pursuant to 18 U.S.C. § 981(a)(1)(C) and 28 U.S.C. § 2461, the Government notified Swenson that it would seek forfeiture of at least $169 million in U.S. currency if he was convicted of the offenses alleged in the Superseding Indictment. Superseding Indictment, ¶ 225, Dkt. 21. The Government also notified Swenson that upon conviction it would seek forfeiture of funds within various TD Ameritrade accounts that it had seized pretrial, and that it would seek substitute assets up to the amount of the forfeiture money judgment pursuant to 21 U.S.C. § 853(p). Id.
Upon return of the jury's verdict convicting Swenson of the wire and securities fraud counts, the Government notified the Court and Swenson that it would seek forfeiture of the TD Ameritrade accounts as substitute assets. The Government then filed its pending Motion for Preliminary Order of Forfeiture, seeking a forfeiture money judgment of $169 million and forfeiture of the seized TD Ameritrade account funds as substitute assets.
CONCLUSIONS OF LAW
1. Title 18, United States Code, Section 981 provides for the forfeiture of certain property to the United States.
2. Section 981(a)(1)(C) provides for the forfeiture of "[a]ny property, real or personal, which constitutes or is derived from proceeds traceable to a violation of... any offense constituting specified unlawful activity' (as defined in Section 1956(c)(7) of this title)...."
3. Title 18, United States Code, Section 1956(c)(7) lists offenses constituting "specified unlawful activity."
4. These offenses include "any act or activity constituting an offense listed in section 1961(1) of this title..." 18 U.S.C. § 1956(c)(7)(A).
5. Title 18, United States Code, Section 1961(1) lists offenses including "(B) any act which is indictable under any of the following provisions of title 18, United States Code... section 1341 (relating to wire fraud), " and "(D) any offense involving... fraud in the sale of securities...."
6. Title 28, United States Code, Section 2461(c) permits the government to seek criminal forfeiture whenever civil forfeiture is available and the defendant is found guilty of an applicable offense. United States v. Newman, 659 F.3d 1235, 1239 (9th Cir. 2011).
7. Section 2461(c) states that "[i]f a person is charged in a criminal case with a violation of an Act of Congress for which the civil or criminal forfeiture of property is authorized, the Government may include notice of the forfeiture in the indictment or information pursuant to the Federal Rules of Criminal Procedure. If the defendant is convicted of the offense giving rise to the forfeiture, the court shall order the forfeiture of the property as part of the sentence in the criminal case pursuant to the Federal Rules of Criminal Procedure and section 3554 of title 18, United States Code."
8. Section 2461(c) generally incorporates the forfeiture procedures codified in Title 21, United States Code, Section 853.
9. Accordingly, the 34 counts of wire fraud and 44 counts of securities fraud of which Swenson was convicted qualify as applicable offenses for criminal forfeiture.
10. Rule 32.2 of the Federal Rules of Criminal Procedure and Title 21, United States Code, Section 853 govern the criminal forfeiture process. United States v. Lazarenko, 476 F.3d 642, 648 (9th Cir. 2007).
11. "Criminal forfeiture provisions operate in personam against the assets of the defendant and serve as part of the penalty for the defendant's conviction." United States v. Nava, 404 F.3d 1119, 1124 (9th Cir. 2004) (citing 18 U.S.C. § 1963 & 21 U.S.C. § 853).
12. "Criminal forfeiture reaches any property involved in the offense or any property traceable as proceeds to it." United States v. Lazarenko, 476 F.3d 642, 647 (9th Cir. 2007) (citing 18 U.S.C. § 982(a)(1)).
13. Criminal forfeiture occurs in two stages.
14. First, the defendant's interest in property is forfeited in a preliminary order of forfeiture as part of sentencing. At this first stage questions of property ownership are not addressed. See Lazarenko, 476 F.3d at 648. Criminal Rule 32.2(b)(4)(A) provides that the forfeiture of the defendant's interest in the property becomes final at sentencing, but the order is preliminary as to any third party interests. Id.
15. Second, the United States must notify the public of its preliminary order of forfeiture and give all potential claimants an opportunity to assert their alleged interest in the property. Id. The process for adjudicating any third party's claim of interest in property is governed by 21 U.S.C. § 853(n). Id. In this ancillary proceeding, "the sole legal issue before the court is the ownership interests of the competing parties." Nava, 404 F.3d at 1124 (internal quotation and citation omitted).
16. Rule 32.2 "makes clear that, at least where the proceeds of criminal activity are money, the government may seek a money judgment as a form of criminal forfeiture." Newman, 659 F.3d at 1240.
17. Specifically, Rule 32.2(b)(1)(A) states that "[a]s soon as practical after a verdict or finding of guilty... on any count in an indictment... regarding which criminal forfeiture is sought, the court must determine what property is subject to forfeiture under the applicable statute. If the government seeks forfeiture of specific property, the court must determine whether the government has established the requisite nexus between the property and the offense. If the government seeks a personal money judgment, the court must determine the amount of money that the defendant will be ordered to pay." See also 28 U.S.C. § 2461(c) (providing that "the court shall order the forfeiture of property as part of the sentence in the criminal case pursuant [to] the Federal Rules of Criminal Procedure.").
18. As to the amount of the money judgment, "[t]he statute mandates that a defendant forfeit a very specific amount - the proceeds of his criminal activity, " or in other words, the amount "he received in connection with the commission of the crime." United States v. Casey, 444 F.3d 1071, 1076 (9th Cir. 2006).
19. The purpose is to "eliminate the gains realized from criminal activity." Id. at 1074.
20. The term "proceeds" subject to forfeiture is defined in two ways in Title 18, United States Code, Section 981(a)(2).
21. Section 981(a)(2) provides, in part:
(A) In cases involving illegal goods, illegal services, unlawful activities, and telemarketing and health care fraud schemes, the term "proceeds" means property of any kind obtained directly or indirectly, as the result of the commission of the offense giving rise to forfeiture, and any property traceable thereto, and is not limited to the net gain or profit realized from the offense.
(B) In cases involving lawful goods or lawful services that are sold or provided in an illegal manner, the term "proceeds" means the amount of money acquired through the illegal transactions resulting in the forfeiture, less the direct costs incurred in providing the goods or services. The claimant shall have the burden of proof with respect to the issue of direct costs. The direct costs shall not include any part of the overhead expenses of the entity providing the goods or services, or any part of the income taxes paid by the entity. 18 U.S.C. § 981(a)(2).
22. Generally, proceeds are limited to funds involved in the offenses of conviction, and should not be based on uncharged or acquitted conduct. See United States v. Nava, 404 F.3d 1119, 1129 n. 5 (9th Cir. 2005); United States v. Garcia-Gu izar, 160 F.3d 511, 524-25 (9th Cir. 1996).
23. However, for offenses charging a "scheme or artifice, " the court may forfeit proceeds generated over the course of the entire scheme, not just by the particular executions of it charged in the counts of conviction. United States v. Pe na, 380 Fed.App'x 623, 626-27 (9th Cir. 2010).
24. A defendant may obtain proceeds "directly or indirectly" as a result of his crime. 18 U.S.C. § 981(a)(2)(A).
25. Accordingly, proceeds are not limited to the funds the defendant personally received, but include all of the funds he obtained indirectly through business entities he controlled or that served as his "alter ego." United States v. Contorinis, 692 F.3d 136, 147 (2d Cir. 2012); see also United States v. Peters, 257 F.R.D. 377, 381, 384 (W.D.N.Y. 2009).
26. A corporation is the defendant's alter ego if he (1) exercised such complete control that the corporation had no separate will of its own; and (2) this control was used to commit a wrong. Peters, 257 F.R.D. at 384-85 (citing cases). "Control over the entirety of the corporation's business need not be proven, rather, domination over the transaction attacked [is] sufficient." Id. at 385.
27. A defendant is jointly and severally liable for proceeds received by those who act in concert with him. See United States v. Roberts, 660 F.3d 149, 165 (2d Cir. 2011).
28. In addition to a money judgment, "Rule 32(e) allows the government also to seek forfeiture of substitute property.'" Newman, 659 F.3d at 1242.
29. Rule 32.2(e) provides: "On the government's motion, the court may at any time enter an order of forfeiture or amend an existing order of forfeiture to include property that... (B) is substitute property that qualifies for forfeiture under an applicable statute."
30. Here, the government seeks the forfeiture of substitute assets - specifically the funds held in bank accounts held at TD Ameritrade, Inc. and seized by the government pretrial.
31. Forfeiture of substitute property is governed by Title 21, United States Code, Section 853(p).
32. Section 853(p)(1) provides for the forfeiture of substitute property if "as a result of any act or omission of the defendant [directly traceable property] (A) cannot be located upon the exercise of due diligence; (B) has been transferred or sold to, or deposited with, a third party; (C) has been placed beyond the jurisdiction of the court; (D) has been substantially diminished in value; or (E) has been commingled with other property which cannot be divided without difficulty."
33. If the government satisfies any of these requirements, forfeiture of substitute property is mandatory. 21 U.S.C. § 853(p)(2); Newman, 659 F.3d at 1242-43.
34. If the Court finds that property is subject to forfeiture, it must enter a preliminary order of forfeiture setting forth the amount of any money judgment or directing the forfeiture of specific property without regard to any third party interests, which are determined in an ancillary proceeding under Rule 32.2(c). Fed. R. Crim. P. 32.2(b)(2).
FINDINGS OF FACT
35. Doug Swenson founded and operated DBSI, a conglomerate of affiliated companies that was engaged in the acquisition, development, management and sale of commercial real ...