Free Motion for Forfeiture of Property - District Court of Colorado - Colorado

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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLORADO Criminal Case No. 04-cr-00103-REB UNITED STATES OF AMERICA Plaintiff, v. 1. 2. 4. 6. NORMAN SCHMIDT, GEORGE ALAN WEED, CHARLES LEWIS, and MICHAEL SMITH, Defendants.

GOVERNMENT'S MOTION PURSUANT TO FED. R. CRIM. P. 32.2(b) FOR AN ORDER OF FORFEITURE

The United States of America, by and through Assistant United States Attorneys Wyatt Angelo and Matthew T. Kirsch, files this motion for an order of forfeiture pursuant to Fed. R. Crim. P. 32.2(b) setting forth in personam money judgments against the defendants in the amounts set forth below, which represent the proceeds of the conspiracy, fraud, and/or money laundering counts (as re-numbered during trial) of which the defendants were convicted at trial and which are also set forth below: Defendant Norman Schmidt George Alan Weed Charles Lewis Michael Smith Amount $55,841,066.19 $27,193,288.01 $33,104,225.64 $24,960,077.21 Counts of Conviction 1- 5, 9, 12-31, 33, 35-44 5, 16, 23 1, 3, 5, 16, 21, 22, 24, 25, 28, 40 23, 26, 27

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I. Rule 32.2(b) requires the Court to enter an order setting forth money judgments against the defendants. Rule 32.2(b) provides as follows, in relevant part: (b) Entering a Preliminary Order of Forfeiture (1) In general. As soon as practicable after a verdict or finding of guilty, or after a plea of guilty or nolo contendere is accepted, on any count in an indictment or information regarding which criminal forfeiture is sought, the court must determine what property is subject to forfeiture under the applicable statute . . . . If the government seeks a personal money judgment, the court must determine the amount of money that the defendant will be ordered to pay. The court's determination may be based on evidence already in the record, including any written plea agreement or, if the forfeiture is contested, on evidence or information presented by the parties at a hearing after the verdict or finding of guilt. (2) Preliminary Order. If the court finds that property is subject to forfeiture, it must promptly enter a preliminary order of forfeiture setting forth the amount of any money judgment . . . . (3) Seizing Property. . . . . At sentencing -- or at any time before sentencing if the defendant consents -- the order of forfeiture becomes final as to the defendant and must be made part of the sentence and be included in the judgment . . . . Fed. R. Crim. P. 32.2(b)(1)-(3). II. Issuance of an order of forfeiture need not be delayed until sentencing. Rule 32.2 provides that a court must issue a preliminary order soon after the verdict. As noted above, subsection (b)(1) provides that the forfeiture determination is to be made "[a]s soon as practicable after a verdict or finding of guilty." Fed. R. Crim. P. 32.2(b)(1). Because the United States is seeking only money judgments, "no ancillary proceeding is required." Id. 32.2(c)(1).

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III.

Forfeiture is mandatory as to all counts of conviction for each defendant. The criminal sanction of forfeiture is mandatory as to all of the counts of

conviction for each of the defendants. Title 28, United States Code, Section 2461(c) provides, in relevant part, that where "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" and then "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 . . . ." The offenses at issue in this case are ones for which the "criminal forfeiture of property is authorized." Id. Title 18, United States Code, Section 981(a)(1), provides: The following property is subject to forfeiture by the United States: ­ (A) Any property, real or personal, involved in a transaction or attempted transaction in violation of section 1956, 1957 or 1960 of this title, or any property traceable to such property. *** (C) Any property, real or personal, which constitutes or is derived from proceeds traceable to ... any offense constituting specified unlawful activity (as defined in section 1956(c)(7) of this title) . . . . 18 U.S.C. § 981(a)(1). The definition of "specified unlawful activity" states, in relevant part, that: the term `specified unlawful activity' means -- (A) any act or activity constituting an offense listed in section 1961(1) of this title . . . . 18 U.S.C. § 1956(c)(7). Title18, United States Code, Section 1961(1), in turn, includes: "(B) any act which is indictable under any of the following provisions of title 18, United States Code: . . . section 1341 (relating to mail fraud), section 1343 (relating to wire fraud) . . . [and] (D) any offense involving . . . fraud in the sale of securities."

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18 U.S.C. § 1961(1). In short, forfeiture is mandatory here because the offenses in this case­conspiracy to commit mail, wire, and securities fraud, mail fraud, wire fraud, securities fraud, and money laundering­are ones for which the forfeiture of property is authorized by statute. See 28 U.S.C. § 2461.1 IV. The United States seeks relief in the form of an order pursuant to Rule 32.2(b)(2) setting forth in personam money judgments against each defendant. The in personam money judgments sought by the United States are proper pursuant to Rule 32.2(b)(2). "A criminal forfeiture may take several forms [including] an in personam money judgment against the defendant for the amount of money the defendant obtained as proceeds of the offense." United States v. Hall, 434 F.3d 42, 59 (1st Cir. 2006) (observing that "[t]his position accords with the several appellate decisions that have addressed the question," and citing decisions from five other circuits); United States v. Vampire Nation, 451 F.3d 189, 201-03 (3d Cir. 2006) (explaining that it is "clear that an in personam forfeiture judgment may be entered for the full amount of the criminal proceeds"). In personam money judgments are appropriate regardless of whether the defendants have the current ability to pay those judgments at the time of sentencing. Vampire Nation, 451 F.3d at 202-03 (citing decisions from other circuits). The mandatory nature of forfeiture is further confirmed by the last sentence of section 2461(c), which provides in relevant part that "[t]he procedures in section 413 of the Controlled Substances Act (21 U.S.C. § 853) apply to all stages of a criminal forfeiture proceeding. . . ." The Supreme Court has observed that, in Section 853, "Congress could not have chosen stronger words to express its intent that forfeiture be mandatory in cases where the statute applied." United States v. Monsanto, 491 U.S. 600, 606 (1989). 4
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Here, a preliminary order setting forth in personam money judgments may effectively become a final order at sentencing. See Fed. R. Crim. P. 32.2(b)(3). V. The forfeiture amounts should be equal to the gross proceeds of the offenses of conviction. The Court must determine the amounts that the defendants should be ordered to pay. Rule 32.2(b)(1) explains in relevant part that "[i]f the government seeks a personal money judgment, the court must determine the amount of money that the defendant will be ordered to pay." Here, what Congress has determined should be subject to forfeiture is the amount of the "proceeds" of the offenses. See 18 U.S.C. § 981(a)(1)(C) (providing for forfeiture of "[a]ny property, real or personal, which constitutes or is derived from proceeds traceable to . . . any offense constituting `specified unlawful activity'"); see also 28 U.S.C. § 2461(c) (providing in relevant part that "[t]he procedures in section 413 of the Controlled Substances Act (21 U.S.C. § 853) apply to all stages of a criminal forfeiture proceeding, except that subsection (d) of such section applies only in cases in which the defendant is convicted of a violation of such Act"); 21 U.S.C. § 853(a)(1) (providing for forfeiture of "any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as the result of such violation"). The amount subject to forfeiture must be the gross amount of the proceeds. See United States v. Keeling, 235 F.3d 533, 537 (10th Cir. 2000). In Keeling, the Tenth Circuit explained that "for purposes of § 853, `proceeds' contemplates gross proceeds and not merely profits." Id. at 537 (rejecting as "utterly without merit" a defendant's argument that he should not be forced to forfeit the gross proceeds because the 5

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majority of the proceeds had not gone to the defendant). The Tenth Circuit explained that requiring forfeiture of the gross amount was in accord with "the legislative history and policies undergirding 21 U.S.C. § 853." Id. (citing United States v. McHan, 101 F.3d 1027, 1042 (4th Cir. 1996)). The Tenth Circuit has since re-affirmed this holding. See United States v. Wilson, 244 F.3d 1208, 1213 (10th Cir. 2001) (rejecting a defendant's argument that a forfeiture "argument regarding the use of gross proceeds instead of net profits fails from the start" based on Keeling).2 This holding by the Tenth Circuit -- that forfeiture of the gross proceeds accords with congressional intent -- is supported by nearly all other authorities. See S. Rep. No. 98-225, 98th Cong., 2d Sess. (1984) at 199, reprinted in 1984 U.S.C.C.A.N. 3382 (noting that in the RICO statute, "the term `proceeds' has been used in lieu of the term `profits' in order to alleviate the unreasonable burden on the government of proving net profits"); United States v. Hurley, 63 F.3d 1, 21 (1st Cir. 1995) (observing that under the RICO statute, "proceeds" includes the gross amount, not just profits); United States v. McHan, 101 F.3d 1027, 1042 (4th Cir. 1996) (observing that the language used in 21 U.S.C. § 853 "closely tracks that of the RICO forfeiture provision" and that the "proper measure of criminal responsibility generally is the harm that the defendant caused, not the net gain that he realized from his conduct"); United States v. Simmons, 154 F.3d 765, 770-71 (8th Cir. 1998) (collecting cases and holding that "the better view is the one

The defendants have long been on notice that, upon conviction of one or more of the counts in the original or later superseding indictments, the United States would seek forfeiture of the gross proceeds of the charged offenses in an amount up to $56,000,000. See Indictment [# 1] at ¶ 27; Superseding Indictment [# 153] at ¶ 27; Second Superseding Indictment [#526] at ¶ 24. 6

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that defines proceeds as the gross receipts of the illegal activity," as forfeiture is not intended to punish just those criminals whose activity turns a profit); United States v. Boulware, 384 F.3d 794, 813 (9th Cir. 2004) (defendant must forfeit gross proceeds of fraudulent loan without credit for the amount he repaid); United States v. DeFries, 129 F.3d 1293, 1313-14 (D.C. Cir. 1997) (in a RICO case, holding that the defendant was not entitled to any deduction on taxes paid on a salary subject to forfeiture); but see United States v. Masters, 924 F.2d 1362, 1369-70 (7th Cir. 1991) (holding that RICO forfeiture is limited to net profits). VI. The amounts of the gross proceeds of the counts of conviction are as set forth in the table on page 1. In determining pursuant to Rule 32.2(b)(1) "the amount of money that the defendant[s] will be ordered to pay," the Court should use a preponderance of the evidence standard. United States v. Keene, 341 F.3d 78, 85-86 (1st Cir. 2001) (explaining that because forfeiture is not a separate charge but instead an aspect of punishment imposed following conviction, the applicable standard of proof is not proof beyond a reasonable doubt, and further noting that "other circuits have consistently refused to apply Apprendi requirements to criminal forfeitures"); United States v. Cabeza, 258 F.3d 1256, 1257-58 (11th Cir. 2001) (explaining that because forfeiture is an aspect of the sentence, the burden of proof is a preponderance of the evidence); United States v. Patel, 131 F.3d 1195, 1200 (7th Cir. 1997) (observing that the burden of proof is preponderance of the evidence because criminal forfeiture is part of the sentence); United States v. Wittig, 2006 WL 13158, at *1 (D. Kan. Jan. 3, 2006) (applying the preponderance standard to forfeiture proceedings). 7

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Exhibits 1-4 constitute summary charts of the gross proceeds of the offenses of conviction for the respective defendants. Assuming that the Court allows it, the government proposes to present testimony during the consolidated evidentiary hearing on October 19, 2007, which will establish how these charts were created and why they reliably demonstrate, by a preponderance of the evidence, the gross proceeds attributable to each defendant, as measured by deposits from investors into the purported "non-depleting" accounts.3 Exhibits 1-4 represent the gross proceeds of the conspiracy and the scheme to defraud alleged in Counts 1-29 of the Second Superseding Indictment, as calculated from the earliest date of conviction for each defendant.4 In cases involving a continuing scheme to defraud such as this one, the proceeds of the entire scheme are subject to forfeiture. United States v. Hasson, 333 F.3d 1264, 1279 (11th Cir. 2003); United States v. Boesen, 473 F. Supp. 2d 932, 952-53 (S.D. Iowa 2007); see also United States v. Phillips, 434 F.3d 913, 914-15 (7th Cir. 2006) (refusing to overturn pre-trial restraining order for assets worth more than the proceeds of the particular executions of a scheme to defraud alleged in the indictment). This is because the federal criminal statutes related to schemes to defraud allow the proof of an entire scheme without the

Rule 32.2 allows the Court's determination of in personam judgments to be based on "evidence or information presented by the parties after the verdict." Fed. R. Crim. P. 32.2(b)(1). During the trial, the defendants waived their rights to a jury determination of these amounts, see id. 32.2(b)(4). Although the property involved in the money laundering offenses for which defendants Schmidt and Lewis is also subject to forfeiture, see Section III, supra, the government has not added these amounts to its calculation to avoid any possible double-counting. 8
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charging or proof of each individual execution of such a scheme. Boesen, 473 F. Supp. 2d. at 952-53. The liability of the defendants should be joint and several based on the reasonable foreseeability of the acts of their co-defendants involved in executing the same scheme. Hurley, 63 F.3d at 22 (noting that every circuit to consider this question has reached the same conclusion). CONCLUSION The United States respectfully requests an order of forfeiture against the defendants pursuant to Rule 32.2(b)(2), in the form of in personam money judgments, in the following amounts, representing the gross proceeds of the counts of conviction for each defendant: Norman Schmidt - $55,841,066.19; George Alan Weed $27,193,288.01; Charles Lewis - $33,104,225.64; Michael Smith - $24,960,077.21. A proposed order is attached to this motion. Respectfully submitted this 28th day of August, 2007, TROY A. EID United States Attorney

s/ Matthew T. Kirsch WYATT ANGELO MATTHEW T. KIRSCH Assistant U.S. Attorneys 1225 17th Street, Suite 700 Denver, CO 80202 Telephone 303-454-0100 Facsimile 303-454-0402 email: [email protected] [email protected] Attorneys for the Government

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CERTIFICATE OF SERVICE (CM/ECF) I hereby certify on this 28th day of August, 2007, I electronically filed the foregoing GOVERNMENT'S MOTION PURSUANT TO FED. R. CRIM. P. 32.2(b) FOR AN ORDER OF FORFEITURE with the Clerk of the Court using the CM/ECF system which will send notification of such filing to the following e-mail addresses:

Peter Bornstein, Esq. [email protected] Thomas Hammond, Esq. [email protected] Declan J. O'Donnell, Esq. [email protected]

Richard N. Stuckey, Esq. [email protected] Thomas Goodreid, Esq. [email protected] Ronald Gainor, Esq. [email protected]

and I hereby certify that I have mailed the document or paper to the following participants: United States Probation Office (mail) 1929 Stout Street, Suite C-120 Denver, CO 80294-0101

s/ Matthew T. Kirsch MATTHEW T. KIRSCH U.S. Attorney's Office 1225 17th Street, Suite 700 Denver, CO 80202 Telephone 303-454-0100 Facsimile 303-454-0402 E-mail [email protected] Attorney for Government

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