The Best Lawyers Money Can't Buy: Supreme Court Hears Argument About Pretrial Restraint of Assets that Prevents Defendants From Hiring Good Lawyers

October 17, 2013 by Paul Kish

The Supreme Court yesterday heard arguments in the case of Kaley v. United States, a case concerning pretrial restraint of assets that prevented the Defendants from hiring counsel of their choice. I previously discussed the issues in the case here and here.

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.

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Federal Criminal Defense Difficult when Government Freezes Client's Assets: Supreme Court Finally Agrees to Hear Case About Whether Prosecutors can Obtain Pretrial Restraint of Assets Without a Hearing

March 19, 2013 by Paul Kish

Defending federal crimes is always difficult, whether the client is a "white collar" defendant charged with fraud or whether prosecutors charge other crimes, like drug violations. However, the defense is made more difficult in federal court by virtue of the prosecutor's ability to sometimes freeze and then forfeit all of the Defendant's assets. Making it more difficult still, the laws sometimes permit prosecutors to freeze the Defendant's assets even without a hearing in front of a judge! After many years of uncertainty, the Supreme Court the other day agreed to hear a case as to whether the pretrial restraint (or freezing) of a Defendant's assets is permissible if done without a hearing. The case is Kaley v. United States, and the certiorari petition is here.

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.

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Forfeiture of $1.7 million for crime involving $22,000: Court of Appeals says this is not "disproportionate"

July 13, 2011 by Paul Kish

When we handle federal criminal cases here in Atlanta, Georgia and in other parts of the country, our clients often face criminal penalties along with possible forfeiture of their property. Lawyers often forget how important these financial penalties can be. A recent case from the United States Court of Appeals for the Eleventh Circuit (located several blocks from our office in Atlanta) shows the importance of understanding the immense financial penalties that can be imposed in a federal criminal matter. The case is United States v. Chaplin's.

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.

Atlanta-based Federal Court of Appeals Reverses Obstruction Conviction Because No Evidence Defendant Aware of the Proceeding He Supposedly Obstructed

May 19, 2011 by Paul Kish

Our local Federal Court of Appeals, sitting just down the street from our offices here in Atlanta, yesterday reversed a federal criminal conviction for obstruction of justice. The prosecutors contended that the defendant tried to obstruct a forfeiture matter. The Eleventh Circuit joined other courts and relied on some earlier Supreme Court cases by holding that there cannot be a conviction in this context unless there is evidence that the defendant was aware of the forfeiture proceeding he obstructed. The case is United States v. Friske.

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.

11th Circuit Rules That Fraud Victims Cannot Climb To The Top Of The Pile And Get More Back Than Other Victims

March 22, 2010 by Kish & Lietz

The United States Court of Appeals for the Eleventh Circuit has issued a ruling that deals with whether one victim of an economic crime gets to climb to the top of the heap and get more recovery out of the fraudster than the remaining victims. The Court ruled that even when such a victim can trace his money directly into a bank account used by the criminal, such a victim cannot get the money back. Instead, the money goes into the pot, so to speak, and is divided among all victims pro rata.

The case involves two common themes nowadays: Ponzi schemes and forfeiture proceedings that are part of federal criminal prosecutions. As is well known, in a Ponzi scheme, the fraudster takes money from recent investors to pay off those who invested earlier, until the whole thing collapses. Forfeiture is the process by which the government takes from a criminal defendant any money that comes from, is traceable to, or is a substitute for property that is part of the crime itself.

Altogether the defendant had defrauded about $20 million from over 90 people. Just before the defendant’s scheme was discovered, he got one final investor to put in about $2 million. Almost immediately thereafter, the authorities arrested the defendant and seized his bank accounts. The final investor’s $2 million was sitting in the defendant’s bank account. The federal authorities wanted to forfeit the $2 million in the bank account, along with other assets, in order to give the proceeds back to all 90 victims.

The final investor claimed he had a "constructive trust". In this argument, the last investor said that at the very moment the defendant accepted the final $2 million, it was owed to that last investor, and such a debt is a “superior” and “qualifying” interest under the forfeiture laws. Under such an argument, this means he would get his $2 million off the top from all property seized from the defendant.

The Eleventh Circuit rejected the equitable constructive trust argument from the final investor. The Court said that this issue is controlled by state law, and that Georgia did not recognize such a constructive trust on behalf of the final investor prior to the defendant’s arrest. Instead, the principles of equity require fairness. The Court of Appeals noted that the main idea in forfeiture proceedings is to try to get as much as possible and to treat all victims of fraud equally, so that they each get a pro rata share.

The opinion is available here.