Opinion & Order — United States v. Brian Sperber (N.D. Ga., Dkt. 137, May 19, 2023)
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An Opinion & Order filed May 19, 2023, as Document 137 in United States of America v. Brian Sperber, Case No. 1:21-cr-328-MLB, in the U.S. District Court for the Northern District of Georgia, Atlanta Division. The order recounts a March 2021 civil forfeiture action over a Boca Raton, Florida mansion, the later sale of the property, and an August 2021 indictment charging conspiracy, money laundering, and wire fraud. The Defendant says some legitimate income was used to purchase the property and that the money is needed to hire a lawyer. The Court adopts in part and rejects in part the Magistrate Judge's R&R (Dkt. 39), and orders that $1,000,000.00 of the $4,915,704.39 in substitute res be returned to the Defendant.
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“Opinion & Order — United States v. Brian Sperber (N.D. Ga., Dkt. 137, May 19, 2023).”
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Case 1:21-cr-00328-MLB-RGV Document 137 Filed 05/19/23 Page 1 of 33
IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF GEORGIA
ATLANTA DIVISION
United States of America,
v. Case No. 1:21-cr-328-MLB
Brian Sperber,
Defendant.
________________________________/
OPINION & ORDER
During a civil and criminal investigation of Defendant Brian
Sperber, the United States seized a waterfront mansion Defendant had
previously purchased. The United States later sold the property and held
the proceeds as substitute res. Defendant (currently represented by the
Federal Defender Program) says he used some legitimate income to
purchase the property and needs that money to hire a lawyer. The Court
concludes Defendant is entitled to recover $1,000,000.00 from the
proceeds of the sale of the house.
I. Background Facts
In March 2021, the United States filed a civil forfeiture action to
seize a mansion Defendant and his wife owned in Boca Raton, Florida.
Case 1:21-cr-00328-MLB-RGV Document 137 Filed 05/19/23 Page 2 of 33
(See United States v. Real Property Located at 311 East Key Palm Road,
1:21-cv-1008, Dkt. 1.) The United States alleged Defendant (working
with a co-defendant) fraudulently represented to several companies that
he had personal protective equipment (“PPE”) to sell and then used false
invoices, documents, purchase orders, and wire confirmations to trick
those companies into sending him nearly $13 million. (Id. at ¶¶ 12–77.)
Despite receiving the money, Defendant never delivered the PPE. (Id.)
The United States said that, during the course of the illegal conspiracy,
Defendant—through a company his wife owned called Roses Ark LLC—
bought the Boca Raton mansion for about $10 million, which included a
down payment of nearly $5 million. (Id. at ¶¶ 3, 16, 62.) The United
States alleged its investigation “revealed that approximately $4.3 million
of the down payment was funded by proceeds of [Defendant’s] fraudulent
schemes[.]” (Id. at ¶ 63.)
The United States and Roses Ark later agreed to have the property
liquidated. (Id.; Case No. 21-cv-1008, Dkts. 22, 26.) It sold for $12.1
million. The United States satisfied the outstanding mortgage but
continued holding the remaining money (totaling $4,915,704.39) as
substitute res for the property. (Id.; Case No. 21-cv-1008, Dkts. 23, 30,
2
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37.)
In August 2021, the United States obtained an indictment against
Defendant, charging him with conspiracy, money laundering, and wire
fraud. (Dkt. 1.) The indictment alleges the same fraudulent conduct as
the civil forfeiture action, specifically that Defendant “defrauded
prospective PPE purchasers out of more than $12 million, much of which
he used for his own personal benefit, which included purchasing” the
Boca Raton property. (Dkt. 1 at ¶ 9.) The indictment says Defendant
used “over $5.3 million of Victim B’s funds to purchase” the property.
(Dkt. 1 at ¶ 19.) The United States later identified Victim B as LHP
Pharma, Inc. (Dkt. 118 at 18:25–19:4.) The indictment identifies the
$4.9 million in substitute res from the sale of the property as subject to
forfeiture as either proceeds of Defendant’s fraudulent scheme, property
involved in the money laundering offense, or property traceable to such
property. (Dkt. 1 at ¶¶ 39–40.) The United States seeks forfeiture of that
money pursuant to 18 U.S.C. § 981(a)(1)(C), 28 U.S.C. § 2461(c), and 18
U.S.C. § 982(a)(1). (Dkt. 1 at ¶ 39.) The United States and Roses Ark
decided—with court approval—to stay the civil forfeiture case and
proceed with forfeiture pursuant only to the indictment. (Dkt. 57 at 5:12–
3
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21.)
Defendant was arraigned on August 31, 2021. (Dkt. 4.) The same
day, Magistrate Judge Anand appointed the Federal Defender to
represent Defendant, concluding Defendant “has testified under oath or
has filed with the Court an affidavit of financial status and hereby
satisfied this Court that he . . . is financially unable to employ counsel.”
(Dkt. 6.) Defendant later filed a motion to hire counsel of choice (Dkt. 23)
and a motion to release seized funds (Dkt. 24). Magistrate Judge
Vineyard allowed Defendant to perfect his motion to release seized funds,
explaining Defendant “was required to make a preliminary showing that
he is financially unable to hire counsel from resources other than the
seized property and that he is entitled to a pretrial hearing regarding the
restrained property because it was improperly seized.” (Dkt. 26.)
Defendant filed an amended motion, along with an unsworn “Monthly
Cash Flow Statement” and “Net Worth Statement.” (Dkts. 30, 31.)
In his amended motion, Defendant moved for the release of
approximately $700,000, saying that money was not part of the illegal
activity. (Dkt. 30 at 1, 4.) He argued he was entitled to a pretrial hearing
at which the United States would “have the burden of showing by
4
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competent evidence that the funds seized are traceable to criminal
conduct.” (Dkt. 30 at 7.) The United States countered that Defendant
“failed to meet his threshold burden of adequately demonstrating his
inability to afford his counsel of choice” and was therefore “not entitled
to a tracing hearing.” (Dkt. 37 at 7.)
The Magistrate Judge issued a Report and Recommendation,
saying this Court should deny Defendant’s motion. (Dkt. 39.) The
Magistrate Judge concluded Defendant’s documents were insufficient to
establish financial need because they were not “signed under oath.” (Dkt.
39 at 12.) The Magistrate Judge explained that, even if he had credited
“the limited financial information provided by [Defendant]” and found
“that he has demonstrated that he does not have the financial resources
to hire his counsel of choice,” Defendants’ motion would still fail because
Defendant “has not satisfied the standard for obtaining a hearing.” (Dkt.
39 at 15.) Specifically, the Magistrate Judge found that “even if $700,000
of the funds used to make the down payment were, in fact, untainted, the
entire substitute res . . . remains subject to forfeiture because those funds
allegedly were involved in the money laundering transaction regarding
the purchase of the Boca Raton property, as charged in the indictment.”
5
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(Dkt. 39 at 16.) The Magistrate Judge also enumerated two other reasons
that warranted against a hearing: (1) after being notified of the forfeiture
action, only Roses Ark (and not Defendant) filed a verified claim to the
property, showing Defendant was trying to “distanc[e] himself from any
interest in the [] seized funds,” and (2) Defendant did not demonstrate
prejudice because “he has not made a sufficient showing that the
substitute res has been unlawfully restrained.” (Dkt. 39 at 20–24.)
Defendant filed objections. (Dkt. 43.) He says the Magistrate Judge
misapplied the law and “failed to consider the evidence presented” in his
filings. (Dkt. 43 at 6.) Specifically, he contends (1) Supreme Court
precedent applying the Sixth Amendment required the Magistrate Judge
to release untainted funds and (2) the Magistrate Judge ignored financial
documents he submitted showing he does not have the financial ability
to hire counsel without the seized funds. (Dkt. 43 at 6–15.) In response,
the United States argues the Magistrate Judge was right in finding “the
‘$700,000 portion of the down payment was commingled with the fraud
proceeds in the money laundering transaction,’ and, therefore, ‘the entire
substitute res is subject to forfeiture,’ pursuant to 18 U.S.C. § 982(a)(1).”
(Dkt. 48 at 2.) It also contends the Magistrate Judge was right to find
6
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Defendant’s financial documents were insufficient. (Dkt. 48 at 3–4.)
II. Discussion1
Pre-trial restraint of a criminal defendant’s assets is
constitutionally permissible “whenever there is probable cause . . . to
think (1) that the defendant has committed an offense permitting
forfeiture, and (2) that the property at issue has the requisite connection
to that crime.” Kaley v. United States (Kaley II), 571 U.S. 320, 323–34
(2014). Property seized by the United States that is “not loot, contraband,
or otherwise ‘tainted’” belongs to the defendant, “pure and simple.” Luis
v. United States, 578 U.S. 5, 12–13 (2016). And “the pretrial restraint of
legitimate, untainted assets” that a defendant needs “to retain counsel of
choice violates the Sixth Amendment.” Id. at 10. A defendant may—in
1 Courts review de novo “those portions of [an R&R] to which an objection
is made.” 28 U.S.C. § 636(b)(1). “It does not appear that Congress
intended to require district court review of a magistrate’s factual or legal
conclusions, under a de novo or any other standard, when neither party
objects to those findings.” Thomas v. Arn, 474 U.S. 140, 150 (1985). And,
in most cases, “[a] party failing to object to [an R&R] waives the right to
challenge on appeal the district court’s order based on unobjected-to
factual and legal conclusions.” McGriff v. Comm’r, Soc. Sec. Admin., 654
F. App’x 469, 472 (11th Cir. 2016). Since the R&R, the parties have
engaged in extensive briefing and the Court has held multiple
evidentiary hearings. The Court thus reviews Defendant’s motion to
release funds de novo without regard to Defendant’s specific objections.
7
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limited instances—obtain a hearing to challenge the pretrial restraint of
assets. To be entitled to a tracing hearing, a defendant must (1) show “a
bona fide need to utilize seized assets to conduct his [or her] defense,” and
(2) “make a prima facie showing that some portion of the assets is not
traceable to the commission of the offenses alleged.” United States v.
Sachy, 2022 WL 17177262, at *2 (M.D. Ga. Nov. 23, 2022) (quoting
United States v. Farmer, 274 F.3d 800, 804 (4th Cir. 2001), and United
States v. Jones, 160 F.3d 641, 647 (10th Cir. 1998)). In addition, a
defendant must also satisfy “the balancing test enunciated in” Barker v.
Wingo, 407 U.S. 514 (1972). United States v. Kaley (Kaley I), 579 F.3d
1246, 1252 (11th Cir. 2009). This requires the Court to consider (1) the
length of the delay before the defendant receives a post-restraint hearing;
(2) the reason for any delay; (3) the defendant’s assertion of his or her
right to a hearing; and (4) any prejudice the defendant suffered due to
the delay weighed against the strength of the United States’s interest in
the subject property. Id. at 1254.
A defendant who satisfies these initial burdens is entitled to a
hearing to litigate “whether probable cause exists to believe that the
assets in dispute are traceable or otherwise sufficiently related to the
8
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crime charged in the indictment.” Kaley II, 571 U.S. at 324; United States
v. Gosney, 2023 WL 1434183, at *4 (11th Cir. Feb. 1, 2023) (explaining
the grand jury’s determination regarding the tracing of assets “may be
challenged before trial”). Such a defendant may not relitigate the grand
jury’s finding of probable cause that the defendant committed a crime.
Id. at 328–29; see also Kaley I, 579 F.3d 1246 at 1257 (“The purpose of
the hearing [is not] to determine guilt or innocence but, rather, to
determine the propriety of the seizure.”). A defendant has “the burden of
proof to determine the propriety of the seizure.” United States v.
Hernandez-Gonzalez, 2017 WL 2954676, at *5 (S.D. Fla. June 26, 2017)
(emphasis omitted) (citing Kaley I, 579 F.3d at 1257). This means the
defendant must convince the court there was no probable cause to believe
“the assets in dispute are traceable or otherwise sufficiently related to
the crime charged in the indictment.” Kaley II, 571 U.S. at 324; see also
Kaley I, 579 F.3d at 1257 (it is defendant’s burden to show “assets
described in the forfeiture count of the indictment were wrongfully
seized”).
1. Defendant Established His Right to a Pretrial
Hearing
The Court scheduled a hearing on Defendant’s objections to the
9
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R&R for August 15, 2022. (Dkt. 49.) The United States argued
Defendant had not sufficiently shown a financial need for the restrained
assets to hire counsel of choice despite him having received a Federal
Defender. (Dkt. 57 at 16:7–19.) Defendant countered that he provided
sufficient information to the Court to show he “did not have sufficient
assets or funds to provide or to pay to retain counsel,” particularly given
that he “was appointed counsel” for this case. (Dkt. 57 at 33:11–19.)
Specifically, he emphasized that he “previously provided a sworn
statement of his financial information and . . . a more current statement
of his financial situation” but offered to provide “another affidavit that is
more complete, that is sworn to and notarized.” (Dkt. 57 at 37:20–24,
39:6–8.) He also said he “provided bona fide evidence to call into question
the trace of [the seized] money, given” the discrepancy between “the civil
forfeiture complaint that was filed” and the indictment. (Dkt. 57 at
32:21–33:1.) He argued that “at a hearing, the government . . . will have
an opportunity to present evidence to explain this tracing of the funds,”
but that “at a minimum, [he had] presented evidence that should entitle
[him] to a hearing on this issue.” (Dkt. 57 at 33:2–6.)
The Court gave Defendant 15 days to file yet another sworn
10
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financial affidavit—addressing the deficiencies identified by the
Magistrate Judge. (Dkt. 57 at 14–19.) Defendant did so, filing a signed
affidavit that included a cash flow statement, a net worth statement,
numerous bank statements, and investment and tax documents. (Dkt.
53.) Upon review of that (and recognizing Defendant was appointed a
Federal Defender), the Court concluded Defendant was entitled to a
tracing hearing because he needs the seized assets to hire a lawyer. (Dkt.
54.)
The Court further explained its reasoning at the subsequent
hearing. The Court noted Defendant’s ex parte filing “essentially shows
that he has no assets, no other accounts or things of that nature.” (Dkt.
118 at 2:23-3:4-9.) The Court also recognized Defendant presented prima
facie evidence that at least some portion of the down payment for the
property was made using untainted funds—specifically, by pointing to
the original forfeiture complaint, in which the United States claimed only
$4.3 million of tainted money was used as part of a $5 million down
payment. (Id. at 5:3-22.)
The Court also explained the four Barker factors favored
Defendant. (Dkt. 118 at 7:2–7.) The Court agreed with the Magistrate
11
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Judge’s conclusion that “the approximately one-year delay since” the
United States’s civil forfeiture action “could support reaching the other
[Barker] factors.” (Dkt. 39 at 20 (citing United States v. Dunn, 345 F.3d
1285, 1296 (11th Cir. 2003) (“A delay is considered presumptively
prejudicial as it approaches one year.”)).) The Court also agreed with the
Magistrate Judge’s observation that the “reason for the delay and
[Defendant’s] assertion of his rights are somewhat intertwined.” (Dkt.
39 at 20.) But the Court concluded the Magistrate Judge was wrong in
finding these factors “do not weigh in favor of granting a hearing.” (Dkt.
118 at 6:6-7:7.) Defendant moved to release untainted portions of the
seized assets a little over four months after he was indicted—a
reasonable period of time. (Id.) In holding otherwise, the Magistrate
Judge pointed out that Defendant did not file a claim to the assets in the
civil forfeiture action, and instead “only Roses Ark claimed ownership.”
(Dkt. 39 at 21.) But, as the Court explained at the evidentiary hearing,
“it’s not hard to imagine that somebody who faces a civil proceeding
might not assert their own claims, . . . but once they come under
indictment themselves,” would—like Defendant—“quickly assert[] his
right.” (Dkt. 118 at 6:15–7:7.) So, while the year-long delay may
12
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technically be attributable in part to Defendant, the Court found this
“fairly unique situation” warranted in favor of a hearing. (Dkt. 118 at
7:2–7.)
While the Court did not discuss its prior determination that the
final factor also weighs in Defendant’s favor, the Court now explains that
the seizure obviously prejudiced Defendant by preventing him from
hiring counsel of his choice. In reaching the opposite conclusion as to this
factor, the Magistrate Judge found Defendant did not make a “sufficient
showing that the substitute res has been unlawfully restrained” because
he did not refute the United States’s position that all the assets were
forfeitable as involved in Defendant’s alleged money laundering. (Dkt.
39 at 23.) But the Magistrate Judge did not explain why he concluded all
the funds were purportedly involved in money laundering.2 And the
2 Despite the prejudice prong being the “most searching” of the Barker
factors, the Magistrate Judge gave its consideration short shrift. United
States v. Gosney, 2022 WL 18542509, at *6 (S.D. Fla. June 10, 2022),
aff’d, 2023 WL 1434183 (11th Cir. Feb. 1, 2023); see also Kaley I, 579 F.3d
at 1258 (instructing courts to pay special attention to the prejudice
factor). The Magistrate Judge simply concluded Defendant was not
prejudiced because he could not show the money he wanted returned was
not tied to the charged money laundering offenses. But the entire
purpose of a tracing hearing is to allow the defendant to do just that—
put on evidence to prove the restrained assets are not related to the
charged crimes. Under the Magistrate Judge’s view, a defendant could
13
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United States’s only argument on that front was that Defendant
commingled untainted funds with tainted ones. As discussed below, that
is not enough. The Court also concludes the United States has not
presented evidence of any prejudice to its interests from having the
hearing.3
2. The Court Held Evidentiary Hearings.
The Court held the evidentiary hearing on September 26, 2022. The
United States presented testimony from FBI Special Agent Steve
Ryskoski (an investigator on Defendant’s case). He introduced and
almost never show prejudice sufficient to warrant a tracing hearing, or
at least not so long as a defendant needed evidence to do so. As noted,
Defendant made a prima facie showing that the at least some portion of
the substitute res was illegally restrained. And his argument was not
based on “a challenge to the reliability and competence of the underlying
allegations of a fraudulent scheme in the indictment” but instead to an
inconsistency between the indictment and the United States’s initial
forfeiture complaint. See Gosney, 2023 WL 1434183, at *5 (affirming
district court’s conclusion there was no prejudice sufficient to warrant a
tracing hearing because defendant’s only argument that assets were
unlawfully restrained was that he did not commit indicted crimes).
3 Shortly after the hearing, the United States issued a superseding
indictment, saying Defendant used “millions of dollars” from LHP Pharm
to purchase the Boca Raton property rather than “$5.3 million” as alleged
in the original indictment. (Dkt. 58 at ¶ 19.) The superseding indictment
still identifies the substitute res as subject to forfeiture. (Dkt. 58 at
¶ 39(b).) So the superseding indictment changes none of the issues
currently before the Court.
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testified about a spreadsheet summarizing—among other things—the
inflow and outflow of cash from two bank accounts in the names of
companies owned by Defendant (Ark Medical Solutions, LLC and A Rose
RE, LLC) (Dkt. 71-3) and a “Payment Timeline” showing when those
various deposits and expenses were made (Dkt. 71-4). This showed the
flow of money into the down payment for the Boca Raton property.
Defendant similarly presented a timeline of deposits and withdrawals
from the two accounts. (Dkts. 95-1; 95-2.)
About a month after the hearing, Defendant asked the Court to re-
open the evidence and hold a second hearing so he could present
additional evidence. (Dkt. 83.) The Court granted that motion. (Dkt.
84.) At the second hearing, Defendant presented testimony from a former
business colleague about a transaction he allegedly conducted with
Defendant during the relevant time period. (Dkt. 91.) The parties filed
post-hearing briefs. (Dkts. 95; 100.) The Court then held a third hearing
to permit the parties to argue their respective positions as informed by
the evidentiary hearings and their competing briefs. (Dkt. 121; 123.)
B. Analysis
In Counts One through Five of the Superseding Indictment, the
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United States charged Defendant with wire fraud and conspiracy to
commit wire fraud. (Dkt. 58 at 10-12.) As a result, the United States
may obtain forfeiture of “[a]ny property, real or personal, which
constitutes or is derived from proceeds traceable to” such those offenses.
See 18 U.S.C. § 981(a)(1)(C) and 28 U.S.C. § 2461(c). The United States
contends the money from the sale of the Boca Raton property is
forfeitable under these provisions. (Dkt. 58 at ¶ 39.) In Counts Six
through Ten, the United States also charged Defendant with money
laundering offenses, allowing it to seek forfeiture of “any property, real
or personal, involved in such offense, or any property traceable to such
property.” See 18 U.S.C. § 982(a)(1). (Dkt. 58 at 12-17.) The United
States contends the money from the sale of the Boca Raton property is
also forfeitable under this provision. (Dkt. 58 at ¶ 40.) So, the Court now
considers whether—having had an evidentiary hearing—Defendant has
shown the absence of probable cause for forfeiture of some or all of the
substitute res by showing that some amount of money included in the
purchase of the Boca Raton property (and thus part of the substitute res)
was (1) not the proceeds of the wire fraud offense and (2) not involved in
the money laundering offenses or traceable to property involved in those
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offenses. In his post-hearing briefing, Defendant references three
transactions he claims involved legitimate proceeds that went towards
the purchase of the Boca Raton property: (1) $1.5 million that one of his
companies received from LHP Pharma (2) $179,985 that another one of
his companies received from a customer identified as M. House Pty. and
(3) $117,570 that one of his companies allegedly received from a customer
known as Texas Private Wealth, LLC. (Dkt. 95 at 7–8.)
1. “Proceeds” Theory of Forfeiture
Property is forfeitable as proceeds if it is “derived from” or
“traceable to” the underlying charged offense. 18 U.S.C. § 981(a)(1)(C).4
Courts use a “but for” test in determining whether property so qualifies.
See United States v. Hoffman-Vaile, 568 F.3d 1335, 1344 (11th Cir. 2009).
In other words, “property ‘traceable to’ means property where the
acquisition is attributable to the [alleged] scheme rather than from
money obtained from untainted sources.” United States v. Bornfield, 145
4 Although § 981(a)(1)(C) deals with civil forfeiture, 28 U.S.C. § 2461(c)
authorizes criminal forfeiture based on civil forfeiture statutes for certain
offenses, including wire fraud that does not affect a financial institution.
The United States cites this Title 28 statute in the indictment. (Dkt. 58
at ¶ 39.)
17
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F.3d 1123, 1135 (10th Cir. 1998) (citing United States v. Voigt, 89 F.3d
1050, 1084–87 (3d Cir. 1996)); see also 18 U.S.C. § 981(a)(2)(A) (defining
proceeds as “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”). “[O]nly funds used in or traceable to the
illegal activity are subject to forfeiture, and not any commingled
legitimate funds used in facilitating the scheme.” United States v. United
States Currency Deposited in Account No. 1115000763247, 176 F.3d 941,
946 (7th Cir. 1999).
a) LHP Pharma, Inc.
At the evidentiary hearing, Special Agent Ryskoski testified that
Defendant (and perhaps his coconspirator) defrauded LHP Pharma of
more than $10 million as part of the wire fraud and money laundering
schemes. (Dkts. 71-3; 118 at 15:6-20:23; 33:2-33:25.) In relevant part,
the evidence introduced at the hearing showed that, on March 24, 2020,
LHP Pharma paid Ark Medical Solutions $2.8 million. (Dkts. 71-4; 95-
1.) At the time it received the deposit, Ark Medical Solutions had a
balance of just $6,297.33. (Dkt. 95-1.) On March 25, Ark Medical
Solutions transferred $2.7 million of that money to A Rose RE. (Dkt. 95-
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2.) Because A Rose RE had a negative balance before the transfer, the
$2.7 million deposit left A Rose RE with a balance of $2,590,114.91. (Id.)
On March 26, A Rose RE transferred $1 million to a company called
Realogy Holding Corp. as an initial payment for the Boca Raton property.
(Dkt. 95-2.)5
Agent Ryskoski testified that, in exchange for the payment of $2.8
million, Defendant delivered LHP Pharma $1.5 million worth of PPE.
(Dkt. 118 at 33:14–19.) The United States thus concedes that $1.5
million of the $2.8 million payment from LHP Pharma was not part of
Defendant’s fraudulent scheme—or to use the parties’ words, $1.5 million
was “untainted” by the fraud. (Dkt. 135 at 18:22–19:8.) The United
States further concedes the $1 million payment A Rose RE made to
Realogy on March 26 was untainted. This means that the initial $1
million paid for the Boca Raton property is not traceable to proceeds of
the fraud.
None of the remaining $500,000 that A Rose RE received went to
the purchase of the Boca Raton property. Instead, bank records show
5 Agent Ryskoski testified Realogy “was one of the entities where money
was sent to purchase the house.” (Dkt. 118 at 21:6–8.)
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that, following the $1 million payment, A Rose RE paid various amounts
to unrelated entities until its account balance went negative on March
27. (Dkts. 71-3; 95-2.) Defendant acknowledged this reality at the final
hearing. (Dkt. 135 at 33:7–25.) Specifically, he agreed with the Court’s
conclusion that, assuming “the $1 million that went to the Realogy
Holdings was 100 percent legitimate, . . . [y]ou still can’t carry the
$500,000 remaining untainted balance past the point where that account
hits zero. And that occurs on 3/27, according to [the A Rose RE records].
So by that time, any untainted funds are out of the account.” (Id.)
LHP Pharma made a second, $8.25 million payment to Ark Medical
Solutions on March 31. (Dkts. 71-3; 71-4; 95-1.) Defendant has presented
no evidence—and really does not contend—any of this money was
untainted. The next day, Ark Medical Solutions paid Realogy another $1
million towards the purchase of the Boca Raton property. (Dkts. 71-3;
71-4; 95-1.) On May 1, LHP Pharma made a final payment to Ark
Medical Solutions of $2.5 million. (Dkts. 71-3; 71-4; 95-1.) Again,
Defendant does not argue this money was untainted. Then, on May 4,
Ark Medical Solutions paid the rest of the money making up the
approximately $5.3 million down payment for the purchase of the Boca
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Raton property. (Dkts. 71-3; 71-4; 95-1.)
b) M. House Pty. Ltd.
On March 13, 2020, M. House Pty. Ltd. wired $179,985 to the A
Rose RE account. The wire detail indicated that the money was for the
purchase of “Halyard masks and gowns.” (Dkts. 71-4; 95-2; 118 at 30:22–
31:4.) Agent Ryskoski testified that, because M. House is in Australia,
he had not been able to speak with one of its representatives. (Id. 30:22-
25.) But a representative from Halyard told him Defendant could not
have shipped the products listed on the wire detail to Australia. (Dkt.
118 at 30:16–31:4.) Special Agent Ryskoski thus concluded M. House was
a victim of Defendant’s scheme when it wired A Rose RE $179,985.
The Court concludes Defendant has failed to show he is entitled to
some return of the substitute res as a result of this payment. The Court
credits Agent Ryskoski’s testimony that M. House did not (and could not)
have receive the products for which it paid Defendant $179,985 on March
13, 2020. Agent Ryskoski was a credible witness and he explained the
basis for his conclusion. Defendant did not really challenge that. Rather,
Defendant showed that Ark Medical paid M. House $200,000 on April 1,
2020. (Dkt. 95-1.) Defendant characterized this as a “refund.” (Dkt. 118
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at 40:23–22.) That payment does not undermine the United States’s
probable cause argument, as Defendant offered no evidence to support
his characterization. But, even if Defendant refunded the money, that
would simply mean none of the money Defendant received from M. House
went toward the purchase of the Boca Raton property (or could be
included in the substitute res). So, Defendant’s characterization of the
April 1 payment as a “refund” would not entitle him to the return of any
portion of the substitute res.
Bank records introduced by the United States also show none of the
$179,985 from M. House went towards the purchase of the property.
Before M. House sent A Rose RE the $179,985 on March 13, A Rose RE’s
account had a negative balance of $97,070.09. (Dkt. 95-2.) After
receiving that money, A Rose RE wired all of it to other entities, leaving
its account with a negative balance of $51,085.09 by the end of the same
day. (Dkt. 95-2.) So, Defendant has not shown any of the money received
from M. House went towards the purchase of the Boca Raton property or
could possibly be included in the substitute res.
c) TX Private Wealth, LLC
On April 29, 2020, TX Private Wealth, LLC (on behalf of a company
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called Bold International, Inc.) wired $229,275.20 to the Ark Medical
Solutions account for the purchase of medical supplies. (Dkts. 71-3; 71-
4; 95-1; 118:8–16.) Agent Ryskoski testified that, in exchange, TX Private
Wealth “received product totaling approximately $20,000.” (Dkt. 118 at
32:1–3.) Accordingly, the United States considers only the remainder of
that deposit—$209,587.70—to be derived from the alleged fraud. (Dkts.
71-3.)6 From this, the Court accepts that the difference—$19,687.50—is
not traceable to the proceeds of the unlawful activity. But, there is no
evidence this money went towards the purchase of the Boca Raton
property. Ark Medical Solutions spent more than $1.6 million from this
account within days of receiving this money and more than $4 million
more before the final payments on May 4, 2020 for the purchase of the
property. During that same time—and as explained above—the company
received $2.5 million from LHP Pharma as part of its fraudulent activity.
(Dkt. 95-1 at 3.) In the light of this churning of the account, Defendant
has not shown the $19,687.50 he received on April 29 was part of the final
6 The United States’s spreadsheet separately lists the $209,587.70 under
“Deposits” paid by “Victims.” (Dkt. 71-3.) The other $19,687.50—for
which TX Private Wealth received product—is listed under “Other.”
(Dkt. 71-3.)
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payments on May 4.
Defendant does not challenge this. Instead, Defendant presented
testimony from Brandon Davis, one of the owners of TX Private Wealth,
that Defendant provided (and was paid for) $117,570 worth of PPE in a
separate transaction. (Dkt. 117 at 18:14–19:22.) Specifically, Davis said
he served as a middleman between Defendant (who provided PPE) and a
company called MJG (that received and paid for the PPE) because
Defendant did not want to work with MJG directly due to some
unidentified conflict. (Dkt. 117 at 18:25–19:11.) Defendant says he is
entitled to this money and that it is “reflected” in his bank transactions.
(Dkt. 95 at 8.)
The Court disagrees. As a threshold matter, the only entry showing
a payment from TX Private Wealth to Defendant is the wire transfer of
$229,275.20 discussed above. (Dkt. 95-1.) There is no evidence (other
than Davis’s testimony) that TX Private Wealth made a separate,
legitimate payment of $117,570. And the Court found Davis highly
uncredible. He told a long and incoherent story about the transaction,
referred to Defendant alternatively as a “supplier” and a “distributor,”
admitted the money was paid to conceal the supplier, and could provide
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few details. (Dkt. 117.) In addition, he introduced an alleged invoice for
the transaction. (Dkt. 93-2.) It indicates a wire to the Ark Medical
Solutions account at issue on or about April 23, 2020 for $117,570. (Id.)
But, as already discussed, the bank records contain no evidence Ark
Medical Solutions received that wire. (Dkt. 95-1.) Davis’s credibility was
far too lacking to override the absence of evidence in the bank records.
Defendant thus has not shown this money was ever received let alone
that it went to the purchase of the Boca Raton property.
d) Conclusion Regarding Proceeds Forfeiture
Defendant has shown the lack of probable cause to believe the
initial payment of $1 million for the Boca Raton property is forfeitable as
proceeds of the fraudulent activity. He has failed, however, to show the
other payments he identified either were not the proceeds of fraudulent
activity and/or that the money went into the purchase of the property.
He is not entitled to the return of those funds.
2. “Involved In” Theory of Forfeiture
Because the Court has concluded there is probable cause to believe
all but $1 million of the substitute res is forfeitable as proceeds of the
wire fraud scheme, the only remaining question is whether Defendant
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has shown the absence of probable cause to conclude the $1 million initial
payment for the property is forfeitable as having been “involved in” the
money laundering scheme or traceable to property “involved in” that
scheme.
The United States contends that, because the untainted money was
commingled with proceeds of the alleged fraud for the purchase of the
Boca Raton property, that money was “involved in” money laundering
and is forfeitable under 18 U.S.C. § 982(a)(1). (Dkt. 100 at 11–13.)
Specifically, the United States says because Defendant commingled the
untainted money with tainted money (both in his bank account and in
purchasing the property), the untainted funds “facilitate[d]” money
laundering and are thus forfeitable. (Dkt. 100 at 11.) Defendant says
little in response to the United States’s theory. He argues that because
the money was commingled, and “the overwhelming majority of the
transactions have no relation to the alleged fraud,” the assets cannot be
easily divided, and Defendant is entitled to recover all the funds. (Dkt.
95 at 15–16.) He also says the money laundering charges fail (an issue
that is pending as part of his motion to dismiss), so the funds could not
have been involved in those offenses. (Dkt. 135 at 69:13–19.) Defendant’s
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position does nothing to assist the Court in reaching a decision.
Still, the Court rejects the United States’s contention that the mere
comingling of funds warrants the forfeiture of untainted funds
particularly when—as here—the untainted funds can be easily traced
and “un-mingled.” The United States relies on SEC v. Lauer, 2009 WL
812719 (S.D Fla. March 26, 2009), and United States v. Ward, 197 F.3d
1076 (11th Cir. 1999), for the proposition that “when money is
commingled, the illicitly-acquired funds and the legitimately-acquired
funds cannot be distinguished from each other.” (Dkt. 100 at 8.) Those
cases do not really speak to the issue before this Court. The defendant
in Lauer sought the release of cash held in a brokerage account from a
previous sale of stock. The Court concluded that any “untainted” funds
had been washed out of his brokerage account through a prior transaction
and had not been used to purchase the stock at issue. 2009 WL 812719
at *5. The court in that case specifically held that it was “not a case of
mere commingling of tainted and untainted funds in an account.” Id. at
*5. And Ward addressed the issue of whether the United States was
required to trace illegal proceeds as part of substantive money laundering
charges under 18 U.S.C. § 1956. 197 F.3d at 1078–79. In rejecting that
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idea, the Eleventh Circuit held the money laundering statute “permits
convictions where the funds involved in the transaction are derived
from a commingled account of which only a part comes from ‘specified
unlawful activities.’” Id. at 1082 (emphasis added). This matter involves
a forfeiture statute.
The Eleventh Circuit’s decision in United States v. Puche, 350 F.3d
1137 (11th Cir. 2003) is more helpful. In that case, a defendant convicted
of money laundering drug proceeds appealed the forfeiture of untainted
funds that had been comingled with drug proceeds. The Eleventh Circuit
explained property is not “involved” in a money laundering offense simply
because it is commingled with tainted funds. It said “the mere pooling or
commingling of tainted and untainted funds in an account does not,
without more, render the entire contents of the account subject to
forfeiture.” Puche, 350 F.3d at 1153 (internal citations and quotations
omitted). Instead, “[f]orfeiture of commingled funds . . . is proper when
the government demonstrates that the defendant pooled the funds to
facilitate or ‘disguise’ his illegal scheme.” Id. The Court affirmed the
forfeiture determination based on evidence from which the jury could
have concluded the defendant commingled legitimate funds with the
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drug proceeds “to conceal the nature and source of the narcotics proceeds”
and that “the jury could have inferred that the legitimate proceeds
facilitated the illegal proceeds by acting as a ‘cover’ and hence reduced
suspicion of the latter’s source.” Id. at 1154. No evidence suggests the
$1 million Defendant received from LHP Pharma and almost
immediately wired out for the purchase of the Boca Raton property did
that. In other words, there is nothing “more”—aside from its
commingling with tainted funds in the purchase of the property—that
renders that money forfeitable.
The United States also relies on United States v. Kivanc, 714 F.3d
782 (4th Cir. 2013), in which the Fourth Circuit held that “[w]hen
legitimate funds are commingled with property involved in money
laundering . . . the entire property, including the legitimate funds, is
subject to forfeiture.” (Dkt. 100 at 11.) The Court rejects that argument
for several reasons. First, Kivanc is not binding and, to the extent is says
what the United States says it does, it conflicts with the Eleventh
Circuit’s decision in Puche. Second, Kivanc dealt with 18 U.S.C. § 981,
not § 982. Third, the authority Kivanc cited for that proposition similarly
dealt with different statutes and/or involved situations in which the
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untainted funds concealed the tainted funds. Kivanc, for example, cited
United States v. McGauley, 279 F.3d 62, 71 (1st Cir. 2002). But in that
case, the First Circuit upheld a district court instruction stating “the
commingling of tainted funds (mail fraud proceeds) with legitimate funds
is enough to expose the legitimate funds to forfeiture, if the commingling
was done for the purpose of concealing the nature or source of the tainted
funds.” Id. at 76 (emphasis added). The Kivanc court also cited United
States v. Baker, 227 F.3d 955 (7th Cir. 2020), a case in which the Seventh
Circuit upheld the forfeiture of untainted money that had been comingled
with tainted money upon evidence the untainted money “bankrolled” the
illegal money laundering operation. Id. at 969. Finally, the Kivanc court
cited the Eleventh Circuit’s decision in United States v. One Single
Family Residence, 933 F.2d 976, 981–82 (11th Cir. 1991). That case
involved a drug forfeiture statute and whether an innocent owner was
entitled to recover legitimate funds commingled with tainted property.
Id. Neither Kivanc nor the cases cited therein persuade the Court that
mere commingling is sufficient to consider untainted funds “involved” in
a money laundering offense. As Puche instructs, there must be
something more.
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In an effort to show “more,” the United States says (1) “the
untainted funds resulted . . . from [Defendant’s] misrepresentations that
caused [LHP Pharma] to send the payment” (Dkt. 135 at 64:17–20), and
(2) Defendant ultimately used both the untainted and tainted funds to
purchase the property (Dkt. 100 at 12–13). The United States’s first
argument is untenable given its concession that the initial $1 million was
untainted. The United States does not argue, for example, that the
money was used to conceal the alleged fraud (or proceeds from the fraud),
to convince LHP Pharma to spend more, or for any other purpose.7 The
7 The Court invited the United States to make such an argument even
though it was not included in its briefing. At the final evidentiary
hearing, the Court recognized the $1.5 million was not proceeds but
asked “is it property involved in the offense, because it is used to pay for
the gloves that were delivered in order to lull the victim into the bigger
payment?” (Dkt. 135 at 69:7–10.) The United States responded “Yes,
Your Honor.” (Dkt. 135 at 69:11.) But, when given an opportunity to
explore that theory further (and to present evidence about it), the United
States seemingly abandoned it, instead arguing that under the money
laundering conspiracy count “the fact that the money was transferred to
[A Rose RE], it still went to the house, so the house is still property
traceable to the money laundering offense.” (Dkt. 135 at 69:18–24.) The
United States then put on testimony about Defendant potentially
defrauding the company that ultimately provided the PPE he delivered
to LHP Pharma—not evidence about him using the $1.5 million delivery
to further defraud LHP Pharma or to otherwise advance the scheme. The
Court explained, “I still have trouble understanding how if you concede
that the . . . 1.5 went to the [A Rose RE] account, . . . how that money can
prime the ongoing fraud.” (Dkt. 135 at 76:20–23.) Counsel for the United
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United States’s second argument simply explains the commingling,
without explaining how it was involved in the illegal activity.
As the Court already concluded, the mere fact untainted money was
commingled with tainted funds (into the purchase of the home) does not
mean—standing alone—the untainted money was involved in a money
laundering offense.8 The United States has simply failed to show “more.”
So, the Court concludes Defendant is entitled to recover $1 million.
III. Conclusion
The Court ADOPTS IN PART and REJECTS IN PART the
Magistrate Judge’s R&R (Dkt. 39). The Court SUSTAINS IN PART and
OVERRULES IN PART Defendant’s Objections to the R&R (Dkt. 43).
The Court GRANTS Defendant’s Motion to Hire Counsel of Choice (Dkt.
23). The Court GRANTS IN PART and DENIES IN PART Defendant’s
Amended Motion to Release Seized Funds (Dkt. 30). The Court
States responded “it’s all just one scheme, the way the government sees
it . . . it’s involved in the scheme, so I think involved in is very broadly
defined as . . . facilitating.” (Dkt. 135 at 77:4–78:4.)
8 The United States also cites a case concluding a property purchased
with untainted money becomes forfeitable if tainted funds are used to
make improvements on the property or to pay property taxes or a loan on
the property. (Dkt. 100 at 11 (citing United States v. Miller, 295 F. Supp.
3d 690, 700 (E.D. Va. 2018).) That authority is not applicable here.
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ORDERS that $1,000,000.00 of the $4,915,704.39 held as substitute res
by the United States Marshals Services be returned to Defendant. The
Court DENIES AS MOOT Defendant’s Motion to Release Seized Funds
(Dkt. 24).
SO ORDERED this 19th day of May, 2023.
(1
1
MICH"K E L L. B R O W N
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