Federal Criminal Defense Blog : Georgia Federal Criminal Defense Lawyer & Attorney : Gillen Withers & Lake Law Firm : White Collar Crime, RICO, Trial : Atlanta, Savannah, GA

Lexington, Kentucky, attorney Bryan Coffman was convicted last year in the U.S. District Court for the Western District of Kentucky on eight counts of mail fraud, nine counts of wire fraud, two counts of securities fraud, 10 counts of money laundering and one count of money laundering conspiracy. His wife, Megan Coffman, was acquitted of the money laundering charges against her. Coffman was charged with using his alleged oil-drilling business, American Oil & Gas Resources, to defraud investors out of more than $34 million. Another co-defendant, Gary Milby, was also convicted. Coffman has not yet been sentenced.

Coffman and his co-conspirators pocketed the investors' monies and spent lavishly on property, yachts, cars, jewelry. Milby furthermore threw a lavish birthday party for his daughter which was nationally broadcast on MTV's "My Super Sweet 16," in which Milby gave his daughter a new BMW, a helicopter ride and a shopping spree.

Image source: www.mtv.com/news/articles/1584566/my-super-sweet-16-dad-accused-fraud.jhtml

Today, according to the Lexington Herald, the Court ordered Coffman to forfeit $3.1 million in cash; a condominium in Charleston, South Carolina; and a yacht christened "For Your Eyes Only." The Coffmans were permitted to keep their house in Lexington, since the government was unable to trace any proceeds from illegal activity to the residence or any improvements.

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Arthur "Avi" Hiaeve, owner of the Manhattan diamond store, Hiaeve & Co., was acquitted last Wednesday on money laundering charges in the U.S. District Court for the Eastern District of New York. According to Reuters, Senior District Judge Allyne Ross granted Mr. Hiaeve's motion for judgment of acquittal on the seven counts of laundering drug money through his business as well as charges of avoiding currency reporting requirements, holding that a single telephone call by Mr. Hiaeve to a government informant was insufficient to establish venue in the Eastern District, and that Mr. Hiaeve should have been prosecuted in Manhattan in the Southern District of New York. The prosecution responded that Mr. Hiaeve allegedly had reason to know that he was laundering money coming from drug operations operating in the Eastern District of New York. Double jeopardy bars a subsequent prosecution of Mr. Hiaeve in Manhattan.

The government had alleged that Mr. Hiaeve laundered at least $106,000 on five occasions. Employees of Hiaeve, Kevin and Tanny Donaldson, were also charged with laundering drug money and entered pleas of guilty to conspiracy to distribute controlled substances and money laundering, respectively. Mr. Hiaeve is still involved in a civil forfeiture suit involving $3 million in diamonds and $17,900 in seized currency.

 Source: Elite Choice

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As reported by Law.com, yesterday, U.S. District Judge James I. Cohn of the Southern District of Florida issued an order requested by the government to preserve all assets of accused Ponzi schemer Scott Rothstein for forfeiture. Rothstein is alleged to have defrauded investors of an $1.6 billion--according to the most recent estimates--by soliciting investments in alleged settlement agreements in civil and employment cases. He voluntarily surrendered assets to authorities last month, without conceding any wrongdoing.

Rothstein's former law firm, Rothstein Rosenfeldt Adler, is currently going through dissolution in Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of Florida. The District Court's order shifts jurisdiction for marshalling the assets from the Bankruptcy Court to the District Court. The Court will consider any claims by third-parties in ancillary proceedings to the criminal case against Rothstein.

The bankruptcy trustee had sought to bring Rothstein and his companies into the law firm's bankruptcy proceeding, claiming that they were "alter-egos" of the firm. The District Court's intervention will impede the trustee's pursuit of any claims against the assets, according to Rothstein's bankruptcy counsel.

The District Court has set trial on the money laundering, fraud and racketeering charges against Rothstein for January 11. Rothstein is currently being held in federal custody.

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In response to allegations uncomfortably similar to those against former New York celebrity lawyer and arch Ponzi-schemer Marc Dreier, Fort Lauderdale attorney Scott Rothstein, head of Rothstein, Rosenfeldt and Adler, P.A., appeared in response to a criminal information in the U.S. District Court for the Southern District of Florida on Tuesday. The information charges Rothstein with one count of Racketeering Conspiracy, in violation of 18 U.S.C. § 1962(d); one count of Money Laundering Conspiracy, in violation of 18 U.S.C. § 1956(h); one count of Mail and Wire Fraud Conspiracy, in violation of 18 U.S.C. § 1349; and two counts of Wire Fraud, in violation of 18 U.S.C. § 1343, as well as criminal forfeiture, U.S. v. Rothstein, 0:09-cr-60331-JIC.

According to the criminal information, available here, from about 2005 through November 2009, Rothstein, and other “known and unknown” unnamed co-conspirators, allegedly unlawfully obtained approximately $1.2 billion from investors through a Ponzi scheme (outdoing even Dreier’s scheme). The Government alleges that Rothstein used false statements, documents and computer records to induce investors to loan money to alleged borrowers based upon fraudulent and fictitious promissory notes and bridge loans. Rothstein allegedly falsely informed investors that his law firm, Rothstein, Rosenfeldt and Adler, P.A.’s, clients requested short-term financing for undisclosed business deals and that the clients were willing to pay high rates of return for loans negotiated by Rothstein.

Rothstein also allegedly told investors that they could purchase at a discount confidential settlement agreements in sexual harassment and whistleblower cases in amounts ranging from hundreds of thousands of dollars to millions of dollars. Rothstein allegedly falsely represented that the settlement agreements would be repaid to the investors at face value over time. Rothstein allegedly represented to investors that the settlements were highly confidential in order to protect the reputations of the companies and executives involved; that the plaintiffs preferred to settle the claims rather than purse them in a public forum; that Rothstein, Rosenfeldt and Adler, P.A., would disburse the investors’ funds to the plaintiffs; that the firm would make payments to the investors pursuant to the payment schedules in the alleged settlement agreements; that the funds were maintained in designated trust accounts for the investors in accordance with the rules and regulations of the Florida Bar and were verified by independent sources, as well as numerous other alleged false statements regarding the settlement agreements, investment funds and the firm.

To effect the fraud, Rothstein allegedly established numerous trust accounts in Rothstein, Rosenfeldt and Adler, P.A.’s name; falsified statements from financial institutions and manufactured online banking information allegedly showing investors’ monies; created false and fictitious settlement agreements and other documents. Among the alleged false and fictitious documents was a court order in a case, purportedly signed by a Federal District Judge, which falsely alleged that Rothstein, Rosenfeldt and Adler, P.A.’s clients had prevailed in a lawsuit and were owed $23 million, when in fact the firm had settled the case without the clients’ knowledge and had obligated them to pay $500,000 to the defendant.

The information also alleges that Rothstein allegedly falsely told clients that, in order to recover funds, they had to post bonds to be held in Rothstein, Rosenfeldt and Adler, P.A.’s trust account. Over several years, clients wired approximately $57 million to a trust account controlled by Rothstein. Rothstein allegedly created another false Federal court order to conceal the scheme, providing that the funds were to be returned to the clients by a later date.

Rothstein used the funds acquired through the alleged scheme to fund the operations of Rothstein, Rosenfeldt and Adler, P.A., and to expand the firm. The firm grew to employ approximately 70 attorneys. Rothstein is alleged to have laundered the funds from the scheme through corporations, contributions and large bonuses and gifts to employees. The information alleges that Rothstein used the funds to make contributions to Federal, State and local political candidates in a manner designed to conceal the source of the funds and to circumvent Federal and State limits on campaign contributions; for charitable donations; to purchase controlling interests in restaurants in South Florida; and to hire members of local law enforcement to provide security for Rothstein, Rosenfeldt and Adler, P.A., and for Rothstein personally.

The enormous wealth amassed by Rothstein through the alleged scheme is apparent in the Governement’s forfeiture allegations, which seek forfeiture not only of a sum of $1.2 billion, but also of 24 properties in Fort Lauderdale, Lauderdale by the Sea, Boca Raton, Hollywood and Plantation, Florida; New York City and Narragansett, Rhode Island, including Rothstein’s 10% ownership in the Miami Beach mansion of late fashion mogul Gianni Versace, “Casa Casuarina.” Forfeiture is also sought of numerous business interests, bank accounts and jewelry, as well as 24 vessels and vehicles purchased by Rothstein, including a 55 foot yacht.

The Government also lists millions in political and charitable contributions by Rothstein which it seeks forfeiture of, including contributions to the Republican Party of Florida; Florida Governor Charlie Crist; Democratic Chief Financial Officer Alex Sink, who is running for governor; and two hospitals.

As reported in the Miami Herald here, and here, Rothstein started Rothstein, Rosenfeldt and Adler, P.A., in 2002 as an obscure attorney practicing employment law. Over the next six years, his net worth grew from about $160,000 to tens of millions. Rothstein used flashy wealth and connections in the Broward County social and business communities to lure wealthy persons to invest in his schemes. He befriended the rich and famous, including NFL Hall of Famer Dan Marino

George G. Levin, a wealthy Fort Lauderdale resident and hedge fund manager, gave $656 million to Rothstein to invest in settlements purportedly worth $1.1 billion. Levin helped Rothstein market investments in employment and sexual harassment lawsuits to investors, although he is not alleged to have been complicit in Rothstein’s crimes. Another of Rothstein’s clients, car-dealership mogul Ed Morse, claims that Rothstein defrauded him of $57 million, arising from the settlement of a contract dispute with an interior decorator.

Rothstein would allegedly give large bonuses to employees of Rothstein, Rosenfeldt and Adler, P.A. on the condition that they make campaign contributions to political candidates who Rothstein would specify. The Government has stated that the recipients of the political contributions have returned the contributions. The Florida Democratic Party has returned $200,000 and the Florida Republican Party has given back $150,000. After Crist won the Governor’s race in 2006, he appointed Rothstein to a panel which nominates Broward County judicial candidates. The Florida Democratic Party has called for an investigation of Crist. Rothstein also allegedly paid gratuities to local law enforcement officers to avoid scrutiny.

Rothstein’s scheme began to unravel over Halloween weekend, when investors began calling the firm for overdue payments and discovered the fraud. Rothstein fled to Morocco in October, taking $400,000 to $500,000 in cash with him and wiring $16 million to Casablanca. Rothstein reportedly sent e-mails to members of his firm that he was contemplating suicide, but he returned to the U.S. on a private jet in early November. He met with Federal authorities and provided details regarding his Ponzi scheme. FBI and IRS agents raided Rothstein, Rosenfeldt and Adler, P.A.’s law offices, and seized Rothstein’s real and personal property. Rothstein agreed to waive indictment, an indication that he is cooperating with the Government, although Rothstein’s counsel has denied that he has any deal with the Government.

The Government’s information does not name Rothstein’s alleged co-conspirators, however news reports suggest members of Rothstein's inner circle at the law firm, and officers at Toronto Dominion Bank, where the investor trust accounts were held.

Rothstein’s alleged Ponzi scheme has been called the largest in the history of South Florida by Federal officials. The Florida Bar has disbarred Rothstein for stealing from the firm’s trust account. Rothstein, Levin and TD Bank are also being sued by a group of investors for more than $100 million.

Rothstein appeared in court on Tuesday in casual attire with a confident demeanor and pled not guilty to the information. U.S. Magistrate Judge Robin Rosenbaum ordered Rothstein jailed pending trial based on Rothstein’s flight to Morocco. Rothstein is represented by attorney Marc Nurik, oddly of Rothstein, Rosenfeldt and Adler, P.A. He faces up to 100 imprisonment if convicted.

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Conflicts frequently arise in criminal cases between the Government seeking forfeiture or restraint of substantial assets of the defendant on the one hand, and the defendant who seeks to use the assets alleged to be subject to forfeiture to retain counsel of his or her choice pursuant to his or her Sixth Amendment rights. The issue of access to assets to hire counsel of a defendant’s choosing can be vital to the rest of the course of proceedings. More often than not, this issue has been resolved in favor of the Government’s restraint of assets, often forcing defendants to proceed with appointed counsel. In most cases, a defendant is not provided with an opportunity prior to trial to challenge the restraint of his or her assets, when the assets are most needed to realize his or her Sixth Amendment right to counsel of his or her choice.

Well, last week the Eleventh Circuit Court of Appeals issued an opinion reinforcing the need for trial courts to hold a post-indictment, pre-trial evidentiary hearing regarding restraint of assets which will be welcomed as good news by defendants seeking access to assets with which to pay counsel. In U.S. v. Kaley, NO. 07-13010, 2009 WL 2497599 (11th Cir., August 18, 2009), the defendant husband and wife were charged with conspiracy to transport stolen property, prescription medical devices, and selling them on the black market, id. at *1. The defendants retained counsel, using a home equity line of credit on their home to obtain certificates of deposit. Id. The grand jury subsequently returned an indictment against the defendants, seeking criminal forfeiture of all property traceable to the offenses, as well as a money judgment, and the Government moved for an ex parte restraining order against the CDs and filed a notice of lis pendens against their home. Id. A magistrate judge eventually issued orders finding probable cause that the CDs and the residence were “involved in” the violations and concluding that no post-restraint hearing was necessary until trial, which orders were affirmed by the District Court, and the defendants filed an interlocutory appeal. Id. at *2.

The Eleventh Circuit noted that whether a defendant is entitled to a post-indictment, pre-trial evidentiary hearing on restraint of assets needed to pay a defendant’s counsel of his or her choice was controlled by U.S. v. Bissell, 866 F.2d 1343 (11th Cir.1989), which adopted the test set forth by the U.S. Supreme Court in Barker v. Wingo, 407 U.S. 514 (1972):

(1) the length of the delay before the defendants received their post-restraint hearing; (2) the reason for the delay; (3) the defendants' assertion of the right to such a hearing pretrial; and (4) the prejudice the defendants suffered due to the delay weighed against the strength of the United States's interest in the subject property.

Id. at *4. The Court observed that the trial court had found that the first two factors weighed in favor of the Government, finding that the 8 month delay before a hearing on the restraint was held was not significant, and that the Government’s reason for the delay—not revealing its case and witnesses prior to trial—was substantial. Id. at *6. In regard to the third factor, the Court noted that the trial court had held that the factor was neutral since, although the defendants had asserted their right to a post-restraint, pre-trial hearing, they could only demonstrate that the assets were outside the scope of the indictment by challenging the validity of the indictment on its merits, which the defendants were prohibited from doing pre-trial. Id. at *7. In regard to the fourth factor, the Eleventh Circuit noted that the trial court did not state whether it weighed in favor of, or against, a pretrial evidentiary hearing. Id. The Court proceeded to find that:

A pretrial challenge to the indictment would require the district court to hold an evidentiary hearing to determine whether the crime occurred. The court would hear the Government's case and the defendant's response, and then determine whether the crime had occurred and, thus, whether the assets were forfeitable. In many cases, such a hearing would go so far as to render the trial on the merits of the criminal charge unnecessary. In short, such a procedure would require the Government to preview its case-at the very least, the Government would have to put on enough evidence to withstand a motion to dismiss the charge. But the Bissell court undeniably contemplated some circumstances in which, despite the presence of probable cause, a pretrial hearing would be required.

Id. The Court then continued to observe that:

The court in an appropriate case may grant the defendant's request notwithstanding the fact that the return of the indictment established probable cause to seize or restrain the assets, possibly… The purpose of the hearing would not be to determine guilt or innocence but, rather, to determine the propriety of the seizure.

Id. It further stated that “the purpose of the hearing is to reduce the possibility that the court imposed the restraint improvidently.” Id. at *8 (citing Fuentes v. Shevin, 407 U.S. 67 (1972)).

            The Eleventh Circuit concluded that, notwithstanding the District Court’s determination that probable cause existed to forfeit their assets, it erred in applying the third and fourth Bissell factors. Id. It held that the third factor should weigh in favor of the defendants since they took “every available step to contest the restraints.” Id. It further held that district courts should:

[E]ngage in a more searching exposition and calculus of the fourth Bissell factor, which requires it to weigh the prejudice suffered by the defendants due to the delay before their post-restraint probable cause hearing against the strength of the United States' interest in the subject property, and take care to give the powerful forms of prejudice that the [defendants] will suffer ample consideration. 866 F.2d at 1354. As Bissell pointed out, a wrongful deprivation of a defendant's legitimate assets rendering him unable to retain his counsel of choice will severely impair his ability to defend himself. Id. at 1354. Indeed, our law is clear and unambiguous that depriving a defendant of the counsel of his choice is a serious and significant impediment to his ability to effectively navigate our nation's criminal procedures and protections. See Gonzalez-Lopez, 548 U.S. [140,] 146 [(2006)]… ; Wheat v. United States, 486 U.S. 153, 159 [ ] (1988)… ; see generally United States v. Garey, 540 F.3d 1253, 1263 (11th Cir.2008) (en banc)…

Being effectively shut out by the state from retaining the counsel of one's choice in a serious criminal case is a substantial source of prejudice, but the inequities in this case actually go beyond being able to retain the counsel of choice. The restraint of assets in the present case prohibits the [defendants] not only from retaining their counsel of choice, but also from retaining the experienced attorneys who have represented them since the grand jury investigation began in January, 2005. Losing access to long-time counsel who have already invested substantial time into learning the intricacies of the [defendants] case and preparing for trial will unquestionably cause the [defendants’] prejudice.

Id. at *8-*9. The Court reversed and remanded the case, observing:

Indeed, virtually every circuit to address this issue other than this Court has found that criminal defendants such as these are entitled, under the Due Process Clause of the Fifth Amendment, to a pretrial hearing in order to determine whether it is likely that the restrained assets will be subject to forfeiture.

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