In January of 2010, the Fourth Circuit decided United States v. Mark Lynn, F.3d, 2010 U.S. App. LEXIS 1927 (Jan. 28, 2010), requiring the trial judge to clearly articulate how the 18 U.S.C. §3553(a) factors were applied in fashioning the sentence. The court, referencing Gall v. United States, stated that "a district court’s explanation of its sentence need not be lengthy, but the court must offer some ’individualized assessment’ justifying the sentence imposed and rejection of arguments for a higher or lower sentence based on §3553." Mr. Lynn, who was represented by other counsel at trial, had been convicted and sentenced to prison for 33 years. Mr. English handled his appeal and obtained the Fourth Circuit decision which vacated Mr. Lynn’s sentence. The court’s decision relied in part upon another case Mr. English had argued.
In United States v. Nacchio, 573 F.3d 1062 (10th Cir. 2009), the court of appeals correctly construed the CAFRA’s definition of the key word "proceeds" in 18 U.S.C. §981(a)(2). This is the first circuit decision to interpret §981(a)(2)’s language. The issue arose in the long–running appeal of Joseph Nacchio, the former CEO of Qwest Communications Int’l, from his conviction on 19 counts of insider trading. The district court ordered Nacchio to forfeit $52 million. However, the court of appeals agreed with Nacchio that the district court erred in not allowing Nacchio a deduction for the "direct costs" incurred by him in his insider trading activity.
According to Nacchio, after the deduction of his direct costs, his net profit would be "only" $44.6 million — still a king’s ransom, but less than the $52 million ordered forfeited by the district court. The court of appeals agreed with Nacchio that the amount of the forfeiture should have been calculated under 18 U.S.C. §981(a)(2)(B), which allows the defendant to deduct the "direct costs" he incurred in generating the proceeds. The district court had erroneously applied the broader definition of proceeds found in §981(a)(2)(A), which only applies to crimes involving the provision of "illegal goods and services" and "inherently unlawful activities" such as robbery. The court of appeals held that the securities at issue were "lawful goods" that were sold in an illegal manner and thus the narrower definition of proceeds found in §981(a)(2)(B) applied to Nacchio’s case.
Mr. Smith filed an amicus curiae brief in support of Mr. Nacchio on behalf of the National Association of Criminal Defense Lawyers. The court of appeals relied heavily on Mr. Smith’s discussion of the "proceeds" issue in his treatise. 573 F.3d at 1087–90.
Former Pennsylvania State Senator Vincent J. Fumo was convicted of 137 counts of defrauding the state Senate, a South Philadelphia nonprofit organization and a maritime museum. The federal jury sitting in Philadelphia also found him guilty of obstruction of justice. He has been sentenced to less than five years in prison. The long drawn out case was followed closely by the Philadelphia news media. The United States sought forfeiture of over $4 million in alleged illegal gains stemming from the various frauds. David Smith represented Senator Fumo in opposing the government's overzealous and legally unfounded forfeiture demand. On May 14, 2009, U.S. District Judge Ronald L. Buckwalter, sitting as the trier of fact, issued a decision finding that the government was not entitled to forfeit anything, much less over $4 million.
The Supreme Court held that the important civil forfeiture case of Alvarez v. Smith was moot because all of the actual property disputes between the parties had been settled or otherwise resolved in Illinois state court. The Court vacated the Seventh Circuit’s judgment in favor of the plaintiffs. 130 S. Ct. 576, 175 L. Ed.2d 447 (2009). This is an unfortunate outcome because a clear majority of the Court appeared to agree with at least some of plaintiffs’ constitutional claims at oral argument on October 14, 2009. Plaintiffs’ counsel, from the University of Chicago Law School, vowed to continue the constitutional litigation under §1983 in the district court by seeking damages there. Mr. Smith filed an amicus brief on behalf of the Cato Institute, the Goldwater Institute and the Reason Foundation in support of the plaintiff property owners.
At least $10 million in assets has been recovered from abroad by the Department of Justice in this case. Courtney Linn, the Assistant U.S. Attorney assigned to the case, unfortunately left DoJ and has gone into private practice. Responsibility for the case now rests with Steve Schlesinger at the Asset Forfeiture and Money Laundering Section. Apparently the IRS has prepared a list of the 4800 victim-investors whose claims should be recognized by the DoJ, but the payout has been delayed because the DoJ folks didn't have computers that can read the IRS database! In the end, the job of sending out the checks is too big for DoJ so they will hire a contractor to do it. Let us know if you change your address. Also let us know if the victim-investor passes away. In this event, payment will be made to the decedent's estate.
The court-appointed receiver finally finished his work on the asset collection portion of the case, and the court approved his proposed distribution plan for the second payout. The payout will be delayed, however, as eleven claimants filed an appeal which will first have to be litigated. We expect that process will take at least a year, so we hope the final payout will occur by late 2010 or early 2011. If the appeals are denied, the payout will be less than 1% of the verified claim. Should any or all of the appellants win, the percentage of return will have to be recalculated and will be less.
We estimated from the beginning that the second payout would be a small fraction of the first. This estimate was based on the receiver's recovery of monies from a number of ventures which appeared promising early on. Several, however, did not result in the receiver obtaining any funds. (These included such things as loans Zidar made to other fraudsters and investments he made in other fraud schemes.) While this is disappointing, please remember that of the $75 million Zidar received in investments, only $25 million was left when the government seized the accounts; the first distribution of 41% was thus much higher than the original 33% ballpark figure.
As always, be sure to keep us advised of any address changes. Also let us know if the victim-investor passes away. In this event, payment will be made to the decedent's estate.
