The results in the following cases depend upon a variety of factors which are unique to each case. A positive result in one case neither guarantees nor predicts a similar result in any future case.
Some Forfeiture Cases Which David Smith Defended or for Which he Provided Counsel or Expert Testimony:
2017 United States v. All Assets Held at Bank Julius Baer & Co., Guernsey Branch, No. 1-04-CV-00798-PLF (D.D.C.). Mr. Smith is representing Pavel Lazarenko, the Prime Minister of Ukraine from 1996 to 1997, in a very complex, long running, civil forfeiture action filed by the United States in the District of Columbia in 2004. The amended complaint, part of the DoJ’s “Kleptocracy Initiative,” seeks forfeiture of $300 million in bank accounts located in Antigua, Guernsey, Switzerland, Liechtenstein and Lithuania. Various foreign governments have also filed their own forfeiture actions. The facts of the underlying criminal prosecution, begun in 2000, are summarized in United States v. Lazarenko, 564 F.3d 1026 (9th Cir. 2009). Like the underlying criminal case, the civil suit is based primarily on video depositions taken in foreign countries; and it presents a host of interesting legal issues. Discovery finally began eleven years after the filing of the civil action. The DoJ alleges that another former Prime Minister, Yulia Tymoshenko, conspired with Mr. Lazarenko, but State Department reports assert Ms. Tymoshenko’s innocence. In its latest of many published opinions in the case, the district court granted in part and denied in part Lazarenko’s motion for partial summary judgment on the pleadings. The motion argued that most of the criminal statutes underlying the forfeiture claims have no extraterritorial application and that 18 U.S.C. § 981, the civil forfeiture statute relied on by the government, could not be applied extraterritorially based on those criminal statutes. The court’s lengthy decision addresses several issues of first impression. U.S. v. All Assets Held at Bank Julius Baer & Co., 251 F. Supp. 3d 82 (D.D.C. 2017).
2016 Luis v. United States, 136 S.Ct. 1083, 194 L.Ed. 2d 256 (2016). The Supreme Court held that “the pretrial restraint of legitimate, untainted assets needed to retain counsel of choice violates the Sixth Amendment.” The Court concluded that a defendant’s Sixth Amendment right to counsel of choice far outweighed the government’s interest in restraining legitimate assets for possible future forfeiture as “substitute assets” or “property of equivalent value.” Mr. Smith co-authored an amicus brief in support of the petitioner on behalf of the NACDL, the Florida Association of Criminal Defense Lawyers and the California Attorneys for Criminal Justice.
2015 United States v. Emor, 785 F.3d 671 (D.C. Cir. 2015) (reversing and remanding for a hearing on SunRise Academy’s third party petition, holding that SunRise had both Article III and statutory standing based on its claim that defendant Emor, its former chief, embezzled $2 million of the school’s funds; if SunRise could prove embezzlement then it “possessed vested legal title or a superior legal interest over the money and Emor did not, which means that the government never had a valid legal interest.” SunRise could not be “denied a hearing based on findings the court made in the prior [criminal] proceeding from which SunRise was excluded. Because this heads the government wins and tails SunRise loses form of criminal forfeiture [proceeding] does not comport with the statutory scheme, we reverse.”)
2015 United States v. All Assets Listed in Attachment A,89 F.Supp.3d 813 (E.D. Va. 2015) (opinion and order granting motion to strike claims on basis of fugitive disentitlement statute), aff’d sub nom., United States v. Batato, 833 F.3d 419 (4th Cir. 2016). Mr. Smith represented two of the foreign claimants in this hard-fought case in which the government sought forfeiture of $60 million in assets alleged to be the proceeds of the “Megaupload” conspiracy to commit racketeering, criminal copyright infringement and money laundering. Claimants argued, inter alia, that the district court had rendered an advisory opinion in disregard of Article III’s limits because it was clearly not binding on the foreign courts in New Zealand and Hong Kong that have control of the property. These foreign courts were unlikely to enforce the district court’s judgment because they do not consider the fugitive disentitlement doctrine to be consistent with due process. Circuit Judge Floyd wrote a persuasive opinion agreeing with claimants’ Article III argument. Claimants also argued that the government did not properly allege criminal copyright infringement because the complaint only referenced acts of “secondary” infringement by the Megaupload website.
2014 United States v. Mohammed Sani Abacha. [2014] EWHC 993 (Comm). Mr. Smith submitted his expert opinion on American forfeiture law on behalf of Blue Holding, Ltd., in a proceeding by the United States seeking a continuation of a restraint order previously entered ex parte by another justice of the High Court of Justice, Queen’s Bench Division, Commercial Court, freezing over $100 million in U.K. banks; while Justice Field accepted Blue Holding’s argument that the U.S. civil forfeiture proceeding based on the money laundering laws was “penal” in nature, and therefore would not be enforced under the common law, he held that an application to continue a freeze order is “not an application to enforce a foreign judgment but to continue an order designed to hold the ring until a judgment in the US Claim can be lawfully enforced under the 2005 Order” and that it was “expedient” to continue the Freezing Injunction; this is the largest case ever brought by the U.S. Justice Department as part of its “Kleptocracy Initiative.”
2013 U.S. v. S.A.C. Capital Advisers, L.P., 13 Civ. 5182 (RJS) (S.D.N.Y. Nov. 6, 2013) (Stipulation and Order of Settlement, Doc. 50). Mr. Smith consulted with two large New York law firms that settled this civil forfeiture action and the related criminal prosecution for a total financial penalty of $1.8 billion, which consisted of a $900 million fine and a civil forfeiture of $900 million. But the payment of the $616 million that the SAC Entity Defendants had undertaken to make to resolve related SEC actions was applied as a credit to the stipulated forfeiture total, so that the “net forfeiture payment” was $284 million. The civil forfeiture complaint was a stretch, based on the theory that illicit profits from insider trading were knowingly commingled with other capital in the SAC Investment Funds and used, inter alia, to promote further trades based on inside information; therefore, all assets of S.A.C. and its related entities—some $9 billion—were allegedly subject to forfeiture as “property involved in” “promotion” money laundering under 18 U.S.C. § 981(a)(1)(A).
2011 United States v. PokerStars, et al. No. 1:11-cv-2564-LBS (S.D.N.Y. 2011). Civil forfeiture and civil money laundering penalty case against three leading online poker companies based on allegations that, among other things, they deceived U.S. banks into processing billions of dollars in allegedly illegal online poker payments; PokerStars reached unique settlement with government in which it agreed to $731 million forfeiture but admitted no wrongdoing and also acquired the forfeited assets of its main competitor.
2011 U.S. v. Isai Scheinberg et al. No. S3 10 Cr. 336-LAK (S.D.N.Y. 2011). Criminal case against executives of three leading online poker companies; government sought a total of at least $3 billion against the defendants as well as all of their interests in the companies.
United States v. Brooks. No. 2:06-cr-00550-JS-ETB (E.D.N.Y.). Insider trading and corporate looting prosecution in which government sought forfeiture of $190 million, but court reduced amount of forfeiture to $67 million
United States v. Millberg Weiss LLP, CR 05-587(D) JFW (C.D. Cal. 2008). Government sought over $200 million in class action suit fees obtained by law firm through improper use of family members and associates of partners as named plaintiffs; case was settled for a much smaller amount.
2011 In re: Search & Seizure as to Middle District of Pennsylvania Cases. No. 10 mc 212 (E.D. Pa. 2011). Rule 41(g) litigation in case where tens of millions of dollars were seized from the accounts of one of the biggest internet and phone sex companies in the country and its owners.
2011 United States v. Clay. No. 8:11-CR-115-JSM-MAP-5 (M.D. Fla.). Prosecution of several former Wellcare executives for alleged Medicare fraud in excess of $80 million.
Soulbury, Ltd. v. Royal Bank of Scotland Int’l, Ltd. (Royal Court of Guernsey). Provided expert testimony on American forfeiture law, in particular the proper construction of 18 U.S.C. 981(k) and the interpretation of the Excessive Fines Clause of the Eighth Amendment in suit by bank client, an online gaming company located in Antigua, for $6,854,317 in damages attributed to bank’s failure to defend novel U.S. forfeiture action under § 981(k).
2014 Return of Funds Seized at FedEx Facility. The firm represented a glass artisan in Virginia and his wife in seeking the return of currency seized at a FedEx facility in Indiana. The client was traveling to California to purchase used equipment for his shop and, preferring to not travel carrying a large amount of cash, shipped the cash to himself via FedEx. The currency was seized by the Indiana police after scanning equipment at the shipping facility detected the cash. The government ultimately decided not to pursue the case, and returned all of the cash to the clients.
2014 Motion to Compel Specific Performance of Plea Agreement Is Not Opposed by the Government. Mr. Smith was co-counsel on a successful motion to compel the government to pay defendant the balance of the sum of $10,750,000 due him under the terms of the plea agreement he entered in February 2008. United States v. Galante, No. 3:06-CR-161 (Ebb) (D. Conn.).
2013 Settlement of Third Party Claims in Criminal Forfeiture Case. Mr. Smith represented six residents of Beijing whose property was criminally forfeited in U.S. v. Zhao, No. 1:10 CR 317-GBL (E.D.Va.), a case in which the defendants were convicted of selling counterfeit Cisco products in the United States. Two years after filing a third party petition on their behalf requesting that the court adjudicate their interests in the property, the government settled the case because the third parties presented evidence that they were the owners of the properties, not defendant Zhao. Over $2 million in property was returned to the third party petitioners pursuant to the Consent Order of Settlement approved on October 28, 2013 by the court. Indictments against several of the third parties were to be dismissed without prejudice as part of the settlement.
2013 Settlement of Drug Money Laundering Civil Forfeiture Case. After three years of litigation, including an appeal to the Second Circuit, the government decided to walk away from a large parcel of undeveloped land on a mountain ridge in eastern Tucson, Arizona that it was trying to forfeit, in exchange for a payment of only $25,000, a tiny fraction of the value of the real estate. U.S. v. All Right, Title and Interest in Real Property, No. 05 Civ. 9548 (PAE)(S.D.N.Y. July 15, 2013)(Doc. 154).
2013 Settlement of Dispute Between Poland and a U. S. Gun Collector Over a Rare 1938 Semi Automatic Rifle. Mr. Smith represented the Republic of Poland in a dispute with a Virginia gun collector over the ownership of a rare wz.38M Maroszek semi-automatic rifle. Only 150 were made for Polish troops between 1938 and 1939, before the Nazi invasion, and only about five are still in existence. The dispute revolved around a fascinating legal question: whether the rifle could properly be considered a “war trophy.” The rifle was seized from the collector by federal agents for forfeiture but the U.S. government decided, after further investigation, not to bring a civil forfeiture action. Instead, it filed an interpleader action and let the two claimants litigate over ownership. They reached an amicable and unique settlement in which the rifle will be displayed in the Warsaw Uprising Museum. In re One Polish Wz. 38M Maroszek Semi-Automatic Rifle, No. 1:13 CV 691 (LMB/JFA)(E.D. Va.). The Washington Post reported on the settlement under the headline, Settlement in case of rare Polish rifle seized from Virginia gun collector (November 11, 2013).
2013 Dismissal of Civil Forfeiture Complaint on Commingled Funds. The federal district court in Alexandria, Virginia granted Mr. Smith’s motion to dismiss the major part of a civil forfeiture complaint alleging that several unrelated Venezuelan business people had each violated U.S. money laundering laws by purchasing U.S. dollars on the Venezuelan black market. The government contended that the DEA had assisted a Venezuelan drug trafficker to launder his drug money through their accounts – wholly unbeknownst to them. The court agreed with claimants that the mere fact of commingling the clean money in their U.S. bank accounts with drug funds did not make the clean money subject to forfeiture. The case is United States v. Funds Up to and Including the Amount of $200,767.56, No. 1:12 CV 144 (E.D. Va. 2013) (LMB/TCB).
2013 Victory in Motel Caswell Case. In a decision handed down on January 24, 2013, the United States District Court for the District of Massachusetts dismissed a civil forfeiture action against the Motel Caswell, a family-run motel in Tewksbury, handing a complete victory to owners Russell and Patricia Caswell. The government had sought to forfeit the Motel Caswell, which had been owned and operated as a family business for two generations, under the theory that the motel allegedly facilitated drug crimes. But the court found that Mr. Caswell “did not know the guests involved in the drug crimes, did not know of their anticipated criminal behavior at the time they registered as guests, and did not know of the drug crimes while they were occurring.” United States v. 434 Main St., 961 F. Supp.2d 298 (D. Mass. 2013). The case was ably litigated by attorneys at the Institute for Justice. Mr. Smith provided some advice.
Click here to view a video on the Caswell case.
Click here to read an article discussing the court victory.
2012 Highway Robbery. In March of 2012, U.S. Customs & Border Patrol (CBP) cut a green Treasury check to the Secretary of the Pentecostal Church of the New Rebirth for $28,500, representing the cash that had been seized from him by a Virginia State Police trooper as he was traveling south on I-95 near Emporia, Virginia. Our client, a member of the Board of the Pentecostal Church, was traveling on church business with his brother-in-law, who was driving. The Church Board had decided to buy land in El Salvador on which it planned to build another church branch. The owner of the land was living in Atlanta and wanted to be paid in cash, so our client was on his way to Atlanta to deliver the money. The Pastor of the Church was in El Salvador waiting for word that the money had been delivered so that the closing could proceed. Our client tried to truthfully explain all this to the trooper but the trooper didn’t want to hear it. He was single-mindedly interested in grabbing the cash even though he had no basis whatsoever for taking it. He knew that if the cash was forfeited by the feds, who immediately “adopted” the seizure — even before the trooper had written a report – then the State Police would get an 80% share of the loot. As a January 3, 2012 lead Washington Post Editorial (Without Due Process, at A12) on the case commented, “Many in the Hispanic community prefer cash transactions — some because of worries over their legal status and others because they do not trust banks. It is also commonplace for religious institutions to receive donations in cash from parishioners. Lawyer for the church say they have scores of donation envelopes with the names of parishioners and the amount of their contributions. We cannot vouch for the activities of [the secretary]…or even the church. But there is something very wrong when a law enforcement officer can simply take someone’s money while providing no evidence of illicit activity.” That editorial ran 3 months before the CBP finally released the money. Right after the seizure in November 2011, Univision, which has a larger news audience than any English-language network in the U.S., presented a 2 part report on the case as the lead story on its nightly news program, including interviews of the Church secretary and David Smith. The television camera panned in on the large stack of donation envelopes showing exactly who contributed the cash. It was clearly not dirty money. None of this awful publicity penetrated the dark headquarters of CPB and DHS. The headquarters personnel Mr. Smith spoke with were unaware of it and, when Mr. Smith told them about the bad publicity (and the fact that this case was quickly becoming the poster child for forfeiture law reform), they seemed uninterested and unconcerned. Later, CBP actually referred the “case” to the U.S. Attorney’s Office in the Eastern District of Virginia to be prosecuted, never explaining what activity they thought justified the seizure since there was no evidence of anything illegal. The U.S. Attorney’s Office refused to prosecute, so CBP had to sheepishly return the seized money — without getting the “hold harmless” agreement they tried to coerce our client into signing as the price for returning the cash to the Church. This is a prime example of innocent Hispanic motorists having assets unlawfully seized by police agencies. ICE and other federal law enforcement agencies should not be assisting state police forces in highway robbery.
Read the full Washington Post editorial here.
Read the full Washington Post editorial as a pdf here.
Read the full New Yorker article as a pdf here.
2011 Attorney’s Fee Award and Return of Cash to Innocent Motorist. The case of U.S. v. $16,713 in United States Currency, No. 1:10-cv-00667-GMS (D. Del.), involved a cash seizure from an innocent Hispanic motorist who was on his way to a car dealer in Stafford, Virginia – a dealer who demanded cash from out of state customers – when he was pulled over. He was going to use the money to buy a used car. A state trooper seized the money, relying on a supposed dog alert on the currency. Even though the trooper confirmed our client’s story, he seized the money anyway. The DEA blindly “adopted” the seizure, thereby making it a federal case. The U.S. Attorney’s Office in Delaware chose to file a civil forfeiture case despite not having enough evidence to get past a motion for summary judgment. The prosecutor only threw in the towel after receiving a well crafted set of discovery demands prepared by three attorneys at a large Philadelphia law firm, Blank Rome, whom we persuaded to join us as pro bono co-counsel. Because the case had proceeded to the judicial stage in federal court, the government had to pay our client’s attorney fees under the fee-shifting provision of the Civil Asset Forfeiture Reform Act of 2000, legislation which David Smith was heavily involved in drafting. This case was featured in a front page Wall St. Journal article on forfeiture abuse.
Read the full Wall Street Journal article here.
Read the full Wall Street Journal article as a pdf here.
2010-2011 Structuring Dismissals. David Smith obtained the early dismissal of two federal structuring cases in the United States District Court in Alexandria by persuading the government that there was, in fact, no structuring. One claimant was an immigrant who owned and operated a 7/11 store. The second claimant was a businessman who operated his own courier business.
2010 Mutilated Currency Settlement. What do you do with mutilated U.S. currency? The easiest solution is to take it to any U.S. bank and have it traded for newer bills; or you can take it to the Bureau of Engraving and Printing if you have a lot of it. But be prepared to answer some questions. David Smith’s client, an elderly woman, traveled to the District of Columbia from Mexico carrying what she thought was $6-7 million in mutilated United States currency. The cash had been found hidden in an underground concrete cavity in an old warehouse in the state of Chihuahua. It had flooded and the currency (which was later estimated to be approximately 20-30 years old) had badly deteriorated. No one knew the source of the money, although various colorful theories were suggested by the townsfolk. The very respectable individual who found the cash in his warehouse turned it over to a distant relation to exchange at the Bureau of Engraving and Printing. When his wife presented the cash in person at the Bureau, it was immediately seized. Thus began the odyssey of United States v. One Box and Plastic Bags Containing About $1.2 Million in Mutilated U.S. Currency and One Suitcase Containing About $5.2 Million in Mutilated Currency, 1:08-CV-01476 (D.D.C.). The government questioned the propriety of the Customs Form 4790 completed when the wife entered the United States from Mexico. (She had not filled in the blank on the form declaring the amount of currency she was carrying because she simply did not know. She mentioned this to the Customs Inspector, who told her it was okay to leave it blank. The clients, assisted by a U.S. Customs broker, had actually alerted Customs well in advance of her trip because they wanted to avoid any legal issues!) The government also questioned whether or not our clients were the true owners of the currency. In the meantime, the Bureau had begun the painstakingly slow forensic task of separating out the individual bills, which were stuck together in brick-like bundles, in an attempt to identify the value of each bill. This process took several men weeks, but it was the only way to obtain a proper total of funds. It turned out that there was only about $3 million – much less than originally believed – because many of the bundles that were assumed to be all $100 bills turned out to contain only $10 and $20 bills inside the stacks, with $100 bills at the top and bottom. After months of negotiating, during which time the government threatened not to exchange the mutilated currency at all, the government agreed to settle the case by keeping 30% and returning 70%.
2010 Structuring Dismissal for Sports Bar Owners. The U.S. Attorney’s Office in the Eastern District of Virginia at Alexandria dismissed a structuring case against owners of a sports bar after we showed that several cash bank deposits of $9000 or $8000 each, made on successive days, were not structured transactions. The first deposit of $9000 was the bar owner’s own money he had saved; the final deposits were made on successive days when the bar owner received cash from his partner. The case was dismissed because there was no amount of cash exceeding $10,000 that was broken down in order to avoid the bank’s currency transaction reporting requirement.
2009 Tenth Circuit Rules on Meaning of “Proceeds.” 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 was 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. The Nacchio decision was followed by the Second Circuit, in United States v. Contorinis,692 F.3d 136, 145-48 (2d Cir. 2012), another insider trading case, which also quoted Mr. Smith’s treatise.
2009 Major Forfeiture Victory. 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. 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.
2009 Return of Cash After Dog Alert. A disabled carpenter from El Salvador was stopped by local police as he drove through Emporia, Virginia and authorities seized $18,000 in cash in his possession as supposed “drug related” money. Although a “well-trained” drug sniffing dog had allegedly alerted on the money and a “sophisticated” ion scan supposedly confirmed that the cash had come into contact with drugs, the U.S. Attorney’s Office for the Eastern District of Virginia in Richmond was persuaded to return all of the $18,000 when the money was shown to be legitimately earned. The motorist, who had no criminal record, intended to purchase a car with the money. We were able to show that everything he initially told the police during the traffic stop was true.