Daugerdas Denied Access to Funds Subject to Forfeiture (11/28/12)

In United States v. Daugerdas, 2012 U.S. Dist. LEXIS 167631 (SD NY 11/7/12), Judge Pauley denied Daugerdas access to funds the Government seized pursuant to a post-indictment restraining order.  Readers will recall that Daugerdas was the well-compensated master-mind of a large tax shelter scheme that the Government alleged and proved to have been fraudulent.  I cut and paste Judge Pauley's opinion in this blog in the entirety (except for the caption), because it is efficient and well-reasoned and is instructive for federal tax crimes afficionados.

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ORDER

Defendant pro se Paul M. Daugerdas ("Daugerdas") moves to vacate or modify pre-trial restraints on certain proceeds seized by the Government. n1 For the following reasons, his motion is denied.

   n1 Jenner & Block LLP  (Daugerdas' attorney) has advised this Court that it will seek to withdraw as counsel if Daugerdas does not prevail on this motion. This Court permitted Daugerdas to file this motion pro se based on Jenner & Block LLP's  representation that it could not do so. (See Transcript dated June 25, 2012 at 7-8).

BACKGROUND

A jury convicted Daugerdas of one count of conspiracy to defraud the United States and the IRS, to commit tax evasion, and to commit mail and wire fraud in violation of 18 U.S.C. § 371; eighteen counts of tax evasion in violation of 26 U.S.C. § 7201 and 18 U.S.C. § 2; three counts of personal income tax evasion in violation of 26 U.S.C. § 7201; one count of corruptly obstructing and impeding the due administration of the Internal Revenue Laws in violation of 26 U.S.C. § 7212(a); and one count of mail fraud in violation of 18 U.S.C. §§ 1341 and 2. On June 6, 2012, this Court granted Daugerdas' motion for a new trial. That decision hinged on juror misconduct, not the sufficiency of the evidence. See United States v. Daugerdas,    867 F. Supp. 2d  445, 2012 U.S. Dist. LEXIS 82597, 2012 WL 2149238, at *1 (S.D.N.Y. Jun. 4, 2012). Daugerdas asserts that he cannot afford counsel unless the Government releases additional funds seized pursuant to a post-indictment restraining order.

DISCUSSION

The Sixth Amendment provides that, "[i]n all criminal prosecutions, the accused shall enjoy the right ... to have the Assistance of Counsel for his defence." U.S. Const. amend. VI. This Constitutional guarantee "generally ensures that an accused may be represented by any attorney who will agree to take his case," United States v. Perez, 325 F.3d 115, 124-25 (2d Cir. 2003), or the appointment of counsel free of charge for indigent defendants. Johnson v. Zerbst, 304 U.S. 458, 463, 58 S. Ct. 1019, 82 L. Ed. 1461 (1938); Gideon v. Wainwright, 372 U.S. 335, 340-41, 83 S. Ct. 792, 9 L. Ed. 2d 799 (1963). But "a defendant may not insist on representation by an attorney he cannot afford." Wheat v. United States, 486 U.S. 153, 159, 108 S. Ct. 1692, 100 L. Ed. 2d 140 (1988). Nor do the Sixth Amendment's protections to retain counsel of choice extend beyond "the individual's right to spend his own money to obtain ... counsel." Caplin & Drysdale, Chartered v. United States, 491 U.S. 617, 626, 109 S. Ct. 2646, 109 S. Ct. 2667, 105 L. Ed. 2d 528 (1989).

The Constitution does not guarantee a defendant the right to use forfeitable assets to pay legal fees. United States v. Monsanto, 491 U.S. 600, 614, 109 S. Ct. 2657, 105 L. Ed. 2d 512 (1989). A defendant who is convicted of mail or wire fraud affecting a financial institution "shall forfeit to the United States any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as the result of such violation." 18 U.S.C. § 982(a)(2)(A). And, the Government may properly seize assets pretrial that are forfeitable upon conviction after demonstrating probable cause. See 21 U.S.C. § 853 (e)(1)-(2).

While the Government can seek pretrial restraint of forfeitable assets, a defendant may be entitled to "an adversary, post-restraint, pretrial hearing" to test the finding of probable cause authorizing that restraint. United States v. Monsanto, ("Monsanto IV") 924 F.2d 1186, 1203 (2d Cir. 1991) (en banc). To warrant a Monsanto hearing, a defendant must demonstrate (1) that the restrained assets are necessary to pay for private counsel, and (2) that the assets were improperly seized. See Monsanto IV, 924 F.2d at 1203.

I. The Necessity of Funds to Pay for Counsel of Choice

A defendant seeking a Monsanto hearing bears the initial burden of demonstrating that he has no other assets available to retain counsel. See United States v. Jones, 160 F.3d 641, 647 (10th Cir. 1998); United States v. Farmer, 274 F.3d 800, 804-05 (4th Cir. 2001); see also United States v. Egan, No. 10 Cr. 191 (JFK), 2010 U.S. Dist. LEXIS 76448, 2010 WL 3000000, at *1 (S.D.N.Y. Jul. 29, 2010); United States v. All Funds on Deposit, No. 10 Civ. 4858 (BSJ), 2012 U.S. Dist. LEXIS 98784, 2012 WL 2900487, at *1 (S.D.N.Y. Jul. 6, 2012). This burden is analogous to a defendant's burden under the Criminal Justice Act ("CJA") to show that he is unable to afford representation. See United States v. O'Neil, 118 F.3d 65, 74 (2d Cir. 1997). A person is "financially unable to obtain counsel" in the context of the CJA if is net financial resources and income are insufficient to enable him to obtain qualified counsel." (See Revised Plan for Furnishing Representation to the Criminal Justice Act, approved July 3, 2012, available at http://www.nysd.uscourts.gov/file/forms/current-criminal-justice-act-plan.)

Daugerdas' motion is bereft of any sworn declaration that he lacks the financial resources to hire counsel. Instead, he asserts that the complexity of the case "begs the question of whether adequate and effective legal representation can be determined to exist." (Def's Motion at 10.) But Daugerdas received highly effective legal representation before this Court. And, his unsworn, conclusory assertion that he is unable to continue to pay legal fees is insufficient to warrant a Monsanto hearing. See United States v. Kirschenbaum, 156 F.3d 784, 792 (7th Cir. 1998); see also Egan, 2010 U.S. Dist. LEXIS 76448, 2010 WL 3000000, at *6 (denying Monsanto hearing "[b]ecause Defendant has not submitted any evidence that suggests that the restrained assets are necessary to retain his counsel of choice").

II. The Propriety of Seizing Daugerdas' Assets

The forfeiture allegations in the S3 Indictment are governed by 21 U.S.C. § 853, which provides that a criminal defendant convicted of mail or wire fraud charges affecting a financial institution "shall forfeit ... any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as the result of such violation." See 18 U.S.C. § 982(b)(1) (providing that forfeiture and seizures under section 982 are governed by 21 U.S.C. § 853); 18 U.S.C. § 982(a)(2)(A) (mandating forfeiture for mail or wire fraud charges affecting a financial institution). The Government may properly seize assets pretrial that are forfeitable upon conviction after demonstrating probable cause. See 21 U.S.C. § 853(e)(1)-(2). "Proceeds" are "property that a person would not have but for the criminal offense." United States v. Grant, No. S4 05 Cr. 1192 (NRB), 2008 U.S. Dist. LEXIS 73479, 2008 WL 4376365, at *2 n.1 (S.D.N.Y. Sep. 25, 2008).

Criminal forfeiture is designed to be punitive and its scope is broad. Thus, "coconspirators are liable jointly and severally to forfeit the reasonably foreseeable proceeds of their criminal activity." United States v. Coleman Commercial Carrier, Inc. 232 F. Supp. 2d 201, 204 (S.D.N.Y. 2002). A defendant convicted of an ongoing scheme is also liable for the proceeds of  [*8] the entire scheme. See United States v. Capoccia, 503 F.3d 103, 117 (2d Cir. 2007). And assets that are otherwise legitimate or untainted may nonetheless be seized if a criminal defendant "would not have acquired or maintained [them] but for his fraudulent scheme." United States v. Porcelli, 865 F.2d 1352, 1365 (2d Cir. 1989).

The S3 Indictment alleges that Daugerdas was the architect of a sophisticated tax shelter fraud scheme that netted him more than $95 million. See S3 Indictment ¶ 60. Similarly, the proof at trial established that all of the tax shelter fee income was the product of this scheme and that the entirety of the tax shelter fees obtained by the Chicago office of Jenkins & Gilchrist were generated through the criminal acts of Daugerdas and his coconspirators. As a result, none of these funds would have been obtained but for the fraudulent scheme, see Porcelli, 865 F.2d at 1365, and they are subject to seizure as "proceeds" of the fraudulent scheme. Capoccia,503 F.3d at 117.

The Government's evidence at trial consisted of forty-one witnesses and approximately 1,300 exhibits. The proof of the fraudulent tax shelter scheme—and Daugerdas' criminal involvement—was overwhelming.   A Monsanto hearing would require this Court to weigh the same evidence under the less demanding burden of probable cause. And it would not alter this Court's earlier conclusion that the funds seized by the Government are properly forfeitable as "proceeds."

CONCLUSION

For the foregoing reasons, Defendant pro se Paul M. Daugerdas' motion to vacate or modify pretrial restraints on certain proceeds seized by the Government is denied.

Dated: November 7, 2012

New York, New York

SO ORDERED:
/s/ William H. Pauley III
WILLIAM H. PAULEY III
U.S.D.J.