295 F. Supp. 3d 690
E.D. Va.2018Background
- Defendant and his then-wife Linda Wallis engaged in a fraud and money-laundering scheme (2010–2014) that diverted funds from victims (SkyLink, Saslaw campaign, CCAID) into accounts controlled by Wallis and defendant and paid personal expenses and property-related payments.
- Wallis pleaded guilty and a consent forfeiture entered against her imposing a money judgment and forfeiture of two properties: a Fairfax, VA residence (Virginia Property) and a Bethany Beach, DE condominium (Delaware Property).
- During Wallis ancillary proceedings and later hearings, an FBI forensic accountant traced fraud and laundered funds to: payments on the Caplan note (loan secured by the Virginia Property), property taxes and fixtures for the Virginia Property, and payments for improvements to the Delaware Property; totals traced included approximately $315,317.10 to the Virginia Property and $58,818.35 to the Delaware Property.
- Defendant was later indicted for mail/wire fraud, money-laundering conspiracy, and identity theft; the Government filed lis pendens and seized the properties/proceeds pretrial. Defendant moved for release of funds claiming the assets are untainted substitute property and that he needs funds for defense.
- The court held evidentiary hearings, adopted the FBI expert’s tracing using the Lowest Intermediate Balance Rule and other tracing principles, and considered whether the properties were "involved in" money laundering or "traceable to" criminal proceeds.
Issues
| Issue | Plaintiff's Argument (Gov’t) | Defendant's Argument (Miller) | Held |
|---|---|---|---|
| Whether gov’t had probable cause to restrain properties pretrial | Properties were "involved in" money laundering and partially "traceable to" fraud; seized properly | Properties are untainted substitute assets; not purchased with tainted funds; release required | Denied — probable cause exists to restrain properties as involved/traceable to laundering/fraud |
| Whether properties were "involved in" money laundering (§1956/1957) | Laundered proceeds paid interest, taxes, improvements; properties facilitated transactions and communications | Mere payments or presence of communications at property do not make property facilitating | Held involved — payments and use of properties to conduct/coordinate offenses suffice to make them "involved" |
| Adequacy of tracing commingled funds (Lowest Intermediate Balance Rule) | Forensic accountant properly applied Lowest Intermediate Balance Rule and tracing techniques to identify tainted amounts | Tracing inconsistent; legitimate funds should be considered to have funded later transfers | Held proper — tracing methodology acceptable; courts permit flexible, reality-based tracing to preserve proceeds |
| Whether defendant may relitigate whether he committed underlying laundering offense | Grand jury already found probable cause; defendant may only contest connection of property to crime | Miller argues transactions were only fraudulent transfers, not laundering (intent lacking) | Held barred — defendant cannot collaterally attack grand jury finding of probable cause to commit offense; may only contest nexus, which was proven |
Key Cases Cited
- United States v. Monsanto, 491 U.S. 600 (pretrial restraint permissible with probable cause to forfeit)
- Kaley v. United States, 571 U.S. 320 (defendant may challenge nexus of assets to crime but not grand jury’s finding of probable cause to charge)
- United States v. Chamberlain, 868 F.3d 290 (Section 853(e) does not permit pretrial restraint of substitute assets)
- Sony Corp. of Am. v. Bank One, 85 F.3d 131 (Fourth Circuit application of Lowest Intermediate Balance Rule for tracing commingled funds)
- Banco Cafetero Panama v. United States, 797 F.2d 1154 (enumerating tracing rules for commingled funds)
- United States v. Kivanc, 714 F.3d 782 (property involved in laundering forfeitable in entirety despite commingling)
- United States v. Farmer, 274 F.3d 800 (ancillary hearing/release principles in forfeiture context)
- Pinkerton v. United States, 328 U.S. 640 (co-conspirator acts attributable to defendant)