United States v. Rothstein (In Re Rothstein, Rosenfeldt, Adler, P.A.)
717 F.3d 1205
| 11th Cir. | 2013Background
- Rothstein, a law firm owner, deposited investor funds into RRA accounts, commingling proceeds with legitimate fees.
- The government charged Rothstein with RICO, money laundering, mail/wire fraud, and conspiracy, seeking forfeiture of listed assets.
- The information sought forfeiture under 18 U.S.C. §§ 981(a)(1)(C), 982(a)(1), and 1963 and under 21 U.S.C. § 853 for substitute assets.
- District Court initially restrained assets and ultimately ordered forfeiture; Trustee challenged as bankruptcy estate assets.
- Court held bank accounts were not forfeitable proceeds due to commingling; substitute asset provisions apply for non-traceable funds.
- Case proceeded with ancillary hearing under 21 U.S.C. § 853(n) to determine interests of third parties and the bankruptcy estate.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether RRA bank accounts held proceeds of Rothstein’s offenses. | Rothstein’s funds were proceeds traceable to the Ponzi scheme. | Funds are commingled, not traceable as proceeds. | No; accounts were not forfeitable proceeds due to commingling. |
| Whether commingled funds permit direct forfeiture or require substitute assets. | Proceeds are traceable; direct forfeiture should apply. | Commingling prevents direct traceability; substitute assets required. | Substitute asset provisions apply; direct forfeiture of commingled funds not allowed. |
| Whether Rothstein’s substitute interest in RRA bank accounts is forfeitable on remand. | Interest in RRA could be forfeited as substitute property. | Remand needed to determine value and superior rights. | Remand authorized to determine value and potential for substitute forfeiture. |
| Whether Trustee’s claims to other properties purchased with RRA funds should be resolved on remand. | Properties were purchased with proceeds; forfeitable. | The district court erred by not considering equity; factual issues remain. | Remand to resolve whether funds used to acquire those properties were proceeds. |
Key Cases Cited
- United States v. Voigt, 89 F.3d 1050 (3d Cir. 1996) (direct forfeiture limited when proceeds are commingled; substitute assets used)
- United States v. Stewart, 185 F.3d 112 (3d Cir. 1999) (limits on direct forfeiture in commingled accounts; exception for simple tracing)
- United States v. Conner, 752 F.2d 566 (11th Cir. 1985) (proceeds forfeiture follows defendant; money fungible; early authority for in personam forfeiture)
- United States v. Padron, 527 F.3d 1156 (11th Cir. 2008) (explains scope of forfeiture under § 981(a)(1)(C) and traceability)
- United States v. Orton, 73 F.3d 331 (11th Cir. 1996) (money laundering nexus and proceeds tracing)