712 F.3d 119
2d Cir.2013Background
- Walsh appeals district court denial of release of $3.7 million frozen in parallel civil action to fund his criminal defense.
- Walsh and wife acquired Half Moon House; title in wife’s name; divorce settlement gave Walsh title to the house and a $12.5 million distributive award to his wife, with at least $6 million tainted by Walsh’s fraud.
- Walsh used proceeds from the fraud to fund the divorce settlement and related payments; district court found tainted funds transferred to wife.
- Monsanto hearing determined probable cause that proceeds from the Half Moon House were traceable to the fraud; government used documents and testimony to show source of assets.
- Court affirmed, adopting Banco Cafetero’s tracing framework and finding all assets were traceable under the drugs-in, first-out approach; issues raised about hearsay and subpoenas were resolved in favor of the government.
- The court noted Walsh freely negotiated title to the house under NY Domestic Relations Law and held Banco Cafetero applies even when the house is non-fungible, as the disposition of tainted funds supports traceability.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether Banco Cafetero tracing applies to trace proceeds in a domestic divorce context | Walsh argues tracing fiction inappropriate | District court properly used Banco Cafetero framework | Yes; tracing applicable; proceeds traceable to fraud |
| Whether Monsanto-hearing hearsay is admissible to prove probable cause | Walsh challenges hearsay admission | Monsanto allows hearsay at probable-cause hearings | Admissible; hearsay permitted for probable cause |
| Whether quashing Walsh's subpoenas was an abuse of discretion | Walsh needed witnesses for adversary proceeding | Witness protection justifies quash; no risk from receiver’s evidence | Not an abuse of discretion; subpoenas properly quashed |
| Whether Walsh had a preexisting right to Half Moon House that defeats purchase traceability | Equitable distribution preexisted; not a purchase | Parties opted into settlement; Walsh received tainted funds in exchange | Disposition under divorce agreement allowed tracing; district court correct |
Key Cases Cited
- United States v. Banco Cafetero Panama, 797 F.2d 1154 (2d Cir. 1986) (traceable funds and drugs-in, first-out approach for commingled assets)
- Monsanto v. United States, 924 F.2d 1186 (2d Cir. 1991) (hearsay may support probable cause at Monsanto hearings (in banc))
- Caplin & Drysdale v. United States, 491 U.S. 617 (1989) (no Sixth Amendment right to spend another’s tainted funds on counsel)
- United States v. Gonzalez-Lopez, 548 U.S. 140 (2006) (right to counsel; choice of counsel considerations)
- United States v. Seizure of All Funds in Accounts in Names Registry Pub. Inc., 68 F.3d 577 (2d Cir. 1995) (probable cause standard for forfeiture)