899 F.Supp. 1013 (E.D.N.Y. 1995), CV 91-0234, United States v. Funds Held in Name or for Ben. of Wetterer

Docket Nº:CV 91-0234 (ADS).
Citation:899 F.Supp. 1013
Party Name:UNITED STATES of America, Plaintiff, v. FUNDS HELD IN the NAME OR FOR the BENEFIT OF John Hugh WETTERER, and/or Asociacion Amigos Del Los Ninos Hogar Mi Casa, a/k/a Mi Casa, At Bank of America International, Lloyds Bank International and Sterling Bank, Including but not Limited to Bank of America Account Numbers IF 1119-9984, 162232 IBF, 10201-01-1
Case Date:September 18, 1995
Court:United States District Courts, 2nd Circuit, Eastern District of New York

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899 F.Supp. 1013 (E.D.N.Y. 1995)

UNITED STATES of America, Plaintiff,

v.

FUNDS HELD IN the NAME OR FOR the BENEFIT OF John Hugh WETTERER, and/or Asociacion Amigos Del Los Ninos Hogar Mi Casa, a/k/a Mi Casa, At Bank of America International, Lloyds Bank International and Sterling Bank, Including but not Limited to Bank of America Account Numbers IF 1119-9984, 162232 IBF, 10201-01-1, and 6-58-05616, Lloyds Bank International Bank Number 00070891 (Nassau Branch) and Sterling Bank Account Numbers 907-103 and CD 15590 and all Related Accounts and Funds, Defendants.

No. CV 91-0234 (ADS).

United States District Court, E.D. New York.

Sept. 18, 1995

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[Copyrighted Material Omitted]

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[Copyrighted Material Omitted]

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Zachary W. Carter, United States Attorney, Eastern District of New York, by Gary R. Brown, Asst. U.S. Attorney, Brooklyn, NY, for Plaintiff.

Stanley L. Shapiro, Asociacion Los Amigos Hogar Mi Casa (Patricia N. Gillard, of counsel), Miller Place, NY, for Claimant.

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OPINION AND ORDER RE: REPORT AND RECOMMENDATION OF MAGISTRATE JUDGE

SPATT, District Judge:

Before the Court are the objections of the claimant Asociacion Los Amigos Hogar Mi Casa ("Asociacion" or "claimant") to the Report and Recommendation of United States Magistrate Judge A. Simon Chrein dated May 13, 1994 ("Report"). Judge Chrein's Report recommends striking the Asociacion's claim to certain bank accounts held in its name or in the name of John H. Wetterer ("Wetterer") which were seized by the United States ("Government").

According to the Government, the bank accounts were seized because they allegedly contain the proceeds of criminal activities conducted by Wetterer, who is a fugitive under indictment in the United States for mail fraud. The Government contends that the Asociacion is barred from filing a claim for the proceeds of these accounts because it is Wetterer's alter-ego. The Court referred the matter to the Magistrate Judge for a hearing and recommendation on the issue of whether the Asociacion is Wetterer's alter ego.

After conducting an evidentiary hearing Judge Chrein determined that the subject bank accounts were used by Wetterer for personal purposes and in a manner which rendered the corporate form of the Asociacion a fiction. Accordingly, Judge Chrein concluded that the Asociacion was Wetterer's alter-ego, and he recommended to this Court that the Asociacion's claim to the bank accounts be stricken.

BACKGROUND

The Asociacion is a not-for-profit corporation incorporated under the laws of Guatemala on July 10, 1984, with its main offices located in Guatemala City. According to its By-Laws, the objective of the Asociacion is to promote the welfare of orphaned or abandoned children in Guatemala by providing them with food, shelter, education and other support services. Among the facilities for children run by the Asociacion is a live-in facility for orphaned or abandoned boys in Guatemala City, named Mi Casa.

Pursuant to its By-Laws, the Asociacion's Board of Directors ("Board") consists of four members. At the time that the incidents underlying this action occurred, the Asociacion's Board included: Wetterer, who, until 1991, served as President of the Board and of the Asociacion, and as Director General of Mi Casa; Arne Sapper ("Sapper"), a Guatemalan businessman who served as Vice-President of the Board; Gonzalo Menendez, the Guatemalan Foreign Minister; and Edna Ibarquen, a member of Guatemalan society. In addition, there is an Advisory Board which advises the Asociacion on particular matters that may arise. The Asociacion also maintains a Texas Board of Directors ("Texas Board"), whose purpose is to allow donations from the United States to receive tax exempt status.

Until November 1988, funds for Mi Casa were solicited in the United States and elsewhere under the auspices of the American Friends of Children ("AFC"). AFC is the successor organization to American Friends of Vietnamese Children, founded in 1970 by Wetterer and Dan Mackey ("Mackey"), a resident of Long Island and former New York City Police Officer. According to Mackey, who served as AFC's treasurer, Wetterer solicited donations by sending a monthly letter on AFC stationary to sponsors and potential donors informing and updating them of events and occurrences at Mi Casa. Donations were made to AFC, and sent in a return envelope provided by it to AFC's post office box number in Massapequa, New York. AFC would then deposit the donations in Bank of America Account No. 05616, located in Florida and held in the name of the Asociacion. Subsequent to deposit, Wetterer would arrange a transfer of the funds to Guatemala. From 1977 through 1988, Mackey estimates that AFC collected and disbursed over one million dollars to Wetterer.

In 1988, the television news program Sixty Minutes received information that Wetterer was sexually abusing the young boys at Mi Casa. Sixty Minutes investigated the allegations, and discovered what it described as a

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chronic and extensive system of sexual abuse by Wetterer at Mi Casa. This information was passed on to the AFC Board, which attempted to conduct its own investigation of the matter. According to Mackey, AFC's investigator was prevented by Wetterer from conducting any meaningful interviews of the boys at Mi Casa. As a result, AFC stopped allowing Wetterer to use AFC's letterhead to raise funds for Mi Casa, and discontinued sending donations to him.

In 1989, the United States Postal Service ("Postal Service") began its own investigation into the allegations concerning Wetterer. The investigation was conducted by Postal Inspector John McDermott ("McDermott"). According to McDermott, his investigation revealed that Wetterer was a pedophile who systematically and regularly molested and otherwise sexually abused the young boys residing at Mi Casa. McDermott's investigation further revealed that at the time Wetterer was abusing the boys at Mi Casa, his monthly letters to sponsors and donors in the United States contained false representations that a healthy and stable environment was being provided to the boys at Mi Casa as a result of the donations. McDermott also discovered that on several occasions Wetterer brought some of the boys residing at Mi Casa to Disney World in Florida, allegedly to entice them to engage in sexual activity with him, or to reward them for such activity. Finally, McDermott discovered that Wetterer was continuing to solicit donations for Mi Casa through the United States mail. According to McDermott, beginning in early 1989 Wetterer started using a letterhead that resembled AFC's to solicit donations, which listed a post office box in Texas for returning the donations.

On September 14, 1990 McDermott filed a criminal complaint against Wetterer, which resulted in a warrant being issued for Wetterer's arrest and two indictments being filed against him. The first indictment was for violation of the mail fraud statute, 18 U.S.C. § 1341, based on Wetterer's fraudulent representations in the monthly donation solicitation letters that a healthy environment was being provided to the boys at Mi Casa. The second indictment was for theft and conversion of funds, based on certain transfers of funds Wetterer made to his brother. Wetterer was notified of the arrest warrant but refused to appear and answer the charges filed against him. He continues to remain a fugitive in Guatemala, a country with which the United States does not have an extradition treaty. According to Sapper, Wetterer continues to be the president of the Asociacion's board of directors, but has ceased being the director general of Mi Casa.

On January 22, 1991, the United States commenced the instant action, seeking the forfeiture of certain bank accounts held in the name of the Asociacion or Wetterer pursuant to 18 U.S.C. § 981. The in rem complaint listed as the alleged crimes underlying the basis for the seizure mail fraud, 18 U.S.C. § 1341, and inducing a person to travel in interstate or foreign commerce for the purpose of engaging in criminal sexual activity, 18 U.S.C. § 2422. An arrest warrant in rem authorizing the seizure of the bank accounts was issued that same day. In response to the seizure, the Asociacion filed a claim to all of the funds seized in this action. The claim covers the following accounts: (1) Sterling Bank (Texas) accounts 020-907-103 and CD 15590; (2) Bank of America (Florida) accounts IF 1119-9984, IF 1622321, IBF 10201-01-1, and 6-58-05616; and (3) Lloyds International (New York) account 000 70891.

According to the Asociacion's claim, all of the seized accounts are in the name of the Asociacion, and contain Asociacion monies deposited for the use and benefit of the Asociacion. The claim also contends that although Sterling Bank CD 15590 is in Wetterer's name, the money in that CD belongs to the Asociacion because (i) the CD was established with money taken from another Asociacion account for the purposes of not exceeding the Federal Deposit Insurance Company's ("FDIC's") insurance limit of $100,000 per account, and (ii) Wetterer assigned the CD to the Asociacion of February 1, 1991.

In response to the Asociacion's claim, the United States filed a motion to strike the claim of the Asociacion on April 4, 1991. The grounds for the Government's motion related to the contention that the Asociacion did not

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have standing to file a claim for the seized funds. First, the Government contended that the Asociacion lacked standing to file its claim, because it failed to follow Rule C(6) of the Supplemental Rules for Certain Admiralty and Maritime Claims. Rule C(6) requires, among other things, that persons claiming they are entitled to possession of the seized property must state in their...

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