U.S. v. Citigroup Smith Barney Acc. No. 600-00338, 06-CV-3730 (NGG).

• Decision Date: 10 September 2007
• Docket Number: No. 06-CV-3730 (NGG).,06-CV-3730 (NGG).
• Citation: 617 F.Supp.2d 103
• Parties: UNITED STATES of America, Plaintiff, v. ALL FUNDS ON DEPOSIT AT: CITIGROUP SMITH BARNEY ACCOUNT NO. 600-00338 Held in the Name of Kobi Alexander and Citigroup Smith Barney Account No. 600-27694 Held in the Name of Kobi J. Alexander, Defendants.
• Court: U.S. District Court — Eastern District of New York

617 F.Supp.2d 103

UNITED STATES of America, Plaintiff, v. ALL FUNDS ON DEPOSIT AT: CITIGROUP SMITH BARNEY ACCOUNT NO. 600-00338 Held in the Name of Kobi Alexander and Citigroup Smith Barney Account No. 600-27694 Held in the Name of Kobi J. Alexander, Defendants.

No. 06-CV-3730 (NGG).

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

September 10, 2007.

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Kathleen Anne Nandan, United States Attorneys Office, Brooklyn, NY, for Plaintiff.

Edward M. Spiro, Jeremy Hugh Temkin, Robert G. Morvillo, Morvillo, Abramowitz, Grand, Iason & Silberberg, P.C., New York, NY, for Defendants.

MEMORANDUM & ORDER

GARAUFIS, District Judge.

Plaintiff United States of America ("Plaintiff" or the "Government") brings this civil forfeiture action against Defendants Citigroup Smith Barney Account No. 600-00338 (the "338 Account") and Citigroup Smith Barney Account No. 600-27694 (the "694 Account") (collectively, "Defendant Accounts"). Jacob "Kobi" Alexander ("Kobi") and, his wife, Hana Alexander ("Hana") (collectively, "Claimants") have filed statements of interest respecting the 338 and 694 Accounts and, as a result, oppose this forfeiture action. The Government has moved, pursuant to Rules 12(b)(1), 12(c), and 56 of the Federal Rules of Civil Procedure, for (1) an order striking Kobi's statement of interest pursuant to the fugitive disentitlement doctrine, and (2) an order dismissing the Claimants' statements of interest on the ground that Claimants lack standing. Kobi and Hana have each submitted a motion to dismiss pursuant to Rule 12(b)(6) of the Federal Rules of Civil Procedure and Rule E(2)(a) of the Supplemental Rules for Certain Admiralty and Maritime Claims.¹ At this time, the court considers all parties' motions.

For the reasons set forth below: the Government's motion to strike the Claimants' statements of interest on the ground of lack of statutory standing is denied; the Government's motion to strike Hana's claim on the ground of lack of standing under Article III is held in abeyance pending discovery and further briefing; the Claimants' motion to dismiss is denied but the Government is directed to amend its Complaint; the Government's motion for summary judgment with respect to the fugitive disentitlement issue is granted.

I. BACKGROUND

In theory, addressing the factual and procedural background relevant to the instant motions is complicated by the different standards of review that are attached to motions under Rules 12(b) (1), 12(b)(6), 12(c), 56, and Rule E(2)(a). With respect to Claimants' Rule 12(b)(6) motions, the court must accept all factual allegations in Plaintiff's pleadings as true and must draw inferences from those allegations in the light most favorable to Plaintiff. United States v. The Baylor Univ. Med. Ctr., 469 F.3d 263, 267 (2d Cir.2006).

With respect to Plaintiff's Rule 12(b)(1) motion, the court must accept all undisputed factual allegations as true and draw all reasonable inferences in the light most favorable to the non-moving party. Robinson v. Malaysia, 269 F.3d 133, 140 (2d Cir.2001). To the extent the parties dispute facts relevant to Plaintiff's Rule 12(b)(1) motion using evidentiary submissions, the court will consider the submitted evidence and, if necessary, decide the disputed factual questions. See id. at 140 n. 6 (in context of motion to dismiss for lack of subject matter jurisdiction under the Foreign Sovereign Immunities Act, district court "must" consult factual submissions "if resolution of a proffered factual issue may result in the dismissal of the complaint for want of jurisdiction").

When deciding a motion for summary judgment under Rule 56, this court must view the evidence in the light most favorable to the non-moving party and must draw all permissible inferences from the submitted affidavits, exhibits, interrogatory answers, and depositions in favor of that party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Vann v. City of New York, 72 F.3d 1040, 1048-49 (2d Cir.1995). Even in a fact-intensive case, however, the court will not accept as fact mere allegations lacking evidentiary support. Abdu-Brisson v. Delta Air Lines, 239 F.3d 456, 466 (2d Cir.2001).

In reality, the fact that this section addresses various motions with different standards of review is not problematic. With very few exceptions, the facts material to the motions at issue are undisputed. Where the court makes a factual finding, it will do so explicitly.

The Criminal Action against Kobi

On or about June 21, 2006, Kobi flew from the United States to Israel. (Plaintiff's Statement Pursuant to Local Rule 56.1 ("Pl. 56.1 St.") ¶ 1.)² At that time, the United States Attorney for the Eastern District of New York (the "USAO" or the "United States Attorney") was investigating whether Comverse Technologies, Inc. ("Comverse" or "CTI") issued backdated stock options and whether Kobi was involved in such a scheme. (Id. ¶ 2.) During July 2006, the USAO had multiple conversations with Kobi's counsel concerning this investigation. (Id. ¶ 3.) Kobi's counsel confirmed that Kobi would return to the United States on July 28, 2006. (Id. ¶ 4; Declaration of Kathleen A. Nandan ("Nandan Decl.") Exh. 3.)

While Kobi's lawyers were representing to the Government that Kobi would return to the United States on July 28, Kobi was wiring significant amounts of money from the 338 Account to Israel. (Id. ¶ 7.) In July 2006, Kobi wired $57,000,000 from the 338 Account (including $7,000,000 that had been wired to the 338 Account from the 694 Account) to accounts in Israel. (Id.)

Kobi did not return to the United States on Friday July 28, 2006. (Id. ¶ 8.) On Monday July 31, 2006, Magistrate Judge Cheryl L. Pollak issued a warrant for Kobi's arrest on the basis of charges related to the alleged backdating scheme. (Id. ¶ 7.) In August 2006, the Federal Bureau of Investigation declared Kobi a fugitive. (Id. ¶ 8.) On September 20, 2006, a Grand Jury indicted Kobi on thirty-two counts, United States v. Jacob Alexander, Indictment No. 06-628(NGG)(RER). (Id. ¶ 10.) On October 11, 2006, a Grand Jury issued a superseding Indictment and Magistrate Judge Ramon E. Reyes, Jr. issued a new warrant for Kobi's arrest. (Id. ¶ 12.)

On September 27, 2006, Kobi was arrested in Windhoek, Namibia pursuant to a provisional arrest warrant issued by the Namibian courts in response to a request by the United States. (Id. ¶ 11.) The United States' extradition request is currently pending in the Namibian courts. (Id. ¶ 15.)

The Instant Civil Forfeiture Action

On July 31, 2006, the first business day after July 28—the day on which Kobi's counsel assured the USAO that Kobi would return to the United States—the Government filed the instant Verified Complaint In Rem (the "Complaint"). The Complaint alleges that Kobi and the Defendant accounts were involved in Comverse's backdating of stock options:

[Kobi] and others fraudulently back-dated options granted by CTI and, in so doing, made material misrepresentations to the SEC and the investing public. By backdating the options, [Kobi] generated millions of dollars in proceeds. [Kobi] then used the Defendant Accounts to launder the proceeds of the fraud by wiring nearly $60,000,000 to Israel in an attempt to conceal the proceeds from the U.S. authorities.

(Compl. ¶ 8.) According to the Complaint, Kobi "and others used fictitious names to generate hundreds of thousands of backdated options, which they then parked in a secret slush fund designed to evade the requirements of CTI's stock option plans. [Kobi] unilaterally awarded options from this slush fund to favored employees." (Id. ¶ 21.) Kobi is also alleged to have "reviewed and approved CTI's proxy statements, annual and quarterly filings, and stock option plans, all of which contained material misstatements designed to conceal the fraudulent backdating scheme." (Id. ¶ 22.) As an example, the Complaint asserts that Comverse's April 30, 2002 Form 10-K inaccurately states that "all options have been granted at exercise prices equal to fair market value on the date of grant." (Id. ¶ 23.)

The Government alleges that Kobi "generated over $138 million in gross proceeds from the backdating scheme." (Id. ¶ 26.) At least some of these proceeds were allegedly placed in the 338 Account. (Id.) The Government also asserts that Kobi transferred money from the 694 Account to the 338 Account, "thereby commingling illegal proceeds with other funds." (Id. ¶ 27.)

The Complaint brings two causes of action. In the first cause of action, the Government claims that the Defendant Accounts were involved in money laundering in violation of 18 U.S.C. § 1956 and, as a result, are subject to forfeiture pursuant to 18 U.S.C. § 981(a)(1)(A). (Compl. ¶¶ 30-31.) In the second cause of action, the Government alleges that the "338 Account contains funds constituting the proceeds of" mail, wire, and securities fraud and, as a result, is subject to forfeiture pursuant to 18 U.S.C. §§ 981(c)(1)(C) and 984. (Compl. ¶ 33.)

On the day this action was filed, July 31, 2006, Magistrate Judge Pollak issued a Warrant for the seizure of the Defendant Accounts. (Nandan Decl. ¶ 10, Exh. 5.) At the time the Defendant Accounts were seized, there was approximately $47 million in the 338 Account and $2.4 million in the 694 Account. (Morvillo Aff. ¶ 9.)

II. DISCUSSION

The Government moves to (1) strike the Claimants' statements of interest on standing grounds and (2) strike Kobi's statement of interest pursuant to the fugitive disentitlement doctrine. Claimants move to dismiss the Complaint pursuant to Rule 12(b)(6) for failure to state a cause of action.

The parties agree that Rule G(8)(c) of the Supplemental Rules requires the court to rule upon the motion to strike for lack of standing before considering the Claimants' motions to dismiss. (...