U.S. v. Nicolo

• Decision Date: 17 February 2009
• Docket Number: No. 05-CR-6161L.,05-CR-6161L.
• Citation: 597 F.Supp.2d 342
• Parties: UNITED STATES of America, Plaintiff, v. John NICOLO, David Finnman, Defendants.
• Court: U.S. District Court — Western District of New York

Page 342

597 F.Supp.2d 342

UNITED STATES of America, Plaintiff, v. John NICOLO, David Finnman, Defendants.

No. 05-CR-6161L.

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

February 17, 2009.

COPYRIGHT MATERIAL OMITTED

Richard A. Resnick, Frank H. Sherman, U.S. Attorney's Office, Rochester, NY, for Plaintiff.

Matthew R. Lembke, Cerulli Massare & Lembke, Rochester, NY, for Defendants.

PRELIMINARY ORDER OF FORFEITURE

DAVID G. LARIMER, District Judge.

INTRODUCTION

Defendants John Nicolo and David Finnman were convicted after trial of multiple counts involving conspiracy, mail and wire fraud, and money laundering. The indictment also contained two forfeiture allegations, the "First Forfeiture Allegation" relating to the money laundering convictions and a "Second Forfeiture Allegation" relating to the fraud counts. See Third Superseding Indictment (Dkt. # 70) at 174-79. The parties stipulated before trial that the Court would determine forfeiture issues subsequent to the jury's verdict and prior to sentencing. The government now moves for a preliminary order of forfeiture as to both defendants Nicolo and Finnman pursuant to Rule 32.2(b) of the Federal Rules of Criminal Procedure.¹

In describing criminal forfeiture statutes, one commentator has noted that they are "complex" and "labyrinthine."² That may be so, but in this case it is clear and quite straightforward that defendant John Nicolo fraudulently received millions of dollars as a direct result of engaging in criminal activities over a period of years, involving a conspiracy to commit honest services fraud, mail and wire fraud and money laundering.

As part of the sentencing process, the government seeks to divest Nicolo of his ill-gotten gains, by means of an order directing the forfeiture of Nicolo's interests in certain assets. Specifically, the government seeks, under Rule 32.2(b)(1), a preliminary order of forfeiture as to several bank accounts, vehicles, and two parcels of real property in New York and Florida, as well as an in personam judgment against Nicolo in the sum of $9,729,264.³

As to defendant Finnman, the government seeks only an in personam forfeiture money judgment in the amount of $385,393. The government does not seek forfeiture of any specific item of personal or real property as to Finnman.

In addition to relying on the evidence at trial, the government has submitted, as Exhibit A to its motion, an affidavit of Daniel Ciavarri, a financial analyst employed by the Federal Bureau of Investigation ("FBI"). Ciavarri performed a financial analysis of the various bank accounts owned by defendant Nicolo and his wife, codefendant Constance Roeder. In addition, the government and defendants have submitted legal memoranda in support of their respective positions. In their submissions, counsel for both Nicolo and Finnman have raised a host of arguments in opposition to the government's forfeiture motion. The Court entertained extensive oral argument on the government's motion on December 8, 2008.

Based on the evidence at trial and the criminal convictions which followed, I find that the government has met its burden, and I therefore grant the motion and issue a preliminary order of forfeiture. An in personam judgment will be entered against both defendants Nicolo and Finnman. Defendant John Nicolo, by virtue of this order, also forfeits his interest in the property herein described, for the following reasons.

DISCUSSION

I. Statutory Framework

The government seeks forfeiture under two separate, but similar, federal statutes. The Second Forfeiture Allegation seeks forfeiture of a total sum of over $9.7 million from Nicolo as proceeds of the various fraud-related crimes of which he was convicted. Forfeiture of that amount is sought pursuant to 18 U.S.C. § 981(a)(1)(C), as well as 28 U.S.C. § 2461(c), which together provide for forfeiture of property "which constitutes or is derived from proceeds traceable" to a violation of certain statutes "or any offense constituting `specified unlawful activity'." 18 U.S.C. § 981(a)(1)(C).⁴ Violations of the mail and wire fraud statutes constitute "specified unlawful activity." United States v. Funds Held in the Name or for the Benefit of Wetterer, 210 F.3d 96, 103 (2d Cir.2000); see also 18 U.S.C. §§ 1956(c)(7), 1961(1).

In addition, as to the First Forfeiture Allegation concerning the substantive money laundering convictions and the conspiracy to commit money laundering, the government relies on 18 U.S.C. § 982(a)(1), which subjects to forfeiture "any property, real or personal, involved in such offense, or any property traceable to such property."

Although defendants oppose the government's motion for a preliminary order of forfeiture, there is little dispute as to the applicable standards that control the Court's decision. Deciding a motion for a preliminary order of forfeiture is part of the sentencing process. As such, the rules of evidence that must be followed in criminal trials do not apply to this proceeding. See United States v. Capoccia, 503 F.3d 103, 110 (2d Cir.2007); United States v. Gaskin, No. 00-CR-6148, 2002 WL 459005, at *9 (W.D.N.Y. Jan. 8, 2002), aff'd, 364 F.3d 438 (2d Cir.2004), cert. denied, 544 U.S. 990, 125 S.Ct. 1878, 161 L.Ed.2d 751 (2005). The Court's determination of what, if any, property is subject to forfeiture may be based on evidence already in the record from the trial or as submitted in the sentencing proceeding. Capoccia, 503 F.3d at 109-10. The government has the burden of proof to establish the propriety of forfeiture by a preponderance of the evidence. United States v. Schlesinger, 396 F.Supp.2d 267, 271 (E.D.N.Y.2005) aff'd, 514 F.3d 277 (2d Cir.2008).

As to Nicolo, consideration of the forfeiture issues has been clouded somewhat because most of the personal and real property at issue is titled not to Nicolo but to his wife, codefendant Constance Roeder. No order of forfeiture is sought against her.⁵ It is important, therefore, to underscore the limited task before the Court on this motion. The Court's task at this juncture is not to consider and resolve the potentially thorny issues concerning third-party ownership of the property sought to be forfeited. Those issues are for another day.

Rather, the Court's obligation at this stage is primarily to determine the nexus or connection between the crime of conviction and the property sought to be forfeited. The requisite nexus can be established, and the property forfeited, if the property was: "involved in" the underlying offense; is "traceable to" property that was involved in the offense; constitutes "proceeds" of the offense; or is "derived from" proceeds of the offense. Capoccia, 503 F.3d at 117. If the government succeeds in establishing such a nexus, then Nicolo's interest in that property may be ordered forfeited.

Once the Court enters the preliminary order of forfeiture as to Nicolo, then, if a third party claims an interest in the property designated for forfeiture, the Court will consider such claims and render a final determination at an ancillary proceeding, as authorized by Rule 32.2(c). Those proceedings may be and usually are conducted well after imposition of sentence and entry of the Judgment and Commitment.⁶

With respect to mail and wire fraud, property is subject to forfeiture if it "constitutes or is derived from proceeds traceable to" a fraud violation. 18 U.S.C. § 981(a)(1)(C). The term "proceeds" is defined, in pertinent part, as "property of any kind obtained directly or indirectly, as the result of the commission of the offense giving rise to forfeiture, and any property traceable thereto, and is not limited to the net gain or profit realized from the offense." 18 U.S.C. § 981(a)(2)(A). To put it another way, "[p]roceeds are property that a person would not have but for the criminal offense...." United States v. Grant, No. S4 05 CR 1192, 2008 WL 4376365, at *2 n. 1 (S.D.N.Y. Sept. 25, 2008); accord United States v. Evanson, No. 2:05 CR 00805, 2008 WL 3107332, at *3 (D.Utah Aug. 4, 2008); see, e.g., United States v. Zvi, 168 F.3d 49, 52 (2d Cir.) (permitting forfeiture of funds legitimately obtained through defendants' sale of gold jewelry prior to the commission of fraud involving faked robbery of jewelry store, because "[t]he proceeds from the pre-robbery sale of gold represented the defendants' take from the scheme"), cert. denied, 528 U.S. 872, 120 S.Ct. 176, 145 L.Ed.2d 148 (1999)

With respect to forfeiture of fraud proceeds under § 981, then, a defendant may be ordered to forfeit all monies received by him as a result of the fraud, regardless of his net profits from the scheme. See, e.g., United States v. Uddin, 551 F.3d 176, 181 (2d Cir.2009) (where defendant was convicted of food stamp fraud, district court did not err by entering forfeiture order equal to amount of government's entire loss, regardless of whether defendant shared the cash that he fraudulently received from the government with the food stamp beneficiary, since fraud "`proceeds' are not limited to net profits from the crime").

Consistent with that principle, it is irrelevant, for forfeiture purposes, whether a defendant convicted of fraud in connection with a kickback scheme actually performed any of the services that he contracted to perform as a result of the scheme. Again, monies paid to a defendant as a result of the scheme are "proceeds" subject to forfeiture, without regard to whether the victim received anything in return. See United States v. Webber, 536 F.3d 584, 603 (7th Cir.2008) (explaining that since "[r]estitution is remedial in nature, and its goal is to restore the victim's loss," whereas forfeiture is punitive and "seeks to disgorge any profits that the offender realized from his illegal activity[,] ... restitution is calculated based on the victim's loss, while forfeiture is based on the offender's gain"); see, e.g., United States v. 10150 NW 133 St., 278 Fed.Appx. 880, 883 (11th Cir.2008) ...