United States v. Any & All Ownership Interest Held ex rel. Taub
| Decision Date | 16 January 2020 |
| Docket Number | Civil Action No. 16-9158 (JMV)(JBC) |
| Parties | UNITED STATES OF AMERICA, Plaintiff, v. ANY AND ALL OWNERSHIP INTEREST HELD IN THE NAME, ON BEHALF OR FOR THE BENEFIT OF JOSEPH TAUB, AND/OR JT CAPITAL LLC, et al., Defendants. |
| Court | U.S. District Court — District of New Jersey |
Not for Publication
Currently pending before the Court is a motion to dismiss the Amended Verified Complaint for Forfeiture in Rem, D.E. 130 (the "FAC"), made by Claimant Joseph Taub ("Taub" or "Claimant") pursuant to Supplemental Rule G(8)(b). D.E. 162. Taub also requests that the Court vacate the restraining order, at least with respect to some of the restrained property. Plaintiff (the "Government") opposed the motion, D.E. 175, and Claimant replied, D.E. 181.1 The Court then held oral argument on December 20, 2019. For the following reasons, Taub's motion is granted in part and denied in part.
This matter concerns an alleged securities fraud scheme, specifically, a market manipulation scheme (the "Scheme") through coordinated trading events ("CTEs"). As will be discussed, the Scheme itself was not overly complicated. Complications, however, arise from the number of trades involved, the number of accounts involved, and the number of persons involved. The FAC alleges that a successful CTE resulted in an average of profit of under $2,000. FAC ¶ 39. At the same time, the entire Scheme netted over $40,000,000 in profits according to the FAC. Id. ¶ 40. As a result, the Government contends that there were "at least 30,000" CTEs. Id. ¶ 39. Taub has also been indicted for the Scheme. Superseding Indictment, D.E. 86, United States v. Taub, No. 18-cr-79 (D.N.J. Oct. 23, 2019).
The Government has charged Taub in a Superseding Indictment under Criminal Docket Number 18-79. Id..3 The Superseding Indictment uses many of the same terms as found in the FAC, id. ¶ 1, and charges Taub with the same Scheme found in the FAC. Superseding Indictment, Taub, No. 18-cr-79. The Superseding Indictment sets forth the following counts against Taub: Count 1 - from 2013 to in or about 2016, conspiracy to commit securities fraud in violation of 18 U.S.C. § 1349; Count 2 - securities fraud in violation of 18 U.S.C. § 1348; Count 3 - conspiracy to commit securities fraud in violation of 18 U.S.C. § 371; Count 4 - securities fraud in violation of 15 U.S.C. § 78j(b); Count 5 - conspiracy to defraud the United States in violation of 18 U.S.C.§ 371. Id. The Superseding Indictment also contains forfeiture allegations. Id. at pp. 23-24. The Fifth Count is not applicable to the FAC. The Superseding Indictment does not charge Taub with money laundering.
The in rem Defendants consist of sixty-six entities and fifty-three bank or brokerage accounts. FAC at pp. 10-33. The FAC seeks forfeiture pursuant to 18 U.S.C. §§ 981(a)(1)(A), 981(a)(1)(C). Id. ¶¶ 1, 7. In addition to securities fraud, the FAC alleges money laundering violations contrary to 18 U.S.C. §§ 1956, 1957. Id. ¶ 1.
The FAC provides the following overview of the matter:
This is a civil action to forfeit assets traceable to and involved in a multi-year conspiracy to manipulate the securities markets and to launder the proceeds of a massive market manipulation scheme that generated over $40 million in illicit proceeds. Over the course of a three-year period, between 2014 and December 2016,4 Joseph Taub conspired with multiple other individuals to manipulate the securities market in order to reap huge trading gains, to make misrepresentations to banks in order to carry out the scheme, and to launder the proceeds of such criminal conduct.
Id. ¶ 2 (emphases added).
The FAC describes the Scheme in the following manner. CTEs were a "series of near-simultaneous transactions designed to artificially influence the market price of [a] security and to induce other market participants to trade in the security based on the false impression that there was real market interest in the security." Id. ¶ 27. In other words, CTEs artificially influenced a stock's price. Id. Most of the CTEs involved at least two accounts, which the FAC refers to as a"Winner Account" and a "Loser Account." Id. ¶ 29. To work, the accounts had to be on the opposite sides (buying/offering to buy or selling/offering to sell) of a transaction. A Winner Account purchased a large block of shares in a security, while a Loser Account placed multiple small orders in the same security to create pressure on the stock's price, that is, to push the price of the stock higher. Id. Once the Loser Account moved the stock's price higher, the Winner Account sold its large position and reaped the benefits of the price increase. Id. The Loser Account, having done its job, cancelled all unexecuted orders it had placed after the Winner Account cashed out. Id. At the same time, the Loser Account would "almost always" incur small losses while artificially inflating (or deflating as the case may be) the stock's price. Id. ¶ 41.
The FAC also describes two different aspects of the Scheme. Initially, Taub worked in tandem with another co-conspirator or co-conspirators to execute the CTEs. Id. ¶ 28, 41. For convenience, the Court refers to this facet of the Scheme as the "First Phase."5 However, brokerage firms responded by closing brokerage accounts used in the Scheme. Id. ¶ 30; see also id. ¶¶ 62-67. As a result, the Scheme evolved to using "Straw Accounts." Id. ¶ 31. Such accounts were primarily funded by Taub. Id. The FAC describes the Straw Accounts as follows:
Taub and others instructed the Straw Account Holders to lie to the brokerage firms when opening and maintaining the Straw Accounts, including by misrepresenting: who controlled the accounts, who funded the accounts, and who executed the trades in the accounts. The Co-Conspirators also took steps to conceal who controlled the accounts, including by masking the locations from which they logged into the Straw Accounts.
Id; see also id. ¶ 41. Again, solely for convenience, the Court refers to this aspect of the Scheme as the "Straw Account Phase." The FAC also refers to other attempts to mask who controlledbrokerage accounts, see, e.g., id. ¶¶ 50-53, 165-172, but it is not clear whether the Government contends that these accounts were also Straw Accounts.
Overall, the CTEs are alleged to have involved at least 73 accounts6 in 12 different brokerage firms. Id. ¶ 33. The FAC provides five examples of CTEs. Id. ¶ 38. As noted, the FAC alleges that a successful CTE resulted in an average of profit of under $2,000, that the entire Scheme netted over $40 million in profits, and that there were "at least 30,000" CTEs. Id. ¶¶ 39, 40. The FAC adds that two brokerage accounts made over $14 million in profits between May 2014 and September 2015. Id. ¶ 76.
Given the large number of CTEs involved, and the relative meager amount of profits on a single successful CTE when compared with the overall illicit profit, the FCA resorts to the use of descriptive words pertaining to a large swath of illicit activity. See, e.g., id. ¶ 29 ("primarily," "generally"); ¶ 40 ("typically"); ¶ 104 ("[a] majority"); ¶ 105 ("most"); ¶ 207 ("a large portion"). The FCA goes on to allege that an "[a]nalysis reveals that approximately 91.2% of the trading activity in the accounts in which CTEs were alleged to have occurred consisted of CTEs." Id. ¶ 73. The FCA, however, does not indicate who conducted the analysis, what was considered in the analysis, the methodology used in the analysis, or how the percentage was calculated. The FAC also includes an Exhibit A, which shows the "amount of profits generated in the brokerage accounts used" in the Scheme. Id. ¶ 74, Ex. A. The exhibit, however, does not indicate what percentage of the profits in any of the listed accounts is attributable to the Scheme.
The FAC then provides different categories, with each category identifying an account or accounts through which illicit activity allegedly occurred. The categories are as follows: Taub'suse of bank accounts in his name, his wife's name, and the names of corporate entities he controlled to launder proceeds of the Scheme, id. ¶¶ 82-110; Taub's brokerage accounts in 2016 that contained proceeds of and funds traceable to the Scheme's proceeds, id. ¶¶ 112-28; Taub's laundering of funds traceable to the Scheme in retirement accounts and accounts for his children, id. ¶¶ 129-64; co-conspirator Elazar Shmalo's accounts connected with the Scheme, id. ¶¶ 173-82; Chava Taub's (Taub's sister) accounts that were used in the Scheme and laundering of funds, id. ¶¶ 184-99; Taub's use of accounts held in the names of others to continue the Scheme and conceal Taub's trading in those accounts, id. ¶¶ 217-37, 279-346; and Taub's transfer of proceeds from the Scheme into Ultimate Venture LLC's accounts, further illegal trading in those accounts, and then subsequent transfers and trading in other accounts, id. ¶¶ 238-78. The FAC also alleges that Taub recruited co-conspirator Shaun Greenwald to make false representations to banks in furtherance of the Scheme, id. ¶¶ 200-16; and that Taub invested approximately $13 million, which were proceeds traceable to the Scheme, in limited liability companies, id. ¶¶ 347-503.
Many of the allegations as to the listed accounts are stated in conclusory fashion. See, e.g., id. ¶ 86 ("was traceable to"); ¶ 88 (); ¶ 93 (); ¶ 109 (); ¶ 122 (); ¶ 119 (); ¶ 158 (). In other words, the allegations do not actually trace the proceeds nor do they analyze the specific manipulative trades and the resulting...
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