United States v. Brooks
| Decision Date | 20 September 2017 |
| Docket Number | 15-2058-cr(CON), 13-3672-cr(XAP), August Term, 2016., 14-2577-cr(CON), 13-4288-cr(CON), 14-2682-cr(CON),Nos. 13-3213-cr (L), 15-1156-cr(CON),s. 13-3213-cr (L) |
| Citation | 872 F.3d 78 |
| Parties | UNITED STATES of America, Appellee–Cross–Appellant, v. David H. BROOKS, Defendant–Appellant–Cross–Appellee, Dawn Schlegel, Patricia Lennex, Defendants, Terry Brooks, Victoria Brooks, Andrew Brooks, Elizabeth Brooks, Appellants. |
| Court | U.S. Court of Appeals — Second Circuit |
Richard C. Klugh , Law Offices of Richard C. Klugh, (Joseph A. DiRuzzo, III, Fuerst Ittleman David & Joseph, PL, on the brief) Miami, FL, for Defendant–Appellant–Cross–Appellee.
Justine A. Harris , Sher Tremont LLP, (Lisa H. Bebchick, Fried, Frank, Harris, Shriver & Jacobson LLP, on the brief), New York, NY, for Appellant Terry Brooks.
Judd Burstein , Judd Burstein, P.C., New York, NY, for Appellants Andrew, Victoria, & Elizabeth Brooks.
(Michael J. Gilbert, (Andrew J. Levander, on the brief), Dechert LLP, New York, NY, for Appellants Andrew, Victoria, & Elizabeth Brooks.)
David K. Kessler & Laura D. Mantell , Assistant United States Attorneys (David C. James, Amy Busa, Christopher A. Ott, Christopher C. Caffarone, Assistant United States Attorneys on the brief) for Robert L. Capers, United States Attorney for the Eastern District of New York, Brooklyn, NY, for Appellee–Cross–Appellant.
Tai H. Park, Esq., Trial Attorney, Park Jensen Bennett LLP, New York, NY, for Defendants-Appellants.
Before: Winter and Droney, Circuit Judges, and Donnelly, District Judge.†
On September 14, 2010, David H. Brooks was convicted in the United States District Court for the Eastern District of New York (Seybert, J. ) after a jury trial on multiple counts of offenses relating to securities fraud, mail and wire fraud, and obstruction of justice. He was also convicted of related tax offenses based on his guilty pleas, which occurred after the jury's verdict. Shortly before trial, the district court found that Brooks had violated the terms of his release conditions and ordered the forfeiture of a substantial cash security on the bond executed by Brooks and members of his family as sureties.
Following his convictions, Brooks was sentenced to 204 months' imprisonment, ordered to pay restitution and a fine, and ordered to forfeit assets. He appealed his convictions based on the jury verdict but not the tax counts. After the verdict, Brooks's ex-wife and their children moved to set aside the forfeited bail bond security. The district court denied the motion and the family members appealed that decision. Brooks died while he was incarcerated and while these appeals were pending.1
As a result of Brooks's death, his estate has now moved for abatement of his convictions, the order of forfeiture, the orders of restitution, the fine, and the special assessment that accompanied the judgment of conviction.2 His estate, as well as his ex-wife and their children, have also moved for abatement of the bail bond forfeiture.3 The Government does not oppose the abatement of Brooks's convictions on the non-tax counts and accompanying order of forfeiture, fine, and special assessment, but opposes the abatement of the restitution obligations and the forfeiture of his bail bond.
We conclude that the counts of conviction based on the jury verdict must abate as well as the orders of forfeiture, fine, special assessment, and restitution for the offenses Brooks contested at trial. We also hold, though, that the forfeiture of the bail bond does not abate, nor do the convictions and order of restitution imposed on the tax counts. Accordingly, Brooks's motion for abatement is GRANTED in part and DENIED in part, Brooks's judgment of conviction is VACATED in part, the motion for abatement by the other appellants is DENIED, the order denying the motion to set aside the bond forfeiture is AFFIRMED, the Government's cross-appeal is DISMISSED,4 and the case is REMANDED for the dismissal of the indictment as to counts I–XI, XV–XVII.
David Brooks was the founder, Chair of the Board of Directors, and CEO of DHB Industries, Inc., a publicly traded company that manufactured and sold body armor to law enforcement agencies and the U.S. military.5
In October 2007, Brooks was indicted in a superseding indictment on charges of participating in several schemes to defraud shareholders, including overvaluing inventory of DHB and its subsidiaries, reclassifying costs to inflate DHB's profitability, falsely adding non-existent inventory to the company's books, and obstructing a Securities and Exchange Commission ("SEC") investigation.
In addition to the allegations concerning manipulation of the DHB books and false SEC disclosures, the indictment alleged that Brooks also defrauded DHB shareholders by diverting DHB assets for the benefit of Brooks, the Brooks family, and other DHB executives. Brooks routinely used DHB funds to pay expenses for his personal horse-racing business, and gave company credit cards and checks to his family to cover their personal expenses including clothing, home renovations, plastic surgery, vacations and airfare, automobiles, entertainment, and gifts. These personal expenses totaled millions of dollars.
Brooks also sold substantial shares of DHB stock while the stock price was artificially inflated, making hundreds of millions of dollars in profit. Finally, the indictment alleged that Brooks paid himself millions of dollars through DHB that were not reported as income to the Internal Revenue Service, and did not pay income taxes on those payments.
A second superseding indictment (the "indictment") was returned in July 2009, with the same charges directed at Brooks.6
The district court entered a pre-trial restraining order on fourteen bank and investment accounts held by Brooks and his family that the court found would be subject to forfeiture in the event of a conviction.
Brooks pled not guilty to all of the charges. The court later granted Brooks's motion to sever the tax counts. Brooks proceeded to trial on the non-tax counts in January 2010.7
After Brooks's arrest in October 2007, the Government sought to have Brooks detained or his release be subject to a substantial bond and the full disclosure of his financial holdings, and on Brooks returning all of his assets from overseas back to the United States. The district court held a hearing and determined that Brooks was a flight risk on the basis of his considerable wealth and the potential for access to foreign accounts if he fled the country. The district court was also concerned that undisclosed and unmonitored accounts could be used to facilitate witness tampering. The district court issued a Bail Release Order (the "Order") on January 3, 2008, granting Brooks's motion for pre-trial release. The Order included such restrictions as home detention monitored by a private security firm, monitored conversations, independent auditing of bank accounts and assets, and a prohibition on liquid assets being held overseas without the approval of the U.S. Attorney's office.
Brooks and his family sureties also provided $48 million in cash as security for the $400 million bond the court ordered.8 The Order provided that if Brooks concealed assets, that conduct would be grounds for revocation of Brooks's bail and for the forfeiture of the $48 million cash security.9
The district court reviewed the terms of the Order with Brooks and the family sureties prior to its approval at a December 21, 2007, hearing. In particular, the district court asked at the hearing about "failure to disclose assets" and Brooks's counsel confirmed that any such failure "subjects him to immediate remand, and it subjects him to the loss of the ... [security]." J.A. 481.10 The district court canvassed Terry Brooks (Brooks's wife), Jeffrey Brooks (Brooks's brother), Victoria Brooks (Brooks's 23–year-old daughter), and Andrew Brooks (Brooks's 19–year-old son), who executed the bond along with Brooks. The court later modified the Order upon subsequent motions by Brooks, but these modifications did not affect the asset disclosure terms or the restriction on maintaining funds overseas.
In January 2010, shortly before trial, the Government moved to revoke Brooks's bail on the basis that Brooks and his family had hidden substantial assets in violation of the terms of the Order. The Government sought forfeiture of the entire $400 million bond. The district court revoked Brooks's bail and ordered his detention, but ordered forfeiture of only the cash security of $48 million.
The district court did not hold an evidentiary hearing for the forfeiture, over the objections of defense counsel, and proceeded by Government proffer.11 The district court credited the extensive affidavit (with numerous exhibits) of FBI Special Agent Angela Jett, which described the results of her investigation into Brooks's concealment of assets abroad.
According to the affidavit, prior to the entry of the bail bond Order, a confidential source had met with David and Jeffrey Brooks as well as other family members to create various corporations and bank accounts around the world to conceal millions of dollars in assets. The source set up a scheme called "Czerny Kot" (Polish for "black cat") using the passports of Jeffrey Brooks, Elizabeth Brooks, Andrew Brooks, and Victoria Brooks to open nominee accounts. Special Agent Jett also pointed to Grand Jury testimony of Brooks's personal pilot to show that Brooks, Jeffrey, and other family members (including Terry Brooks and the children) flew to Switzerland in a private plane to deposit assets in Swiss safe deposit boxes.
Based principally on Special Agent Jett's affidavit, the district court found that David and Jeffrey Brooks violated the conditions of Brooks's release by clear and convincing evidence. Specifically, the court found that (1) the two Brooks brothers conspired to hide assets...
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