United States v. Coffman

• Decision Date: 16 April 2012
• Docket Number: Criminal No. 09–CR–181–KKC.
• Citation: 859 F.Supp.2d 871
• Parties: UNITED STATES of America, Plaintiff v. Bryan COFFMAN, Defendant.
• Court: U.S. District Court — Eastern District of Kentucky

859 F.Supp.2d 871

UNITED STATES of America, Plaintiff

v.Bryan COFFMAN, Defendant.

Criminal No. 09–CR–181–KKC.

United States District Court,

E.D. Kentucky,

Central Division at Lexington.

April 16, 2012.

Kenneth Taylor, Brandon Wayne Marshall, Robert M. Duncan, Jr., Wade Thomas Napier, U.S. Attorney's Office, Lexington, KY, Elaine K. Leonhard, U.S. Attorney's Office, Ft. Mitchell, KY, for Plaintiff.

Steven Rush Romines, Romines, Weis & Young, PSC, Louisville, KY, Brian M. Johnson, Bingham Greenebaum Doll LLP, Lexington, KY, for Defendant.

MEMORANDUM OPINION AND PRELIMINARY ORDER OF FORFEITURE

KAREN K. CALDWELL, District Judge.

This matter is before the Court on the Government's Motion for a Preliminary Order of Forfeiture pursuant to Rule 32.2(b) of the Federal Rules of Criminal Procedure. [DE 393, DE 459]. Bryan Coffman has moved for a general order of forfeiture. [DE 437]. The matter has been fully briefed and the Court heard oral arguments on September 22, 2011. For reasons stated below, the Court will DENY the motion for forfeiture of the 4816 Chaffey Lane residence and will GRANT the motion to forfeit all other property listed in the indictment.

BACKGROUND

A jury convicted Bryan Coffman of mail fraud, wire fraud, securities fraud, and money laundering. The indictment charged Coffman with running an investment scheme in which he defrauded investors by misrepresenting the value or existence of various oil and gas investments and transferred millions of dollars of investor funds into personal accounts. The indictment contained forfeiture allegations and after the jury trial, Coffman waived his right to a jury trial on the forfeiture issues. [DE 349]. As part of the sentencing process, the Government seeks to divest Coffman of the proceeds of his scheme as well as other assets that were comingled with the ill-gotten gains and used to launder the tainted money.

At issue are thirteen (13) financial accounts, two (2) pieces of real property and a yacht. The parties agreed that three financial accounts contained only investor funds and were subject to preliminary forfeiture. At oral argument, the Court entered a preliminary order of forfeiture on these three accounts, ¹ and denied the Government's motion for forfeiture of the 4816 Chaffey Lane residence.

The Government seeks preliminary forfeiture of investor funds in various financial accounts as well as assets purchased with investor funds. Coffman does not object to the forfeiture of investor funds. However, he objects to the forfeiture of any funds or property not directly traceable to the investor funds.

The Court has considered the evidence presented at trial, along with testimony from United States Postal Inspection Service financial analyst Ryan Lee. [DE 393–2]. The parties submitted legal memoranda in support of their positions and the Court heard oral arguments on September 22, 2011. Having considered the legal arguments and reviewed the record, the Court issues this Order.

DISCUSSION

I. Legal Standard

Under the Federal Rule on criminal forfeiture, “the court must determine whether the government has established the requisite nexus between the property and the offense.” Fed.R.Crim.P. 32.2(b)(1)(A). The United States must establish this nexus by a preponderance of the evidence. United States v. Jones, 502 F.3d 388, 391 (6th Cir.2007). The Government seeks forfeiture under two different, but similar, federal statutes. [DE 393–1 at 3].

A. Proceeds Forfeiture

First, the Government seeks forfeiture under 18 U.S.C. § 981(a)(1)(C) which authorizes the forfeiture of property “which constitutes or is derived from proceeds traceable to ... any offense constituting ‘specified unlawful activity.’ ” 18 U.S.C. § 981(a)(1)(C). Mail and wire fraud are specified unlawful activities. See18 U.S.C. § 1956(c)(7)(A) (stating that a “specified unlawful activity” includes “any act or activity constituting an offense listed in 18 U.S.C § 1961(1)”); 18 U.S.C. § 1961(1) (listing mail and wire fraud). In short, § 981(a)(1)(C) subjects to forfeiture the proceeds traceable to the fraud and is not limited to the net gain or profit realized from the offense. § 981(a)(2)(A). Proceeds of a fraud is defined as “property that a person would not have but for the criminal offense.” United States v. Nicolo, 597 F.Supp.2d 342, 346 (W.D.N.Y.2009) (quoting United States v. Grant, No. 05–1192, 2008 WL 4376365, at *2 n. 1 (S.D.N.Y. Sept. 25, 2008)).

B. Money Laundering Forfeiture

The Government also seeks forfeiture under 18 U.S.C. § 982(a)(1). If a defendant is convicted of money laundering or conspiracy to commit money laundering, the court “shall order that the person forfeit to the United States any property, real or personal, involved in such offense, or any property traceable to such property.” 18 U.S.C. § 982(a)(1) (emphasis added). The term “involved in” includes “the money or other property being laundered (the corpus), any commissions or fees paid to the launderer, and any property used to facilitate the laundering offense.” United States v. McGauley, 279 F.3d 62, 76 n. 14 (1st Cir.2002) (citing United States v. All Monies ($477,048.62) in Account No. 90–3617–3, 754 F.Supp. 1467, 1473 (D.Haw.1991)).

Money laundering forfeiture pursuant to § 982(a)(1) applies to a larger class of property than proceeds forfeiture under § 981(a)(1)(C) because it applies to more than just the laundered property or proceeds from the laundered property. Money laundering forfeiture is required for all property “involved in” the crime, which can include clean or legitimate money that is comingled with tainted money derived from illicit sources.

There are two ways clean money can be involved in a money laundering offense and subject to forfeiture. First, if tainted money is commingled with clean money, and money is laundered out of the comingled account—all of the money laundered out of the account constitutes the corpus of the money laundering, not just the tainted money. See United States v. Funds on Deposit at Bank One, Ind. Account 1563632726, No. 2:02–480, 2010 WL 909091, at *8 (N.D.Ind. Mar. 9, 2010) (citing United States v. Huber, 404 F.3d 1047, 1058 (8th Cir.2005)); United States v. $70,150, No. 02–874, 2009 WL 3614871, at *11 (S.D.Ohio Oct. 28, 2009) (holding that if legitimate money was involved in the offense, both legitimate and illegitimate money are subject to forfeiture).

Second, property derived from legitimate sources can be used to facilitate money laundering. See, e.g., United States v. McGauley, 279 F.3d 62, 76–77 (1st Cir.2002). Several circuits, including the First, Fifth, Seventh, Tenth, and Eleventh as well as one district court in the Sixth Circuit have adopted the “facilitation” theory of money laundering. See United States v. Puche, 350 F.3d 1137, 1153 (11th Cir.2003); United States v. McGauley, 279 F.3d 62, 76–77 (1st Cir.2002); United States v. Baker, 227 F.3d 955, 970 n. 4 (7th Cir.2000); United States v. Bornfield, 145 F.3d 1123, 1134–35 (10th Cir.1998); United States v. Tencer, 107 F.3d 1120, 1135 (5th Cir.1997); United States v. Warshak, 562 F.Supp.2d 986, 1005 (S.D.Ohio 2008).

Property is used to facilitate money laundering “when the property makes the prohibited conduct less difficult or more or less free from obstruction or hindrance.” Bornfield, 145 F.3d at 1135 (internal quotation marks omitted) (quoting Tencer, 107 F.3d at 1134). This facilitating property can be property derived from either legitimate or illicit activities. With respect to legitimate money commingled with illegitimate funds;

the mere pooling or commingling of tainted and untainted funds in an account does not, without more, render the entire contents of the account subject to forfeiture. However, forfeiture of legitimate and illegitimate funds commingled in an account is proper as long as the government demonstrates that the defendant pooled the funds to facilitate, i.e., disguise the nature and source of, his scheme.

Id. at 1135 (citations omitted) (citing Tencer, 107 F.3d at 1134–35).

Finally, it is important to note the limited nature of this proceeding. This Order merely determines the nexus between the crime of conviction and the property sought to be forfeited. This Preliminary Order of Forfeiture terminates only Bryan Coffman's interest in the property. This Order has no impact on third-party ownership. If there are third-party claims to the property, those parties must file claims and the Court will evaluate those claims at future ancillary proceedings consistent with Rule 32.2(c).

II. Analysis

The United States seeks preliminary forfeiture of thirteen (13) financial accounts, two (2) pieces of real property and a yacht. [DE 393–1]. Coffman objects to the forfeiture of six (6) accounts in their entirety, portions of four (4) accounts, both pieces of real property and the yacht. [DE 401]. Coffman does not object to the preliminary forfeiture of three (3) financial accounts. The Government and Coffman generally agree as to the property that is traceable to investor funds or proceeds of a specified unlawful activity. The parties dispute whether property not traceable to investor funds, but comingled with investor funds, is subject to forfeiture.

At the hearing, the Court ordered preliminary forfeiture on the three uncontested accounts—American Founders Bank Account 3826, Wachovia Account 2871, and Wachovia Account 4179. The remaining financial accounts, real property and the yacht are discussed below.

A. Financial Accounts

The Government argues that the funds in each listed account were either traced to investor funds and therefore proceeds of a specified unlawful activity or involved in money laundering. Coffman does not contest the portions of each account that were traced to investor funds. However, Coffman objects to the Government's claim that the non-investor funds in each account were involved in or facilitated money laundering. For the reasons discussed below, the Court finds that...