USA v. $2350000.00 In Lieu Of One Parcel Of Prop. Located At 895 Lake Ave. Greenwich
| Decision Date | 22 April 2010 |
| Docket Number | Civil No. 3:99-CV-1772. |
| Citation | 718 F.Supp.2d 215 |
| Court | U.S. District Court — District of Connecticut |
| Parties | UNITED STATES of America, Plaintiff, v. $2,350,000.00 IN LIEU OF ONE PARCEL OF PROPERTY LOCATED AT 895 LAKE AVENUE GREENWICH, CONNECTICUT, with all Appurtenances and Improvements thereon, Defendant. |
OPINION TEXT STARTS HERE
COPYRIGHT MATERIAL OMITTED.
David X. Sullivan, Julie G. Turbert, U.S. Attorney's Office, New Haven, CT, for Plaintiff.
Andrew W. Lester, Susan B. Loving, Lester, Loving & Davies, Edmond, OK, Douglas J. Schmidt, Hush Blackwell Sanders LLP, Kansas City, MO, for Defendant.
During the 1990s, Martin Frankel (“Frankel”) executed an international scheme of fraud and money-laundering, draining hundreds of millions of dollars from insurance companies in five states. On May 10, 2002, Frankel entered into a plea agreement with the United States Attorney for the District of Connecticut in which he agreed to plead guilty to wire fraud, securities fraud and racketeering and, on December 10, 2004, Frankel was convicted and sentenced to 200 months incarceration.
While engaged in his fraud and money-laundering scheme, Frankel purchased a residential home at 895 Lake Avenue, Greenwich, Connecticut (the “Defendant Property”). The United States (the “Government”) claims that the Defendant Property was involved in Frankel's money-laundering scheme and therefore, on September 9, 1999, commenced this civil forfeiture against the Defendant Property pursuant to 18 U.S.C. § 981(a)(1)(A). The Complaint alleges that the Defendant Property was involved in a money-laundering transaction in violation of 18 U.S.C. § 1956 and in a transaction in criminally derived property in violation of 18 U.S.C. § 1957.
Under the applicable statutes and precedent, once the Government commences a civil forfeiture action, it must demonstrate probable cause to forfeit the property. If probable cause is shown, the property will be forfeited unless a third-party claimant defeats the forfeiture by showing either that the property was not involved in criminal activity or by demonstrating that it is an innocent owner of the property.
In this forfeiture action, two claimants allege that they are innocent owners of the Defendant Property and have filed claims to defeat the Government's forfeiture of the property. One of these claimants is a group comprised of the receivers and liquidators for seven now-insolvent insurance companies that were looted by Frankel (the “Receiver-Claimants”). The other claimant is an individual, Cheryl Lacoff (“Lacoff”).
A bench trial in this case was held September 23-30, 2009. Based on the following findings of fact and conclusions of law, the Court holds that, although the Government established probable cause to forfeit the Defendant Property, the forfeiture is defeated by the innocent owner claim of the Receiver-Claimants.
An investigation by the Internal Revenue Service (“IRS”) and the Federal Bureau of Investigation (“FBI”) revealed that Frankel devised and executed a scheme to defraud multiple insurance companies across the country using wire transfers and to launder the proceeds of that fraud in violation of 18 U.S.C. §§ 1956 and 1957. Frankel committed these criminal activities using several aliases and corporate entities, one of which was Sundew International Ltd. (“Sundew”).
The insurance companies that were victimized by Frankel's fraud were: Franklin American Life Insurance Company (“FAL”), domiciled in Tennessee; International Financial Services Life Insurance Company (“IFS”), domiciled in Missouri; Farmers & Ranchers Life Insurance Company (“FRL”), domiciled in Oklahoma; Old Southwest Life Insurance Company (“OSL”), domiciled in Arkansas; Franklin Protective Life Insurance Company (“FPL”), domiciled in Mississippi; Family Guaranty Life Insurance Company (“FGL”), domiciled in Mississippi; and First National Life Insurance Company of America (“FNL”), domiciled in Mississippi (collectively, the “Insurance Companies”).
Specifically, Frankel, through fraudulent pretenses, representations and promises, obtained control of the liquid assets and insurance policy premium proceeds of the Insurance Companies through acquisition of the companies, reinsurance or other agreements. He then systematically looted and laundered the assets of the Insurance Companies, by, among other means, transferring the assets to bank accounts under his control in Switzerland.
On May 10, 2002, Frankel entered into a plea agreement with the United States Attorney for the District of Connecticut in which he agreed to plead guilty to multiple counts of a superseding indictment charging him with wire fraud, securities fraud and racketeering. As part of his plea agreement, Frankel waived all claims to assets obtained by or traceable to his criminal activities, including all assets subject to forfeiture proceedings.
With regard to the Defendant Property, Frankel admitted that on January 20, 1999, he wire transferred funds in the amount of $2,331,643.14 from an account at Banque SCS Alliance, Switzerland, account number 70026, to Chase Manhattan Bank, account number 586-1-508728, in Connecticut to purchase the Defendant Property.
On December 10, 2004, Frankel was convicted and sentenced to 200 months incarceration. On that same date, the Court entered an order directing Frankel to make restitution to the Insurance Companies in the total amount of $204,164,215.79.
The Defendant Property consists of a dwelling house and property located in Greenwich, Connecticut. At trial, the Receiver-Claimants offered the expert testimony of a forensic accountant who traced the funds used by Frankel to purchase the Defendant Property. The IRS case agent assigned to the Frankel fraud investigation also testified. The uncontroverted testimony of both witnesses was based on the types of documentation that is both reliable and commonly used in this type of investigation. Through the testimony of these witnesses, the Receiver-Claimants established that the funds used to purchase the Defendant Property came from Frankel's looting of the Insurance Companies.
In sum, Frankel directed the transfer of funds he looted from the Insurance Companies to bank accounts he controlled in Switzerland at Banque SCS Alliance. Once in his Swiss bank accounts, Frankel directed the transfer of those funds from Banque SCS Alliance Account # 70026 (“SCS Account # 70026”) to his attorney's bank account for the purchase of the Defendant Property in the name of Sundew. Sundew became the owner of the Defendant Property on January 19, 1999 through the conveyance of a warranty deed for a purchase price of $2,575,000.00.
In November 1991, Frankel caused two wire transfers to be deposited into Banque SCS Alliance Account # 70023 (“SCS Account # 70023”), a transit or house account that he controlled. The first deposit was for $17.9 million and the second was for $1.76 million. The $17.9 million wire transfer consisted of the assets of FAL. Of the $1.76 million wire transfer, $260,000.00 consisted of additional money that Frankel looted from FAL. The origin of the remaining $1.5 million of the $1.76 million wire transfer is unknown. Thus, all but $1.5 million of the deposits into SCS Account # 70023 are traceable to looted Insurance Company funds. There is no evidence that any other party has stepped forward and asserted a claim to these funds.
Also in November 1991, shortly after the $17.9 million and $1.76 million deposits were made into SCS Account # 70023, Frankel directed a wire transfer in the amount of $11.3 million from SCS Account # 70023 to the National Bank of Detroit. Frankel instructed that the $11.3 million wire transfer to the National Bank of Detroit be used to pay off investors in a previous investment program he set up known as “Creative Partners.” 1 After the investors were paid, the remaining funds in the account at the National Bank of Detroit were dissipated.
After transferring the $11.3 million to the National Bank of Detroit, Frankel transferred the remaining funds in SCS Account # 70023, approximately $8.3 million, to an account at Bank Brussels Lambert for a few days. The funds were then transferred from Bank Brussels Lambert into SCS Account # 70026 in two separate deposits, which constituted the “initiating” or first deposits into SCS Account # 70026. The first deposit of approximately $8 million was made into SCS Account # 70026 in late December 1991. The second deposit of approximately $360,000 occurred in early January 1992.
The initial $8.3 million deposited into SCS Account # 70026 can be traced to funds from SCS Account # 70023 and, as noted, at the time of the transfer, SCS Account # 70023 contained, at most, only $1.5 million of possible non-Insurance Company funds. Thus, SCS Account # 70026 could have contained at most only $1.5 million in possible non-Insurance Company funds as of early January 1992.
Between January 1, 1992 and January 19, 1999, Frankel made approximately 100 additional deposits of looted Insurance Company funds into SCS Account # 70026.
Those deposits of Insurance Company funds into SCS Account # 70026 were typically made from Frankel's brokerage accounts at Dreyfus, which he used as holding accounts to park looted Insurance Company funds before he transferred them to SCS Account # 70026. Frankel used the Dreyfus accounts solely to store looted Insurance Company funds. There was no evidence that any non-Insurance Company funds were ever deposited into the Dreyfus accounts.
From January 1, 1992 until January 19, 1999, the total amount of looted Insurance Company funds deposited into SCS Account # 70026 was approximately $338 million.
Of that $338 million in looted Insurance Company funds, approximately $76 million was deposited into SCS Account...
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