United States v. Miller

295 F.Supp.3d 690

UNITED STATES of America,

v.David Harris MILLER, Defendant.

Case No. 1:17–cr–213

United States District Court, E.D. Virginia, Alexandria Division.

Signed March 8, 2018

Uzo Asonye, US Attorney's Office, Alexandria, VA, for United States of America.

MEMORANDUM OPINION

T. S. Ellis, III, United States District Judge

At issue in this mail and wire fraud, money laundering conspiracy, and identity theft prosecution is whether the Government improperly seized defendant's assets without probable cause to believe those assets will ultimately be proved at trial to be forfeitable as tainted, and not substitute assets. This issue has been fully briefed and argued and is ripe for disposition.

I.

A procedural history of this case and the companion case of United States v. Wallis provides necessary context for the factual findings here.¹ On October 5, 2015, the Government charged Linda Diana Wallis ("Wallis") by information with one count of conspiracy to commit wire fraud, in violation of 18 U.S.C. § 1343 and 18 U.S.C. § 1349. Wallis waived indictment, pled guilty to the one-count amended criminal information, and signed a statement of facts on October 15, 2015. Specifically, the statement of facts noted that from January 2013 through February 2014, in the Eastern District of Virginia, Wallis and her husband, the defendant here who was unindicted at the time, engaged in a conspiracy to obtain money through false statements and misleading representations from three different victim organizations, including SkyLink Air and Logistic Support, Inc. ("SkyLink"), the Saslaw for State Senate campaign, and the Community College Consortium on Autism and Intellectual Disabilities ("CCCAID").² Specifically, the statement of facts reflects that Wallis and defendant created two fake law firms, Federal Legal Associates ("FLA") and The Straile Group. Wallis SOF ¶ 10. Wallis and defendant then engaged FLA and The Straile Group on behalf of SkyLink and in so doing, caused SkyLink to transfer purported legal fees approximating $368,400 to a Capital Bank account and a PNC Bank account under Wallis's control. Id. ¶¶ 11–18. With respect to the Saslaw for State Senate campaign, the statement of facts discloses that Wallis served as treasurer of the campaign from June 2013 until September 2014, and in that time, caused approximately 73 fraudulent checks, totaling $653,000, to be issued to the same Capital Bank and PNC Bank accounts she controlled, as well as a Capital Bank account under both Wallis's and defendant's joint control. Id. ¶ 21. Wallis also authorized approximately $482,000 in transfers from CCAID's bank account to bank accounts that Wallis and defendant controlled from April 2010 until August 2014. Id. ¶ 29. Wallis and defendant then used these funds to pay for their personal expenses, including interest payments on a loan secured by their Virginia home, improvements to a beach home, and charters of private flights.

After entering her guilty plea, Wallis was sentenced on March 18, 2016 to 56 months in the custody of the Bureau of Prisons. A Consent Order of Forfeiture, issued on the same day, included a money judgment against Wallis for $1,429,599, the amount of illegal proceeds that Wallis obtained as a result of the conspiracy, and ordered the forfeiture of two properties in partial satisfaction of that money judgment. See United States v. Linda Wallis , No. 1:15–cr–285 (E.D. Va. Mar. 18, 2016) (Consent Order of Forfeiture). Specifically, the March 18 Forfeiture Order named two properties: (1) 4551 Forest Drive, Fairfax, Virginia ("Virginia Property"); and (2) 2896 Indian Harbor Drive, Unit 3, Bethany Beach, Delaware ("Delaware Property"). Id. at 2. Defendant had purchased both properties before defendant and Wallis were married and before the charged conspiracy began, and Wallis was not a title owner on either property at that time. Significantly, however, Wallis was a signatory on the $600,000 note held by Dan Caplan ("Caplan note") and secured by the Virginia Property in 2007. The March 18 Forfeiture Order specified that both the Virginia and the Delaware properties were to be forfeited as "property that is traceable to, derived from, fungible with or a substitute for property that constitutes the illegal proceeds of the conspiracy to commit wire fraud." Id.

On April 18, 2016, defendant, who was at the time still unindicted and unrepresented, filed a Motion for Relief, requesting removal of a lis pendens filed against the Virginia Property, and also moved for an ancillary hearing pursuant to Rule 32.2(c)(1), Fed. R. Crim. P. and 21 U.S.C. § 853(n)(2), asserting that he was sole owner of the Virginia Property and the Delaware Property and as such, these properties were not forfeitable as a part of Wallis's case. With respect to defendant's Motion for Relief, a hearing was held on May 6, 2016. Following the hearing, an Order issued ordering the transfer of the net proceeds owed to defendant from the sale of the Virginia Property to the United States Marshal Service ("USMS") upon closing of the sale of that property on May 11, 2016. See United States v. Linda Wallis , No. 1:15–cr–285 (E.D. Va. May 6, 2016) (Order). The USMS was instructed to hold these proceeds, pending the disposition of defendant's petition for an ancillary hearing. Id. At closing, the Virginia Property sold for $1,150,000. Of the $1,150,000, $686,062.50 was used to pay off the value of the Caplan note, and the remaining $313,550.82, the amount owed to defendant, was transferred to the USMS in accordance with the May 6 Order.

With respect to defendant's motion for an ancillary hearing, defendant gained representation on May 19, 2016. The parties subsequently filed four sets of briefs, and three hearings were held on December 16, 2016, March 24, 2017, and June 9, 2017. During the ancillary proceedings, the Government presented documentary evidence and testimony from Stacy Young, an FBI forensic accounting expert. Specifically, Young testified that she had traced $338,140.60 in proceeds from Wallis and defendant's fraud to the Virginia property³ and $58,818.35 in criminal proceeds to the Delaware Property. To conduct her tracing analysis, Young testified that she reviewed bank records from the Capital Bank and PNC bank accounts under Wallis and defendant's control. Young then traced funds originating with the various victim organizations to payments associated with the Virginia and Delaware properties. In particular, Young traced funds embezzled from SkyLink, CCAID, and the Saslaw for Senate campaign, to payments made to Daniel Caplan, the holder of the Caplan note secured by the Virginia Property. And, with respect to the Delaware property, Young traced fraud funds to payments to Herl's Bath and Tile, Lansing Building Products, and CLM General Contracting LLC. The parties stipulated that Herl's Bath and Tile, Lansing Building Products, and CLM General Contracting LLC provided services and improvements to the Delaware Property.

On September 20, 2017, defendant was indicted by a Eastern District of Virginia grand jury on one count of conspiracy to commit mail and wire fraud, in violation of 18 U.S.C. § 1349, one count of conspiracy to launder monetary instruments, in violation of 18 U.S.C. §§ 1956(h), three counts of mail fraud, in violation of 18 U.S.C. §§ 1341 and 1342, three counts of wire fraud, in violation of 18 U.S.C. §§ 1343 and 1342, and two counts of aggravated identity theft, in violation of 18 U.S.C. §§ 1028A(a)(1) and 1028A(a)(2). Indictment (Doc. 1) at 1. With respect to the money laundering count, the grand jury found probable cause to believe that defendant and Wallis transferred and laundered funds through multiple financial accounts or bogus entities. The Indictment charges that defendant and Wallis then used a portion of these laundered proceeds to fund purchases for the Virginia and Delaware properties. For example, the Indictment alleges that on August 3, 2012, Wallis instructed Capital Bank to transfer funds from CCAID to her personal account before making a payment to Dan Caplan for the Virginia Property and before making a payment to Herl's Bath and Tile for improvements to the Delaware property. Id. ¶ 117. Shortly thereafter, the Indictment alleges that on August 23, 2012, Wallis directed Capital Bank to route funds from CCAID through multiple bank accounts before making payments on the Virginia Property. Id. ¶ 118. And on February 26, 2013, the Indictment alleges that Wallis instructed Capital Bank to transfer $10,000 from the FLA account to Wallis and defendant's personal account to cover a check for the Delaware Property. Id. ¶ 120. Accordingly, the grand jury found probable cause to believe that the Delaware Property and the net proceeds from the sale of the Virginia Property were subject to forfeiture as properties involved in a money laundering offense and traceable to both money laundering and the underlying fraud. Id. at 37. Following the grand jury's Indictment, the Government filed a new lis pendens on the Delaware Property and on the proceeds from the sale of the Virginia Property.

Thereafter, on January 3, 2018, defendant filed the Motion for Release of Funds at issue here. Defendant's arguments in support of this motion are essentially similar to the arguments he advanced in the ancillary proceedings in Wallis's case, namely that the funds from the Virginia and Delaware properties are not traceable to proceeds from the charged criminal offenses and thus are not tainted and cannot be seized pre-trial. Along with his motion, defendant also attached an affidavit, averring that he had no unexhausted assets, apart from the seized assets, with which to fund his legal defense in this case. The Government disputes defendant's arguments with respect to the properties, contending both (i) that the properties were involved money laundering and (ii) that the properties are traceable to laundered money and the underlying fraud...