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United States v. King
Citations: 231 F. Supp. 3d 872; 2017 WL 895748; 2017 U.S. Dist. LEXIS 31207Docket: Case No. CR-13-0063-F
Court: District Court, W.D. Oklahoma; March 5, 2017; Federal District Court
The memorandum opinion and order addresses a government motion for preliminary orders of forfeiture against several defendants, including Bartice A. Luke King, Kory Elwin Koralewski, Paul Francis Tucker, Leon Mark Moran, Luis Robles, Zapt Electrical Sales Inc., Rodger Vanpelt Bramley, and Kelley Ward Diebner. The government seeks forfeiture of specific assets and a forfeiture money judgment totaling $231,432,686.73 against these defendants, who are collectively referred to as "the forfeiture defendants." Notably, an FBI witness indicated in court that the government aims to recover up to $1 billion. The document outlines various legal frameworks and principles supporting the forfeiture, including procedures related to RICO conspiracy, illegal gambling operations, and money laundering. It discusses the burden of proof, the application of the Excessive Fines Clause, and the government’s evidentiary presentations, including detailed findings related to the sources of allegedly laundered funds and direct attributions for specific individuals involved in the scheme. The proceedings are characterized as highly contested, reflecting the complexity and scale of the forfeiture case.
Findings of fact are derived from evidence presented in four jury trials, James hearings, and a nonjury trial, totaling 11,368 pages of transcript. The original Indictment, returned on March 20, 2013, alleged a ten-year conspiracy period and charged fifty-seven defendants, including six forfeiture defendants: King, Koralewski, Moran, Robles, Tucker, and Zapt. Charges included racketeering conspiracy under 18 U.S.C. 1962(d), illegal gambling under 18 U.S.C. 1955, and money laundering conspiracy under 18 U.S.C. 1956(h). The government sought criminal forfeiture exceeding $1 billion and specific property. A Bill of Particulars was filed on August 16, 2013, seeking additional forfeiture from certain defendants. A Superseding Indictment on August 21, 2013, included the same counts with updated forfeiture allegations against fifty-nine defendants.
Due to the number of defendants, trials were grouped into four sets. The first trial, starting February 12, 2015, resulted in convictions for Tucker, Robles, and partial convictions for Zapt. The second trial began on April 14, 2015, with King acquitted on Count 1 but convicted on Counts 2 and 3. The third trial commenced on May 4, 2015, with Moran, Bramley, and Diebner convicted on all counts. Post-trial motions for all defendants were denied.
The fourth trial commenced on October 19, 2015, concluding with a jury verdict on November 4, 2015. Defendant Koralewski was convicted on Count 1 and acquitted on Counts 2 and 3. The court subsequently denied Koralewski's post-trial motion. The government filed motions for preliminary forfeiture against several defendants, including Koralewski, King, Tucker, Moran, Robles, Zapt, Bramley, and Diebner. Defendants King, Koralewski, Moran, Bramley, and Diebner contested the government's claims for forfeiture of specific property and a money judgment against them, while motions for Tucker and Zapt were granted regarding specific properties without dispute. The government did not seek a money judgment against Zapt, and his assets were already preliminarily forfeited. Following the government’s motions, the defendants submitted response briefs. The government's initial motions were criticized for lacking specificity in referencing the forfeiture statutes and did not mention personal money judgments against the defendants. On January 19, 2016, the government filed its comprehensive opening brief in support of its forfeiture claims, marking a significant step in the proceedings that had begun nearly twelve years prior with the Legendz investigation.
File under Case Management Order No. 7, doc. no. 1879, the government was required to provide specific details regarding its forfeiture claims against each defendant. This included stating the statutory basis for each claim, identifying the property sought, establishing a nexus between the property and the offenses of conviction, specifying the amount of any forfeiture money judgment sought with a factual basis, and addressing other relevant matters per the court’s procedures. The government's Forfeiture Brief included separate exhibits for each defendant outlining the government’s position heading into the evidentiary hearing regarding property and personal money judgments sought.
The government asserted the following statutory bases for forfeitures: 18 U.S.C. 1963(a) for RICO conspiracy convictions, 18 U.S.C. 1955(d) for illegal gambling business convictions, and 18 U.S.C. 982(a)(1) for money laundering conspiracy convictions. All forfeiture defendants submitted responses to the Forfeiture Brief. The government also filed a reply brief addressing claims by some defendants about inadequate notice regarding personal money judgments.
King raised an exclusionary rule argument seeking to exclude documents known as the Karlo Stewart documents, which had been previously suppressed and not admitted into evidence during his jury trial. The government responded to this motion. The forfeiture claims were presented in three days of hearings in late April 2016, after which all parties submitted proposed findings of fact and conclusions of law. The court allowed defendants to adopt findings from each other, with Bramley not formally adopting any but being granted the benefit of relevant findings applicable to him.
Forfeiture defendants have previously referenced each other's arguments during the briefing process. Following a guilty verdict on any count regarding criminal forfeiture, the court must identify the property subject to forfeiture as per Rule 32.2(b)(1)(A) of the Federal Rules of Criminal Procedure (Fed. R. Crim. P.). If specific property is sought, the court assesses the government's proof of a nexus between the property and the offense. For personal money judgments, the court determines the amount the defendant must pay. This determination can rely on existing record evidence and additional relevant evidence submitted by the parties, as outlined in Rule 32.2(b)(1)(B).
If forfeiture is contested, a hearing must occur post-verdict. Upon finding property subject to forfeiture, the court issues a preliminary order specifying any money judgment, directing the forfeiture of specific or substitute property, without considering third-party interests, which are addressed in a separate ancillary proceeding under Rule 32.2(c). This ancillary proceeding allows third-party claimants to participate and ensures forfeited property belongs to the defendant. The court should issue the preliminary order before sentencing to allow for modifications, as stated in Rule 32.2(b)(2)(B). The preliminary order becomes final for the defendant at sentencing or earlier with consent, while it remains preliminary for third parties until the conclusion of the ancillary proceeding.
Criminal forfeiture constitutes a component of a defendant’s sentence following conviction, as established in Libretti v. United States. It is an in personam action against the defendant, unlike civil forfeiture, which is in rem. Forfeitures can be categorized into property forfeiture and money judgments, with the government bearing the burden to demonstrate the connection between the forfeited property and the offense, as noted in United States v. Bader. Further elaboration on this will occur in Part IV(A).
Money judgments related to criminal forfeiture, although not explicitly mentioned in the applicable statutes, are widely accepted by courts as valid for representing unlawful proceeds. In *United States v. McGinty*, the Tenth Circuit affirmed that forfeiture follows the defendant as a sanction, meaning the government does not need to prove possession of the forfeited proceeds at conviction. This approach prevents defendants from concealing ill-gotten gains to evade forfeiture. The specifics of forfeiture orders depend on the relevant statutes and case facts, allowing for hybrid orders that combine property forfeiture with money judgments.
Universal consensus exists that property derived from illegal activity is subject to forfeiture, as noted in *United States v. Rudaj*. Generally, in multi-defendant cases, joint and several liability applies to forfeitures, allowing the government to seek forfeiture of proceeds received by co-defendants if those proceeds were foreseeable to the defendant. However, an exception exists regarding the RICO forfeiture statute, which does not allow forfeiture of proceeds not directly obtained by the defendant. The current proceedings focus on joint and several liability concerning conspiracy convictions.
To obtain a money judgment for proceeds under joint and several liability, a foreseeability requirement must be satisfied, limiting the government's recovery to proceeds foreseeable to each defendant. The government was aware of the foreseeability issue well before the forfeiture trial, as indicated in Tucker's filings. Despite this, the government's briefs did not address foreseeability or its corresponding burden of proof, leading to a waiver of any argument against its necessity. Consequently, the court ruled that each defendant's liability for money laundering forfeiture is confined to transactions they could have foreseen.
The court also noted that joint and several liability raises concerns under the Eighth Amendment, particularly as seen in United States v. Jalaram, Inc., where the Fourth Circuit acknowledged the potential for disproportionate forfeitures. In cases where a defendant has a minor role in a conspiracy, they may be required to forfeit more than they received, which could result in an unjust outcome. The discussion will continue with additional legal principles related to the forfeiture defendants' arguments, specifically focusing on the statutes governing forfeitures based on RICO conspiracy convictions, with the government citing 18 U.S.C. 1963(a) as the statutory basis for its claims.
Section 1963(a) mandates forfeiture to the United States for violations of section 1962, encompassing: (1) any interest acquired or maintained in violation of section 1962; (2) interests in any enterprise related to such violations; and (3) any property derived from proceeds obtained through racketeering activities in violation of section 1962. The government’s findings primarily reference subsection (3), indicating that the only remaining assets of the Legendz gambling enterprise fall under this provision. The RICO forfeiture statute is broadly written and historically interpreted liberally, allowing for the forfeiture of gross proceeds from RICO conspiracies, not merely net profits. Some circuits have differing views on the definition of "proceeds," with certain cases affirming that "proceeds" translates to gross receipts rather than net profits to ease the burden of proof on the government. For instance, in Bader, the court distinguished the application of "proceeds" in cases involving illegal gambling and clarified that the Santos decision should be limited to its specific context. Overall, the prevailing interpretation supports the forfeiture of gross receipts under federal forfeiture statutes.
Miller examined the legislative history of the Crime Control Act of 1984, clarifying that Congress opted for "proceeds" in the RICO forfeiture statute instead of "profits" to ease the government's burden of proof regarding net profits. The issue of joint and several liability for racketeering proceeds was addressed, indicating that while general joint and several liability applies to conspiracy-based forfeitures, it does not extend to forfeiture of proceeds that a specific defendant did not "obtain." The interpretation of "obtained" in the RICO forfeiture statute (18 U.S.C. § 1963(a)(3)) aligns with the D.C. Court of Appeals' reading of similar language in the drug forfeiture statute (21 U.S.C. § 853(a)), as established in United States v. Cano-Flores. Cano-Flores diverges from the majority view, which permits forfeiture of proceeds obtained by others in conspiracy cases, a stance the undersigned finds inconsistent with the statute's explicit language. Judge Williams provides a compelling analysis supporting this interpretation. The ruling affects only defendant Koralewski, convicted solely under RICO, as the other defendants faced broader money laundering forfeiture statutes lacking the "obtained" language. Eighth Amendment considerations regarding excessive fines will be discussed later; however, past cases demonstrate that courts have applied the excessive fines analysis to RICO-related forfeitures, affirming that while the statute's language indicates mandatory forfeiture, it does not override Eighth Amendment protections.
The case United States v. Corrado highlights the mandatory nature of forfeiture under the RICO statute, emphasizing that while total forfeiture of illegal proceeds may seem required, courts can adjust forfeiture amounts to ensure they are proportional to the offense, thus avoiding excessive fines as prohibited by the Eighth Amendment. The government is not obligated to provide exact calculations of RICO enterprise proceeds; rather, conservative estimates are acceptable. However, overly speculative evidence regarding what constitutes proceeds will not support a forfeiture. The standard allows for a general approximation of revenue derived from illegal activities without necessitating complex computations, ensuring that a convicted individual is not penalized beyond their criminal earnings. The court must evaluate evidence with intellectual rigor, avoiding speculative claims that could unjustly impoverish a defendant. For forfeitures linked to illegal gambling businesses, the government cites 18 U.S.C. 1955 and 18 U.S.C. 981(a)(1)(C), which authorize the seizure and forfeiture of properties involved in such operations. Importantly, the government seeks forfeiture based on gross receipts rather than net profits from the illegal gambling activities.
Under 18 U.S.C. § 981(a)(2)(A), "proceeds" from illegal activities encompass all property obtained from the offense, not limited to net gains. The forfeiture defendants argue that forfeiture under 18 U.S.C. § 1955(d) is not mandatory due to its permissive language ("may"), contrasting with other statutes that use "shall." Citing United States v. Premises Known as 318 South Third Street, the defendants assert that courts have discretion to deny forfeiture if it would impose a disproportionate penalty. The discussion of this discretion relates to the Excessive Fines Clause.
For forfeitures linked to money laundering conspiracy under 18 U.S.C. §§ 1956 and 1957, the government cites 18 U.S.C. § 982(a)(1), which mandates forfeiture of property involved in the offense. The case of United States v. Bornfield clarifies that property is forfeitable if it was "involved in" or "traceable to" the offense. The defendants contend that transactions related to laundering illegal gambling proceeds should be subject to the same limitations established in Santos, but the court disagrees. It notes that the government failed to prove any net profits from these transactions before the May 20, 2009 effective date of legislation that amended the definition of "proceeds." Consequently, juries were instructed to disregard transactions as money laundering if they occurred prior to this date.
The date limitation does not apply to transactions under 18 U.S.C. § 1956(a)(2)(A), as this statute does not define "proceeds," which means a conspiracy to violate it does not rely on the Santos definition of "proceeds" as net profits. In Bader, 678 F.3d 858, the Court of Appeals affirmed a $4.8 million forfeiture related to drug crimes, rejecting the defendant's claim that the forfeiture was improperly based on total sales rather than net sales. The court considered the Santos issue waived but noted that the defendant's reliance on Santos was misplaced, as his convictions did not relate to the federal money laundering statute or illegal gambling.
In contrast, the current case involves forfeiture under federal money laundering statutes, where the government seeks the forfeiture of laundered funds as proceeds from illegal gambling. Thus, the Santos definition of "proceeds" remains theoretically relevant but not practically applicable here, since Santos interpreted "proceeds" in the context of 18 U.S.C. § 1956(a)(1)(A)(i) to mean net profits, leading to confusion in lower courts. The relevant forfeiture statute, 18 U.S.C. § 982(a)(1), allows forfeiture of any property involved in or traceable to the offense of conviction, which can include funds not classified as net profits.
The Bader case did not involve money laundering or gambling, and while it suggested that Santos might apply to money laundering forfeiture in gambling cases, it did not reach a definitive conclusion. Additionally, the impact of Santos is diminished in this case, as the government is pursuing the same funds under different forfeiture statutes. Generally, joint and several liability applies to forfeitures based on conspiracy convictions, subject to limitations by foreseeability and the Eighth Amendment.
Courts have established joint and several liability in forfeiture cases related to money laundering convictions, holding defendants accountable for all proceeds that were foreseeable from their conspiracy, irrespective of their current possession of those proceeds. Notable cases include *United States v. Seher* and *United States v. Caporale*, which affirmed this liability principle. Forfeitures stemming from money laundering conspiracies are subject to excessive fines analysis, considering Eighth Amendment implications. In *United States v. Warshak*, the court found that mandatory forfeiture did not violate the Eighth Amendment due to the nature of the offenses and potential penalties.
The government seeks to forfeit Bramley’s residence based on a facilitation theory, asserting that it was used for illegal gambling and financial transactions involving criminal proceeds. To succeed under this theory, the government must demonstrate a substantial connection between the property and the crime, which goes beyond incidental links. The facilitation theory allows for a broad interpretation of property used in facilitating the offense, though it requires proof that the property significantly aided in committing the crime. The determination of whether the residence can be forfeited on these grounds depends on the specific facts of the case.
In United States v. Iacaboni, the court found sufficient evidence to allow the forfeiture of a house used to promote illegal gambling activities under 18 U.S.C. § 1955(d). Evidence included money handling in the garage, communication related to gambling, and meetings held at the residence. However, forfeiture was ultimately denied because the government charged under the money laundering statute, 18 U.S.C. § 982(a)(1), for which no evidence linked the house to money laundering activities.
In a separate case, United States v. Nicolo, the government sought forfeiture of properties allegedly used to facilitate illegal payments and conduct transactions related to money laundering. The court determined that the evidence presented was insufficient to establish a direct link between the properties and money laundering, describing the activities as incidental to the offenses. Consequently, the court ruled against forfeiture under the money laundering statute.
The document also references the Eighth Amendment's Excessive Fines Clause, indicating that the government acknowledged its relevance to forfeiture actions, which are meant to punish offenders, as noted in United States v. Bajakajian.
The Supreme Court in Bajakajian established that forfeiture of a defendant's currency is punitive and must adhere to the Excessive Fines Clause, requiring a proportionality analysis between the forfeiture amount and the severity of the offense. The Court ruled that a punitive forfeiture violates this clause if it is grossly disproportionate to the gravity of the offense. Some interpretations suggest the Tenth Circuit does not apply this clause to criminal forfeitures, notably in the pre-Bajakajian case of United States v. One Parcel of Real Property, which asserted that drug proceeds forfeiture could never be constitutionally excessive. However, the rationale of Berryhill does not preclude an Excessive Fines Clause analysis in post-Bajakajian cases. The conclusion is that the Eighth Amendment is applicable to forfeitures and that courts must employ an individualized assessment to determine if a proposed forfeiture is grossly disproportionate to the defendant's offense, following the guidelines provided in Bajakajian.
In multi-defendant cases, assessing the specific offense of each defendant is crucial. The federal crime of conspiracy to launder money can be based on minimal intent, as noted in United States v. Bramley. The analysis of criminal conduct begins with the statutory offense but requires deeper evaluation. The case of Bajakajian illustrates that forfeiture claims must be proportional, rejecting the notion that forfeiting the entire unreported amount is justified. This is particularly pertinent for defendants like cash runners who did not generate profits from the illegal activity.
Bajakajian identified key factors for assessing disproportionality, including legislative penalties, whether the defendant fits the profile targeted by the statute, and the harm caused by the offense. The connection to other illegal activities is also evaluated, with Bajakajian emphasizing the importance of Congressional intent regarding punishment severity. In civil forfeiture cases, such as United States v. Wagoner County Real Estate, maximum statutory fines serve as a benchmark for seriousness.
Proportionality analyses are factually intensive and consider various factors beyond Bajakajian, including the use of forfeited property and prior sanctions. The individualized nature of this analysis is significant, especially in large organizations where defendants may have vastly different roles in the criminal enterprise, as seen in United States v. Lyons.
Judge Saris acknowledged the appropriateness of a Bajakajian-driven proportionality analysis in a RICO case involving a gambling enterprise. The First Circuit upheld the district court's comprehensive opinion, emphasizing that a defendant's role within the organization is significant for this analysis. Key factors to consider in disproportionality include: (i) Congress’s views on punishment reflected in statutory maximums and Sentencing Guidelines; (ii) the defendant's classification under the criminal statute; (iii) the severity of the offense and overall criminal activity; (iv) any related illegal acts; (v) harm to other parties; (vi) the use of forfeited property; (vii) prior federal sanctions; (viii) benefits gained by the defendant from criminal conduct; (ix) the property's value; and (x) its connection to the offense.
Additionally, at least two circuits recognize the relevance of a defendant’s future earning potential. The Second Circuit's decision in Viloski highlights the historical context of the Excessive Fines Clause, asserting that fines should not deprive individuals of their livelihoods. Viloski posits that this deprivation is part of the proportionality analysis, meaning it may not automatically render a forfeiture unconstitutional, depending on the defendant's culpability. In contrast, Levesque views the inability to earn a living as a distinct issue from the overall disproportionality test, suggesting it warrants separate consideration.
Levesque posits that a forfeiture can be excessively burdensome, potentially depriving a defendant of the ability to earn a living, which raises concerns under the Excessive Fines Clause of the Eighth Amendment. This deprivation of livelihood is viewed as a distinct consideration separate from the gross disproportionality analysis. Both Levesque and Viloski interpret the Bajakajian case, emphasizing that future livelihood deprivation is relevant under the Eighth Amendment. The court endorses Levesque's framework, as it aligns better with the historical context and implications of the Excessive Fines Clause, which originated from the English Bill of Rights of 1689 and aimed to prevent abuses by judges. The Magna Carta's stipulations regarding proportional amercements further support the significance of the livelihood standard. The court outlines a two-step screening process for assessing forfeitures: first, it will reject any forfeiture grossly disproportionate to the offense; second, it will disallow forfeitures that could severely impact the defendant's ability to earn a living. Importantly, a defendant’s current inability to pay a forfeiture does not alone determine its constitutionality.
The court cannot evaluate a defendant’s personal circumstances, such as age, health, or financial condition, as discrete factors in forfeiture cases. Although these factors may indirectly influence a defendant's future earning capacity, they cannot be specifically considered under the law. Forfeiture on Day 1 of sentencing may severely impoverish a defendant, but the court can assess the long-term impact of such forfeiture on the defendant's ability to earn a living thereafter. The government’s proposed forfeiture amount of $231,432,686.73 could result in lifelong financial hardship for the defendants.
The Eighth Amendment’s Excessive Fines Clause requires the court to first apply the Bajakajian factors to determine if the forfeiture is grossly disproportionate to the offense. Secondly, it must evaluate whether the forfeiture would unconstitutionally impair the defendant’s ability to sustain a livelihood. Thus, the court will analyze the proposed forfeitures for foreseeability, disproportionality, and impact on future earnings.
The government bears the burden of proving the forfeitures by a preponderance of the evidence, establishing a direct nexus between the property sought for forfeiture and the underlying crime. This standard applies to the amount of the criminal forfeiture money judgment as well. If a defendant shows that some value of an asset originates from lawful sources, the government must then demonstrate the extent of the forfeitable amount.
Forfeiture of both legitimate and illegitimate funds in an account is permissible if the government can establish that the defendant pooled the funds to conceal the nature and source of their illegal activities. There is a consensus that property derived from illegal activities is subject to forfeiture. Defendants challenge the application of the preponderance of the evidence standard in RICO-related forfeitures, referencing a Third Circuit ruling that requires proof beyond a reasonable doubt for such forfeitures. However, most courts, including references to the Supreme Court case Libretti v. United States, affirm that RICO forfeitures are part of sentencing and can be determined by a preponderance of the evidence. Consequently, the district court correctly applied this standard to Braun’s forfeiture determination.
The government must also demonstrate foreseeability to establish joint and several liability for money laundering forfeiture. In United States v. Lyons, the court found that the government failed to show that gambling proceeds from a wide-ranging sports betting operation were foreseeable to one defendant, Lyons, due to a lack of evidence connecting him to the operation's activities in Florida. The court emphasized that it is the government's responsibility to prove that the proceeds generated by a specific individual were reasonably foreseeable to a defendant for forfeiture purposes. In multi-defendant cases with varied roles and locations, the government must demonstrate that proceeds known to one defendant were foreseeable to them based on their involvement.
The government has not sufficiently demonstrated that agents unknown to the defendants had a direct connection to the case, even if such agents could theoretically exist. If an agent, like Campbell, was known to at least one defendant as a Legendz agent, it is likely that the betting proceeds from that agent were foreseeable to that defendant concerning Count 3 of the conviction. The court acknowledges that there may be circumstances where proceeds from an unknown agent could still be reasonably foreseeable to a defendant, but this determination is fact-specific. The burden of proof regarding foreseeability lies with the government as the plaintiff in forfeiture cases, aligning with judicial standards in similar contexts.
Defendants, excluding King, argue that the government’s forfeiture relief is constrained by the Excessive Fines Clause. If facts relevant to this clause are disputed, the burden of production shifts to the defendants, who must present evidence to support their claims. However, this burden only affects cases where factual disputes exist; if the evidence clearly shows that a forfeiture would severely impact a defendant’s livelihood, the burden becomes moot. Ultimately, defendants carry the burden of persuasion regarding any Eighth Amendment limitations, including demonstrating that forfeiture would impede their future ability to earn a living.
During King’s trial, evidence obtained in violation of his Fourth Amendment rights was excluded, specifically documents illegally taken by Karlo Stewart from Data Support Services, akin to Legendz. King contends that this exclusion extends to the forfeiture proceedings against him, a position supported by some other defendants, though not all explicitly reference the exclusionary rule.
Koralewski argues that the government’s exclusion of its "agent list" in his trial undermines reliability, while King contends that the government's attempt to classify him as a pauper relies on documents obtained through a search violating his Fourth Amendment rights. However, the court finds King’s reliance on the exclusionary rule to be misplaced, citing that criminal forfeiture is a part of sentencing after a conviction, as established in Libretti and supported by the Seventh Circuit's interpretation of 18 U.S.C. § 3661, which allows all evidence at sentencing, irrespective of Fourth Amendment violations. The Tenth Circuit has also ruled that evidence from illegal searches can be considered at sentencing unless it was obtained with the intent to increase the sentence or forfeiture.
King has not demonstrated that law enforcement's acquisition of the Stewart documents aimed to enhance his sentence or forfeiture. The court notes that while King references the rationale for applying the exclusionary rule in civil forfeiture as quasi-criminal, significant differences exist between civil and criminal forfeiture procedures. Criminal forfeiture follows a conviction beyond a reasonable doubt, while civil forfeiture requires only a preponderance of evidence and does not necessitate a criminal conviction. The exclusionary rule is a prudential doctrine designed to deter Fourth Amendment violations, not a personal constitutional right, and its application depends on whether it effectively serves this deterrent purpose. If suppression does not provide significant deterrence, exclusion is not warranted.
The Tenth Circuit holds that the exclusionary rule typically has minimal deterrent effect on law enforcement during the sentencing phase of a criminal trial. In this case, the inadmissibility of the Stewart documents at King’s trial does not prevent their use in the criminal forfeiture proceedings against him, making the documents admissible. Although the court does not specify the weight these documents will carry, it acknowledges that key elements of the government's forfeiture case rely on data extracted from spreadsheets that violated King’s Fourth Amendment rights. King preserved his objections to the use of these documents throughout the trial, and the court relieved his counsel from having to repeatedly assert these objections.
Regarding forfeiture, the court notes that a guilty verdict does not automatically lead to asset forfeiture; the government must establish a forfeiture case, which involves different burdens of proof compared to the guilt determination in the underlying trial. The relevant forfeiture statutes require a connection between the offense and the assets to be forfeited, referred to as a “nexus.” The statutes specify that forfeiture applies to property constituting or derived from proceeds of racketeering activity, property used in violations, and property traceable to the offense. Given the nature of organized crime, forfeited property may often differ from the property directly involved in the offense due to concealment and the passage of time. Consequently, the statutes allow broad governmental reach, with courts determining the specific applicability of statutory language in individual cases, guided by precedents such as the Tenth Circuit’s 1998 decision in Bornfield.
A pivotal case in the context of money laundering, United States v. Bornfield, was framed by the precedents set in United States v. Voigt and United States v. Stewart. The court focused on whether the property was "involved in" or "traceable to" the money laundering offense. The case examined two bank accounts: one personal account that had processed tainted funds and a business account that had not. Confusion arose because jury instructions improperly linked the personal account to the business name, hindering clear differentiation. At the time of indictment, no tainted funds remained in the personal account, making any potential forfeiture reliant on a facilitation theory, which applies when funds are pooled to disguise their source. The court emphasized that the account number is merely an identifier and does not constitute forfeitable property itself. The court criticized the district court's decision to order forfeiture based on a substitute assets theory, noting that an asset cannot be both forfeitable and merely a substitute. Ultimately, the appellate court found that the government failed to meet its burden of proof to show that the defendant used the account to facilitate the laundering scheme, especially given the commingling of tainted and untainted funds. The ruling clarified that forfeiture cannot be based on an amount leftover in the account if the corpus of laundered funds was no longer present.
The substitute assets provision allows for the forfeiture of assets not originally subject to forfeiture when the primary forfeitable asset is unavailable due to the defendant's actions. Under 18 U.S.C. § 982, once a connection (nexus) to the offense is established, assets involved in the crime are forfeitable. However, the district court incorrectly ordered the forfeiture of the same asset under the substitute assets provision. Legal precedents indicate that accounts themselves are not forfeitable; rather, it is the property or funds within them that may be subject to forfeiture if they are directly tied to the offense. The commingling of tainted and untainted funds does not automatically render the entire account forfeitable. As established in prior cases, including United States v. 448,342.85, the presence of a single illegal dollar does not taint the entire account. Forfeiture based on a facilitation theory is only applicable to funds present in the account at the time of the offense. The Tenth Circuit in Bornfield emphasized that the substitute asset legislation is intended for cases where the defendant has rendered the forfeitable asset unreachable. The Third Circuit's decision in Voigt, which involved tangible property purchased with commingled funds, further clarifies that tangible assets must be shown to be traceable to the laundering proceeds to be forfeitable under the substitute asset provision.
The government bears the burden of proof to establish, by a preponderance of the evidence, a nexus between the property sought for forfeiture under 982(a)(1) and the money laundering offense. When property involved in such transactions is mixed with untainted assets in an account, proving that specific funds are traceable to money laundering becomes challenging. In a case where jewelry was purchased with funds from a commingled account, the court determined it could not be traced to money laundering due to the complexity of intervening deposits and withdrawals.
The Seventh Circuit previously held that one illegal dollar in an account does not taint the entire account, reinforcing the notion that commingling limited amounts of clean money with dirty money does not block forfeiture of the latter. Conversely, the Third Circuit allowed forfeiture in United States v. Stewart, where the contaminated funds were clearly traceable despite the presence of untainted money, as the account was frozen shortly after the illegal funds were deposited.
The distinction made in Stewart clarified that the commingling situation in Voigt, which involved minimal deposits, did not apply because Stewart's case allowed for clear tracing of laundered funds. In cases where hard assets are acquired with mixed funds, it is necessary to ascertain the exact contribution of tainted versus untainted sources to the asset's value.
In United States v. Genova, the court established that the government's claim for asset forfeiture requires clear evidence that demonstrates the proportion of an asset derived from unlawful sources, particularly if the defendant provides credible evidence of lawful origins. The burden of proof shifts to the government to delineate the forfeitable amount, especially when assets are acquired partially with illicit funds. Although commingling of funds may complicate forfeiture claims, it will not impede forfeiture if the account or asset was primarily used for illegal purposes. However, significant commingling without proof of facilitation can obstruct forfeiture efforts.
Additionally, the government is allowed to seek forfeiture through money judgments, not limited to identifiable assets. This necessitates the use of extrapolation to estimate forfeiture amounts when direct records are unavailable. The proposed extrapolation must be substantiated by reliable evidence that meets the preponderance standard and avoids speculation. While precise calculations are not required, reasonable estimates based on the available information are acceptable. Courts may use general reference points for estimating losses or gains, but insufficient reliable data can lead to impermissible speculation, which is not acceptable in determining forfeiture amounts.
The excerpt examines legal precedents regarding the forfeiture of illegal gambling proceeds and the adequacy of notice provided to defendants about potential forfeiture actions. It references the case of Lyons, where the court rejected the government's extrapolated estimates of illegal gambling proceeds over a speculative thirty-year period, emphasizing discrepancies in time frames and circumstances that affected operations. Additionally, the United States v. Basciano case supports the idea that while revenue estimations can be made, they must not be excessively speculative.
Defendants argue that insufficient notice prevents the forfeitures sought by the government. However, the court finds that Rule 32.2(a) allows for a general notice of forfeiture in the indictment without requiring specific details about the property or the exact sum being forfeited. The Superseding Indictment clearly states the government's intention to seek forfeiture related to various offenses, indicating that the defendants' interests, including at least $1 billion, are subject to forfeiture.
The excerpt further clarifies that courts have determined the government is not obligated to notify defendants of potential money judgments, as seen in the United States v. Odom case. The underlying principle is that defendants should not evade forfeiture of ill-gotten gains by disposing of them before sentencing, reinforcing the rationale for allowing money judgments equivalent to unlawful proceeds.
Facts that may lead to a money judgment in criminal forfeiture are not static and can evolve beyond the indictment stage. There is no evidence that the timing of the government's announcements regarding personal money judgments has harmed the defendants, and their arguments regarding notice do not prevent the government from seeking these judgments.
The government's forfeiture case is clarified through the development of its factual claims, although the court's evaluation of these claims will be addressed later. The government's Forfeiture Brief, filed as document no. 1999, provides the first detailed account of its forfeiture claims, emerging from preliminary motions filed in mid-2015. The government does not claim any items as substitute assets and does not reference the legislation permitting such claims, indicating that substitute asset forfeiture is not relevant in this case.
Additionally, while the government acknowledges that it cannot double count assets in its forfeiture claims, it fails to address specific instances of double counting identified in the proceedings. Instead, it requests the court to identify and rectify these instances after determining the forfeiture assets and appropriate amounts. Specific forfeiture requests include funds from identified bank accounts, vehicles, currency, jewelry, footwear, purses, memorabilia, and real estate.
The government seeks a money judgment of $222,358,480 against King, based on extrapolated calculations discussed further in the document. It claims that from 2003 to 2013, King’s sole income was from his illegal gambling operation with Legendz Sports, supported by testimony from Joseph McFadden, a former agent who stated that King had no other job during that time. Consequently, the government argues that all seized property is proceeds of King’s criminal activity, including eleven bank accounts in the names of King’s family members and approximately seventy-five purses, which are also deemed proceeds from the gambling enterprise.
Regarding Koralewski, the government seeks to forfeit a gas lease for his residence in Colorado and about $1,500 from two Wells Fargo accounts. Additionally, it seeks a "Substitute res" of $172,039.65 from the sale of Koralewski’s residence, asserting that his only income source from 2003 to 2013 was tied to Legendz Sports. The government is also pursuing a money judgment against Koralewski exceeding $1.2 million, with total forfeiture judgments against him and other defendants exceeding $230 million.
For Tucker, the government requests nearly $9,000 in seized currency and the contents of four bank accounts. It notes a duplication in account listings, and highlights that the currency and three of the accounts had previously been forfeited by agreement in a Preliminary Order of Forfeiture from November 2015.
The only account currently relevant is at Wells Fargo/Wachovia Bank, holding $3,490.64. The government seeks a money judgment of over $8.8 million against Tucker for his role in the Legendz Sports enterprise. For Moran, the government aims to recover approximately $60,000 in currency, a money counter, a watch, and a diamond ring, along with a money judgment of nearly $3 million based on estimated amounts he handled as a runner for Legendz. Against Robles, the government seeks a judgment of slightly over $815,000, reflecting the funds he delivered and his salary as a runner. For Bramley, the government seeks forfeiture of his Plano, Texas house, contents of five unspecified investment and bank accounts, a Mercedes Benz, over $23,000 in currency, and over $1,100 in collectible currency, along with a money judgment exceeding $5.1 million, asserting that his sole income from 2003 to 2013 was derived from participating in the Legendz conspiracy and alleging that he used his residence for illegal gambling. Diebner faces forfeiture of a Houston residence, contents of three unspecified bank accounts, approximately $8,400 in cash, and miscellaneous jewelry, with the government claiming he is responsible for approximately $18,567,345.60 in proceeds from Legendz, alongside a money judgment for $18,567,345. The government presented two witnesses, asset forfeiture investigators Bart Lowrance and David Jansen, while the defendants did not call any witnesses.
Two case agents, one from the FBI and one from the Internal Revenue Service (IRS) Criminal Investigation Division, were involved in this case early on, but neither testified at the forfeiture trial or any of the four jury trials. The government presented 228 exhibits during the forfeiture trial, including 58 charts and summaries of extensive documents. The defendants submitted four exhibits, with contributions from Moran, Bramley, and Diebner.
Discussion of the knowledge of the government’s forfeiture witnesses is pertinent. At the trial, witness Lowrance attempted to limit his testimony to what he knew, primarily confirming that his calculations were accurate. He acknowledged that he did not review the evidence or documents supporting the $1,055,112 attributed to Koralewski and relied solely on figures provided by another individual, Jansen, without verifying their accuracy. This lack of independent verification extended to the other defendants as well.
The government's second witness, Jansen, a former IRS agent contracted by the Department of Justice for forfeiture and money laundering tasks, became involved in the case in 2011, focusing on tracing money to assets and determining their funding sources. Although Jansen was more familiar with the source documents than Lowrance, both witnesses contributed little first-hand knowledge to the case’s record.
The forfeiture case itself is categorized into two main types: the forfeiture of specifically identified assets (both financial and tangible) and money judgments against the defendants. Initially, the government claimed the forfeiture could reach a billion dollars, but the validity of this figure has fluctuated significantly throughout the proceedings.
The court has mandated the government to provide detailed specifics regarding its forfeiture claims, including both the specific assets and the amounts sought through forfeiture money judgments. Initially outlined in Case Management Order No. 7, the government specified amounts in their Forfeiture Brief, which have since changed, as detailed in a table comparing various amounts sought for each defendant.
The government seeks a total forfeiture money judgment of $231,432,686.73 against all forfeiture defendants, which includes amounts attributed to illegal betting proceeds and money laundering activities. The summary indicates that the government attributes illicit proceeds to fifteen agents, six of whom are currently defendants in this case.
Key issues for consideration include the validity of the government’s extrapolations regarding betting proceeds and the characterization of laundered funds. These issues have implications for all defendants as they may affect the proposed forfeiture amounts uniformly. The document highlights that common legal questions arise concerning the government's approach, particularly in justifying a uniform judgment amount across different defendants.
The court is evaluating the government's claim to include over $43 million in its forfeiture judgment, alleging that these funds were laundered through bank accounts linked to the Legendz enterprise. The government's case relies on two key factors: the source of the funds and the nature of the activities that generated those funds. Although these concepts are interrelated, they require separate analysis.
A crucial aspect of the government's argument is its assertion that King had no legitimate income between 2003 and 2013, claiming his only income came from illegal gambling operations associated with Legendz Sports. This assertion is critical to the government's forfeiture case against King and other defendants, necessitating a review of evidence presented during four jury trials.
The evidence indicates that King had interests in at least four other businesses besides Legendz Sports: Grupo Legendz, Vaporama Internacional, S.A., Magna Tours, and Platinum Vacations. Specifically, Grupo Legendz operated a licensed brick-and-mortar bookmaking business in Panama City, owning the SuperBook sportsbook. This operation was distinct from the Internet sports-betting activities and was recognized as a legal entity by the Panamanian government, featuring additional amenities such as a lounge, restaurant, and nightclub. The bank account for the SuperBook was held in the name of Grupo Legendz, emphasizing the legitimacy of this business venture.
Patrons of Grupo Legendz could engage in sports betting and horse wagering while consuming drinks. Despite receiving funds from this gambling enterprise, Lowrance suggested that if King’s characterization of Grupo Legendz and Vaporama were accurate—as established by uncontradicted government witness testimony—then the approximately $3.7 million in allegedly laundered funds could represent both lawful and unlawful proceeds. The court found that Grupo Legendz operated as a legitimate business in Panama City, generating lawful revenue for Bartice King.
Vaporama, affiliated with King and holding the liquor license for Grupo Legendz's sportsbook, deposited about $1.93 million into a Banco General account from 2006 to 2013. The government aims to include this amount in a forfeiture judgment, despite its claim that King had no legitimate income during the conspiracy. Lowrance acknowledged that calculations indicated Vaporama profited approximately $780,000 during the relevant period, with no evidence suggesting this income was illegitimate, impacting the government's forfeiture arguments regarding King’s assets.
Additionally, testimony revealed King’s involvement with Magna Tours, a legitimate IATA-certified travel agency, which he founded and later co-owned. The agency operated in a separate space from the Legendz call center, and government witnesses provided detailed accounts of its operations during the conspiracy period.
Magna Tours, supported by Berthiaume, successfully acquired numerous corporate accounts in Panama, achieving approximately 20% annual sales growth and described as profitable. Initially, profits were split evenly between King and Berthiaume until King retained ownership until at least 2010, when the company was sold to Antonio Jenkins-Lara, remaining operational at that time. From around 2006, King, Berthiaume, and Robles were equal partners in Platinum Vacations, which sold vacation packages and required a call center with 20 to 30 operators. Platinum operated separately from Legendz and was unrelated to gambling, achieving peak revenues of $10,000 daily despite eventual business failure. The government’s case against King focused solely on his illegal gambling income from Legendz, with no estimation provided regarding the ratio of his legitimate versus illegal income, which is critical for forfeiture considerations. The government seeks to include $43 million in a forfeiture judgment, necessitating the identification of the sources of deposited funds and the nature of activities generating those funds. Specifically, it aims to include $3,746,816.83 from a Legendz account at Banco Nacional de Panama, with further details referenced in multiple exhibits.
GX 46, 46A, and 1264 are deemed irrelevant as they merely document the formation of "Le-gendz Gamming Corp." and the opening and transactions of its account at BNP from 2007 to 2012. Exhibit C58A summarizes deposits totaling $3,746,816.83, of which 163 of 233 deposit sources are unknown, as acknowledged by FBI witness Lowrance, who confirmed he could not determine if these deposits were lawful. Notably, 46 deposits originated from Grupo Legendz, which has been established as a legitimate income source for King. Thus, 209 out of 233 deposits lack significance for the government's forfeiture efforts. The remaining 24 deposits, accounting for roughly 15% of the total amount sought, offer minimal support for the government's claims, as many originate from cooperating witnesses or legitimate businesses. Despite the lack of compelling evidence linking the deposits to illegal activities, the government continues to assert that the entirety of the $3.75 million should be included in its forfeiture judgment, disregarding the evidence that undermines its position.
The court identifies a significant lack of evidence regarding the source and nature of the $3,746,816.83 attributed to Line 1, aside from $250 from Alfred Ly and $8,700 from FBI agents. Line 1 only contributes $8,950 to the forfeiture money judgment. Line 2, however, involves alleged laundered funds totaling $7,167,005.65, which the government later corrected to $7,152,574.65. This amount is crucial for the government's extrapolation of $25 million in payouts attributed to Legendz over an extended period. Importantly, this extrapolation only applies to Line 2, with no similar extrapolations proposed for the other fifteen lines related to money laundering.
The deposits for Line 2 originate from Global Data Payments Services S.A. and are documented in an HSBC Bank ledger from Panama. Of the total 136 deposits, the sources of 104 deposits, amounting to approximately $5.43 million, are unknown. Despite this, the government includes the entire sum in the forfeiture judgment. Only 32 deposits have known sources, recognized by Lowrance as originating from four entities associated with Legendz. However, only two of these entities, International Goldstore and Elite Pay Systems, have been clearly established as receiving illegal betting proceeds. Agathe Services, another entity mentioned, lacks any supporting evidence tying it to illegal activities, with no witnesses or documentation provided to substantiate its involvement as a recipient of betting proceeds.
The court declines to include deposits from Agathe in the forfeiture money judgment calculation, primarily due to the lack of testimony from case agents and the absence of personal knowledge from Lowrance regarding International Data Processing, which was linked to one deposit in the GDPS account. Lowrance acknowledged that he did not understand the nature of the $39,975 payment from International Data and that the company's mention in trial testimonies was minimal and vague, lacking specific details about fund sources. Karlo Stewart, CFO of Legendz, testified that he opened a Costa Rican bank account for International Data Processing but could not clarify its use or the provenance of funds sent to the account, particularly from Mexico. Furthermore, the government’s methodology in estimating payouts was questioned, as it relied on total deposits rather than actual payouts, which were available and significantly lower. Lowrance conceded this point during cross-examination, acknowledging that a more accurate assessment would focus on withdrawals rather than deposits. Consequently, the court rejects the government's extrapolation of $25 million in payouts based on these flawed calculations and will treat the relevant line as a money laundering item, despite the government's failure to formally request this.
Line 2 is determined to have $61,604.40 in illicit funds, which is the basis for the government’s proposed forfeiture money judgment, rather than the previously suggested amount of $7,152,574.65. For Line 3, the government seeks to include $4,179,355.00 in the forfeiture judgment, supported by GX C42D, detailing 32 fund transfer transactions primarily evidenced by wire transfer records from Bank of America (GX 1405A). The source of funds for these transactions, which occurred between April 8, 2008, and January 12, 2009, is adequately established, indicating a notable difference in evidence quality compared to other money laundering items in GX C89.
The transactions consist of three categories: one transfer of $117,530.00 from Global Data Payment Services to Platinum Advantage, Ltd.; six transfers totaling $1,531,125.00 from Seven Capital Business, Inc. to Platinum Advantage, Ltd.; and twenty-five transfers amounting to $2,530,700.00 from Platinum Advantage, Ltd. to Virtual Automated Technologies. The total of $4.18 million for Line 3 represents both incoming and outgoing transfers through Platinum Advantage, indicating a potential double counting issue not addressed by the government.
The government claims that between August 2008 and January 2009, Virtual Automated Technologies received approximately $4,179,355.00 in illegal proceeds, a statement that is factually incorrect by over $1.6 million, as seven transactions worth more than $1.6 million were incorrectly attributed to Virtual Automated Technologies instead of Platinum Advantage. The government relies on two pieces of trial testimony to support its claim; however, one merely restates the erroneous figure, while the other lacks any mention of Virtual Automated Technologies or related transactions. Furthermore, the government does not address the flow of funds to NxSystems mentioned in the February 2015 trial, nor does it clarify why the cited testimony should be trusted in light of these discrepancies.
Lowrance and Jansen were unable to provide information regarding the activities generating funds related to the transactions in GX C42D. Jansen did not address the source of the funds, and Lowrance admitted he could not testify about their origin or provide documentation linking the funds to illegal betting activities. The government’s attempt to include $4.18 million in the forfeiture money judgment is challenged on several grounds: inaccurate calculations, double counting, misrepresentation of fund flows, and the lead witness's inability to confirm any proceeds from illegal betting. The source documents only consist of wire transfer paperwork, lacking comprehensive bank statements that would clarify account activity and fund sources. Notably, over a million dollars more exited the account than entered, yet the government suggests all outgoing funds were illicit without evidence. Although transactions appear suspicious based on prior testimonies related to Platinum Advantage and Virtual Automated Technologies, no specific evidence supports the government's claims regarding these payments. The government’s forfeiture brief does not reference the transactions in Line 3 or the associated bank account, indicating a lack of direct connection. Consequently, Line 3 is rejected due to insufficient mathematical and evidential support. Conversely, for Line 4, the government seeks to include $4,630,377.83 in the forfeiture judgment as bettor losses paid to Legendz. This claim is supported by GX C52A and related documents, which the court finds satisfactory, confirming that the funds deposited into the Investment Consulting Services account at Creditcorp Bank are indeed proceeds from illegal betting activities as defined in the Indictment.
GX C52A demonstrates a connection between numerous transactions and specific agents or bookies, establishing a strong inference that all deposits were illegitimate without the need for proof of each individual deposit's illegitimacy (United States v. Elder). Line 4 has a satisfactory quality of evidence, contributing $4,630,377.83 to the forfeiture money judgment. In contrast, Line 5, which the government claims should add $3,613,897.27, highlights deficiencies in both the identification of fund sources and the nature of the activities generating those funds. The government acknowledges a significant calculation error in this line, with Lowrance admitting a miscalculation of $1,887,101.27. Furthermore, the government could only confirm that 59 of 98 entries were from known bettors, leaving the status of the remaining deposits unproven. The court finds that these unproven deposits cannot be included in the money laundering conspiracy or forfeiture calculations without further evidence. Consequently, Line 5 adds no value to the forfeiture money judgment. Line 6 proposes an addition of $5,425,621.68 from deposits into a Data Support Services account at Banco General Panama from May 2004 to May 2013.
The government's justification for including $5.43 million in the forfeiture money judgment is based on funds received by Data Support Services (DSS) from May 2004 to May 2013 on behalf of the Legendz Sports enterprise. DSS, identified as a call center for bettors in the U.S., documented 309 deposits into its Banco General account. Of these, 58 deposits had unknown sources, 238 were sourced from Banvivienda, a Panamanian bank, but lacked identifiable origins, and 7 were from Alegui Services S.A. The government could not ascertain the identity of the actual source of the Banvivienda funds or link them to any illegal sports betting activity. Testimony indicated that the government could not establish a relationship between the unidentified deposits and the Legendz organization or any illegal activities. While DSS was integral to the Legendz sports betting operation, the evidence did not conclusively support the assertion that all funds deposited into DSS accounts were illegal gambling proceeds. The government's claim that King had no legitimate source of income during the conspiracy period was deemed baseless, and no evidence was presented that any of the deposits were derived from illegal sports betting, despite the presumption that they could be. DSS was characterized as a multi-purpose entity, complicating the assumption of illicit funding.
DSS was not intended solely for the purpose of receiving illegal betting proceeds, unlike Investment Consulting Services. Therefore, the government’s evidence regarding DSS fails to support the inference drawn by the court in Line 4, leading to the rejection of Line 6. In Line 7, the government seeks to forfeit $3,911,702.84 from a Grupo Legendz account at Banco Nacional de Costa Rica, claiming these funds are illegal gambling proceeds deposited from April 2008 to April 2013. However, the source of 300 out of 324 deposits is unknown, as detailed in backup summary GX C50A and source documents GX 1259, which were confirmed by witness Lowrance. The majority of deposits are listed as unknown, and without underlying documentation, it is impossible to ascertain whether they represent legal or illegal proceeds. Despite this, the government includes these unknown deposits in its forfeiture request. The proposed findings from the government suggest some deposits may be linked to illegal gambling activities, but it still seeks to include the entire $3.9 million in its forfeiture judgment. Only twenty-four deposits in Line 7 have known sources, which include eleven identifiable entities.
Eleven sources contribute to $567,339.65 of the $3.9 million listed in Line 7, with four identified as sources of illegal gambling proceeds: Absolute Privilege, Pentraci Corporation, Entiant International, and UDS International. The court adds Legendz Gaming and Data Support Services to this list, bringing the total to six implicated entities. Evidence from jury trials indicates that UDS International, Legendz Gaming, and Data Support Services collectively processed $234,482.50 in illegal proceeds.
Regarding Absolute Privilege, the court finds insufficient evidence to support its involvement in illegal activities, noting it was not mentioned in the jury trials and that the spreadsheets presented do not imply it processed illegal proceeds. Conversely, Pentraci Corporation's involvement is supported by the testimony of Karlo Stewart, despite his credibility issues due to past convictions. The court finds Stewart’s detailed testimony sufficient to establish Pentraci's role.
Entiant is identified as a recipient of illegal gambling proceeds, supported by credible testimony from cooperating witness Michael Lawhorn and corroborated by Legendz records. The funds from Entiant will be included in the forfeiture calculation.
Deposits attributed to Legendz Gamming, Data Support Services, UDS International, Pen-*939traci, and Entiant total $364,754.92, part of the $3.9 million the government seeks. For Line 8, the government requests inclusion of $1,380,865.13 from the Fundación Los Olivos (FLO) account at Credicorp Bank in Panama, with supporting documentation from GX C48 and GX 1256. Evidence indicates some checks were made out to FLO, but funds deposited into the FLO account were not linked to illegal activities. The account was opened in late June 2013, after the case's takedown, and only contained funds from cashier's checks and interest payments. The origins of these funds are untraceable, and suspicion alone does not meet the preponderance of evidence standard, resulting in the rejection of Line 8.
For Line 9, the government seeks $1,934,515.94 in forfeiture based on deposits into a Banco General account for Vaporama Internacional, S.A., with the source of 2,337 out of 2,339 deposits unknown. Only two deposits were identified: $45,170.65 from Grupo Legendz and $15,000 from Data Support Services. While Grupo Legendz operated a legal sportsbook, there is insufficient evidence to classify the funds as illegal gambling proceeds. Therefore, the $45,000 deposit is also rejected.
Data Support Services primarily functioned as a host entity and call center for the illegal sports betting operation run by Legendz, evidenced by a $15,000 deposit into Vaporama's account at Banco General. However, this amount should not be viewed as solely linked to illegal activities, as Data Support Services also supported several legitimate businesses owned by King, including AJAX, Platinum Vacations, and Magna Tours. Key witness Karlo Stewart indicated that Data Support Services was insulated from gambling revenue for banking regulations. The government did not provide evidence that any of the $5.43 million in deposits associated with Line 6 came from illegal sports betting, and the funds in question do not justify including the $1.9 million in a forfeiture judgment.
Lowrance identified only one individual, Anastasio Bayne, associated with Legendz, who received a total of approximately $34,500 from fourteen checks written from the account. Other checks were either unaccounted for or paid to individuals not linked to the Legendz gambling operation.
Regarding Lines 10 and 11 of the forfeiture judgment, the government is attempting to add $1,119,321.72 and $336,463.38, respectively, to the forfeiture amount. Notably, nearly 70% of the funds in Line 11 overlap with those in Line 10, both involving accounts under Inversiones Altamonte, which had not been mentioned in prior trials. Lowrance referred to Inversiones as an affiliate of Legendz without substantiation. Deposits into Inversiones' account at Banco Panama derive from eight identified sources, including a $109,994.65 deposit from Legendz Gamming Corp. in April 2012, which the defendants could not credibly argue originated from legitimate activities, indicating a link to illegal gambling proceeds.
The government identifies two sources of illegal gambling proceeds related to the Line 10 Inversiones account: Paige Overseas, Inc. and KHML Payment Processing, Inc. Testimony from Lowrance reveals that while he described Paige Overseas as a payment processor, he lacked definitive knowledge about its operations and admitted he did not know the origin of the funds deposited from this entity. Consequently, the court deems Paige's deposits irrelevant for forfeiture purposes. Similarly, regarding KHML, Lowrance claimed it was a payment processor affiliated with Jorge Zuniga, but he acknowledged that his understanding was based solely on FBI reports and he had no knowledge of the source of funds from KHML. Consequently, the court finds insufficient evidence to include the $624,445.32 attributed to KHML in the forfeiture calculation, allowing only $109,994.65 of the requested $1.2 million related to Line 10. The next focus is on Line 11, which pertains to the Inversiones account at Credicorp Bank.
A deposit of $229,951.78 into the Credicorp account originated from the Inversiones account at Banco Panama, marking the closure of the latter account. This deposit overlaps significantly with the funds sought by the government, representing nearly 70% of the $336,463.38 claimed in Line 11. The government acknowledges this overlap but fails to justify its inclusion in the forfeiture judgment. Additionally, the other transactions in Line 11, totaling twenty-one, are deemed irrelevant for forfeiture, with fourteen being interest payments on a certificate of deposit linked to the Inversiones account. The remaining seven deposits lack any questionable source attribution.
In Line 12, the government aims to include an additional $3,636,171.24 for forfeiture, derived from deposits into the Woodcastle Foundation account at Towerbank. The origins of Woodcastle were not clarified during the trials, but six out of twenty-five deposits totaling $532,500.00 were traced to identifiable sources, including Fundación Los Olivos and Investment Consulting Services (ICS). Despite the defendant's claims that the government did not prove these deposits were from illegal gambling, the court found substantial evidence linking these entities to such activities. The remaining deposits in Line 12 lack clarity regarding their source and nature, leaving their legitimacy unverified.
The account in question received deposits from entities involved in illegal gambling for the Legendz Sports enterprise. The government presents three specific entities to support its findings, and testimony during the forfeiture trial corroborates this. A party named Lowrance attempted to challenge the legitimacy of some deposits by linking them to banks previously associated with entities like Fundación, but the court deemed this connection too weak. As a result, the court determined that Line 12 contributed $532,500.00 to the forfeiture judgment.
Regarding Line 13, which concerns another Woodcastle Foundation account at Towerbank, $1,490,912.21 was deposited through fifty-four transactions, primarily transfers from the Line 12 account, with three deposits of unknown origin. Most transfers from Line 12 to Line 13 occurred during the same period as the inflow to Line 12, indicating that Line 13 effectively represents double counting of funds already accounted for in Line 12. The government did not provide sufficient justification for this double counting in its submissions or during the trial. The court concurred that double counting is impermissible for forfeiture purposes and highlighted the government's failure to address this issue adequately. The trial testimony confirmed that the funds attributed to Line 13 were largely sourced from Line 12, reinforcing the court's conclusions on the matter.
There was no discriminating or limiting principle used in preparing C89, as significant amounts of money were included without knowledge of their origins, particularly whether they came from illegal betting. The witness admitted a lack of specific tracing for these funds and acknowledged that there were unknown entries, making it impossible to determine if the money was derived from legal or illegal betting or other business interests. The government criticized the inclusion of funds from the Line 13 Woodcastle account, noting that while some were distributed to entities linked to the Legendz Sports enterprise, the case for a forfeiture judgment is based on deposits rather than withdrawals, leaving gaps in proof regarding the funds' character.
In Line 14, the government focuses on an account named 6 Monkeys S. de R.L. at Scotiabank, controlled by the King family. The government aims to add $445,866.52 to the forfeiture judgment based on four deposits, three of which are for an unknown source totaling $3,500, while the remaining deposit of $442,366.52 is connected to Starlink Investissements Inc. An email from October 2007 indicates a link between Starlink and King, supported by testimony that Starlink had a Swiss investment account for King. However, evidence presented at the forfeiture trial was limited to this email, and the funds were deposited into the 6 Monkeys account from Starlink in April 2012, over four years after the email was sent. The government must demonstrate by a preponderance of the evidence that these funds originated from DSS to succeed regarding Line 14.
DSS is not the sole source of illegal gambling proceeds relevant to Line 14, and the court is not convinced that all funds from DSS are proceeds of illegal gambling, leading to the conclusion that the government has not substantiated its case for Line 14. In Line 15, the government aims to add $153,000.35 to the forfeiture judgment from ten deposits into King’s account at The Bank of Nova Scotia. Three deposits totaling $2,500 are from unknown sources, while one deposit of $54,755.35 is traced from the 6 Monkeys account, linked to prior funds from Starlink. This deposit is viewed as double counting, as the government’s claims regarding the 6 Monkeys account are already addressed under Line 14. The remaining six deposits in Line 15 are from DSS, with four from late 2010 or early 2011 and two from early 2013, falling within the discussed timeframe of fund flows into DSS. The government fails to substantiate its claims of double counting in its brief and proposed findings, with references to past cases deemed unpersuasive. The court highlights that while the government can claim profits from laundered money, it cannot count the same funds multiple times based on their movement between accounts. The purpose of forfeiture laws is to deprive perpetrators of their illegal gains, and double recovery is not permitted under Department of Justice guidelines.
Defendants may be required to forfeit either the total value of proceeds from an offense or property traceable to those proceeds, but not both simultaneously. The government seeks to add $245,136.55 to the forfeiture money judgment, claiming it pertains to money orders purchased by Bartice and Serena King between March 2008 and September 2012 for paying credit card bills and mortgages. The supporting documentation, however, references only one purchase by Bartice King and four by an unspecified "King," with the majority attributed to Serena King, who was acquitted. The government’s assertion lacks clarity, as it does not adequately explain the source of the funds or the nature of the activities leading to these purchases. The court raised concerns about potential double counting of the funds, which the government did not address. The total dollar amounts presented for forfeiture were questioned by the court, indicating confusion over whether they represented deposits, withdrawals, or both, and the government has not provided a satisfactory explanation despite being invited to do so during the trial. The lack of a legally and factually sound response underscores the issues surrounding the forfeiture claim.
The government’s lead witness and the Assistant U.S. Attorney (AUSA) could not definitively clarify whether their money laundering forfeiture summary was based on deposits or withdrawals. Initially, they stated it was based solely on deposits, which was later found to be incorrect. The court expressed reluctance to assume double counting in the absence of evidence suggesting that it occurred. Line 16 of the summary is deemed irrelevant unless the funds were confirmed as illegal gambling proceeds; if they are, the government failed to explain how they relate to previously accounted funds. It is reiterated that the defendant, Bang, had legitimate income sources during the conspiracy, complicating the government's argument. The government did not adequately demonstrate that the cash used by Serena King for money orders was illicit. Consequently, Line 16 has been rejected, and the total for money laundering accounts amounts to $5,708,181.80. The government’s overall approach to these accounts mirrors its strategy in other forfeiture aspects, indicating a flawed logic whereby any account linked to the Legendz enterprise, regardless of the source or legitimacy of funds, is labeled as forfeitable without sufficient evidence.
Deposits made into a forfeitable account during a conspiracy period are considered tainted funds, making the entire account subject to forfeiture, regardless of the source of the deposits. The government can aggregate all deposits to seek a forfeiture judgment, even if some funds are from legitimate sources. This principle was illustrated in the case of Bramley, where lawful Social Security benefits deposited into a Scottrade account were tainted by illegal funds, leading to the forfeiture of the entire account. The government did not trace the ratio of legitimate to illegitimate funds and disregarded the need to establish the legality of the income. Furthermore, in the Vaporama account case, a single $15,000 deposit from Data Support Services was deemed sufficient to taint the entire $1.9 million in deposits, likened to “a drop of oil into a bucket of water.” This approach allows the government to pursue substantial forfeiture amounts without providing evidence of the sources of the majority of the funds in the account. Notably, the government did not reference the Tenth Circuit’s Bornfield decision, which established that mere commingling of tainted and untainted funds does not automatically justify the forfeiture of an entire account.
The government proposes to include over $25 million in extrapolated payouts to bettors and more than $159 million in attributed betting proceeds from fifteen individuals in a forfeiture judgment totaling $231 million against the seven defendants. The proposed amounts include $25,098,950.69 related to illegal proceeds processed by Global Data Payment Services, a payment processor controlled by King. The government seeks to categorize these amounts based on extrapolation and arithmetic totals, with a significant portion stemming from extrapolated figures. The specifics of these attributions are noted in GX C89, where the government acknowledges discrepancies in the totals due to revised figures that were not consistently updated in the document. The revised total for the betting proceeds from agents is $159,006,791.24. The government requests the court to adopt these revised figures in its calculations for the forfeiture judgment.
The government, after twelve years since the Legendz investigation commenced, faced challenges in accurately determining the amounts of betting proceeds attributed to agents and runners, with estimates varying by approximately $18.3 million. A table outlines the amounts sought in different documents for forfeiture purposes, displaying figures for individuals such as Campbell, Tucker, and others, with a total ranging from approximately $142 million to $160 million across various submissions.
Forfeiture judgments can utilize reasonable extrapolations based on reliable evidence, contingent on the sample data being representative of the illegal gambling activities related to the indictment. The government is not required to provide exact figures but must demonstrate that the foundational data for extrapolation accurately reflects the illegal activity during the relevant time frame. If the base data set fails to represent the overall illegal bookmaking activity or if the extrapolation period is significantly longer than the base period, the court may reject the proposed extrapolation. The government’s proposed extrapolations often extend from a limited betting activity period to a nine-year timeframe, involving varying assumptions for different individuals.
The government's extrapolations regarding gambling proceeds rely on several key assumptions:
1. The average periodic dollar amount generated by a bookie or agent is representative of their total betting activity over nine years.
2. Participation in the Legendz enterprise is assumed for the entire asserted period for some individuals, though not uniformly supported.
3. There is an assumption of no overlap between funds sent to Panama by master agents and funds generated by bookies under them.
The government categorizes its proposed extrapolations into two groups:
i) those based on payouts to bettors through Global Data Payment Services, and
ii) those aimed at determining the gambling proceeds attributable to agents and runners.
Specifically, in the "Legendz Payouts to Bettors" analysis, the government extrapolates a total of $25,098,950.69 from a money laundering account (GX C89) over 108 months, which is included in the forfeiture judgment against defendants. This amount is derived from a previous figure of $25,084,519.78, with the government acknowledging an error in its calculations. Notably, 76% of the deposits' source is unknown, and the government uses a starting figure of $7.15 million from 2007-2008 for its extrapolation, which the court has rejected, determining only $61,604.40 is valid.
Further, the court is unwilling to accept the methodology of extrapolating from a 24-month base period to a 108-month estimate, particularly because the base period is limited to 2007-2008 and includes only five transactions post-July 2008. The court finds this assumption problematic, especially given the significant changes in betting activity following the financial crisis that began in late 2008.
Judge Saris rejected the government's proposed extrapolation from a ninety-six month period (1997-2005) to a fifty-two month period (January 2006-April 2010) due to the impact of the 2008 financial crisis on the comparability of the two periods. The court expressed dissatisfaction with the reliability of the proposed twenty-four month period as a basis for extrapolating to 108 months, stating that the government failed to meet its burden of proof by a preponderance of the evidence regarding payouts to bettors for inclusion in the forfeiture judgment.
The government sought to attribute $159,006,791.24 in betting proceeds to fifteen Legendz agents, six of whom are currently defendants. These attributions included extrapolations based on various assumptions that were either unsupported by evidence or contradicted by the evidence presented at jury trials. Specific issues included the use of a small base period for a much larger extrapolation period, and assumptions regarding the lack of lawful cash flow by an individual during the conspiracy.
Focusing on agent Terry Campbell, the government initially proposed an extrapolation of $26,290,472.00, later revised to $38,888,787.60 based on additional records supporting a ten-week base period. Testimony from Lowrance at the forfeiture trial indicated he had prepared the government’s charts and vouched for their accuracy, although the court maintained concerns about the general reliability of these extrapolations.
Lowrance faced scrutiny during cross-examination regarding the reliability of the source document he cited for a $38.8 million extrapolation, confirming that the base data was not derived from actual collections or payments. Initially, he claimed the extrapolation was based on ten weeks of records, later retracting this assertion when challenged. He indicated that the correct source for the extrapolation should be GX 1257, in contrast to the government’s references to GX 496 and 497. Despite the potential significance of this extrapolation in the forfeiture case, Lowrance did not consult Terry Campbell, who had pled guilty prior to the trial, regarding the extrapolation or the underlying records, nor did other involved parties. This lack of consultation raised concerns about the credibility of the extrapolation, given that Campbell had the knowledge necessary to validate the figures. Lowrance also could not confirm whether the extrapolation aligned with Campbell's trial testimony or the nature of Campbell’s arrangement with King. Emphasizing the magnitude of the $38.8 million figure, the text suggests that failing to engage with a key witness for verification is unfathomable in a serious legal context. Additionally, Lowrance admitted a lack of expertise in interpreting the records, which were not straightforward. The document critiques the government's failure to seek confirmation from cooperators, highlighting the minimal effort required to obtain such validation in light of the case's extensive duration.
Campbell is uniquely positioned to provide insight into the records indicating his bookmaking activities, and confirmation from him regarding the government's $38.8 million extrapolation would significantly enhance its credibility. The court suggests that the government avoided seeking verification from Campbell to maintain a favorable narrative and bolster their financial claims. The government has not provided satisfactory evidence to support the proposed extrapolation, leading the court to reject it on grounds of unreliability.
Similarly, with respect to Ralph Hernandez, the government proposes an unsupported extrapolation of $18,121,267.20 based on Hernandez’s activities, such as sending funds to Panama. This extrapolation relies on a summary exhibit, which in turn is based on a foundational source document (GX 198) listing tracking numbers, dates, amounts, and names associated with Legendz bookies. The court notes that while the source document appears to link these shipments to Legendz personnel, the lack of a year and the informal nature of the names raises questions about the reliability and accuracy of the extrapolation.
Hernandez was identified as a bookie for Legendz, complicating the matter. The summary exhibit GX C51, prepared with assistance from Lowrance, details tracking numbers, dates, and dollar amounts associated with payments sent by “GEORGIE,” Hernandez’s moniker. The government assumes Georgie sent the funds, but the summary omits other names such as “BIGMIKE,” “GATO,” and “SKI,” which appear in the source document GX 198. Lowrance testified that GX C51 summarizes packages received on behalf of Hernandez, suggesting he owed money to Legendz due to his betting activities. He later confirmed that the $7.5 million reflected Hernandez's association with Legendz. However, Lowrance’s interpretation raises concerns about his familiarity with GX 198, which indicates that funds were sent by multiple individuals, not solely by Hernandez. While Georgie is linked to some transactions, he only accounts for 142 out of 578 remittances. This discrepancy suggests potential double counting in attributing betting proceeds for forfeiture. Additionally, the internal Legendz document does not specify the year of the shipments, further complicating the financial assessment.
The government’s extrapolation of $18,121,267.20 for Hernandez is flawed due to reliance on a divisor of 45 months rather than the actual 39 months indicated in the source document, resulting in an understatement of over $2 million. This extrapolation is further undermined as the government erroneously attributes testimony to Bruce Middlebrook that does not support a 108-month duration for Hernandez's involvement with Legendz. Testimony does confirm Hernandez's roles as a bookie and cash holder for Bartice King, but there is no evidence that establishes a timeline long enough to justify the 108-month extrapolation. Additionally, the government attempts to attribute a separate $3.9 million extrapolation based on Paul Wilson’s activities, which also lacks proper support. The overall conclusion is that the proposed extrapolations for Hernandez are based on inaccurate figures and double counting, leading the court to reject both the $18,121,267.20 extrapolation and the base number of $7,550,528.00.
Regarding Kelly Diebner, it is established that he was a bookie for Legendz and generated significant illegal betting proceeds. The government proposed an extrapolation of $16,770,000.00 based on testimony from Lowrance, while another extrapolation of $17,432,674.40 was presented during Jansen’s testimony. Neil Myler, a cooperating defendant and former runner for the Legendz organization, plays a central role in both extrapolations, having transitioned from general assistance to a trusted runner for King. The court will examine these extrapolations further.
Myler distanced himself from the organization in late 2011 or early 2012, later testifying in three out of four jury trials with generally credible but largely uncorroborated testimony. The $16.7 million figure cited by Lowrance was derived from Myler’s statement to the FBI regarding a $200,000 monthly exchange with Diebner over 78 months, but Lowrance admitted he had no clear evidence or documentation to substantiate this claim. The government did not rely on any source documents to support this extrapolation. The court expressed skepticism about the reliability of the $16.7 million extrapolation, emphasizing the lack of direct testimony or supporting documents. Instead, an alternative extrapolation of $17,432,674.40 presented by Jansen had the backing of a source document (GX 325), which consisted of handwritten notes given to Myler but was not introduced in prior trials.
Diebner’s trial involved government exhibit GX 325, characterized as “29 handwritten notes” summarizing payments from Diebner’s betting group, processed through Diebner or a runner named Rok. The notes include various numbers and names or aliases, with some pages organized and others appearing nonsensical. They lack dates and do not specify the time period covered. Many entries consist of a moniker, a number, a delta symbol, and another figure, with the first number possibly being a code. Myler, who referenced these notes in one of three jury trials, claimed they represented the collection of bets lost the prior week, clarifying that the notes were not his own but listings of individuals who owed money to Legendz.
During the forfeiture trial, Lowrance did not mention GX 325, as he focused on a different financial extrapolation. Jansen, who sponsored the $17.4 million extrapolation, testified that the FBI analyzed the notes but distanced himself from that analysis, stating that he could not confirm the accuracy of the extrapolation. He indicated that the notes represented twenty-nine weeks of betting data, resulting in a weekly average, though he did not specify this average or the total dollar amount indicated by the notes. The extrapolation to $17,432,674.40 was based on multiplying an unspecified weekly average by fifty-two for an annual estimate and assuming a 6.5-year duration. Jansen explicitly disclaimed any ability to derive the $17.4 million figure from GX 325 alone, stating it was based on an analysis conducted by the FBI. The court lacks concrete testimony or evidence tying the numbers in the notes to the extrapolated figure, undermining the legitimacy of the $17,432,674.40 claim.
Jansen's testimony regarding the extrapolation of $17,432,674.40 lacks evidentiary support, particularly concerning how a reliable weekly average can be derived from GX 325, which consists of twenty-nine handwritten notes. Under cross-examination, Jansen stated that this amount was based on an average of $50,000 per week over twenty-nine weeks, which totals approximately $1.4 million. However, there is no substantiated basis for the $50,000 figure or the extrapolation period of seventy-eight months, as the government did not address potential variations in betting trends during this timeframe. The court dismissed both the $17.4 million and a related $16.7 million extrapolation, noting that the government failed to provide sufficient evidence linking betting proceeds to Diebner. Although the government introduced alternative arguments post-trial, the court, prioritizing fairness, hesitated to fully explore these new claims. Nevertheless, the court acknowledged the testimony of Sergio Cabrera and his son, who were significant betting customers of Diebner, revealing that they incurred losses of $787,100.00, which will be factored into the forfeiture judgment. Diebner contended that his forfeiture liability should be limited to his personal financial gain, referencing case law that supports this view; however, the court disagreed, stating that forfeiture should not be restricted to a defendant's personal profits in this context.
The Court of Appeals clarified that restitution, which is based on the victim's loss, and forfeiture, which is based on the offender's gain, serve different legal purposes and should not be treated as interchangeable. In the matter at hand, the forfeiture calculation is not restricted to the personal gains of defendants but includes all proceeds involved in the offenses. A total of $792,100.00 will be considered for the forfeiture judgment, which incorporates losses from a customer, Michael Gaplan, who testified to losing $5,000 from betting with Diebner.
Regarding Christopher Tanner, who operated as a bookie in Florida, the government proposed a base forfeiture amount of $2,528,985.00, extrapolating this to $15,143,910.00 based on a government spreadsheet derived from handwritten notes seized during Tanner's arrest. However, the testimony revealed uncertainties about the spreadsheet's accuracy, as the witness, Lowranee, was unaware of the qualifications of the individual who prepared it and could not confirm whether the figures accurately reflected Tanner's activities. Additionally, there were concerns that the spreadsheet included data related to "5 Dimes," an unrelated sports betting organization, which could compromise the accuracy of the calculations attributed to Tanner's activities with Legendz. Tanner had previously pleaded guilty and was sentenced to ten months of probation under a plea agreement.
The document critiques the evidence presented regarding Legendz-related activities attributed to Tanner and Lawhorn, noting significant deficiencies. For Tanner, the absence of evidence linking the names listed in the spreadsheet to Legendz, particularly the lack of clarification on a $2.52 million base number, undermines the government's $15 million extrapolation. Jan-zen’s testimony failed to address these gaps, and Lowrance provided no supporting data for the extrapolation period or trends affecting the reliability of the figures. The spreadsheet lacks clear connections between the amounts and Tanner’s activities, and it ambiguously includes data related to competitors like 5 Dimes.
Regarding Lawhorn, the government seeks to add $18 million to the forfeiture judgment based on Lawhorn’s testimony of his earnings before and after joining Legendz. Lowrance calculated this figure based on Lawhorn’s stated average income of $1 million annually, asserting a 50/50 split arrangement with another individual. However, the justification for the extrapolated amount is described as overly simplistic and lacking detailed financial analysis. Ultimately, the government has not adequately established a reliable dollar amount for either Tanner’s or Lawhorn’s activities related to Legendz, failing to meet the preponderance standard of evidence.
An $18 million judgment was determined based on a nine-year extrapolation period, which is considered potentially conservative. The judgment arises from a "50 Red" arrangement between local bookies and the house (Legendz), where winnings and losses are split equally. The government's calculation, relying on Lawhorn's estimate of $1 million annually, assumes consistency over the nine years, but this overlooks complexities in Lawhorn's activities.
Lawhorn, a successful master agent for Legendz, managed around 40 agents but experienced significant interruptions in his operations, including extended stays in Panama for training and bar management, which may not align with his role in Florida. His dual roles—serving as a master agent and a runner—also complicate the assumption of a steady income. Additionally, Lawhorn's income generation methodology varied during his tenure, switching from a "50 Red" to a "pay-per-head" basis for an unspecified duration. These factors raise questions about the reliability of the $1 million annual estimate used in the extrapolation.
The court denied post-trial motions from defendants Moran, Diebner, and Bramley, clarifying the pay-per-head (PPH) system utilized by Bramley. As a PPH bookmaker, Bramley paid a fixed weekly fee to Data Support Services (DSS) based on the number of bettors. For instance, with 1,000 bettors at a fee of $18 each, Bramley owed DSS $18,000 weekly. He retained the losses from losing bettors and was responsible for their winnings, with no risk shared with Legendz. Similarly, Lawhorn’s PPH arrangement mirrored Bramley’s, paying $18 per active bettor, thus only paying for bettors who placed wagers.
The court highlighted complications in Lawhorn’s operations, including a 50/50 profit split arrangement that did not apply during his pay-per-head period. Although the total proceeds may have remained constant, the court expressed concern over the reliability of the government’s proposed $18 million extrapolation due to uncertainties in Lawhorn’s risk-bearing activities and his additional responsibilities in Panama. The court noted that discrepancies in Lawhorn’s gambling activities could significantly impact any extrapolation for forfeiture, akin to a previous case where the government’s extrapolation was rejected for similar uncertainties. While the government does not need precise dollar amounts for forfeiture, it must present a reasoned basis for its claims, which the court found lacking in this instance. Arbitrarily selecting a lower figure without adequate justification was deemed unreasonable.
For forfeiture purposes, the burden of proof requires more than just a preponderance of evidence. The government's extrapolation of $15,275,612.57 attributed to Joseph Barry, based on a government spreadsheet (GX C55) showing $3,960,344 over a 28-month period, is rejected. This extrapolation divides the total by 28 and multiplies it by 108 months, but lacks support, as no evidence substantiates the 108-month period, and Barry was not mentioned in any trials or testimonies.
Regarding Paul Tucker, the government seeks to include $7,958,304.00 in the forfeiture judgment, based on a source document (GX 546) showing $221,064.00 in profits from a three-month period in 2009, which is then annualized and extended over nine years. The government claims this period does not represent peak betting activity, despite evidence suggesting it may be one of the busiest times for bookmakers. While the base figure for Tucker's activity is considered reliable, the extrapolation is flawed for two reasons: the assumption that the first quarter is a typical betting period is challenged, and extrapolating from a three-month period to 108 months is deemed unreasonable.
A reliable attribution of betting proceeds to Tucker based on discrete transactions is under scrutiny. The government proposes an alternative attribution for Tucker, suggesting a total of $2,265,238.00, which lacks clarity when compared to a different figure of $2,225,099.20 suggested by government exhibit GX C82, with no explanation for the discrepancy. At the forfeiture trial, government witness Jansen identified several elements of the alternative attribution, including $80,689.00 derived from "Gooch records," which mistakenly included $2,700 from a bounced check. Jansen recognized that other bounced checks might exist in the source documents. A significant portion of the alternative attribution, $1,477,561.53, was derived from internal Legendz spreadsheets, but Jansen was unaware that there were multiple individuals named "Paul" in the organization. This misattribution raises concerns about the accuracy of the proceeds attributed to Tucker. The government has not adequately addressed these discrepancies in its proposed findings filed after the trial. Additionally, some components of the alternative attribution were not presented during the trial and lacked evidence to support their validity. Despite the court rejecting the government's extrapolated figures from Tucker's bookmaking activities in early 2009, it found a reliable base number of $221,064.00 from records on Tucker's own computer.
Evidence supports attributing $221,064.00 in illegal gambling proceeds to Tucker. For Bruce Middlebrook, the government seeks to extrapolate $4,449,353.14 in gambling proceeds based on source document GX 1134H, found on his computer. This document, spanning an unspecified September to March period, was used by Lowrance to calculate a seven-month activity total of $288,384. This figure was then extrapolated over 108 months. However, Jansen, who had never seen GX 1134H, was not involved in this extrapolation, raising questions about the reliability of the calculations. Lowrance acknowledged the busy season for a sportsbook corresponds with the time frame of the document, but he could not confirm the years involved. Despite Middlebrook being a cooperating witness, there was no effort by the government to verify the extrapolated figure with him, leading to concerns about the accuracy and credibility of the $4.4 million estimation. The court found the proposed extrapolation unsubstantiated due to the lack of clarity regarding the base period and the excessive length of the extrapolation compared to the base period. While the court rejected the extrapolated amount, it considered the base number from GX 1134H to be reliably established for potential direct attribution to Middlebrook.
Jansen lacked access to the source document necessary to support the government's inference regarding the $288,384 figure attributed to Middlebrook, as testified by Lowrance. Lowrance indicated that this amount represented records from a specific seven-month period but did not clarify its derivation or the specific betting-related activities it encompassed. Middlebrook previously described a similar document, GX 1134A, as a routine weekly record, which was not contested at trial. The court, therefore, found by a narrow margin that the $288,384 in betting-related activity should be attributed to Middlebrook for forfeiture purposes.
Regarding Rodger Bramley, significant legal questions surround his criminal liability. However, it is undisputed that he was a successful bookie in Dallas, with the government proposing to attribute $4,953,478.78 to him based on various records and witness testimony. This amount includes $967,847 from internal Legendz records related to checks received by Bramley, known as "Doc." Despite suggestions during cross-examination that these payments did not benefit Bramley directly, the court determined that their ultimate destination is irrelevant for forfeiture purposes. Additionally, any claims that these payments were “pay-per-head” fees do not affect Bramley’s liability. Consequently, the $967,847 will be included in the forfeiture judgment, along with an additional $117,164 based on supporting documents.
Checks deposited into Bramley’s ViewPoint Bank account were identified as betting proceeds, despite Jansen's inability to ascertain the legitimacy of the funds. The court found by a preponderance of evidence that these checks, marked as GX 871, were derived from bettors. Although Bramley's accounts included deposits from lawful sources, this detail will be relevant in future discussions regarding asset forfeiture. A total of $117,164.00 will be factored into the forfeiture money judgment. The government seeks to include $117,968.00 in this judgment, linked to checks used by Bramley for his mortgage, but this amount will be adjusted to $114,882.41 due to double counting issues.
Additionally, the government intends to add $256,500.00 to the forfeiture judgment based on testimony from David Pray, a bettor associated with Bramley. Pray's betting history is characterized by vague timelines, with bets reportedly placed continuously from around 2003 until August 2014. He estimated betting approximately $1,500 to $2,000 per weekend during the NFL season. The court noted the necessity of establishing reliable parameters for calculating betting proceeds, emphasizing that vague testimony could compromise the reliability of the figures presented.
The government initially proposed a forfeiture amount of $256,500.00 related to Pray, but the court found this calculation unsupported due to Pray's vague and uncertain testimony, leading to its rejection. Similarly, a proposed $200,000.00 calculation for Mark Polan's betting proceeds was also rejected, as Polan's estimate lacked precision and certainty regarding his betting history. In contrast, the government proposed including $1,200,000.00 in proceeds attributable to Bramley, based on testimony from Neil Myler, a participant in the betting scheme. Myler's estimates were deemed believable despite his potential bias, and the court found the calculation sufficiently reliable to warrant inclusion in the forfeiture judgment. The court noted a previous rejection of an extrapolation related to Diebner due to insufficient evidence. An additional point of double counting involving $4,760 was acknowledged by the government. After dismissing the unsupported calculations, the court determined the total betting proceeds attributable to Bramley to be $4,489,133.19. For Paul Wilson, the government revised its initial extrapolation of $4,000,000.00 down to $3,907,791.00, based on more accurate data reflecting his activities from an internal Legendz source document.
The government claims that GX 61 indicates thirty-two months of activity from February 2008 to August 2010, leading to a $3.9 million extrapolation by dividing the initial figure by thirty-two and multiplying it by 108. However, Wilson, a cooperating defendant, did not discuss or confirm this extrapolation's accuracy with Lowrance, who maintained that he independently calculated this thirty-two month period, despite no evidence supporting this claim. The court rejects the government's proposed extrapolation regarding Wilson and offers no alternative based on specific transactions.
Regarding Leon Moran, the government seeks to attribute $6,491,205 in betting proceeds to him based on GX 473, an internal Legendz document, or alternatively, $3,218,914 through inferences from specific evidence. Both methods are deemed invalid. The court notes that GX 473 only reflects betting activity, not Moran's actions as a runner, which are distinct roles within the Legendz enterprise. The grand jury indicted Moran specifically as a runner, and the court insists on adhering to this designation, citing Fifth and Sixth Amendment concerns. The government failed to argue for a different basis for forfeiture against Moran than what was presented to the grand jury. Additionally, there is insufficient evidence to definitively link Moran to GX 473, as the document refers to an individual as "Mastiff," while Moran's runner nickname was "Makavelli," and a key witness could not associate "Mastiff" with him.
No witnesses associated the name "Mastiff" with Moran in either the February or October jury trials. In the April trial, the only link made was through an FBI witness responding to a leading question from an Assistant U.S. Attorney (AUSA). This witness, who displayed a concerning level of compliance with leading questions, also provided false testimony on another issue, although the court concluded he likely did not do so knowingly. Ultimately, the court found the testimony insufficient to establish that Moran was "Mastiff." Additionally, no witnesses with actual knowledge of the Legendz operation connected Moran to that name, undermining the government's $6.5 million extrapolation, which hinges on this association.
Furthermore, the validity of GX 473 as evidence of betting activity remains unclear, as it could represent either a bookie's records or merely Moran's personal betting. The government failed to clarify this point, which contributes to the failure of the $6.5 million extrapolation.
The government's alternative calculation attributing betting proceeds to Moran was also rejected for two main reasons. First, the court questioned the reliability of the supporting testimony from Jansen, who was not one of the case agents and appeared to rely on the work of others rather than his own analysis. Second, the alternative calculation, amounting to $3,218,914.00, involved potentially problematic double counting across thirteen items of varying complexity, further undermining its credibility. The court expressed skepticism about proving such complex financial matters based solely on the testimony provided.
The government's alternative calculation for forfeiture includes significant amounts derived from internal Legendz documents, which require meticulous forensic analysis. Key components of this calculation include $22,825, based on six internal betting records, and $1,299,940 attributed to "Odes Thompson checks" referenced in spreadsheets. The internal betting spreadsheets, while less complex than other records, lack clear transaction dates and can be open to interpretation regarding the associated agents or bookies.
Greg Melzer, a contract forfeiture investigator, performed the calculations but did not testify during the trial. Jansen, who presented the calculation, indicated that connections between certain checks and individuals like Paul Wilson and Leon Moran were based on his interpretation rather than concrete evidence. Jansen expressed uncertainty regarding the specific links between the remitters and the alleged recipients, stating, "I think there’s some connection," but admitted he did not have definitive knowledge. This lack of clarity raises concerns about the reliability of the evidence presented. Jansen's assertions were based on his collaboration with Melzer, who also lacked firsthand knowledge of the transactions.
Moran's involvement in picking up checks from Wilson is uncertain, as the witness could only express a vague belief based on Mr. Melzer's information. Key points from Mr. Corgan's questioning reveal that most figures in the government's summary related to Moran were provided by Melzer, which the witness either accepted or rejected when preparing the chart. A discrepancy was noted in alleged betting proceeds, specifically a $5,000 difference between two amounts ($45,790 and $40,790) related to GX 476. When pressed, Jansen admitted that he was largely guessing about many figures, indicating a lack of concrete evidence regarding how he arrived at the total of $40,000.
The government’s alternative calculation attributed $187,000 in betting proceeds to a handwritten note found in an envelope at Moran's house; however, this note lacked direct evidence linking it to illegal gambling. Jansen could not identify the transactions represented by this amount. Additionally, a digital image on Moran's computer suggested a stack of cash, purportedly $50,000, but there was no evidence to confirm Moran possessed this money.
Despite some items in the government's calculation being more plausible than others, the court refrained from analyzing each one due to insufficient supporting testimony and a significant issue of double counting. The evidence indicated that Moran acted as a runner, transporting betting proceeds across various states, but the clarity and validity of the evidence concerning specific amounts remain questionable.
The court has rejected the government's extrapolations regarding the financial activities of Wilson and Campbell, who operated in California, where Moran was involved as a runner. The court finds that there is insufficient evidence to conclusively attribute the money to Moran, as it may also relate to other agents for whom the government has provided satisfactory evidence. Jansen's testimony about Wilson illustrates this point, despite the rejection of the government's extrapolation regarding him.
Joseph McFadden, a credible witness for the government who served as an agent for Legendz in Florida, entered a guilty plea and was sentenced. His business grew to about fifty bettors before he ceased operations in April 2013 following his arrest. The government initially proposed attributing $1,656,000 to McFadden, later adjusting this figure to $1,784,800, and subsequently to $1,588,000 in its findings, all derived from McFadden’s testimony. However, the proposed attribution of $1.6 million is distinct from the other agents' figures, as it is based on five separate transactions not proven to be generated by McFadden's activities as an agent.
These transactions include:
1. A delivery of $400,000 in cash to King at a birthday party.
2. An investment by King of $196,800 in a non-gambling business with McFadden, which returned $208,000.
3. Receipt of $30,000 in cash at a restaurant in Houston on King's request.
4. Assistance in cleaning $350,000 in cash that had deteriorated from being buried in Nebraska.
None of these events sufficiently demonstrate that the attributed amounts were derived from McFadden’s role as a Legendz agent.
McFadden recovered approximately $175,000 from previously-buried cash, delivering the reconditioned amount to King after retaining a $17,000 fee. In 2004 or 2005, McFadden permitted King to use Zima Holdings, co-owned with John Reynolds, for proceeds from a Florida house sale, resulting in over $600,000 being deposited into a Zima account amid discussions for King to purchase Zima. However, the anticipated transfer of Zima to King did not occur, and the proceeds were eventually moved directly to King. The court found it more likely than not that certain cash transactions McFadden described were derived from unlawful activities related to the defendants' convictions, thus satisfying the nexus requirement. Conversely, the court deemed the connection of the $600,000 from the house sale to criminal activities too tenuous, as the government did not claim it constituted or was traceable to criminal proceeds.
Regarding David Ross, a guilty plea was entered, and he testified for the government in multiple jury trials. The government's calculations attributed $1,642,813 in betting proceeds to Ross, which was later adjusted to $1,265,831.18. However, a subsequent extrapolation presented by a government witness, Lowrance, estimated Ross's betting proceeds at $5,485,268.45 without consulting Ross or reviewing his trial testimony. Lowrance's lack of knowledge about the underlying records and activities further undermined the credibility of this extrapolation.
The FBI's investigation into Ross is characterized as selective, focusing only on information that supports a predetermined outcome while ignoring potentially conflicting evidence from Ross himself. The court finds no need to evaluate the relationship between the initial period and the proposed 108-month extrapolation, which is dismissed. The government fails to provide an alternative calculation for Ross. Koralewski, who was convicted of racketeering conspiracy and acquitted of illegal gambling and money laundering charges, is attributed $935,112 in illegal betting proceeds by the government, down from an initial $1,055,112 after excluding $120,000 previously based on witness testimony.
Koralewski's long-standing friendship with King complicates the forfeiture case, as this relationship blends personal and financial interests. His involvement with the Legendz organization included training employees and recruiting associates, despite maintaining legitimate employment in the U.S. The nature of his relationship with King, along with the financial dimensions of their connection, further complicates the forfeiture proceedings. Koralewski was indicted as part of the “Executive Staff” of Legendz, not as a lower-level participant, but the government still sought to portray him as a runner during the trial.
An order from the court addressed the characterization of Koralewski in the Indictment, acknowledging that while he was identified as part of the executive staff, some allegations suggested he acted as a runner. The court permitted the government to prove these allegations but restricted the characterization of Koralewski as a runner beyond what was presented to the grand jury, as no evidence supported a broader role. Koralewski objected at the forfeiture trial, where evidence was still received under this objection.
Of the $935,112 attributed to Koralewski for forfeiture, only $10,790 could be linked directly to him as an agent, which will be excluded from forfeiture calculations for other reasons. Koralewski was convicted only of racketeering conspiracy and, per a D.C. Circuit decision, is not liable for racketeering proceeds obtained by others. However, the government’s factual theory regarding direct attributions qualifies certain funds as "obtained" by Koralewski under 18 U.S.C. § 1963(a)(3).
The government seeks to attribute specific amounts to Koralewski for the forfeiture judgment: $10,790 from betting proceeds related to Ashish Patel, $711,812 based on shipping tracking records, $202,510 from Legendz Sports Payments, and $10,000 from testimony by David Ross.
Robert Hurst and Craig Hardy are mentioned in connection with a government forfeiture case involving illegal betting proceeds. The government's Forfeiture Brief lacks specific details about the attribution of these proceeds. At the forfeiture trial, the government presented financial spreadsheets indicating approximately $10,790 in illegal proceeds attributed to Koralewski.
Witness Ashish Patel, an orthopedic technician, testified during the October jury trial, stating he had never used a bookmaker or agent for sports betting, instead employing a website and a $100 prepaid debit card. He claimed not to have met Koralewski until the day before his testimony and denied betting the $4,800 the government attributed to him. Patel recounted a past interaction with the FBI where he reported losing a single hundred dollars and ceased betting thereafter, maintaining that he had no connection to Koralewski or the Legendz betting site.
During the forfeiture trial, Jansen attributed the $4,800 to Patel based solely on his name appearing on a Legendz spreadsheet alongside "SKI." However, under cross-examination, Jansen admitted ignorance of Patel's FBI statements and trial testimony, which clearly contradicted the government's claims. Patel's testimony was deemed credible and was not undermined by the government’s cross-examination. Notably, the government did not subpoena Patel's bank records to verify any gambling debt related to the alleged $4,800.
Hurst, a retired president of a power equipment distribution company residing in Sacramento, testified at the October trial regarding his gambling activities, which he primarily conducted online. A spreadsheet from Legendz indicated Hurst had deposited $2,561, alongside a reference to an individual named "Ski." Hurst denied knowing Ski and stated he had never placed a bet with him or met Koralewski, who had never picked up money from him. During FBI questioning, Hurst reiterated his lack of association with Koralewski. Jansen's testimony at the forfeiture trial linked Hurst to Koralewski based solely on two transactions listed in a government exhibit, which included a total of $5,990 from different senders. Jansen was unaware of Hurst's FBI interview or his testimony affirming he did not know Koralewski.
The situation concerning Craig T. Hardy, a deceased individual connected to a betting transaction of $3,429, was complicated, as testimony from his bookie, William Durborough, revealed their betting activities through an internet sportsbook named ZMVP, which was part of the Legendz enterprise. Durborough confirmed he was known as "Apple" and acknowledged his association with Hardy's betting activities as documented in government exhibits. Durborough had seen these exhibits only shortly before testifying and had been interviewed by the FBI prior to that.
Durborough testified that Hardy was a friend and a gambling client, but he had no contact with Koralewski during their sports betting activities. He claimed he never exchanged money or reported to Koralewski and firmly stated that Koralewski had no involvement with Hardy's betting. Durborough's consistent and persuasive testimony led the court to conclude it was unlikely Hardy dealt with anyone associated with Legendz other than through Durborough. Jansen, another witness, confirmed he was unaware of Durborough's testimony regarding his lack of dealings with Koralewski or Hardy. The court expressed skepticism about attributing $10,790 in betting proceeds to Koralewski based on the testimonies provided and criticized the government's failure to address these testimonies in its findings. It also noted that the internal spreadsheets used by the government to trace the funds were obtained by a witness, Karlo Stewart, who had a history of dishonesty and criminal convictions, raising doubts about their reliability.
A deportee from the United States, who fled Panama, has a heightened motivation to cooperate with the government due to his immigration status. The court primarily considers Stewart's testimony corroborated by other evidence. Stewart's daily activities at Legendz involved managing financial and betting-related spreadsheets, which he could manipulate to satisfy government inquiries. He cooperated with the government for an extended period while employed at Legendz, being aware of the individuals the government was interested in.
The court scrutinizes the spreadsheets produced by Stewart similarly to his testimony and dismisses the government's claim that $10,790 in betting proceeds should be attributed to Koralewski. The government claims that Koralewski sent approximately 70 packages to Legendz, totaling around $711,812 in illegal proceeds, based on shipping records. This assertion, if accurate, could be relevant for forfeiture, despite Koralewski's acquittal of money laundering conspiracy, as executives can engage in similar activities as their subordinates.
The source of the $711,812 attribution is an internal Legendz spreadsheet (GX 198) created by Stewart, detailing tracking numbers for shipments of cash or payments to Legendz but lacks a specified year. The spreadsheet lists entries showing “WHO SENT IT” as “SKI” totaling $711,812. However, this document is based on forty smaller spreadsheets (GX 68-108) recorded by Legendz's general manager, which do not mention "Ski" in any of the entries.
GX 198 and the associated tracking numbers lack independent evidence linking them to Mr. Koralewski, as acknowledged by Jansen during questioning. Jansen confirmed that neither he nor anyone on the prosecution team investigated these tracking numbers to substantiate the claim that Koralewski is accountable for $711,812 in alleged betting proceeds. Furthermore, Jansen was unaware of Karlo Stewart's testimony regarding source documents for GX 198, having not read any of that testimony.
Although a spreadsheet indicates seventy shipments from the U.S. to Panama with "SKI" listed as the sender, the court finds this insufficient to reasonably conclude Koralewski's involvement in the $711,812 attribution. The evidence lacks reliability, as GX 198 does not reference "Ski" in its forty source documents, which include familiar names to the court. Consequently, the court rejects the attribution of this amount to Koralewski.
Regarding the $202,510 identified as "Legendz Sports Payments," the government claims Koralewski received illegal proceeds through checks issued by Banco de Costa Rica. These cashier’s checks, all payable to him and issued between early 2005 and late 2008, do not provide a clear link to any bank customer, as they lack a remitter or account holder information. Jansen confirmed this absence of linkage, further complicating the government’s position on this claim.
Numerous checks, primarily issued through Citibank, Bank of America, and Banco Internacional de Costa Rica, were identified during the forfeiture trial. Jansen characterized these $4,500 checks as payments linked to the Legendz enterprise and acknowledged that they were part of the government's allegations against Koralewski for money laundering, from which Koralewski was acquitted. The court maintains that this acquittal does not undermine the government’s argument regarding these payments, as they might still be associated with illegal betting proceeds relevant to Count 1.
Jansen conceded that he could not trace any of the checks to illegal sports-betting income from Legendz Sports or its subsidiaries, stating that he would need to review financial records to ascertain the funds' origins. The government failed to provide direct evidence linking the checks to illicit activities, presenting only a basic description of them. While direct evidence is not mandatory for forfeiture, the court noted the necessity of establishing a connection through circumstantial evidence.
The court raised critical questions regarding the source of the funds and the nature of the payments, finding no evidence to substantiate that the money originated from the Legendz enterprise. The consistency of the payments, both monthly and in identical amounts, suggested they were not typical transactions between a betting house and agents. Additionally, a potential link to Bartice King, who had a close relationship with Koralewski, complicates the government's position, as it raises doubts about the legitimacy of the payments. Overall, the government did not meet the burden of proof required to establish that the funds were derived from illegal activities associated with Legendz.
King had lawful sources of cash flow during the conspiracy period, contradicting the government's claims. The government must prove that $202,510 was racketeering proceeds paid to Koralewski, but it has failed to meet this burden. A key piece of evidence is the $10,000 allegedly delivered by Koralewski to David Ross, a Legendz bookie. Ross testified that he received this money in Colorado and characterized it as betting proceeds. The court found no evidence suggesting Koralewski was a bettor himself, leading to the conclusion that the $10,000 was indeed illegal betting proceeds attributable to Koralewski.
Regarding Luis Robles, who was identified as a Legendz runner, the government initially sought to attribute $721,901.50 to him, later correcting the figure to $727,901.50. This attribution included six items, beginning with $46,197.50 linked to Robles in a Legendz spreadsheet. The court rejected this item for two reasons: Robles was charged as a runner, not an agent, and the government failed to provide satisfactory substantiation for this amount. The court emphasized the importance of adhering to the roles specified in the indictment to ensure fairness.
No explanation was provided regarding the origin of the $46,197.50 attributed to Robles. A second item, $160,459, is based on Derek Hewitt's Title III intercepts, but Hewett’s trial testimony did not fully corroborate the recorded contacts. The intercepts (GX 810 and 813) are deemed more reliable than witness recollections, with substantiation only for $110,459 of this amount. A third item of $269,000 lacks support, as the cited consensual recordings (GX 946 and 947) do not reference any dollar amounts, and another exhibit cited is not in evidence. The fourth item, $189,245, attributed to Alan Gould’s testimony, is not supported by the cited pages from the trial. The fifth item, a claimed $50,000 in salary payments to Robles, is not substantiated by trial testimony regarding the amount or frequency of payments. The sixth item, $13,000 based on a Title III intercept, is also unsupported as the referenced exhibit is not in evidence, and the witness's interpretation of the conversation is inconclusive.
The court's findings suggest only $110,459 in betting proceeds can be reliably attributed to Robles. The government’s proposed forfeiture totals may appear capricious, but will be adjusted for joint liability, foreseeability, and the Excessive Fines Clause. The government seeks a forfeiture judgment of $231,432,686.73, but the final amount is expected to be significantly lower.
The government's argument for joint and several liability regarding the full amount of a forfeiture money judgment lacks merit. While the forfeiture defendants, excluding Koralewski, are subject to joint and several liability totaling $12,607,321.99—comprised of $6,899,140.19 from attributed betting proceeds and $5,708,181.80 from money laundering—this liability is subject to three critical limitations: foreseeability, disproportionality under the Excessive Fines Clause, and deprivation of the ability to earn a living, also governed by the Excessive Fines Clause. The government failed to present any legal or factual arguments on foreseeability, despite it being a significant limitation, which places the burden of proof on them. Consequently, any doubts will be resolved against the government due to a lack of advocacy. The court will separately address disproportionality and livelihood impacts for each forfeiture defendant.
Regarding Bartice King, the government seeks to forfeit a wide array of assets, including bank accounts, vehicles, jewelry, shoes, purses, and real estate. The government's assertion that King’s sole income source during the conspiracy was from illegal betting is contradicted by unchallenged testimony from its witnesses, undermining its justification for the forfeiture of King's assets.
King engaged in several lawful business activities during the conspiracy period, including operating Grupo Legendz, a licensed sportsbook in Panama City; Vaporama, a liquor license holder generating $1.9 million in deposits; Magna Tours, a successful travel agency with 20% annual growth; and Platinum Vacations, which previously generated $10,000 daily but ultimately failed. The government has not successfully traced illegal gambling proceeds to the King assets it seeks to forfeit.
In the forfeiture trial, the government presented ten pages of testimony and account documents to support the forfeiture of five Amegy Bank accounts, starting with two cashier’s checks from Banco General related to Vaporama's deposits. However, the government’s evidence does not sufficiently link these transactions to gambling activities. The testimony relied upon lacks definitive proof, as it only reflects a belief regarding the funds’ origins without concrete evidence.
Additionally, while the government implies that money in the Amegy Bank accounts could be traced back to illegal activities, it fails to establish a clear connection, especially since the funds in question entered the accounts in 2011 after a significant drop in the intermediate Compass Bank account. The government's tracing theory is criticized for lacking legal precedent and being overly speculative.
An exception exists with King’s Invesco IRA account, where evidence shows $45,000 from DSS was deposited. However, there is no evidence detailing the account's activity from 2010 to 2013, raising further tracing concerns regarding the funds.
The court is not adopting a strict approach regarding the balance of the account linked to illegal gambling proceeds from 2010, as it represents only a fraction of those proceeds. Concerning the parcels of real property, the government's case is lacking for multiple reasons:
1. There is insufficient evidence establishing Bartice King’s ownership of most properties.
2. The government failed to prove that the properties were purchased with illicit funds, as the financial sources trace back to Panama, but the documentation provided (cashier's checks) does not reveal the source of those funds.
3. Testimony indicates uncertainty about the specific accounts from which money was withdrawn.
4. The government’s argument that all funds received by the Kings in Panama were unlawful is unsupported.
Additionally, the evidence regarding the origins of the funds used for property down payments and mortgage payments is inconsistent, comprising both potentially illicit funds from Panama and funds from U.S. bank accounts. The government cannot categorically assert that all assets acquired by King derived from illegal activity, as there is evidence suggesting some assets were funded by lawful income. Consequently, the government bears the burden to prove how much of the assets are forfeitable, which it has failed to do adequately. The court concludes that there is credible evidence indicating that some value in the seized assets originated from lawful sources, necessitating proof from the government regarding the forfeitable amounts.
The government failed to substantiate its forfeiture claims against King by disregarding his legitimate business activities, leading to an all-or-nothing outcome where King will forfeit only his Invesco IRA account and face a forfeiture money judgment of $12,607,321.99. King, who actively managed his sports betting operation with oversight over numerous employees and subordinates, did not contest the government's forfeiture judgment based on the Excessive Fines Clause. Consequently, aside from the IRA account, no other assets will be forfeited.
Regarding Koralewski, the government aimed to forfeit proceeds from the sale of his house, a gas lease, and approximately $1,500 in bank accounts, asserting that his only income source was from Legendz Sports. However, testimony during the October trial indicated that Koralewski had legitimate employment at Home Depot and Burlington Coat Factory, which the government overlooked in its representations to the court. Additionally, the investigator admitted to not examining Koralewski's employment history, further undermining the government's claims.
Meoni testified that Koralewski, after working for Home Depot in California, opened a deli shop and later relocated back to Colorado around 2004. He briefly partnered with Meoni to start a construction company, which lasted only two months before Koralewski worked for his brother in window and door installation and then took a loss prevention job at Burlington Coat Factory. This employment occurred during the alleged conspiracy period when the government claimed Koralewski had no legitimate income. Meoni's credible testimony was presented in an October 2015 trial, and although the government acknowledged Koralewski's connections with entities related to Legendz, it maintained that his sole income source was from these associations. However, the government did not provide evidence to support this assertion. During the forfeiture trial, Jansen, a government representative, admitted he was unaware of Meoni's testimony, which contradicted the government's claims about Koralewski's income. The government’s theory for asset forfeiture centered on the idea that Koralewski's home in Parker, Colorado was purchased with illicit funds, specifically $4,500 checks that were not proven to be illegal proceeds. The court found these forfeiture claims to be unfounded, noting that Koralewski's legitimate employment history undermined the government's position. The court concluded that forfeiting both the proceeds from the sale of Koralewski’s house and a money judgment for funds used to purchase it would constitute double counting, thus ruling against the government's forfeiture efforts.
The government's Forfeiture Brief asserts that because Mr. Koralewski did not earn legitimate income from 2003 to 2013, the gas lease is deemed proceeds of illegal gambling, but the court concludes that the gas lease and $1,500 in bank accounts will not be forfeited. A forfeiture money judgment against Koralewski is set at $10,000, reflecting the court's prior findings regarding the government's extrapolations and direct attributions. This amount is determined not to be a result of vicarious liability and is considered reasonable under the Excessive Fines Clause, as it does not jeopardize Koralewski's ability to earn a living.
The document also details findings specific to Tucker, who successfully argues against the government's extrapolation of betting proceeds. The government has sufficiently substantiated its case for forfeiting a specific bank account belonging to Tucker, valued at $3,490.64. The starting point for Tucker's forfeiture money judgment is $12,607,321.99, reflecting agent attributions and money laundering calculations. The court emphasizes the importance of foreseeability, proportionality, and the ability to earn a livelihood in the analysis of forfeiture for Tucker and other defendants, clarifying that foreseeability is assessed without vicarious liability under RICO, focusing on whether illegal proceeds were foreseeable to the defendant.
The Supreme Court's ruling in Bajakajian establishes that the government must demonstrate that the requested forfeiture is not "grossly disproportional" to the severity of a defendant's offense, necessitating an individualized assessment. In hierarchical criminal organizations, defendants differ significantly in their roles and the gravity of their offenses, making the total monetary amount involved an inadequate metric for assessing proportionality. The maximum statutory fine serves as a relevant benchmark, alongside factors such as the scope of criminal activity, related illegal actions, and the harm inflicted on others.
The court must also evaluate whether the forfeiture would unjustly impede a defendant's future earning potential. A present inability to pay does not, by itself, render a forfeiture unconstitutional; it is acceptable for forfeiture to leave a defendant impoverished immediately. However, the critical inquiry is whether the forfeiture would hinder the defendant’s ability to earn a living subsequently. Personal circumstances like age, health, or financial status cannot be considered as discrete factors in this determination, although they may indirectly affect future earning capacity.
Regarding foreseeability, the government carries the burden of proof, and the court notes a lack of government advocacy on this matter. While foreseeability is clear for some defendants, it is more complex for others. The court finds the individual financial attribution insufficient as a measure of foreseeability regarding each defendant's awareness of their co-conspirators' illegal activities. Instead, the court suggests using the total joint liability figure of $12,607,321.99 as a more rational starting point for analysis, examining the specific roles of each defendant in relation to their knowledge of the conspiracy. Tucker, identified as a notable Legendz agent in Florida, serves as a case study for this inquiry.
The court determined that the primary geographic areas for the Legendz sports betting operation were Florida, Texas, and California, with Oklahoma and smaller states also involved. Tucker, who operated in Florida, had considerable knowledge of Legendz activities, having traveled to its headquarters in Panama and engaged with agents from other states. The court assessed that Tucker was foreseeably involved in betting activities amounting to approximately $5,042,928.76, derived from 40% of the total joint exposure of $12,607,321.99. While the government may view this figure as low, the court emphasized that its judgment is based solely on reliable evidence, rejecting any speculative assumptions.
The court will next evaluate whether this forfeiture amount aligns with the Excessive Fines Clause, requiring a determination of proportionality relative to the severity of Tucker's offense. In multi-defendant cases, proportionality is not assessed uniformly across defendants. While a larger role in a conspiracy may justify a higher forfeiture, the court noted that Tucker's reduced exposure reflects his limited involvement. Tucker's position was recognized as intermediate; he held more responsibility than subagents and local bookies but was subordinate to higher-level figures like King, thus being a valued member of the organization.
The primary value in the business was the ability to consistently generate significant betting proceeds. The court acknowledges the benefits Tucker gained from his criminal actions and considers various factors, including societal harm and the statutory fine range for his offenses, ultimately determining that a ten percent reduction is warranted. This results in a forfeiture amount of $4,538,635.88 from the initially forfeitable $5,042,928.76. The court expresses some skepticism regarding the reasoning behind this analysis but feels confident in assessing the culpability of the forfeiture defendants based on established factors.
Regarding Tucker's future ability to earn a living, the government has not provided clear arguments related to the Excessive Fines Clause, suggesting indifference towards the potential financial ruin of the defendants. The court references past case law, acknowledging the lack of a standardized approach for evaluating constitutional implications under the Excessive Fines Clause, which allows for differing judicial opinions.
The uncontested facts regarding Tucker's financial situation indicate he has over $560,000 in liabilities and a negative net worth, even considering his home equity. His debts stem, in part, from a lifestyle enhanced by his actions as a Legendz agent. Currently, he has minimal liquid assets and a meager retirement fund of less than $2,000, with his legitimate income now only a fraction of what it once was.
A forfeiture money judgment of $200,000 will be entered against Tucker, a 51-year-old man with limited earning capacity, placing him in financial distress immediately. However, he possesses the skills to recover financially over time. The judgment is intended to temporarily place Tucker in government service, not indefinitely.
Regarding Moran, the government seeks to forfeit $60,000 in cash, a money counter, a watch, and a ring. The court finds the $60,000 forfeitable, linking it directly to Moran's role as a trusted runner for the Legendz gambling operation. Although there is insufficient evidence to establish a direct nexus for the money counter, circumstantial evidence suggests it is linked to illegal gambling activities. Consequently, the court will forfeit the cash and money counter but not the watch or ring, due to a lack of evidence regarding their origin or duration of possession.
For Moran's forfeiture money judgment, the court applies similar standards as for Tucker. The initial amount considered for forfeiture is $12,607,321.99. Given Moran's significant involvement in the Legendz operations as a runner in California, the court finds that he could foresee at least 15% of that amount, totaling $1,891,098.28.
The court emphasizes proportionality in the forfeiture process, noting that Moran did not generate the proceeds or have a beneficial interest in the funds he handled, as he was merely a runner without profit motive like agents or bookies. The court references the Fourth Circuit's ruling in United States v. Jalaram to highlight the importance of assessing the defendant's role in relation to the overall conspiracy to avoid potential injustices in joint liability cases.
Moran's culpability is primarily linked to his awareness of the outcomes of his actions rather than the actions themselves, which were similar to those of an innocent courier. The court determines that Moran's financial exposure of $1,891,098.28 should be reduced by sixty percent, resulting in a revised amount of $756,439.31, before considering his future earning capacity. Moran, a 56-year-old man with a high school education and two years of college in social work, faces limitations in his earning potential due to a work-related injury causing a 34% permanent disability. He possesses assets worth $34,000, has no debt, and supports a minor child. The court recognizes the significant impact of parental responsibilities on Moran’s future earning ability, concluding that a forfeiture judgment exceeding $35,000 would be excessively punitive, potentially impairing his capacity to earn a living. Therefore, the forfeiture amount is set at $35,000.
In contrast, Robles, who served as a runner for the Legendz organization, had a broader understanding of the enterprise due to his previous interactions, including a month-long stay at the home of a key defendant and a partnership with him in another business venture. This background provides Robles with insights into Legendz operations that are more comparable to Tucker than to Moran, affecting the court's assessment of what was foreseeable to him regarding the betting activities.
The court determined that the government failed to establish its case regarding agents unknown to a specific defendant, concluding that Robles could foresee unlawful betting activities amounting to at least 40% of the total exposure linked to the Legendz organization. This equated to $5,042,928.76, positioning Robles similarly to Tucker in terms of culpability. However, recognizing Robles’ role as merely a runner, the court decided to reduce his exposure by 60%, leaving a forfeiture amount of $2,017,171.50.
Regarding Robles' future earning capacity, at age fifty-one, with a high school education and a Florida real estate sales associate's license, he has significant earning potential but limited assets, totaling a net worth under $10,000. This financial outlook leads the court to conclude that a forfeiture judgment exceeding $100,000 would constitute excessive punishment, thus setting the forfeiture at $100,000.
For Bramley, the government is seeking forfeiture of specific assets, including his house, investment accounts, a car, and over $24,000 in cash. The government's theory for seizing the house is based on the alleged use of bettor funds for mortgage payments. However, the court finds this theory unmeritorious, as the evidence does not sufficiently support the claim that the property is subject to forfeiture due to these payments.
The document addresses issues related to the government's forfeiture money judgment calculation, noting that the government has not distinguished between illicit and non-illicit proceeds in its valuation. The government claims that Bramley’s mortgage payments, facilitated by bettor checks, are sufficient evidence of his involvement in illegal activities, but this claim is deemed inadequate. Additionally, the government’s argument hinges on the facilitation theory, suggesting that Bramley used his residence to support his bookmaking operations, supported by photographs taken during a search of his home. These photos show various items, including mortgage documents and casino cards, but do not provide conclusive evidence of substantial criminal use of the property. Comparisons are made to searches of other bookies' homes, which yielded more incriminating evidence. While it is acknowledged that Bramley may have engaged in some business activities related to Legendz from his home, the court emphasizes that the use of his house for facilitation must be significant and not merely incidental. The testimony from Neil Myler, a runner for Bramley, highlights that meetings primarily occurred at locations other than Bramley’s house, further supporting the argument that his residence was not primarily a base for criminal activity. The court concludes that the government has not met its burden of proving that the house was substantially used for facilitating illegal activity.
The comparison highlights the inadequacy of evidence supporting the forfeiture of Bramley’s house, as seen in similar cases. In Iacaboni, the court found sufficient evidence of criminal activity associated with the defendant's property, while in Nicolo, merely using a property as a mailing address did not establish a substantial connection to criminal conduct. Evidence indicated that Bramley directed betting proceeds to an address other than his home, suggesting he did not use his house as a mail drop, thus failing to prove its forfeitability based on incidental use principles.
Regarding the investment accounts, there was a lack of clarity from Jansen regarding the legitimacy of funds attributed to Bramley, with no tracing conducted to distinguish between legitimate and illicit sources. Citing precedents, including the Tenth Circuit’s Bornfield case, it was determined that the government’s method of proving asset commingling did not meet the required burden of proof.
The government initially sought to forfeit a 2009 Mercedes Benz S500 owned by Bramley, but it no longer pursued this claim under the facilitation theory. Evidence linking Bramley to the vehicle was insufficient; multiple individuals were associated with Mercedes cars, but none specifically tied to Bramley. Testimony from Myler did not connect Bramley with a particular car, complicating the government’s argument for forfeiture based on property-specific use in criminal activities. The government also claimed Bramley used funds from his Viewpoint Bank account to pay for the Mercedes, but without clear evidence of his ownership or use, the case for forfeiture remained weak.
Bramley's financial accounts were deemed irrelevant to the forfeiture proceedings. The government originally claimed that cash associated with a Mercedes linked to Bramley was illegal gambling proceeds, but no evidence was presented to support this at either the jury or forfeiture trials. Consequently, the Mercedes will not be subject to forfeiture. The government is seeking to forfeit over $24,000 in cash, primarily based on cash found in Bramley's home. Testimony revealed that the cash's location within the house was vague, with some found in a desk drawer. The government failed to connect this cash to any known gambler, and a witness acknowledged the difficulty in establishing a link to gambling activities. Although the amount of cash raised suspicion, it lacked concrete proof of its connection to illegal activities.
Bramley had significant familiarity with the Legendz organization, as evidenced by his frequent trips to Panama and interactions with other bookies. His involvement in the organization was substantial enough to suggest that 40% of the joint exposure from betting activities was foreseeable to him, translating to a forfeiture judgment exposure of $5,042,928.76. The document also discusses the Excessive Fines Clause, indicating that while Bramley's role in the organization differed from others, it did not materially impact the proportionality of the forfeiture judgment against him.
Bramley operated as a pay-per-head bookie for his own account while paying significant fees to Legendz, which benefitted King financially. The court evaluated whether Bramley qualifies as a member of Legendz, ultimately deciding on the forfeiture amount. It found that a reduction of ten percent was appropriate, leading to a forfeiture judgment of $4,538,635.88. Bramley’s current financial situation is precarious; at 74, he earns minimum wage working for his son-in-law after having a successful career in construction until 2007. His monthly income is below his expenses, and a $200,000 forfeiture would severely impact his livelihood. The court determined that a $100,000 forfeiture judgment would significantly affect his financial stability but still allow him to earn a living.
In relation to Diebner, the government initially sought to forfeit his house, financial accounts, cash, and jewelry; however, these items were not addressed during the forfeiture trial and will not be forfeited. The court assessed Diebner's foreseeability concerning Legendz's operations, noting that his involvement was less extensive than that of Bramley and Tucker, resulting in limited knowledge of the organization’s broader activities. Witnesses who frequented Legendz headquarters did not recognize Diebner, indicating his limited connection to the operations.
Michael Lawhorn had frequent interactions with the Legendz headquarters in Panama but had never met Diebner or seen him at relevant events during the May jury trial. Diebner traveled to Panama from February 5-8, 2010, coinciding with the Super Bowl. Neil Myler, who was familiar with the financial arrangements for Legendz in Texas, did not recall Diebner ever concealing funds for King. The court determined that Diebner could foreseeably be involved in betting activity contributing to ten percent of a total joint exposure of $12,607,321.99, amounting to $1,260,732.19.
Diebner’s involvement in the Legendz conspiracy was deemed limited compared to others like Tucker or Koralewski. Consequently, the court reduced Diebner’s forfeiture exposure by ninety percent due to considerations of foreseeability. Although Diebner’s operations required a runner at one point, evidence did not substantiate that he significantly aided the Legendz organization beyond the benefits of being a successful agent. An additional ten percent reduction was applied, resulting in a forfeitable amount of $1,134,658.97.
Diebner, aged forty-four, had a history of profitable employment outside of bookmaking and better earning prospects than Bramley. After accounting for a spousal interest in his house, he had a net worth of less than $30,000, with negligible liquid assets and no retirement savings. As a provider for two minor children, this factor influenced the court's assessment of his financial obligations. Ultimately, the court determined Diebner should be liable for a forfeiture money judgment of $75,000.
The summary of forfeiture findings indicated the total joint exposure amount for various defendants, with specific reductions or no reductions noted for each individual involved in the conspiracy.
The document outlines the financial details and legal implications of a forfeiture money judgment against multiple defendants, totaling $12,607,321.99. This amount includes a subtotal for attributions of $6,899,140.19 and an additional $5,708,181.80 for money laundering. The judgment establishes joint and several liability for the forfeiture defendants, meaning they are collectively responsible for the total amount, though individual liabilities are capped at specified amounts. Collection from any defendant will reduce the overall liability for all.
Diebner, along with other defendants, seeks a reduction of this forfeiture judgment, citing prosecutorial misconduct as a significant factor. The case references the authority of lower courts to address abuses in forfeiture proceedings, specifically citing precedent cases. Diebner raises concerns about incorrect assertions made by the government in its forfeiture briefs, suggesting that the calculations presented are unrealistic. The court acknowledges these concerns and indicates that they will be addressed, while clarifying that previous misconduct by certain government lawyers does not directly impact the current forfeiture proceedings. The court intends to handle these issues in an appropriate public forum.
The court's examination focuses on two primary inquiries related to Diebner's complaint and request for sanctions during the forfeiture proceedings: 1) the relevant occurrences impacting the court's consideration, and 2) the influence of these occurrences on the forfeiture outcome. Diebner asserts that the government made significant and objectively incorrect factual claims, which not only stand as a substantial complaint but also relate to his allegations of government abuse and overreach.
The government's presentation during the forfeiture trial included multiple errors, such as:
- Repeatedly claiming that King had no legitimate income during the conspiracy, which if true, would have favored the government more significantly.
- An FBI witness made a definitive statement regarding a fact beyond his knowledge.
- Inclusion of deposits in the forfeiture summary without evidence of their illegal origins.
- An FBI witness's inability to provide reliable testimony on a summary exhibit he supposedly helped prepare.
- Attributing betting proceeds to specific individuals without awareness of their prior trial testimonies, which contradicted the government’s assertions.
These misstatements and factual issues are interconnected, affecting the credibility of the government's case. The details of these assertions are elaborated in the referenced sections of the order, emphasizing the implications of the government's inaccuracies, particularly regarding King’s income, which could have altered the forfeiture outcome if properly addressed.
The government did not assess the ratio of legitimate to illegitimate funds in the accounts under investigation. During cross-examination, it was revealed that Lowrance was unaware of Legendz's legal sports betting operations in Panama and elsewhere. Case agents present during the trial had heard testimony confirming that King engaged in lawful business activities generating legitimate cash flow during the conspiracy period. The forfeiture trial highlighted concerns regarding the reliability of evidence about Koralewski. A key exchange indicated that a witness acknowledged not having all relevant information to determine the attribution of funds to Koralewski, raising doubts about the reliability of forfeiture figures. The court questioned government counsel about specific claims made in the forfeiture brief regarding Koralewski's income, which was asserted to solely derive from Legendz and to be illegitimate from 2003 to 2013. The prosecutor admitted that these conclusions were based on document reviews but did not clarify who specifically reached those conclusions.
McGarry indicated that he would need to review specific records related to Mr. Koralewski and the forfeiture, likely referencing a forfeiture brief from an investigator. The court pointed out that prior government testimony had addressed Koralewski's outside employment. McGarry confirmed his communications with the FBI, specifically mentioning Investigator Melzer. The court noted that the government had eight counsel of record at various times in the case, with only one being involved from the start. The AUSAs handling the forfeiture case were assigned much later in the process, after significant developments, and were reliant on earlier prosecution team members for information. The court expressed confidence that the AUSAs did not intentionally misrepresent facts. It acknowledged potential issues with how information was compartmentalized among the prosecution team, leading to varying degrees of accuracy in the government's factual assertions regarding forfeiture. Additionally, Diebner and other defendants argued for a reduction in the forfeiture amount due to inadequate notice regarding the government's intent to seek a joint judgment exceeding $200 million, though the court found the notice sufficient for a forfeiture judgment while not ruling out other remedial actions. The court recognized that the amount sought by the government could change as evidence emerged.
The government has inconsistently communicated its intentions regarding the money judgments sought from forfeiture defendants throughout the case. Initially, the Superseding Indictment specified a forfeiture target of one billion dollars, reiterated by an FBI witness during the October trial. However, in motions for preliminary orders of forfeiture against several defendants, the government did not mention seeking personal money judgments until it filed the Forfeiture Brief on January 19, 2016. This brief, required to be specific, presented varied amounts sought from each defendant. Despite this, the government later requested a uniform money judgment of $231,432,686.73 against all defendants, which raised concerns about adherence to prior representations and case management orders established by the court. The court recognized that while the government has some flexibility in shaping its forfeiture case, it must also adhere to the established guidelines, particularly given the significant number of defendants involved. The principles outlined in the Excessive Fines Clause and the court's inherent powers further complicate the imposition of sanctions against the government. The court emphasized the need for restraint when exercising these powers, particularly in disputes between branches of government, indicating that without careful delimitation, there is a risk of overreach.
The Supreme Court's rulings in Caplin and Drysdale, as well as Liberti, emphasize that any deprivation of the government's forfeiture relief must be remedial rather than punitive. The court rejects the forfeiture defendants' request for sanctions, noting that any government advantage relating to this order has been eliminated. It asserts that sanctions are unnecessary to restore the defendants to their rightful position, reinforcing the decision to deny the request. The court refrains from extensive commentary on the government's performance, although it expresses concern about the reliability of the government's factual assertions in this case. The court highlights the questionable nature of the FBI's extrapolations regarding forfeiture amounts, suggesting a lack of thorough investigation. The court clarifies that its intent is not to embarrass the government, but rather to allow the facts to speak for themselves. Finally, it confirms that preliminary orders of forfeiture will be entered in line with Rule 32.2(b)(2)(B) of the Federal Rules of Criminal Procedure, allowing parties to suggest modifications before finalization at sentencing, without revisiting contested issues.
If the court has incorrectly identified property in the Memorandum Opinion and Order regarding forfeiture, or if a party identifies a mathematical error, these issues may be raised through a motion filed under Rule 32.2(b)(2) within fourteen days of this order. If parties reach an agreement on such matters, the motion must indicate this. Further briefing will be scheduled by the court if necessary. Sentencing for the forfeiture defendants will follow the schedule outlined in Case Management Order No. 8. Bartice A. Luke King is referenced as "King," and his wife, Serena King, was acquitted of all charges. The government has proposed a money judgment of $231,432,686.73 against defendants convicted of RICO counts, including Zapt, although recent filings indicate that no specific money judgment is currently sought against Zapt. The proposed findings by Tucker and Zapt primarily contest the judgment against Tucker. Defendant Kelly James Dorn faces no remaining forfeiture issues. The court's order references a transcript from the forfeiture trial held after four jury trials in 2015, with specific citation formats established for each. The government seeks a personal money judgment against Robles, not specific property forfeiture. Despite the court's directive for the government to specify all statutory bases for forfeiture, subsequent proposed findings expanded the list to include 18 U.S.C. § 981(a)(1)(C). King did not adopt Eighth Amendment arguments and maintains that documents related to Karlo Stewart must be excluded under the Fourth Amendment.
The statute used by the government for money laundering forfeiture does not explicitly mention "proceeds," but its language covers proceeds from the laundering conspiracy and any tainted money involved. Under precedent, "property involved in" an offense includes not only the money being laundered but also fees or commissions paid to the launderer and money used to conceal the nature of the funds. The Tenth Circuit has not definitively ruled on whether forfeiture standards encompass joint and several liability for gross proceeds. The government's arguments for joint and several liability apply exclusively to conspiracy counts. The concept of foreseeability varies among courts; some focus on foreseeable proceeds, while others emphasize foreseeable criminal conduct. This court supports the latter, requiring proof that the proceeds or laundered funds were reasonably foreseeable to each defendant. Despite differing views on foreseeability among various courts, this court finds a sufficient relationship between the conduct of individual defendants and the proceeds involved in this case. Therefore, it deems appropriate to require proof of foreseeability before imposing penalties related to proceeds generated by others, except for Count 2, where joint and several liability is asserted only for conspiracy counts.
Foreseeability is not a consideration in RICO forfeiture, as the court has legally determined that there is no joint and several liability for forfeiture under RICO. The term "proceeds" does not refer to net profits but rather to gross proceeds from illegal activities, as established in United States v. Keeling, 235 F.3d 533 (10th Cir. 2000), which rejected the defendant's argument for profit-based liability, emphasizing that forfeiture aims to eliminate property linked to criminal activity. The court referenced United States v. Corrado, 227 F.3d 543 (6th Cir. 2000), affirming that co-defendants can be held jointly and severally liable for RICO proceeds without the need for the government to specify each defendant's share, preventing defendants from obscuring the allocation of proceeds. This principle aligns with traditional criminal conspiracy rules, holding all conspirators accountable for foreseeable actions taken in furtherance of the conspiracy, as noted in United States v. Simmons, 154 F.3d 765 (8th Cir. 1998). While Title 18 U.S.C. § 981 addresses civil forfeitures, 28 U.S.C. § 2461(c) allows for criminal forfeitures where civil forfeiture is permitted. The case also addresses money laundering under 18 U.S.C. § 1957. Different forfeiture statutes employ varying language regarding property involved in crimes; for instance, the term "used in" is more stringent than "involved in." Additionally, the substantial connection test is incorporated into the civil forfeiture statute, CAFRA, 18 U.S.C. § 983(c)(3).
To establish forfeiture based on property used in or connected to a criminal offense, the Government must demonstrate a substantial link between the property and the offense. This standard, recognized in multiple circuits, applies to both civil and criminal forfeiture cases. While all illegal proceeds are generally subject to forfeiture, courts may limit forfeiture to comply with the Eighth Amendment's prohibition against excessive fines. A forfeiture is considered unconstitutional if it is grossly disproportionate to the severity of the offense committed.
Most defendants, except for King, raise Eighth Amendment defenses, though King does not adopt these arguments. The case of United States v. Lyons highlights a division among federal appellate courts regarding the applicability of the Eighth Amendment in criminal forfeiture contexts, particularly noting that the Tenth Circuit and others may not recognize such protections for forfeited criminal proceeds. Additionally, the forfeiture of real property tied to drug proceeds was contested but not adjudicated on its merits in Berryhill.
Post-Bajakajian rulings in the Tenth Circuit indicate that civil forfeiture of drug proceeds does not inherently violate the Eighth Amendment. Relevant cases, such as United States v. Wagoner County Real Estate and Lot Numbered One of the Lavaland Annex, emphasize the importance of proportionality and Congress's intent regarding punishment, confirming that grossly disproportionate criminal forfeitures can infringe upon the Excessive Fines Clause.
Wagoner County has been instructed to conduct further fact-finding related to the Excessive Fines Clause. The court had previously informed all counsel that the issue of livelihood could be pertinent to the forfeiture case, to which the government did not object. Instead, the government argued that assessing whether the forfeiture would impact the defendant's livelihood differs from evaluating the defendant's personal circumstances, such as age, health, and financial status, which should not be considered.
The court concurs with the government's distinction, referencing the Bajakajian case, which indicated that the respondent did not assert that his wealth or income were relevant to the proportionality assessment or that full forfeiture would affect his livelihood. It was noted that in United States v. Fogg, the district court erroneously relied on the defendant's inability to pay rather than whether his future livelihood would be jeopardized by forfeiture.
Furthermore, the court addressed foreseeability issues in the context of RICO forfeiture, concluding that there is no joint and several forfeiture liability under RICO, contrary to prior interpretations in Lyons. The foreseeability analysis applies to liability issues under Count 3 as well. The burden of proving foreseeability lies with the plaintiff, as shown in various cases, including United States v. Thompson and Anchor Savings Bank v. United States. The distinction between the burden of production and burden of persuasion has been clarified in Supreme Court rulings, emphasizing that the burden of proof refers to the obligation to persuade, rather than merely to establish a prima facie case.
A party bearing the burden of proof carries a significant burden of persuasion, distinguishing between the burden of proof and the burden of production. In specific cases, such as *Commercial Molasses Corp. v. New York Tank Barge Corp.* and *Webre Steib Co. v. Commissioner*, it is noted that the claimant must both present evidence and persuade the court. Courts of Appeals have clarified that the burden of proof is synonymous with the burden of persuasion and is separate from the burden of production.
In criminal forfeiture proceedings, relevant facts concerning excessive fines can be derived from information deemed "relevant and reliable" by the court, even if such information is not typically admissible under standard evidence rules. This includes uncontested portions of presentence reports. It is emphasized that while civil forfeiture proceedings must respect constitutional rights, any process defects may hinder the government’s claim, particularly regarding evidence obtained in violation of the Fourth Amendment.
Unlike civil forfeiture, where the exclusionary rule may apply, criminal forfeiture proceedings are treated as part of sentencing, generally exempting them from the exclusionary rule. The document references specific cases, including *United States v. 149,442.43* and *United States v. 511,780*, which illustrate these distinctions. Additionally, it highlights the differing convictions of co-defendants King and Koralewski concerning racketeering and other charges. Lastly, the excerpt notes that Congress responded to judicial decisions by enacting 18 U.S.C. 984 to facilitate government claims in forfeiture cases.
The legislation discussed pertains specifically to civil forfeiture, as outlined in 18 U.S.C. 984(a)(1). Section 982(b) incorporates a substitute assets provision from 21 U.S.C. 853(p), allowing for the forfeiture of other property up to the value of commingled property that cannot be easily divided. The case references, including Voigt, Stewart, and Rothstein, illustrate the necessity for the government to utilize substitute property provisions when commingled proceeds cannot be traced without difficulty. The conclusion is supported by the Tenth Circuit's ruling in Bornfield, emphasizing that failing to apply these provisions would render them ineffective.
Forfeiture cases often involve "tracing," which can be either broad or technical. Technical tracing applies accounting methods to identify amounts potentially subject to forfeiture. Various tracing methods such as the lowest intermediate balance, LIFO, pro rata, and FIFO are mentioned, although the government in the present case has not employed these methods. Instead, the government attempts to associate clean assets with a small amount of illicit funds.
The Tenth Circuit's analysis in Bornfield is established law within the circuit, and the government's brief does not address it, placing the court in a position to adhere to this precedent regardless of the government's stance. Furthermore, in the case of Lyons, the district judge found adequate evidence for a forfeiture judgment based on specific transactions, which contrasts with some government motions that do not clearly seek a money judgment against the defendant.
The court identifies a failure in the government's actions regarding seeking a money judgment against certain defendants, noting uncertainty whether this was due to oversight or a change in intent. Despite this failure, the defendants were adequately notified of their forfeiture exposure through the indictment, which remains valid regardless of the government's pre-trial representations about maximum forfeiture amounts. Rule 32.2 does not mandate the filing of a preliminary order of forfeiture, and the government clarified its intent to pursue money judgments through subsequent filings. There is no evidence that the government's late clarification prejudiced any defendant's ability to respond to the arguments for a money judgment. The issue of notice regarding the intent to seek a forfeiture money judgment is separate from considerations like foreseeability, which may influence the judgment amount. The government sought approximately $303,527.46 as a money judgment related to certain residential property in Texas and $172,039.65 concerning the sale of real property in Colorado, but these requests do not constitute claims for forfeiture of substitute assets as defined in 18 U.S.C. § 1963(m) or 21 U.S.C. § 853(p). The court recognizes the actions of Lowrance and Jansen as aligned with those of the FBI. Additionally, the court refers to government exhibit GX C89 for a summary of the forfeiture case, which is attached as Appendix 1 for reference.
GX C89 has been modified by the court to delete all account numbers, retaining only the last three digits, and to include numbered references (1 through 49) next to the "Money Laundering Accounts/Items" and "Item Seized" sections for clarity, which were utilized during the forfeiture trial. The government referenced joint and several liability in its Forfeiture Brief but specified exact forfeiture money judgments for each defendant, including a claim of $5,102,789.00 against Mr. Bramley. This sum, labeled as "Money Judgment Grand Total" in GX C89, does not appear as a subtotal in the document but is derived from the total of items for which the government seeks forfeiture judgments. The government did not seek this amount prior to or after the forfeiture trial, although it aligns with updated figures presented in GX C89. Notably, Line 2, which relates to a $7.1 million figure, is integral to the Global Data Payment extrapolation of $25.1 million, but this figure itself is not an extrapolation. The document emphasizes that Mr. King’s sole income from 2003 to 2013 came from his operation of the Legendz Sports illegal gambling enterprise, a claim reiterated by the government shortly before the forfeiture trial. Additionally, Lowrance expressed uncertainty regarding the purpose and legality of Vaporama’s business activities.
GX 1267 serves as the government's basis for the summary, comprising 548 pages of account documents and statements for Vaporama Internacional, S.A., all in Spanish. Lowrance admitted at the forfeiture trial that he had not reviewed Berthiaume's testimony, which may have been deemed unnecessary by others on the prosecution team. Magna was included as a defendant in the original Indictment but not in the Superseding Indictment. It is important to distinguish Platinum Vacations from Platinum Advantage, which is operated solely by Reggie Berthiaume. The government claims that King had no legitimate "income" during the conspiracy but acknowledges that he had a legitimate cash flow during this period.
Given the complexity of the case, which involves numerous actors and transactions, it is deemed fair and manageable to limit the forfeiture analysis to the claims presented by the government. The government has chosen to focus on deposits of funds alleged to be gambling proceeds, as indicated in the summaries related to GX C89, despite the possibility of basing forfeiture on outbound money. This focus on deposits must be maintained to avoid complications such as double counting. While payments from accounts may provide evidence of illicit transactions, the forfeiture analysis should concentrate on deposits as the government has predominantly pursued this line of argument. Additionally, the government does not assert a facilitation theory for most properties it seeks to forfeit, with the exception of Bramley’s residence in Plano, Texas.
The document highlights several critical aspects regarding the government's forfeiture theories in a complex case. It notes that the government had ample time to develop these theories but failed to substantiate them adequately. Testimony from Lowrance indicates that he had minimal knowledge of Grupo Legendz and could not assess the legality of deposits into a Banco Nacional account. Although the FBI and IRS agents were aware of the facts regarding Grupo Legendz during previous jury trials, the prosecution's information flow appeared fragmented. The government characterized funds in the HSBC account as illegal proceeds based on payments summarized in GX C49B, which revealed 193 transactions—43 with unknown payees and 92 to "Virtual Automated Technology." Only a small fraction of payments were made to identifiable bettors, with Lowrance recognizing just one as a Legendz bettor. Additionally, two deposits from Bet Jamaica, linked to a former defendant, were classified as "book to book" transfers, which the court previously ruled are outside the indictment's scope. The document also notes discrepancies in the origin of some funds, with certain transfers being attributed to Reginald Berthiaume rather than Platinum Advantage, contradicting the government’s summary.
The court chooses to overlook discrepancies in the government's data transfer, despite the resulting summary being questionable under Rule 1006. The government has not identified the sources of 300 out of 324 deposits in a forfeiture trial, and it does not contest this fact. It proposes a total of $46,981,070.31 for money laundering accounts, citing conflicting figures of $43,417,030.14 from GX C89 and testimony from Lowrance, with no explanation for the $3.6 million difference. The court notes that the government incorrectly cites two exhibits (GX 8871 and GX 693) as separate payments, leading to confusion regarding the evidence. The court finds no indication of illicit financial maneuvers by King in Panama and clarifies that Banco Panama is distinct from Banco Nacional de Panama based on source documents. The indictment against Rigoberto Nolan was dismissed on October 5, 2016, but the government does not reference this in its findings. The court addresses potential misinterpretations regarding testimony related to the Line 10 and Line 11 accounts, confirming that a withdrawal closed the Line 10 account. While the court finds Lowrance's corrected testimony credible, it advises caution regarding Karlo Stewart’s testimony, which is corroborated by documentation. The discussion emphasizes the distinction between deposits and their movement in the context of money laundering.
The government is proposing a forfeiture of $43,417,030.14 related to money laundering, as evidenced in GX C89, and also seeks to forfeit Bramley's residence based on a facilitation theory. The government claims that the use of bettor payments for mortgage servicing, amounting to $117,968.00, taints the property. It remains unclear if this "taint up" theory is a distinct basis for the residence's forfeiture. Initially, the government proposed a ten-year extrapolation period for individuals involved in the Legendz enterprise, which was later revised to nine years post-trial. However, this extrapolation lacks support from accounting principles or scholarly work, as noted by Lowrance. The government has also proposed alternative attributions independent of extrapolation.
Regarding the attribution of proceeds, King, the CEO of Legendz, is not categorized as an "Agent" due to his position and is attributed all proceeds meant for agents, totaling $142,281,247.37. Although the government updated numbers in GX C89, it failed to adjust the totals accordingly. Lowrance's reliance on GX 1257 for the Campbell extrapolation raises concerns, as the document is complex for novices to interpret. The government's findings reference individuals associated with the enterprise, including their nicknames, but the court does not find evidence of intentional deception by Lowrance.
The analysis reveals that the $16,770,000 figure, derived from multiplying $215,000 by seventy-eight, is based on erroneous assumptions about the nature of Diebner's sports betting activities. Although Lowrance, the government's sponsor, claimed the figure was a "calculation" rather than an extrapolation, significant deficits undermine its validity. There is no reliable basis to assume that Diebner's betting volume was consistent over time, particularly as Jansen noted that Diebner's business began small and grew larger only after he started dealing with high-stakes clients like the Cabrera family around 2011 or 2012. The government’s proposed extrapolation starts six years before Myler last interacted with Diebner, disregarding the evolution of Diebner's client base and betting practices.
The government posits that $743,632.80 in illegal proceeds from twenty-nine weeks leads to an extrapolated total of $17,432,674.40, but this calculation lacks supporting witness testimony and fails to align with other figures presented in the case. If the government’s figure of $743,632.80 is accurate for twenty-nine weeks, the total for seventy-eight months would be approximately $8.6 million, not the claimed amount. Furthermore, inconsistencies in the government's proposed calculations and reliance on information from the FBI further cast doubt on the credibility of the extrapolations. The court has rejected the government's extrapolated figures and is focusing on more reliable numerical evidence.
The court is not required to create untested alternative extrapolations. The government seeks to include Tipton Rowland's betting proceeds in the forfeiture judgment. Rowland was a gambling client of Diebner but clarified in his testimony that payments for gambling losses included video poker losses, which are separate from Diebner's Legendz-related bookmaking activities. The government overlooks this distinction in its findings, lacking evidence to differentiate between Rowland’s Legendz losses and video poker losses. Lowrance testified to having heard of 5 Dimes but had limited knowledge about it. Case agents were present during trials where 5 Dimes facts were established, and the government relies on a spreadsheet referencing 5 Dimes from Tanner’s records. Lawhorn's testimony, cited by the government, does not specify dollar volumes and describes a "50 Red" arrangement. He is identified as a master agent but was also described generically as a bookie, leading to confusion. Lawhorn testified unequivocally about working on a pay-per-head basis, which the government overlooks. He was involved with other offshore operations during the conspiracy period, and it appears his estimates only reflect his activities with Legendz. The court expressed skepticism regarding the government's extrapolations at the forfeiture trial and invited alternative proposals based on discrete events. The government mentions $255,799.00 in checks related to Lawhorn, which were admitted as part of an en masse exhibit offer but were not further discussed in the trials.
The government failed to provide testimony supporting its characterization of certain checks, rendering them irrelevant to the case. Witness Lowrance initially affirmed his involvement in preparing the government’s exhibit, GX C55, but later clarified that his role was minimal and he lacked sufficient familiarity with the summary's basis to provide reliable testimony. This raised concerns for the court regarding the admission of summary exhibits under Rule 1006 of the Federal Rules of Evidence, highlighting the potential for bias in favor of government witnesses.
The court noted the transition from the BCS National Championship Series to the NCAA Division I College Football Playoffs shortly after the Superseding Indictment. It also examined internal records (GX 68-GX 108) for a different timeframe, which similarly suffered from reliability issues concerning the identification of "Paul." The government's reliance on GX 1134H, which attributed $4.5 million in betting proceeds to Middlebrook, was questioned when it was admitted into evidence despite the government's confusion over its purpose during the forfeiture trial. The $288,384 figure from GX 1134H was identified as the total "Debit" amounts, excluding a bad debt of $152,068, which the government overlooked, incorrectly assuming a 100% collection rate for its extrapolation.
Additionally, during the forfeiture trial, a claim was made that Myler testified about receiving 20 pick-ups from Bramley, but the court found no evidence of this in Myler’s James hearing testimony, nor was it included in Bramley’s proposed findings.
Line items on GX C81 detail various financial transactions, including bettor checks deposited in Edward Jones and Linsco Private Ledger accounts, funds from tracking records attributed to "Doc," and contributions from Bramley's petty cash. Zima forfeited $208,000 in connection with guilty pleas from McFadden and Zima. The court notes that no parties have raised issues regarding potential double counting of these amounts, and the court will not analyze this without advocacy. McFadden estimated $625,000, while the government maintains it is $600,000. The exhibits referenced by the government (GX C89) lack clarity, as Lowrance could not confirm if they represented bettor payments or positions. The government claims Koralewski had no legitimate employment during the conspiracy, forming the basis of its forfeiture case against him; however, this assertion does not affect the forfeiture money judgment case. The court emphasizes that it will only consider Koralewski's exposure to forfeiture based on his Count 1 conviction. Additionally, Lowrance had minimal involvement in attributing proceeds to Koralewski. The government has not provided evidence or arguments about the status of accounts from 2011 to spring 2013, nor demonstrated a connection between the funds used to purchase a Jeep and a Maserati and illegal gambling proceeds. Several properties in Texas are mentioned, with some titled to Starting 5, LLC, which was acquitted of all charges, and a property initially titled to Serena King, who was also acquitted.
206 N. Vesper Bend is the only property in question where some purchase money originated from Olmos Overseas Ltd., an affiliate of Legendz used for betting proceeds. However, deficiencies in the government's evidence undermine the forfeiture of this property. The government cited exhibits GX 853, 1203, and 1204, with GX 853 being part of the April and October trials, while the latter two were only presented in October. The order will issue a preliminary forfeiture, as per Rule 32.2(b)(2)(A) of the Federal Rules of Criminal Procedure. The potential for King's assets to be levied for the forfeiture money judgment lies outside this order's scope. This is particularly pertinent for defendants not specifically addressed here, as they were all convicted of money laundering conspiracy and RICO offenses. The practical effects of forfeiture law based on money laundering convictions are significant, potentially equating to the effects of vicarious liability under RICO. The court's analysis of defendants' accountability, as seen in United States v. Lyons, highlights differing levels of culpability based on reasonably foreseeable gambling proceeds attributed to each defendant. The court adopts a conservative estimate for Tucker and other defendants, mindful of the speculative nature of the exercise. Under Rule 32(i)(3)(A), the court can accept undisputed portions of the presentence report as factual findings. Criminal forfeiture is a sentencing component, allowing the court to rely on unobjected portions of Tucker's report regarding future earning ability. No objections were raised concerning this approach, and the court assumes no remaining forfeiture issues regarding Tucker's company, Zapt Electrical Sales, Inc. The government has not provided advocacy on the application of the Excessive Fines Clause in this case, despite acknowledging its relevance.
The government's argument regarding the defendant's responsibilities to his dependent minor children is challenged, with Bramley asserting that his wife has a significant separate interest in their house due to her substantial inheritance being used for its purchase. The court notes that the extent of Mrs. Bramley's interest is not yet ripe for adjudication because the forfeiture proceedings are at a preliminary stage. However, the court has determined that the government has failed to prove its case for forfeiture of the house, rendering Mrs. Bramley's claims moot. Additionally, Bramley's presentence report indicates he owns a 1991 Mercedes 300E, which the government does not seek to forfeit, and it is likely that he acquired this vehicle post-indictment. The court mentions that the incidental use of Diebner’s house in relation to Legendz was minimally addressed during the trial. Furthermore, it highlights that the government’s presentation, impacted by the matters discussed, warrants scrutiny, particularly where sworn testimony and evidence by government officials are concerned. Lastly, the court notes that the evidence supporting Koralewski’s legitimate employment came from both defense and government witnesses, which likely contributed to his acquittal on certain counts.