United States v. Jack M. Lee, and Margaret B. Lee, Claimant-Appellant
Docket: 97-4027, 98-1226, 98-1917, 98-2941 and 98-2942
Court: Court of Appeals for the Seventh Circuit; November 7, 2000; Federal Appellate Court
Jack M. Lee engaged in extensive fraudulent activities, leading to his guilty pleas for multiple federal offenses, including mail fraud, bank fraud, money laundering, wire fraud, and perjury. He appealed his money laundering conviction while his wife, Margaret B. Lee, contested the government's forfeiture of their jointly owned home under 18 U.S.C. § 982. The district court denied Margaret's request to dismiss the forfeiture, prompting her appeal.
The court affirmed Jack's conviction but found merit in Margaret's appeal, reversing the forfeiture of their home. The money laundering charge against Jack was primarily based on a fraudulent $280,000 loan he procured from Amcore Bank for a company he controlled, Capital Communications, Inc. (CCI), which was owned by his daughters. Jack submitted a personal financial statement that falsely inflated his assets and concealed over $3 million in liabilities. Amcore approved the loan on April 6, 1990, based on this misleading information, leading to a series of disbursements specified in a Closing Statement that included payments to settle other debts related to Jack's business operations. Notably, Amcore deposited a check intended to pay off a debt directly into another of Jack's company's accounts, bypassing him entirely in the transaction.
Jack was indicted on December 1, 1993, for multiple counts of fraud, including a loan from Amcore obtained under false pretenses. Count 22 specifically charged him with money laundering for using $41,728.76 of that fraudulent loan to pay off a debt to Equity Investors, in violation of 18 U.S.C. § 1957(a). After pleading guilty to the charges, including Count 22, Jack reserved the right to appeal the denial of his motion to dismiss this count. He received a sentence of 78 months in prison, five years of supervised release, and was ordered to pay restitution of $1,587,321.50 and forfeit $337,000.
On appeal, Jack contends that the transaction involving Amcore and Equity Investors did not constitute money laundering. He argues that because he only engaged in one fraudulent transaction—defrauding Amcore—and directed the bank to pay Equity Investors instead of himself, he did not "engage in a monetary transaction" as required by § 1957(a). The government disagrees, asserting that Jack derived the funds criminally and engaged in a monetary transaction by using the loan to pay off his debt.
For a § 1957(a) conviction, it is necessary to establish that "criminally derived property" existed before a transaction occurred. Jack's fraud was completed when he obtained the loan funds from Amcore under false pretenses, qualifying the funds as criminally derived. The completion of the loan transaction, marked by the signing of the bank note and transfer of control to Jack, confirms this. The case is distinguished from United States v. Piervinanzi, where no completed transaction occurred, and the focus on the physical handling of the bank check is deemed irrelevant in the context of modern electronic transactions.
Amcore acted under Jack's direction after the signing of the bank note, effectively making Jack the party engaging in a monetary transaction when Amcore deposited a check into the Equity Investors account, as the funds belonged to him as president of CCI. Amcore merely followed Jack’s instructions and did not use its own funds for the transaction, thus Jack remains liable and cannot evade a money laundering conviction through the actions of an agent.
Margaret appeals the portion of Jack's sentence requiring forfeiture of $337,000, as the government seeks to substitute their family home in Florida for this amount. This case differs from Bennis v. Michigan and United States v. Kennedy due to the lack of any criminal connection to the home and the distinct legal issues concerning property ownership. Margaret claims the house, owned as tenants by the entirety, should not be forfeitable since Jack had no individual forfeitable interest. The district court dismissed her petition, ruling that the government would effectively become a co-tenant with Margaret, allowing her to retain use of the property during her lifetime and maintain her right of survivorship.
The determination of Jack's interest in the home as forfeitable hinges on Florida state property law, which recognizes tenancy by the entirety as a joint ownership model requiring specific criteria. This form of ownership ensures that each spouse has an equal interest in the property, which vests in the surviving spouse upon the death of the other, rather than being inherited.
Tenancy by the entirety in Florida requires both spouses to jointly make decisions regarding property, ensuring mutual consent is necessary for any severance or forfeiture, thereby protecting each spouse's rights against one another and creditors. A tenant's individual judgment debts cannot affect property held in tenancy by the entirety. This principle was upheld in case law, affirming that a spouse's interest cannot be forfeited without the other's consent, safeguarding against creditors, including the federal government.
The district court's reliance on Third Circuit precedent regarding criminal forfeiture was misplaced, as the circumstances differ significantly. The Third Circuit had to reconcile federal forfeiture rights with the protection of innocent owners when illegal activities were involved. In contrast, the federal government's interest in the case at hand arises from the property being potentially treated as a substitute asset, necessitating a different assessment of the balance between government interests and the innocent spouse's rights. The nature of Florida's tenancy by the entirety law remains pertinent in this context, and there is no need to adopt the Third Circuit's approach regarding properties used in criminal activity.
The excerpt emphasizes the importance of protecting the rights of an innocent party in property ownership, particularly in relation to a case involving Margaret Lee. It argues that the Third Circuit's compromise negatively impacts her rights by effectively making the government a co-tenant in the property, thereby limiting her ability to manage and control the estate. Decisions regarding mortgages, sales, or transfers would require mutual agreement, placing Margaret in a vulnerable position as she would be solely responsible for financial obligations without support from the government. The text asserts that the attributes of tenancy by the entirety, as recognized by Florida law, should not have been overridden by the district court, advocating that the property should not have been deemed available for a substitute asset order. It also notes that if the tenancy by the entirety were to be split in the future, Margaret's rights could be preserved independently of Jack's interests. The conclusion affirms Jack Lee's conviction for money laundering while reversing the district court's denial of Margaret Lee's petition to dismiss the forfeiture.
