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  • - HELLO. I'M DAVID COAR,

  • RETIRED DISTRICT AND BANKRUPTCY JUDGE

  • FOR THE NORTHERN DISTRICT OF ILLINOIS.

  • WELCOME TO OUR PROGRAM ABOUT COOPERATION AND COORDINATION

  • BETWEEN DISTRICT AND BANKRUPTCY JUDGES

  • WHO FIND THEMSELVES WITH SIMULTANEOUS CASES

  • INVOLVING ASSET FORFEITURE AND BANKRUPTCY.

  • OFTEN SUCH CASES ARISE FROM CRIMINAL PROSECUTION

  • OF A PONZI SCHEME AND THE BANKRUPTCY FILING

  • BY THE LEGITIMATE BUSINESS

  • THROUGH WHICH THE SCHEME WAS OPERATING.

  • NOT ALL OF THESE CASES INVOLVE PONZI SCHEMES,

  • BUT THE COMMON ASPECT IS ASSET FORFEITURE

  • BY THE DEPARTMENT OF JUSTICE.

  • TO DISCUSS THIS WITH ME ARE SEVERAL INDIVIDUALS

  • WHO HAVE EXPERIENCE IN SOME OF THE MOST INFAMOUS CASES,

  • WHO WILL HELP US GAIN INSIGHT AND CONFIDENCE

  • IN DEALING WITH SUCH CASES, LARGE AND SMALL.

  • FIRST, DISTRICT JUDGE ANN D. MONTGOMERY

  • FROM THE DISTRICT OF MINNESOTA

  • WHO DEALT WITH THE THOMAS PETTERS CASE;

  • BANKRUPTCY JUDGE MARTIN GLENN

  • FROM THE SOUTHERN DISTRICT OF NEW YORK,

  • WHO DEALT WITH THE MARC DREIER CASE;

  • IRVING PICARD, TRUSTEE

  • FOR THE SECURITIES INVESTOR PROTECTION CORPORATION,

  • WHO CONTINUES TO LITIGATE CASES

  • INVOLVING THE BERNARD MADOFF PONZI SCHEME;

  • AND SHARON COHEN LEVIN,

  • WHO IS THE CHIEF OF ASSET FORFEITURE UNIT--

  • CHIEF OF THE ASSET FORFEITURE UNIT

  • FOR THE SOUTHERN DISTRICT OF NEW YORK.

  • WELCOME TO EACH OF YOU,

  • AND THANK YOU FOR BEING WITH US TODAY.

  • MR. PICARD, LET ME ASK YOU ABOUT THE PLAYERS

  • IN BANKRUPTCY.

  • WHO ARE THEY, AND WHAT ARE THEIR ROLES?

  • - THE PLAYERS ARE-- IF IT'S A BANKRUPTCY CASE,

  • YOU HAVE THE U.S. TRUSTEE,

  • WHO PROBABLY WOULD BE CALLED UPON TO APPOINT A TRUSTEE,

  • OFTEN FROM A PANEL IF IT'S A CHAPTER 7 CASE.

  • BUT OTHERWISE, IN A CHAPTER 11, WOULD APPOINT A TRUSTEE.

  • AND IN...YOU COULD HAVE

  • A STATE COURT OR A FEDERAL COURT RECEIVERSHIP,

  • AN SEC-TYPE RECEIVERSHIP, FOR EXAMPLE,

  • WHERE THE JUDGE WOULD BE APPOINTING A RECEIVER.

  • THAT WOULD BE A FEDERAL OR A STATE COURT JUDGE.

  • OR YOU WOULD HAVE, AS IN MY CASE, A LIQUIDATION

  • OF THE SECURITIES INVESTOR PROTECTION ACT,

  • WHERE THE SECURITIES INVESTOR PROTECTION CORPORATION

  • RECOMMENDS TO THE JUDGE WHO SHOULD BE THE TRUSTEE,

  • AND THEN THE TRUSTEE GETS APPOINTED.

  • AND THEN ONCE YOU GET INTO THE CASE,

  • YOU HAVE, OF COURSE, THE DEBTOR,

  • WHICH COULD BE AN INDIVIDUAL OR A CORPORATION

  • OR SOMETIMES A COMBINATION.

  • YOU HAVE...OF COURSE, THERE ARE EMPLOYEES,

  • AND IF IT'S A BUSINESS AND A LOT OF VENDORS,

  • YOU HAVE VICTIMS.

  • AND THERE MAY BE OTHER ACTIVITY GOING ON

  • THAT BEARS SOME RELATIONSHIP,

  • LIKE THERE COULD BE CLASS-ACTION CASES

  • THAT ARE ALREADY ONGOING.

  • AND OF COURSE, THE PRIMARY...

  • A PRIMARY PLAYER WOULD BE A JUDGE,

  • WHETHER IT'S THE DISTRICT JUDGE OR A BANKRUPTCY JUDGE.

  • - MS. LEVIN, WHAT IS ASSET FORFEITURE?

  • - WELL, ASSET FORFEITURE IS A LEGAL PROCEDURE

  • WHERE THE GOVERNMENT REMOVES THE PROCEEDS OF CRIME

  • OR PROPERTY USED IN FURTHERANCE OF CRIME,

  • AND IT'S A MANDATORY PART OF MOST CRIMINAL CASES,

  • AND IT'S FORFEITURES ORDERED AT SENTENCING.

  • IN ADDITION, THERE ARE ACTUALLY--

  • THE GOVERNMENT HAS THE ABILITY TO BRING IN...

  • BRING IN REM CIVIL ACTIONS AGAINST CRIME PROCEEDS

  • OR PROPERTY USED IN FURTHERANCE OF CRIME

  • BY THEMSELVES OR IN COORDINATION WITH CRIMINAL PROSECUTIONS.

  • AND ONE OF THE MOST IMPORTANT PURPOSES OF ASSET FORFEITURE

  • IS TO GATHER AND SEIZE THE ASSETS

  • SO THAT THEY CAN BE USED FOR VICTIM COMPENSATION.

  • - JUDGE MONTGOMERY, WHAT WAS THE CASE

  • THAT YOU WERE INVOLVED IN?

  • - I WAS INVOLVED IN THE THOMAS PETTERS CASE.

  • THOMAS PETTERS WAS A...

  • MAYBE NOT A HOUSEHOLD WORD,

  • BUT A VERY WELL KNOWN PERSON IN MINNESOTA,

  • AN ENTREPRENEUR WHO HAD STARTED SELLING ELECTRONICS

  • WHEN HE WAS IN COLLEGE

  • AND HAD ALLEGEDLY BUILT AN INCREDIBLE EMPIRE

  • OF A NUMBER OF PETTERS-RELATED BUSINESSES,

  • ULTIMATELY INCLUDING POLAROID CORPORATION

  • AND SUN COUNTRY AIRLINES.

  • SO HE HAD BEEN SEEN AS A VERY, VERY SUCCESSFUL

  • ENTREPRENEUR AND BUSINESS DEVELOPER.

  • - AND JUDGE GLENN, WHAT CASE WERE YOU INVOLVED IN?

  • - I WAS INVOLVED IN THE BANKRUPTCY OF DREIER LLP,

  • A 200-PLUS LAWYER FIRM,

  • THE UNDERLYING CHAPTER 11 BANKRUPTCY,

  • AND THE INDIVIDUAL CHAPTER 7 BANKRUPTCY OF MARC DREIER

  • HAD BEEN PENDING BEFORE MY COLLEAGUE,

  • JUDGE STUART BERNSTEIN.

  • AFTER THE CHAPTER 11 TRUSTEE HAD FILED A GROUP

  • OF FRAUDULENT CONVEYANCE ADVERSARY PROCEEDINGS

  • AND MOTIONS TO DISMISS HAD BEEN MADE,

  • FOUR OF THEM WERE TRANSFERRED TO ME

  • FOR A DECISION ON THE MOTIONS TO DISMISS.

  • AND THAT WAS MY FIRST FORAY

  • INTO THE AREA OF CRIMINAL FORFEITURE.

  • - MS. LEVIN, WHAT HAPPENS IN...

  • AS A PRACTICAL MATTER IN THESE CASES?

  • YOU'RE OUT, ON BEHALF OF THE GOVERNMENT--

  • REMOVING I THINK WAS THE WORD YOU USED--PROPERTY.

  • BUT THERE IS A TRUSTEE OR A RECEIVER OUT THERE

  • WHO IS ALSO REMOVING PROPERTY.

  • WHAT HAPPENS WHEN THE TWO WORLDS COLLIDE?

  • - WELL, I MEAN, THAT HAPPENS MORE AND MORE FREQUENTLY,

  • PARTICULARLY IN LARGE FINANCIAL FRAUD CASES

  • OR LARGE FRAUD CASES.

  • AND THE GOVERNMENT...

  • THE POWERS THAT WE HAVE ARE WE'RE ABLE TO SEIZE

  • OR RESTRAIN DIRECTLY TRACEABLE CRIME PROCEEDS.

  • AND UNDER ASSET FORFEITURE LAW,

  • TITLE VESTS IN THE UNITED STATES

  • AT THE TIME OF THE COMMISSION OF THE CRIME.

  • SO IT, YOU KNOW, IT DOESN'T--

  • THAT PROPERTY DOESN'T BECOME

  • PROPERTY OF THE BANKRUPTCY ESTATE.

  • SO THE GOVERNMENT'S RESPONSIBILITY IS TO GO AROUND

  • AND TO SEIZE OR TO FREEZE THAT PROPERTY

  • SO IT'S AVAILABLE FOR FORFEITURE

  • AND FOR RESTITUTION TO BE USED TO COMPENSATE VICTIMS.

  • AND IT HAPPENS A LOT THAT IN THOSE CIRCUMSTANCES,

  • WE RUN INTO A BANKRUPTCY TRUSTEE

  • WHO ALSO HAS SIMILAR RESPONSIBILI--

  • SIMILAR TYPE OF RESPONSIBILITIES.

  • AND WHAT WE TRY AND DO IS TRY AND WORK IN COOPERATION,

  • IN COORDINATION WITH A BANKRUPTCY TRUSTEE.

  • SOMETIMES THAT'S SOMEWHAT CHALLENGING,

  • BUT, YOU KNOW, IT'S SOMETHING THAT WE, YOU KNOW,

  • WILL STRIVE TO DO.

  • - NOW, TELL ME ABOUT THIS VESTING IN THE GOVERNMENT

  • AT THE TIME OF THE CRIME.

  • THE GOVERNMENT DOESN'T KNOW ABOUT

  • THE CRIME AT THE TIME USUALLY.

  • SO HOW DOES THAT WORK?

  • - WELL, IT'S A LEGAL FICTION.

  • IT'S THAT THE CRIME PROCEEDS, ONCE THE CRIME IS COMMITTED

  • AND THE DEFENDANT OBTAINS PROPERTY,

  • IT BECOMES U.S. GOVERNMENT PROPERTY.

  • TITLE VESTS IN THE UNITED STATES AT THE TIME OF THE CRIME,

  • BUT THE PROPERTY DOESN'T ACTUALLY TRANSFER

  • UNTIL THE DEFENDANT IS CONVICTED AND SENTENCED.

  • SO THERE'S SORT OF AN AMORPHOUS PERIOD

  • WHERE IT BECOMES-- IT IS U.S. PROPERTY,

  • BUT UNLESS SOMEONE BRINGS A PROSECUTION,

  • THERE'S NO ONE TO ACTUALLY TAKE POSSESSION OF IT.

  • AND IT'S A LEGAL FICTION THAT ENABLES THE GOVERNMENT

  • TO OBTAIN PROPERTY FROM THIRD PARTIES--

  • FROM THE DEFENDANT OR FROM THIRD PARTIES

  • THAT A DEFENDANT WOULD TRANSFER THE PROPERTY TO.

  • THE FORFEITURE STATUTES WEREN'T WRITTEN

  • IN RECOGNITION OR WEREN'T WRITTEN

  • IN CONJUNCTION WITH THE BANKRUPTCY LAWS.

  • SO THAT IS OFTEN A CIRCUMSTANCE

  • WHERE THEY ACTUALLY RUN HEAD INTO EACH OTHER.

  • AND THE POSITION THAT MOST COURTS HAVE COME TO

  • IS THAT PROPERTY ISN'T PROPERTY OF THE BANKRUPTCY ESTATE,

  • BUT THAT THE...

  • YOU KNOW, THERE ARE OTHER PROPERTIES OF THE DEFENDANT

  • OR HYBRID PROPERTIES THAT, YOU KNOW,

  • THAT ARE POTENTIALLY PROPERTY OF THE ESTATE.

  • - MR. PICARD, HOW DOES THAT PLAY OUT

  • FROM THE POINT OF VIEW OF A TRUSTEE OR RECEIVER?

  • - TWO WAYS. THE FIRST WAY IS THE ONE

  • WHERE ALL THE PROPERTY HAS BEEN SEIZED BY THE GOVERNMENT,

  • OR FORFEITED, AND THEN YOU'RE THE TRUSTEE

  • OF, IN EFFECT, A NO-ASSET ESTATE.

  • BUT THERE ARE OTHER CASES, AS SHARON REFERRED TO,

  • WHERE THERE ARE OTHER PROPERTIES.

  • IN THE MADOFF CASE, FOR EXAMPLE,

  • WE WORKED OUT AN ARRANGEMENT WITH HER OFFICE THAT...

  • THEY TOOK PERSONAL ASSETS,

  • WHERE WE KEPT WHAT WE CALL THE BUSINESS ASSETS.

  • AND OUR CASE IS A LIQUIDATION.

  • IT'S NOT AN OPERATING BUSINESS.

  • BUT WE WENT ON, AND WE WERE ABLE

  • TO LIQUIDATE THE... THE BUSINESS ASSETS.

  • THERE WAS A LEGITIMATE PART OF THE BUSINESS,

  • WHICH WE SOLD AFTER AN AUCTION.

  • AND SO WE WERE ABLE TO DO THAT.

  • AND THERE ARE OTHER ASSETS IN THE BUSINESS

  • THAT WE HAVE BEEN SELLING AND WILL CONTINUE TO SELL.

  • AND WE HAVE WORKED OUT VERY COOPERATIVELY

  • WITH HER OFFICE IN SORT OF DETERMINING

  • WHAT BELONGS IN WHICH CATEGORY.

  • THERE WAS A PERSONAL ASSET,

  • FOR EXAMPLE, THAT WAS AN AIRPLANE,

  • BUT IT WAS IN A... IN A CORPORATE ENTITY.

  • AND WE HAD MADE SOME WORK--

  • DONE SOME WORK ON TRYING TO SELL THE PLANE.

  • AND WE WENT, AND WE EXPLAINED WHAT WAS GOING ON,

  • AND THEY SAID, "WELL, YOU'RE ALREADY AHEAD OF THE GAME

  • "WITH WHAT YOU'RE DOING,

  • SO WHY DON'T YOU CONTINUE THE JOB?"

  • WE ALSO SOLD AN AUTOMOBILE,

  • A JAMES BOND KIND OF AUTOMOBILE,

  • AN ASTON MARTIN,

  • AND A NUMBER OF OTHER ASSETS LIKE THAT,

  • WHERE WE JUST SAT DOWN AND SAID,

  • "THIS IS WHAT WE'RE DOING,"

  • AND IN OTHER CASES, THEY WERE AHEAD OF US IN DOING IT,

  • AND WE JUST SAID, "WELL, THEN YOU FINISH."

  • SO IT... WHAT IT REALLY TAKES,

  • AND I THINK YOU'LL HEAR MORE ON THIS,

  • IS COMMUNICATION AND TALKING AMONG THE PARTIES--

  • THE U.S. ATTORNEY'S OFFICE, THE TRUSTEE, THE RECEIVER,

  • AND IN SOME CASES, OF COURSE,

  • YOU NEED THE BANKRUPTCY JUDGE

  • OR THE DISTRICT JUDGE TO ENCOURAGE THAT.

  • - LET'S STICK WITH THAT FOR A SECOND.

  • MS. LEVIN, I ASSUME THAT WHEN THE GOVERNMENT

  • FORFEITS PROPERTY, COLLECTS THIS PROPERTY,

  • AND THEN THERE'S AT SOME POINT A FORFEITURE, THAT THAT--

  • DOES THAT GO TO THE BENEFIT OF THE GOVERNMENT,

  • OR DOES IT GO TO THE BENEFIT OF VICTIMS,

  • OR WHO GETS THE PROCEEDS?

  • - TECHNICALLY, WHEN PROPERTY IS FORFEITED,

  • IT GOES TO THE GOVERNMENT

  • AND THE UNITED STATES MARSHALS SERVICE.

  • TITLE IS TRANSFERRED TO THE UNITED STATES,

  • AND THE UNITED STATES MARSHALS SERVICE, IN MOST...

  • IN MOST CASES, WILL LIQUIDATE THE PROPERTY.

  • THEY'LL SELL IT.

  • THEY HAVE WEBSITES WHERE THEY DO IT.

  • THEY HIRE THIRD PARTIES TO SELL IT.

  • THEY SELL IT. THEY TURN IT INTO CASH.

  • AND THEN IF THERE ARE VICTIMS IN THE CASE,

  • THE PRIORITY IS VICTIMS COME FIRST.

  • IF THERE ARE VICTIMS, THEN THE MONEY IS GIVEN OUT

  • TO VICTIMS IN ONE OF TWO METHODS.

  • ONE, IF IT'S PART OF A CRIMINAL CASE

  • AND THE DISTRICT COURT JUDGE ENTERS A RESTITUTION ORDER,

  • WHICH LISTS THE VICTIMS AND THEIR LOSS AMOUNTS,

  • THE MONEY IS TRANSFERRED TO THE CLERK OF THE COURT,

  • WHERE THE CLERK OF THE COURT

  • WILL DISTRIBUTE THE MONEY TO THE VICTIM,

  • THE FORFEITED FUNDS TO THE VICTIMS

  • UNDER THE TERMS OF THE COURT'S RESTITUTION ORDER.

  • IF THERE ISN'T A RESTITUTION ORDER

  • ENTERED IN A CRIMINAL CASE, EITHER BECAUSE FOR SOME REASON,

  • THERE...THERE ISN'T A CRIMINAL CASE

  • OR BECAUSE IN SOME CASES, LIKE THE MADOFF CASE

  • OR ANOTHER CASE, THE ADELPHIA CASE,

  • THERE'S BEEN A FINDING BY THE COURT

  • THAT ENTERING A RESTITUTION ORDER

  • WOULD BE TOO COMPLICATED AND WOULD UNDULY DELAY SENTENCING,

  • THEN IT COULD BE DONE THROUGH ANOTHER PROCEDURE

  • BY THE DEPARTMENT OF JUSTICE,

  • THE