Thursday, August 18th, 2005

A Great Victory for the White Collar Bar

United States v. Kenneth Jaeggi, Docket No. 04-4543-cr (L) (2d Cir. August 17, 2005) (Op. by Winter): The private white collar bar owes an enormous debt of gratitude to Judge Winter, as well as to the fine folks at Sullivan & Cromwell (representing Jaeggi), for this astounding decision. Lawyers for well-to-do securities fraud defendants can now rest assured that they will be paid for their work from the defendant’s sizable assets, even if the Government is able to prove, after securing the defendant’s conviction, that those assets are the proceeds of the fraud in question. That’s because this decision holds that 28 U.S.C. § 2461(c), generally authorizing criminal forfeiture as a punishment for any act for which civil forfeiture is authorized, does not authorize pretrial restraint of assets. The result, therefore, is that the indicted fraud defendant will continue to be able to spend his hard-earned bucks however he chooses, even if the indictment alleges forfeiture allegations regarding those assets. And, really, is there a better use of one’s ill-begotten gains than securing the services of a fine criminal defense attorney? Of course not.

Those interested in the Court’s parsing of the relevant statutes should consult the opinion. Suffice it to say that even this defense-sympathetic reader thinks that the relevant statutory language is far from decisive, and that the Government’s point that “the enactment of a criminal forfeiture statute without a restraining order provision [would be] oddly incompletely and uniquely deficient” is well taken. And, of course, the fact that 5 other Circuits have come to the contrary conclusion concerning a very similarly worded statute adds further doubt to the correctness of the Court’s decision.

Judge Winter’s back-of-the-hand dismissal of the other Circuits’ decisions — “This fact gives us pause, albeit a short one,” because “none of them has addressed the arguments presented in this case” — is refreshing, even if rarely seen in ordinary criminal cases. The same can be said about the Court’s quick rejection of the Government’s claim that “it would have made no sense for Congress to enact a statute authorizing the use of criminal forfeiture but to omit a pretrial restraint provision, for which actual forfeiture might never be possible”: “[T]his is a complaint that should be addressed to Congress.” Op. at 13.

In any event, the law of the Circuit is now that while defendants facing RICO, drug trafficking, obscenity, and child pornography charges continue to be subject to pretrial restraint of their forfeitable assets, Op. at 9 (citing relevant statutes), defendants in cases governed by § 2461(c) — which I believe includes all fraud defendants — will not face this “severe remedy” (“dubbed [by the Supreme Court] as a ‘nuclear weapon’ of the law”, Op. at 7). In cases not falling in the above categories, the law is unclear. See footnote 2 of the Op. However, if the language of the relevant forfeiture statute tracks that found in § 2461(c), then the same result should obtain — no pretrial restraint is permitted.

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