United States District Court, D. Massachusetts
MEMORANDUM AND ORDER REGARDING DEFENDANT'S MOTION FOR ORDER RELEASING SEIZED FUNDS NECESSARY FOR LEGAL DEFENSE (Dkt. No. 27)
KATHERINE A. ROBERTSON, Magistrate Judge.
Defendant Syed Bokhari ("Defendant") is charged in a thirty-two count indictment with conspiracy to commit wire fraud (count one) and specific acts of wire fraud (counts two through eleven); aiding and abetting contraband smokeless tobacco trafficking (counts twelve through sixteen); conspiracy to commit money laundering (count seventeen) and specific acts of money laundering in violation of 18 U.S.C. § 1956(a)(1)(B)(i) and 2 (counts eighteen through twenty-two); money laundering in violation of 18 U.S.C. § 1957 and 2 (counts twenty-three through twenty-seven); and violation of the PACT (Prevent All Cigarette Trafficking) Act (counts twenty-eight through thirty-two) (Dkt. No. 2). The indictment includes forfeiture allegations pursuant to 18 U.S.C. §§ 981 and 982 and 28 U.S.C. § 2461. On or about June 5, 2012, the government executed warrants issued by this court authorizing the seizure of, among other things, tobacco products stored in a warehouse in Scranton, Pennsylvania ("Scranton Tobacco"). The warehouse in Scranton was the base of operations of Cigar & Supplies, Inc. ("C&S"), a business that was wholly owned by Defendant. By agreement of the parties, after seizure, the Scranton Tobacco was sold at auction, netting $1, 015, 523.48 ("Tobacco Funds") (Dkt. No. 84 at 7).
The Defendant's Motion for Release of Funds Necessary for Legal Defense ("Defendant's Motion"), seeking release of at least $750, 000 of the Tobacco Funds for purposes of funding his defense (Dkt. No. 27), was referred to the undersigned for hearing and decision (Dkt. No. 49). Defense counsel has entered a limited appearance in this case pending a ruling on Defendant's Motion (Dkt. No. 40). The court held a series of hearings in connection with Defendant's Motion, including an evidentiary hearing, and received pre- and post-hearing submissions from the parties. The court hereby issues its findings of fact and rulings of law, and, for the reasons set forth below, DENIES Defendant's Motion.
II. PROCEDURAL BACKGROUND
On June 5 and 8, 2012, pursuant to search and seizure warrants issued by this court, the government seized assets of Defendant, including bank accounts, motor vehicles, cash, and the Scranton Tobacco (Dkt. No. 98 at 1). On October 1, 2012, the government filed a civil forfeiture proceeding for possession of the seized assets (Case # 3:12-cv-30167-RWZ). In November 2013, after certain assets had been returned to Defendant, the parties entered into a settlement agreement in the civil forfeiture case, which provided, inter alia, that the United States would retain custody of the Scranton Tobacco unless the parties agreed to the forfeiture or release of the Scranton Tobacco or the United States filed an indictment that included the Scranton Tobacco as forfeitable, in which case the parties agreed that the United States would retain custody of the Scranton Tobacco until final adjudication of the criminal case, or until such time as "an order for the return of some or all of the Scranton Tobacco prior to the final adjudication of the criminal case was entered by the District Court presiding over such criminal case" (Dkt. No. 279-1 at 13, Docket for Case # 3:12-cv-30167-RWZ).
Defendant was indicted on October 16, 2014. The indictment included the Scranton Tobacco as forfeitable property. Defendant's Motion was filed on November 24, 2014. On December 19, 2014, Defendant moved for leave to file an affidavit addressing the extent of his financial resources - and his concomitant ability to retain his counsel of choice - ex parte and under seal. After briefing and argument by the parties, on February 12, 2015, the court allowed Defendant's motion to file financial information ex parte, subject to the condition that the Government also could file an ex parte submission addressing Defendant's financial resources (Dkt. No. 60). Both sides availed themselves of the opportunity to file ex parte submissions, and, following a review of those submissions, the court allowed so much of Defendant's Motion as sought an evidentiary hearing on the question of the Government's right to a continuing pre-trial restrain on assets Defendant claims he needs to retain his counsel of choice (Dkt. No. 73).
The evidentiary hearing was held on March 26, 2015, after which the parties filed post-hearing memoranda including proposed findings of fact and rulings of law (Dkt. Nos. 88, 96, 97, 104, 109). After carefully considering all of the evidence before it, the court makes the following findings of fact and rulings of law.
III. RELEVANT FACTS
In Kaley v. United States, 134 S.Ct. 1090 (2014), the Court held that an indicted defendant claiming to need access to funds restrained by the government for purposes of retaining defense counsel was not entitled to re-litigate the grand jury's finding of probable cause to believe that the defendant committed the offenses charged in the indictment. See id. at 1100. The government argues, and Defendant has not disputed, that the factual allegations in the indictment that support the grand jury's findings of probable cause to believe that Defendant committed the offenses as charged must be treated as established for purposes of Defendant's Motion (Dkt. No. 84 at 5-6). Accordingly, the government submitted the indictment as an exhibit at the evidentiary hearing, and its allegations form part of the basis of the court's factual findings (Exhibit ("Exh.") 1; Dkt. No. 2). The allegations in the indictment are critical for another reason: because the government must show the requisite nexus between the specific property as to which it seeks forfeiture - the Scranton Tobacco - and the crimes charged in the indictment, the indictment, in essence, serves as a limitation on the assets that are subject to forfeiture. See generally United States v. Capoccia, 503 F.3d 103 (2d Cir. 2007).
A. Defendant's business and alleged criminal conduct
Beginning in or around 2005, Defendant owned C&S, a wholesale business that sold smokeless tobacco and cigars and operated out of a warehouse in Scranton, Pennsylvania (Dkt. No. 2 at 1). From 2001 through January 2012, Defendant was the de facto owner of a wholesale business that operated out of a warehouse in Springfield, Massachusetts selling tobacco products to convenience stores, gas stations and other retail outlets, and, beginning in or around 2011, he became the de facto owner of a similar business that operated out of a warehouse in Danbury, Connecticut ( id. at 2-3).
C&S sold over ninety percent (90%) of the tobacco products that it purchased from wholesale suppliers and manufacturers to business entities operating out of five warehouses, including the warehouses in Springfield and Danbury (Exh. 17; Hearing Transcript ("Hrg. Trans.") at 65). Approximately forty-three percent (43%) of the C&S tobacco products were shipped to the Danbury and Springfield warehouses (Exh. 17). In Massachusetts and Connecticut, wholesale businesses selling cigars and smokeless tobacco must pay excise tax on their product (Dkt. No. 2 at 3-4). From at least 2008 through June 5, 2012, Defendant engaged in a conspiracy with others to deprive Massachusetts and Connecticut of tax revenue on sales of tobacco products ( id . at 5). To accomplish the goals of the conspiracy, Defendant (with others) would ship tobacco products from the Scranton warehouse to the warehouses in Springfield and Danbury without reporting these shipments to the authorities in Connecticut or Massachusetts ( id . at 6). To avoid creating records of sales transactions, Defendant, with others, arranged that sales of tobacco products by the Springfield and Danbury warehouses to convenience stores, gas stations and other retailers would primarily be for cash ( id. at 6, 20; Exh. 24 at 7; Hrg. Trans. at 62). Defendant directed that deceptive financial records be prepared for purposes of filing false tax returns with the Massachusetts and Connecticut taxing authorities, and he caused false tax returns to be filed in Massachusetts and Connecticut (Dkt. No. 2 at 9-13).
Cash generated by the sale of tobacco products by the Springfield and Danbury warehouses was deposited into bank accounts of C&S, brought to Defendant's offices, or deposited into bank accounts of the Defendant, or the Hawthorn Inn and the Litchfield on the Green Inn, two businesses owned by Defendant ( id . at 20-21). Defendant also would arrange for the transfer of funds from the C&S bank accounts to his personal bank accounts and to the bank accounts of other businesses unrelated to the purchase and sale of tobacco products ( id . at 21). Defendant intended this arrangement of cash transfers and bank deposits to conceal the origin, ownership and control of the funds collected by C&S for the sales of tobacco products by the Springfield and Danbury warehouses. Transactions were predominantly in cash to conceal the source and amounts of the monies generated by the C&S sales of tobacco products that were made in furtherance of the tax avoidance scheme ( id .).
B. C&S tobacco purchases
C&S used the majority of the payments it received from the Springfield and Danbury warehouses and the other three warehouses that were its sub-distributors to purchase additional tobacco products from wholesale suppliers and manufacturers (Exh. 3 at 39; Exh. 24 at 7-8; Hrg. Trans. at 69, 94). Exhibits at the hearing showed that approximately forty percent (40%) of the tobacco products purchased by C&S were purchased on credit from Harold Levinson and Associates ("HLA") (Exhs. 45, 46). C&S was an important customer for HLA, typically purchasing close to $700, 000 worth of product each week (Exh. 44 at 47). C&S owed HLA approximately $2, 000, 000 on June 5, 2012, when the Scranton warehouse was raided and the Scranton Tobacco seized ( id . at 41). C&S's other suppliers generally required payments via electronic fund transfers or check either before or within a few days of the products arriving at the Scranton warehouse (Exhs. 43, 46). Because of their perishable nature, almost all of the tobacco products purchased by C&S were distributed within two weeks of being received at the Scranton warehouse (Exh. 45).
Had the government not served search and seizure warrants on June 5, 2012, thereby bringing an end to C&S as a functioning enterprise, Defendant would have paid his suppliers for the tobacco products that were seized ...