In the Courts

Forfeiture of 'Proceeds'Means 'Gross Receipts,' Not Just 'Profits'

On Oct. 9, 2013, the United States Court of Appeals for the Second Circuit issued two opinions in United States v. Peters. See United States v. Peters, 732 F.3d 93 (2d Cir. 2013); United States v. Peters, —Fed.Appx.—, 2013 WL 5540075 (2d Cir. Oct. 9, 2013). The published opinion provided further insight into the Second Circuit's views on application of 18 U.S.C. ' 982(a)(2), a criminal forfeiture statute requiring forfeiture of the proceeds relating to certain criminal violations, including banking and securities-related offenses. The court held that the statute required forfeiture of all gross receipts rather than merely profits of a violation.

The defendant, Frank E. Peters, was convicted on various counts relating to a scheme to defraud Chase Manhattan Bank by overvaluing assets used to maintain a revolving line of credit. 732 F.3d at 95. Peters was sentenced to nine years in prison and ordered to pay $11,988,501.36 in restitution as well as to forfeit $23,154,259, pursuant to 18 U.S.C. ' 982(a)(2). Id. On appeal, Peters challenged his conviction, arguing that the indictment was duplicitous, lodging various evidentiary challenges and challenging the district court's forfeiture calculation. Id.

The Second Circuit addressed ' and rejected ' most of Peters' arguments in the unpublished opinion, including some of those relating to the forfeiture calculation. Id. at 2013 WL 5540075 *5. In particular, the defendant argued that the government was estopped from asserting a loss amount greater than that cited in a co-conspirator's plea agreement. He also argued that the district court had improperly included in the forfeiture amount losses not attributable to the fraudulent scheme but instead resulting from the defendant's poor business decisions. The Second Circuit summarily rejected each of these arguments in the non-precedential opinion. Id.

However, the court issued a separate precedential opinion addressing Peters' argument that 18 U.S.C. ' 982(a)(2) required forfeiture of only profits rather than gross receipts relating to a violation. 732 F.3d 93. The statute requires forfeiture of “any property constituting, or derived from, proceeds the person obtained directly or indirectly, as the result of such violation.” 18 U.S.C. ' 982(a)(2). The term “proceeds” is not, however, defined in the statute. The Second Circuit acknowledged that, in common parlance, “proceeds” may mean either “receipts” or “profits” and that, in fact, Congress has not used the term consistently through the U.S Code. Id. at 99.

Despite Supreme Court precedent suggesting that “proceeds” should be limited to “profits” in the context of anti-money-laundering statutes, the Second Circuit held that the term should be construed more broadly in the forfeiture context. Id. at 100 (discussing United States v. Santos, 553 U.S. 507, 511, 128 S.Ct. 2020, 170 L.Ed.2d 912 (2008)). In particular, the court noted that the Santos Court was concerned with potential double jeopardy issues but, while the anti-money laundering laws are criminal in nature, forfeiture statutes are punitive and, thus, do not evoke double jeopardy concerns. Id. Upon this reasoning, the court rejected Santos as controlling the interpretation of “proceeds” in the forfeiture context. Id.'

Finding that the statute is ambiguous as to the definition of “proceeds” and that there is no controlling precedent on the topic, the court focused on determining the “primary purpose” of the statute. Id. at 101 (citing Castellano v. City of New York, 142 F.3d 58, 67 (2d Cir.1998) (citing Robinson v. Shell Oil Co., 519 U.S. 337, 345-46, 117 S.Ct. 843, 136 L.Ed.2d 808 (1997)).

In this respect, the Second Circuit explained that “the punitive intent of section 982 favors the government's interpretation of the word 'proceeds.'” Id. The court held that, beyond merely “returning a 'wrongdoer to the economic position he occupied before he committed his criminal offense' ' ,” ' 982(a)(2) was intended to punish the wrongdoer. It cited Eighth Circuit precedent interpreting the term “proceeds” in the Racketeer Influenced and Corrupt Organizations Act (RICO) context for the proposition that forfeiture should punish “all convicted criminals who receive income from illegal activity, and not merely those whose criminal activity turns a profit.” Id. (citing United States v. Simmons, 154 F.3d 765, 771 (8th Cir.1998)). The court also noted the potential difficulties in isolating profits of criminal activity. Id.

As such, the court rejected Peters' arguments and held that “the 'proceeds of a fraudulently obtained loan equal the amount of the loan,'” irrespective of whether the defendant personally profited from the loan or whether the bank recovered part of the loan principal. Id. at 102 (United States v. Newman, 659 F.3d 1235, 1244 (9th Cir.2011)). Also, noting that ' 983 requires forfeiture of funds obtained “directly or indirectly,” the Second Circuit rejected the defendants' argument that the district court had erred in “piercing the corporate veil” by holding that Peters had personally received the loan proceeds when they were actually obtained by a company under his “near total control.” 732 F.3d at 95. Thus, the defendant's arguments were wholly rejected by the Second Circuit.

In the Courts and Business Crimes Hotline were written by Associate Editors Jamie A. Schafer and Matthew J. Alexander, respectively. Both are Associates at Kirkland & Ellis LLP, Washington, DC.

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Forfeiture of 'Proceeds'Means 'Gross Receipts,' Not Just 'Profits'

On Oct. 9, 2013, the United States Court of Appeals for the Second Circuit issued two opinions in United States v. Peters. See United States v. Peters , 732 F.3d 93 (2d Cir. 2013); United States v. Peters, —Fed.Appx.—, 2013 WL 5540075 (2d Cir. Oct. 9, 2013). The published opinion provided further insight into the Second Circuit's views on application of 18 U.S.C. ' 982(a)(2), a criminal forfeiture statute requiring forfeiture of the proceeds relating to certain criminal violations, including banking and securities-related offenses. The court held that the statute required forfeiture of all gross receipts rather than merely profits of a violation.

The defendant, Frank E. Peters, was convicted on various counts relating to a scheme to defraud Chase Manhattan Bank by overvaluing assets used to maintain a revolving line of credit. 732 F.3d at 95. Peters was sentenced to nine years in prison and ordered to pay $11,988,501.36 in restitution as well as to forfeit $23,154,259, pursuant to 18 U.S.C. ' 982(a)(2). Id. On appeal, Peters challenged his conviction, arguing that the indictment was duplicitous, lodging various evidentiary challenges and challenging the district court's forfeiture calculation. Id.

The Second Circuit addressed ' and rejected ' most of Peters' arguments in the unpublished opinion, including some of those relating to the forfeiture calculation. Id. at 2013 WL 5540075 *5. In particular, the defendant argued that the government was estopped from asserting a loss amount greater than that cited in a co-conspirator's plea agreement. He also argued that the district court had improperly included in the forfeiture amount losses not attributable to the fraudulent scheme but instead resulting from the defendant's poor business decisions. The Second Circuit summarily rejected each of these arguments in the non-precedential opinion. Id.

However, the court issued a separate precedential opinion addressing Peters' argument that 18 U.S.C. ' 982(a)(2) required forfeiture of only profits rather than gross receipts relating to a violation. 732 F.3d 93. The statute requires forfeiture of “any property constituting, or derived from, proceeds the person obtained directly or indirectly, as the result of such violation.” 18 U.S.C. ' 982(a)(2). The term “proceeds” is not, however, defined in the statute. The Second Circuit acknowledged that, in common parlance, “proceeds” may mean either “receipts” or “profits” and that, in fact, Congress has not used the term consistently through the U.S Code. Id. at 99.

Despite Supreme Court precedent suggesting that “proceeds” should be limited to “profits” in the context of anti-money-laundering statutes, the Second Circuit held that the term should be construed more broadly in the forfeiture context. Id . at 100 (discussing United States v. Santos , 553 U.S. 507, 511, 128 S.Ct. 2020, 170 L.Ed.2d 912 (2008)). In particular, the court noted that the Santos Court was concerned with potential double jeopardy issues but, while the anti-money laundering laws are criminal in nature, forfeiture statutes are punitive and, thus, do not evoke double jeopardy concerns. Id. Upon this reasoning, the court rejected Santos as controlling the interpretation of “proceeds” in the forfeiture context. Id.'

Finding that the statute is ambiguous as to the definition of “proceeds” and that there is no controlling precedent on the topic, the court focused on determining the “primary purpose” of the statute. Id . at 101 (citing Castellano v. City of New York , 142 F.3d 58, 67 (2d Cir.1998) (citing Robinson v. Shell Oil Co. , 519 U.S. 337, 345-46, 117 S.Ct. 843, 136 L.Ed.2d 808 (1997)).

In this respect, the Second Circuit explained that “the punitive intent of section 982 favors the government's interpretation of the word 'proceeds.'” Id. The court held that, beyond merely “returning a 'wrongdoer to the economic position he occupied before he committed his criminal offense' ' ,” ' 982(a)(2) was intended to punish the wrongdoer. It cited Eighth Circuit precedent interpreting the term “proceeds” in the Racketeer Influenced and Corrupt Organizations Act (RICO) context for the proposition that forfeiture should punish “all convicted criminals who receive income from illegal activity, and not merely those whose criminal activity turns a profit.” Id . (citing United States v. Simmons , 154 F.3d 765, 771 (8th Cir.1998)). The court also noted the potential difficulties in isolating profits of criminal activity. Id.

As such, the court rejected Peters' arguments and held that “the 'proceeds of a fraudulently obtained loan equal the amount of the loan,'” irrespective of whether the defendant personally profited from the loan or whether the bank recovered part of the loan principal. Id . at 102 ( United States v. Newman , 659 F.3d 1235, 1244 (9th Cir.2011)). Also, noting that ' 983 requires forfeiture of funds obtained “directly or indirectly,” the Second Circuit rejected the defendants' argument that the district court had erred in “piercing the corporate veil” by holding that Peters had personally received the loan proceeds when they were actually obtained by a company under his “near total control.” 732 F.3d at 95. Thus, the defendant's arguments were wholly rejected by the Second Circuit.

In the Courts and Business Crimes Hotline were written by Associate Editors Jamie A. Schafer and Matthew J. Alexander, respectively. Both are Associates at Kirkland & Ellis LLP, Washington, DC.

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