superseding indictment charging Bruce Berg and others with conspiracy to violate 18 U.S.C. § 1956 and 31 U.S.C. §§ 5313(a) and 5324 as well as substantive violations of 18 U.S.C. §§ 5313(a) and 5324 -- in essence, that the defendant and others conspired to launder and structure the proceeds of an illegal gambling operation. The superseding indictment includes a forfeiture allegation that seeks, among other things, the forfeiture of any and all property involved in the charged money laundering and structuring offenses and all property traceable thereto up to $ 4.3 million and substitute assets. This reflects the determination of the grand jury that there is probable cause to believe that Berg and his co-conspirators received no less than $ 4.3 million in illegal gambling proceeds for structuring.
Following the superseding indictment, Chief Judge Griesa issued an ex parte post-indictment restraining order preventing the transfer or dissipation of Berg's assets and those of his co-conspirators. Berg and others promptly brought to the attention of the undersigned certain alleged errors and ambiguities in the text of the restraining order. Accordingly, on March 19, 1998, this Court signed a second post-indictment restraining order (the "Amended Order"), the object of which was to correct any failings in the original form of order, without prejudice to a motion to vacate.
Berg now has moved to vacate the Amended Order on the grounds that (i) the Court has no authority to enter a post-indictment restraining order ex parte, (ii) the assets of Berg that were restrained were obtained from legitimate sources and therefore are restrainable only as substitute assets, (iii) the Court lacks authority to restrain substitute assets prior to trial, and (iv) in any case, pre-trial restraint of assets is not appropriate in this case.
Availability of Ex Parte Relief
Berg begins with the contention that there is no statutory basis for granting a post-indictment restraining order without prior notice to the defendants. The government rejoins that the Court of Appeals' in banc decision in United States v. Monsanto2 supports the proposition that the government is entitled to ex parte relief in appropriate circumstances in a case such as this.
There is no need to pass on this issue. The Amended Order was entered only after Berg received notice and an opportunity to be heard. The Court considers the motion to vacate the Amended Order de novo. In consequence, nothing turns on whether the statute (and Monsanto) authorized ex parte relief.
The Availability of Pretrial Restraint of Substitute Assets
Berg argues that the assets restrained by the Amended Order include a passbook savings account and an automobile, both of which were the product of legitimate sources of income. He contends that the government is not entitled to restrain these assets prior to trial because they are not forfeitable as proceeds of the crime alleged and because the government lacks any authority to restrain substitute assets prior to conviction. The government counters that pretrial restraint of substitute assets is appropriate and, in any case, that the defendant may not challenge the forfeitability of assets prior to trial except in the context of a claim that the pretrial restraint of the assets effectively deprives him of the Sixth Amendment right to counsel. It argues, moreover, that Berg had no legitimate source of income during the relevant period and, in consequence, that the restrained assets are the product of the illegal activities that are the subject of the indictment. If, as the government argues, however, the pretrial restraint of substitute assets is appropriate, there is no need to determine the source of the assets that have been restrained. As long as their value is less than the amount potentially subject to forfeiture, the Court's authority to restrain them would be beyond question. Accordingly, the Court turns to that question.
The question of pretrial restraint of substitute assets is a matter of controversy. The Fourth Circuit has held that pretrial restraint of substitute assets is appropriate.
Four other circuits have held that it is not authorized by the relevant statutes.
Our own circuit's only pronouncement on the subject, United States v. Regan,5 has occasioned divergent views on the part of members of this Court, with Judges Parker and Rakoff holding that pretrial restraint of substitute assets is unauthorized and the undersigned previously holding that Regan indicates otherwise.
My brethren and I agree, assuming the matter were one of first impression, that there are substantial grounds for concluding that the statutes in question do not permit the pretrial restraint of substitute assets. In my view, however, I am not at liberty to credit those arguments in view of the logic of Regan.7
The indictment in Regan charged a number of defendants with having conducted the affairs of Princeton/Newport Partners, L.P. and twenty investment companies owned or controlled by it (collectively "Princeton/Newport") through a pattern of racketeering activity and sought forfeiture of the defendants' interests in Princeton/Newport. Judge Stanton granted the government's application for an order restraining Princeton/Newport -- which had not been indicted -- from engaging in transactions outside the ordinary course of business absent prior approval and subjecting its affairs to review by a government-designated monitor, this on the theory that Princeton/Newport was a third party in possession of potentially forfeitable property of the defendants. Princeton/Newport challenged the propriety of the order directed at it, contending that the statute
did not authorize orders restraining unindicted third parties. The Second Circuit, however, rejected the argument, writing:
"The language of the provision in no way limits restraining orders to indicted persons where restraints on the defendants are insufficient to preserve potentially forfeitable property. On the contrary, the provision focuses on the potentially forfeitable property, not the parties to the criminal proceeding. The statute thus empowers the district court to 'take any other action' it believes necessary 'to preserve the availability of [that] property' in the event of the defendants' conviction. 18 U.S.C. § 1963(d)(1). This language reflects the primacy of Congress's concern for the preservation of forfeitable property pending the outcome of the criminal trial."