The opinion of the court was delivered by: ARTHUR SPATT, District Judge
MEMORANDUM OF DECISION AND ORDER
In this case the government seeks, pursuant to Federal Rule of
Criminal Procedure 32.2(b)(2), the entry of a preliminary order
of forfeiture in the total sum of $21,195,665.74 against
defendants Nat Schlesinger ("Schlesinger") and Goodmark
Industries, Inc. (collectively the "defendants"). The government
claims that these assets are forfeitable as the proceeds of mail
fraud, wire fraud, and money laundering. The defendants, who
waived their right to have this matter determined by a jury,
argue, among other things, that: (1) the building that housed the
defendants' business is not subject to forfeiture because it did
not "facilitate" the money laundering; (2) the proceeds are not
"criminally derived property" within the meaning of the money laundering statute; and (3) title 28 U.S.C. § 2461(c) does not
permit criminal forfeiture based on mail and wire fraud.
With his brother Jack, Schlesinger owned and maintained a
clothing manufacturing business in a building located at an
address known at various times as: (1) 48-76 Wallabout Street,
Brooklyn, New York; (2) 50 Wallabout Street, Brooklyn, New York;
(3) 750 Kent Avenue, Brooklyn, New York; and (4) 1 Classon
Avenue, Brooklyn, New York ("the Wallabout Street Property"). The
clothing manufacturing business was known at various times as
Pous Apparel, Inc., Private Brands of Delaware, Inc., and the
defendant Goodmark Industries, Inc. On May 19, 2005, following a
four week jury trial, the defendants were convicted of, among
other counts, conspiracy to commit mail and wire fraud,
18 U.S.C. § 371, substantive mail and wire fraud, id. § 1341 and 1343,
conspiracy to commit money laundering and substantive money
laundering. Id. § 1956(h) and 1957.
At the trial the government proved two fraudulent schemes. One
scheme involved defrauding insurance companies by submitting
fraudulent claims for losses sustained as a result of a series of
fires that occurred at the Premises from 1987 to 1999. The second
scheme involved using Pous Apparel, Private Brands, and Goodmark
Industries as a vehicle to defraud various creditors by masking
the true ownership of the companies. This scheme involved the use of nominees and shell
corporations to carry out what was, in effect, two self organized
The indictment includes two criminal forfeiture allegations.
The first criminal forfeiture allegation relates to counts
charging a money laundering conspiracy and substantive money
laundering related to proceeds from the creditor fraud and
insurance fraud schemes. For these counts, the government seeks
forfeiture, pursuant to 18 U.S.C. § 982, of all properties, real
and personal, involved in these offenses or traceable to such
property. In this allegation, the government seeks forfeiture of
the sum of $11,480,629.41 as well as a specific asset: a total of
$5,131,881.92 traceable to the sale of the "the Wallabout Street
The second forfeiture allegation relates to the counts that
involve the mail and wire fraud conspiracy, and substantive mail
fraud related to the scheme to defraud insurance companies, and
the mail fraud conspiracy and substantive mail fraud related to
the scheme to defraud creditors. For these counts, the government
seeks forfeiture pursuant to 18 U.S.C. § 981(a)(1)(C) and
28 U.S.C. § 2461(c), of all properties, real and personal, which
constituted or were derived from proceeds traceable to an offense
constituting a "specified unlawful activity" under
18 U.S.C. § 1956(c)(7) in the amount of $4,583,154.41. Under that statute,
mail fraud and wire fraud, or a conspiracy to commit such offense
is considered a "specified unlawful activity." II. DISCUSSION
A. Criminal Forfeiture Procedure
The procedures governing criminal forfeiture are set forth in
Federal Rule of Criminal Procedure 32.2(b)(1), which provides:
As soon as practicable after a verdict or finding of
guilty, or after a plea of guilty or nolo contendere
is accepted, on any count in an indictment or
information regarding which criminal forfeiture is
sought, the court must determine what property is
subject to forfeiture under the applicable statute.
If the government seeks forfeiture of specific
property, the court must determine whether the
government has established the requisite nexus
between the property and the offense. If the
government seeks a personal money judgment, the court
must determine the amount of money that the defendant
will be ordered to pay. The court's determination may
be based on evidence already in the record, including
any written plea agreement or, if the forfeiture is
contested, on evidence or information presented by
the parties at a hearing after the verdict or finding
Fed R. Crim. P. 32.2(b)(1).
It is well-settled in the Second Circuit that once the
defendant is convicted of an offense on proof beyond a reasonable
doubt, the government is only required to establish the
forfeitability of the property subject to criminal forfeiture as
a result of that offense by a preponderance of the evidence.
United States v. Fruchter, 411 F.3d 377, 383 (2d Cir. 2005)
("Booker and Blakely [do not] require proof beyond a reasonable
doubt in open-ended punishment schemes, such as [criminal]
forfeiture."); see also Libretti v. United States,
516 U.S. 29, 49, 116 S. Ct. 356, 367-68, 133 L. Ed. 2d 271, 289 (1995). Criminal forfeiture is most commonly used by the government to
seize the "proceeds of" and "property facilitating" drug
trafficking offenses, 21 U.S.C. § 853, and the "proceeds of" and
"property involved in" money laundering. 18 U.S.C. § 982. Under
Rule 32.2(b)(1), the court is assigned the task of determining
the amount of money the defendant will be ordered to pay or
whether there is a sufficient nexus between the property and the
offense of conviction. The court makes this determination based
upon the evidence in the record of the criminal trial or evidence
presented at a hearing after the verdict. See Fruchter,
411 F.3d at 384.
B. Criminal Forfeiture for Money Laundering and Money
The government seeks forfeiture in the amount of $11,480,629.41
under the provisions of 18 U.S.C. § 982 based upon money
laundering and money laundering conspiracy relating to monetary
transactions with regard to insurance fraud proceeds and monetary
transactions derived from the Goodmark Industries creditor fraud.
Specifically, the amount sought includes: (1) $11,480,629.41
representing the total value of the property allegedly involved
in the money laundering; and (2) $5,131,881.92 representing the
net proceeds traceable to the Wallabout Street Property.
Under 18 U.S.C. § 982, "any property, real or personal,
involved in such offense, or any property traceable to such
property" is subject to criminal forfeiture. The term "involved
in" has consistently been interpreted broadly by courts to
include any property involved in, used to commit, or used to
facilitate the money laundering offense. See United States v. Huber, 404 F.3d 1047, 1056 (8th Cir. 2005);
United States v. Puche, 350 F.3d 1137 (11th Cir. 2003); United
States v. McGauley, 279 F.3d 62. 76 n. 14 (1st Cir. 2002);
United States v. Baker, 227 F.3d 955 (7th Cir. 2000); United
States v. Wyly, 193 F.3d 289 (5th Cir. 1999); United States v.
Bornfield, 145 F.3d 1123 (10th Cir. 1998); United States v.
Hawkey, 148 F.3d 920, 927-28 (8th Cir. 1998); United States v.
Tencer, 107 F.3d 1120, 1134 (5th Cir. 1997); United States v.
1501 West Boulevard, 814 F. Supp. 468, 479 n. 37 (W.D.N.C.
1993), aff'd, United States v. Marsh, 105 F.3d 927 (4th Cir.
1997); United States v. Eleven Vehicles, 836 F. Supp. 1147,
1153 (E.D. Pa. 1993); United States v. Krasner,
841 F. Supp. 649 (M.D. Pa. 1993); United States v. Certain Accounts,
795 F. Supp. 391, 396 (S.D. Fla. 1992); United States v. All of the
Inventories of the Bus. Known as Khalife Bros. Jewelry,
806 F. Supp. 648, 650 (E.D. Mich. 1992); United States v. All Monies in
Account No. 90-3617-3, 754 F. Supp. 1467, 1473 (D. Haw. 1991).
This interpretation is supported by the legislative history.
See 134 Cong. Rec. S17365 (daily ed. Nov. 10, 1988) (statement
of Sen. Biden).
The government claims that the Wallabout Street Property and
all proceeds traceable to its sale are forfeitable because the
property facilitated the defendants' money laundering.
"Facilitation occurs when the property makes the prohibited
conduct less difficult or more or less free from obstruction or
hindrance." United States v. Wyly, 193 F.3d 289, 302 (5th Cir.
1999) (quoting Tencer, 107 F.3d at 1134). In Wyly, the defendant was a public official who accepted a
kickback in return for steering the contract for the construction
of a privately-owned prison to a particular contractor. After the
defendant was convicted of money laundering, the court held that
the government was entitled to forfeiture of the new jail itself
as property involved in the money laundering offense. The Fifth
Circuit reasoned that "the prison was the source of the
criminal proceeds and was indispensable to the money laundering
conspiracy. Without the prison, there could have been no bribery,
mail fraud, or money laundering." Id. at 302.
The Second Circuit appears to have embraced the "facilitation"
approach. In United States v. G.P.S. Automotive Corp.,
66 F.3d 483, 486 (2d Cir. 1995), the government sought civil forfeiture
for money laundering under § 981, the analogous civil provision
to the criminal statute (§ 982) relevant in this case. The Second
Circuit upheld the forfeiture of the defendants' automotive
salvage and repair shop as well as the property in which it was
located. Id. at 487. Specifically, the court found that there
were several unlawful transactions at the business, such as
removing or altering vehicle identification numbers, that were
directly related to the automotive-fraud and the money
laundering. Id. at 487.
The Defendants contend that property is only subject to
forfeiture under the "facilitation theory" if that property
actually facilitates the money laundering. The Defendants argue
that the money laundering offense is distinguishable from the unlawful activity that forms the basis ...