The opinion of the court was delivered by: Leisure, District Judge
Defendant Roman Nektalov was convicted in July 2004 of one count of money laundering in violation of 18 U.S.C. §§ 2, 1956(a)(2)(A)-(C) (2000). On November 3, 2004, the Court entered a preliminary order of forfeiture which provides that defendant's right, title, and interest in certain diamonds seized during defendant's arrest be forfeited to the United States.*fn1 (Order, Nov. 3, 2004,11 1.) The Order also states that "[u]pon adjudication of all third-party interests, this Court will enter a Final Order of Forfeiture pursuant to 21 U.S.C. § 853(n), in which all interests will be addressed." (Order, Nov. 3, 2004, 6.) On November 19 and 29, 2004, respectively, nonparties E.J.D. Diamonds Manufacturer ("EJD") and Sergey Diamonds ("Sergey") petitioned the Court, pursuant to Federal Rule of Criminal Procedure 32.2(c), for an ancillary proceeding at which they would seek to demonstrate that they were the true owners of the diamonds, and that the diamonds were only in Nektalov's possession on consignment. The Court conducted this ancillary proceeding on January 10 and 11, 2006. After reviewing the evidence and the parties' post-hearing submissions, the Court denies EJD's and Sergey's petitions for the reasons set forth below.
Nektalov was convicted after a two-week trial. The proof at trial showed that Nektalov and his son, Eduard Nektalov, used their jewelry business, Roman Jewelers, to launder what they believed to be drug money. More specifically, the Nektalovs arranged to exchange a large number of diamonds on June 4, 2003, for approximately $500,000 in cash that they believed to be drug money, with a man who in actuality was an undercover agent. Shortly thereafter, federal agents arrested Nektalov and seized the 739 loose diamond stones that were used in the money laundering transaction. Following Roman Nektalov's conviction, those 739 diamond stones were forfeited pursuant to the Preliminary Order of Forfeiture dated November 3, 2004.
On January 10 and 11, 2006, the Court held an ancillary hearing at which EJD and Sergey had an opportunity to present evidence to contest the Preliminary Order of Forfeiture on the ground that the diamonds belong to them and not Roman Jewelers. Both petitioners, Eliav Jeki of EJD and Sergey Ygudaev of Sergey Diamonds, testified in an attempt to establish their ownership of the diamonds. They also presented an expert witness, Barak Richman, who testified about customs and practices in the diamond industry.
Eliav Jeki is a diamond dealer based in Israel. (Hr'g Tr. 40:11-25, Jan. 10, 2006.) Jeki began working in the diamond industry in 1976 (Hr'g Tr. 42:4-6), and in 1995 formed a company called EJD Diamonds ("EJD") (Hr'g Tr. 43:7-11). EJD sold diamonds throughout the world, including New York's diamond district. (Hr'g Tr. 43:17-22.) Jeki alleges that he sent diamonds out on "consignment" ten to twenty times per year. (Hr'g Tr. 68:25-69:2; Jeki Dep. 45:16-47:3, Mar. 1, 2005.) Roman Jewelers was one of several diamond dealers in New York to whom Jeki provided diamonds. (Hr'g Tr. 68:9-23.) Because Roman Jewelers was one of the larger diamond dealers in New York's diamond district, Jeki had a history of doing business with Roman Jewelers. (Hr'g Tr. 57:7-9.) Indeed, Jeki testified that, prior to the transaction at the heart of this action, he had provided Roman Jewelers with over $500,000 worth of diamonds, some of which were sold, and some of which were consigned. (Hr'g Tr. 57:16-21.) He went on to testify that he had made straight sales of diamonds to Roman Jewelers on more than one prior occasion. (Hr'g Tr. 57:7-15.)
In early 2003, Jeki mailed two shipments of diamonds from Israel (Hr'g Tr. 70:6-13) to the New York office of Malca-Amit, a shipping company (Hr'g Tr. 48:8-50:16, 60:8-17). The shipments were addressed to "Eliav Jeckey" and were to be picked up at Malca-Amit's office. Jeki took out insurance on these shipments. (Hr'g Tr. 48:8-50:16, 60:8-17.) One shipment, identified in an invoice (Petr's Ex. 3), contained 597.50 carats of diamonds worth $525,201, and was mailed from Israel on January 27, 2003. Two days later, on January 29, 2003, Jeki picked this shipment up from Malca-Amit's New York office. (Pet'rs' Ex. 4; Hr'g Tr. 48:8-50:16.) A second shipment, which is also identified in an invoice (Gov't Ex. 2), contained 59.23 carats of diamonds worth $118,078, and was mailed from Israel on February 2, 2003. (See Gov't Ex. 2.) Jeki picked up this shipment the following day, February 3, 2003, from Malca-Amit's New York office. (See Gov't Ex. 1; Hr'g Tr. 60:8-17.)
Jeki claims that he hand delivered 45 diamonds (46.39 total carats) to Roman Jewelers on February 2, 2003. (Pet'rs' Ex. 6; Gov't Ex. 8.) According to Jeki, he met with Eduard Nektalov on that day for about an hour. (Hr'g Tr. 46:7-18.) He testified that the diamonds were delivered on "consignment," and that Petitioners' Exhibit 5, entitled "Memorandum," memorialized this consignment. (Hr'g Tr. 44:12-45:12, 60:18-23.) The Memorandum, dated February 2, 2003, is addressed to "Roman Jewelers" and refers to "46.39" carats of "polished diamonds" for a total price of $118,078. The Memorandum lacks any verbiage indicating the diamonds' physical characteristics, such as the color, cut, clarity, or carat of the diamonds. (See Pet'rs' Ex. 5.)
Jeki testified at his deposition that he could not remember from which of the two shipments of diamonds came the diamonds that he hand delivered to Eduard Nektalov on February 2, 2003. (Jeki Dep. 58:20-59:21.) At the hearing, however, Jeki insisted that the diamonds he delivered to Eduard Nektalov on February 2, 2003, came from the shipment he picked up in New York on January 29, 2003, and not the shipment that he picked up on February 3, 2003. (Hr'g Tr. 71:24-72:2.) This, of course, would make sense because the purported date of delivery to Eduard Nektalov—February 2, 2003—precedes by one day the date upon which the second shipment of diamonds arrived in New York: February 3, 2003.
Jeki's account, however, would force the Court to believe that it was purely coincidental that the value of the diamonds "consigned" to Roman Jewelers on February 2, 2003— $118,078—had the same exact value as the diamonds he delivered to himself and subsequently picked up on February 3, 2003. Indeed, when asked about the fact that the diamonds he had purportedly hand delivered to Eduard Nektalov on February 2, 2003 had the same exact value$118,078—as the diamonds he had picked up from Malca-Amit the following day, Jeki claimed that it was merely a coincidence. (See Pet'rs' Ex. 5; Hr'g Tr. 76:10-77:2; Jeki Dep. 78:10-81:8.)
The Court finds Jeki's testimony incredible. This finding is corroborated by other evidence. During discovery, EJD produced from its files another copy of the shipping invoice that accompanied the second shipment of diamonds (valued at $118,078). That copy contains the following notation made by Jeki or one of his employees: "2/6/2003 $25,721." (See Gov't Ex. 3; Hr'g Tr. 62:5-65:1.) Records from Roman Jewelers show that a check in the amount of $25,721 was in fact written to EJD on February 6, 2003, with the notation "diamonds" in the memo line. (Gov't Ex. 4.) Jeki acknowledged at the hearing that he had received this payment, but insisted that, notwithstanding the fact that the notation was made on a copy of the invoice that accompanied the second shipment of diamonds, it had nothing to do with that second shipment of diamonds (valued at $118,078). (Hr'g Tr. 64:18-65:1; Jeki Dep. 78:10-81:8.) Jeki never offered an alternative explanation of what other transaction with Roman Jewelers the payment was related to. As discussed infra, a payment by Roman Jewelers to EJD would be supportive of a sale of diamonds and not a consignment. Because Jeki is arguing that the diamonds he delivered to Roman Jewelers (valued at $118,078) were consigned, and because there is evidence probative of the contention that Roman Jewelers paid EJD, at least in part, for a shipment of diamonds valued at $118,078, Jeki has a motive to argue that the diamonds delivered to Roman Jewelers (worth $118,078) and the second set of diamonds he shipped to himself (also worth $118,078) are not the same lot of diamonds. Such a motive supports the Court's finding that the diamonds delivered to Roman Jewelers came from the second shipment. This finding, of course, also calls into doubt the authenticity of the February 2, 2003 Memorandum. Assuming as the Court does that the diamonds delivered to Roman Jewelers came from the latter, February 3, 2003, shipment of diamonds, the February 2, 2003 Memorandum likely was created after the fact in order to support the argument that a consignment was made.
Other contradictions in Jeki's testimony undermine his argument that a consignment occurred. Jeki claimed at the hearing that he must first agree to a selling price before his consigned diamonds can be sold. (Hr'g Tr. 56: 21-24.) However, he also stated that he never discussed any buyers for the subject diamonds with Roman Jewelers. (Hr'g Tr. 56:18-20.) Indeed, Jeki testified that he left it to Roman Jewelers to maximize the profit on the diamonds. (Hr'g Tr. 56:25-57:6.) Moreover, Jeki was never informed of Roman Jewelers' sale of the diamonds on June 4, 2003, to the undercover agent—a sale that was in progress when the Nektalovs were arrested. Jeki admitted that he only learned of the sale and subsequent seizure after it occurred. (Hr'g Tr. 51:21-25.)
During his deposition prior to the hearing, Jeki was asked how he could identify the diamonds on the Government appraisal list (Pet'rs' Ex. 12) as his own (Jeki Dep. 72:11-73:9). Jeki explained that he had made an inventory list noting the quality and carat of diamonds he had sent to Roman Jewelers (Jeki Dep. 44:5-45:2, 72:3-73:23) and that the list was in Israel (Jeki Dep. 73:17-23). However, no such list was ever produced in discovery. At the hearing, Jeki confirmed that, although it was his business practice to keep such a list, he currently had no such list. (Hr'g Tr. 69: 9- 70:5.)
Jeki now claims that he can identify his diamonds simply by looking at them. (Hr'g Tr. 74:20-24, 77:6-10.) At the hearing, Jeki insisted that he remembered what each and every stone looked like, and that he could identify them by memory, without any inventory list or record of what they looked like. (Hr'g Tr. 74:20-24, 77:6-10.) Notwithstanding his prior admission that he generally used inventory lists for identification purposes, he claimed at the hearing that he had the ability to identify the diamonds as his own.
Sergey Ygudaev testified that he is a diamond dealer in Israel who during 2001 owned his own business, Sergey Diamonds. (Hr'g Tr. 83:16-17, 84:22-85:1.) Sergey testified that on December 17, 2001, he sent diamonds to Roman Jewelers via a shipping company named Ferrari. (Hr'g Tr. 86:12-22.) The Ferrari shipping documents indicate that the shipment contained 33 lots of diamonds totaling 495.29 carats, with a total declared value of $315,000. (Pet'rs' Ex. 9.) That information was provided to Ferrari by Ygudaev. (Hr'g Tr. 106:22-24.) The shipping documents do not include any information about the cut, color, or clarity of the stones, nor do they indicate how many diamonds were shipped. (Pet. Ex. 9; 107:8-108:21.)
Ygudaev does not offer any documentary evidence in support of his claim that the shipment was made on consignment; instead, he claims, solely through his own testimony, that the shipment was a consignment transaction with Roman Jewelers and that he never received payment for the diamonds. According to Ygudaev, the transaction with Roman Jewelers was arranged by a broker; Ygudaev never spoke personally with anyone at Roman Jewelers before shipping the diamonds.*fn2 (Hr'g Tr. 88:12-14; 109:14-20.) As noted above, Ygudaev testified that he had no paperwork—neither a contract nor a consignment memo—documenting the terms ...