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United States of America v. Sandra Hatfield and David

September 22, 2011

UNITED STATES OF AMERICA,
v.
SANDRA HATFIELD AND DAVID H. BROOKS, DEFENDANTS.



The opinion of the court was delivered by: Seybert, District Judge:

MEMORANDUM & ORDER

Pending before the Court is the Government's motion to enter a preliminary order of forfeiture against Defendants David H. Brooks and Sandra Hatfield and the supplemental briefing and calculations of the parties in response to this Court's June 14, 2011 Memorandum and Order ("June 14 Order"). For the following reasons, the Government's motion is GRANTED IN PART AND DENIED IN PART.

BACKGROUND

In October 2007, the Government charged Brooks and Hatfield with numerous crimes, including securities fraud, mail fraud, and wire fraud. In connection with this prosecution, the Court restrained numerous bank accounts as potentially subject to criminal forfeiture. The Court also issued seizure warrants directed at various pieces of personal property, including three automobiles, 6,007,099 shares of Point Blank Solutions, Inc., gold watches, designer pens, and a jewel-encrusted American flag belt buckle.

On September 14, 2010, a jury convicted Brooks on counts 1-11 and 15-17 of the Indictment, including all counts that alleged securities fraud, mail fraud, wire fraud, and/or conspiracy to commit those crimes. The jury convicted Hatfield on counts 1-3 and 12-16 of the Indictment, but acquitted her on counts 4-5. In so doing, the jury convicted Hatfield on all counts that alleged securities fraud and conspiracy to commit securities, mail and wire fraud. But it acquitted her on the direct mail and wire fraud counts.

The parties agreed to waive their rights to a jury trial on forfeiture. So, in November 2010, the Court conducted protracted non-jury forfeiture proceedings. It then permitted the parties to submit lengthy post-hearing briefs, with reply submissions not coming in until April 14, 2011.

On June 14, 2011, this Court issued a Memorandum and Order granting in part and denying in part the motion to enter a preliminary order of forfeiture. United States v. Hatfield, __ F. Supp. 2d __, 2011 WL 2446430 (E.D.N.Y. June 14, 2011). The motion was granted to the extent that it sought forfeiture of assets that Brooks obtained through the unauthorized compensation scheme, id. at *20, and the motion was denied to the extent that it sought forfeiture of the $94,000 paid to WGH Consulting, id. at *24. The motion was also denied to the extent that it sought forfeiture of the alleged insider trading proceeds in their entirety, id. at *2-5; however, the Court held that a least a portion of both Brooks' and Hatfield's alleged insider trading proceeds were forfeitable and reserved judgment as to the exact dollar amount pending revised calculations and supplemental briefing, id. at *20.

Specifically, this Court (1) ordered the Government's expert, Professor Harris, to recalculate forfeiture using only his discounted cash flow and P/E studies and omitting the PACA inventory fraud from those calculations, id. at *17, 18, 20, and (2) requested that the parties submit supplemental briefing on how to proceed with respect to Items 106 to 113 listed in Appendix I of the Government's post-trial brief (Docket No. 1422-2), id. at *24.

On July 11, 2011, the Government submitted supplemental briefing and Professor Lawrence Harris's revised calculations. (Gov't Ltr., Docket No. 1459.) Professor Harris stated that he made five changes to the assumptions previously made in the discounted cash flow study, but that only the first three were "necessary to take into account the Court's instruction that the PACA inventory fraud should not be used to estimate ill-gotten gains." (Harris Supp. Aff. ¶ 3, 7, 8.) Additionally, Professor Harris stated that he made two changes to the P/E assumptions, both necessary to exclude the PACA inventory fraud from his estimate. (Id. ¶¶ 11-12.) As for the items of personal property, the Government asserts that they should be liquidated and the proceeds from the sale of each item should be divided on the same pro rata basis as the cash and investment accounts. (Gov't Ltr. at 2-4.)

On July 15, 2011 Defendant Brooks submitted a letter, joined by Defendant Hatfield, stating the "the Court erred in reopening the record to allow the Government to file a new expert report," and asking the Court to strike the Government's July 11, 2011 submission and rule that there should be no forfeiture on the insider trading accounts. (Brooks Ltr. at 1, Docket No. 1460.) On July 18, 2011, the Court denied Defendants' requests but stated that it "will consider the arguments in their letter in resolving the outstanding forfeiture issues after all supplemental briefing regarding forfeiture is complete." (Order at 2, July 18, 2011, Docket No. 1464.)

Defendant Brooks submitted his opposition on July 27, 2011 (Brooks Opp., Docket No. 1467) and Defendant Hatfield submitted her opposition on July 29, 2011 (Hatfield Opp., Docket No. 1469). They argue that Professor Harris's supplemental report must be stricken in its entirety for failing to comply with the Court's June 14 Order and for incorporating unscientific assumptions. Brooks argues that this warrants dismissal of all insider trading forfeiture claims. Hatfield argues in the alternative that the Court should require Professor Harris to again recalculate based on the directives in the June 14 Order.

The Court agrees with Defendants that dismissal of the insider trading forfeiture claims is warranted as the Government has failed to meet its burden. However, this does not impact this Court's prior ruling regarding forfeiture of assets related to the unauthorized compensation scheme. Therefore, for the following reasons, the Government's motion is GRANTED IN PART AND DENIED IN PART.

DISCUSSION I. Standard of Review

The Government seeks forfeiture under 18 U.S.C. § 981(a)(1)(C), which authorizes forfeiture of "[a]ny property . . . which constitutes or is derived from proceeds traceable to" many kinds of offenses, including securities fraud. 18 U.S.C. § 981(a)(1)(C). "Because criminal forfeiture is viewed as part of the sentencing process, the government need prove facts supporting forfeiture only by a preponderance ...


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