In a prosecution for mail and wire fraud, money-laundering conspiracy, and identity theft, the government properly seized the defendant’s two homes, having probable cause to believe those assets will ultimately be proved at trial to be forfeitable as tainted by the underlying crimes.
On October 15, 2015, Linda Diana Wallis pled guilty to conspiracy to commit wire fraud, signing a statement of facts with her plea. The facts stated that Wallis and her husband, Defendant David Harris Miller, engaged in a conspiracy to obtain money through false statements and misleading representations from three different victim organizations, including SkyLink Air and Logistic Support Inc., the Saslaw for State Senate campaign, and the Community College Consortium on Autism and Intellectual Disabilities. Wallis and Miller then used the funds they received through fraud to pay for their personal expenses, including interest payments on a loan secured by their Virginia home, improvements to a beach home in Delaware, and charters of private flights.
After Wallis entered her guilty plea, a consent order commanded the forfeiture of the Virginia and Delaware properties in partial satisfaction of the money judgment against Wallis (in the amount of the $1,429,599 she obtained as a result of the conspiracy). Miller had purchased both of these properties before he was married to Wallis and before the charged conspiracy began, and Wallis was not a title owner on either property at the time (though she was a signatory on a note secured by the Virginia property). Nevertheless, the forfeiture order specified that the properties were to be forfeited as “property that is traceable to, derived from, fungible with, or a substitute of property that constitutes the illegal proceeds of the conspiracy to commit wire fraud.”
Miller himself was indicted on September 20, 2017 for conspiracy to commit mail and wire fraud, conspiracy to launder money, mail and wire fraud, and aggravated identity theft. He now moves this court to release funds, specifically arguing that funds from the Virginia and Delaware properties are not traceable to proceeds from the charged criminal offenses and, thus, are not tainted and cannot be seized prior to trial.
“Involved in” laundering
Where, as here, a defendant is indicted for mail or wire fraud, any property — real or personal — which constitutes or is derived from proceeds traceable to the offense is forfeitable. Moreover, a defendant charged with money laundering is required to forfeit any property — real or personal — “involved in” a transaction or attempted transaction in violation of 18 U.S.C. § 1956 or § 1957, or any property traceable to such property.
The indictment and evidence make clear that the Virginia and Delaware properties were seized with probable cause to believe the properties were “involved in” a money-laundering conspiracy. Specifically, the funds, derived from Miller’s and Wallis’s fraud, were laundered through several bank accounts and then used to make payments on the properties, including: (1) interest payments on the note for the Virginia property; (2) payments for property taxes on the Virginia property; (3) payments to install fixtures in the Virginia property; and (4) payments for improvements to the Delaware property. These transactions supported probable cause to believe that both properties are forfeitable as property “involved in” a money-laundering conspiracy.
The government further supported this finding with evidence from an FBI forensic accounting expert of the financial transactions underlying each of the payments into both properties. Specifically, Wallis’s emails and bank records disclose that Wallis embezzled funds from the SkyLink, CCAID, and Saslaw accounts and then moved some fraud funds through the FLA account, deliberately transferred other funds via various personal accounts, and made numerous other unusual financial moves before making payments related to the Virginia and Delaware properties. The structure of these transactions indicates that Wallis intended to conceal the origin or source of the fraud funds in each of her transactions. This evidence is thus sufficient to support the grand jury’s probable cause determination that both properties were “involved in” a conspiracy to launder money in violation of § 1956.
The FBI expert also identified several transactions of more than $10,000 where fraud proceeds were transferred into personal bank accounts and then transferred to the properties. For example, on June 6, 2012, Wallis transferred $22,500 from the CCAID account to a bath-and-tile company to fund improvements to the Delaware property. On August 23, 2012, Wallis instructed Capital Bank to transfer $23,000 from CCAID to FLA and then $25,000 from FLA to the note on the Virginia property. These transactions of criminally derived proceeds establish probable cause to believe the properties were “involved in” a conspiracy to launder money in violation of § 1957.
The government also adduced evidence that both properties were “involved in” a money-laundering conspiracy insofar as Miller and Wallis used the properties to facilitate the underlying fraud and money-laundering offenses. The FBI expert testified that they accessed four different fake email accounts more than 100 times and sent at least 50 fraudulent emails in support of their fraud from the Virginia property. And Wallis sent instructions to various bank representatives to move funds between various personal accounts while he was located in the Delaware property. Both properties are, therefore, also forfeitable based on the fact that Miller and Wallis used them to facilitate fraud and money laundering.
Accordingly, Miller’s motion for release of funds can be denied solely based on sufficient evidence to support the grand jury’s probable cause finding that both the Virginia and Delaware properties were “involved in” § 1956 and § 1957 offenses.
Contrary to Miller’s contention, the fact that neither property was purchased with tainted funds is not dispositive of whether the properties were “involved in” a money-laundering offense. Courts in this circuit and elsewhere have consistently held that when laundered money is used to fund improvements, pay property taxes, or pay down a loan on the property, the property is then “involved in” a money-laundering offense. This rule makes sense: Without the embezzled and laundered funds in this case, Miller would not have gotten the benefit of improvements and satisfied tax and loan obligations on the properties.
The court also rejects Miller’s contention that the properties did not facilitate the offenses merely because Wallis used her computer at home. The 4th Circuit and other courts have held that, where the criminal conduct takes place inside a property, that property can be seized because it was used to perpetrate the underling offense.
Even if the properties had not been “involved in” a money-laundering conspiracy, there is also probable cause to believe that $315,317 of the Virginia property and $58,818 of the Delaware property are traceable to the conspiracy and underlying fraud. As such, these amounts are forfeitable. Where, as here, legitimate funds are commingled with fraud proceeds in the bank account, tracing rules allow courts to distinguish between legitimate and illegitimate funds and to track or trace the movement of illegitimate funds.
Precedents applying tracing rules compel the conclusion in this case that the FBI expert appropriately traced fraud proceeds and laundered property to payments made on the Virginia and Delaware properties. The expert applied the Lowest Intermediate Balance Rule in her tracing analysis, and a careful review suggests that her results are consistent with the principles described in Sony Corp. v. Bank One, 85 F.3d 131 (4th Cir. 1996). The expert abated the amount of identifiable criminal proceeds whenever the balance of the account dipped below the amount of the fraud proceeds. Consistent with the LIB Rule, the expert did not increase the amount of fraud proceeds if legitimate funds were later deposited in the account.
Contrary to Miller’s contention, the LIB Rule is not a rigid requirement that fraud funds are always the last to leave an account; instead, it aims to preserve the proceeds to the greatest extent possible as the account is depleted. Thus, under Sony, funds that are not spent but transferred to other accounts or used to purchase investments are identifiable as proceeds of criminal activity. In addition, even if the accountant did apply several different tracing rules, courts have routinely recognized the need for flexibility in using tracing rules and the need to reflect the reality of any transaction.
In sum, probable cause exists to believe that the two properties are forfeitable as tainted, not substitute, assets, and as such they may be restrained prior to trial, even assuming that Miller needs the assets to fund his legal defense. For these reasons, Miller’s motion for release of funds must be denied.
United States v. Miller, Case No. 1:17cr213, Mar. 8, 2018. EDVA at Alexandria (Ellis). VLW No. 018-3-070, 26 pp.