When White Powder Law Meets White Collar

A reader sent over a link to this law.com post about the 11th Circuit appeal of the government’s pre-trial asset seizure from Kerri K***** in anticipation of forfeiture. 

For years, the criminal defense bar has been arguing wholesale seizures of assets are unconstitutional because they strip defendants of their Sixth Amendment right to choose the counsel of their choice.

“The K*****’s simply want to use their own money to retain counsel of choice to defend them at trial,” said one of their attorneys, Howard Srebnick of Black Srebnick Kornspan & Stumpf in Miami. “The government is interfering by freezing their assets, including the equity in the home they purchased more than a decade ago, without giving the K*****’s an opportunity pre-trial to confront witnesses and present evidence to establish they have committed no crime.”

There’s really nothing particularly new about the concept, as it’s been used since the late 1980s to prevent accused drug dealers of hiring counsel to defend themselves.  Almost the entirety of federal forfeiture law, one of the most notorious and offensive of weapons in the government’s arsenal, was developed to fight the “white powder” criminal defense bar, lawyers who represented drug dealers.

The basic idea is this: Criminals are not entitled to use the proceeds of their crimes to hire lawyers to defend themselves.  Criminal proceeds are forfeited to the sovereign from the outset, not merely after the money is determined to be criminal proceeds, and the government is thus entitled to freeze the assets to prevent them from being wasted and used, thereby protecting them so that the sovereign can get its hands on them.

The practical impact is that it creates a Catch-22.  Seize assets first, deny a defendant the ability to retain counsel to defend, win the case, which therefore proves that the initial seizure was justified.

And one little detail that can’t go unmentioned: The standard for forfeiture was “probable cause,” the lowest possible standard at law.  If the government wanted to seize assets, there was little to stand in its way.

When the targets of the government’s love was limited to drug dealers, there were few objections.  The same arguments were made, due process, equal protection, right to counsel, all the big constitutional issues.  The circuits laughed at us.  Sure defendants had a right to counsel, but counsel of choice was not absolute.  They had no right to retain counsel with dirty money. 

The problem now is that our slippery slope arguments have proven accurate.  Federal forfeiture law was developed on the backs of the least sympathetic defendants, drug dealers, but all that horrible law is now being used to strip white collar defendants in the exact same way.  Then, the public had no problem with the law.  Now, it’s an outrage.  Funny how that happens.

Kerri K***** wasn’t engaged in any notorious activity.  She was part of a company that sold used medical equipment:

For six years, Kerri K***** worked at a subsidiary of Johnson & Johnson, selling the company’s latest surgical innovations to hospitals. But she and about two dozen other salespeople of J&J’s Ethicon Endosurgery got into trouble with federal authorities by selling inventory that hospitals no longer wanted on the gray market, an indictment charged.

Valid prescription medical devices, such as sutures, allegedly were bought by F&S Medical of Delray Beach, Fla., which turned around and dealt the products to other medical facilities.

The government apparently claims this was stolen equipment being sold on the gray market.  The K*****’s and their co-defendants say this was “excessed” equipment which was given away by the manufacturer as hospitals bought the newest and latest equipment.  They had to get rid of it, and there was a ton of it as the company, Ethicon, kept developing newer stuff.   They took the old and sold it to doctors and hospitals in third world countries.

The K*****’s set aside about $1 million to pay attorneys by taking out a second home mortgage and cashing certificates of deposit. But prosecutors claimed the money was ill-gotten gains. They charged Kerri K***** stored the medical equipment in the family’s garage. Her husband was indicted after she refused a plea deal. Prosecutors said he knew about the conspiracy and managed the illegal profits.

Even after being stripped of the money, the K*****s didn’t qualify for a federal public defender. U.S. Magistrate Judge James M. Hopkins in West Palm Beach concluded the couple could liquidate their 401(k) retirement accounts and their children’s tax-deferred college funds — at a cost of a $200,000 tax penalty — to pay for a cut-rate lawyer.The defense asked for an unusual probable cause hearing to test the prosecutor’s case, but prosecutors opposed the move. The hearing would be like a mini-trial, giving the defense an early glimpse of evidence and strategy.

It sounds entirely different when the accused are selling surplus used medical equipment than kilos of cocaine.  The problem is that they are stuck with the same forfeiture law.

While it may first hit you that win, lose or draw, the government has ruined these defendants financially just by bringing charges.  A million here, a million there, pretty soon defendants find that their entire life’s work and savings are wiped out.  Explain that to the kids when they want to go to college.

But when the same defendants not only lose everything they’ve worked for their entire lives, but lose it to the government in an asset seizure and are left without the ability to defend themselves, the scenario emits a very unpleasant odor.  It’s one thing to lose to the government after a fair fight, but another when the government gets to tie your hands behind your back first and then challenges a defendant to “put up yer dukes.” 

The arguments being made now are the same as were made way back when the defendants were unpopular.  The old adage that “the law abhors a forfeiture” went out the window, and asset seizures became de rigor.  Will the 11th Circuit be able and willing to find that “conceptual ledge” to stop the law from sliding down that slippery slope when it comes to white collar defendants? 

All the K*****s are asking for is a pre-trial hearing where the government would be required to produce evidence that their assets, mostly gained before their involvement in the alleged crimes (and seized as “substitute” assets, meaning that lawful assets take the place of illegal assets that the government claims were gain but can’t be found or don’t exist), are subject to seizure.  The government refuses, because it would give the defendants a “sneak peek” at their evidence, as if revealing the government’s purported truth would be prejudicial.

This seems like a great case to test the waters where white powder meets white collar.  But the state of the law is terrible for the defendants.  If crime is crime, then why should white collar defendants be subject to different law than any other criminal defendant?  And that’s why we need to fear the slippery slope.

* Note that the name has been altered to protect the innocent.

12 thoughts on “When White Powder Law Meets White Collar

  1. Other Steve

    If a defendant wins at trial, or if the case is dismissed, or some similar outcome that can be considered a “victory” for the client is achieved, are the forfeited assets returned?

  2. SHG

    Nope.  The assets usually aren’t forfeited before trial, but seized and held pending the forfeiture proceeding.  This gets a little technical, as forfeiture is an in rem proceeding against the property, rather than an in personam proceeding against the owner of the property.  But since it has a lesser standard of proof, probable cause, the outcome of a criminal proceeding, with the higher burden of beyond a reasonable doubt, has no effect.

  3. Michael

    I quit believing in the honesty of the Supreme Court at least as early when Bill Rehnquist held that the US was a Christian nation because our coins say “In God We Trust”, after throwing out plaintiffs suing to get the phrase removed because they lacked standing. I quit believing in its integrity no later than when Scalia started talking in terms of “acceptable” dead innoncent criminal defendants. I quit believing in the strength and independence of the judiciary when Congress emasculated Article III and started writing sentencing guidelines, and SCOTUS lay down and held its breath. I cannot believe a human being can graduate from college, graduate from law school, pass a bar exam, and say with a straight face that pre-conviction asset forfeiture is constitutional. I only hope the federal and state prosecutors who are this dishonest will rethink their positions after their deaths, when their skins are on fire and one of Beezlebub’s tentacles is affixed where their genitals used to be.

  4. Shaula Evans

    Have you followed the trial of Virginia Dentist Roy Shelburne?

    He may face as much as 120 years and over a million dollars in fines for alleged medicaid fraud of less than $10,000. And his family has lost everything to government confiscation (as a “criminal syndicate”).

    When I read about his case, I thought of your post right away, which is where (I admit with embarassment) I first learned about the sweeping scope of forfeiture.

  5. Pingback: Can The Kaley’s Be Beggared Into Submission? | Simple Justice

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