United States v. $465

          ORDER GRANTING IN PART AND DENYING IN PART GOVERNMENT'S MOTION FOR SUMMARY JUDGMENT

          Jeffrey Alker Meyer United States District Judge.

         The Government seeks forfeiture of life insurance proceeds that it alleges are traceable to acts of money laundering and wire fraud. Although I agree that the Government has established grounds to forfeit at least some portion of these life insurance proceeds, I conclude that genuine issues remain concerning the extent to which any additional forfeiture is warranted. Accordingly, I will grant in part and deny in part the Government's motion for summary judgment.

         Background

         Robert E. Lee, Jr., was an investment advisor who stole much of his client's money rather than investing it as he had promised them. See United States v. $465, 789.31 Seized From Term Life Ins., 150 F.Supp.3d 175, 176 (D. Conn. 2015). The FBI eventually caught on to him, and Lee pleaded guilty before me in December 2014 to five counts of wire fraud, in violation of 18 U.S.C. § 1343. See United States v. Lee, 3:14cr201 (JAM). I sentenced him in March 2015 to 63 months in prison as well as to orders of criminal forfeiture and restitution in the amount of $1, 150, 815.57.

         Lee then appealed his sentence, but he died from cancer during the pendency of the appeal. By operation of law, Lee's death while the appeal was still pending required the vacatur of his conviction and the abatement of his orders of criminal forfeiture and criminal restitution, all without prejudice to the right of the Government to pursue civil forfeiture. See United States v. Lee, 2017 WL 125012 (D. Conn. 2017).

         Because Lee's conviction has been vacated, I do not rely on the fact of his (now non-existent) conviction to conclude that Lee engaged in wire fraud. Instead, the undisputed facts agreed to by the parties are enough to conclude that Lee committed wire fraud by taking money on false pretenses from his investors and then using the money either for his own personal expenses or to engage in Ponzi scheme payments to other investors to attract new rounds of investment money. See, e.g., Doc. #48-2 at 2-9 (¶¶ 7-34).

         Some years before he began defrauding his clients, Lee bought a $1 million life insurance policy in April 2008. Lee's spouse-claimant Cathy Lee-was designated as the sole beneficiary under the policy. Lee paid monthly policy premiums of $379.22 for seven years from April 2008 to April 2015 when he died. Doc. #48-2 at 2 (¶ 4), 14 (¶ 7), 21 (¶ 42).

         Most of these premiums were paid from the same personal bank account at Citibank that Lee used beginning in December 2011 for his investor fraud. From December 2011 to October 2013, the Citibank account received $1, 081, 055.08 in fraud funds from Lee's victims. Id. at 8 (¶ 22).^[1] Lee recycled more than $1 million in payments from this account to his victims from November 2011 to April 2014, while drawing down more than $500, 000 from this account over this same time period for personal expenditures. Id. at 9 (¶ 34).

         In the meantime, the Citibank account was also laden with a large amount of legitimate funds. According to Lee (and not contradicted by the Government), he deposited approximately $2, 250, 000 in legitimate compensation from his employment into the account from December 2007 to July 2013. Doc. #48-2 at 19 (¶ 31).

         After April 2014, Lee continued to pay premiums for the life insurance from a new bank account at Wells Fargo until his death in April 2015. Id. at 21 (¶¶ 40-42). There is no evidence that the Wells Fargo bank account received any funds relating to any criminal activity.

         In short, the undisputed factual record shows that Lee paid monthly policy premiums over the course of seven years from April 2008 to April 2015 for the life insurance policy. It further shows that at least half of these premiums were paid from the Citibank or Wells Fargo accounts at times that they did not contain any tainted funds (April 2008 to November 2011 and May 2014 to April 2015).

         Even for those months where there were tainted investor funds in the Citibank account (December 2011 to April 2014), the Government's statement of material facts leaves it unclear whether each one of the monthly policy premiums was in fact financed by fraudulent funds rather than by legitimate funds in the account. The Government's statement of material facts identifies only five months where the transactional sequence makes clear that Lee paid the monthly premium from funds that had been fraudulently acquired by Lee from his investors. See Doc. #48-2 at 4-5 (¶ 12) (December 2012); id. at 5 (¶ 14) (May 2013); id. at 6 (¶ 16) (July 2013); id. at 7 (¶ 19) (February 2013); id. at 7 (¶ 21) (November 2013).

         Shortly after Lee died and the life insurance proceeds were realized, the Government seized the remaining life insurance proceeds in the amount of $465, 789.31. The Government eventually filed this civil forfeiture action against the proceeds in September 2015. Now the Government moves for summary ...