Opinion
CV 03-955-MA.
January 28, 2005
Karin J. Immergut, United States Attorney, Leslie J. Westphal, Assistant United States Attorney, 1000 S.W. Third Avenue, Suite 600, Portland, Oregon 97204-2902, Attorneys for Plaintiff.
Robert C. Weaver, Jr., Samuel C. Kauffman, Garvey Schubert Barer, 121 S.W. Morrison Street, Eleventh Floor, Portland, Oregon 97204-3141, Attorneys for Claimants Crowne Gold and Sean Trainor.
Ronald H. Hoevet, Hoevet Boise, P.C., 1000 S.W. Broadway, Suite 1500, Portland, Oregon 97205, Attorney for Claimant Terry Neal.
OPINION AND ORDER
INTRODUCTION
On July 14, 2003, Plaintiff United States of America filed a complaint in rem seeking forfeiture of 47 ten-ounce gold bars, 35 one-ounce gold coins, and 3,069 one-ounce silver coins. Several claims were filed against portions of the res. On June 21, 2004, I entered an Order of Default as to all persons claiming any right, title or interest in or to the defendants, except the claims of Crowne Gold, Inc. (Crowne Gold), Christopher Athanas (Athanas), Ester Miro (Miro), Terry Neal (Neal), John Overdyk (Overdyk), James Shandy (Shandy), and Sean Trainor (Trainor). On June 23, 2004, the United States entered into settlement agreements with claimants Miro and Overdyk. Therefore, the remaining claimants are Crowne Gold, Athanas, Neal, Shandy, and Trainor.
The government does not move for summary judgment against Neal.
The United States moves for summary judgment against claimants Athanas, Shandy, Crowne Gold, and Trainor (#41). The United States asserts that summary judgment is appropriate because claimants Athanas and Shandy lack standing, and claimants Crowne Gold and Trainor operated a money transmitting business without a state license and without registering with the Treasury Department in violation of 18 U.S.C. §§ 1960(b)(1)(A) and 1960(b)(1)(B).
As in all motions for summary judgment, I view the evidence in the light most favorable to the non-moving party. United States v. City of Tacoma, 332 F.3d 574, 578 (9th Cir. 2003).
FACTS
Crowne Gold, Inc. was incorporated in the State of Nevada in March, 2002. Crowne Gold is not registered with the States of Oregon, Nevada, or Florida as a money transmitter. Crowne Gold is not registered as a money transmitter with the United States Department of the Treasury.
Trainor was hired as Director of Crowne Gold in March, 2002 and became the President of Crowne Gold in November, 2003. Trainor describes the Crowne Gold business as "an Internet gold and silver broker." Declaration of Sean Trainor in Opposition to Plaintiff's Motion for Summary Judgment, p. 2, ¶ 4. Crowne Gold "facilitates the ability of its individual clients to buy, sell, store and exchange gold and silver . . . from or to individualized Crowne Gold accounts or to merchants who accept gold as a medium of exchange." Id. at ¶¶ 4, 5.
In the Crowne Gold 2002 Preliminary Business Plan, Crowne Gold described itself as having a "unique financial transfer system." Exhibit 24 to Declaration of Special Agent Craige Walker in Support of Plaintiff's Motion for Summary Judgment, p. 2. The Business Plan states: "Simply put, Crowne Gold is in the business of selling gold, but the gold is not sold merely as an investment and hedge against inflation, Crowne Gold may also be used as a transfer agent." Id.
A Crowne Gold brochure from 2002 explained that "Crowne Gold allows clients to buy and sell gold and silver based on market prices, take delivery of gold and silver via bullion or coin, or digitally transfer any part of their holdings to third-parties via a secure, encrypted, Internet payment system." Exhibit 4 to Declaration of Special Agent Walker, p. 3. The brochure explains that "[a] new opportunity to use gold as private money has evolved as a result of the Internet." Id. at 6.
Those receiving digital gold in payment for another commodity, product or service may hold their gold position for profit (expecting an increase in the spot price), use their gold account as an alternative form of instant payment via the use of a email, or simply opt out of the payment system by taking physical possession of gold, or by selling their gold position on the spot market and taking payment in Euros, Sterling, or Dollars.Id.
The Crowne Gold website in May, 2002 stated that "[c]lients of Crowne Gold are buyers and sellers of gold that have the option to pass on all or part of their gold holdings to third-parties via a secure encrypted Internet payment system." Exhibit 5 to Declaration of Special Agent Walker, p. SW097260. The website explained that "Crowne Gold allows you to make and receive payments in gold." Id. at SW097265. The Crowne Gold website stated that "Crowne Gold allows you to buy and sell gold based on market prices and receive the proceeds by check, bank wire, or have funds deposited to a linked debit card." Id. at SW097262. The website stated: "At your request, Crowne Gold will order a debit card from a third-party financial institution." Id. at SW097270. The website further stated that "Crowne Gold will comply with client requests for cash deposits to be made to client's third-party debit cards, but it should be clearly understood that Crowne Gold is not an issuer of debit cards and has no responsibility for debit card operations beyond applying payments to cards as instructed by clients." Id. at SW097260. Trainor, President of Crowne Gold, explains in his declaration of November 15, 2004 that in early 2002 Crowne Gold had contracted with Bank Crozier for the issuance of MasterCard debit cards to qualified Bank Crozier account holders bearing the Crowne Gold logo; and that some prototype cards were printed, but that Bank Crozier ceased operations and no one who was issued a card was ever able to use it. Trainor states that "[s]ince the failure of Bank Crozier, [Crowne Gold] ha[s] never attempted to contract with any other bank or financial institution for the issuance of debit or credit cards and ha[s] removed those references from our promotional materials and website." Declaration of Trainor, p. 4.
A client making a gold or silver purchase through Crowne Gold must wire the necessary funds to the Crowne Gold account currently held at the Mercantile Bank in Greenville, South Carolina. After the receipt of the funds has been verified, Crowne Gold will "load" the client's account with the quantity of gold or silver purchased. Declaration of Trainor, p. 2. If Crowne Gold has sufficient quantities of gold or silver in its inventory, Crowne Gold allocates the appropriate amount of gold or silver to the client; and if Crowne Gold does not have sufficient quantities of gold or silver in its inventory, Crowne Gold will purchase gold and silver on the open market. Id. at 3.
The gold and silver is held by Crowne Gold for the client in a secure facility. Crowne Gold keeps track of the quantity of physical gold and silver allocated to each particular client at a given storage facility. At the client's request, Crowne Gold will physically deliver the client's gold or silver holdings. In late March, 2002, Crowne Gold entered into an agreement with Laughlin International (Laughlin) of Portland, Oregon. As part of the agreement, Laughlin was to provide a secure facility for storing gold and silver products, accept delivery instructions from Crowne Gold, and provide timely shipping and handling for Crowne Gold clients within the United States. Laughlin further agreed to permit unannounced audits of its vault and its contents as deemed appropriate by Crowne Gold or its accountants.
On December 27, 2002, the government executed a search warrant at the offices of Laughlin as a part of a criminal investigation of Neal. During the search, the federal agents found and seized the gold and silver that is the subject of this forfeiture action along with records of Crowne Gold. Some of the gold and silver seized from the Laughlin offices was to be routed to Crowne Gold clients who had requested physical delivery of their gold. The remainder of the gold and silver was to be routed to the vault for safekeeping. The seized gold was found in a safe in the break room. The gold and silver coins were not maintained in an organized manner or labeled in the name of an individual investor. However, Crowne Gold was able to identify the individual owners of the seized gold and silver via their account records. Claimants Athanas and Shandy are individual account holders who have been identified as owners of a portion of the seized gold.
On April 24, 2003, a grand jury indicted Neal and others for conspiring to impair and impede the Internal Revenue Service. United States v. Neal, et al., CR No. 03-35-HA (D. Or.). Crowne Gold and Trainer were not named defendants or otherwise referred to in the indictment.
APPLICABLE STANDARD
The burden of proof is on the government to establish, by a preponderance of the evidence, that the property is subject to forfeiture. 18 U.S.C. § 983(c)(1). The Civil Asset Forfeiture Reform Act of 2000 "transferred the burden of proof from the claimant to the government and required the government to establish forfeiture by a preponderance of the evidence rather than by the lower probable cause standard." United States v. $80,180.00 in U.S. Currency, 303 F.3d 1182, 1184 (9th Cir. 2002). When a party has the burden of proof on any claim by a preponderance of the evidence, the finder of fact must be persuaded by the evidence that the claim is more probably true than not true. See Civil Model Instructions, Ninth Circuit Section 1.13, p. 15. "[I]f the Government's theory of forfeiture is that the property . . . was involved in the commission of a criminal offense, the Government shall establish that there was a substantial connection between the property and the offense." 18 U.S.C. § 983(c)(3).
ANALYSIS
I. Claimants Athanas and Shandy
The United States contends that claimants Athanas and Shandy lack standing to contest the forfeiture because they do not have an interest in the seized assets sufficient to give rise to standing. Claimants Athanas and Shandy do not respond to the motion for summary judgment.
The claimant in a forfeiture proceeding bears the burden of showing that he owns or has an interest in the forfeited property in order to establish standing. United States v. $20,193.39 in U.S. Currency, 16 F.3d 344, 346 (9th Cir. 1994). Unsecured creditors do not have standing to challenge the civil forfeiture of their debtor's property because they cannot claim an interest in any particular asset that makes up the debtor's estate. Id.
In United States v. All Funds in Citibank Acct. of Kahn, 955 F.Supp. 23 (E.D.N.Y. 1997), aff'd 129 F.3d 114 (2nd Cir. 1997) (table), the government seized approximately $464,000 from bank accounts held in the name of Pak American Exchange Company alleging that the funds were subject to forfeiture because they were used in money laundering transactions related to heroin trafficking. Claimants alleged that they deposited portions of the funds in the seized accounts for the legitimate purpose of sending money to relatives in Pakistan. Claimants alleged that they were innocent of any wrongdoing and did not participate in the offense which the principal of the undisputed money transmitting business was ultimately found to be guilty. The Court of Appeals concluded that the individual claimants who deposited funds in the seized bank accounts lacked standing to contest the forfeiture because they retained neither "title to the accounts nor the dominion and control over the accounts." Id. at 27. The court explained that "lack of knowledge of the offense" does not alter the result where a claimant cannot prove ownership or possessory interest in the specific seized property. Id.
Claimants Athanas and Shandy sent funds to Crowne Gold who purchased gold and silver with their funds and maintained the gold and silver in Crowne Gold inventory. Claimants Athanas and Shandy allowed Crowne Gold to maintain complete control over the gold and silver in a secure location. Crowne Gold's assertion that "we know precisely the quantity of physical gold and silver in each location that is allocated to each particular client" does not create the required ownership rights over the specific seized funds. Declaration of Trainor, p. 3. I conclude that claimants Athanas and Shandy lack standing because they retained neither title nor dominion and control over the seized property similar to the innocent claimants in Kahn who deposited funds in a general bank account. See 995 F.Supp. at 27. The motion for summary judgment by the United States against claimants Athanas and Shandy is GRANTED.
II. Claimants Crowne Gold and Trainor
The United States asserts that it has come forward with more than a preponderance of evidence to establish that Crowne Gold and Trainor operated an unlawful money transmitting business without a state license and without registering with the Treasury Department in violation of 18 U.S.C. §§ 1960(b)(1)(A) and 1960(b)(1)(B). The United States asserts that the monetary transactions processed by Crowne Gold fit squarely within the statutory definition of a money transmitting business in 31 U.S.C. § 5330(d). The United States explains that Crowne Gold was promoted and used as a money transmitter because Crowne Gold accepted money from clients and issued debit cards used by clients to pay debts to third parties. The United States contends that the business records of Crowne Gold confirm that money transmission was an integral and not a collateral part of Crowne Gold's business in 2002 when the gold and silver involved in this case were seized.
Claimants Crowne Gold and Trainor assert that Crowne Gold is a gold and silver broker and allows its clients to transfer gold holdings which are backed by physical gold. Crowne Gold explains that it transfers money to and from clients pursuant to the client's instructions to buy or sell gold. Crowne Gold explains that this incidental funds transfer does not make it a money transmission business. Claimants Crowne Gold and Trainor assert that the United States has presented no evidence that Crowne Gold issued a debit card to anyone or transferred money from one client to another or to a third party. Crowne Gold explains that the debit cards referred to in its promotional materials were issued by the Crozier Bank and not by Crowne Gold; that Bank Crozier failed; and that Crowne Gold has removed references to the issuance of debit or credit cards from its promotional materials.
18 U.S.C. §§ 1960(b)(1)(A) and (B) prohibit the operation of a money transmitting business without a state license or without registering with the United States Department of the Treasury. To establish a violation of section 1960(b)(1), the government must prove (1) that a defendant knowingly conducted a money transmitting business; and (2) that the business was not licensed under state law, or the business failed to register with the United States Department of the Treasury as required by 31 U.S.C. § 5330 and 31 C.F.R. § 103.41(a)(b)(1). A money transmitting business is defined in 31 U.S.C. § 5330 as:
(1) . . . any business other than the United States Postal Service which —
(A) provides check cashing, currency exchange, or money transmitting or remittance services . . . or any other person who engages as a business in the transmission of funds, including any person who engages as a business in an informal money transfer system or any network of people who engage as a business in facilitating the transfer of money domestically or internationally outside of the conventional financial institutions system.31 U.S.C. § 5330(d).
In order to be entitled to summary judgment in this case, the United States must establish that it is more probably true than not true that Crowne Gold was operating an illegal money transmitting business, and that there was a substantial connection between the seized gold and silver and this criminal offense. There is evidence in the record that Crowne Gold was in the business of using the Internet to buy and sell gold and silver for its clients, and that clients of Crowne Gold could have Crowne Gold hold their gold or take physical delivery of their gold. Crowne Gold promoted its business as a way to use gold as "private money;" Exhibit 4 to Declaration of Special Agent Walker, p. 7; and offered clients the option to "exchange gold from or to individualized Crowne Gold accounts or to merchants who accept gold as a medium of exchange," Declaration of Trainor, p. 2, ¶ 5; or to sell their holdings and "have funds deposited to a linked debit card." Exhibit 5 to Declaration of Special Agent Walker, p. SW097262.
The United States asserts that Crowne Gold was in the business of "accepting cash from individual clients, purchasing gold and issuing debit and credit cards that were then used by the client to pay debts or make purchases." Memorandum in Support of Plaintiff's Motion for Summary Judgment, p. 4. However, there is no evidence that Crowne Gold issued debit or credit cards to its clients. The debit cards in evidence in Exhibit 8 to the Declaration of Special Agent Walker were issued by Bank Crozier to Dale Brown. The Crowne Gold website in May, 2002 stated that "it should be clearly understood that Crowne Gold is not an issuer of debit cards and has no responsibility for debit card operations beyond applying payments to cards as instructed by clients." Exhibit 5 to Declaration of Special Agent Walker, p. SW097260. The United States has presented no evidence to the contrary.
The United States further asserts that "[t]he Bank of America records included with Exhibit 8 demonstrate that Crowne Gold was not only promoted as a money transmitter, but was in fact used as a money transmitter. For example, James Fontano used his Crowne Gold account to make payments to Bank Crozier International (Ex. 8 at SW001405), Ronald V. Markham (Ex. 8 at SW001373)." Plaintiff's Reply, pp. 11-12. While these records and other evidence in Exhibit 7 may show that Crowne Gold sold gold holdings and transferred the proceeds as directed to third parties, the bank records in Exhibit 7 do not establish that money transmission was an integral, not collateral, part of Crowne Gold's business in 2002. Many businesses receive and transmit funds as payment as a part of their business. The United States does not deny that Crowne Gold was in the business of buying and selling gold for its clients; in fact, this gold and silver is the subject of this forfeiture. I conclude from the evidence in this record that there is at least a material issue of fact as to whether Crowne Gold operated a money transmitting business as defined in 31 U.S.C. § 5330(d)(1)(A). The evidence is not adequate to establish that it is more probably true than not true that Crowne Gold was a "network of people who engage as a business in facilitating the transfer of money" or to connect the gold and silver seized with purported money transmitting activities. Id. The motion for summary judgment by the United States against claimants Crowne Gold and Trainor is DENIED.
The bank records are contained in Exhibit 7 to Declaration of Special Agent Walker.
CONCLUSION
For the reasons stated, the government's motion for summary judgment (#41) is GRANTED as to claimants Athanas and Shandy and DENIED as to claimants Crowne Gold and Trainor.IT IS SO ORDERED.
DATED.