© 2014 The Texas Lawbook.
By Jeff Ansley
Special Contributing Writer to The Texas Lawbook
(March 6) – Imagine the following: You are a businessman and licensed professional for decades. You have labored hard and honestly to provide for yourself and your family, accumulating both significant tangible assets and a hard-earned reputation for being honest, reliable and good at what you do. Your employers and co-workers, past and present, like and respect you. Throughout your long and successful career, you’ve never been accused of misconduct of any kind, much less has anything of the kind ever been proven against you.
Overnight your life changes: The federal government accuses you of committing a fraud that, if ever proven, resulted in improper profits to you. You learn what you’ve been accused of through the local newspaper. Without any warning to you, or having proven anything to anyone, the government also convinces the court, based solely on its allegations, to freeze all of your and your family’s assets. While Mark Cuban had billions of dollars at his disposal to fight these allegations, you, unfortunately, do not and have been stripped of everything.
Immediately, every bank account and credit card you and your wife use for any expense, from the family groceries to the mortgage to the gas in your car, is useless. You now must borrow money to pay for your child’s daycare. That, of course, is an option only if anyone will lend you money. After all, you’ve already been lambasted in the paper, on the evening news, by your fellow coworkers and in the government’s one-sided and self-serving press release when they charged you but, as yet, they have proven nothing. Perhaps most amazing to you, the secret global asset freeze has stripped from you of hard earned income that easily surpasses the total amount of your alleged ill-gotten gains.
Your nightmare, however, is just beginning. The next day, FBI agents knock on your door. Executing a pre-indictment seizure warrant, the agents take away your car and other physical assets that you need for work and daily life – claiming you bought them with funds traceable to illegal activity. Keep in mind, however, that you have not yet even been indicted by a grand jury, much less been shown to have done anything wrong.
The criminal authorities then spend the following months building their case against you. If successful, that case will undoubtedly send you to federal prison for years, breaking apart your family and effectively ending your career. In the meantime, you have been fired because of the allegations and the civil authorities continue to pursue their case against you. Meeting with your lawyer, you quickly learn the other problem caused by the government’s unilaterally-secured asset freeze: you have no funds whatsoever to defend yourself. After working and earning a legitimate income for twenty years, the government’s mere accusation of having broken its rules has rendered you a pauper, unable to put up any resistance against the most powerful government in the world.
Everyone knows the celebrated folk tale of Robin Hood: the original redistributor of wealth, he nobly stole from the entitled and hated rich to give to the desiring and sympathetic poor. However, everyone does not – or at least should not – view the U.S. federal government as such a figure.
In recent years, the government, the richest and most powerful entity in the world, increasingly has begun following its own redistribution plan. In this adaptation of the folk tale, the federal government uses a myriad of yet-to-be-proven allegations of misconduct (securities fraud and health care fraud now sit atop an expanding list) to deprive charged – but, critically, presumed innocent – citizens of the very financial resources that are increasingly necessary to defend those liberties against allegations. The end result is as much planned as it is predictable. In a word, charges become indefensible not based on the facts, the law, or even the vagaries of a contested trial, but simply because defendants have been stripped of the resources necessary to mount a defense.
Moreover, the government has taken matters beyond anything Robin Hood ever would have imagined. Unlike the mythical inhabitant of Sherwood Forest, celebrated for liberating from the wealthy what they presumably could afford to lose, the government’s growing practice is, quite simply, to take it all when it is needed the most.
As a starting point, the Sixth Amendment to the U.S. Constitution promises citizens who have been accused of criminal charges the right to the assistance of counsel in the defense of those charges. The government and, unfortunately, the U.S. Supreme Court, increasingly have decided that this right is only illusory.
In criminal fraud cases, the federal government, at an alarming rate, is pursuing asset forfeiture remedies when defendants are merely indicted by a grand jury. These pre-trial asset forfeitures are imposed by a grand jury at the unilateral and unchallenged request of prosecutors – neither the defendant nor his counsel may be present. Consequently, they are denied the opportunity to contest any of the government’s allegations against them or the inevitable forfeiture that results. Of even greater significance, although no charges have been proven (even experienced prosecutors recognize the grand jury as little more than a rubber stamp in the hands of the sovereign, showing mere probable cause of a crime to a captive audience), such asset forfeitures commonly strip defendants of their financial assets at the very moment they are needed the most, namely, to contest criminal charges leveled against them by a federal government intent on convicting and sending them to prison.
Unfortunately, the Supreme Court last week missed a golden opportunity to hold this growing and dangerous practice in check. In Kaley v. United States, the Court, by a 6 to 3 ruling, held that defendants whose assets have been frozen, on the mere suspicion of illegal activity, have no constitutional right to a pre-trial evidentiary hearing to contest that forfeiture in order to mount a defense against pending but unproven charges. Despite the fact that the defendants had specifically set aside substantial funds to defend themselves (with assets that had not been shown to be tainted by illegality), the majority declined to “invade the province of the grand jury” by permitting the trial court to hold a hearing examining the merits of the forfeiture.
Tellingly, Chief Justice Roberts – who hardly could be construed as part of the court’s liberal wing – authored a compelling dissent challenging the fundamental fairness of using the imprimatur of the grand jury to strip defendants of the resources necessary to defend themselves before the battle even begins. The unfortunate result, however, is that the government has further eroded the playing field at the expense of our basic right to defend ourselves.
It starts with an investigation, increasingly coordinated by both the civil and criminal authorities. Typically, the government receives an almost insurmountable head start. It can devote nearly unlimited resources, often over the course of years, investigating a potential civil or criminal matter without any notice to its target. At the conclusion of its criminal investigation, the government presents its case to a non-adversarial grand jury that would, quite possibly, indict a ham sandwich. As part of this grand jury proceeding, the government will often present evidence for a criminal forfeiture action.
The process in a civil investigation is similar, although arguably even less protective of the rights of its target. If investigators determine that regulatory charges are warranted, the results of the investigation are presented to agency decision makers in, again, a non-adversarial process that typically culminates in the filing of charges. Increasingly, civil regulators are pursuing ex parte and pre-trial global freezes of defendants’ assets at the instant they commence those charges.
The effect of this, of course, is chilling. Such pre-trial asset freezes immediately render a defendant, criminal or civil (oftentimes both), helpless to fund a defense and makes him easy prey for an unduly burdensome plea agreement or unfavorable settlement. Importantly, no charges have been proven. A grand jury has found no more than probable cause to put a criminal defendant to trial. Alternatively, a regulatory agency simply has exercised its delegated authority to sue someone.
The natural and obvious consequence of these pre-trial seizures, however, is that the charged defendants are denied the basic opportunity to defend themselves before the firing of the first shot at trial. Too often, this results in the inevitable capitulation to charges that, if put through the adversarial process of a fair and contested trial, would fall short on the evidence. And that is perhaps the greatest tragedy of all.
Jeff Ansley is a former federal prosecutor and former enforcement lawyer with the U.S. Securities and Exchange Commission. He is now a partner at Bell Nunnally and specializes in white-collar criminal and securities defense. Jeff can be reached at JeffA@bellnunnally.com.
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