United States v. Peters ( 2013 )

11-610-cr (L)
United States v. Peters
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term, 2012
(Argued: December 21, 2012 Decided: October 9, 2013)
Docket Nos. 11-610-cr(Lead) 11-612-cr(Con)
-------------------------------------
UNITED STATES OF AMERICA,
Appellee,
-v-
FRANK E. PETERS,
Defendant-Appellant.
-------------------------------------
Before: SACK and LYNCH, Circuit Judges.1
1
Judge Guido Calabresi, originally assigned to the panel, recused himself
from this case shortly before oral argument. The two remaining members of the
panel, who are in agreement, have determined the matter in accordance with
Second Circuit Internal Operating Procedure E(b). See 28 U.S.C. § 46(d); cf. United
States v. Desimone, 140 F.3d 457, 458 (2d Cir. 1998).
Appeal by the defendant, convicted of various counts related to a
scheme to defraud a bank, from a judgment of the United States District Court
for the Western District of New York (William M. Skretny, Judge) ordering
forfeiture pursuant to 18 U.S.C. § 982(a)(2) in the amount of $23,154,259. We
conclude that (1) section 982 requires forfeiture of the gross receipts of the
criminal violation, not only the profits, and (2) in light of his almost total control
over the companies involved in the violation and their assets, the defendant
"indirectly" obtained the proceeds of the fraud through the companies and can
therefore be held accountable for criminal forfeiture of those proceeds pursuant
to section 982. We therefore affirm the forfeiture award by the district court.
Affirmed.
JAMES W. GRABLE, Jr., Connors & Vilardo, LLP,
Buffalo, NY, for Defendant-Appellant.
JOSEPH J. KARASZEWSKI (Richard D. Kaufman
and Gretchen L. Wylegala, on the brief), Assistant
United States Attorneys for William J. Hochul, Jr.,
United States Attorney for the Western District of
New York, Buffalo, NY, for Appellee.
2
SACK, Circuit Judge:
The defendant, Frank E. Peters, was charged in the United States
District Court for the Western District of New York with various counts related
to a scheme to defraud Chase Manhattan Bank ("Chase") by overvaluing assets
used to secure and maintain a revolving line of credit. In addition to imposing a
term of imprisonment and ordering restitution, the district court (William M.
Skretny, Judge) ordered forfeiture in the amount of $23,154,259 pursuant to 18
U.S.C. § 982(a)(2). The district court concluded that section 982 requires
forfeiture of the "receipts" of the criminal violation, i.e., "the draws from the
revolving line of credit between July 1998 and October 2000." United States v.
Peters, 257 F.R.D. 377, 388 (W.D.N.Y. 2009). The district court also concluded that
although the loan proceeds were disbursed to corporations owned and controlled
by Peters and his wife, because they were in fact his corporate alter egos, it
would "pierce the corporate veil" and hold the defendant liable for the proceeds
reaped by the corporations.
The defendant advances several arguments challenging his
conviction and the loss amount calculated for Sentencing Guidelines and
restitution purposes, all of which we resolve in a summary order filed today. In
this precedential opinion we address only the defendant's challenge to the order
3
of forfeiture. The defendant objects to it on two grounds: (1) section 982 requires
him to forfeit only the "profits" of the fraudulent scheme, not all payments that
his companies received under the Chase loan, and (2) the district court erred
when it "pierced the corporate veil" to find that he personally "obtained" the loan
proceeds paid to his companies.
We conclude that (1) section 982 requires forfeiture of the gross
receipts attributable to the criminal violation, not only the profits, and (2) in light
of his near total control over the companies and their assets, the defendant
"indirectly" obtained the Chase loan proceeds and can be held accountable for
criminal forfeiture of those proceeds pursuant to section 982.
BACKGROUND
Peters and his wife, Marta Chaikovska, purchased World Auto Parts,
Inc. ("WAPI") in 1990. In 1995, WAPI acquired a company Peters and his wife
renamed Bighorn Core, Ltd. ("Bighorn"). WAPI and Bighorn (together, the
"Companies") sold aftermarket auto parts. Chaikovska was WAPI's chief
executive officer and owned 85 percent of the Companies. Peters was the
president and owned 13 percent. Peters's sister-in-law owned one percent, and a
fourth individual, Peter Van Domelen, owned one percent.
4
The Chase Loan
In 1996, the Companies entered into an asset-based credit agreement
with Chase in which the bank agreed to extend to the Companies a $9 million
revolving line of credit secured by the Companies' assets. In June 1998, the
parties renewed the agreement for two years, raising the available credit to $10.5
million. The cash available to the Companies on any given day was determined
by the Companies' "borrowing base": the sum of the values of the Companies'
inventory and accounts receivable. The Companies were permitted under their
arrangement with the bank to borrow up to an amount equal to 85 percent of the
value of current accounts receivable, plus 60 percent of the value of the current
inventory, less whatever loan principal was outstanding (never to exceed the
$10.5 million maximum).
The loan agreement provided that the Companies would deposit all
payments from customers into "blocked" accounts at Chase, from which only the
bank could make withdrawals. Chase would then "sweep" the accounts
periodically, using the money taken from them to pay down the Companies' loan
balance.
Certain accounts receivable were deemed "ineligible" for purposes of
determining the borrowing base because the bank considered it unlikely that
5
those amounts would be repaid. For example, the Companies were not
permitted to borrow against accounts receivable more than 90 days past due or
purchase orders that had not yet been fulfilled. The Companies would
periodically file a "borrowing base report," which was supposed to reflect the
combined value of accounts receivable and inventory. To confirm the
information in the borrowing base report, and to verify generally the Companies'
accounting standards, Chase "field examiners" were permitted to audit random
samples of the Companies' records. One such field examiner, Edward Grayeski,
testified at trial that he had conducted field tests between 1996 and 1998, and that
his review raised red flags with respect to some of the accounts receivable.
Although the Companies were initially able to deflect the bank's concerns about
the accuracy of their records, examiners eventually uncovered the fraudulent
scheme, described below, that underlies this case.
The Scheme
Peters does not dispute that the Companies engaged in a fraudulent
scheme to manipulate the accounts receivable in order to inflate their borrowing
base. Starting sometime in 1997, the Companies began experiencing cash-flow
shortages due to a low sales volume. In response, the Companies developed
ways to increase cash flow. Gregory Samer, a WAPI employee who pleaded
6
guilty under the same indictment that named Peters as a defendant, testified as a
cooperating witness at Peters's trial. Samer detailed three different fraudulent
accounting practices committed by Peters and the Companies in order to increase
the cash available through the Chase loan: (1) "holding the month open";
(2) "prebilling"; and (3) "rebilling."
The practice of "holding the month open" consisted of including in a
particular month an account receivable that did not actually ripen until the
following month. For example, Samer might instruct Cheryl Martinez, who
worked in WAPI's billing department, to include invoices from the first two
weeks of February in the January Accounts Receivable Report. Martinez would
then backdate what should have been a February invoice to make it appear as
though the goods sold had been shipped in January. If the product did
eventually ship to the customer, Martinez would produce a hand-typed invoice
that reflected the actual date of shipment.
"Prebilling" referred to the practice of creating a sales invoice for an
order before any goods were shipped, thereby making an unripe purchase order
appear to be an account receivable. For example, in January 2000, a company
named ATCO placed a purchase order with Bighorn for $850,000 worth of air-
conditioning cores. Bighorn lacked both the inventory to fulfill the order and
7
sufficient cash to purchase the inventory. Employees at Bighorn created an
invoice falsely indicating that the ATCO order had shipped, which allowed them
to include an $850,000 order in the Accounts Receivable Report for that month.
As a result, Chase was duped into lending the Companies more money -- money
that Chase expected to be repaid through a sale that, in fact, might never come to
fruition.
The practice of "rebilling" was, in effect, an end-run around Chase's
policy of excluding accounts receivable that were more than 90 days old from the
borrowing base. Employees at the Companies would generate a new invoice for
an old sale with a false date somewhere within the previous 90 days so that the
receivable could be included in the borrowing base report.
Although there was evidence in the record that Chase was aware of
at least some of these practices, the bank appears to have been unaware of the
extent to which the Companies' employees were artificially inflating the
Companies' borrowing base. Chase ultimately uncovered the full extent of the
fraud in or around May 2000, when a Bighorn employee named Ron Hall
disclosed it to Chase examiners.
8
The Creation of ITEC
In early 2000, Peters created a corporation named Innovative
Transmission and Engine Company ("ITEC") into which he spun off the
Companies' heavy-duty equipment department. Peters opened a bank account
for ITEC at another institution, M&T Bank. Several customers who had sent
payments to WAPI were sent correspondence informing them that WAPI had
changed its name and asking that the payment be reissued to ITEC. The reissued
checks were deposited in ITEC's account at M&T Bank, instead of in the
Companies' Chase accounts, where the loan agreement required that such
payments be deposited. Chase was thus deprived of money that was supposed
to have been used to pay down the loan.
Procedural History
On October 22, 2003, a grand jury in the United States District Court
for the Western District of New York returned an eighteen-count indictment
against Peters, Samer, and the chief financial officer of the Companies, Mark
Hoffman. The indictment charged Peters with a host of crimes, including one
count of conspiracy to commit bank fraud, in violation of 18 U.S.C. § 1014 and
§ 1344, in connection with the Companies' accounting practices and the creation
of ITEC; four counts of making a false statement to a bank, in violation of 18
9
U.S.C. § 1014, in connection with four separate instances of fraudulently inflating
the borrowing base; four counts of bank fraud, in violation 18 U.S.C. § 1344, three
of them alleging false statements in connection with alleged payments from the
Companies to the defendant, and the fourth in connection with the ATCO prebill;
one count of money laundering, in violation of 18 U.S.C. § 1957; and three counts
of mail or wire fraud, in violation of 18 U.S.C. §§ 1341 and 1343, in connection
with the diversion of payments to ITEC.
Samer was charged with the conspiracy and bank fraud counts, and
Hoffman was charged with the conspiracy and mail and wire fraud counts. The
last five counts sought criminal forfeiture of the proceeds of the allegedly
fraudulent activity. In February 2005, Samer pleaded guilty to the conspiracy
count and agreed to cooperate with the government.
A jury trial began in May 2007. Although all parties agreed that a
fraudulent scheme to inflate the borrowing base had occurred, Peters disputed
that he participated in it and argued that he was in fact its victim. On July 20,
2007, the district court granted Peters's motions for acquittal on three bank-fraud
counts -- the counts alleging payments to Peters for personal use -- and the
money laundering count. On July 30, 2007, the jury convicted Peters of one count
of conspiracy to commit bank fraud, one count of making a false statement to a
10
bank, one count of bank fraud, two counts of wire fraud, and one count of mail
fraud. The jury acquitted him of three counts of making a false statement to a
bank. Hoffman was acquitted of all counts.
On January 27, 2011, the district court sentenced Peters principally to
108 months' imprisonment, and ordered him to pay $11,988,501.36 in restitution.
The government and Peters had agreed that the district court would resolve the
forfeiture counts, which it did in March 2009 by entering a forfeiture money
judgment of $23,154,259. Peters, 257 F.R.D. at 390.
DISCUSSION
On appeal, the defendant advances several arguments challenging
the fairness of his trial and his sentence. We address most of these arguments in
a summary order decided simultaneously herewith affirming the defendant’s
conviction and the amount of restitution awarded at sentencing. See United States
v. Peters, --- F. App'x ---, --- WL ---, --- U.S. App. LEXIS --- (2d Cir. [date] 2013).
The defendant also argues that the district court erred by entering a forfeiture
order in the amount of $23,154,259 because (1) the criminal forfeiture statute, 18
U.S.C. § 982(a)(2), requires forfeiture only of profits, not of gross receipts, and (2)
the district court erred in finding that the Companies were his alter egos such
11
that the court could impose a forfeiture order against him personally. It is this
challenge to the forfeiture award that we consider here.
We review a district court's legal conclusions -- including those
regarding the application of the forfeiture statute -- de novo, and all underlying
factual findings for clear error. United States v. Gaskin, 364 F.3d 438, 461-62 (2d
Cir. 2004).
I. Criminal Forfeiture Under 18 U.S.C. § 982(a)(2)
The forfeiture statute at issue here is 18 U.S.C. § 982(a)(2), which
provides in relevant part:
The Court, in imposing sentence on a person convicted
of a violation of, or a conspiracy to violate –-
(A) section . . . 1014, 1341, 1343, or 1344 of this title,
affecting a financial institution . . .
shall order that the person forfeit to the United States
any property constituting, or derived from, proceeds the
person obtained directly or indirectly, as the result of
such violation.
Id.
Federal Rule of Criminal Procedure 32.2(b)(1)(A) requires a trial
court, "[a]s soon as practical after a verdict . . . of guilty" against a defendant, to
"determine what property is subject to forfeiture under the applicable statute."
12
Id. "If the government seeks a personal money judgment, the court must
determine the amount of money that the defendant will be ordered to pay." Id.
The government must establish the nexus between the offense and the forfeiture
request by a preponderance of the evidence. See United States v. Capoccia, 503
F.3d 103, 110 (2d Cir. 2007).
Criminal forfeiture under section 982 is a form of punishment,
separate and apart from any restitutive measures imposed during sentencing.
Forfeiture of money under section 982, unlike restitution, "constitutes
punishment," because the statute directs the court to order it "as an additional
sanction when 'imposing sentence on a person convicted' of the relevant offense"
and because "[criminal] forfeiture serves no remedial purpose, is designed to
punish the offender, and cannot be imposed upon innocent owners." United
States v. Bajakajian, 524 U.S. 321, 328, 332 (1998); see also Libretti v. United States,
516 U.S. 29, 39 (1995) ("Our precedents have likewise characterized criminal
forfeiture as an aspect of punishment imposed following conviction of a
substantive criminal offense."). A court's discretion in ordering criminal
forfeiture is cabined by the Eighth Amendment’s Excessive Fines Clause. The
amount of forfeiture "must bear some relationship to the gravity of the offense
that it is designed to punish." Bajakajian, 524 U.S. at 334.
13
II. The District Court’s Decision
The defendant elected to have the district court, rather than the jury,
resolve the criminal forfeiture charges against him. The government requested
an order of forfeiture in the amount of $28,204,200, which represented the sum of
(1) all disbursements under the 1998 Chase loan, (2) payments the defendant
diverted from WAPI to ITEC, and (3) payments made from the Companies
directly to the defendant -- e.g., as salary, car payments, and rent -- between 1996
and 1998.
The district court ordered criminal forfeiture by Peters in an amount
equal to the sum of (1) all disbursements under the 1998 Chase loan, and (2) all
payments diverted from WAPI to ITEC. Peters, 257 F.R.D. at 388-89. In doing so,
the court rejected Peters' argument that he should be liable only for the "profits"
generated by the fraud. Id. at 388. The district court also concluded that WAPI
and Bighorn were the defendant's corporate alter egos for the purpose of piercing
the corporate veil and finding the defendant personally liable under section
982(a)(2). Id. at 385. The court rejected the government’s request for forfeiture of
payments made to the defendant from the Companies between 1996 and 1998,
concluding that there was insufficient evidence to connect any pre-1998
payments to any offenses for which the defendant was convicted. Id. at 388.
14
After doing the arithmetic, the court imposed a money judgment
against Peters in the amount of $23,154,259. Id. at 390.
III. Analysis
A. Proceeds Versus Profits
On appeal, Peters urges us to read "proceeds" in section 982 to
include only the profits of his fraud. Section 982 does not supply a definition of
the term "proceeds." Neither have we determined whether, as used in section
982(a)(2), "proceeds" means profits or gross receipts. We ultimately agree with
the district court that the term "proceeds" is not limited to profits.
1. Textual Arguments. When a term in a statute is undefined, we are
to give it its ordinary meaning. FDIC v. Meyer, 510 U.S. 471, 476 (1994).
"Proceeds," however, "can mean either 'receipts' or 'profits.' Both meanings are
accepted, and have long been accepted, in ordinary usage." United States v.
Santos, 553 U.S. 507, 511 (2008). The term "'[p]roceeds,' moreover, has not
acquired a common meaning in the provisions of the Federal Criminal Code. . . .
Congress has defined 'proceeds' in various criminal provisions, but sometimes
has defined it to mean 'receipts' and sometimes 'profits.'" Id. at 511-12.
The defendant argues that this case is controlled by Santos, a case
involving an illegal lottery. In Santos, the Supreme Court construed the word
15
"proceeds" in the federal anti-money laundering statute, 18 U.S.C. § 1956, to mean
profits, rather than gross receipts. A plurality of the Santos Court found that
because "[f]rom the face of the statute, there is no more reason to think that
'proceeds' means 'receipts' than there is to think that 'proceeds' means 'profits,'"
the rule of lenity required that "the tie must go to the defendant." Id. at 514.
The defendant would have us conclude that the term "proceeds"
under section 982(a)(2) must therefore also be limited to "profits." The problem
with the defendant’s argument is that, under the rule announced by the Supreme
Court in Marks v. United States, 430 U.S. 188 (1977), the holding in Santos is
limited to the "position taken by those Members who concurred in the judgments
on the narrowest grounds," id. at 193 (internal quotation marks omitted). And as
we explained in United States v. Quinones, 635 F.3d 590 (2d Cir.), cert. denied, 132 S.
Ct. 830 (2011), Justice Stevens' concurrence controls the scope of the Court's
holding in Santos. Id. at 599 (citing Santos, 553 U.S. at 523). Unlike the plurality,
Justice Stevens would have held that "proceeds" meant "profits" when the anti-
money laundering statute was applied to specified unlawful activities, but that it
meant "receipts" when applied to others. Santos, 553 U.S. at 525 (Stevens, J.,
concurring).
16
We need not and do not decide here the precise contours of Santos's
holding. It is enough to observe, as we did in Quinones, that a key point of
agreement among the plurality and Justice Stevens was the desire to avoid a
"merger problem." Quinones, 635 F.3d at 599. In the context of the illegal lottery
at issue in Santos, the plurality explained that "[i]f 'proceeds' meant 'receipts,'
nearly every violation of the illegal-lottery statute would also be a violation of the
money-laundering statute, because paying a winning bettor is a transaction
involving receipts that the defendant intends to promote the carrying on of the
lottery." Santos, 553 U.S. at 515. Justice Stevens agreed that such payments
would necessarily be funded by the "receipts" of illegal activity. Id. at 526-27
(Stevens, J., concurring). And he agreed with the plurality that Congress could
not have intended violations of the money-laundering statute to "merge" in this
way with violations of other statutes. Id. at 528 & n.7.
By contrast, the criminal forfeiture statute presents no merger issue.
Unlike the anti-money laundering statute, section 982(a)(2) is a form of
punishment rather than a substantive criminal offense. There is therefore no risk
of what Justice Stevens called a "practical effect tantamount to double jeopardy,"
id. at 527, when section 982(a)(2) captures funds essential to the commission of
one of its predicate offenses. Because the concerns uniting Justice Stevens's
17
concurrence and the plurality in Santos do not apply in the context of criminal
forfeiture, Santos does not control the question of how to interpret "proceeds" for
the purposes of section 982(a)(2).
Turning then to the text, the defendant points to subsections (a)(3)
and (4) of section 982, which apply to violations of other statutes and which
require forfeiture of all property traceable to "gross receipts obtained" as a result
of the violation.2 The government counters by pointing to the seemingly broad
language of section 982, which reaches "any property . . . obtained directly or
indirectly" from the crime. The government notes that, in interpreting nearly
identical language in 21 U.S.C. § 853, which addresses criminal forfeiture in the
context of narcotics violations, the Supreme Court was of the view that "Congress
could not have chosen . . . broader words to define the scope of what was to be
forfeited." United States v. Monsanto, 491 U.S. 600, 607 (1989).
We do not find either of these arguments particularly helpful or
persuasive. For much the same reasons the Santos Court thought that the term
2
Although Peters does not cite it, another example is section 982's civil
cousin, 18 U.S.C. § 981. In imposing civil forfeiture for unlawful activity --
indeed, for the same types of fraud for which the defendant was convicted -- that
provision explicitly states that "the court shall allow the claimant a deduction
from the forfeiture to the extent that the loan was repaid, or the debt was
satisfied, without any financial loss to the victim." 18 U.S.C. § 981(a)(2)(C).
18
"proceeds" in section 1956 was ambiguous in the context of money laundering,
we think that the term is ambiguous as used in section 982.
2. Primary Purpose of Section 982. "Where the language of a statute is
ambiguous, we focus upon the 'broader context' and 'primary purpose' of the
statute." Castellano v. City of New York, 142 F.3d 58, 67 (2d Cir. 1998) (citing
Robinson v. Shell Oil Co., 519 U.S. 337, 345-46 (1997)). Here, the punitive intent of
section 982 favors the government's interpretation of the word "proceeds."
Criminal forfeiture is a form of punishment. As such, it is distinct from
restitution or other remedial actions, which are intended to return the victim and
the perpetrator to the status quo that existed before the violation took place.
We agree with the government that doing no more than returning a
"wrongdoer to the economic position he occupied before he committed his
criminal offense does not provide much of a deterrent to those who might be
tempted to follow in his footsteps." Gov’t Br. at 64. That is not "punishment."
Moreover, as the Eighth Circuit noted in a case involving forfeiture under the
Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C.
§ 1963(a)(3), a broad reading of "proceeds" in the context of criminal forfeiture
punishes "all convicted criminals who receive income from illegal activity, and
19
not merely those whose criminal activity turns a profit." United States v. Simmons,
154 F.3d 765, 771 (8th Cir. 1998).
We also find relevant the fact that it may often, although not always,
be difficult to isolate and identify the "profits" of criminal activity. Here, for
example, the fraudulent accounting practices at the heart of the scheme also
make it challenging to determine what exactly became of the loan disbursements.
As the Eighth Circuit noted, quoting the RICO forfeiture provision's legislative
history, "[i]t should not be necessary for the prosecutor to prove what the
defendant's overhead expenses were." Id.; see also United States v. McHan, 101
F.3d 1027, 1042 (4th Cir. 1996) ("Were we to read proceeds in § 853 [the narcotics
forfeiture statute] to mean only profits, . . . we would create perverse incentives
for criminals to employ complicated accounting measures to shelter the profits of
their illegal enterprises.").
We conclude that reading "proceeds" to mean "receipts" rather than
"profits" in the context of section 982(a)(2) better vindicates the primary purpose
of the statute. In so doing, we agree with the Ninth Circuit that in enacting the
section, "Congress sought to punish equally the thief who carefully saves his
stolen loot and the thief who spends the loot on 'wine, women, and song.'" United
States v. Newman, 659 F.3d 1235, 1243 (9th Cir. 2011). "[T]he 'proceeds' of a
20
fraudulently obtained loan equal the amount of the loan," id. at 1244, irrespective
of whether the defendant personally profited from the loan or whether the bank
recovered part of the loan principal.
We came to a similar conclusion in United States v. Awad, 598 F.3d 76(2d Cir. 2010) (per curiam). There, we held that criminal forfeiture under
21 U.S.C. § 853 "permits imposition of a money judgment on a defendant who
possesses no assets at the time of sentencing." Id. at 78. Because "[m]andatory
forfeiture is concerned not with how much an individual has but with how much
he received in connection with the commission of the crime," id. at 78 (internal
quotation marks omitted, brackets in original), we conclude that the term
"proceeds" as used in section 982(a)(2) means "receipts."
B. "Obtained Indirectly"
Section 982(a)(2) directs that a person must forfeit to the United
States any proceeds "the person obtained directly or indirectly, as the result of
such violation." As he did before the district court, the defendant argues on
appeal that it was the Companies, not he, that "obtained" the proceeds of the
Chase loan. The government responds that the defendant should not be
permitted to shield himself from liability behind the Companies' corporate form.
21
It asserts that the district court properly "pierced the corporate veil" to find that
the defendant "obtained" the loan proceeds through his corporate alter ego.
The proceeds subject to forfeiture are those obtained both directly
and indirectly as a result of the criminal violation. 18 U.S.C. § 982(a)(2). It seems
to us beyond doubt that any loan proceeds transferred from the Companies to
the defendant personally are obtained by him "directly" and are properly subject
to forfeiture. This, however, accounts for only a relatively small fraction of the
forfeiture award -- just over $2.3 million.
The second, more difficult issue -- and one as to which the parties
have not identified any prior decision binding on us -- is under what
circumstances an individual can be said to have "obtained . . . indirectly" the
proceeds of his criminal conduct through a corporate entity. The district court
analyzed the question with reference to New York's "complete domination"
theory of corporate alter ego liability and found that the defendant "obtained" the
loan proceeds because the Companies were his alter egos for purposes of
"piercing the corporate veil." Peters, 257 F.R.D. at 385. Applying this theory of
liability, the district court concluded that the defendant obtained the loan
proceeds indirectly through the Companies as his corporate alter egos.
22
The court based its conclusion on the fact that: (1) the defendant and
his wife together owned 98 percent of the Companies and the defendant's sister-
in-law owned 1 percent, leaving only 1 percent of the Companies outside of
family control; and (2) the defendant "controlled [the Companies] on a day-to-
day basis." Id. Among other things, the court found that Peters "hired new
employees"; "directed product managers at [the Companies] on all aspects of
business"; "moved money in and out of [the Companies], and had the ability to
direct wire transfers from the corporate accounts"; "owned or had interests in the
companies that owned the buildings where [the Companies] were housed, as
well as other corporate entities that had business relationships with [the
Companies]"; "directed the corporate accounting and billing methods"; "knew
about, approved, and directed the practices of 'holding months open,' 'prebilling,'
'rebilling,' and the use of false invoices, which essentially constituted the fraud
against Chase"; and "was instrumental in securing and renewing" the line of
credit with Chase in June 1998. Id. at 385-86. The court concluded that the
evidence demonstrated that the defendant "completely dominated [the
Companies] such that they were his alter egos." Id. at 386.
Although the district court relied on the doctrine of "piercing the
corporate veil," we find it unnecessary to do so and thereby avoid entering into
23
the somewhat complicated jurisprudence involved. See Morris v. N.Y. State Dep't
of Taxation & Fin., 82 N.Y.2d 135, 140-41, 623 N.E.2d 1157, 1160, 603 N.Y.S.2d 807,
810 (1993) ("The doctrine of piercing the corporate veil is typically employed by a
third party seeking to go behind the corporate existence in order to circumvent
the limited liability of the owners and to hold them liable for some underlying
corporate obligation . . . . Thus, an attempt of a third party to pierce the corporate
veil does not constitute a cause of action independent of that against the
corporation . . . ."). We conclude instead that, under the terms of the statute, the
defendant "indirectly" obtained the loan proceeds, rendering him liable for
forfeiture in connection with them.3
Because the question of whether an individual obtains proceeds
"indirectly" through a corporation involves the interpretation of a federal statute,
we examine it under federal law. See Miss. Band of Choctaw Indians v. Holyfield,
490 U.S. 30, 43 (1989) ("[I]n the absence of a plain indication to the contrary, . . .
Congress when it enacts a statute is not making the application of the federal act
3
See Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400, 405 (2d Cir. 2006)
("[W]e are free to affirm a decision on any grounds supported in the record, even
if it is not one on which the trial court relied.").
24
dependent on state law." (internal quotation marks omitted; ellipsis in original )).4
We therefore do not suggest that the government must satisfy state law
requirements for piercing the corporate veil in order to establish that proceeds of
criminal activity were "indirectly" obtained under the forfeiture statute. But
although we reject the government's assertion that New York law controls this
issue, see Gov't Br. at 70 n.8, we agree with the district court's analysis insofar as it
borrowed from principles of alter ego liability that may be relevant to the
question of whether an individual indirectly obtained the proceeds of his or her
criminal conduct through a corporation.
Also drawing in part on principles of alter ego liability, we conclude
that, in the context of a criminal forfeiture proceeding under section 982, an
individual "obtains" proceeds "indirectly" through a corporation when the
individual "so extensively control[s]," First Nat. City Bank v. Banco Para El
Comercio Exterior de Cuba, 462 U.S. 611, 629 (1983), or "dominate[s],"
4
Even in the absence of this presumption, because this case arises under federal
question jurisdiction and involves a federal statute that "demands national uniformity,"
federal common law, not New York State law, presumably controls the question of
whether the corporate veil should be pierced. See Brotherhood of Locomotive Engineers v.
Springfield Terminal Ry. Co., 210 F.3d 18, 25-26 (1st Cir. 2000); see generally Note, Piercing
the Corporate Veil: The Alter Ego Doctrine under Federal Common Law, 95 Harv. L. Rev. 853
(1982) (describing circumstances under which federal law should govern the corporate
veil-piercing inquiry).
25
Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 17 (2d Cir.
1996), the corporation and its assets that money paid to the corporation was
effectively under the control of the individual. Factors that we think are likely to
be relevant to this question include the individual's ownership interest; the level
of control he exercised over the company; his authority to direct the disposition
of corporate assets and the degree to which he exercised that authority; and the
use of corporate assets for his personal expenses.
The district court made several sound factual findings to support its
conclusion that the corporate veil should be pierced to hold the defendant liable
for forfeiture of the loan proceeds. While we find it unnecessary to employ that
doctrine here, most of the court's findings are equally relevant to the question of
whether the defendant obtained the loan proceeds indirectly.
Of particular significance are the court's findings that the defendant
and his family together owned 99 percent of the company; that the Companies
"operated under [the defendant's] direction and control, and all significant tasks
were completed according to his instructions"; that the defendant "moved money
in and out of [the Companies], and had the ability to direct wire transfers from
the corporate accounts"; that he "directed the corporate accounting and billing
methods" and "directed the practices of 'holding months open,' 'prebilling,'
26
'rebilling,' and the use of false invoices; and that he was "instrumental in securing
and renewing the line of credit from Chase," which he "could access at will."
Peters, 257 F.R.D. at 385-86. The district court also noted that the defendant paid
himself an escalating salary from $100,000 to $120,000 in 1990 to between
$285,000 and $287,000 in 2000, and that WAPI paid for two vehicles for the
defendant, neither of which were used for corporate business. Id. at 385.
We see no error, let alone clear error, in the district court’s factual
determinations. Based on them, we conclude that Peters did indeed obtain
"indirectly" the proceeds of his criminal conduct, i.e., the relevant loan proceeds.
He effectively owned 99 percent of the Companies and exercised almost total
control over their management and finances. He also had complete access to and
control over the Companies' assets. We therefore agree with the district court
that the defendant should be held accountable for forfeiture of the loan proceeds,
although we reach this conclusion on the ground that the defendant himself
obtained these proceeds "indirectly."
CONCLUSION
For the foregoing reasons, the judgment of the district court
imposing criminal forfeiture is affirmed in its entirety.
27