RETIRED DISTRICT AND BANKRUPTCY JUDGE

FOR THE NORTHERN DISTRICT OF ILLINOIS.

WELCOME TO OUR PROGRAM ABOUT COOPERATION AND COORDINATION

BETWEEN DISTRICT AND BANKRUPTCY JUDGES

WHO FIND THEMSELVES WITH SIMULTANEOUS CASES

INVOLVING ASSET FORFEITURE AND BANKRUPTCY.

OFTEN SUCH CASES ARISE FROM CRIMINAL PROSECUTION

OF A PONZI SCHEME AND THE BANKRUPTCY FILING

BY THE LEGITIMATE BUSINESS

THROUGH WHICH THE SCHEME WAS OPERATING.

NOT ALL OF THESE CASES INVOLVE PONZI SCHEMES,

BUT THE COMMON ASPECT IS ASSET FORFEITURE

BY THE DEPARTMENT OF JUSTICE.

TO DISCUSS THIS WITH ME ARE SEVERAL INDIVIDUALS

WHO HAVE EXPERIENCE IN SOME OF THE MOST INFAMOUS CASES,

WHO WILL HELP US GAIN INSIGHT AND CONFIDENCE

IN DEALING WITH SUCH CASES, LARGE AND SMALL.

FIRST, DISTRICT JUDGE ANN D. MONTGOMERY

FROM THE DISTRICT OF MINNESOTA

WHO DEALT WITH THE THOMAS PETTERS CASE;

BANKRUPTCY JUDGE MARTIN GLENN

FROM THE SOUTHERN DISTRICT OF NEW YORK,

WHO DEALT WITH THE MARC DREIER CASE;

IRVING PICARD, TRUSTEE

FOR THE SECURITIES INVESTOR PROTECTION CORPORATION,

WHO CONTINUES TO LITIGATE CASES

INVOLVING THE BERNARD MADOFF PONZI SCHEME;

AND SHARON COHEN LEVIN,

WHO IS THE CHIEF OF ASSET FORFEITURE UNIT--

CHIEF OF THE ASSET FORFEITURE UNIT

FOR THE SOUTHERN DISTRICT OF NEW YORK.

WELCOME TO EACH OF YOU,

AND THANK YOU FOR BEING WITH US TODAY.

MR. PICARD, LET ME ASK YOU ABOUT THE PLAYERS

IN BANKRUPTCY.

WHO ARE THEY, AND WHAT ARE THEIR ROLES?

- THE PLAYERS ARE-- IF IT'S A BANKRUPTCY CASE,

YOU HAVE THE U.S. TRUSTEE,

WHO PROBABLY WOULD BE CALLED UPON TO APPOINT A TRUSTEE,

OFTEN FROM A PANEL IF IT'S A CHAPTER 7 CASE.

BUT OTHERWISE, IN A CHAPTER 11, WOULD APPOINT A TRUSTEE.

AND IN...YOU COULD HAVE

A STATE COURT OR A FEDERAL COURT RECEIVERSHIP,

AN SEC-TYPE RECEIVERSHIP, FOR EXAMPLE,

WHERE THE JUDGE WOULD BE APPOINTING A RECEIVER.

THAT WOULD BE A FEDERAL OR A STATE COURT JUDGE.

OR YOU WOULD HAVE, AS IN MY CASE, A LIQUIDATION

OF THE SECURITIES INVESTOR PROTECTION ACT,

WHERE THE SECURITIES INVESTOR PROTECTION CORPORATION

RECOMMENDS TO THE JUDGE WHO SHOULD BE THE TRUSTEE,

AND THEN THE TRUSTEE GETS APPOINTED.

AND THEN ONCE YOU GET INTO THE CASE,

YOU HAVE, OF COURSE, THE DEBTOR,

WHICH COULD BE AN INDIVIDUAL OR A CORPORATION

OR SOMETIMES A COMBINATION.

YOU HAVE...OF COURSE, THERE ARE EMPLOYEES,

AND IF IT'S A BUSINESS AND A LOT OF VENDORS,

YOU HAVE VICTIMS.

AND THERE MAY BE OTHER ACTIVITY GOING ON

THAT BEARS SOME RELATIONSHIP,

LIKE THERE COULD BE CLASS-ACTION CASES

THAT ARE ALREADY ONGOING.

AND OF COURSE, THE PRIMARY...

A PRIMARY PLAYER WOULD BE A JUDGE,

WHETHER IT'S THE DISTRICT JUDGE OR A BANKRUPTCY JUDGE.

- MS. LEVIN, WHAT IS ASSET FORFEITURE?

- WELL, ASSET FORFEITURE IS A LEGAL PROCEDURE

WHERE THE GOVERNMENT REMOVES THE PROCEEDS OF CRIME

OR PROPERTY USED IN FURTHERANCE OF CRIME,

AND IT'S A MANDATORY PART OF MOST CRIMINAL CASES,

AND IT'S FORFEITURES ORDERED AT SENTENCING.

IN ADDITION, THERE ARE ACTUALLY--

THE GOVERNMENT HAS THE ABILITY TO BRING IN...

BRING IN REM CIVIL ACTIONS AGAINST CRIME PROCEEDS

OR PROPERTY USED IN FURTHERANCE OF CRIME

BY THEMSELVES OR IN COORDINATION WITH CRIMINAL PROSECUTIONS.

AND ONE OF THE MOST IMPORTANT PURPOSES OF ASSET FORFEITURE

IS TO GATHER AND SEIZE THE ASSETS

SO THAT THEY CAN BE USED FOR VICTIM COMPENSATION.

- JUDGE MONTGOMERY, WHAT WAS THE CASE

THAT YOU WERE INVOLVED IN?

- I WAS INVOLVED IN THE THOMAS PETTERS CASE.

THOMAS PETTERS WAS A...

MAYBE NOT A HOUSEHOLD WORD,

BUT A VERY WELL KNOWN PERSON IN MINNESOTA,

AN ENTREPRENEUR WHO HAD STARTED SELLING ELECTRONICS

WHEN HE WAS IN COLLEGE

AND HAD ALLEGEDLY BUILT AN INCREDIBLE EMPIRE

OF A NUMBER OF PETTERS-RELATED BUSINESSES,

ULTIMATELY INCLUDING POLAROID CORPORATION

AND SUN COUNTRY AIRLINES.

SO HE HAD BEEN SEEN AS A VERY, VERY SUCCESSFUL

ENTREPRENEUR AND BUSINESS DEVELOPER.

- AND JUDGE GLENN, WHAT CASE WERE YOU INVOLVED IN?

- I WAS INVOLVED IN THE BANKRUPTCY OF DREIER LLP,

A 200-PLUS LAWYER FIRM,

THE UNDERLYING CHAPTER 11 BANKRUPTCY,

AND THE INDIVIDUAL CHAPTER 7 BANKRUPTCY OF MARC DREIER

HAD BEEN PENDING BEFORE MY COLLEAGUE,

JUDGE STUART BERNSTEIN.

AFTER THE CHAPTER 11 TRUSTEE HAD FILED A GROUP

OF FRAUDULENT CONVEYANCE ADVERSARY PROCEEDINGS

AND MOTIONS TO DISMISS HAD BEEN MADE,

FOUR OF THEM WERE TRANSFERRED TO ME

FOR A DECISION ON THE MOTIONS TO DISMISS.

AND THAT WAS MY FIRST FORAY

INTO THE AREA OF CRIMINAL FORFEITURE.

- MS. LEVIN, WHAT HAPPENS IN...

AS A PRACTICAL MATTER IN THESE CASES?

YOU'RE OUT, ON BEHALF OF THE GOVERNMENT--

REMOVING I THINK WAS THE WORD YOU USED--PROPERTY.

BUT THERE IS A TRUSTEE OR A RECEIVER OUT THERE

WHO IS ALSO REMOVING PROPERTY.

WHAT HAPPENS WHEN THE TWO WORLDS COLLIDE?

- WELL, I MEAN, THAT HAPPENS MORE AND MORE FREQUENTLY,

PARTICULARLY IN LARGE FINANCIAL FRAUD CASES

OR LARGE FRAUD CASES.

AND THE GOVERNMENT...

THE POWERS THAT WE HAVE ARE WE'RE ABLE TO SEIZE

OR RESTRAIN DIRECTLY TRACEABLE CRIME PROCEEDS.

AND UNDER ASSET FORFEITURE LAW,

TITLE VESTS IN THE UNITED STATES

AT THE TIME OF THE COMMISSION OF THE CRIME.

SO IT, YOU KNOW, IT DOESN'T--

THAT PROPERTY DOESN'T BECOME

PROPERTY OF THE BANKRUPTCY ESTATE.

SO THE GOVERNMENT'S RESPONSIBILITY IS TO GO AROUND

AND TO SEIZE OR TO FREEZE THAT PROPERTY

SO IT'S AVAILABLE FOR FORFEITURE

AND FOR RESTITUTION TO BE USED TO COMPENSATE VICTIMS.

AND IT HAPPENS A LOT THAT IN THOSE CIRCUMSTANCES,

WE RUN INTO A BANKRUPTCY TRUSTEE

WHO ALSO HAS SIMILAR RESPONSIBILI--

SIMILAR TYPE OF RESPONSIBILITIES.

AND WHAT WE TRY AND DO IS TRY AND WORK IN COOPERATION,

IN COORDINATION WITH A BANKRUPTCY TRUSTEE.

SOMETIMES THAT'S SOMEWHAT CHALLENGING,

BUT, YOU KNOW, IT'S SOMETHING THAT WE, YOU KNOW,

WILL STRIVE TO DO.

- NOW, TELL ME ABOUT THIS VESTING IN THE GOVERNMENT

AT THE TIME OF THE CRIME.

THE GOVERNMENT DOESN'T KNOW ABOUT

THE CRIME AT THE TIME USUALLY.

SO HOW DOES THAT WORK?

- WELL, IT'S A LEGAL FICTION.

IT'S THAT THE CRIME PROCEEDS, ONCE THE CRIME IS COMMITTED

AND THE DEFENDANT OBTAINS PROPERTY,

IT BECOMES U.S. GOVERNMENT PROPERTY.

TITLE VESTS IN THE UNITED STATES AT THE TIME OF THE CRIME,

BUT THE PROPERTY DOESN'T ACTUALLY TRANSFER

UNTIL THE DEFENDANT IS CONVICTED AND SENTENCED.

SO THERE'S SORT OF AN AMORPHOUS PERIOD

WHERE IT BECOMES-- IT IS U.S. PROPERTY,

BUT UNLESS SOMEONE BRINGS A PROSECUTION,

THERE'S NO ONE TO ACTUALLY TAKE POSSESSION OF IT.

AND IT'S A LEGAL FICTION THAT ENABLES THE GOVERNMENT

TO OBTAIN PROPERTY FROM THIRD PARTIES--

FROM THE DEFENDANT OR FROM THIRD PARTIES

THAT A DEFENDANT WOULD TRANSFER THE PROPERTY TO.

THE FORFEITURE STATUTES WEREN'T WRITTEN

IN RECOGNITION OR WEREN'T WRITTEN

IN CONJUNCTION WITH THE BANKRUPTCY LAWS.

SO THAT IS OFTEN A CIRCUMSTANCE

WHERE THEY ACTUALLY RUN HEAD INTO EACH OTHER.

AND THE POSITION THAT MOST COURTS HAVE COME TO

IS THAT PROPERTY ISN'T PROPERTY OF THE BANKRUPTCY ESTATE,

BUT THAT THE...

YOU KNOW, THERE ARE OTHER PROPERTIES OF THE DEFENDANT

OR HYBRID PROPERTIES THAT, YOU KNOW,

THAT ARE POTENTIALLY PROPERTY OF THE ESTATE.

- MR. PICARD, HOW DOES THAT PLAY OUT

FROM THE POINT OF VIEW OF A TRUSTEE OR RECEIVER?

- TWO WAYS. THE FIRST WAY IS THE ONE

WHERE ALL THE PROPERTY HAS BEEN SEIZED BY THE GOVERNMENT,

OR FORFEITED, AND THEN YOU'RE THE TRUSTEE

OF, IN EFFECT, A NO-ASSET ESTATE.

BUT THERE ARE OTHER CASES, AS SHARON REFERRED TO,

WHERE THERE ARE OTHER PROPERTIES.

IN THE MADOFF CASE, FOR EXAMPLE,

WE WORKED OUT AN ARRANGEMENT WITH HER OFFICE THAT...

THEY TOOK PERSONAL ASSETS,

WHERE WE KEPT WHAT WE CALL THE BUSINESS ASSETS.

AND OUR CASE IS A LIQUIDATION.

IT'S NOT AN OPERATING BUSINESS.

BUT WE WENT ON, AND WE WERE ABLE

TO LIQUIDATE THE... THE BUSINESS ASSETS.

THERE WAS A LEGITIMATE PART OF THE BUSINESS,

WHICH WE SOLD AFTER AN AUCTION.

AND SO WE WERE ABLE TO DO THAT.

AND THERE ARE OTHER ASSETS IN THE BUSINESS

THAT WE HAVE BEEN SELLING AND WILL CONTINUE TO SELL.

AND WE HAVE WORKED OUT VERY COOPERATIVELY

WITH HER OFFICE IN SORT OF DETERMINING

WHAT BELONGS IN WHICH CATEGORY.

THERE WAS A PERSONAL ASSET,

FOR EXAMPLE, THAT WAS AN AIRPLANE,

BUT IT WAS IN A... IN A CORPORATE ENTITY.

AND WE HAD MADE SOME WORK--

DONE SOME WORK ON TRYING TO SELL THE PLANE.

AND WE WENT, AND WE EXPLAINED WHAT WAS GOING ON,

AND THEY SAID, "WELL, YOU'RE ALREADY AHEAD OF THE GAME

"WITH WHAT YOU'RE DOING,

SO WHY DON'T YOU CONTINUE THE JOB?"

WE ALSO SOLD AN AUTOMOBILE,

A JAMES BOND KIND OF AUTOMOBILE,

AN ASTON MARTIN,

AND A NUMBER OF OTHER ASSETS LIKE THAT,

WHERE WE JUST SAT DOWN AND SAID,

"THIS IS WHAT WE'RE DOING,"

AND IN OTHER CASES, THEY WERE AHEAD OF US IN DOING IT,

AND WE JUST SAID, "WELL, THEN YOU FINISH."

SO IT... WHAT IT REALLY TAKES,

AND I THINK YOU'LL HEAR MORE ON THIS,

IS COMMUNICATION AND TALKING AMONG THE PARTIES--

THE U.S. ATTORNEY'S OFFICE, THE TRUSTEE, THE RECEIVER,

AND IN SOME CASES, OF COURSE,

YOU NEED THE BANKRUPTCY JUDGE

OR THE DISTRICT JUDGE TO ENCOURAGE THAT.

- LET'S STICK WITH THAT FOR A SECOND.

MS. LEVIN, I ASSUME THAT WHEN THE GOVERNMENT

FORFEITS PROPERTY, COLLECTS THIS PROPERTY,

AND THEN THERE'S AT SOME POINT A FORFEITURE, THAT THAT--

DOES THAT GO TO THE BENEFIT OF THE GOVERNMENT,

OR DOES IT GO TO THE BENEFIT OF VICTIMS,

OR WHO GETS THE PROCEEDS?

- TECHNICALLY, WHEN PROPERTY IS FORFEITED,

IT GOES TO THE GOVERNMENT

AND THE UNITED STATES MARSHALS SERVICE.

TITLE IS TRANSFERRED TO THE UNITED STATES,

AND THE UNITED STATES MARSHALS SERVICE, IN MOST...

IN MOST CASES, WILL LIQUIDATE THE PROPERTY.

THEY'LL SELL IT.

THEY HAVE WEBSITES WHERE THEY DO IT.

THEY HIRE THIRD PARTIES TO SELL IT.

THEY SELL IT. THEY TURN IT INTO CASH.

AND THEN IF THERE ARE VICTIMS IN THE CASE,

THE PRIORITY IS VICTIMS COME FIRST.

IF THERE ARE VICTIMS, THEN THE MONEY IS GIVEN OUT

TO VICTIMS IN ONE OF TWO METHODS.

ONE, IF IT'S PART OF A CRIMINAL CASE

AND THE DISTRICT COURT JUDGE ENTERS A RESTITUTION ORDER,

WHICH LISTS THE VICTIMS AND THEIR LOSS AMOUNTS,

THE MONEY IS TRANSFERRED TO THE CLERK OF THE COURT,

WHERE THE CLERK OF THE COURT

WILL DISTRIBUTE THE MONEY TO THE VICTIM,

THE FORFEITED FUNDS TO THE VICTIMS

UNDER THE TERMS OF THE COURT'S RESTITUTION ORDER.

IF THERE ISN'T A RESTITUTION ORDER

ENTERED IN A CRIMINAL CASE, EITHER BECAUSE FOR SOME REASON,

THERE...THERE ISN'T A CRIMINAL CASE

OR BECAUSE IN SOME CASES, LIKE THE MADOFF CASE

OR ANOTHER CASE, THE ADELPHIA CASE,

THERE'S BEEN A FINDING BY THE COURT

THAT ENTERING A RESTITUTION ORDER

WOULD BE TOO COMPLICATED AND WOULD UNDULY DELAY SENTENCING,

THEN IT COULD BE DONE THROUGH ANOTHER PROCEDURE