The opinion of the court was delivered by: Rosemary M. Collyer United States District Judge
The United States alleges that Defendants -- certain real properties in Florida and South Carolina, and $53 million in funds from ten Bank of America accounts -- are the proceeds of wire fraud and subject to seizure and civil forfeiture in rem pursuant to 18 U.S.C. § 981(a)(1)(C). Claimant AdSurfDaily, Inc. ("ASD") filed (1) an emergency motion for return of the funds so that its business could continue to operate and (2) a motion to dismiss the complaint. The Court held a two-day evidentiary hearing and now finds that it lacks legal authority under 18 U.S.C. § 981(f) to order release of the seized funds and that ASD has failed to demonstrate that its assets are not proceeds derived from unlawful activity. The Court also concludes that the motion to dismiss is without merit. The motion for return of the seized funds and the motion to dismiss must be denied.
ASD describes itself as a multi-level marketing company that offers online advertising. It operates over the Internet (thereby engaging in transmissions by wire) at www.asdcashgenerator.com and through a related company, La Fuente Dinero, at www.lafuentedinero.com. According to these sites, ASD advertisers can earn large profits by (1) paying fees to advertise their own webpages, (2) earning rebates by surfing other advertisers' webpages, and (3) earning commissions by recruiting more advertisers to do the same. Compl. ¶ 15. ASD promotes its advertising program by offering advertisers a rebate of up to 125% on their advertising costs. The Government alleges that ASD does not sell any products or services sufficient to generate an income stream needed to support the rebates and commissions that it promises to pay its advertisers. Id. ¶ 17 [Dkt. #1].
On August 5, 2008, the Government filed its Complaint for Forfeiture in Rem under 18 U.S.C. § 981(a)(1) which authorizes the forfeiture of any property that constitutes or is derived from proceeds traceable to "specified unlawful activit[ies]," including wire fraud, 18 U.S.C. § 1343. Id. ¶ 1. The Defendant properties are certain real properties, including 8 Gilcrease Lane, Quincy Florida 32351; a condominium in Myrtle Beach, South Carolina; and personal properties consisting of approximately $53 million in funds from Bank of America accounts. Id. ¶¶ 4-5. The Government seized the funds in the Bank of America accounts pursuant to warrants issued by a United States Magistrate Judge. Id. ¶ 5.
The Complaint alleges that Thomas A. (Andy) Bowdoin, Jr., the President of ASD, owns the Defendant real properties and that he controlled the Bank of America accounts from which the assets were seized. Id. ¶ 6. The Complaint further alleges that Mr. Bowdoin, along with other individuals not named, controls and operates ASD. Id. ¶ 18. Much of the rest of the Complaint is dedicated to alleging that ASD has been engaged in an illegal "Ponzi" scheme. See, e.g., id. ¶¶ 9-17.
On August 15, 2008, ASD, Thomas A. Bowdoin, Jr., and Bowdoin/Harris Enterprises, Inc. filed verified claims for the Defendant real properties and Bank of America funds that the Government seized.*fn1 See Verified Claims of Claimants [Dkt. # 6]. ASD claimed the approximate $53 million from the Bank of America accounts held by the Bank "in the names of Thomas A. Bowdoin, Jr., sole proprietor, d/b/a Adsurfdaily." See Verified Claim of ASD at 2 [Dkt. # 6-2]. The claim, signed by Mr. Bowdoin "(as President)," stated:
Adsurfdaily, Inc. is the owner of the funds held on deposit at Bank of America in the names of Thomas A. Bowdoin, Jr., sole proprietor, d/b/a Adsurfdaily.
All of the accounts were initially opened in the name of Thomas A. Bowdoin, Jr.
The accounts and the funds in them were owned by Adsurfdaily, Inc. and were treated as corporate assets.
The funds deposited into the bank accounts at issue were derived from the business operations of Adsurfdaily, Inc.
Before the government served seizure warrants for the bank accounts at Bank of America, I had signed and submitted to Bank of America the necessary paperwork to formally change the technical name on the accounts to more correctly reflect the true and actual ownership status of these accounts. In other words, I had submitted documents which would have changed the official name on the accounts to Adsurfdaily, Inc.
In an abundance of caution, Adsurfdaily, Inc. has requested that Thomas A. Bowdoin, Jr. also file a verified claim to these bank accounts in order to prevent a default should the United States take the position that only Mr. Bowdoin is a claimant because the account names were technically listed in his name (with an Adsurfdaily d/b/a) and the paperwork to officially change the specific name on the accounts to Adsurfdaily, Inc. had not yet been processed and finalized by Bank of America.
Verified Claim of Thomas A. Bowdoin, Jr. at 2. On August 18, 2008, ASD filed an Emergency Motion for Return of Seized Funds to Save its Business and Jobs with Oversight and Monitoring and/or for an Evidentiary Hearing, and Motion to Dismiss. See Dkt. #7. Since only ASD filed an emergency motion for return of the seized funds and motion to dismiss, for purposes of the instant Motion, Mr. Bowdoin is not before the Court. See, e.g., ASD's Emergency Mot. for Return of Seized Funds ("ASD's Emergency Mot.") at 1; Proposed Findings of Fact and Conclusions of Law (by Claimant, ASD) [Dkt. # 32].
In its Motion, ASD asserted that "[i]n a matter of a few days [since the seizure], ASD has gone from a vibrant internet advertising business with approximately 100,000 members to a hollow shell without a working office and without the means to resume its business . . . [and] is hurtling down into a steep financial tailspin." ASD's Emergency. Mot. at 1. ASD therefore pleaded that the Court order the immediate release of the seized assets, with certain oversight, or in the alternative, that the Court hold an evidentiary hearing on whether the funds were properly seized. Id. Although the Government opposed the pretrial return of the seized funds, it did not oppose ASD's request for an evidentiary hearing. See Pl.'s Opp'n to ASD's Emergency Mot. [Dkt. # 14] & Pl.'s Opp'n to Busby's Emergency Mot. for Return of Seized Funds at 2 [Dkt. # 19]. The Court granted ASD's motion for an evidentiary hearing. See Minute Entry Order dated September 18, 2008. The Court allowed two days of testimony.
ASD offered testimony from four individuals: (1) Robert Grayson, an ASD member; (2) Gerald P. Nehra, an attorney who served as an expert witness on multi-level marketing and direct selling companies; (3) Chuck Osmin, an ASD customer service representative; and (4) Philip Schwartz, an attorney at the law firm representing ASD. Mr. Grayson praised the income he received via ASD; Mr. Osmin had insufficient knowledge of the planning and execution of ASD's business to contradict the Government's basic assertions; Mr. Nehra demonstrated the fallibilities of the professional expert witness, who was defensive on his client's behalf rather than neutral in his expertise; and Mr. Schwartz outlined a monitoring plan proposed by ASD if the money were returned to it. Neither ASD's President, Mr. Bowdoin, nor ASD's Chief Executive Officer, Juan Hernandez, testified at the hearing. See Emergency Mot. to Quash Subpoenas [Dkt. # 25]. The Government did not call any witnesses. Both parties submitted several exhibits to supplement the testimony. Various advertisers with ASD attended the hearing as a subset of many who had contacted the Court.
ASD produced evidence that it sells "ad packages," whereby an advertiser's webpage appears on a "rotator" for view by other advertisers. ASD pays its advertisers a rebate to view a minimum number of websites each day, thereby insuring that prospects will be viewing each site. In other words, ASD sells "ad packages" to advertisers and pays the advertisers to look at the webpages of other ASD advertisers. ASD also pays its advertisers commissions on personal sales of ad packages for referring other advertisers to ASD and, if they become "members" by paying a monthly fee, ASD pays them higher commissions on personal sales and referral commissions on second level sales.
ASD requests that the Court dismiss the Complaint or alternatively, that the Court order the return of the seized funds to ASD pursuant to the proposed compliance plan. ASD has failed to support its motion.
A. ASD's Legal Right to Claim the Seized $53 Million
As the facts recounted above make evident, the funds in question were held in accounts in the name of Mr. Bowdoin, not ASD. Through Mr. Bowdoin's verified statements, ASD asserts that "[t]he accounts and the funds in them were owned by Adsurfdaily, Inc. and were treated as corporate assets." Verified Claim of ASD at 2. Nonetheless, at the time of seizure, the accounts remained in Mr. Bowdoin's name and he has filed no emergency motion for their return.
There is thus a very serious question of whether ASD has standing to claim the money seized from the Bank of America accounts. Even if the monies were derived from ASD operations, they were deposited in accounts in Mr. Bowdoin's personal name and subject to his sole control. Only valid claimants may challenge the seizure of assets in forfeiture cases. Because the evidence is conflicting as to whether ASD has standing to claim the $53 million, the Court concludes that the ASD motion is procedurally weak. However, ...