The opinion of the court was delivered by: Paul L. Friedman United States District Judge
Sunrise Academy and Core Ventures, LLC (together, "petitioners") initiated this legal action in an attempt to gain possession of approximately $2 million seized by the United States as part of the ongoing criminal prosecution of Charles Emor, the founder of Sunrise. The petitioners have filed a Motion for Return of Seized Property, claiming that they are the legal owners of the seized funds and that the funds are not subject to criminal forfeiture. For its part, the United States objects that the petitioners are barred by statute from contesting the forfeitability of the seized assets at this time. Upon review of the parties' arguments, the relevant legal authorities, and the record in both this case and the related criminal case, the Court concludes that the petitioners' motion is premature. Consequently, the petitioners' motion will be denied without prejudice, and this miscellaneous action will be dismissed.
The criminal indictment of Charles Ike Emor alleges as follows: Mr. Emor founded Sunrise Academy ("Sunrise") in 1999 as a tax-exempt, non-profit organization. United States v. Charles Ike Emor, Crim. No. 10-0298, Indictment ¶¶ 1-2 (D.D.C. Nov. 3, 2010) ("Emor Indict."). Mr. Emor served as the president and executive director of Sunrise and "maintained complete control over Sunrise financial affairs." Id. ¶¶ 1, 26. Organized as a private school providing special education services to male students between the ages of 7 and 22, Sunrise entered into contracts with the District of Columbia to enroll as students varying numbers of District of Columbia residents who were entitled under federal law to receive special education services but could not obtain those services in the District's public schools. See id. ¶¶ 2, 5-9. Between 2005 and 2009, Sunrise was paid more than $30 million under its contracts with the District. Id. ¶ 15. Some of Sunrise's funding derived from the federal Medicaid program, which reimbursed Sunrise for counseling services that the school claimed to have provided to students who were Medicaid beneficiaries. See id. ¶ 11.
According to the indictment, Sunrise, under the direction of Mr. Emor, repeatedly misrepresented the number of students who were attending the school under its contracts with the District of Columbia, with the result that Sunrise received payment for services that were never actually rendered to any student. Emor Indict. ¶¶ 27-29. Furthermore, large amounts of District of Columbia and/or federal funds that were paid to Sunrise were not used to provide special education services, but were instead diverted into bank accounts held by an entity called Core Ventures, LLC ("Core"). Id. ¶ 35. To facilitate this diversion of funds, Mr. Emor, another employee of Sunrise, and Mr. Emor's adult son, who served on Sunrise's board of directors, purported to authorize a loan of more than $2 million to Core by Sunrise. Id. ¶ 36. The "loaned" money was ostensibly to be used to operate a coffee shop that would be staffed by Sunrise students. Id.
The indictment alleges that the money transferred from Sunrise to Core was never used or intended to be used for any legitimate business purpose, but instead was diverted for the personal use of Mr. Emor. Emor Indict. ¶ 35. Mr. Emor organized Core as a for-profit corporation in 2008 and was the sole owner and officer of the company. Id. ¶ 18. Mr. Emor used Sunrise funds transferred to Core for a variety of personal transactions, including for the purchase of "luxury watches, gold cuff links, diamond bracelets, real properties, residential furniture, exercise equipment, electronics, arcade video games, [and] luxury vehicles." Id. ¶ 27; see also id. ¶ 51. He structured various financial transactions to conceal his diversion and personal use of funds from Sunrise. See id. ¶¶ 38-44.
Based on these alleged activities, Mr. Emor has been indicted on 10 counts of mail fraud, 13 counts of wire fraud, 2 counts of interstate transportation of stolen property, 1 count of theft from a program receiving federal funds, 9 counts of money laundering, 1 count of first-degree theft, and 1 count of first-degree fraud. See Emor Indict. ¶¶ 54-72. The indictment also alleges that certain property of Mr. Emor is subject to forfeiture. Id. at 31-34. Among the property allegedly subject to forfeiture to the United States is more than $2 million seized by the government from bank accounts maintained by Core. See id. at 31, 33.
The indictment against Mr. Emor was returned on November 3, 2010. On March 31, 2011, Sunrise and Core filed this miscellaneous action and the pending motion for return of the funds seized from Core's bank accounts.*fn1 Sunrise contends in the petitioners' papers that Core is Sunrise's "wholly-owned affiliate," Motion for Return of Seized Property ("Mot.") at 1, and both petitioners assert that the allegations contained in the indictment against Mr. Emor are "meritless." Id. at 2. The petitioners further argue that since the allegations of wrongdoing by Mr. Emor lack merit, the seized funds are not subject to forfeiture and so should be released by the government. Id. at 2-3.*fn2
Before the Court may address the merits of the petitioners' attacks on the allegations against Mr. Emor, it must determine as an initial matter whether the relief requested by the petitioners is available at this time and in this procedural posture. The government seeks forfeiture of the seized assets in question as part of its criminal prosecution of Mr. Emor. See Emor Indict. at 31-34. Criminal forfeiture proceedings are governed by 21 U.S.C. § 853 and Rule 32.2 of the Federal Rules of Criminal Procedure. See FED. R. CRIM. P. 32.2 advisory
committee note (2000 adoption) ("Rule 32.2 consolidates a number of procedural rules governing the forfeiture of assets in a criminal case."). Under the scheme established by the statute and the Rule, the government may, as it has here, obtain a warrant for the seizure of property if a court "determines that there is probable cause to believe that the property to be seized would, in the event of conviction [of the defendant in the associated criminal prosecution], be subject to forfeiture and that an order [to prevent disposal or dissipation of the property] may not be sufficient to assure the availability of the property for forfeiture." 21 U.S.C. § 853(f).
Thus, to seize property allegedly subject to forfeiture, the United States need only show, in a non-adversary setting, that there is probable cause to believe that the property is forfeitable and in danger of dissipation. Once that showing has been made, neither Section 853 nor Rule 32.2 provides for any further inquiry into the property's forfeitability until the defendant in an associated criminal proceeding is found or pleads guilty "on any count in [the] indictment or information regarding which criminal forfeiture is sought." FED. R. CRIM. P. 32.2(b)(1)(A). At that point in the proceedings, either the court or the jury must determine, based on the evidence presented at trial and/or any additional evidence presented with respect to the forfeiture issue, "whether the government has established the requisite nexus between the property and the offense committed by the defendant." FED. R. CRIM. P. 32.2.(b)(1)(A), (b)(5)(B). If the finder of fact decides that the government has met its burden, then the court must enter "a preliminary order of forfeiture setting forth the amount of any money judgment, directing the forfeiture of specific property, and directing the forfeiture of any substitute property if the government has met the statutory criteria." FED. R. CRIM. P. 32.2(b)(2)(A). "The Court must enter the order without regard to any third party's interest in the property." Id.
After the entry of the preliminary forfeiture order, the court may conduct an "ancillary proceeding" to adjudicate the claims of any third-party - i.e., any party other than the criminal defendant or the United States - who asserts an interest in the property to be forfeited. FED. R. CRIM. P. 32.2(c)(1); see 21 U.S.C. § 853(n). Those claims are determined by the court after an adversarial hearing at which the third-party claimant "may testify and present evidence and witnesses on his own behalf, and cross-examine witnesses. . . ." 21 U.S.C. § 853(n)(5). The ancillary proceeding "does not involve relitigation of the forfeitability of the property; its only purpose is to determine whether any third party has a legal interest in the forfeited property." FED. R. CRIM. P. 32.2 advisory committee note (2000 adoption).
As the foregoing description of the statutory scheme governing criminal forfeiture suggests, Congress envisioned that any third-party claims to property seized by the government and alleged to be forfeitable would be adjudicated only after the conviction of the defendant in the associated criminal proceeding. Indeed, third parties ...