MEMORANDUM OPINION
WILLIAM D. QUARLES, JR., District Judge.
Rodney Hailey was convicted of wire fraud, money laundering, and other crimes. For the following reasons, the government's motions for a writ of entry and preliminary forfeiture order will be granted with modifications.
I. Background
On June 25, 2012, Hailey was convicted after a six-day jury trial of eight counts of fraud, in violation of 18 U.S.C. § 1343, 32 counts of money laundering, in violation of 18 U.S.C. § 1957, and two counts of violating the Clean Air Act, 42 U.S.C. § 7413(c)(2)(A). ECF No. 109.1 The evidence was that Hailey's company, Clean Green Fuel ("Clean Green"), was registered with the Environmental Protection Agency ("EPA") as a bio-fuel producer. Clean Green sold more than 32 million fake renewable fuel credit identification numbers ("RIN") to brokers and oil companies,2 for more than $9 million. Hailey caused several banks to make wire transfers to Clean Green's account by making false representations and promises about the fake RINs. Hailey used the profits from his scheme to buy luxury cars, trucks, real property, and jewelry.
At trial, the government presented evidence of 41 RIN transactions between September 14, 2009, and December 21, 2010, for which Hailey sold 35,656,125 RINs, received $9,128,375.11, and produced no bio-fuel. ECF No. 116-1 at 4 (Gov't's Ex. 172). Detective and Case Agent Michael Aiosa testified that he investigated the fraud and confirmed the 41 transactions. He also testified that the proceeds of the RIN sales were wired to or deposited in Hailey's primary bank account at M & T Bank, which had an account number ending in ***9901 ("the ***9901 account"). Agent Aiosa said that, on September 14, 2009, when Hailey received the first payment for fraudulent RINs, the balance in the ***9901 account was negative. All subsequent deposits into the ***9901 account, and into 12 other M & T Bank accounts associated with Hailey, came from the RIN sales or from the resale of items purchased with RIN sale proceeds, except for $61,655, which came from Hailey's wife Tracey Oliver Hailey's employer. See ECF No. 116-1 (Gov't's Exs. 170, 171, 174). Hailey deposited $9,583,030 into the 13 accounts.3 ECF No. 171.
Agent Aiosa also testified that he examined expenditures from Hailey's 13 accounts. See Gov't's Ex. 177.4 He presented tables categorizing the disbursements and noting the recipient of each payment, but did not identify the assets purchased, other than the 32 assets which were the subjects of the money laundering charges.5 See id. Exhibit 177 details thousands of transactions. See id. Aiosa's investigation revealed that Hailey disbursed $9,537,770.80 from the 13 accounts between September 14, 2009 and May 18, 2011. Id. at 1 (summary page).
The jury found Hailey guilty on the (charged) wire fraud based on the transactions.6 ECF No. 109 at 1-2. It also found Hailey guilty of money laundering when he transferred the proceeds of the sales from one bank account to another, then purchased the following assets with money from those accounts:
Count Date Asset Amount
9 2/25/2010 2010 Nissan Armada $ 49,099.96
10 4/19/2010 2005 BMW 645 and 2006 Chevrolet Impala $ 53,539.38
11 4/27/2010 2008 Mercedes Benz S550 $ 76,568.94
12 5/3/2010 2005 BMW 645 and 2007 Cadillac Escalade $ 64,261.91
13 5/4/2010 2008 Mercedes Benz S550 $ 63,421.82
14 5/5/2010 2007 BMW 650IC $ 61,124.04
15 5/7/2010 2007 BMW M6 $ 69,849.82
16 5/7/2010 2006 BMW 650IC $ 42,772.82
17 5/12/2010 2007 Cadillac Escalade $ 37,638.67
18 5/21/2010 2005 BMW 645CI $ 44,549.82
19 5/28/2010 2005 Rolls Royce Phantom $149,504.95
20 6/3/2010 10801 Catron Road, Perry Hall, MD $634,139.00
21 6/9/2010 2007 Lamborghini Murcielagc $237,781.75
22 7/6/2010 2011 Ford F250 King Ranch and 2011 Ford F250 $118,191.00
23 7/19/2010 2007 Cadillac Escalade $ 39,796.88
24 7/20/2010 2009 Ferrari F430FB $206,610.55
25 7/30/2010 9149 Rexis Ave., Perry Hall, MD $294,413.18
26 8/3/2010 2007 Ferrari F430FB $170,174.07
27 8/10/2010 2009 Freightliner $118,771.00
28 8/10/2010 2010 Maserati Quattroporte $139,228.70
29 8/11/2010 2003 Beall 2 Axle Semi Tank Trailer $ 32,555.00
30 8/17/2010 2003 and 2004 Beall semi tank trailers $ 62,000.00
31 9/6/2010 2007 Lincoln Navigator $ 40,960.08
32 9/7/2010 2010 Freightliner $190,228.00
33 10/9/2010 2011 Nissan Armada $ 52,429.02
34 11/3/2010 2007 Ferrari 612 Scag F1 $186,438.25
35 11/15/2010 2010 Bentley CGTS and 2010 Bentley CGT $377,210.38
36 3/1/2010 3.75 ct white gold diamond ring $ 20,000.00
37 8/25/2010 Diamond bracelet/white gold $ 12,050.00
38 12/10/2010 Diamond hoop earring, white gold w/ diamonds $ 10,900.00
39 12/10/2010 Diamond tennis necklace w/ 23.94 ct in diamonds $ 26,000.00
40 7/31/2010 Diamond bracelet w/ 25.90 ct. in diamonds $ 13,000.00
Id. at 2-6.
Deputy United States Marshal Rick Henry, who did not testify at trial, has declared that he investigated Hailey's fraud, and discovered that 119 other items had been "purchased with funds from or traceable to one or more of the 13 bank accounts at M & T Bank [associated with Hailey]" ("the indirect assets"). ECF No. 106-1 ¶¶ 2-3. The indirect assets are listed in Schedule A attached to the Order accompanying this Memorandum Opinion, in paragraphs 38 through 156.7 ECF No. 111-1. Hailey's counsel states that he has confirmed that "approximately 20%" of those assets were "purchased on or after October 1, 2009, the time at which the evidence arguably showed that the first allegedly illegal funds were received." ECF No. 112 at 2. He has been unable to determine the purchase dates or source of funds for the remaining 80 per cent of the indirect assets. Id.
After judgment was entered against Hailey, the government sought a preliminary forfeiture order requiring forfeiture in the form of a money judgment, and forfeiture of the assets that were the subject of the money laundering convictions, plus the indirect assets; a writ of entry; and assurance that the real property Hailey owns, at 10801 Catron Road, Perry Hall, MD, is protected by hazard insurance. ECF Nos. 106, 114. Hailey opposed entry of the preliminary forfeiture order. ECF No. 112.
II. Analysis
Under Fed.R.Crim.P. 32.2(b)(1)(A), "[a]s soon as practical after a verdict ... of guilty, ... the court must determine what property is subject to forfeiture under the applicable statute." The Court must decide whether the government has established the requisite nexus between any specific property sought and the offense; if the government seeks a money judgment, the Court determines how much money to order the defendant to pay. Id. The Court may consider evidence in the record and any additional relevant, reliable evidence or information provided by the parties. Id. 32.2(b)(1)(B).
Under 18 U.S.C. § 981(a)(1)(C), all proceeds traceable to mail and wire fraud are subject to forfeiture. Under 18 U.S.C. § 982(a)(1) a defendant convicted of money laundering must "forfeit to the United States any property, real or personal, involved in [the money laundering] offense, or any property traceable to such property." The government must show, by a preponderance of the evidence, that the funds or property are traceable to the wire fraud or were involved in the money laundering offense. United States v. Martin, 662 F.3d 301, 307 (4th Cir.2011).
The government must trace the funds to the criminal course of conduct, but it need not trace them to a particular illegal act, to satisfy its burden.8 The Court may consider the timing of the defendants' acquisition of the property relative to his commission of the offense, his lack of other legitimate sources of income, and any steps taken to conceal his connection to the asset.9
A. Money Judgment
At trial, the government established, beyond a reasonable doubt, that Hailey obtained $2,981,984.00 through the wire fraud scheme (counts 1 through 8). ECF No. 109. The record shows by a preponderance of the evidence that the fraud scheme involved $9,128,375.11.10 Hailey will be ordered to forfeit $9,128,375.11 in the form of a personal money judgment.11
B. Specific Property
To satisfy the money judgment the government also seeks an order of forfeiture of: (1) the property in counts 9 through 40; and (2) the indirect assets.12 ECF No. 106; ECF No. 106-3510. The jury's verdict shows that the assets listed in counts 9 through 40 were part of the money laundering scheme. ECF No. 109. Those assets are subject to forfeiture.
The government has shown, by a preponderance of the evidence, that the indirect assets in paragraphs 45 through 57 on Schedule A were part of the money laundering scheme. Assets 45 through 57 are the funds seized from Hailey's 13 M & T Bank accounts.13 The funds remaining in the 13 accounts were unspent proceeds of the RIN sales, or funds commingled with those proceeds. Legitimate funds that have been commingled with tainted funds are involved in money laundering.14
The government has not shown, by a preponderance of the evidence, that the remaining indirect assets (items 38 through 44 and 58 through 156) were involved in the money laundering scheme or are traceable to the fraud. Deputy Henry's declaration, which was not evaluated by the jury, does not establish this. Hailey's counsel has indicated that he has not been able to confirm that the indirect assets were purchased after the scheme began, or to trace the expenditures. ECF No. 112 at 2. The government has not provided evidence of the connection of many of the items to the bank accounts, the timing of the purchases, or even the value of some items.
C. Substitute Assets
The government contends that if the indirect assets are not subject to forfeiture under §§ 981 or 982, the Court should order them forfeited as substitute assets. ECF No. 116 at 3. To order the forfeiture of substitute assets, the Court must
find that "as a result of any act or omission of the defendant," the forfeitable property "(A) cannot be located upon the exercise of due diligence; (B) has been transferred to ... a third party; (C) has been placed beyond the jurisdiction of the court; (D) has been substantially diminished in value; or (E) has been commingled with other property which cannot be divided without difficulty."
United States v. Alamoudi, 452 F.3d 310, 315-16 (4th Cir.2006) (quoting 21 U.S.C. § 853(p)).15
Detective Aiosa's testimony established by a preponderance of the evidence that the vast majority of the proceeds of the RIN sales have been transferred to third parties. Compare ECF No. 116-1 at 3 (Gov't's Ex. 171, showing the $9,128,375 in RIN proceeds were deposited into the ***9901 account and moved among Hailey's 13 accounts, with minimal deposits from other sources) with Gov't's Ex. 177 at 1 (showing that $9,537,770.80 was disbursed to third parties from Hailey's 13 accounts). The government is entitled to forfeiture of the remaining indirect assets as substitute assets.
D. Writ of Entry and Proof of Insurance
Pursuant to 21 U.S.C. § 853(e) and (g), the government's motion for a writ of entry will be granted to enable it to protect the United States's interest in the property which is the subject of the preliminary forfeiture order.
Pursuant to the Court's pre-trial order, ECF No. 33, Hailey will be ordered to provide proof that the Catron Road property, which is subject to the forfeiture order, remains protected by hazard insurance.
III. Conclusion
For the reasons stated above, the government's motions for a preliminary forfeiture order and writ of entry will be granted as modified.
ORDER
For the reasons discussed in the accompanying Memorandum Opinion, it is, this 22nd day of August, 2012, ORDERED that:
1. The government's motion for preliminary forfeiture order, (ECF No. 106), BE, and HEREBY IS, GRANTED:
a. Hailey SHALL forfeit to the United States $9,128,375.11, in the form of a personal money judgment. Hailey will remain personally liable until the judgment is satisfied. The Court will retain jurisdiction to enforce this Order, and to amend it as necessary pursuant to Fed.R.Crim.P. 32.2(e) if the government locates additional assets subject to forfeiture;
b. The assets listed in Schedule A (attached) ARE hereby FORFEITED to the United States and their value SHALL BE CREDITED toward the satisfaction of the money judgment;
c. Upon the entry of this Order, pursuant to Fed.R.Crim.P. 32.2(b)(3), the United States may seize the assets listed in Schedule A, and conduct any discovery that may assist in identifying, locating, or disposing of those assets, any property traceable thereto, or any property that may be forfeited as substitute assets or otherwise used to satisfy the money judgment;
d. On entry of this Order, the United States SHALL PUBLISH notice of the Order and its intent to dispose of the assets listed in Schedule A on the government's internet website, www. forfeiture.gov. The United States shall also provide written notice to any person who reasonably appears to be a potential claimant with standing to contest the forfeiture in the ancillary proceeding. The notice must describe the forfeited property, state when under the applicable statute a petition contesting the forfeiture must be filed, and state the name and contact information for the government attorney to be served with the petition. No such notice or ancillary proceeding is necessary with respect to the money judgment;
e. Any person, other than Hailey, asserting a legal interest in the assets in Schedule A, may, within 30 days of the receipt of the government's notice, or within 60 days of the first publication of notice on the internet website, whichever is earlier, petition the Court for a hearing without a jury to adjudicate the validity of his or her alleged interest in the assets, and for an amendment of the Order of forfeiture, pursuant to 21 U.S.C. § 853(n) and 28 U.S.C. § 2461(c);
f. Any petition filed by a third party asserting an interest in the assets shall be signed by the petitioner under penalty of perjury and state the nature and extent of the petitioner's right, title, or interest in the assets, any additional facts supporting the petitioner's claim, and the relief sought;
g. If a petition is filed by a third party, and after the disposition of any motion filed under Fed.R.Crim.P. 32.2(c)(1)(A), and before a hearing on the petition, the parties may conduct discovery pursuant to the Federal Rules of Civil Procedure upon a showing that such discovery is necessary or desirable to resolve factual issues;
h. The United States shall have CLEAR TITLE to the assets listed in Schedule A following the Court's disposition of all third-party interests, or, if there are none, following the expiration of the period provided in 21 U.S.C. § 853(n)(2) for the filing of third party petitions;
i. Pursuant to Fed.R.Crim.P. 32.2(b)(4), this Order of Forfeiture will become final as to the defendant upon sentencing and shall be made part of the sentence and included in the judgment. If no third party files a timely claim, this Order shall become the Final Order of Forfeiture, as provided by Fed.R.Crim.P. 32.2(c)(2);
j. If the value of the assets listed in Schedule A exceeds the amount of the money judgment, the government shall return the excess to Hailey;
2. The government's motion for writ of entry and proof of insurance, (ECF No. 114), BE, and HEREBY IS, GRANTED:
a. The United States Marshals Service, and such other federal, state, or local law enforcement officers as may be required, are HEREBY AUTHORIZED to enter upon the real property located 10801 Catron Road, Perry Hall, MD, to inspect, photograph, inventory, and otherwise record the condition and contents of the property, and to advise the Court if any steps are needed to secure the property or its contents pending the issuance of a final order of forfeiture. This Order does not authorize the Marshals Service to search for or to seize any items of personal property or to evict the occupants of the real property;
b. Hailey SHALL provide the government with proof, within 10 days of the entry of this Order, that he has maintained hazard insurance on the real property located 10801 Catron Road, Perry Hall, MD, and that the insurance policy remains in effect;
3. The government may retrieve Exhibit 177 from Chambers 3A at its convenience; and
4. The Clerk of the Court shall send four certified copies of this Order to counsel for the government, and send copies of this Memorandum Opinion and Order to counsel for the parties.
