United States v. Ayika, 5th Cir. filed 9/14/16: Asset Forfeiture When Monies, Legitimate and Illegitimate, are Commingled, When Can the Government Seize Substitute Assets?

September 11th, 2017
Elizabeth Franklin-Best

Ayika was indicted for, and then convicted of heath care fraud. There were two cases against him. The first case, judging from the opinion, looks like a pill-mill case. He was tried before a jury and then convicted. On that same day, he pleaded guilty to the second set of charges. He appealed both sets of charges, and the guilty plea in the fraud case was vacated and remanded for jury trial. Then, he had this second trial before a jury and was convicted. He waived his right to a jury trial for a separate proceeding, the forfeiture hearing. For purposes of this appeal, it’s really only important that he was ordered to pay $2,482,901.93 in restitution, and he disagrees that the Government is entitled to the remaining $200,000 that is sitting in his business’s bank account.

The government’s theory of why they’re entitled to this money is this: They claim they should have 1) the funds that remain in the primary operational account for Continental (the pharmacy) –the “Chase account,” and 2) personal assets acquired with funds from the Chase account over the life of Ayika’s healthcare fraud. The government advanced the same theory for why it was entitled to both: Because they were derived from funds in an account which received nearly all of Continental’s income, they were derived from gross proceeds traceable to the healthcare fraud, and thus forfeitable under §982(a)(7).

Essentially the government showed that of the 7.4 million that was deposited into that account, approximately $5.3 M were from the defrauded insurance companies. Of the prescription claims that were reviewed by the government, 65% of them were fraudulent. Hence, the restitution amount of $2,482,901.93; the amount paid by the insurers for these fraudulent claims.

Ayika argued that a whole bunch of other legitimate business was also conducted, and the funds for all of that legitimate business flowed through that account as well.  At the forfeiture hearing, a forensic accountant testified that she reviewed 12,000 different transactions in that account. Of those, about 33% were related to the fraudulent activity.

Under §982(a)(7), the government has the burden to show that the funds in the Chase account were 1) funds directly or indirectly derived from gross proceeds of his fraud; and 2) that the funds were traceable to the healthcare offense.  See 18 U.S.C. §982(a)(7).  The Court noted that it needed to address this question:  Whether any part of the $200,000 in the Chase account can be “traced” for the purpose of §982(a)(7) to Ayika’s crime of conviction?  It’s a difficult task, and no circuit court has adopted a particular standard. The Fifth Circuit here, though, looked to the Third Circuit’s opinion in United States v. Voigt, 89 F.3d 1050 (3d. 1996), that held that commingling can be so pervasive and protracted that tracing may become “virtually impossible.”

Long story short, if accounts are frozen shortly after criminal conduct has occurred, then the Court is more likely to find that the monies in that account are “traceable” to the crime of conviction. If, as in Akiya’s case, there is a long-running conduct that is illegal, but also a significant amount of legal conduct, then it’s going to be less likely that the funds are going to be found to be traceable. But, if they’re not traceable, that does not mean that the defendant gets the windfall. Instead, the court can look to 21 USC §853(p), the substitute asset provision.  So, if the legitimate and illegitimate monies are commingled and the illegal proceeds are not traceable, then the government can ask that the court order seizure of substitute assets.  The Court is very clear here, the government must first prove that the proceeds are not traceable before it can move on to the substitute asset provision.  The government can’t just skip that part and go straight for the house, the cars, the boats, or whatever. It must first find that the money accounts are too commingled to allow for a tracing analysis. This is quite different than what I’ve seen in a couple of cases I’m familiar with.

Here, the Court vacated the preliminary order of forfeiture and judgment and remanded for reconsideration on the forfeiture issue.

A very interesting decision, and raises some possible defenses when the government seeks to seize a defendant’s assets.

And here, a picture of a kitten commingled with yarn.

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