United States v. Galemmo, No 1:13-CR-141, 2014 WL 7340365 (S.D. Ohio Dec. 23, 2014) (slip copy).
February 03, 2015
Defendant pleaded guilty to one count of wire fraud and one count of money laundering in connection with a Ponzi scheme that defrauded 141 victims. The plea agreement required defendant to forfeit certain property to the government, and defendant was also ordered to pay more than 34 million dollars in restitution to the victims. The government published notice of its intent to dispose of defendant’s forfeited property, and defendant’s father, along with three victims of defendant’s scheme, claimed an interest in the property. The victims did not challenge that the property was properly subject to forfeit, but instead moved the court to order the forfeited funds to be re-allocated to the pending class action (in which they are the lead plaintiffs) so that the funds can be distributed to the class members. The victims also challenged the amount of restitution ordered and the comprehensiveness of the victim list in the criminal case. The government filed a motion to dismiss both forfeiture petitions and argued that the court lacked the authority to re-allocate forfeiture funds to the class action and to modify the restitution order to include payment of attorney fees incurred by the victims in connection with assisting the government with investigating the fraud. After dismissing defendant’s father’s claim for failure to state a superior interest in the property or to demonstrate that he was a bona fide purchaser for value of the property, the court considered the victims’ motion. The court held that the victims did not have standing to participate in the forfeiture phase of the case, as they conceded that all of the property was properly forfeited to the government. Further, the court found that it did not have authority to transfer the forfeited funds to the victims’ class action matter, as “once property is forfeited to the government, its title to the property is free and clear” and the court “simply has no authority to tell the government what it must do with forfeited property.” Regarding the victims’ request to modify the restitution order to incorporate attorney’s fees incurred to assist with the investigation of defendant’s fraud, the court held that the victims were “conflating restitution and forfeiture” and that it was not appropriate for the victims to contest the restitution order in the context of the forfeiture proceedings. Further, the court held that the victims lacked standing to object to the restitution order because they failed to exercise their right to petition for a writ of mandamus within the statutory period. Finally, the court clarified that although victims may petition for a modification of the restitution order if the victims subsequently discover further losses and demonstrate good cause for failing to include these losses in the initial claim for restitution, the victims in this case were aware of the losses prior to defendant’s sentencing and did not demonstrate good cause for failing to request these losses in restitution. The court granted the government’s motion to dismiss the forfeiture petitions and denied the victims’ motion to re-allocate the forfeiture funds.