The thief pleaded guilty to mail fraud and interstate transportation of stolen property. The thief had represented himself to be a “master psychic.” The thief admitted to persuading a minor to steal jewelry from the victim. The minor followed the thief’s instructions and proceeded to send the stolen property to the thief via FedEx. The stolen goods included a 15.88-carat gray diamond (diamond 1), which the thief sold to a jeweler in New York, and a 103.86-carat diamond (diamond 2), which was sold to a New Jersey enterprise that used it as collateral for a loan from a creditor. The thief further admitted the goods were stolen “directly from the victim.” Following the plea, the court entered an amended preliminary order of forfeiture covering both diamonds as assets obtained through the fraud. The purchaser of diamond 1 from the jeweler filed a verified petition contesting the forfeiture of the diamond. He argued that: (1) he possessed standing to contest the forfeiture due to his ownership and possessory interest in the diamond due to the economic and reputational harm that he would suffer from the forfeiture; (2) he was a bona fide purchaser under 21 U.S.C. § 853(c); and (3) he detrimentally relied upon the government’s prior statements that the diamond would not be subject to forfeiture. The government moved to dismiss his petition, and in response, the purchaser made two additional arguments: (1) that “no case or controversy” existed, making the proceeding moot; and (2) that the ancillary proceeding violated his Seventh Amendment right to a jury trial. The creditor also filed a petition contesting the forfeiture of diamond 2. The creditor argued it had standing as a bona fide purchaser under 21 U.S.C. § 853(n)(6)(B) and was reasonably unaware that the diamond had been stolen. The creditor asserted additional substantive arguments in support of its claim that it had a valid legal interest in diamond 2 including: (1) that the thief never “stole” diamond 2 but “swindled” and/or “sold or bartered” the diamond to the debtor, who then transferred it in the ordinary course of business, qualifying the thief as a “merchant” under New Jersey's merchant entrustment; (2) that alternatively, if the entrustment rule did not apply, estoppel should bar the victim from recovering under New Jersey law; (3) that the debtor possessed a “voidable” title since the thief obtained the diamond through fraud rather than outright theft; and (4) that the creditor had a valid and enforceable security interest under New York law. Subsequently, the victim filed a petition claiming title to both diamonds and provided documentation of his original purchases. The government supported the victim’s petition and, together with the victim, moved to dismiss the competing petitions on the basis that the purchaser and the creditor lacked standing to contest the forfeiture.
In United States v. Lee, 748 F. Supp. 3d 1142, (M.D. Fla. 2024), the court granted the government’s amended motion to dismiss, the victim’s motion to dismiss competing claims, and the victim’s petition claiming title to the diamonds. The court dismissed both the purchaser’s and the creditor’s petitions. To reach its conclusions, the court considered 21 U.S.C. § 853, Federal Rule of Criminal Procedure 32.2, and applicable state laws of New York and New Jersey regarding theft and the transfer of stolen property. The court rejected the purchaser’s first argument of mootness because it needed to resolve the competing ownership claims in the diamonds. The court also rejected the purchaser’s second argument that the ancillary proceeding violated his Seventh Amendment right to a jury trial. It explained that 21 U.S.C. § 853(n)(2) provides that the court, not a jury, decides ancillary hearings. The court also found the purchaser’s reliance on SEC v. Jarkesy, 603 U.S. 109 (2024) misplaced, because that case involved administrative penalties imposed without judicial process, whereas the ancillary proceeding here falls under judicial process authorized by statute. Next, the court explained that it dismissed the purchaser’s petition for lack of standing because he failed to provide evidence that he received “good or voidable” title from the thief. The court cited New York state law, which “has long protected the right of the owner” and ensures the state does “not become a marketplace for stolen goods,” even a “good-faith purchaser for value” cannot acquire a valid title to stolen goods. Because the record indicated the thief stole the diamonds “directly” from the victim, the thief held a void title that he could not convey to anyone. The court also denied the purchaser’s estoppel argument even though he may have detrimentally relied on the government’s misstatements, because the government’s conduct did not constitute “affirmative misconduct.” Moreover, ancillary proceedings focus solely on addressing the validity of the claimant’s interest, not the financial or reputational impact of forfeiture. The court denied the creditor’s petition for similar reasons, holding that the creditor lacked standing because the thief could not convey good or voidable title in stolen property. The court rejected the creditor’s first argument that the thief obtained the diamonds by fraud, rather than theft, as an impermissible “attempt to relitigate the forfeitability,” an act that is barred in ancillary proceedings. The court emphasized that, despite the use of words like “scheme” in the indictment, the thief clearly defrauded and stole the diamonds from the victim. Additionally, because the thief held a void title, the court concluded that New Jersey’s good faith purchaser exception did not apply. Likewise, the court rejected the application of New Jersey’s entrustment rule, finding that the thief did not constitute a merchant and that the victim never entrusted the thief with the diamonds. The court dismissed the creditor’s third argument as conclusory and rejected the fourth because the thief could not convey rights in the diamonds to the debtor, which meant that the creditor did not possess a valid security interest.
By Callighan Ard [email protected]
Edited By Taylor O’Brien [email protected]
Edited By Hayden Mariott [email protected]