United States of America v. Prevezon Holdings Ltd. et al
OPINION #105761: These are only allegations. On a motion to dismiss, the court does not find facts. Instead, the court draws all reasonable inferences in plaintiff's favor, assumes all well-pleaded factual allegations to be true, and determines whether they plausibly give rise to an entitlement to relief. And, with respect to the forfeiture claim, the court determines only whether the AVC alleges facts sufficient to support a reasonable belief that the Government will be able to meet its burden of proof at trial. Under these standards, the AVC is sufficiently pleaded to allow the claims to proceed. The motions to dismiss are therefore denied. The Clerk of Court is directed to close the motions listed as docket numbers 210 and 212. (As further set forth in this Order) (Signed by Judge Thomas P. Griesa on 8/7/2015) (kl) Modified on 8/10/2015 (soh).
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------------UNITED STATES OF AMERICA,
13 Civ. 6326 (TPG)
PREVEZON HOLDINGS LTD., et al.,
-------------------------------------------This case arises from an elaborate $230 million fraud on the Russian Treasury-the
largest tax fraud in Russian history.
On November 5, 2014, the United States of America (the "Government") filed an
Amended Verified Complaint (the "AVC") seeking the forfeiture of certain property allegedly
involved in laundering the proceeds of the $230 million fraud. The Government also seeks the
imposition of civil money laundering penalties.
In the AVC, the Government alleges that Prevezon Holdings, LTD. and eight of its
corporate subsidiaries 1 (collectively, "Prevezon") laundered approximately $1.9 million in
proceeds from the $230 million fraud through real estate purchases in Manhattan.
Government further alleges that defendants Kolevins Ltd. ("Kolevins") and Ferencoi
The Prevezon subsidiaries are Prevezon Alexander, LLC, Prevezon Soho USA, LLC, Prevezon Seven USA, LLC,
Prevezon Pine USA, LLC, Prevezon I7II USA, LLC, Prevezon I8I 0, LLC, Prevezon 20 II USA, LLC, and
Prevezon 2009 USA, LLA.
Investments Ltd. ("Ferencoi"), two British Virgin Islands companies, were involved in
laundering the proceeds of the same fraud scheme. The Government seeks the forfeiture of
certain assets held by Prevezon, and the imposition of civil money laundering penalties against
Prevezon, Kolevins, and Ferencoi (collectively, "the defendants").
Two motions to dismiss are pending before the court. First, Prevezon argues that the
AVC fails to state a claim. Second, Kolevins and Ferencoi claim that the court lacks personal
jurisdiction over them, and that the AVC fails to state a claim.
For the reasons that follow, both motions are denied.
A. The Amended Verified Complaint
The AVC is vast. It spans 62 pages and more than 171 paragraphs, and describes a series
of complicated financial transactions across the globe. Essentially, it tells two stories: (1) that of
a complex $230 million tax fraud perpetrated in 2007 by members of a Russian criminal
organization (the "Organization") against the Russian Treasury, and (2) that of the defendants'
alleged laundering of approximately $1.9 million in proceeds from the larger fraud.
question here is not whether the Government has proven the defendants' liability for laundering
proceeds of the $230 million scheme. Rather, the question is whether the Government has
sufficiently connected these two stories to satisfy its pleading requirements on a motion to
dismiss in a civil forfeiture action. As discussed below, the court finds that the Government has
done so with respect to all defendants.
The facts below are taken from the A VC, and are assumed to be true for purposes of the
1. The $230 Million Fraud on the Russian Treasury
As alleged, members of the Organization engaged in a complex web of fraud and deceit,
ultimately defrauding the Russian Treasury of approximately $230 million.
The scheme began when members of the Organization stole the corporate identities of
three companies (the "Hermitage Companies"), which were portfolio companies of the
Hermitage Fund. Until 2006, the Hermitage Fund was the largest foreign portfolio investor in
14, 16, 18.) The Organization managed to steal the Hermitage Companies'
identities by enlisting officers from the Russian Interior Ministry to search the offices of those
companies, and to confiscate their original corporate stamps and documents. (AVC
Using these items, the Organization re-registered ownership of the Hermitage Companies away
from their proper owner-an HSBC Guernsey entity which was trustee for the Hermitage
Fund-into the names of three convicted criminals. (AVC ~~ 26-28.)
Next, members of the Organization forged backdated contracts with sham commercial
counterparties, pursuant to which the Hermitage Companies appeared to owe such counterparties
large sums of money. (AVC
29-32.) These counterparties, who were also controlled by
members of the Organization, then filed sham lawsuits in Russian arbitration courts against the
(now-stolen) Hermitage Companies based on the forged contracts. (AVC
of the Organization purporting to represent the Hermitage Companies acknowledged the validity
of the sham contracts and conceded full liability, resulting in huge fraudulent judgments against
the Hermitage Companies. (AVC ~~ 34-36.)
Subsequently, members of the Organization used these judgments to make fraudulent
claims for tax refunds totaling 5.4 billion rubles, or approximately $230 million. The basis for
the requested refunds was that the cumulative judgments from the sham lawsuits represented
losses negating the profits the Hermitage Companies had made during the previous tax year,
entitling the Hermitage Companies to a refund of all taxes paid on those profits. (AVC
41.) Within one business day of this refund application, Russian tax officials-also working for
the Organization-approved the refund requests. (AVC ~~ 44-45.)
2. The Alleged Path of the Fraud Proceeds to Prevezon Holdings
Prevezon Holdings, Ltd. is a holding company incorporated and registered in Cyprus,
which invests in real estate in New York.
7, 103, 124.)
The eight Prevezon
subsidiaries are New York limited liability companies owned by Prevezon, which each hold (or
once held) real estate investments in New York. (AVC ~~ 11, 124-36.)
After members of the Organization orchestrated the $230 million tax refund, they
"engaged in a complicated series of transactions" to launder the funds through various shell
75.) The AVC includes a long, detailed analysis tracing these laundering
transactions, with approximately $1.9 million allegedly landing with Prevezon. (See generally
AVC ~~ 77-102, 114-123, & Ex. B.)
First, on December 26, 2007-just after the tax refunds were approved-all $230 million
was transferred to accounts in the name of the Hermitage Companies at two Russian banks
named Intercommerz Bank ("Intercommerz") and USB Bank ("USB").
At the time,
Intercommerz and USB were, respectively, the 432nd largest and 920th largest banks in Russia,
and USB was owned by a convicted fraudster.
Members of the
Organization opened the accounts at these banks just days before receiving the refund payments.
These accounts were closed less than two months later, shortly after transferring the funds out.
(AVC ~~ 77-79, 88.)
After these initial transfers, the AVC does not trace every dollar of the $230 million once
those funds left the Russian Treasury. But the AVC does detail the movement of large volumes
of the tax refund moneys passed through accounts held by multiple shell companies and
intermediaries. From the accounts at Intercommerz and USB, the AVC traces funds through
shell companies and intermediaries to a correspondent account at the Russian bank Alfa Bank,
which account was held in the name of Bank Krainiy Sever (another Russian bank). (AVC
90-91.) Specifically, beginning February 5, 2008, two intermediaries (the ZhK Account and
the Univers Account) made 24 transfers totaling over 800 million rubles into the Bank Krainiy
Sever account. Bank Krainiy Sever then sent the money, comingled with other funds, to two
Moldovan shell companies, Bunicon-lmpex SRL ("Bunicon") and Elenast-Com SRL
("Elenast"), which both had accounts at the same bank in Moldova (Banca De Economii). (AVC
On the same day that it made its last transfer to Elenast, the Bank Krainiy Sever account
was seized by the Russian authorities pursuant to a Russian court order. Approximately one
month later, the Russian authorities cancelled Bank Krainiy Sever's banking license due to
money laundering violations. (AVC ~ 92.)
On or about February 6, 2008, approximately $410,000 was wired from Bunicon to a
U.S. dollar account (the "Prevezon 8160 Account") held by Prevezon at the Swiss bank UBS.
101.) On or about February 13, 2008, approximately $447,000 was wired from Elenast
to the Prevezon 8160 Account. (AVC
102.) The AVC highlights the following suspicious
indicia surrounding these two transfers ("the February 2008 Transfers"), which totaled
approximately $857,000: (1) Bunicon and Elenast were shell companies without real business
93 & Ex. C; AVC
94 & Ex. D); (2) bank records reflecting the transfers to
Prevezon falsely describe the transfers as a prepayment for sanitary equipment (AVC
(3) both Bunicon and Elenast submitted false contracts or invoices to their Moldovan bank to
justify these transfers, including one purportedly signed by an unnamed representative of
The February 2008 Transfers were described in the original complaint. The AVC further
alleges that Prevezon received an additional $1,108,090.55 from Bunicon, which also
represented proceeds ofthe $230 million fraud. (AVC
114-23.) Specifically, on February 5,
2008, Bunicon wired $951,400 to an Estonian bank account held by the New Zealand company
Megacom Transit Ltd ("Megacom"). Like Bunicon, Megacom was an apparent shell company
with a nominee administrator. (AVC
115-16.) On February 20, 2008, the same Megacom
account transferred $390,000 to the bank account of a British Virgin Islands company (identified
as "Company- I"). (AVC
117.) The bank records for this wire transfer describe it as payment
for "auto spare parts completing."
Additionally, on February 6, 2008, Bunicon sent
$942,700 to an account in the name of Castlefront LLP ("Castlefront"), a United Kingdom shell
company controlled by the same nominee administrator as Megacom. (AVC
same Castlefront account then sent $1,986,000 to Company-1. This transfer was also described
in bank records as being for "auto spare parts completing." (AVC
121.) Thus, through the
transfers from Megacom and Castlefront, approximately $1.3 million in proceeds from the $230
million fraud is allegedly traced from Bunicon to Company-1. Company-1 then transferred
approximately $1.1 million of these funds to the Prevezon 8160 Account, through seven transfers
made from February 28, 2008 to March 20, 2008. (AVC
described in bank records as concerning "auto spare parts." (!d)
122.) These transfers were all
When combining the approximately $857,000 previously alleged through the February
2008 Transfers and the new allegations of approximately $1.1 million, the A VC ultimately
alleges that Prevezon had received-as of March 20, 2008-$1,965,444.55 in proceeds from the
$230 million fraud scheme. These transfers were all falsely described as prepayment for either
sanitary equipment or auto parts.
All of the wire transfers described above, with one exception, took place between banks
outside of the United States. (See generally AVC
77-94; 99-102, 114-123 & Ex. B.) The
AVC does allege one wire transfer through the Southern District of New York: a February 5,
2008 transfer of $726,000 from the Bunicon account in Moldova to an account at a Latvian bank
in the name ofNomirex Trading Ltd. (AVC
95-98.) This transfer is not alleged to have ever
reached or benefited Prevezon. However, these funds were moved through intermediaries in
May and June 2008 to a company owned by Vladlen Stepanov, a Russian national and the thenhusband of Olga Stepanova ("Stepanova"). Stepanova was the head of the Moscow tax office
that had allegedly authorized millions of dollars of fraudulent refunds as part of the $230 million
Despite filing tax returns indicating a combined annual income of less than
$40,000, Stepanova and her then-husband purchased millions of U.S. dollars' worth of real estate
in Dubai after the fraud scheme was completed. (AVC
23, 44, 96, 99-1 00.)
3. The Ownership Structure of Prevezon Holdings, Kolevins, and Ferencoi
Dennis Katsyv, a Russian citizen, is the current owner of Prevezon, which he purchased
on June 19, 2008. (AVC
8.) However, at the time of the February 2008 Transfers, Timofey
Krit, a twenty-two year old Russian graduate student who was Katsyv's business associate, was
the sole publicly listed shareholder of Prevezon Holdings. (AVC
9, 104-05.) Additionally,
from August 2006 through June 2008, another Russian national, Alexander Litvak, was the
beneficial owner of the Prevezon 8160 Account at UBS, as well as a Euro account at the same
bank (the "Prevezon 8170 Account"). (A VC
On June 19, 2008, Krit sold his 100% interest in Prevezon to Katsyv for $50,000. (A VC
106.) He did so despite the fact that at the time of the sale, the Prevezon accounts at UBS in
Switzerland held over $2 million in assets. After the sale of Prevezon from Krit to Katsyv, Krit
remained a director of Prevezon, and Litvak remained beneficial owner of the Prevezon UBS
Before the February 2008 Transfers, Katsyv, Litvak, and Krit had been "business
associates" in other ventures, including Kolevins. (AVC
Islands company, was founded in 2004. (AVC
106(a).) Kolevins, a British Virgin
13.) From October 2007 through at least
October 2012, Krit was listed as sole director and shareholder of Kolevins, but Kolevins' bank
accounts at UBS have been beneficially owned by Litvak and Katsyv during this time, and an
internal UBS document has referred to Kolevins as Litvak's company. (AVC ~~ 13, 106(a).)
Ferencoi, also a British Virgin Islands company, was founded in 2003. It is beneficially
owned by Katsyv, who, as stated, also owns Prevezon. (AVC ~ 12.).
4. The Defendants' Alleged Laundering of the Fraud Proceeds
Beginning in November 2009, Prevezon purchased a number of parcels of Manhattan real
estate. (AVC ~~ 125-35.) The funds to purchase most ofthis real estate came from the Prevezon
8160 Account, which allegedly held, among other funds, the approximately $1.9 million in
proceeds from the $230 million fraud. (AVC
125-26, 128-29.) The funds to purchase one
additional piece of real estate-held by Prevezon subsidiary Prevezon Soho-did not come from
the Prevezon 8160 Account, but rather from a different account in the name of Prevezon
Holdings at Martin Popular Bank PCL in Cyprus. 2 (AVC ~ 127.)
When a news reporter approached Katsyv about the allegations of money laundering
based on the February 2008 Transfers, Katsyv's public relations representative confirmed that
the February 2008 Transfers "really had occurred, and although they did so prior to [Katsyv's]
involvement and ownership, [Katsyv] undertook a full review of where they had come from and
how the funds were used." (AVC
107-08.) The representative then claimed the February
2008 Transfers had been sent to Prevezon on behalf of a third party investor named Petrov, who
had agreed with Krit (Prevezon's previous owner) "jointly to develop a business based on
investments in and management of property[.]" (Jd.) The representative further explained that
the funds involved in the February 2008 Transfers "were invested in various New York
properties, and it was agreed that Prevezon would manage these assets for five years and then
transfer the properties to Mr. Petrov in full." (AVC
The AVC also details an investment made by Prevezon Holdings in the Netherlands,
when it acquired a 30% interest in a series of Dutch companies held in partnership with a
legitimate real estate company called AFI Europe, N.V. ("AFI Europe"). On May 23 and June
23 of 2008-shortly before and after Katsyv purchased Prevezon Holdings-the Prevezon 8160
Account converted millions of dollars into euros, which were then transferred to the Prevezon
8170 Account. (AVC
103.) The Prevezon 8170 Account then transferred over 3 million euros
to AFI Europe, in order to purchase Prevezon' s interest in the joint investment with AFI Europe.
Later, in early November 2009, funds from AFI Europe were transferred back into the Prevezon
Additionally, the AVC does not specifY the source of the funds used for the purchase of a $6.25 million parcel by
subsidiary Prevezon Alexander. (AVC ~ 130.)
8170 Account in euros, and then subsequently converted into dollars and transferred into the
Prevezon 8160 Account. These funds were allegedly included in the Prevezon 8160 Account by
November 20, 2009, when the account was used to purchase two pieces ofNew York real estate.
(AVC ,-r 125.)
With respect to the role of Kolevins and Ferencoi in any money laundering, the
Government's allegation is that at the time Prevezon purchased certain Manhattan real estate in
2009 and 2010, the Prevezon 8160 Account "included funds from Kolevins [and] funds from
Ferencoi." (AVC ,-r,-r 125-26; 128-29.)
B. Relevant Procedural History
On September 10, 2013, the Government filed a verified complaint seeking forfeiture of
any and all assets of Prevezon, Kolevins, and Ferencoi, as well as the imposition of civil money
laundering penalties. (Dkt. No. 1.) The Government also sought a protective order to preserve
the availability of these assets for forfeiture. The next day, the court entered a protective order,
pursuant to 18 U.S.C. § 983(j), restraining any and all assets ofPrevezon, Kolevins, and Ferencoi
(the "Original Protective Order"). (Dkt. No. 2.)
On December 11, 2013, defendants filed a motion to vacate or modify the Original
Protective Order. (Dkt. No. 39.) On December 20, 2013, Kolevins and Ferencoi filed a motion
to dismiss for lack of jurisdiction and failure to state a claim. (Dkt. No. 44.) Prevezon filed its
own motion to dismiss on December 24, 2013. (Dkt. No. 49.) The motions to dismiss were
mooted when the Court granted the Government leave to file the AVC, which the Government
filed on November 5, 2014. (Dkt. No. 174.) That same day, the court denied the defendants'
motion to vacate the Original Protective Order, but entered a modified protective order (the
"Amended Protective Order"). The Amended Protective Order tailored the property restrained to
that for which the AVC seeks forfeiture, or approximately $15 million. (See Dkt. Nos. 173,
178.) The Amended Protective Order also removed all restraints on assets held by Kolevins and
On November 24, 2014, Prevezon filed a notice of interlocutory appeal, seeking reversal
ofthe court's denial oftheir motion to vacate the Original Protective Order. (Dkt. No. 187.) On
January 12, 2015, Prevezon filed a motion to dismiss the AVC, as did Kolevins and Ferencoi.
(Dkt. Nos. 212, 210.) The court stayed Prevezon's motion to dismiss pending the outcome of the
On July 8, 2015, the Second Circuit dismissed the interlocutory appeal, noting that
"DJudicial economy is better served by the District Court expeditiously ruling" on Prevezon's
pending motion to dismiss. United States v. Prevezon Holdings Ltd., et al., No. 14-4407, Dkt.
No. 77-1 (2d Cir. July 8, 2015) (summary order). This opinion followed.
1. Motions to Dismiss In Rem Forfeiture Actions
"Motions to dismiss in rem forfeiture actions are governed by Federal Rule of Civil
Procedure 12(b) and Rule G of the Supplemental Rules for Admiralty or Maritime Claims and
Asset Forfeiture Actions." In re 650 Fifth Ave. & Related Properties, 777 F. Supp. 2d 529, 541
(S.D.N.Y. 2011); see also Fed. R. Civ. P. 12(b); Rule G of the Supplemental Rules for Admiralty
or Maritime Claims and Asset Forfeiture Actions (the "Supplemental Rules" or "Supp. R.").
When considering such a motion, the court must "draw all reasonable inferences in Plaintiffs
favor, assume all well-pleaded factual allegations to be true, and determine whether they
plausibly give rise to an entitlement to relief." United States v. Any & all Funds on Deposit in
Account No. 0139874788, at Regions Bank, held in the name of Efans Trading Corp., No. 13
Civ. 7983, 2015 WL 247391, at *5 (S.D.N.Y. 2015) (internal citation omitted). A plaintiff will
survive a motion to dismiss if he alleges "enough facts to state a claim to relief that is plausible
on its face." !d. (quoting Bell At/. Corp. v. Twombly, 550 U.S. 544, 569 (2007)).
Under Supplemental Rule G(2)(f), a complaint must "state sufficiently detailed facts to
support a reasonable belief that the government will be able to meet its burden of proof at trial."
United States v. $32,507.00 in US. Currency, No. 14 Civ. 5118, 2014 WL 4626005, at *1
(S.D.N.Y. Sept. 16, 2014). At trial, under the Civil Forfeiture Act of 2000 ("CAPRA"), the
burden of proof will be "on the Government to establish, by a preponderance of the evidence,
that the property is subject to forfeiture." See 18 U.S.C. § 983. The Government's complaint
must therefore "assert specific facts supporting an inference that the property is subject to
forfeiture." United States v. $22,173.00 in US. Currency, 716 F. Supp. 2d 245, 248 (S.D.N.Y.
2010) (internal citation omitted). However, the Government is not required to allege in the
complaint all of the facts and evidence at its disposal. "The issue is one of pleading, not proof,
and '[n]o complaint may be dismissed on the ground that the Government did not have adequate
evidence at the time the complaint was filed to establish the forfeitability of the property."'
$32,507.00 in US. Currency, 2014 WL 4626005, at *1-2 (quoting 18 U.S.C. § 983(a)(3)(D)).
With the above pleading standards in mind, the court turns to defendants' arguments on
Prevezon's Motion to Dismiss
The AVC includes a claim for forfeiture under 18 U.S.C. §§ 981(a)(A), and also seeks
civil money laundering penalties for violations of 18 U.S.C. § 1956(a)(1)(A), 18 U.S.C. §
1956(a)(l)(B), 18 U.S.C. § 1956(a)(2)(A), 18 U.S.C. § 1956(a)(2)(B), 18 U.S.C. § 1956(b), 18
U.S.C. § 1956(h), and 18 U.S.C. § 1957.
The basis for the forfeiture claim under Section 981 is a violation of the money
laundering statutes, 18 U.S.C. §§ 1956 and 1957. To state a claim under Section 1956, the
government must allege:
that the defendants, (1) knowing that the property involved in a financial
transaction represented the proceeds of some form ofunlawful activity, (2)
conducted or attempted to conduct a financial transaction (3) which in fact
involved the proceeds of that unlawful activity, (4) either (a) with the
intent to promote the carrying on of that unlawful activity or (b) with the
knowledge that the transaction was designed at least in part to conceal or
disguise the nature, location, source, ownership, or control of the proceeds
ofthe unlawful activity.
In re 650 Fifth Ave., 777 F. Supp. 2d at 558-59 (citing United States v. Gatti, 459 F.3d 296, 334
(2d Cir. 2006)). To state a claim under Section 1957, the Government must allege that the
defendants "knowingly engage[d] or attempt[ed] to engage in a monetary transaction in
criminally derived property of a value greater than $10,000 and is derived from specified
unlawful activity[.]" 18 U.S.C. § 1957.
Prevezon argues that the AVC fails to state any claim for money laundering, because it
does not trace any tainted funds substantially connected to the $230 million fraud to the
Prevezon account in Zurich or to the Prevezon subsidiaries in New York; does not identify a
specified unlawful activity actionable in the United States; and does not allege facts sufficient for
a finding of knowledge or intent. Prevezon further argues that the Government's verification of
the original complaint was inaccurate and misleading, justifying dismissal.
The court addresses these arguments below. None merit dismissing the action.
A. The AVC Adequately Traces The Allegedly Laundered Funds
"When the Government seizes property under § 981, it must prove that the property is
itself involved in, or traceable to property involved in, a proscribed transaction." In re 650 Fifth
Ave., 777 F. Supp. 2d at 571 (internal citation omitted). Prevezon claims that the AVC does not
trace any tainted funds substantially connected to the $230 million fraud into the Prevezon 8160
Account in Switzerland, or into Prevezon's real estate holdings in New York. According to
Prevezon, the Government has failed to follow the allegedly tainted money in anything but a
Prevezon's tracing arguments highlight the "particular problems in the case of [tracing]
money or other fungible property . . . since identifying the particular funds traceable to the
criminal violation is nearly impossible." In re 650 Fifth Ave., 777 F. Supp. 2d at 571 (internal
To help solve these problems, the Second Circuit has sanctioned certain
accounting assumptions that the Government may use to trace tainted funds. See United States v.
Banca Cafatero Panama, 797 F.2d 1154 (2d Cir. 1986). One, the "first in, last out" assumption,
or the "lowest intermediate balance" rule, states that "as long as the balance in an account where
illicit proceeds are deposited remains higher than the amount of the proceeds deposited, the
government can trace funds equal to that amount." In re 650 Fifth Ave., 777 F. Supp. 2d at 571
(citing Banco Cafatero, 797 F.2d at 1159).
Another, the "first in, first out" assumption,
'"consider[s] 'traceable proceeds' to be any one withdrawal, or any asset purchased with such
withdrawal, to the extent of the amount of the deposited tainted funds." United States v. Walsh,
712 F.3d 119, 124 (2d Cir. 2013) (quoting Banco Cafatero, 797 F.2d at 1159).
Under these accounting assumptions, the AVC sufficiently traces the $1.9 million in
tainted funds from the Russian Treasury to the Prevezon 8160 Account. The AVC contains
numerous paragraphs detailing when funds from the $230 million fraud were transferred into an
account and when they were transferred out. (AVC
77-102; 114-122; Ex. B.) This tracing
analysis includes an adequate tracking of the funds at issue from Bank Krainiy Sever to Elenast
and Bunicon (and to the additional Bunicon intermediaries Megacom, Castlefront, and
Company-1 ), and from there to the Prevezon 8160 Account. It includes dates, amounts, and
information regarding both the originator and beneficiary of each transfer.
methodology outlined in Banco Cafatero, this pleading is sufficient. 3 See Walsh, 712 F.3d at
124 (affirming district court's application of Banco Cafatero's "first-in, first-out" approach in
civil forfeiture proceeding based on a commingled account).
Prevezon argues that the Government has not provided a basis to infer that the
approximately $1.9 million wired to them was tainted money, when-according to a version of
Exhibit B prepared by Prevezon-the same source account (at Bank Krainiy Sever) held more
than $19 million in untainted funds. Even if true, this objection is unpersuasive, given that the
Government is entitled to use the Banco Cafatero accounting assumptions, and given the fact
that there is no "probability requirement at the pleading stage." Twombly, 550 U.S. at 556.
Moreover, the AVC pleads more than mere accounting assumptions. As alleged, the same shell
company (Bunicon) that was used to transfer money from the Bank Krainiy Sever account to the
Prevezon 8160 Account was also used to wire a kickback to the then-husband of Stepanova, the
Russian tax official who helped to perpetrate the $230 million fraud. Combined with all of the
suspicious indicia surrounding the transfers of the $1.9 million at issue-described further below
Prevezon does not cite, and the court is not aware of, any case holding that Banco Cafatero's tracing assumptions
do not apply to a correspondent or concentration account. This makes sense: the implication of such a rule would
be that a money launderer could escape the reach of the money laundering statutes by merely funneling illicit
proceeds through a correspondent account. The court declines to take such a position here.
with regard to scienter-the allegations raise a reasonable belief that the funds accepted by
Prevezon were proceeds of the $230 million fraud.
Emphasizing documents obtained through discovery that are not cited in the AVC, and
noting that the AVC itself acknowledges that certain bank records in Russia were destroyed in a
fire, Prevezon argues that the Government cannot prove its tracing allegations with authenticated
or admissible evidence. But this goes to the Government's ultimate trial burden, not its pleading
requirements. When limited to what is required in a pleading, the AVC has alleged sufficient
facts to meet the pleading requirements of Rule 12(b) and Supplemental Rule G. See United
States v. All Funds on Deposit in Dime Sav. Bank of Williamsburg Account No. 58-400738-1,
255 F. Supp. 2d 56, 69-70 (E.D.N.Y. 2003) (on motion to dismiss, court "need not pass on the
Government's ultimate burden of proof regarding traceability").
With regard to whether the fraud proceeds are traced into the Prevezon real estate
purchased in New York, Prevezon argues that the Government cannot prove that the allegedly
tainted funds in the Prevezon 8160 Account were used to purchase New York real estate,
because bank records show that Prevezon invested those funds with AFI Europe in the
But the AVC cites to the statement of Katsyv's representative, who publicly
confirmed that after receiving funds transferred from Bunicon and Elenast, Prevezon "invested
[the funds] in various New York real properties." And, the AVC states that some funds from
AFI Europe were transferred back to the Prevezon account in early November 2009 to fund the
purchase of two properties in New York later that month. (AVC
As noted, the issue before the court is one of pleading, not proof. The statements of
Katsyv's representative, combined with the allegations that moneys were transferred from AFI
Europe to fund the purchase of properties in New York, permit the reasonable belief that the
New York properties were purchased with illicit funds "substantially connected" to the
underlying fraud scheme. 18 U.S.C. § 983(c)(3). That is all that is required at this stage to allow
the claims to move forward. 4
B. The A VC Adequately Pleads a Specified Unlawful Activity
Under Section 1956, the Government must allege that a specified unlawful activity
("SUA") occurred, and that Prevezon then laundered the proceeds of that SUA. The term
"specified unlawful activity" is defined in 18 U.S.C. § 1956(c)(7). First, that section defines an
SUA as "any act or activity constituting an offense listed in [18 U.S.C. § 1961(1)]," which
includes wire fraud. 18 U.S.C. § 1956(c)(7)(A). Second, with respect to a financial transaction
"occurring in whole or in part in the United States," that section defines an SUA as "an offense
against a foreign nation involving . . . (iii) fraud, or any scheme or attempt to defraud, by or
against a foreign bank (as defined in paragraph 7 of section 1(b) of the International Banking Act
of 1978); [or] (iv) bribery of a public official, or the misappropriation, theft, or embezzlement of
public funds by or for the benefit of a public official[.]" 18 U.S.C. § 1956(c)(7)(B).
The AVC includes a list of potential SUAs that apply. (AVC
143.) Initially, the
Government took the position that the relevant SUA is wire fraud under 18 U.S.C. §
1956(c)(7)(A), based on facts alleging a violation of 18 U.S.C. § 1343 (the wire fraud statute).
(1/7114 Tr. at 10:7-9; Dkt. No. 58 at 11-13; Dkt. No. 88 at 16-17.) However, the legal landscape
changed in April 2014, when the Second Circuit clarified that the wire fraud statute does not
apply extraterritorially. See European Cmty. v. RJR Nabisco, Inc., 764 F. 3d 129 (2d Cir. 2014).
The court notes that this tracing analysis may not necessarily apply to assets held by two Prevezon subsidiaries:
Prevezon Soho and Prevezon Alexander. These assets are not explicitly linked in the A VC to the allegedly tainted
Prevezon 8160 Account, but are restrained by the Amended Protective Order. Prevezon has filed a recent motion to
vacate or modify the Amended Protective Order. (Dkt. No. 298.) The court reserves judgment on that motion,
which is not yet fully briefed.
Since that time, the Government has argued in the alternative that the AVC pleads facts to
support two additional SUAs, both actionable under 18 U.S.C. § 1956(c)(7)(B): (1)
misappropriation, theft, or embezzlement of public funds by or for the benefit of public officials;
or (2) fraud against a foreign bank.
The court finds that the wire fraud alleged here cannot qualify as the relevant SUA,
because the alleged scheme is not sufficiently domestic and is therefore not actionable under
U.S. law. However, the Government has adequately alleged at least one alternative SUA: an
offense against a foreign nation involving the misappropriation, theft, or embezzlement of public
funds by or for the benefit of public officials.
1. Wire Fraud
Citing to Pasquantino v. United States, 544 U.S. 349 (2005), the Government first argues
that domestic wire fraud under 18 U.S.C. § 1343 qualifies as the relevant SUA. 5 In Pasquantino,
a phone call was made in the United States to place an order for liquor, which was later
smuggled into Canada in violation of Canadian tax laws. The Supreme Court held that the wire
fraud statute applied to this conduct, noting that it prohibited the use of "U.S. interstate wires to
execute a scheme to defraud a foreign sovereign of tax revenue." !d. at 371.
However, Pasquantino was decided in 2005, before the Supreme Court articulated a
presumption against extraterritoriality in Morrison v. National Australia Bank Ltd., 561 U.S. 247
(2010). It is true that the Morrison court distinguished, rather than overruled, Pasquantino. But
it did so by noting that that the wire fraud at issue in Pasquantino '"was complete the moment
Under 18 U.S.C. § 1343, the "elements of wire fraud include: (1) the formation of a scheme to defraud victims (2)
of money or other property (as the object of the scheme), and (3) the use of the mails or interstate or foreign wire
communications in furtherance of the scheme." Laydon v. Mizuho Bank, Ltd., No. 12 CIV. 3419, 2015 WL
1515487, at *8 (S.D.N.Y. Mar. 31, 2015) (internal citation omitted).
they executed the scheme inside the United States,"' and further noting that it was "[t]his
domestic element of petitioners' conduct [that] the Government is punishing."' Morrison, 561
U.S. at 272 (quoting Pasquantino, 544 U.S. at 371) (emphases added). Four years later, applying
Morrison in the RICO context, the Second Circuit explicitly held that the wire fraud statute does
not apply extraterritorially. See RJR Nabisco, Inc., 764 F.3d 129, 139 (2d Cir. 2014) ("[W]e
conclude that the wire fraud and money fraud statutes
presumption against extraterritoriality").
... do not overcome Morrison's
In light of the Morrison presumption, the Second
Circuit has also rejected as dicta the language in Pasquantino that implied the wire fraud statute
could apply to non-domestic schemes. RJR Nabisco, Inc., 764 F.3d at 141 n.ll.
Still, this does not end the inquiry. In RJR Nabisco, Inc., the Second Circuit held that
even where the criminal enterprise is foreign, a predicate act of wire fraud may allow for
extraterritorial application where "all elements of the wire fraud . . . were completed in the
United States or while crossing U.S. borders[.]" 764 F. 3d at 139. The Second Circuit therefore
found that the wire fraud statute could still apply to the conduct at issue in RJR Nabisco, Inc.,
where the extensive allegations detailed that the scheme was allegedly both hatched in and
directed at the U.S. In so ruling, the Second Circuit stated: "We need not decide whether
domestic conduct satisfying fewer than all of the [wire fraud] statute's essential elements could
constitute a violation of such a statute." Id at 142 n.l4. The Second Circuit added: "We need
not now decide precisely how to draw the line between domestic and extraterritorial applications
of the wire fraud statute . . . because wherever that line should be drawn, the conduct alleged
here clearly states a domestic cause of action." Id at 142.
In the court's view, this case sits on the wrong side of that line. The Government argues
that the wire fraud scheme is sufficiently domestic based on the allegation that U.S. wires were
used in one instance to send a kickback to the then-husband of Stepanova, the Russian tax
official. (See AVC
95-98.) The court sees things differently. Unlike in RJR Nabisco, Inc.,
the Government does not plead that the wire fraud scheme here was formed in the United States,
let alone that all of the elements of wire fraud were completed in the United States. In an
otherwise wholly foreign wire fraud scheme, the only domestic contact is a single wire transfer
directed from a shell company with a Moldovan bank account (Bunicon) to a shell company with
a Latvian bank account (Nomirex), with the transfer routed through New York. Nomirex then
transferred funds to a British Virgin Islands company (Quartell Trading, Ltd.), which promptly
transferred funds to yet another British Virgin Islands company (Baikonur Worldwide, Ltd.).
Then, Baikonur Worldwide, Ltd., the last British Virgin Islands company in the chain,
transferred funds to the Swiss bank account of a Cyprus-based company (Arivust Holdings, Ltd.)
held by a Russian national. (AVC
96-97.) On these facts, the court cannot conclude that this
single transfer is sufficient to overcome the presumption against the wire fraud statute's
This is particularly so in light of the Second Circuit's holding in Petroleos Mexicanos v.
SK Engineering & Canst. Co. Ltd., 572 F. App'x 60, 61 (2d Cir. July 16, 2014) (summary order),
decided after RJR Nabisco, Inc.
In Petroleos Mexicanos, the wire fraud scheme had three
contacts with the United States: the foreign defendants obtained financing in the United States,
transmitted seven false invoices for over $159 million via facsimile through New York, and
made payments through a trust in New York. Nevertheless, the Second Circuit reaffirmed that
"wire fraud cannot serve as ... an extraterritorial predicate," and then rejected the application of
the wire fraud statute to the scheme at issue. 572 F. App'x at 61 ("The activities involved in the
alleged scheme-falsifying the invoices, the bribes, the approval of the false invoices-took
place outside of the United States.
The allegations of domestic conduct are simply
insufficient[.]"); see also Laydon, 2015 WL 1515487, at *8 (rejecting application of wire fraud
statute when allegations were "far too attenuated to sufficiently plead that the scheme to defraud
came about in the U.S"); Loginovskaya v. Batratchenko, 764 F.3d 266, 275 (2d Cir. 2014)
(holding in the context of Section 1O(b) that "the direction to wire transfer money to the United
States is insufficient to demonstrate a domestic transaction."). 6 Here, as in Petroleos Mexicanos,
the wire fraud scheme is extraterritorial, involving "a foreign conspiracy against a foreign victim
conducted by foreign defendants participating in foreign enterprises." Petroleos Mexicanos v.
SK Eng'g & Canst. Co., No. 12 Civ. 9070, 2013 WL 3936191, at *3 (S.D.N.Y. July 30, 2013),
aff'd, 572 F. App'x 60 (2d Cir. 2014). The one minimal contact alleged is not enough.
The Government also argues that this scheme is sufficiently domestic because the actual
money laundering by Prevezon took place in Manhattan, and the funds at issue remain invested
in Manhattan real estate. (Dkt. No. 229 at 20 (citing AVC
128, 132-35).) But this argument
confuses the underlying SUA (by the Organization) with the later alleged money laundering (by
Prevezon). For purposes of wire fraud as the relevant SUA, the Government has only pleaded
one domestic contact by the perpetrators of the larger fraud, and it was not sufficiently central to
the overall fraud scheme to convert this foreign scheme into a domestic one.
In a letter to the court, the Government cites to a recent Second Circuit opinion in support of its position that the
wire fraud scheme here is sufficiently domestic. See Dkt. No. 293 at l (citing United States v. Rutigliano, 790 F.3d
389 (2d Cir. 2015)). But Rutigliano does not help the Government here. That case addressed whether venue in this
district was proper in a wire fraud case brought for a completely domestic scheme. The Second Circuit concluded
that venue was proper for wire fraud "in any district in which the offense began, continued, or concluded."
However, there is nothing in that opinion that contravenes the recent precedents, articulated in RJR Nabisco and
Petroleos Mexicanos, that the wire fraud statute cannot apply to an insufficiently domestic scheme.
2. An Offense Against a Foreign Nation
Although wire fraud cannot apply as the SUA here, the AVC adequately pleads facts
supporting another SUA: an "offense against a foreign nation involving ... bribery of a public
official, or the misappropriation, theft, or embezzlement of public funds by or for the benefit of a
public official[.]" 18 U.S.C. § 1956(c)(7)(B)(iv). This, standing alone, is enough to allow the
claims to proceed.
The text of Section 1956(c)(7)(B) is clear that money laundering can be prosecuted where
the laundered funds are the proceeds of a specified "offense against a foreign nation" and part of
a financial transaction "occurring in whole or in part in the United States." This language rebuts
the Morrison presumption of extraterritoriality. See United States v. Real Prop. Known as Unit
5B of Onyx Chelsea Condo., No. 10 Civ. 5390, 2012 WL 1883371, at *3 (S.D.N.Y. May 21,
2012) ("Congress clearly intended Section 1956(c)(7) to prohibit the laundering in this country
of proceeds of 'foreign crimes' committed entirely abroad.") And, as noted above, the AVC's
tracing of fraud proceeds to real estate in this district is sufficient to satisfy the requirement that
the financial transactions at issue occurred "in whole or in part in the United States."
The question remaining for the court is whether the AVC includes facts sufficient to
allege an "offense against a foreign nation"-in other words, whether there are facts alleged to
support a reasonable belief that the Government will be able to prove violations of foreign
(Russian) law under at trial. The court concludes that the facts alleged adequately support such a
belief. The AVC includes allegations that members of the Organization who were officials at
two Russian tax offices "corruptly approved" the tax refund requests within one business day,
even though the $230 million request represented the largest tax refund in Russian history.
(AVC ~~ 21, 38.) The AVC further alleges that some of the refund proceeds were kicked back
to a public official (Stepanova) through her then-husband, after that same public official and her
husband flew to a meeting in Cyprus with the owner of USB bank-the first bank in the
laundering chain. (AVC
22-23; 95-100.) After the refund money was paid out, that public
official and her then-husband purchased millions of U.S. dollars' worth of real estate in Dubai,
despite filing tax returns showing a combined annual income of under $40,000. And, Russian
courts have already rendered guilty verdicts against two of the participants in this $230 million
fraud scheme for violations of Russian law. (AVC ~ 69l These allegeations are sufficient to
support a reasonable belief that the Government will be able to prove violations of Russian law
involving misappropriation, theft, or embezzlement of public funds by or for the benefit of public
Additionally, the court would also sustain the claims at this stage based on the SUA of
"an offense against a foreign nation involving ... fraud, or any scheme or attempt to defraud, by
or against a foreign bank[.]" 18 U.S.C. § 1956(c)(7)(B)(iii). The AVC alleges that "HSBC
Private Bank (Guernsey) Limited ('HSBC Guernsey') is a Guernsey-based entity that served as
trustee to the Hermitage Fund during all relevant periods," and that "[u]nbeknownst to
Hermitage or HSB Guernsey, members of the Organization used the seized corporate documents
and seals to fraudulently re-register ownership of [the Hermitage Companies] with the Russian
corporate registry." (AVC
15, 26-28, 34.) The AVC further alleges that Hermitage and
Prevezon claims that, if anything, these convictions cut against the finding of an SUA under Section
1956(c)(7)(B)(iv), which requires that the theft of public funds be by or for the benefit of public officials. This is
because the Russian verdict announcing one of these convictions claimed "that the tax authorities were deceived by
[the convicted fraudster] and not complicit," and thus-supposedly-no public officials participated in or benefited
from the fraud scheme. However, at this stage, the court is not required accept as credible a finding of a Russian
court at odds with the alleged facts described elsewhere in this opinion. (See AVC
22-25, 61-63 (alleging
involvement of Russian Interior Ministry officials in the fraud scheme); 95-100 (alleging kickback to Russian tax
HSBC filed criminal complaints with Russian law enforcement agencies about the fraud scheme.
59.) Prevezon argues that, because HSBC Guernsey was serving as trustee for the
Hermitage Fund, only the Hermitage Fund (or the Russian Treasury) was defrauded.
discovery clarifies that HSBC Guernsey was not in fact defrauded, or that it cannot otherwise
qualify as a defrauded "foreign bank" under the statute, the court may exclude this SUA from the
But at this stage, drawing inferences in the Government's favor, these allegations
sufficiently support a reasonable belief that the Government will meet its burden of proof
regarding this SUA at trial.
C. The A VC Adequately Alleges Scienter
To satisfy its burden for scienter under the money laundering statutes, the Government
must plead facts sufficient to support a reasonable belief that Prevezon intended to promote or
conceal the proceeds of an SUA, or knowingly engaged in transactions involving criminally
derived property. 18 U.S.C. §§ 1956(a)(l), 1957. "The money laundering statute 'reach[es] a
person who knows that [s]he is dealing with the proceeds of some crime[,] even if [s]he does not
know precisely which crime."' United States v. Tillman, 419 F. App'x 110, 111-12 (2d Cir. Apr.
15, 2011) (summary order) (quoting United States v. Maher, 108 F.3d 1513, 1526 (2d Cir.
1997)). Knowledge may be shown by proof of willful blindness or conscious avoidance. United
States v. Nektalov, 461 F.3d 309, 314 (2d Cir. 2006) (affirming conscious avoidance charge in
money laundering prosecution).
The Government has amply alleged the requisite mental states for money laundering or
conspiracy to commit money laundering under Sections 1956 and 1957. As noted, the AVC
alleges that the Prevezon received approximately $857,000 by wire transfer from two Moldovan
shell companies, Bunicon and Elenast, which did not have legitimate businesses. Those wire
transfers were falsely described as prepayment for sanitary equipment, a description at odds with
the public statement of Katsyv's representative, who described the funds as payments from a
third-party investor for an investment in New York real estate. Moreover, the AVC alleges that
the Prevezon received approximately $1.1 million from Bunicon, in a second transfer through
additional intermediaries, and that these transfers were also falsely described. Furthermore, the
Moldovan shell companies forged a sham contract, purportedly signed by a Prevezon
representative, and submitted it to a bank to justifY a wire transfer. 8
Prevezon attempts to explain away the suspicious indicia surrounding the transfers from
Bunicon and Elenast, claiming that the AVC "contains nothing but allegations that people other
than Defendants did things and knew things." (Dkt. No. 213 at 29 (emphasis in original).) But
this is simply inconsistent with the AVC.
The Government does allege that Prevezon had
something to do with these false descriptions: the A VC alleges that a Prevezon representative
purportedly signed a sham contract related to one of the fraudulent transfers at issue.
And there is more. Even putting the alleged signature aside, the other circumstances
alleged in the complaint-the acceptance, with no questions asked, of almost $2 million in
transfers from shell companies based on false wire descriptions-are enough to justify a
reasonable belief that the Government will be able to prove scienter at trial. The factual
pleadings are therefore sufficient, whether Prevezon actually knew that the transfers they were
accepting were the proceeds of the larger fraud and a related specified unlawful activity, or
In the AVC, the Government adds an allegation with regard to scienter that, by 2007, Katsyv was aware of the
general prohibitions on money laundering, based on a multi-million dollar settlement of money laundering
allegations brought against Katsyv by the Israeli government. (AVC 'If 113.) Israel's Prohibition of Money
Laundering Law 5760-2000 has provisions similar to the United States money laundering statutes. Prevezon has
indicated that it will move to strike any reference to the case against Katsyv brought by the Israeli government, but
no such motion is currently before the court. In any event, Katsyv's knowledge (or lack thereof) based on the Israeli
case has had no bearing on the court's analysis here.
consciously avoided such knowledge. See Tillman, 419 F. App'x at 112 (holding that similar
behavior, "done without question, at least supports the inference that [the defendant] consciously
avoided learning the nature of the activity in which she was involved while being aware of a high
probability that she was participating in an illegal scheme"); see also United States v. Anderson,
747 F.3d 51, 66-67 (2d Cir. 2014) (collecting cases supporting a knowledge inference when
members of a criminal conspiracy trust the defendant to receive large amounts of money or
The allegations support a reasonable belief that Prevezon-whether or not it knew every
detail of the upstream laundering-knew or was willfully blind to the fact that the funds were
proceeds of unlawful activity. As alleged, the Prevezon described in the AVC did not operate
like a legitimate real estate company, but rather like one with the intent to conceal the proceeds
of a fraud. To accept Prevezon' s arguments regarding its allegedly pure state of mind, the court
would have to draw the less likely inference that it was innocently unaware that its counterparties
were shell companies laundering fraud proceeds, and that it had no sense of the activity in its
own corporate accounts. But at this stage, plausible inferences must be drawn in favor of the
Government, not Prevezon. The AVC therefore adequately alleges scienter.
D. Prevezon's Verification Argument Lacks Merit
Supplemental Rule G(2)(a) imposes a requirement that a complaint in a forfeiture action
in rem must "be verified." 28 U.S.C. § 1746 governs the meaning of the term "verified," and
allows that "unsworn verifications may be pled 'on information and belief"-not only
admissible evidence. United States v. 8 Gilcrease Lane, 587 F. Supp. 2d 133, 139 (D.D.C. 2008)
(quoting Cabell v. Norton, 391 F.3d 251, 260 (D.C. Cir. 2004)).
Additionally, as noted
previously, Supplemental Rule G(2)(f) states that verified complaints must "state sufficiently
detailed facts to support a reasonable belief that the government will be able to meet its burden
ofproofat trial." Supp. R. G(2)(t) (emphasis added).
In this case, a Special Agent of the United States Department of Homeland Security
verified both the original complaint and the A VC. According to Prevezon, the verification of the
original complaint was "misleading, deceptive, and as to what the verifier personally did, simply
untrue." (Dkt. No. 239 at 20.) Citing to a still-unfinished Rule 30(b)(6) deposition of this
Special Agent taken in March 20 14-when this case was on an expedited trial schedule and no
documents had been produced-defendants argue that this original sin has so tainted the
allegations that they must be dismissed in their entirety.
Defendants' argument lacks merit. To be sure, a number of statements made by the
Special Agent at his deposition regarding the state of the Government's evidence are troubling. 9
If still accurate over a year later, such statements could cause serious problems for the
Government as it seeks to present admissible proof at summary judgment or trial. However, the
Special Agent also did indicate the reasons for his "reasonable belief' that the Government
would be able to meet its burden of proof at trial. 10 There is nothing here approaching the type
of "contumacious conduct" necessary for the court to take "the extreme sanction of dismissing a
case with prejudice"-a sanction which "must be infrequently resorted to by district courts."
E.g., 3/3114 Tr. at 92:2-8 ("Q. So every transfer here is based on copies that are not authenticated, of records that
are incomplete, based on an accounting assumption. Is that right? A. That would be correct."); see also id at
E.g., 3/3114 Tr. at 141:5-17 (A: The evidence would be that [Katsyv] engaged to conceal because he's aware
through his - at least his representative says he's aware he's going to receive payment that's due to him for
investment in New York property from Mr. Petrov by way of Mr. Kim sending him money, two wires. The two
wires are then mischaracterized as sanitary equipment. And he receives them, he then does whatever he does with
his money, knowing full well that this money is not for its stated purpose. So that would be evidence of
concealment."); see also id at 133:10-134:9.
See Ridge Chrysler Jeep, LLC v. Daimler Chrysler Servs. N Am., LLC, No. 03 Civ. 760, 2006
WL 2808158, at *8 (N.D. Ill. Sept. 6, 2006).
Moreover, in the months since the deposition, the Government has filed the AVC, which
includes new allegations of an additional $1.1 million in laundered funds purportedly based on
different sources than those at issue in the Special Agent's testimony. So long as the verifier has
a reasonable belief that the Government can meet its later burden of proof, this type of
scenario-an initial lack of certain admissible evidence, followed by additional investigation-is
explicitly contemplated by CAFRA and the Supplemental Rules, and hardly justifies dismissing
the complaint. See 18 U.S.C. § 983(c)(2) ("[T]he Government may use evidence gathered after
the filing of a complaint for forfeiture to establish, by a preponderance of the evidence, that
property is subject to forfeiture."); see also Supp. R. G(8)(b )(ii).
The court will not dismiss the case based on an unfinished deposition held to undermine
the verification of a complaint that is no longer even in force. As with all of the other arguments
from Prevezon discussed above, this argument fails. Their motion to dismiss is denied.
Defendants Kolevins' and Ferencoi's Motion to Dismiss
Kolevins and Ferencoi also move to dismiss, claiming: (1) that the court lacks personal
jurisdiction over them under New York law and Fed. R. Civ. P. 12(b)(2); and (2) that the AVC
fails to state a claim against them.
"In order to survive a motion to dismiss for lack of personal jurisdiction, a plaintiff must
make a prima facie showing that jurisdiction exists." Licci ex rei. Licci v. Lebanese Canadian
Bank, SAL, 732 F.3d 161, 167-68 (2d Cir. 2013) (internal citation omitted).
whether the requisite showing has been made, the court must construe the pleadings in the light
most favorable to the plaintiffs. Id "Determining personal jurisdiction over a foreign defendant
in a federal-question case is a two-step process." Jd First, the court "looks to the law of the
forum state to determine whether personal jurisdiction will lie." Jd If jurisdiction lies, the court
must consider whether its "exercise of personal jurisdiction over a foreign defendant comports
with due process protections established under the United States Constitution." Id
Here, without allegations of "continuous and systematic contact" with New York to
support general jurisdiction, the Government must establish "specific jurisdiction" over Kolevins
and Ferencoi under New York law. New York's long-arm statute allows for the exercise of
personal jurisdiction over "any non-domiciliary . . . who in person or through an agent . . .
transacts any business with the state[.]" N.Y. C.P.L.R. § 302(a)(1). A defendant transacts
business with the state if he has "purposely availed himself of the privilege of conducting
activities within New York and thereby invoked the benefits and protections of its laws." Reich
v. Lopez, 38 F. Supp. 3d 436, 457 (S.D.N.Y. 2014) (internal citation omitted).
defendant has purposely availed itself of the New York forum "is a fact-intensive inquiry
inasmuch as it requires the trial court, in the first instance, to closely examine the defendant's
contacts for their quality." Licci, 732 F.3d at 167 (internal citation omitted).
In Licci, the Second Circuit found that the purposeful use of a New York correspondent
bank account may be considered the "transaction of business," and therefore subject a defendant
to personal jurisdiction. The Government argues that the case for personal jurisdiction here is
actually more compelling than in the Licci, because "far more than move money through the
district swiftly using a correspondent account, Kolevins and Ferencoi actively invested funds
into the purchase of real estate that remains in this district and owned by the other Defendants,
companies related to Kolevins and Ferencoi." (Dkt. No. 229 at 24-25.)
The court agrees.
In substance, the Government's allegations with regard to these
defendants are that: (1) the owners or directors of Kolevins and Ferencoi-Katsyv, Krit, and
Litvak-are also owners or directors of Prevezon (AVC
12-13, 106(a)); and (2) at the time
Prevezon purchased certain Manhattan real estate as part of their money laundering scheme, the
Prevezon 8160 Account "included funds from Kolevins" and "funds from Ferencoi." (AVC
Kolevins and Ferencoi attempt to distance themselves from the alleged scheme, claiming
that the AVC alleges only that their owners are "business associates" with those of Prevezon. In
fact, the AVC alleges that the owners and directors of Kolevins, Ferencoi, and Prevezon
completely overlap. Katsyv, owner of Prevezon, beneficially owns Ferencoi. (AVC
Litvak, beneficial owner of the Prevezon UBS accounts-and a man who signed documents in
connection with the New York real estate purchases-founded and beneficially owns Kolevins.
13, 125-26, 128-30.) And Krit, past sole shareholder and present director of Prevezon,
is sole director and shareholder ofKolevins. (A VC ,-r,-r 9, 13.)
On a motion to dismiss, when the court must draw inferences in favor of the Government,
it is plausible on these facts that the funds were sent as part of an active investment into New
York real estate. In the court's view, this is sufficient for specific personal jurisdiction under
New York's long-arm statute.
For similar reasons, Kolevins' and Ferencoi's constitutional due process challenge fails.
As the Second Circuit has explained: "It would be unusual, indeed, if a defendant transacted
business in New York and the claim asserted arose from that business activity within the
meaning of section 302(a)(l), and yet, in connection with the same transaction of business, the
defendant cannot be found to have purposefully availed itself of the privilege of doing business
in the forum and [to have been able to] foresee being haled into court there, or the assertion of
specific jurisdiction would somehow otherwise offend traditional notions of fair play and
substantial justice[.]" Licci, 732 F.3d at 170 (internal citation omitted). This is not such an
unusual case. The court concludes that Kolevins' and Ferencoi's alleged provision of funds to a
holding company for purposes of investment in New York real estate constitutes the purposeful
availment of the privilege of doing business in New York, so as to permit the subjecting of these
defendants to specific jurisdiction here consistent with due process requirements. The court
further concludes that that the exercise of personal jurisdiction over Kolevins and Ferencoi
would not offend principles of fair play and substantial justice.
Finally, the court rejects Kolevins' and Ferencoi's argument that the AVC fails to state a
claim against them. Ferencoi and Kolevins argue that the "mere transfer of non-tainted funds
from Kolevins and Ferencoi to Prevezon Holdings cannot render Kolevins and Ferencoi subject
to jurisdiction, or liable for money laundering, any more than it would support jurisdiction or
liability over any other innocent company that had ever deposited money into the Prevezon
Holdings account." (Dkt. No. 210 at 5.) Not so. As alleged, Kolevins and Ferencoi are not
mere innocent companies totally unrelated to Prevezon, but companies that share all of
Prevezon' s owners and directors. Their near-total overlapping ownership and investment in
Prevezon's alleged money laundering transactions permits an inference that these defendants
facilitated money laundering, which could subject them to civil money laundering penalties.
Ultimately, Kolevins and Ferencoi challenge the premise that Prevezon was acting for
their benefit, and with their knowledge and consent, when Prevezon invested their money in New
York. They similarly dispute the claim that they knew that Prevezon's account contained the
proceeds of an SUA, and that they intended to help facilitate the laundering of these proceeds.
Discovery may yet bear out this theory: it is of course possible that, despite the fact that these
companies are run by the same individuals as Prevezon, Ferencoi and Kolevins had no intent to
participate in Prevezon's alleged money laundering scheme. But at this stage, the pleadings
support a plausible inference that they knew about, and intended to facilitate, the alleged money
laundering of tainted funds. Their motion to dismiss is therefore denied.
These are only allegations.
On a motion to dismiss, the court does not find facts.
Instead, the court draws all reasonable inferences in plaintiff's favor, assumes all well-pleaded
factual allegations to be true, and determines whether they plausibly give rise to an entitlement to
relief. And, with respect to the forfeiture claim, the court determines only whether the AVC
alleges facts sufficient to support a reasonable belief that the Government will be able to meet its
burden of proof at trial.
Under these standards, the AVC is sufficiently pleaded to allow the claims to proceed.
The motions to dismiss are therefore denied.
The Clerk of Court is directed to close the motions listed as docket numbers 210 and 212.
New York, New York
August 7, 2015
U.S. District Judge
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