United States of America v. Prevezon Holdings Ltd. et al

Filing 378

OPINION #105971: In sum, and upon review of the briefing, the Court finds that the AVC alleges facts sufficient to support a reasonable belief that the Government will be able to meet its burden of proof at trial as to Prevezon Soho and Prevezon Alexander. Therefore, defendants' motion to vacate or modify the amended protective order is denied. However, the Court believes that the government is entitled to further amend the AVC in the form of the proposed SAVC. Consistent with this Opinion, the Clerk of Court is directed to close the motion listed as docket number 298. (As further set forth in this Order) (Signed by Judge Thomas P. Griesa on 10/22/2015) (kl) Modified on 10/23/2015 (ca).

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

--------------------------------------------X
UNITED STATES OF AMERICA,
Plaintiff,

v.

13-cv-06326 (TPG)
ECF CASE

PREVEZON HOLDINGS LTD., et al.,

OPINION

Defendants.

--------------------------------------------X
Before the Court are two fully briefed motions and the Court's partially
outstanding decision on defendants' motion to dismiss the Amended Verified
Complaint ("AVC") as to Prevezon Soho and Prevezon Alexander.

First,

defendants submitted a motion to vacate or modify the amended protective order,
arguing that the government's AVC inadequately alleges that Prevezon Soho and
Prevezon Alexander were involved in money laundering activity. The Court now
holds that the AVC states plausible claims as to Prevezon Soho and Prevezon
Alexander such that defendants' motion to vacate or modify the amended
protective order and motion to dismiss as to Prevezon Soho and Prevezon
Alexander is also denied.
Second, the government has requested leave to amend the AVC to specify
facts relating to Prevezon Soho and Prevezon Alexander, include two new
Specified Unlawful Activities ("SUAs") as predicates to money laundering, and

include additional facts relating to transfers and entities linked to Prevezon's
alleged fraud against the Russian Treasury. For the reasons set forth in Part C
below, the government's request to amend the AVC is granted

A. Background
On July 28, 2015, defendants submitted a motion to vacate or modify the
amended protective order and materials in further support of their pending
motion to dismiss the AVC. See Dkts. 298-300. At the time defendants made
their submission, the Court had not yet reached its decision on defendants'
motion to dismiss, which it did on August 7, 2015.

See Dkt. 310.

In that

Opinion, the Court denied the motion to dismiss, except that it reserved decision
as to Prevezon Soho and Prevezon Alexander because defendants' added motion
to vacate or modify the amended protective order introduced new issues
requiring response from the government and further consideration by the Court.
See Dkt. 310 at 17 n.4. Thus, the Court issued its Opinion partially deciding
the motion to dismiss, leaving open the status of Prevezon Soho and Prevezon
Alexander.
Meanwhile, the government opposed defendants' motion to vacate or
modify the protective order on August 11, 2015. See Dkts. 311-12. Defendants
submitted a letter response on August 12, 2015, Dkt. 313, and a formal reply
memorandum on August 21, 2015, Dkt. 320. On August 25, 2015, the Court
issued an order requesting the government to set forth in a letter the specific
facts known to the government supporting a reasonable belief that Prevezon
Soho and Prevezon Alexander were involved in money laundering. See Dkt. 322.
2

Following the Court's Order, the parties exchanged a flurry of letters as to
the appropriateness of the extant amended protective order, the sufficiency of
the AVC in supporting the amended protective order, and, specifically, the
adequacy of the government's allegations as to Prevezon Soho and Prevezon
Alexander. See Dkts. 333-60. In sum, the government argued that the AVC
adequately describes the myriad ways in which the defendants knowingly
laundered money with the intent to promote or conceal the nature of funds
involved in the bribery of Russian public officials, created fraudulent contracts
to convert property, and defrauded of a foreign bank, among other things. There
are allegations that the fraudulently obtained funds were deposited into a
cascade of foreign bank accounts, and that some of the illicit funds in those bank
accounts were used to purchase certain properties in New York. Prevezon Soho
and Prevezon Alexander are allegedly tied to the network of bank accounts that
received illicit funds.
The government alternatively sought leave to file a Second Amended
Verified Complaint ("SAVC") and attached a proposed SAVC and a comparison
against the AVC.

See Dkt. 34 7. The proposed SAVC includes, among other

changes, two new predicate SUAs for money laundering: transportation of stolen
property in violation under 18 U.S.C. § 2314 and money laundering itself in
violation of 18 U.S.C. § 1956 and§ 1957. Defendants opposed the government's
request to amend. See Dkts. 358-59. On October 5, 2015, the parties submitted
follow-up letters in further support of their positions. See Dkts. 360, 362.

3

B. Motion to Vacate or Modify the Amended Protective Order
1. Legal Standard

Federal forfeiture laws make subject to forfeiture the proceeds or property
involved in the proceeds of certain specified unlawful activity. See 18 U.S.C.
§ 981(a)(1) (2012). A party seeking to maintain a money laundering claim must

allege: "(1) that the defendant conducted a financial transaction; (2) that the
transaction in fact involved, or was related or traceable to the proceeds of
specified unlawful activity as defined in 18 U.S.C. § 1956(c)(7); (3) that the
defendant knew that the property involved in the financial transaction
represented the proceeds of some form of unlawful activity; and (4) that the
defendant knew that the financial transaction was designed in whole or in part
to conceal or disguise the source, ownership, control, etc., of those proceeds."
United States v. Maher, 108 F.3d 1513, 1527-28 (2d Cir. 1997); see also 18

u.s.c.

§ 1956 (2012).

The Civil Action Forfeiture Act of 2000 ("CAFRA") is codified in part at 18
U.S.C. § 983 and states that "the burden of proof is on the government to
establish, by a preponderance of the evidence, that the property is subject to
forfeiture." See id. § 983(c)(1). This "preponderance of the evidence" standard
replaced the "probable cause" standard applied in pre-CAFRA forfeiture cases,
and describes the government's ultimate burden of obtaining forfeiture. CAFRA
further provides that "if the Government's theory of forfeiture is that the property
was used to commit or facilitate the commission of a criminal offense, or was
involved in the commission of a criminal offense, the Government shall establish
4

that there was a substantial connection between the property and the offense."
Id. § 983(c)(3).
At the pleading stage, the government must set forth its claims in the
complaint "with such particularity that the defendant or claimant will be able,
without moving for a more definite statement, to commence an investigation of
the facts and to frame a responsive pleading." See Supplemental Fed. R. Civ. P.
E(2)(a).

A complaint for forfeiture must "assert specific facts supporting an

inference that the property is in fact subject to forfeiture." See id.; United States
v. 1 ,399,313. 74, 591 F. Supp. 2d 365, 377 (S.D.N.Y. 2008) (collecting cases); see
also United States v. Mondragon, 313 F.3d 862, 865 (4th Cir. 2002) (holding that
the complaint must allege sufficient facts to support a reasonable belief that the
property is subject to forfeiture). Allegations that are conclusory or unspecific
do not pass muster, but the government not required at the pleading stage to
meet its ultimate burden of establishing the application of forfeiture by a
preponderance of the evidence, nor must it allege in the complaint all of the facts
and evidence at its disposal. See 18 U.S.C. § 983(a)(3)(D).
In any context, "[w]hether to lift or modify a protective order is a decision
committed to the sound discretion of the trial court." In reAgent Orange" Prod.
Liab. Litig., 821 F.2d 139, 147 (2d Cir. 1987). The Second Circuit has not directly
addressed the standard of proof for continuing a pretrial restraining order where
no parallel criminal proceeding is pending. However, we have addressed the
issue in the higher-stakes context of a defendant's right to counsel. Indeed, the
question of whether to amend, modify, or vacate a protective order sometimes
5

arises when a party whose property is restrained seeks funds to pay a criminal
defense attorney's fees. See, e.g., United States v. Cosme, 796 F.3d 226 (2d. Cir.
2015); United States v. Bonaventre, 720 F.3d 126 (2d Cir. 2006); see also SEC
v. TheStreet.Com, 273 F.3d 222, 229 (2d Cir. 2001) (quoting Martindell v. Int'l
Tel. & Tel. Corp., 594 F.2d 291, 296 (2d Cir. 1979)). Where a defendant's right
to counsel is implicated, a defendant must make a "sufficient evidentiary
showing" that he will not be able to afford counsel in a related criminal
prosecution. See Bonaventre, 720 F.3d at 131. Only then will the defendant be
afforded a hearing to challenge a pre-trial restraining order. Once defendant has
made that showing, and after the hearing is held, courts apply a probable cause
standard to determine the propriety of continuing the pretrial restraining order.

2. Application
Defendants contend that the amended protective order should be vacated
or modified because the government has now provided a preponderance-of-theevidence-basis to seize the Prevezon Soho and Prevezon Alexander accounts.
This argument runs in tandem with defendants' assertion that the government
has inadequately pled the unlawful acts which form the basis of the
government's money laundering claim.
But defendants are misguided in seeking the preponderance standard as
the applicable benchmark here.

The preponderance standard is the

government's burden of proof at trial.
§ 9830)(1)(A).

Compare 18 U.S.C. § 983(c)(l), with

The Court also declines to analogize Prevezon's case to the

exigencies present in Bonaventre and its progeny. In that discrete line of cases,
6

courts apply a heightened standard when evaluating whether to continue a
pretrial restraining order where a parallel criminal proceeding is pending, and
where the defendants seeks release of the funds to pay for his defense. Neither
of those qualifiers applies here, and defendants do not present any analogous
exigencies that suggest that the

Court should hold

that the

higher

preponderance standard should apply here. Rather, defendants argue that the
AVC is in adequate, and so the protective order, which is based on the AVC,
should be modified or vacated. In this way, defendants' own arguments suggest
that the Court must assess the adequacy of the AVC in order to determine the
continuing propriety of the protective order.
Consequently, the question remains whether the government succeeded
in asserting "specific facts supporting an inference that the property is in fact
subject to forfeiture." See Supplemental Fed. R. Civ. P. E(2)(a). We hold that it
did.

Because we find that the AVC adequately alleges facts to support that

Prevezon Soho and Prevezon Alexander were involved in or related to a greater
network of accounts and properties already properly alleged to be in the money
laundering scheme, we also find no reason to vacate or modify the protective
order as to Prevezon Soho or Prevezon Alexander.
C. Motion to Further Amend the Amended Verified Complaint

The government submitted a proposed SAVC which includes two new
money laundering predicates-transportation of stolen property and money
laundering-to replace the dismissed wire fraud theory, provides detail on
various transfers and entities already specified in the AVC, including Prevezon
7

Soho and Prevezon Alexander, and names a number of new transfers and
apparent shell companies, all of which are allegedly related to Prevezon's web of
fraud on the Russian Treasury.
1. Legal Standard

Federal Rule of Civil Procedure 15(a) provides that leave to amend "shall
be freely granted when justice so requires." Fed. R. Civ. P. 15(a). "When justice
so requires necessarily implies justice to both parties.

See Pollux Marine

Agencies, Inc. v. Louis Dreyfus Corp., 455 F. Supp. 211, 215 (S.D.N.Y. 1978).
And although Rule 15(a) requires that leave should be granted freely, "it is within
the sound discretion of the court whether to grant leave to amend." See John
Hancock Mut. Life Ins. Co. v. Amerford Intern. Corp., 22 F.3d 458, 462 (2d Cir.
1994) (citing Foman v. Davis, 371 U.S. 178, 182 (1962)). Leave may be denied
for good reason, "including futility, bad faith, undue delay, or undue prejudice
to the opposing party." See McCarthy v. Dun & Bradstreet Corp., 482 F.3d 184,
200 (2d Cir. 2007). "Mere delay, however, absent a showing of bad faith or undue
prejudice, does not provide a basis for the district court to deny the right to
amend." State Teachers Ret. Bd. v. Fluor Corp., 654 F.2d 843, 856 (2d Cir.
1981); see also 6 Charles Allen Wright, Arthur R. Miller & Mary Kay Kane,
Federal Practice and Procedure: Civil 2d, § 1487, at 613 (1990 & 2007 Supp.)
(citing prejudice to the opposing party as "the most important factor'' and "the
most frequent reason for denying leave to amend"). Moreover, parties have been
permitted to amend their pleadings to assert new claims long after they acquired
facts necessary to support those claims. See, e.g., Green v. Wolf Corp., 50 F.R.D.
8

220, 223 (S.D.N.Y. 1970) (plaintiff was aware of facts asserted m amended
complaint from outset of case).
In evaluating prejudice, we consider whether an amendment would
"require the opponent to expend significant additional resources to conduct
discovery and prepare for trial" or "significantly delay the resolution of the
dispute." Block v. First Blood Assocs., 988 F.2d 344, 350 (2d Cir. 1993). Undue
prejudice may arise when an "amendment [comes] on the eve of trial and would
result in new problems of proof." Fluor Corp., 654 F.2d at 856 (reversing denial
of leave to amend sought promptly after learning new facts, where "no trial date
had been set by the court and no motion for summary judgment had yet been
filed by the defendants" and where "the amendment will not involve a great deal
of additional discovery"). Even this is not a hard and fast rule; the Second Circuit
has also explicitly allowed amendments on the eve of trial. See, e.g., Hanlin v.
Mitchelson, 794 F.2d 834 (2d Cir. 1986) (granting plaintiffs motion to amend
her complaint after the completion of discovery and after defendant filed a motion
for summary judgment).
2. Application

In the present case, defendants contend that the proposed SAVC should
be denied because it is sought to be made years after the government first
initiated its lawsuit.

Defendants further argue that amendment of the

complaints would cause them undue hardship and prejudice because the
amendments would further delay the trial of these cases while substantial assets

9

remain restrained and because the amendments would subject them to the need
to conduct discovery on the new allegations.
Defendants' arguments

about

prejudice

have

little

merit.

The

government's request does not come on the eve of trial. Moreover, the new SUAs
alleged arise from the same core of operative facts as the AVC and defendants
were on actual notice of the importance of mental state as of the filing of the first
complaint in this matter, when conspiracy-which requires specific intent-was
put at issue. Defendants' claim of a legal and factual ambush rings particularly
hollow in the case of money laundering as a new SUA, insofar as defendants are
already on notice that the allegations against them include money laundering.
We also note that this request marks the government's first attempt to
amend their pleadings after the motion to dismiss was ruled on. The Courts
interests are with maintaining an orderly record and ensuring judicial economy.
These interests are best served in allowing the government to bring its case
against defendants now.
Based on these considerations, the Court does not believe that the
government's motion to amend its complaint is futile, untimely, or brought in
bad faith, and the circumstances in this case are not sufficiently extreme or
prejudicial to justify denial of the government's motion to amend.

D. Conclusions
In sum, and upon review of the briefing, the Court finds that the AVC
alleges facts sufficient to support a reasonable belief that the Government will
be able to meet its burden of proof at trial as to Prevezon Soho and Prevezon
10

Alexander.

Therefore, defendants' motion to vacate or modify the amended

protective order is denied. However, the Court believes that the government is
entitled to further amend the AVC in the form of the proposed SAVC.
Consistent with this Opinion, the Clerk of Court is directed to close the
motion listed as docket number 298.

SO ORDERED.
Dated: New York, New York
October 22, 2015

Thomas P. Griesa
U.S. District Judge

11