A Forfeiture Primer For In-House Counsel

Last week, Corporate Counsel reported that along with the indictment against SAC Capital, the Manhattan U.S. Attorney’s Office filed a civil forfeiture complaint seeking to forfeit “any and all” assets of SAC. Prosecutors are seeking much more than the direct proceeds from the insider trading deals under scrutiny, which in any event have already been disgorged to the Securities and Exchange Commission in a separate proceeding. The civil forfeiture complaint seeks potentially all of the assets of SAC Capital—estimated at around $10 billion—on the theory that “illicit profits from insider trading were comingled with legitimate proceeds and formed at least part of the funding of additional insider trading.” In essence, the government is claiming that the small percentage of unlawful trades at SAC so infected the hedge fund’s entire operations that all of its assets should be forfeited.

When we worked in the U.S. Attorney’s Office, stories of agents seeking to forfeit buildings owned by companies under criminal investigation made it into forfeiture lore. But forfeiture law is very precise on the things the government may seize under forfeiture statutes and for which crimes. Some crimes, like violations of the Foreign Corrupt Practices Act, do not have supporting forfeiture statutes—although once repackaged as other crimes they provide a mechanism for seizure. We saw a number of large forfeitures in federal immigration cases, and of course the government has recently forfeited billions from Wall Street financial institutions for violations of U.S. trade control laws. While many have debated whether an indictment can have Arthur Andersen-like consequences, it is clear from the SAC indictment that forfeiture can have devastating consequences to a company.

With the government increasingly seeking forfeiture in criminal cases, we have put together this quick primer for in-house lawyers to understand how forfeiture works.

There Is No Generic Forfeiture Law

Forfeiture law is specific to federal offenses. For some crimes, the government can forfeit proceeds or instrumentalities of the offense. For others, there is no forfeiture at all—section 981 of the federal criminal code authorizes forfeiture of proceeds for approximately 200 offenses. Some criminal statutes authorize forfeiture of property involved in the offense, which can be the case with money laundering, the theory alleged in the SAC Capital complaint. Money laundering cases have particularly broad forfeiture, authorizing seizure of not only the proceeds but all property involved in the offense, including instances where the money is comingled with clean money or invested in land or a business. In one Fifth Circuit case, a defendant who purchased a winning lottery ticket with $1 of drug money forfeited his entire share [PDF] of the $5.4 million prize.

Forfeiture Can Be Criminal, Civil, or Administrative