Second Circuit Bars Criminal Defendant from Accessing Assets Frozen by Regulators

The US Court of Appeals for the Second Circuit recently upheld a district court’s refusal to release nearly $4 million in assets frozen by the Securities and Exchange Commission and the Commodity Futures Trading Commission to help a defendant fund his criminal defense.

Stephen Walsh, a defendant in a criminal fraud case, had requested the release of $3.7 million in assets stemming from the sale of a house that had been seized by regulators in a parallel civil enforcement action. In denying Walsh’s motion to access the frozen funds, the US District Court for the Southern District of New York found that the government had shown probable cause that the proceeds had been tainted by defendant’s fraud, and were therefore subject to forfeiture. Though Walsh and his wife had purchased the home in question using funds unrelated to the fraud, Walsh ultimately acquired title to the home pursuant to a divorce settlement in exchange for a $12.5 million distributive award paid to his wife, at least $6 million of which, according to the court, was traceable to the fraud.

Agreeing with the District Court, the Second Circuit found that although the house itself was not a fungible asset, it was “an asset purchased with” the tainted funds from the marital estate by operation of the divorce agreement and affirmed the denial of defendant’s request. Further, since Walsh’s assets did not exceed $6 million at the time of his arrest, under the Second Circuit’s “drugs-in, first-out” approach, all of his assets became traceable to the fraud.

U.S. v. Stephen Walsh, No. 12-2383-cr (2d Cir. Apr. 2, 2013).


Topics:  Criminal Defense, Divorce, Fraud, Frozen Assets, Marital Assets, SEC

Published In: Civil Procedure Updates, Criminal Law Updates, Finance & Banking Updates, Securities Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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