Judge: “Government has a strong case against TelexFree”
That the SEC were going to object when James Merrill requested $4 million in seized funds be released was always a given.
Not only because Merrill claimed he needed the money to fund his legal defense but more importantly, because the money had been stolen from TelexFree affiliate investors.
Merrill didn’t deny otherwise, but argued that it was up to the government to prove the funds were derived from his involvement in TelexFree.
Unfortunately for Merrill, that’s not how it works. Filing their objection to Merrill’s request on the 14th of July, the SEC explain why.
The Defendant cannot use forfeitable, victim funds to pay for his defense, much less an unusually expensive one. Nor does he provide any evidence that he even needs the funds to retain counsel of his choice (indeed with $325,000 in the bank, nor can he).
At the forefront of the argument against Merrill’s motion is the fact that he already has $325,000 in known assets, and who knows how much more in as of yet undeclared assets.
In opposition of Merrill’s motion, the SEC write
As Merrill states in his Motion for Order Releasing Seized Funds, the assets seized by the United States are not the only assets of Merrill.
As detailed in his Motion for Release, after entry of the restraining order in the SEC Action, Merrill and the SEC agreed to the release of assets held in six accounts that were previously subject to the restraining order.
Of these six accounts, one was Waddell & Reed, account no. ****6892 listed in the chart above, from which the United States seized $79,684.28. The value of the other five accounts resealed in the SEC Action totals $328,191.
In his Motion for Release Merrill does not assert that the only assets he owns are those seized by the United States and the $328,191 released by agreement with the SEC. Nor does Merrill provide any information regarding what other assets he owns.
It cannot be disputed, however, that he has other assets. For example, Merrill owns at least one real property, located in Ashland, Massachusetts, which was used, in part, to secure the $900,000 bond required as a condition of his pretrial release.
Merrill’s Motion for Release is also devoid of any information regarding his access to other assets, such as current family income, or his ability to obtain assets from other family members or other third parties.
Merrill’s ability to access assets from other sources, likewise, cannot be disputed.
The second point of contention is Merrill’s failure to ‘Mmet a threshold showing that he is entitled to a
Not surprisingly, that threshold involves Merrill proving himself that the funds he is requesting aren’t derived from TelexFree’s Ponzi activities.
Merrill must make threshold showing that he has no access to funds and evidence showing error in finding of nexus between the offense and the asset.
A threshold showing requirement is not a novel concept. Criminal procedure regularly requires a defendant to make a threshold showing before a hearing is granted. As the First Circuit has repeatedly held, “a criminal defendant does not have a presumptive right to an evidentiary hearing on a motion to suppress.”
Rather, a “hearing is required only if the movant makes a sufficient threshold showing that material facts are in doubt or dispute, and that such facts cannot reliably be resolved on a paper record.”
Here, the Court should not part ways with jurisdictions across the country, and should require that the Defendant make a threshold showing to establish that a hearing is warranted.
Further, because Defendant provides no evidence to satisfy a threshold showing, his request should be denied.
In short, the SEC argue that Merrill’s “you have to prove the funds have come from TelexFree” argument doesn’t cut it. In presenting the motion, the onus is on him to prove the funds are “untainted” (as it should be).
Once again, at no point in Merrill’s original motion did he suggest that the $4 million was sourced outside of his involvement in TelexFree.
The alleged purpose of the funds Merrill has requested is also questioned, with the SEC calling out the alleged fees being charged by Merrill’s lawyer:
In addition to an inability to show that he does not have access to funds, neither can Merrill show that he needs more than what is currently available to him for his legal defense.
Although the Defendant has been charged by criminal complaint, he has not yet been indicted.
With the issuance of a criminal complaint, an indictment must issue within the period required under the Speedy Trial Act. Accordingly, at this juncture, unless the Defendant is willing to concede that there is sufficient probable cause for the issuance of an indictment against him, he cannot state whether or not he will have a criminal case to defend.
That issue, however, will by statute be resolved long before an attorney could – at any reasonable hourly rate – incur legal fees in excess of the funds currently available to the Defendant.
Get Merrill to concede that there’s a case against him, thus implying guilt (which will of course be used against him at a later date), or otherwise acknowledge that there’s no way known he’s going to legitimately blow through $4 million in legal fees during the allowable period for an indictment to be issued against him.
That said and legal wrangling aside, whether or not Merrill concedes the probability of an indictment being issued against him will probably wind up a moot point:
The seizure warrants for the seized assets were issued on a finding of probable cause that criminal offenses were committed, and that the subject assets were proceeds traceable to or property involved in those offenses.
Since that time, this Court has twice found probable cause that the Defendant committed conspiracy to commit wire fraud.
First this Court found probable cause when it issued the criminal complaint against Merrill and Wanzeler.
Then, after an extended evidentiary hearing on the issue of pretrial release, the District Court again held that the government has a “strong” case against the Defendant.
The second finding is especially important, because it implicitly rejects Merrill’s argument that the Government’s affidavits in support of probable cause painted a misleading picture of whether TelexFree operated as a pyramid scheme.
Judge Hillman deemed the case “strong” even after defense counsel cross examined the Government’s agent for two hours on the strength of the Government’s case.
Finally, and echoing my own conclusion that Merill’s lawyers appeared to be engaging in a fishing expedition (trying to get the SEC to prematurely reveal their case against Merrill), the SEC argue
allowing a hearing as to probable cause on the substantive offenses, given the procedural posture of this case and the limited time for which such an inquiry is either allowable or relevant, would improperly provide the Defendant with a “sneak preview” of the case against him.
Three prior cases are cited as evidence, with quotes from each respective decision driving the point home:
In support of its holding that the defendant has no right to a judicial redetermination of the grand jury’s finding of probable cause when his property is restrained pre-trial, the Court explained that the Government should not have to choose between preserving the property and giving the defendant a “sneak preview” of its case and strategy beyond what the criminal rules or due process requires. (Kaley, 134 S. Ct. at 1090 (2014))
Offering defendant who cannot satisfy the first Jones-Farmer requirement the option of a Rule 41(g) hearing at which he would have the burden of proving the lack of probable cause, but holding that defendant must first make a preliminary showing that the property is not forfeitable (Ozedit: Again, Merrill at no point has contested the $4 million was derived from a source outside of TelexFree); this is needed to prevent the defendant from using the hearing to preview the Government’s criminal case. (United States v. Swenson, 2013 WL 4782134 (D. Idaho Sept. 5, 2013))
The Government should not be required to put on a dress rehearsal performance of part or all of its case-in-chief as the price for protecting its valid interest
in preserving assets that are allegedly subject to forfeiture. (Simpson, 2011 WL 195676 at *5-6)
Looking forward, Merrill now has the option to reply to the SEC’s opposition and somehow prove or assert that the $4 million wasn’t derived via his involvement in TelexFree (lol), or watch his fishing expedition go down in flames.
Footnote: Our thanks to ASDUpdates for providing a copy of the SEC’s objection.