|IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF CALIFORNIA UNITED STATES OF AMERICA, Plaintiff, v. REAL PROPERTY AT 6557 ASCOT DRIVE, OAKLAND, CALIFORNIA, Defendant, STEVEN FONTAINE and NILOUFER FONTAINE, Claimants. / No. C 02-4948 JSW AMENDED ORDER GRANTING PLAINTIFF'S MOTION FOR SUMMARY JUDGMENT|
Now before the Court is the motion for summary judgment filed by plaintiff United States of America. Having considered the parties' papers, relevant legal authority, the record in this case, and having had the benefit of oral argument, the Court hereby grants the United States' motion for summary judgment.
1 BACKGROUND This is a forfeiture action regarding Defendant Property 6557 Ascot Drive (Defendant Property). The United States contends that claimant Steven Fontaine (Fontaine) purchased Defendant Property with proceeds from wire fraud and/or money laundering.
Fontaine is the managing director of Regalia Fund Limited (Regalia Fund). (Declaration of Claimant Fontaine (Fontaine Decl.), 1, Ex. 3.) The Regalia Fund's Offering Memorandum promised the following: (1) to guarantee the principal invested and guarantee an 8 percent dividend on the invested principal to be paid quarterly; (2) to deliver guarantees from a AA-rated bank; and (3) to provide a variable dividend, which when added to the fixed dividend will equal 78 percent of the net profit of the Fund. (Id., Ex. 3.)
On June 10, 2002, Fontaine received three wire transfers from three investors' accounts at the Royal Bank of Scotland into a Regalia Fund account at Gruntal, account #72R-126706. Fontaine received $12,551,491.50 from Hereford Humanitarian Business Trust (HHBT), $7,713,898.75 from Huibert Johannes Van Praag (Van Praag), and $3,630,070 from Longmead Properties Limited (Longmead). (Declaration of Agent Joseph Camillucci (Camillucci Decl.), Exs. 2, 3.)
On June 27, 2002, Fontaine withdrew $1,015,557 from the account. Fontaine testified that this sum was a fee that Regalia charged. (Deposition of Steven Fontaine (Fontaine Depo.) at 132:7-17, Ex. 43.) One of the trustees of HHBT introduced Edgard Hall, General Partner of Trade Securities International Limited (TSI), to other HHBT trustees because Hall claimed expertise in identifying fund managers and in making arrangements for the trust to preserve capital and potentially to obtain above-market returns.
(Deposition of Robin J. Derry (Derry Depo.) at 16:15-17:3.) HHBT and TSI established a limited partnership, Trade Sureties Hereford Limited Partnership. (Id., 14:14-15:24, Exs. 4, 5.) In the spring of 2002, Hall presented an opportunity to HHBT to invest funds with Regalia Fund. (Id., 37:12-20.) Hall told HHBT that the Regalia Fund required the investment to be in cash. (Id., 37:15-23.) Hall provided the initial screening of Regalia Fund for HHBT and then HHBT obtained the Regalia Fund's Offering Memorandum. (Id., 38:13-23, ex. 13.)
The sole condition which permitted HHBT to invest in the Regalia Fund was that it would provide a guarantee of the capital from an AA-rated bank. The Regalia Fund's promise to pay a quarterly dividend of two percent was also an important factor in HHBT's decision to invest with the Regalia Fund. (Id., 45:8-46:16.)
In a letter dated June 26, 2002 on Regalia Fund letterhead, Fontaine stated that he expected that the guarantee to HHBT should be delivered by July 12, 2002. (Id., Ex.20.) In a letter dated July 19, 2002, Fontaine stated that he expected the guarantees to be issued by the end of the next week. (Id., Ex. 24.) Fontaine confirmed that the shares were issued on July 1, 2002. (Id., Ex. 25.) However, Fontaine never provided the guarantees or issued the shares. Van Praag was looking to invest between $7 and $9 million and was introduced to Hall. (Declaration of Huibert Va n Praag (Van Praag Depo.) at 13:14-14:3.)
Van Praag joined with another investor, Longmead, who was identified by Hall, to form a limited partnership with TSI, Trade Sureties Ameland Limited Partnership. (Id., 16:16-17:7.) Hall identified the Regalia Fund as an investment opportunity. (Id., 18:7-11.) Hall gave Van Praag a copy of Regalia Fund's offering memorandum. (Id., 25:12-24.) Van Praag decided to invest in the Regalia Fund because of the promised guarantees of the capital by an AA-bank and the promised eight percent annual return, payable two percent per quarter. (Id., 20:11-25.)
Fontaine confirmed that the AA-bank guarantees would be issued as soon as possible and that the shares were issued on July 1, 2002. (Id., Ex. 78.) However, Fontaine never provided the guarantees or issued the shares. (Fontaine Depo. at 267:6-22.)
On July 26, 2002, Fontaine transferred by wire the balance of the Regalia Fund account at Gruntal, $22,909,503.85, to a Regalia Fund account at Morgan Stanley Dean Witter, account #119 012034, in Berkeley, California. (Camillucci Decl., Exs. 2,3.) On August 1, 2002, Fontaine transferred by wire the balance of the account at Morgan Stanley Dean Witter, $22,909,503.85, to a Regalia Fund account at Bank of America, account #01755-03172, in Berkeley, California. (Id.)
Fontaine then used the investors' money for numerous personal expenses, including
purchasing Defendant Property
giving $125,000 to his wife and her family
paying $120,000 in Cartier jewelry
paying $106,000 for four vehicles for himself and his family. (Fontaine Depo. at 143:19-149:24, 152:21-153:9, 154:11-155:1 156:15-162:2, 270:13-293:6, Exs. 49, 50, 53, 54, 94.)
On August 5, 2002, Fontaine transferred $1,556,997.30 by wire from the Regalia Fund account at Bank of American to the escrow account #54604-52250490-EBC at North American Title Company which he used to purchase Defendant Property. (Camillucci Decl., Exs. 2,3.)
When asked whether it was proper to commingle the investors' money with his own money, Fontaine responded: I was the sole, single shareholder in Regalia Fund. So Regalia Fund, Stephen Fontaine, Steven Fontaine is Regalia Fund. I'm entitled to use Regalia Fund as if doing business as Steven Fontaine. (Fontaine Depo. at 293:21-294:3.) The Court will address additional specific facts as required in the analysis.
B. The United States' Motion for Summary Judgment. The United States contends that it is entitled to summary judgment on the grounds that defendant 6557 Ascot Drive (the Defendant Property) is subject to forfeiture pursuant to 18 U.S.C. 981(a)(1)(C) because it was purchased with the proceeds of wire fraud in violation of 18 U.S.C. 1343. The United States also contends that the Defendant Property is subject to forfeiture pursuant to 981(a)(1)(A) because the Defendant Property is property that is involved in illegal money laundering transactions involving criminally derived property (the proceeds of wire fraud) in violation of 18 U.S.C. 1957 In a civil forfeiture proceeding, the government must prove, by a preponderance of the evidence, that the property is subject to forfeiture. See 18 U.S.C. 983(c);
see also United States v. $493,850.00 in U.S. Currency, 518 F.3d 1159, 1170 (9th Cir. 2008). Any property which constitutes or is derived from proceeds traceable to a violation of ... any offense constituting ?specified unlawful activity' (as defined in section 1956(c)(7) of this title) is subject to forfeiture. See 18 U.S.C. 981(a)(1)(C). In cases involving unlawful activities, proceeds are defined as property of any kind obtained directly or indirectly, as the result of the commission of the offense giving rise to forfeiture, and any property traceable thereto, and is not limited to the net gain or profit realized from the offense. See 18 U.S.C. 981(a)(2)(A).
Wire fraud is a specified unlawful activity. See 18 U.S.C. 1956(c)(7); 18 U.S.C. 1961. To demonstrate wire fraud, the United States must show: (1) a scheme to deprive another of money or property by means of false or fraudulent pretenses, representations, or promises; (2) use of the wires in furtherance of the scheme; and (3) the specific intent to defraud. Carpenter v. United States, 484 U.S. 19, 27 (1987); United States v. McNeil, 320 F.3d 1034, 1040 (9th Cir. 2003). Intent to defraud may be demonstrated through circumstantial evidence. United States v. Rogers, 321 F.3d 1226, 1230 (9th Cir. 2003).
The United States argues that Fontaine devised a scheme, using the Regalia Fund, to defrauding investors to obtain $24 million from them by making false representations that their investments and an 8% annual dividend would be protected by guarantees from a AA rated back which would be delivered to the investors.
Fontaine made these representations with an intent to defraud and to influence the investors in the Regalia Fund when Fontaine knew that he had no ability to obtain the guarantees and did not obtain them. Fontaine used wire transfers to transfer the investors' funds to a Regalia Fund account at the Bank of America from which he used the investors money as his own and purchased Defendant Property. Upon review of the record in this matter, the Court finds that the United States submits evidence to demonstrate these facts.
Fontaine argues that he did not have any intent to defraud and that he intended to provide the promised guarantees but was precluded from doing so. However, Fontaine fails to submit admissible evidence to demonstrate such alleged facts. Fontaine argues that the investors' funds were frozen when they were held in the Regal Fund account at Gruntal between June 10 and July 26, 2002. In support of this statement, Fontaine cites to Exhibit 4 to his declaration, which is a fax dated June 21, 2002, stating that the initial problem of unidentified funds had been cleared and that the clients had been identified. (Fontaine Decl., Ex. 4.) Notably, on June 27, 2002, Fontaine withdrew $1,015,557 from the account at Gruntal and sent it to the law firm of McFaden. (Fontaine Depo. at 132:7-17, Ex. 43.) The fact that money was withdrawn on June 27, 2002 demonstrates that the funds were not frozen until July 26, 2002.2 Even if the funds had been frozen when they were in an account Gruntal, Fontaine has not submitted evidence demonstrating that he was precluded from obtaining the promised guarantees and issuing the promised shares after July 26, 2002. Fontaine argues that after the funds were no longer frozen, a dispute between Hall and the investors (HHBT, Van Praag, and Longmead) as to who were the true beneficial owners of the investment with the Regalia Fund precluded him from obtaining the promised guarantees.
Other Links to disclose his fraud
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