RETIRED DISTRICT AND BANKRUPTCY JUDGE

FOR THE NORTHERN DISTRICT OF ILLINOIS.

WELCOME TO OUR PROGRAM ABOUT COOPERATION AND COORDINATION

BETWEEN DISTRICT AND BANKRUPTCY JUDGES

WHO FIND THEMSELVES WITH SIMULTANEOUS CASES

INVOLVING ASSET FORFEITURE AND BANKRUPTCY.

OFTEN SUCH CASES ARISE FROM CRIMINAL PROSECUTION

OF A PONZI SCHEME AND THE BANKRUPTCY FILING

BY THE LEGITIMATE BUSINESS

THROUGH WHICH THE SCHEME WAS OPERATING.

NOT ALL OF THESE CASES INVOLVE PONZI SCHEMES,

BUT THE COMMON ASPECT IS ASSET FORFEITURE

BY THE DEPARTMENT OF JUSTICE.

TO DISCUSS THIS WITH ME ARE SEVERAL INDIVIDUALS

WHO HAVE EXPERIENCE IN SOME OF THE MOST INFAMOUS CASES,

WHO WILL HELP US GAIN INSIGHT AND CONFIDENCE

IN DEALING WITH SUCH CASES, LARGE AND SMALL.

FIRST, DISTRICT JUDGE ANN D. MONTGOMERY

FROM THE DISTRICT OF MINNESOTA

WHO DEALT WITH THE THOMAS PETTERS CASE;

BANKRUPTCY JUDGE MARTIN GLENN

FROM THE SOUTHERN DISTRICT OF NEW YORK,

WHO DEALT WITH THE MARC DREIER CASE;

IRVING PICARD, TRUSTEE

FOR THE SECURITIES INVESTOR PROTECTION CORPORATION,

WHO CONTINUES TO LITIGATE CASES

INVOLVING THE BERNARD MADOFF PONZI SCHEME;

AND SHARON COHEN LEVIN,

WHO IS THE CHIEF OF ASSET FORFEITURE UNIT--

CHIEF OF THE ASSET FORFEITURE UNIT

FOR THE SOUTHERN DISTRICT OF NEW YORK.

WELCOME TO EACH OF YOU,

AND THANK YOU FOR BEING WITH US TODAY.

MR. PICARD, LET ME ASK YOU ABOUT THE PLAYERS

IN BANKRUPTCY.

WHO ARE THEY, AND WHAT ARE THEIR ROLES?

- THE PLAYERS ARE-- IF IT'S A BANKRUPTCY CASE,

YOU HAVE THE U.S. TRUSTEE,

WHO PROBABLY WOULD BE CALLED UPON TO APPOINT A TRUSTEE,

OFTEN FROM A PANEL IF IT'S A CHAPTER 7 CASE.

BUT OTHERWISE, IN A CHAPTER 11, WOULD APPOINT A TRUSTEE.

AND IN...YOU COULD HAVE

A STATE COURT OR A FEDERAL COURT RECEIVERSHIP,

AN SEC-TYPE RECEIVERSHIP, FOR EXAMPLE,

WHERE THE JUDGE WOULD BE APPOINTING A RECEIVER.

THAT WOULD BE A FEDERAL OR A STATE COURT JUDGE.

OR YOU WOULD HAVE, AS IN MY CASE, A LIQUIDATION

OF THE SECURITIES INVESTOR PROTECTION ACT,

WHERE THE SECURITIES INVESTOR PROTECTION CORPORATION

RECOMMENDS TO THE JUDGE WHO SHOULD BE THE TRUSTEE,

AND THEN THE TRUSTEE GETS APPOINTED.

AND THEN ONCE YOU GET INTO THE CASE,

YOU HAVE, OF COURSE, THE DEBTOR,

WHICH COULD BE AN INDIVIDUAL OR A CORPORATION

OR SOMETIMES A COMBINATION.

YOU HAVE...OF COURSE, THERE ARE EMPLOYEES,

AND IF IT'S A BUSINESS AND A LOT OF VENDORS,

YOU HAVE VICTIMS.

AND THERE MAY BE OTHER ACTIVITY GOING ON

THAT BEARS SOME RELATIONSHIP,

LIKE THERE COULD BE CLASS-ACTION CASES

THAT ARE ALREADY ONGOING.

AND OF COURSE, THE PRIMARY...

A PRIMARY PLAYER WOULD BE A JUDGE,

WHETHER IT'S THE DISTRICT JUDGE OR A BANKRUPTCY JUDGE.

- MS. LEVIN, WHAT IS ASSET FORFEITURE?

- WELL, ASSET FORFEITURE IS A LEGAL PROCEDURE

WHERE THE GOVERNMENT REMOVES THE PROCEEDS OF CRIME

OR PROPERTY USED IN FURTHERANCE OF CRIME,

AND IT'S A MANDATORY PART OF MOST CRIMINAL CASES,

AND IT'S FORFEITURES ORDERED AT SENTENCING.

IN ADDITION, THERE ARE ACTUALLY--

THE GOVERNMENT HAS THE ABILITY TO BRING IN...

BRING IN REM CIVIL ACTIONS AGAINST CRIME PROCEEDS

OR PROPERTY USED IN FURTHERANCE OF CRIME

BY THEMSELVES OR IN COORDINATION WITH CRIMINAL PROSECUTIONS.

AND ONE OF THE MOST IMPORTANT PURPOSES OF ASSET FORFEITURE

IS TO GATHER AND SEIZE THE ASSETS

SO THAT THEY CAN BE USED FOR VICTIM COMPENSATION.

- JUDGE MONTGOMERY, WHAT WAS THE CASE

THAT YOU WERE INVOLVED IN?

- I WAS INVOLVED IN THE THOMAS PETTERS CASE.

THOMAS PETTERS WAS A...

MAYBE NOT A HOUSEHOLD WORD,

BUT A VERY WELL KNOWN PERSON IN MINNESOTA,

AN ENTREPRENEUR WHO HAD STARTED SELLING ELECTRONICS

WHEN HE WAS IN COLLEGE

AND HAD ALLEGEDLY BUILT AN INCREDIBLE EMPIRE

OF A NUMBER OF PETTERS-RELATED BUSINESSES,

ULTIMATELY INCLUDING POLAROID CORPORATION

AND SUN COUNTRY AIRLINES.

SO HE HAD BEEN SEEN AS A VERY, VERY SUCCESSFUL

ENTREPRENEUR AND BUSINESS DEVELOPER.

- AND JUDGE GLENN, WHAT CASE WERE YOU INVOLVED IN?

- I WAS INVOLVED IN THE BANKRUPTCY OF DREIER LLP,

A 200-PLUS LAWYER FIRM,

THE UNDERLYING CHAPTER 11 BANKRUPTCY,

AND THE INDIVIDUAL CHAPTER 7 BANKRUPTCY OF MARC DREIER

HAD BEEN PENDING BEFORE MY COLLEAGUE,

JUDGE STUART BERNSTEIN.

AFTER THE CHAPTER 11 TRUSTEE HAD FILED A GROUP

OF FRAUDULENT CONVEYANCE ADVERSARY PROCEEDINGS

AND MOTIONS TO DISMISS HAD BEEN MADE,

FOUR OF THEM WERE TRANSFERRED TO ME

FOR A DECISION ON THE MOTIONS TO DISMISS.

AND THAT WAS MY FIRST FORAY

INTO THE AREA OF CRIMINAL FORFEITURE.

- MS. LEVIN, WHAT HAPPENS IN...

AS A PRACTICAL MATTER IN THESE CASES?

YOU'RE OUT, ON BEHALF OF THE GOVERNMENT--

REMOVING I THINK WAS THE WORD YOU USED--PROPERTY.

BUT THERE IS A TRUSTEE OR A RECEIVER OUT THERE

WHO IS ALSO REMOVING PROPERTY.

WHAT HAPPENS WHEN THE TWO WORLDS COLLIDE?

- WELL, I MEAN, THAT HAPPENS MORE AND MORE FREQUENTLY,

PARTICULARLY IN LARGE FINANCIAL FRAUD CASES

OR LARGE FRAUD CASES.

AND THE GOVERNMENT...

THE POWERS THAT WE HAVE ARE WE'RE ABLE TO SEIZE

OR RESTRAIN DIRECTLY TRACEABLE CRIME PROCEEDS.

AND UNDER ASSET FORFEITURE LAW,

TITLE VESTS IN THE UNITED STATES

AT THE TIME OF THE COMMISSION OF THE CRIME.

SO IT, YOU KNOW, IT DOESN'T--

THAT PROPERTY DOESN'T BECOME

PROPERTY OF THE BANKRUPTCY ESTATE.

SO THE GOVERNMENT'S RESPONSIBILITY IS TO GO AROUND

AND TO SEIZE OR TO FREEZE THAT PROPERTY

SO IT'S AVAILABLE FOR FORFEITURE

AND FOR RESTITUTION TO BE USED TO COMPENSATE VICTIMS.

AND IT HAPPENS A LOT THAT IN THOSE CIRCUMSTANCES,

WE RUN INTO A BANKRUPTCY TRUSTEE

WHO ALSO HAS SIMILAR RESPONSIBILI--

SIMILAR TYPE OF RESPONSIBILITIES.

AND WHAT WE TRY AND DO IS TRY AND WORK IN COOPERATION,

IN COORDINATION WITH A BANKRUPTCY TRUSTEE.

SOMETIMES THAT'S SOMEWHAT CHALLENGING,

BUT, YOU KNOW, IT'S SOMETHING THAT WE, YOU KNOW,

WILL STRIVE TO DO.

- NOW, TELL ME ABOUT THIS VESTING IN THE GOVERNMENT

AT THE TIME OF THE CRIME.

THE GOVERNMENT DOESN'T KNOW ABOUT

THE CRIME AT THE TIME USUALLY.

SO HOW DOES THAT WORK?

- WELL, IT'S A LEGAL FICTION.

IT'S THAT THE CRIME PROCEEDS, ONCE THE CRIME IS COMMITTED

AND THE DEFENDANT OBTAINS PROPERTY,

IT BECOMES U.S. GOVERNMENT PROPERTY.

TITLE VESTS IN THE UNITED STATES AT THE TIME OF THE CRIME,

BUT THE PROPERTY DOESN'T ACTUALLY TRANSFER

UNTIL THE DEFENDANT IS CONVICTED AND SENTENCED.

SO THERE'S SORT OF AN AMORPHOUS PERIOD

WHERE IT BECOMES-- IT IS U.S. PROPERTY,

BUT UNLESS SOMEONE BRINGS A PROSECUTION,

THERE'S NO ONE TO ACTUALLY TAKE POSSESSION OF IT.

AND IT'S A LEGAL FICTION THAT ENABLES THE GOVERNMENT

TO OBTAIN PROPERTY FROM THIRD PARTIES--

FROM THE DEFENDANT OR FROM THIRD PARTIES

THAT A DEFENDANT WOULD TRANSFER THE PROPERTY TO.

THE FORFEITURE STATUTES WEREN'T WRITTEN

IN RECOGNITION OR WEREN'T WRITTEN

IN CONJUNCTION WITH THE BANKRUPTCY LAWS.

SO THAT IS OFTEN A CIRCUMSTANCE

WHERE THEY ACTUALLY RUN HEAD INTO EACH OTHER.

AND THE POSITION THAT MOST COURTS HAVE COME TO

IS THAT PROPERTY ISN'T PROPERTY OF THE BANKRUPTCY ESTATE,

BUT THAT THE...

YOU KNOW, THERE ARE OTHER PROPERTIES OF THE DEFENDANT

OR HYBRID PROPERTIES THAT, YOU KNOW,

THAT ARE POTENTIALLY PROPERTY OF THE ESTATE.

- MR. PICARD, HOW DOES THAT PLAY OUT

FROM THE POINT OF VIEW OF A TRUSTEE OR RECEIVER?

- TWO WAYS. THE FIRST WAY IS THE ONE

WHERE ALL THE PROPERTY HAS BEEN SEIZED BY THE GOVERNMENT,

OR FORFEITED, AND THEN YOU'RE THE TRUSTEE