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United States v. Approximately $133

February 9, 2010

UNITED STATES OF AMERICA, PLAINTIFF,
v.
APPROXIMATELY $133,803.53 IN U.S. CURRENCY SEIZED FROM WASHINGTON MUTUAL BANK, N.A., ACCOUNT #4420842802, HELD IN THE NAME OF ADVANTAGE FINANCIAL GROUP HOLDINGS MANAGEMENT LLC, AND APPROXIMATELY $328,495.75 IN U.S. CURRENCY SEIZED FROM WASHINGTON MUTUAL BANK, N.A., ACCOUNT #4412174338, HELD IN THE NAME OF LOOMIS WEALTH SOLUTIONS LLC, DEFENDANTS.



The opinion of the court was delivered by: Frank C. Damrell, Jr. United States District Judge

MEMORANDUM AND ORDER

This matter is before the court on claimant Flagstar Bank's ("claimant" or "Flagstar") motion for judgment on the pleadings pursuant to Federal Rule of Civil Procedure 12(c) as to $320,697.50 of defendant $328,495.75 in U.S. Currency.*fn1

Plaintiff United States of America ("plaintiff" or the "government") opposes the motion and filed a motion to strike the claim and answer of claimant pursuant to Supplemental Rule G(8) of the Supplemental Rules fo Admiralty, Maritime Claims, and Asset Forfeiture Actions ("Supplemental Rules"). For the reasons set forth below,*fn2 claimant's motion for judgment on the pleadings is DENIED, and plaintiff's motion to strike Flagstar's Claim and Answer is GRANTED.

BACKGROUND

The government filed this action for forfeiture in rem on February 17, 2009. (Verified Compl. ("Compl.", filed Feb. 17, 2009.) The funds at issue were seized on or about August 27, 2008, pursuant to valid search warrants. (Decl. of Kathleen Nicolls in Supp. of Compl ("Nicolls Decl."), Ex. A to Compl., filed Feb. 17, 2009, ¶ 4.) The government believes that they are traceable to violations of federal law arising out of loan and credit fraud, identification documents fraud, wire fraud, bank fraud, money laundering, and illegal monetary transactions. (Id. ¶¶ 6-7.) Specifically, the funds are described as:

(1) approximately $133,803.53 in U.S. Currency seized from Washington Mutual Bank, N.A., Account #4420842802, held in the name of Advantage Financial Group Holdings Management LLC, and

(2) approximately $328,495.75 in U.S. Currency seized from Washington Mutual Bank, N.A., Account #4412174338, held in the name of Loomis Wealth Solutions LLC (the "LWS Account").

The government alleges that since at least 2006, directors of Loomis Wealth Solutions ("LWS"), Nationwide Lending Group, the NARAS Secured Fund #2 LLC, and/or related entities, ran a large, multi-tiered Ponzi investment scheme, involving securities fraud and real estate mortgage fraud. (Id. ¶ 13.) Straw buyers, also known as nominee-investors, were used to purchase the properties. (Id. ¶ 14.) They were told that the purchases were investments on which they would receive a handsome return while LWS made the mortgage, tax and insurance payments. However, LWS stopped making payments by spring of 2008. By August 2008, LWS informed investors that they would have to pay their own life insurance payments and cover all the mortgage, tax, and insurance payments coming due on their respective properties, or that their loans would go into default. Ultimately, many loans went into default. (Id.) The alleged fraudulent activities span six states and involve approximately 500 properties; losses are estimated at approximately $100 million. (Id. ¶ 13.)

In or around August 2008, Excel Funding ("Excel"), an independent mortgage company, authorized the funding of certain loans and released those loan funds for real property purchase transactions. (Id. ¶¶ 52-54.) The loan funds were obtained by Excel through a line of credit with Flagstar. (Id.) The funds were wired from Flagstar to Contemporary Solutions-USA, Inc. ("Contemporary"), an entity used as a title company. (Id. ¶¶ 53-54.) Contemporary, in turn, wired the funds it received to Lender Services Direct ("LSD"). Subsequently, LSD wired the funds it received from Contemporary into the LWS Account in the total amount of $320,697.50. (Id. ¶¶ 52-54, 65-66.) Loomis and others falsified documents and committed other breaches in order to create the appearance that the real estate transactions had properly closed escrow. (Id. ¶ 54.) Because the documents appeared to reflect a proper closing, Excel authorized and released loan funds for the real property transactions. (Id.)

Flagstar claims that is the beneficiary of a constructive trust in the defendant currency as a victim of the alleged fraud. (Verified Claim ("Claim"), filed Apr. 22, 2009, at 2.) Specifically, Flagstar contends that it maintains an ownership interest in the currency "which the perpetrator of the fraud wrongfully obtained and the United States Government acquired." (Id.)

STANDARD

A. Supplemental Rule G

Supplemental Rule G provides that "[a]t any time before trial, the government may move to strike a claim or answer . . . because the claimant lacks standing." Supplemental Rule G(c)(i)(B). A claimant in a forfeiture proceeding bears the burden of showing, as a threshold matter, that he owns or has an interest in the property sought to be forfeited. United States v. $20,193.39 in U.S. Currency, 16 F.3d 344, 346 (9th Cir. 1994). While state law determines whether a claimant has a property interest, federal law determines whether or not that interest can be forfeited. Hooper, 229 F.3d at 820. See United States v. Hooper, 229 F.3d 818, ...


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