The opinion of the court was delivered by: Gregory G. Hollows United States Magistrate Judge
The United States (government) has brought this action against defendant Vera Kuzmenko (Kuzmenko), and others, on account of a massive real estate fraud assertedly orchestrated by Kuzmenko. The government opposes pre-trial release of Kuzmenko because of its belief that large amounts of money, generated by the fraud, are outstanding and available making her a flight risk. The government additionally believes that persons willing to assist Kuzmenko in posting security for bond are tainted themselves with the fraud, although the properties finally proffered appear not to be directly tied to any allegations.
For the reasons that follow, the undersigned will order release conditioned upon the posting of secured bond in the amount of $500,000, electronic monitoring, and the remainder of conditions set forth in the Supplemental Pretrial Services Report of July 28, 2011. One-half of the security to be posted shall be in the form of liquid assets, a corporate surety bond, or both.
The indictment, filed May 12, 2011, alleged that Kuzmenko has committed wire fraud, mail fraud, money laundering and witness tampering. In simple terms, the scheme involved the "usual allegations" -- a defendant obtaining real estate commissions by submitting grossly fraudulent loan applications to those entities funding the real estate loan -- with a substantial, added twist. The twist involved Kuzmenko targeting distressed (upside down) properties with straw purchasers, in which the seller agreed that upon sale only the mortgage would be paid off.*fn1
However, the actual sale price submitted to the loan companies (and hence the loan amounts approved by the lending institutions) was inflated by several mechanisms. For example, Kuzmenko is alleged to have manufactured "gain" by submitting to the loan company false invoices for purported work that the seller had performed on the property prior to close of escrow, and which were to be paid to shell companies from any proceeds received on the sale. Ostensibly, the value of the house for appraisal purposes was artificially enhanced by the work performed. In reality, no pre-sale work was ever performed, and the entities listed on the invoices were shell companies run by persons who would profit together with Kuzmenko for the non-existent work.*fn2
Fraudulent documentation of many types was submitted to the lending institutions to convince the lenders that the straw purchasers met the requirements for loans on the sale price. Ultimately, of course, the lenders were forced to foreclose on the property at great loss to the lender. The government alleges the lending institutions' loss at over $9,000,000. \\\\
Kuzmenko was arrested on a complaint and made her first appearance on May 3, 2011. Detention proceedings were continued several times with the first detention hearing being held on May 12, 2011. Kuzmenko was ordered detained by the undersigned based on then unanswered questions about an international flight she had been scheduled to take a day after her arrest, unaccountable, significant sums of money, and inadequate proffered security. She had her first bail review before the Honorable Dale Drozd which was unsuccessful because of inadequate proffered security and lingering questions about unaccounted for monies, including an alleged million or so dollars in a Swiss bank account.
On July 29, 2011, Kuzmenko appeared once more before the undersigned for a second bail review, proffering security for a $300,000 plus bail package, but persistent questions about the Swiss bank account, as well as the nature of the security for the proffered bond, necessitated an evidentiary hearing held on August 1, 2011. The undersigned took the matter under submission at that hearing.
Flight risk is the only issue in this detention proceeding.*fn3
The law regarding the government's burden of proof in
establishing flight risk is well established. The government bears the
burden by a preponderance of the evidence showing that no conditions
or combination of conditions will reasonably assure the appearance of
defendant. United States v. Gebro, 948
F.2d 1118, 1121 (9th Cir. 1991). The undersigned is mindful that it
should ensure that defendants are not unnecessarily detained, and that
incarceration should be reserved, if possible, post-conviction. Bona
fide doubts about the propriety of release should be resolved in favor
of the defendant. Id. Thus, the undersigned turns to the facts.
First, the undersigned cannot specifically credit the existence of a Swiss bank account with the approximate sum of $1,000,000. According to the agent, this "fact" was transmitted to the government by informants, one of whom overheard Kuzmenko tell of this bank account. The other informant was much more general about a bank account with monies in it. However, the government chose not to reveal the informants' identities, and therefore, the undersigned cannot credit the hearsay. While hearsay can be utilized in a detention proceeding, United States v. Winsor, 785 F.2d 755, 756 (9th Cir. 1986), the hearsay must be reliable. In order to assess reliability, a defendant has the right to at least know who the declarant may be in order to mount any attack on the declarant's credibility or foundation.
However, the larger issue of unaccounted for monies which could be used to fund flight remains. The government has produced persuasive evidence that the fraud alleged in the indictment, for which the grand jury has found probable cause, produced large amounts of ill gotten monies, most of which appear to be outstanding. While it is not clear who may hold the majority of such funds, or where there may be precisely located, these facts do not detract from the fact that funds for flight wherever held may exist for this defendant. First, Kuzmenko was the indicted ringleader of this fraud; it stands to reason that she would have maintained the bulk of monies obtained as a result of the schemes described above. Secondly, the undersigned notes that the description of the fraudulent scheme reveals participants, both indicted and unindicted, in an ethnically close knit group, some might say financially incestuous, who have such loyalty to each other ...