Why it matters: On August 10, 2015, the Second Circuit vacated the district court’s ruling in U.S. v. Cosme and remanded the case so that the district court could determine whether there had been probable cause to justify the seizure upon arrest of the assets (including vehicles, cash and bank accounts) of a defendant who had been accused of wire fraud. The Court specifically held with respect to the defendant’s bank accounts that, in the absence of a warrant or a judicial determination of probable cause in earlier stages of the case, the government’s claimed “exigent circumstances” exception was not a sufficient reason to indefinitely seize the accounts.
Detailed discussion: On August 10, 2015, the Second Circuit in U.S. v. Cosme held that, absent a warrant or a judicial determination of probable cause (both of which the Court found to be lacking in this case), the government could not rely on “exigent circumstances” to justify the indefinite seizure of the property of defendant William R. Cosme (“Cosme”), who had been arrested on December 19, 2012, on charges of wire fraud.
The criminal complaint filed against Cosme charged him with defrauding a school in Korea out of approximately $5.5 million. On the day Cosme was arrested, the government seized several assets at his home, including expensive sports cars and cash, and sent letters to financial institutions where he had accounts requesting that they freeze the accounts because (1) there was “probable cause” to believe the accounts contained the proceeds of unlawful activity and were thus subject to seizure under the relevant provisions of the civil forfeiture statute and (2) while the government was “in the process of obtaining a seizure warrant… exigent circumstances require that the [accounts] be frozen immediately to prevent [them] from being dissipated.” In fact, the government never obtained the seizure warrant referred to in the letter. Cosme was indicted on January 17, 2013, in the Southern District of New York and, under the “Forfeiture Allegation” section, the indictment stated that Cosme “shall forfeit,” in addition to the vehicles and cash seized at his home, the funds held in Cosme’s various frozen bank accounts. Of particular importance to the Second Circuit on appeal, the government later conceded that these forfeiture allegations were “merely notice provisions that were not subject to a grand jury vote.” On August 6, 2013, the district court granted a pretrial restraining order (“Restraining Order”) which permitted the government to “maintain custody” of the seized assets “through the conclusion of the pending criminal case” pursuant to the relevant provisions of the criminal forfeiture statute, stating that the property was “already in the lawful custody of the Government” (the Restraining Order also preserved the government’s right to later pursue civil forfeiture). Numerous attorneys for Cosme and lots of legal wrangling later (mostly about freeing up funds from the seized accounts for his defense), Cosme’s eighth attorney filed a motion on February 14, 2014, to vacate the Restraining Order, arguing, among other things, that “the seizure of the assets was unlawful pursuant to the Fourth Amendment because the government had not obtained a warrant and exigent circumstances did not justify the seizure.” On April 21, 2014, the district court denied without hearing Cosme’s motion, ruling that “‘[t]he Government made a sufficient showing of probable cause by virtue of the Indictment, which included the forfeiture allegation.”
Cosme appealed to the Second Circuit, and on August 10, 2015, the Court vacated the district court’s ruling, holding that “[a]fter examining the record, we agree that no proper finding of probable cause has occurred in this case and, thus, we must remand the case to the district court to determine whether probable cause supports the forfeitability of the restrained property.” The Court noted that, between Cosme’s arrest and indictment, the government had changed the basis on which it was seeking forfeiture of Cosme’s assets, from civil to criminal, and although it found “no inherent problem” with this, “this tactic cannot serve as a tool for the government to seize assets without ever showing probable cause.” Upon examination of the record, the Court further noted that the district court’s April 21, 2014, opinion denying Cosme’s motion to vacate the Restraining Order appeared to base its denial on the mistaken belief that the grand jury had voted on the forfeiture allegations in the indictment (thus establishing probable cause). As this was not the case, the Court held that “the district court was required to make its own probable cause finding where none had yet been made in the case.”
The Court specifically agreed that the government’s “seizure and continued possession of [Cosme’s] bank accounts violates the Fourth Amendment” and that the government’s “exigent circumstances” exception “does not immunize the ‘lengthy, warrantless seizure’ ” of the accounts because the exception “only permits a seizure to continue for as long as reasonably necessary to secure a warrant, as the government promised but then failed to do here.” The Court continued, “[w]e are troubled that, in the absence of a warrant, the government retained custody of Cosme’s bank accounts for over two years.” The Court denied Cosme’s request for immediate return of his unlawfully restrained assets, however, finding that, even if assets are initially seized illegally, they can still be subject to forfeiture upon a retroactive finding by the district court on remand that there was probable cause to seize them. Thus, “[i]f the district court determines that probable cause existed at the time of seizure to support forfeitability, Cosme’s request for the return of his property must be denied even though the continuing seizure was illegal. . . . If, on the other hand, the district court determines that no such probable cause existed, then and only then would Cosme be able to seek a vacatur of the restraining order and the return of his restrained assets.”
Click here to read the Second Circuit’s 8/10/15 opinion in United States of America v. William R. Cosme, No. 14-1625-CR (2d Cir. 2015).