What Happens If The DOJ Ends Up With Martin Shkreli's Sole Copy Of The Wu Tang Clan Album?

from the questions-questions-questions dept

So, this story has been bouncing around the internet quite a bit today, but in case you somehow missed it, the Justice Department is seeking to get its hands on the only copy of the Wu Tang Clan album Once Upon a Time in Shaolin. In case you somehow missed this story, there are a few separate background pieces that are necessary to explain. First up, as a combination business model experiment/publicity stunt, back in 2014, Wu Tang Clan announced that it would be selling just a single copy of their latest album. It was an interesting attempt to bring some sort of scarcity back to music and see how the market would respond.

A year and a half later, a totally different story dominated the news. A story about a pharmaceutical company most people hadn't heard of, named Turing Pharmaceutical, buying up the rights to a drug called Daraprim, that many AIDS and cancer patients relied on... and jacking up the price on it from $13.50 per pill to $750 per pill. Soon after that, the young CEO of Turing, named Martin Shkreli, had his smirking face plastered all over the news for his trollish "I'm a villain, but so fucking what" response to all the hatred directed his way.

What does one story have to do with the other? Well, sometime after Martin Shkreli became everyone's favorite villain, it was revealed that he was the one who had purchased Once Upon a Time in Shaolin for $2 million. While Shkreli, at times, has hinted at releasing the music, or even reselling it, nothing much has come of it. At the very end of 2015, Shkreli was arrested -- not over jacking up drug prices, but for securities fraud.

Right after the arrest, Sarah Jeong wrote a fantastic article about how the arrest might lead to the album getting out. The 4th item on the list... asset forfeiture:

If Shkreli is convicted, the direct proceeds of his crimes will now belong to the government. This is what is known as criminal asset forfeiture. (The government has not sought civil asset forfeiture here, which is a slightly different form of seizure that does not require convicting a person of a crime.)

The United States has requested the forfeiture of "any property, real or personal, which constitutes or is derived from proceeds traceable" to the crimes in the indictment against Martin Shkreli. But when the US attorney said he did not know where the funds for the purchase of the Wu-Tang album came from, he was implying that the album would not be the subject of criminal asset forfeiture.

However, in our wild and improbable hypothetical, the album is implicated in the case and ends up being seized. If Shkreli is convicted, then the album might then become the subject of criminal forfeiture. The multi-million-dollar work of art would then end up on GSA Auctions, alongside dilapidated drug-running Chevrolets and extremely questionable lab equipment.

So... it's now two years later and that "wild and improbable hypothetical" has become fact. The government has filed for criminal forfeiture of Shkreli's assets. You may recall that he was convicted earlier this year and is in jail. As a quick side note: this is different than civil asset forfeiture -- the process we regularly complain about involving law enforcement taking money and assets from people without ever charging anyone for a crime. This is criminal asset forfeiture, after the person has been convicted of the crime, and where the government seeks to disgorge them of the profits from the criminal activity.

Here, the Justice Department notes that Shkreli owes them a lot of money. And it wants to get at his assets:

The Court should hold Shkreli financially accountable for his criminal conduct by requiring him to forfeit the amounts above, which total $7,360,450.00, and enter a forfeiture money judgment against him in that total amount. As set forth herein, this total amount represents a conservative computation of the proceeds Shkreli personally obtained as a result of his three different securities fraud crimes of conviction. Furthermore, pursuant to 21 U.S.C. § 853(p) and Fed. R. Crim. P. 32.2, the government seeks forfeiture of certain substitute assets of Shkreli in order to partially satisfy the forfeiture money judgment.

Got that last part? Basically, he should cough up this money, but if he can't we're going after his other assets... including:

Specifically, the following substitute assets owned by Shkreli have, to date, been identified and now that Shkreli has been convicted, the Court should direct that they be forfeited to the United States in partial satisfaction of his forfeiture money judgment: (a) $5 million in cash that is currently held in an E*Trade brokerage account ending in the digits “0258” as security for Shkreli’s bond, pursuant to orders of the Court dated January 7, 2016, August 24, 2016 and October 19, 2017; (b) Shkreli’s interest in and the monetary value of any and all shares held in an entity called Turing Pharmaceuticals; (c) the album “Once Upon a Time in Shaolin” by the Wu Tang Clan, as well as any proceeds derived from the sale of such album; (d) the album “The Carter V” by Lil Wayne, as well as any proceeds derived from the sale of such album; (e) an Enigma machine, as well as any proceeds derived from the sale of such machine; and (f) a Picasso painting, as well as any proceeds derived from the sale of such painting.

The other album listed, the Lil Wayne one, is another one that Shkreli claims he's the sole owner of. Except, of course, that one appears to have been a leak of some sort, and not through a Wu Tang style sale.

Of course, does this mean that once the US government gets it, the Wu Tang album can be released to the public? It would be a strange world if the US government were suddenly the record label for what would likely be a hugely popular album. But... that's unlikely to be how it works. Wu Tang Clan likely still holds the copyright (there was no indication that they also transferred the copyright with the album, though it's possible?). Jeong went through some of the scenarios in her post two years ago:

The weird thing is that it's not clear what happens to the contract that Shkreli signed when he bought the album. Presumably, the contract allowed him to transfer his limited distribution rights if he ever sold the physical record to another person. But what happens if the record gets seized by the federal government as part of a criminal forfeiture?

Let's say the government seizes the record, sells it on GSA Auctions, and then I buy it and upload the whole thing onto the internet. If Shkreli had uploaded the whole album for free, Wu-Tang couldn't sue him—as per the terms of the contract. But if I do it, there's no contract preventing Wu-Tang from suing me, even though I'm now the rightful owner of the One True New Wu-Tang Album.

That is, unless the government manages to successfully seize Shkreli's intellectual property rights in the Wu-Tang album.

Seizing the actual rights to the album would certainly be an odd move, but not unprecedented. In May, the federal government tried to seize the trademarks of the Mongol Nations motorcycle club after securing criminal convictions against many of its members, and then bringing a RICO indictment against the club itself. They ultimately failed—but not because trademark seizure isn't possible.

Still, the Mongol Nations forfeiture was likely targeted at suppressing future use of the trademark, rather than setting up a government-owned Mongol Nations swag shop. "I don't think the FBI will start a Wu-Tang imprint," said Parker Higgins, copyright activist at the Electronic Frontier Foundation.

And, of course, don't expect to FOIA it away from the government either. Attempts to get other copyright-covered works via FOIA haven't worked out so well.

Still, prying it out of Shkreli's hands, at least increases the possibility that wherever else it ends up may be more likely to figure out a way to get it out into the world...

Filed Under: asset forfeiture, copyright, criminal asset forfeiture, distribution, doj, martin shkreli, once upon a time in shaolin, wu tang clan

Supreme Court Sees Criminal Asset Forfeiture Can Be Abused Too; Almost Does Something About It

from the have-a-bandaid dept

Recently, the Supreme Court passed on a case that could have seen it address the highly-problematic civil asset forfeiture issue head on. In that case, cops seized $201,000 (and a bill of sale for a home) from two people during a traffic stop. Despite having no evidence of criminal activity, the cops kept the $201,000 and claimed it was the result of narcotics trafficking. And, despite this claim, law enforcement never arrested the couple it took the money from and charges were never brought.

The Supreme Court refused to touch the appeal, choosing to let the lower courts' rulings stand (and the officers keep the $201,000). Justice Clarence Thomas had a problem with the Supreme Court letting this case slide, writing that the civil asset forfeiture system is easily-abused and provides the worst of incentives.

I am skeptical that this historical practice is capable of sustaining, as a constitutional matter, the contours of modern practice, for two reasons.

First, historical forfeiture laws were narrower in most respects than modern ones.... Most obviously, they were limited to a few specific subject matters, such as customs and piracy. Proceeding in rem in those cases was often justified by necessity, because the party responsible for the crime was frequently located overseas and thus beyond the personal jurisdiction of United States courts.... These laws were also narrower with respect to the type of property they encompassed. For example, they typically covered only the instrumentalities of the crime (such as the vessel used to transport the goods), not the derivative proceeds of the crime (such as property purchased with money from the sale of the illegal goods)....

Second, it is unclear whether courts historically permitted forfeiture actions to proceed civilly in all respects. Some of this Court’s early cases suggested that forfeiture actions were in the nature of criminal proceedings... Whether forfeiture is characterized as civil or criminal carries important implications for a variety of procedural protections, including the right to a jury trial and the proper standard of proof. Indeed, as relevant in this case, there is some evidence that the government was historically required to prove its case beyond a reasonable doubt....

This alone doesn't do anything useful, other than signal at least one justice wants to take a swing at civil asset forfeiture. The Supreme Court, however, did choose to examine another form of forfeiture, this one related to actual criminal charges and convictions.

The question before the court was this: is is legally-acceptable to attempt to recover illicitly-obtained profits from someone who didn't directly profit from the illicit activity? The government (of course) argued "yes." The court isn't so sure. Here's the background, from the Court's synopsis of its opinion [PDF]:

Terry Honeycutt managed sales and inventory for a Tennessee hardware store owned by his brother, Tony Honeycutt. After they were indicted for federal drug crimes including conspiracy to distribute a product used in methamphetamine production, the Government sought judgments against each brother in the amount of $269,751.98 pursuant to the Comprehensive Forfeiture Act of 1984, which mandates forfeiture of “any property constituting, or derived from, any proceeds the person obtained, directly or indirectly, as the result of” certain drug crimes, 21 U. S. C. §853(a)(1). Tony pleaded guilty and agreed to forfeit $200,000. Terry went to trial and was convicted. Despite conceding that Terry had no controlling interest in the store and did not stand to benefit personally from the sales of the product, the Government asked the District Court to hold him jointly and severally liable for the profits from the illegal sales and sought a judgment of $69,751.98, the outstanding conspiracy profits.

The district court said Terry was just a salaried employee who did not directly benefit from the profits of the sale of an item used in crystal meth manufacturing. The appeals court decided Terry was just as culpable as the store's owner. The Supreme Court sides with the district court.

Because forfeiture pursuant to §853(a)(1) is limited to property the defendant himself actually acquired as the result of the crime, that provision does not permit forfeiture with regard to Terry Honeycutt, who had no ownership interest in his brother’s store and did not personally benefit from the illegal sales.

This is a solid determination, as far as it goes. This only deals with criminal asset forfeiture, which isn't abused nearly as much as the civil side, thanks to the government actually having to build a solid criminal case before it can permanently acquire other people's property.

But it's also a question of semantics. As Scott Greenfield points out in this post, the opinion focuses on the wording of the statute as applied to this particular case, which doesn't exactly make this blanket coverage for all similar cases. The Court presents a hypothetical situation that makes it appear it's headed down the blanket coverage path…

An example is instructive. Suppose a farmer masterminds a scheme to grow, harvest, and distribute marijuana on local college campuses. The mastermind recruits a college student to deliver packages and pays the student $300 each month from the distribution proceeds for his services. In one year, the mastermind earns $3 million.The student, meanwhile, earns $3,600. If joint and several liability applied, the student would face a forfeiture judgment for the entire amount of the conspiracy’s proceeds: $3 million. The student would be bound by that judgment even though he never personally acquired any proceeds beyond the $3,600. This case requires determination whether this form of liability is permitted under§853(a)(1). The Court holds that it is not.

As Greenfield points out, this would shift jurisprudence to substantially alter the way the government seeks restitution through criminal asset forfeiture. But the Court doesn't limit itself to the contours of its own hypothetical. Instead, it spends too much time circling the semantic drain.

Despite the example given, which has broad if not universal application limiting the culpability and liability to the actual conduct, the actual profit, perhaps even the actual knowledge of that college student who got $300 per month to play the mule, the holding relies primarily on the word “obtained.” Change the word and the limiting concept disappears, even though the example of its unfairness, its inapplicability, remains every bit as accurate.

The problem is the government still wants to use "joint and several liability" in criminal prosecutions, even if the facts don't show any reason to do this. The opinion here focuses on the word "obtained," pointing out there's not a dictionary out there that supports the government's definition in the context of criminal forfeiture. And yet, the practice will go on the way it has for years because of the lack of a blanket interpretation by the Supreme Court. This leaves it up to lower courts to determine the extent of shared liability on a case-by-case basis. And when things are handled this way, it forces the hypothetical college student with $300 to expend far more than that simply to try to avoid being saddled with millions of dollars of restitution as the result of a criminal conspiracy.

Where the court could have clarified, it chose not to. It will hopefully serve as a deterrent to such forfeiture abuse in the future, but its application is narrow, limited, and subject to multiple interpretations. Here's Greenfield to sum it up:

So is it the concept of banging the kid for the boss’ conduct and profit the problem, or is it the word “obtained” in the statute? Is joint and several liability a wrong in itself, or is it only wrong this time? Or is it a misbegotten concept entirely, which should never apply to hold a defendant to greater culpability and liability then the facts, the conduct, warrant? The questions need answers, but the opinion fails to say.

Terry Honeycutt will emerge from his 60-month sentence without a future burden of paying off the forfeited sum. Whether anyone else will be relieved of the joint and several burden remains to be seen.

So, in two cases, the Court has failed to budge the needle on forfeiture. Civil asset forfeiture received nothing more than some judicial tongue-lashing in lieu of certification and criminal asset forfeiture can continue to be used to hold those who don't profit directly from criminal activity responsible for any dollar amount the government can show is likely ill-gotten gains.

Filed Under: asset forfeiture, criminal asset forfeiture, scotus, supreme court

Law Enforcement Wants To Be Able To Seize The Cars And Homes Of People Convicted On Child Porn Charges

from the good-intentions,-but-some-bad-implementation dept

Some odd news out of Massachussetts. Legislators and law enforcement are teaming up to push legislation that would give agencies permission to seize and sell property belonging to people convicted of sexual crimes against children.

A local sheriff and state representative are awaiting the review of a bill that would allow prosecutors at the conclusion of a child-exploitation case to seize and sell assets used by predators, using the proceeds for victim rehabilitation and therapy, education programs for children, or bringing the funds back into law enforcement.

Middlesex Sheriff Peter Koutoujian and Rep. James Arciero testified Tuesday before the Joint Committee on the Judiciary on the House bill. They are waiting for a favorable recommendation to move the bill forward.

"We feel that it's important to make sure that we have a zero tolerance when it comes to protecting our children," said Arciero, a Westford Democrat.

The bill would allow the court to seize and sell items, excluding hard drives, that are used to entice minors or to produce or disseminate child-pornography crimes. The proceeds of the sales would fund programs for Internet safety education, victim rehabilitation and therapy, and the purchase of technical equipment for law-enforcement agencies.

On one hand, what's being discussed here isn't the far more nefarious civil asset forfeiture, in which property is deemed "guilty" and seized without corresponding convictions. This would be criminal asset forfeiture, which can only move forward once the defendant is convicted.

The resulting funds would be narrowly dispersed, with some going to participating agencies but the bulk of it directly to the special investigative units that handle these crimes.

But there are some concerning aspects to it, not the least of which is the use of the phrase "zero tolerance," which tends to shut down all further critical thinking by those uttering it. For one, the list of items that can be seized is fairly broad. Even though the article notes hard drives will not be permitted to be sold, the statements issued don't specify whether other storage media will be put on the "not for resale" list. In fact, it appears other devices (cameras, cellphones) that formerly stored illegal material will be sold to the general public.

In front of the Joint Committee on the Judiciary, Koutoujian testified, "Massachusetts authorities can already obtain warrants and seize cameras, computers, cellphones, vehicles used by perpetrators in child pornography and enticement cases. But this legislation would allow prosecutors at the conviction of the case, with the court's permission, to dispose of the seized property and generate funds that could be put into three narrowly tailored areas."

While officials claim the devices will be "wiped" before resale, it's not difficult to imagine this eventually leading to someone ending up with an auctioned item that still contains illicit material. That's just human nature. Sooner or later, the wipe job won't be done as well as it should have been. Or at all. That alone is problematic.

Further problems present themselves in the expanded list of seizable/sellable items. Law enforcement will also take vehicles "involved" in "enticement." A narrow reading would only allow the seizure of a vehicle that has been used in the commission of the crime. But the bill doesn't lend itself to a narrow reading. It would also permit the seizure of property in "dissemination" cases, which means little more than using a torrent service to obtain the illegal material. Downloads and uploads are intertwined, making every illicit file sharer a participant in "dissemination" of child porn, even if that person did not create the images being trafficked or specifically intend to distribute them further.

So, this bill could be used to seize cars from people who've never molested a child, much less used their car to "entice" a child into participating in illegal sexual activity.

The bill also provides for the seizure of houses and bank accounts, using this same tenuous connection. While it is not uncommon for some forms of property to be seized as a means of providing retribution to victims of criminal acts, it's not always applied to criminals who have only viewed child pornography. Restitution orders have been granted to those whose pictures have been distributed, but this hasn't been explicitly tied to the forfeiture of assets.

The bill would effectively cut victims out of the loop, routing seized assets to the agencies participating in the arrest and prosecution. The only caveat that may allow for victim restitution is the fact that the agency performing the seizure needs to seek the court's permission before selling seized items and distributing funds.

The bill does provide a safety valve for families who are unaware of a family member's criminal behavior, hopefully preventing them from losing their houses or vehicles because of another person's activities. But it's very limited. Law enforcement wouldn't be able to seize these assets without it being shown that other owners of these items were aware (or should have been aware) of the defendant's behavior. But it doesn't say where the burden of proof lies, suggesting it might be wrapped up in the petition for property return process, which would place it on the other owners of the property, rather than on the state. (Other homeowners can also ask the court for a "homesteading" exception to prevent residences from being seized, which is probably a better route than challenging the seizure head-on. But this exception doesn't apply to other seized property like vehicles or bank accounts.)

It's also limited solely to owners, so spouses/children/relatives who aren't listed on titles can't challenge the seizure. It also sets a very low bar for government agencies when it comes to "proving" other property owners were "aware" of illegal behavior.

Proof that the conveyance or real property was used to facilitate the unlawful dissemination of visual material or the enticement of a child under the age of 16 on 3 or more different dates shall be prima facie evidence that the conveyance or real property was used in and for the business of unlawfully disseminating such visual material or enticing a child under the age of 16.

Houses are where computers are almost always found and one resident torrenting child porn on three different dates is apparently all it will take for state agencies to render unaware family members homeless.

While I can appreciate the Sheriff's complaint that funds seized are often routed towards the expensive upkeep of more glamorous drug interdiction units, SWAT teams and "task forces," this proposal still has a lot of flaws that need to be addressed. The narrow set of criminal acts it applies to, along with the conviction requirement, limits the potential abuse. But adding vehicles and houses to the list of seizable goods is problematic, especially when the underlying crime may be nothing more than possession of illicit images and the use of file sharing software.

Unfortunately, none of these questionable elements can fully be explored until the law has gone into effect. The bill still needs work, especially in terms of determining other property owners' culpability. Because, seriously, something happening three times in the same location is somehow "proof" that other property owners were aware of criminal activity -- criminal activity that is hidden from everyone because it's morally unacceptable everywhere?

Filed Under: asset forfeiture, asset seizure, child porn, criminal asset forfeiture, homes cars, massachusetts