Crime in the Suites: An Analyis of Current Issues in White Collar Defense
Archive for the ‘Civil Forfeiture’ Category
Mar 31

Employers Seeking to Curb Employee Mobile Phone Use at Work? Don’t Use Illegal Signal Jammer – FCC is “Listening”

Some employers, particularly those in manufacturing, health care, and other situations where mobile phone use could interfere with employee safety, have come up with novel approaches to curbing employees’ uses of mobile phones.  While a policy restricting personal phone calls and texting may be acceptable, installation of a signal jammer to prevent employees from accessing the network is unlawful and can subject the employer to significant penalties.  R&N (“RNM”) Manufacturing, Ltd.  In Houston, Texas learned this lesson the hard way when the Federal Communications Commission  (“FCC”) showed up at its manufacturing facility.

As background, RNM purchased a signal jammer online in February 2013, to prevent employees from placing wireless calls from the factory, by blocking cell phone communications.  With very limited exceptions, the Communications Act and the FCC’s rules bar the importation, use, marketing, manufacturing, and sale of jammers.  Jammers may be available for sale all over the Internet, but they are prohibited.  The reason behind this prohibition is that jammers can interfere with emergency and other communications services, including GPS. Signal jammers typically transmit high-powered radio signals that interfere with authorized communications.  The interference can, among other dangers, place first responders and the public at risk if critical communications cannot be transmitted.

AT&T determined that a signal originating from RNM’s Houston facilities was interfering with AT&T’s signal, and reported the interference to the FCC’s Enforcement Bureau. FCC field agents in Houston conducted an investigation and found strong signals coming from RNM’s Houston facility.  The agents subsequently visited the facility to determine the source of the interference and to notify a corporate officer.  RNM’s CFO confirmed the jammer and promised to discontinue the jammer’s use. A formal enforcement action followed.

After analyzing the facts and the agency’s forfeiture guidelines, the FCC imposed a forfeiture on RNM of $29,250 for the 10-day operation (and the voluntary relinquishment of the illegal device).  While this is not a huge penalty, the FCC noted that it could have imposed a forfeiture in excess of $337,000 had it imposed a straightforward application of the statutory maximum.

There are a few important points to note here. First, employers seeking to curb employee mobile use should rely on policies and enforcement, rather than “self-help” through installation of their own devices.  While jammers are available for purchase online – they are illegal irrespective of what a website might advertise. 

Second, while companies might not expect an FCC official to show up at their door for an investigation, the agency (like many other agencies) has field agents and they do conduct on-site investigations – including without notice.  All organizations should have a designated officer or senior employee who is trained to interface with investigators.  Outside counsel can also be key here to interact with the agents and help guide the company through the audit.

Third, monetary penalties can be steep.  A mere 10 days’ use of the signal jammer cost RNM a nearly $30,000 penalty plus likely legal fees and employee time. Had RNM been using the cell jammer over a longer time period, it could have faced a six-figure fine.

Fourth, even though RNM was not an “FCC-regulated” entity such as a broadcast station, telecom company, etc., it understood the need to be responsive and to take the matter seriously.  Just because a company is not regularly under an agency’s jurisdiction doesn’t mean it is not subject to the agency’s enforcement powers.  Federal agencies such as the FCC and FTC enforce laws with wide-ranging implications and can subject companies in various industries to their jurisdiction.

The FCC’s Notice of Apparent Liability for Forfeiture is available here.

Aug 02

Full Tilt Poker Remission Process for Players Expected to Begin ‘Shortly,’ and on Favorable Terms

More than two years after “Black Friday” – the day on which federal prosecutors shut down the U.S. operations of Full Tilt Poker and other major online poker providers and seized billions of dollars in assets – it appears that the final chapter in that enforcement action may soon be written.

The Garden City Group, the entity responsible for claims administration for repayment of Full Tilt Poker players, announced on August 1 that it would soon begin that remission process. Remission of funds to Full Tilt Poker’s U.S. players was made possible because of PokerStars’ payments pursuant to its settlement of civil forfeiture claims with the government. And, due at least in part to advocacy by the Poker Players Alliance (PPA), the calculation formula to be used for the process will be based on players’ final balances as of April 15, 2011, and not on the amount that they originally deposited into their Full Tilt Poker accounts.

Following the Black Friday asset seizures, PokerStars reached a settlement with the United States under which it forfeited $547 million to the U.S. government and agreed to repay approximately $184 million to former customers of Full Tilt Poker outside the United States. One of the valuable aspects of this settlement, from the perspective of former Full Tilt Poker players in the United States, was that it created a fund of money for repayment of players that would not otherwise have existed due to Full Tilt Poker’s financial status at the time of the seizure.

The settlement provided that the United States would oversee a remission process pursuant to which it would return funds to Full Tilt Poker players, but the law governing those processes vests the government with enormous discretion in, among other things, the manner in which the government calculates the amount to be distributed to each recipient. In the case of Full Tilt Poker’s U.S. players, the government was considering an approach that would have based the payment to each player on the amount he or she had deposited into a Full Tilt Poker account, regardless of the wins or losses in that account thereafter.

An alternative approach was to base the payment on the balance remaining in the account on April 15, 2011 – the last day on which the player could have accessed his or her account. The PPA and other advocates of this approach point out that this was a truer measure of the “loss” that each player suffered; to the extent that a player’s balance was lower on that date than his or her initial deposit, it was not due to any wrongdoing but rather a result of poker play. A player who received his or her initial deposit that was greater than the balance on that date would receive an unjustified windfall by recouping money lost fairly in playing online poker. Thus, to use deposit amounts as the basis for remission would effectively redistribute funds among players in a way that was unrelated to the purpose of the seizure and remission. This would have been inconsistent with applicable regulations’ definition of the “victim” to receive remission in terms of the loss suffered “as a direct result of the commission of the offense underlying a forfeiture.” (See 28 C.F.R. § 9.2(v)).

Advocates also expressed concerns that a “deposit”-based refund process would be unduly complicated, and would create inequities between foreign Full Tilt Poker players and U.S. PokerStars players, who received refunds based upon account balances.

It remains to be seen whether Full Tilt Poker’s U.S. players will receive the full amount of their account balances or a proportionally smaller amount – a decision that will be based on whether the amount available for remission is equal to or greater than the aggregate amount of claims filed for such refunds. But the decision to base remission on account balances and the indication that the long-delayed process will start soon are both positive signs that Full Tilt Poker’s U.S. players may soon be made whole from their Black Friday losses.

Oct 06

In ‘Bitter Pill,’ FDA Seizes Domain Names of Firms Selling Illegal Pharmaceuticals

In an aggressive step against businesses selling drugs online, the U.S. Food and Drug Administration, in conjunction with the U.S. Department of Homeland Security, took legal action earlier this month against more than 4,100 websites this week that led to criminal charges, seizures of illegal products, and hundreds of domain name seizures.

This year Operation Pangea V, a campaign of law enforcement agencies across the globe to counter the global international prescription trade, resulted in the shutdown of over 18,000 unauthorized pharmacy websites and the confiscation of around $10.5 million worth of pharmaceuticals in 100 countries worldwide. Operation Bitter Pill, a federal law enforcement initiative that is part of Operation Pangea V, seized 686 domain names this week as part of the operation, bringing the total number of domain names seized by the domestic operation to 1,525.

The drugs being offered on the websites included such medications as antibiotics, anti-cancer medications, weight loss and food supplements, and erectile dysfunction pills, authorities said.

The FDA had sent warning letters to the managers of 4,100 websites in late September, warning them that products for sale on their sites were in violation of U.S. law. A copy of the letter that the FDA sent to one site can be viewed here.

The agency also sent notices to registries, Internet service providers, and domain name registrars notifying them as well.

Visitors to the websites that have been the subject of domain name seizures will now see an image informing them that the site has knowingly trafficked counterfeit goods, which is a federal crime. Customers were not targeted as part of the investigation. A government spokesman said they were considered to be unwitting victims who were simply purchasing drugs that they thought would be helpful for their conditions.

We don’t endorse counterfeit drugs or trademark violations. But we are concerned that broad domain name seizures, such as those in Operation Bitter Pill, could potentially shut down legitimate businesses and leave them without an online presence for a long period of time until they are able to obtain legal relief. Companies that operate solely with an online presence could see dramatic and potentially crippling effects on their business.  We have previously discussed this issue here, for example.

As digital rights groups have repeatedly noted, seizures such as these can run roughshod over the constitutional rights of website operators, including their First Amendment rights, and need to be undertaken by the government, if at all, with an understanding that a seizure of a domain name is not the same thing as the seizure of a truckload full of illegal drugs.

Previously, domain name seizures had been used in investigations by other federal agencies such as the Immigration and Customs Enforcement, the Commodity Futures Trading Commission, the U.S. Department of Justice, and the Federal Trade Commission. The practice appears to be expanding.

Only if the courts provide an adequate check on the powers of the federal government can it be assured that individuals are afforded their due process rights in cases such as this one.

Aug 02

Jeff Ifrah Quoted on Historic Online Poker Deal in Wall Street Journal, USA Today, MSNBC, Other Venues

After the $731 milliion deal to resolve federal civil charges against Full Tilt Poker and Poker Stars was announced on July 31, 2012, Ifrah Law founding partner Jeff Ifrah was quoted on the subject in a wide variety of newspapers, magazines, and other sources. Here is a sampling of them.

Wall Street Journal

USA Today


Chicago Tribune

San Francisco Chronicle



Poker News


Thomson Reuters

JD Supra

Bisnow Legal

Aug 04

Court Places Limits on DOJ’s Asset Forfeiture Powers

The D.C. Circuit recently handed a significant victory to anyone with assets in the U.S. – especially anyone under investigation in another country for violation of that country’s laws. As reported on the Blog of Legal Times, the D.C. Circuit issued a decision on July 16 holding that the Department of Justice could not seize the assets of two funds pending Brazil’s investigation of the funds’ owners, Daniel and Veronica Dantas.

Brazilian banker Daniel Dantas and his sister, Veronica, are under investigation in Brazil for scheming to defraud the Brazilian financial system, engage in insider trading, and launder the proceeds of their crimes. In 2008, while the investigation was underway, the Government of Brazil formally requested that the U.S. Government seize the funds’ assets located in Connecticut and New York. The DOJ responded by filing applications for restraining orders with the D.C. Circuit. The DOJ requested the restraining orders based on a section of the Patriot Act that authorizes federal district courts to issue restraining orders to “preserve the availability of property subject to a foreign forfeiture or confiscation judgment.” 28 U.S.C. 2467(d)(3).

Twice, the district court denied DOJ’s requests on grounds that the provision does not permit seizure of assets before a foreign government issues a final order compelling payment of money representing the proceeds of a crime or the forfeiture of property traceable to the crime. Because the Brazilian authorities had not completed their investigation of the Dantases, no forfeiture or confiscation judgment had yet been entered. Thus, the district court held, the statute did not authorize seizure. Under the district court’s interpretation, the provision does not authorize the indefinite seizure of U.S. funds based on a possibility they might be subject to future confiscation by a foreign government.

On appeal, DOJ argued for an expansive interpretation of the statute based on the statutory scheme, legislative history and policy considerations. In its well-reasoned decision, the D.C. Circuit rejected DOJ’s arguments, explaining that the statute contemplates a two-stage process. The first stage involves a confiscation or forfeiture judgment against a person; the second judgment specifically identifies the property to be confiscated. Given this context, the provision authorizes seizure of funds in the U.S. to preserve property subject to a foreign forfeiture or confiscation judgment, but only after the foreign government has issued a judgment against the person, i.e., the first stage judgment. In such cases, property in the U.S. may be seized pending an investigation and judgment with respect to the property to be seized, i.e., the second stage judgment.

Cases of this type are relatively rare. The D.C. Circuit noted there have been, on average, about one a year. Nonetheless, the decision is important for the definite limit it places on the U.S. Government’s power to seize assets—a power that over the last decade has expanded considerably and often with seemingly little standing in its way.

Jun 15

Civil Forfeiture: More Safeguards Needed to Protect the Innocent

Civil forfeiture is a legal fiction premised on two notions: that (i) property bears guilt when put to unlawful use; and (ii) monarchs are the creator’s appointed representatives on the earth. In such a world, it would make sense for guilty property to be seized and returned to the monarch. In the monarch’s hands, stained property can be washed clean and repurposed for noble use. But that is not real life.

In real life, it is not so simple. Significant challenges have been made to the procedures that local and state governments use in seizing property. See, e.g., Alvarez v. Smith, 130 S. Ct. 576 (2009), which involved a challenge to the warrantless seizure of cash and automobiles purportedly used to facilitate a drug crime. The U.S. Court of Appeals for the 7th Circuit had held that the Illinois statutory procedures “show insufficient concern for the due process right of the plaintiffs,” but the U.S. Supreme Court dismissed the case as moot.

Recently, columnist John Stossel argued in the Boston Herald that civil forfeiture is “government grand theft auto” because in most states, police and prosecutors are allowed to keep for their own use all or most of the property that they seize.

Civil forfeiture can be a useful and needed tool for law enforcement. For example, it gives law enforcement officers authority to seize an unattended rental truck based on a showing of probable cause that the truck was being used to ship products used to manufacture methamphetamine. Without civil forfeiture, officers could not stop the operation unless they could apprehend the owner or driver.

Civil forfeiture permits officers to seize the truck. Then, the Government must (i) provide notice to the interested parties (the owner and driver, for example); (ii) file a civil forfeiture proceeding; or (iii) obtain an indictment alleging that the property is subject to forfeiture. Anyone who has an interest in the property may contest forfeiture. As a practical matter, this procedural safeguard only protects the truck’s owner if the owner knows of the proceeding, the owner can afford an attorney, and the value of the truck exceeds the cost of preventing forfeiture. Ultimately, the Government must prove the property is subject to forfeiture by a preponderance of the evidence. The owner must prove the “innocent owner defense.”

Although the Civil Asset Forfeiture Reform Act (CAFRA), passed in 2000, did much to curb the abuse of forfeiture proceedings, the Act did not go far enough. Interested parties must be given ready access to the system through informal proceedings and/or court-appointed representation. And most importantly, the Government’s financial interest in forfeiture must be addressed. Until we destroy the perverse incentives of civil forfeiture, federal and local law enforcement agencies tasked with serving the public will be tempted to profit from them through the seizure and forfeiture of valuable property, including from innocent owners. Such cases turn the old superstition on its head.

Nov 02

Not so Fast Kentucky

When the Commonwealth of Kentucky petitioned the Franklin Circuit County Court to seize, Pocket Kings Limited, asked a U.K Chancery Court to injoin FTP’s registrar, Safenames Limited, from complying with the Kentucky trial court order.  In an order dated October 22, 2009, the Chancery Court granted Pocket King’s request and declared that Safenames shall not comply with any present or future seizure order from the Commonwealth of Kentucky.  See Safenames-Judgment.  The Court also ordered the Commonwealth of Kentucky to pay Pocket Kings for legal fees incurred in bringing the petition. See Safenames Signed Order.

Nov 02

Kentucky Supreme Court Considers Poker

On October 22, 2009, the Supreme Court of Kentucky heard oral arguments in the above referenced case. The case originated when the Commonwealth of Kentucky filed civil seizure and forfeiture proceedings against 141 domain names – virtually all of which offered or involved internet gaming. The Commonwealth contended that domain names constitute gambling devices under state law and as such were subject to seizure under state law. The trial court granted the Commonwealth’s request to seize the sites and scheduled a forfeiture hearing.  The 141 sites, lead by both iMega and the Interactive Gaming Council, halted the forfeiture proceeding by filing a Writ of Prohibition with the Kentucky Court of Appeals.  The Court of Appeals, in a 2-1 ruling, held that a domain name was not a gambling device subject to seizure under Kentucky law.  The Commonwealth appealed to the Supreme Court.  The seven justices hearing the case raised questions that cut across issues beyond the narrow ruling of the Court of Appeals, including the propriety of the Commonwealth’s actions, the nature of jurisdiction over domain names registered outside of Kentucky and the legality of internet gaming.  The Commonwealth appeared unprepared for questions from the Court involving a recent Supreme Court of Arizona case which held (not surprisingly) that in rem jurisdiction requires the presence of the res in the state before jurisdiction will issue.  In its holding, the Arizona court reversed a prior Court of Appeals ruling to the contrary – a Court of Appeals case that the Commonwealth had relied on at every stage of the Kentucky proceedings. Despite the Supplemental Authority filing alerting the Court and the Commonwealth to the Arizona Supreme Court case, counsel for the Commonwealth stated he had neither seen the filing nor been made aware of the critical reversal by the Arizona Court.  The Kentucky Supreme Court is expected to rule on this issue of first impression in the next few months.

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About Ifrah Law

Crime in the Suites is authored by the Ifrah Law Firm, a Washington DC-based law firm specializing in the defense of government investigations and litigation. Our client base spans many regulated industries, particularly e-business, e-commerce, government contracts, gaming and healthcare.

Ifrah Law focuses on federal criminal defense, government contract defense and procurement, health care, and financial services litigation and fraud defense. Further, the firm's E-Commerce attorneys and internet marketing attorneys are leaders in internet advertising, data privacy, online fraud and abuse law, iGaming law.

The commentary and cases included in this blog are contributed by founding partner Jeff Ifrah, partners Michelle Cohen and George Calhoun, counsels Jeff Hamlin and Drew Barnholtz, and associates Rachel Hirsch, Nicole Kardell, Steven Eichorn, David Yellin, and Jessica Feil. These posts are edited by Jeff Ifrah. We look forward to hearing your thoughts and comments!

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