11-610-cr (L)
United States v. Peters

                    UNITED STATES COURT OF APPEALS

                           FOR THE SECOND CIRCUIT

                                 August Term, 2012

(Argued: December 21, 2012                                          Decided: October 9, 2013)

                   Docket Nos. 11-610-cr(Lead) 11-612-cr(Con)

                            -------------------------------------

                          UNITED STATES OF AMERICA,

                                        Appellee,

                                           -v-

                                 FRANK E. PETERS,

                                 Defendant-Appellant.

                            -------------------------------------

Before:     SACK and LYNCH, Circuit Judges.1




      1
          Judge Guido Calabresi, originally assigned to the panel, recused himself
from this case shortly before oral argument. The two remaining members of the
panel, who are in agreement, have determined the matter in accordance with
Second Circuit Internal Operating Procedure E(b). See 28 U.S.C. § 46(d); cf. United
States v. Desimone, 140 F.3d 457, 458 (2d Cir. 1998).
             Appeal by the defendant, convicted of various counts related to a

scheme to defraud a bank, from a judgment of the United States District Court

for the Western District of New York (William M. Skretny, Judge) ordering

forfeiture pursuant to 18 U.S.C. § 982(a)(2) in the amount of $23,154,259. We

conclude that (1) section 982 requires forfeiture of the gross receipts of the

criminal violation, not only the profits, and (2) in light of his almost total control

over the companies involved in the violation and their assets, the defendant

"indirectly" obtained the proceeds of the fraud through the companies and can

therefore be held accountable for criminal forfeiture of those proceeds pursuant

to section 982. We therefore affirm the forfeiture award by the district court.

             Affirmed.

                                 JAMES W. GRABLE, Jr., Connors & Vilardo, LLP,
                                 Buffalo, NY, for Defendant-Appellant.

                                 JOSEPH J. KARASZEWSKI (Richard D. Kaufman
                                 and Gretchen L. Wylegala, on the brief), Assistant
                                 United States Attorneys for William J. Hochul, Jr.,
                                 United States Attorney for the Western District of
                                 New York, Buffalo, NY, for Appellee.




                                           2
SACK, Circuit Judge:

             The defendant, Frank E. Peters, was charged in the United States

District Court for the Western District of New York with various counts related

to a scheme to defraud Chase Manhattan Bank ("Chase") by overvaluing assets

used to secure and maintain a revolving line of credit. In addition to imposing a

term of imprisonment and ordering restitution, the district court (William M.

Skretny, Judge) ordered forfeiture in the amount of $23,154,259 pursuant to 18

U.S.C. § 982(a)(2). The district court concluded that section 982 requires

forfeiture of the "receipts" of the criminal violation, i.e., "the draws from the

revolving line of credit between July 1998 and October 2000." United States v.

Peters, 257 F.R.D. 377, 388 (W.D.N.Y. 2009). The district court also concluded that

although the loan proceeds were disbursed to corporations owned and controlled

by Peters and his wife, because they were in fact his corporate alter egos, it

would "pierce the corporate veil" and hold the defendant liable for the proceeds

reaped by the corporations.

             The defendant advances several arguments challenging his

conviction and the loss amount calculated for Sentencing Guidelines and

restitution purposes, all of which we resolve in a summary order filed today. In

this precedential opinion we address only the defendant's challenge to the order


                                           3
of forfeiture. The defendant objects to it on two grounds: (1) section 982 requires

him to forfeit only the "profits" of the fraudulent scheme, not all payments that

his companies received under the Chase loan, and (2) the district court erred

when it "pierced the corporate veil" to find that he personally "obtained" the loan

proceeds paid to his companies.

             We conclude that (1) section 982 requires forfeiture of the gross

receipts attributable to the criminal violation, not only the profits, and (2) in light

of his near total control over the companies and their assets, the defendant

"indirectly" obtained the Chase loan proceeds and can be held accountable for

criminal forfeiture of those proceeds pursuant to section 982.

                                  BACKGROUND

             Peters and his wife, Marta Chaikovska, purchased World Auto Parts,

Inc. ("WAPI") in 1990. In 1995, WAPI acquired a company Peters and his wife

renamed Bighorn Core, Ltd. ("Bighorn"). WAPI and Bighorn (together, the

"Companies") sold aftermarket auto parts. Chaikovska was WAPI's chief

executive officer and owned 85 percent of the Companies. Peters was the

president and owned 13 percent. Peters's sister-in-law owned one percent, and a

fourth individual, Peter Van Domelen, owned one percent.




                                           4
            The Chase Loan

            In 1996, the Companies entered into an asset-based credit agreement

with Chase in which the bank agreed to extend to the Companies a $9 million

revolving line of credit secured by the Companies' assets. In June 1998, the

parties renewed the agreement for two years, raising the available credit to $10.5

million. The cash available to the Companies on any given day was determined

by the Companies' "borrowing base": the sum of the values of the Companies'

inventory and accounts receivable. The Companies were permitted under their

arrangement with the bank to borrow up to an amount equal to 85 percent of the

value of current accounts receivable, plus 60 percent of the value of the current

inventory, less whatever loan principal was outstanding (never to exceed the

$10.5 million maximum).

            The loan agreement provided that the Companies would deposit all

payments from customers into "blocked" accounts at Chase, from which only the

bank could make withdrawals. Chase would then "sweep" the accounts

periodically, using the money taken from them to pay down the Companies' loan

balance.

            Certain accounts receivable were deemed "ineligible" for purposes of

determining the borrowing base because the bank considered it unlikely that


                                         5
those amounts would be repaid. For example, the Companies were not

permitted to borrow against accounts receivable more than 90 days past due or

purchase orders that had not yet been fulfilled. The Companies would

periodically file a "borrowing base report," which was supposed to reflect the

combined value of accounts receivable and inventory. To confirm the

information in the borrowing base report, and to verify generally the Companies'

accounting standards, Chase "field examiners" were permitted to audit random

samples of the Companies' records. One such field examiner, Edward Grayeski,

testified at trial that he had conducted field tests between 1996 and 1998, and that

his review raised red flags with respect to some of the accounts receivable.

Although the Companies were initially able to deflect the bank's concerns about

the accuracy of their records, examiners eventually uncovered the fraudulent

scheme, described below, that underlies this case.

            The Scheme

            Peters does not dispute that the Companies engaged in a fraudulent

scheme to manipulate the accounts receivable in order to inflate their borrowing

base. Starting sometime in 1997, the Companies began experiencing cash-flow

shortages due to a low sales volume. In response, the Companies developed

ways to increase cash flow. Gregory Samer, a WAPI employee who pleaded


                                         6
guilty under the same indictment that named Peters as a defendant, testified as a

cooperating witness at Peters's trial. Samer detailed three different fraudulent

accounting practices committed by Peters and the Companies in order to increase

the cash available through the Chase loan: (1) "holding the month open";

(2) "prebilling"; and (3) "rebilling."

              The practice of "holding the month open" consisted of including in a

particular month an account receivable that did not actually ripen until the

following month. For example, Samer might instruct Cheryl Martinez, who

worked in WAPI's billing department, to include invoices from the first two

weeks of February in the January Accounts Receivable Report. Martinez would

then backdate what should have been a February invoice to make it appear as

though the goods sold had been shipped in January. If the product did

eventually ship to the customer, Martinez would produce a hand-typed invoice

that reflected the actual date of shipment.

              "Prebilling" referred to the practice of creating a sales invoice for an

order before any goods were shipped, thereby making an unripe purchase order

appear to be an account receivable. For example, in January 2000, a company

named ATCO placed a purchase order with Bighorn for $850,000 worth of air-

conditioning cores. Bighorn lacked both the inventory to fulfill the order and


                                           7
sufficient cash to purchase the inventory. Employees at Bighorn created an

invoice falsely indicating that the ATCO order had shipped, which allowed them

to include an $850,000 order in the Accounts Receivable Report for that month.

As a result, Chase was duped into lending the Companies more money -- money

that Chase expected to be repaid through a sale that, in fact, might never come to

fruition.

            The practice of "rebilling" was, in effect, an end-run around Chase's

policy of excluding accounts receivable that were more than 90 days old from the

borrowing base. Employees at the Companies would generate a new invoice for

an old sale with a false date somewhere within the previous 90 days so that the

receivable could be included in the borrowing base report.

            Although there was evidence in the record that Chase was aware of

at least some of these practices, the bank appears to have been unaware of the

extent to which the Companies' employees were artificially inflating the

Companies' borrowing base. Chase ultimately uncovered the full extent of the

fraud in or around May 2000, when a Bighorn employee named Ron Hall

disclosed it to Chase examiners.




                                        8
            The Creation of ITEC

            In early 2000, Peters created a corporation named Innovative

Transmission and Engine Company ("ITEC") into which he spun off the

Companies' heavy-duty equipment department. Peters opened a bank account

for ITEC at another institution, M&T Bank. Several customers who had sent

payments to WAPI were sent correspondence informing them that WAPI had

changed its name and asking that the payment be reissued to ITEC. The reissued

checks were deposited in ITEC's account at M&T Bank, instead of in the

Companies' Chase accounts, where the loan agreement required that such

payments be deposited. Chase was thus deprived of money that was supposed

to have been used to pay down the loan.

            Procedural History

            On October 22, 2003, a grand jury in the United States District Court

for the Western District of New York returned an eighteen-count indictment

against Peters, Samer, and the chief financial officer of the Companies, Mark

Hoffman. The indictment charged Peters with a host of crimes, including one

count of conspiracy to commit bank fraud, in violation of 18 U.S.C. § 1014 and

§ 1344, in connection with the Companies' accounting practices and the creation

of ITEC; four counts of making a false statement to a bank, in violation of 18


                                         9
U.S.C. § 1014, in connection with four separate instances of fraudulently inflating

the borrowing base; four counts of bank fraud, in violation 18 U.S.C. § 1344, three

of them alleging false statements in connection with alleged payments from the

Companies to the defendant, and the fourth in connection with the ATCO prebill;

one count of money laundering, in violation of 18 U.S.C. § 1957; and three counts

of mail or wire fraud, in violation of 18 U.S.C. §§ 1341 and 1343, in connection

with the diversion of payments to ITEC.

             Samer was charged with the conspiracy and bank fraud counts, and

Hoffman was charged with the conspiracy and mail and wire fraud counts. The

last five counts sought criminal forfeiture of the proceeds of the allegedly

fraudulent activity. In February 2005, Samer pleaded guilty to the conspiracy

count and agreed to cooperate with the government.

             A jury trial began in May 2007. Although all parties agreed that a

fraudulent scheme to inflate the borrowing base had occurred, Peters disputed

that he participated in it and argued that he was in fact its victim. On July 20,

2007, the district court granted Peters's motions for acquittal on three bank-fraud

counts -- the counts alleging payments to Peters for personal use -- and the

money laundering count. On July 30, 2007, the jury convicted Peters of one count

of conspiracy to commit bank fraud, one count of making a false statement to a


                                         10
bank, one count of bank fraud, two counts of wire fraud, and one count of mail

fraud. The jury acquitted him of three counts of making a false statement to a

bank. Hoffman was acquitted of all counts.

              On January 27, 2011, the district court sentenced Peters principally to

108 months' imprisonment, and ordered him to pay $11,988,501.36 in restitution.

The government and Peters had agreed that the district court would resolve the

forfeiture counts, which it did in March 2009 by entering a forfeiture money

judgment of $23,154,259. Peters, 257 F.R.D. at 390.

                                     DISCUSSION

              On appeal, the defendant advances several arguments challenging

the fairness of his trial and his sentence. We address most of these arguments in

a summary order decided simultaneously herewith affirming the defendant’s

conviction and the amount of restitution awarded at sentencing. See United States

v. Peters, --- F. App'x ---, --- WL ---, --- U.S. App. LEXIS --- (2d Cir. [date] 2013).

The defendant also argues that the district court erred by entering a forfeiture

order in the amount of $23,154,259 because (1) the criminal forfeiture statute, 18

U.S.C. § 982(a)(2), requires forfeiture only of profits, not of gross receipts, and (2)

the district court erred in finding that the Companies were his alter egos such




                                            11
that the court could impose a forfeiture order against him personally. It is this

challenge to the forfeiture award that we consider here.

              We review a district court's legal conclusions -- including those

regarding the application of the forfeiture statute -- de novo, and all underlying

factual findings for clear error. United States v. Gaskin, 364 F.3d 438, 461-62 (2d

Cir. 2004).

              I.     Criminal Forfeiture Under 18 U.S.C. § 982(a)(2)

              The forfeiture statute at issue here is 18 U.S.C. § 982(a)(2), which

provides in relevant part:

              The Court, in imposing sentence on a person convicted
              of a violation of, or a conspiracy to violate –-

              (A) section . . . 1014, 1341, 1343, or 1344 of this title,
              affecting a financial institution . . .

              shall order that the person forfeit to the United States
              any property constituting, or derived from, proceeds the
              person obtained directly or indirectly, as the result of
              such violation.

Id.

              Federal Rule of Criminal Procedure 32.2(b)(1)(A) requires a trial

court, "[a]s soon as practical after a verdict . . . of guilty" against a defendant, to

"determine what property is subject to forfeiture under the applicable statute."



                                             12
Id. "If the government seeks a personal money judgment, the court must

determine the amount of money that the defendant will be ordered to pay." Id.

The government must establish the nexus between the offense and the forfeiture

request by a preponderance of the evidence. See United States v. Capoccia, 503

F.3d 103, 110 (2d Cir. 2007).

              Criminal forfeiture under section 982 is a form of punishment,

separate and apart from any restitutive measures imposed during sentencing.

Forfeiture of money under section 982, unlike restitution, "constitutes

punishment," because the statute directs the court to order it "as an additional

sanction when 'imposing sentence on a person convicted' of the relevant offense"

and because "[criminal] forfeiture serves no remedial purpose, is designed to

punish the offender, and cannot be imposed upon innocent owners." United

States v. Bajakajian, 524 U.S. 321, 328, 332 (1998); see also Libretti v. United States,

516 U.S. 29, 39 (1995) ("Our precedents have likewise characterized criminal

forfeiture as an aspect of punishment imposed following conviction of a

substantive criminal offense."). A court's discretion in ordering criminal

forfeiture is cabined by the Eighth Amendment’s Excessive Fines Clause. The

amount of forfeiture "must bear some relationship to the gravity of the offense

that it is designed to punish." Bajakajian, 524 U.S. at 334.


                                            13
             II.   The District Court’s Decision

             The defendant elected to have the district court, rather than the jury,

resolve the criminal forfeiture charges against him. The government requested

an order of forfeiture in the amount of $28,204,200, which represented the sum of

(1) all disbursements under the 1998 Chase loan, (2) payments the defendant

diverted from WAPI to ITEC, and (3) payments made from the Companies

directly to the defendant -- e.g., as salary, car payments, and rent -- between 1996

and 1998.

             The district court ordered criminal forfeiture by Peters in an amount

equal to the sum of (1) all disbursements under the 1998 Chase loan, and (2) all

payments diverted from WAPI to ITEC. Peters, 257 F.R.D. at 388-89. In doing so,

the court rejected Peters' argument that he should be liable only for the "profits"

generated by the fraud. Id. at 388. The district court also concluded that WAPI

and Bighorn were the defendant's corporate alter egos for the purpose of piercing

the corporate veil and finding the defendant personally liable under section

982(a)(2). Id. at 385. The court rejected the government’s request for forfeiture of

payments made to the defendant from the Companies between 1996 and 1998,

concluding that there was insufficient evidence to connect any pre-1998

payments to any offenses for which the defendant was convicted. Id. at 388.


                                         14
             After doing the arithmetic, the court imposed a money judgment

against Peters in the amount of $23,154,259. Id. at 390.

             III.   Analysis

             A.     Proceeds Versus Profits

             On appeal, Peters urges us to read "proceeds" in section 982 to

include only the profits of his fraud. Section 982 does not supply a definition of

the term "proceeds." Neither have we determined whether, as used in section

982(a)(2), "proceeds" means profits or gross receipts. We ultimately agree with

the district court that the term "proceeds" is not limited to profits.

             1. Textual Arguments. When a term in a statute is undefined, we are

to give it its ordinary meaning. FDIC v. Meyer, 510 U.S. 471, 476 (1994).

"Proceeds," however, "can mean either 'receipts' or 'profits.' Both meanings are

accepted, and have long been accepted, in ordinary usage." United States v.

Santos, 553 U.S. 507, 511 (2008). The term "'[p]roceeds,' moreover, has not

acquired a common meaning in the provisions of the Federal Criminal Code. . . .

Congress has defined 'proceeds' in various criminal provisions, but sometimes

has defined it to mean 'receipts' and sometimes 'profits.'" Id. at 511-12.

             The defendant argues that this case is controlled by Santos, a case

involving an illegal lottery. In Santos, the Supreme Court construed the word


                                          15
"proceeds" in the federal anti-money laundering statute, 18 U.S.C. § 1956, to mean

profits, rather than gross receipts. A plurality of the Santos Court found that

because "[f]rom the face of the statute, there is no more reason to think that

'proceeds' means 'receipts' than there is to think that 'proceeds' means 'profits,'"

the rule of lenity required that "the tie must go to the defendant." Id. at 514.

               The defendant would have us conclude that the term "proceeds"

under section 982(a)(2) must therefore also be limited to "profits." The problem

with the defendant’s argument is that, under the rule announced by the Supreme

Court in Marks v. United States, 430 U.S. 188 (1977), the holding in Santos is

limited to the "position taken by those Members who concurred in the judgments

on the narrowest grounds," id. at 193 (internal quotation marks omitted). And as

we explained in United States v. Quinones, 635 F.3d 590 (2d Cir.), cert. denied, 132 S.

Ct. 830 (2011), Justice Stevens' concurrence controls the scope of the Court's

holding in Santos. Id. at 599 (citing Santos, 553 U.S. at 523). Unlike the plurality,

Justice Stevens would have held that "proceeds" meant "profits" when the anti-

money laundering statute was applied to specified unlawful activities, but that it

meant "receipts" when applied to others. Santos, 553 U.S. at 525 (Stevens, J.,

concurring).




                                          16
             We need not and do not decide here the precise contours of Santos's

holding. It is enough to observe, as we did in Quinones, that a key point of

agreement among the plurality and Justice Stevens was the desire to avoid a

"merger problem." Quinones, 635 F.3d at 599. In the context of the illegal lottery

at issue in Santos, the plurality explained that "[i]f 'proceeds' meant 'receipts,'

nearly every violation of the illegal-lottery statute would also be a violation of the

money-laundering statute, because paying a winning bettor is a transaction

involving receipts that the defendant intends to promote the carrying on of the

lottery." Santos, 553 U.S. at 515. Justice Stevens agreed that such payments

would necessarily be funded by the "receipts" of illegal activity. Id. at 526-27

(Stevens, J., concurring). And he agreed with the plurality that Congress could

not have intended violations of the money-laundering statute to "merge" in this

way with violations of other statutes. Id. at 528 & n.7.

             By contrast, the criminal forfeiture statute presents no merger issue.

Unlike the anti-money laundering statute, section 982(a)(2) is a form of

punishment rather than a substantive criminal offense. There is therefore no risk

of what Justice Stevens called a "practical effect tantamount to double jeopardy,"

id. at 527, when section 982(a)(2) captures funds essential to the commission of

one of its predicate offenses. Because the concerns uniting Justice Stevens's


                                           17
concurrence and the plurality in Santos do not apply in the context of criminal

forfeiture, Santos does not control the question of how to interpret "proceeds" for

the purposes of section 982(a)(2).

             Turning then to the text, the defendant points to subsections (a)(3)

and (4) of section 982, which apply to violations of other statutes and which

require forfeiture of all property traceable to "gross receipts obtained" as a result

of the violation.2 The government counters by pointing to the seemingly broad

language of section 982, which reaches "any property . . . obtained directly or

indirectly" from the crime. The government notes that, in interpreting nearly

identical language in 21 U.S.C. § 853, which addresses criminal forfeiture in the

context of narcotics violations, the Supreme Court was of the view that "Congress

could not have chosen . . . broader words to define the scope of what was to be

forfeited." United States v. Monsanto, 491 U.S. 600, 607 (1989).

             We do not find either of these arguments particularly helpful or

persuasive. For much the same reasons the Santos Court thought that the term



      2
         Although Peters does not cite it, another example is section 982's civil
cousin, 18 U.S.C. § 981. In imposing civil forfeiture for unlawful activity --
indeed, for the same types of fraud for which the defendant was convicted -- that
provision explicitly states that "the court shall allow the claimant a deduction
from the forfeiture to the extent that the loan was repaid, or the debt was
satisfied, without any financial loss to the victim." 18 U.S.C. § 981(a)(2)(C).

                                          18
"proceeds" in section 1956 was ambiguous in the context of money laundering,

we think that the term is ambiguous as used in section 982.

             2. Primary Purpose of Section 982. "Where the language of a statute is

ambiguous, we focus upon the 'broader context' and 'primary purpose' of the

statute." Castellano v. City of New York, 142 F.3d 58, 67 (2d Cir. 1998) (citing

Robinson v. Shell Oil Co., 519 U.S. 337, 345-46 (1997)). Here, the punitive intent of

section 982 favors the government's interpretation of the word "proceeds."

Criminal forfeiture is a form of punishment. As such, it is distinct from

restitution or other remedial actions, which are intended to return the victim and

the perpetrator to the status quo that existed before the violation took place.

             We agree with the government that doing no more than returning a

"wrongdoer to the economic position he occupied before he committed his

criminal offense does not provide much of a deterrent to those who might be

tempted to follow in his footsteps." Gov’t Br. at 64. That is not "punishment."

Moreover, as the Eighth Circuit noted in a case involving forfeiture under the

Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C.

§ 1963(a)(3), a broad reading of "proceeds" in the context of criminal forfeiture

punishes "all convicted criminals who receive income from illegal activity, and




                                          19
not merely those whose criminal activity turns a profit." United States v. Simmons,

154 F.3d 765, 771 (8th Cir. 1998).

              We also find relevant the fact that it may often, although not always,

be difficult to isolate and identify the "profits" of criminal activity. Here, for

example, the fraudulent accounting practices at the heart of the scheme also

make it challenging to determine what exactly became of the loan disbursements.

As the Eighth Circuit noted, quoting the RICO forfeiture provision's legislative

history, "[i]t should not be necessary for the prosecutor to prove what the

defendant's overhead expenses were." Id.; see also United States v. McHan, 101

F.3d 1027, 1042 (4th Cir. 1996) ("Were we to read proceeds in § 853 [the narcotics

forfeiture statute] to mean only profits, . . . we would create perverse incentives

for criminals to employ complicated accounting measures to shelter the profits of

their illegal enterprises.").

              We conclude that reading "proceeds" to mean "receipts" rather than

"profits" in the context of section 982(a)(2) better vindicates the primary purpose

of the statute. In so doing, we agree with the Ninth Circuit that in enacting the

section, "Congress sought to punish equally the thief who carefully saves his

stolen loot and the thief who spends the loot on 'wine, women, and song.'" United

States v. Newman, 659 F.3d 1235, 1243 (9th Cir. 2011). "[T]he 'proceeds' of a


                                          20
fraudulently obtained loan equal the amount of the loan," id. at 1244, irrespective

of whether the defendant personally profited from the loan or whether the bank

recovered part of the loan principal.

             We came to a similar conclusion in United States v. Awad, 598 F.3d 76

(2d Cir. 2010) (per curiam). There, we held that criminal forfeiture under

21 U.S.C. § 853 "permits imposition of a money judgment on a defendant who

possesses no assets at the time of sentencing." Id. at 78. Because "[m]andatory

forfeiture is concerned not with how much an individual has but with how much

he received in connection with the commission of the crime," id. at 78 (internal

quotation marks omitted, brackets in original), we conclude that the term

"proceeds" as used in section 982(a)(2) means "receipts."

             B.    "Obtained Indirectly"

             Section 982(a)(2) directs that a person must forfeit to the United

States any proceeds "the person obtained directly or indirectly, as the result of

such violation." As he did before the district court, the defendant argues on

appeal that it was the Companies, not he, that "obtained" the proceeds of the

Chase loan. The government responds that the defendant should not be

permitted to shield himself from liability behind the Companies' corporate form.




                                         21
It asserts that the district court properly "pierced the corporate veil" to find that

the defendant "obtained" the loan proceeds through his corporate alter ego.

             The proceeds subject to forfeiture are those obtained both directly

and indirectly as a result of the criminal violation. 18 U.S.C. § 982(a)(2). It seems

to us beyond doubt that any loan proceeds transferred from the Companies to

the defendant personally are obtained by him "directly" and are properly subject

to forfeiture. This, however, accounts for only a relatively small fraction of the

forfeiture award -- just over $2.3 million.

             The second, more difficult issue -- and one as to which the parties

have not identified any prior decision binding on us -- is under what

circumstances an individual can be said to have "obtained . . . indirectly" the

proceeds of his criminal conduct through a corporate entity. The district court

analyzed the question with reference to New York's "complete domination"

theory of corporate alter ego liability and found that the defendant "obtained" the

loan proceeds because the Companies were his alter egos for purposes of

"piercing the corporate veil." Peters, 257 F.R.D. at 385. Applying this theory of

liability, the district court concluded that the defendant obtained the loan

proceeds indirectly through the Companies as his corporate alter egos.




                                          22
             The court based its conclusion on the fact that: (1) the defendant and

his wife together owned 98 percent of the Companies and the defendant's sister-

in-law owned 1 percent, leaving only 1 percent of the Companies outside of

family control; and (2) the defendant "controlled [the Companies] on a day-to-

day basis." Id. Among other things, the court found that Peters "hired new

employees"; "directed product managers at [the Companies] on all aspects of

business"; "moved money in and out of [the Companies], and had the ability to

direct wire transfers from the corporate accounts"; "owned or had interests in the

companies that owned the buildings where [the Companies] were housed, as

well as other corporate entities that had business relationships with [the

Companies]"; "directed the corporate accounting and billing methods"; "knew

about, approved, and directed the practices of 'holding months open,' 'prebilling,'

'rebilling,' and the use of false invoices, which essentially constituted the fraud

against Chase"; and "was instrumental in securing and renewing" the line of

credit with Chase in June 1998. Id. at 385-86. The court concluded that the

evidence demonstrated that the defendant "completely dominated [the

Companies] such that they were his alter egos." Id. at 386.

             Although the district court relied on the doctrine of "piercing the

corporate veil," we find it unnecessary to do so and thereby avoid entering into


                                          23
the somewhat complicated jurisprudence involved. See Morris v. N.Y. State Dep't

of Taxation & Fin., 82 N.Y.2d 135, 140-41, 623 N.E.2d 1157, 1160, 603 N.Y.S.2d 807,

810 (1993) ("The doctrine of piercing the corporate veil is typically employed by a

third party seeking to go behind the corporate existence in order to circumvent

the limited liability of the owners and to hold them liable for some underlying

corporate obligation . . . . Thus, an attempt of a third party to pierce the corporate

veil does not constitute a cause of action independent of that against the

corporation . . . ."). We conclude instead that, under the terms of the statute, the

defendant "indirectly" obtained the loan proceeds, rendering him liable for

forfeiture in connection with them.3

             Because the question of whether an individual obtains proceeds

"indirectly" through a corporation involves the interpretation of a federal statute,

we examine it under federal law. See Miss. Band of Choctaw Indians v. Holyfield,

490 U.S. 30, 43 (1989) ("[I]n the absence of a plain indication to the contrary, . . .

Congress when it enacts a statute is not making the application of the federal act




      3
           See Thyroff v. Nationwide Mut. Ins. Co., 460 F.3d 400, 405 (2d Cir. 2006)
("[W]e are free to affirm a decision on any grounds supported in the record, even
if it is not one on which the trial court relied.").

                                           24
dependent on state law." (internal quotation marks omitted; ellipsis in original )).4

 We therefore do not suggest that the government must satisfy state law

requirements for piercing the corporate veil in order to establish that proceeds of

criminal activity were "indirectly" obtained under the forfeiture statute. But

although we reject the government's assertion that New York law controls this

issue, see Gov't Br. at 70 n.8, we agree with the district court's analysis insofar as it

borrowed from principles of alter ego liability that may be relevant to the

question of whether an individual indirectly obtained the proceeds of his or her

criminal conduct through a corporation.

              Also drawing in part on principles of alter ego liability, we conclude

that, in the context of a criminal forfeiture proceeding under section 982, an

individual "obtains" proceeds "indirectly" through a corporation when the

individual "so extensively control[s]," First Nat. City Bank v. Banco Para El

Comercio Exterior de Cuba, 462 U.S. 611, 629 (1983), or "dominate[s],"




       4
         Even in the absence of this presumption, because this case arises under federal
question jurisdiction and involves a federal statute that "demands national uniformity,"
federal common law, not New York State law, presumably controls the question of
whether the corporate veil should be pierced. See Brotherhood of Locomotive Engineers v.
Springfield Terminal Ry. Co., 210 F.3d 18, 25-26 (1st Cir. 2000); see generally Note, Piercing
the Corporate Veil: The Alter Ego Doctrine under Federal Common Law, 95 Harv. L. Rev. 853
(1982) (describing circumstances under which federal law should govern the corporate
veil-piercing inquiry).

                                              25
Bridgestone/Firestone, Inc. v. Recovery Credit Servs., Inc., 98 F.3d 13, 17 (2d Cir.

1996), the corporation and its assets that money paid to the corporation was

effectively under the control of the individual. Factors that we think are likely to

be relevant to this question include the individual's ownership interest; the level

of control he exercised over the company; his authority to direct the disposition

of corporate assets and the degree to which he exercised that authority; and the

use of corporate assets for his personal expenses.

             The district court made several sound factual findings to support its

conclusion that the corporate veil should be pierced to hold the defendant liable

for forfeiture of the loan proceeds. While we find it unnecessary to employ that

doctrine here, most of the court's findings are equally relevant to the question of

whether the defendant obtained the loan proceeds indirectly.

             Of particular significance are the court's findings that the defendant

and his family together owned 99 percent of the company; that the Companies

"operated under [the defendant's] direction and control, and all significant tasks

were completed according to his instructions"; that the defendant "moved money

in and out of [the Companies], and had the ability to direct wire transfers from

the corporate accounts"; that he "directed the corporate accounting and billing

methods" and "directed the practices of 'holding months open,' 'prebilling,'


                                            26
'rebilling,' and the use of false invoices; and that he was "instrumental in securing

and renewing the line of credit from Chase," which he "could access at will."

Peters, 257 F.R.D. at 385-86. The district court also noted that the defendant paid

himself an escalating salary from $100,000 to $120,000 in 1990 to between

$285,000 and $287,000 in 2000, and that WAPI paid for two vehicles for the

defendant, neither of which were used for corporate business. Id. at 385.

             We see no error, let alone clear error, in the district court’s factual

determinations. Based on them, we conclude that Peters did indeed obtain

"indirectly" the proceeds of his criminal conduct, i.e., the relevant loan proceeds.

He effectively owned 99 percent of the Companies and exercised almost total

control over their management and finances. He also had complete access to and

control over the Companies' assets. We therefore agree with the district court

that the defendant should be held accountable for forfeiture of the loan proceeds,

although we reach this conclusion on the ground that the defendant himself

obtained these proceeds "indirectly."

                                  CONCLUSION

             For the foregoing reasons, the judgment of the district court

imposing criminal forfeiture is affirmed in its entirety.




                                          27
