Monday, December 21, 2015

Bank Fraud, Forfeiture and "Ill-gotten Gains"

This post examines an opinion from the U.S. District Court for the Eastern District of New York:  U.S. v. Dobruna, 2015 WL 7717133 (2015).  The U.S. Senior District Court Judge begins the opinion by explaining that the “Government seeks a $14 million forfeiture money judgment against defendant Qendrim Dobruna in the criminal case of United States v. Qendrim Dobruna.  U.S. v. Dobruna, supra.
As Wikipedia explains,
[a]sset forfeiture or asset seizure is a form of confiscation of assets by the state. It typically applies to the alleged proceeds or instruments of crime. This applies, but is not limited, to terrorist activities, drug related crimes, and other criminal and even civil offenses. . . . The purpose of asset forfeiture is to disrupt criminal activity by confiscating assets that potentially could have been beneficial to the individual or organization.
Getting back to U.S. v. Dobruna, the District Court Judge goes on to explain that
Qendrim Dobruna was charged in a ten-count indictment, alleging, inter alia, conspiracy to commit bank and wire fraud, in violation of 18 U.S. Code § 1349; bank fraud, in violation of 18 U.S. Code § 1344; conspiracy to commit access device fraud, in violation of 18 U.S. Code § 1029; and aggravated identity theft, in violation of 18 U.S. Code § 1028A.

According to the indictment, Dobruna participated in the February 2011 hacking of a database containing credit and debit card information linked to accounts owned by JPMorgan Chase. The breach lasted from February 26 to February 28, 2011. During that time conspirators withdrew funds from accounts around the world, resulting in a $14 million loss to JPMorgan.
U.S. v. Dobruna, supra.
The indictment against Dobruna is too long to quote here, but the introductory material should give you an idea as to the facts on which the charges were based:


Unless stated otherwise, at all times relevant to this Indictment:
 1.              The defendant QENDRIM DOBRUNA was part of an international conspiracy to steal credit and debit account information and buy, sell and trade stolen credit and debit account information. Members of the conspiracy consisted, among others, of individuals who compromised internet servers which stored victims' credit and debit account information (the `Hackers’), and individuals who used the stolen data to obtain money, goods and services by, among other things, making fraudulent withdrawals from automated teller machines (`ATMs’) (the `Carders’). The defendant QENDRIM DOBRUNA was both a Hacker and a Carder. 2.              DOBRUNA communicated with co-conspirators for the purpose of stealing, buying, selling and trading stolen credit and debit card account information using electronic communication methods such as email, instant messenger and other online chat platforms. 3.              DOBRUNA stole, bought, sold and traded information from accounts at (a) banks such as Citibank, Teacher's Federal Credit Union, Bank of America and JPMorgan Chase, the deposits of all of which were insured by the Federal Deposit Insurance Corporation (collectively, the `Banks’), and (b) debit and credit card processing companies such as Visa, Mastercard, Discover and American Express. . . .
U.S. v. Dobruna, supra.
You can also read more about the facts that led to Dobruna’s indictment on the charges outlined at the beginning of this post in the stories you can find here, here and here.Getting back to the forfeiture issue, the District Court Judge went on to explain that on
July 11, 2014, Dobruna pled guilty to a single count of bank fraud, in violation of 18 U.S. Code § 1344. On June 29, 2015, this Court sentenced him to a 50–month term of imprisonment and imposed an order of restitution in the amount of $14 million, as authorized by 18 U.S. Code § 3663.

U.S. v. Dobruna, supra.  As this July 11, 2014 press release from the U.S. Attorney for the Eastern District of New York’s office explains,
[e]arlier today at the federal courthouse in Brooklyn, Qendrim Dobruna, a member of an international cybercrime organization that was responsible for a cyberattack that inflicted millions of dollars in losses on the global financial system over the course of two days in 2011, pleaded guilty to bank fraud. The defendant, who was extradited from Germany, and his co-conspirators hacked into the systems of a U.S.-based credit and debit card payment processor that processed debit card transactions for the American Red Cross in connection with disaster relief victims. The stolen card data was then disseminated worldwide and used in an `unlimited operation’ that made $14 million in fraudulent withdrawals from ATMs across the globe.
The guilty plea was announced by Loretta E. Lynch, United States Attorney for the Eastern District of New York, and Robert J. Sica, Special Agent in Charge, United States Secret Service, New York Field Office.
`The defendant and his associates hacked into the global financial system and helped themselves to funds using prepaid debit cards meant for the needy and vulnerable,’ stated United States Attorney Lynch. `We will continue to work with our private sector partners to solve these 21st century heists and bring the perpetrators, no matter where in the world they may hide, to justice.’ . . .
In February 2011 the defendant and his co-conspirators targeted a publicly traded credit and debit card processing company based in the United States that processed transactions for prepaid debit cards issued by the American Red Cross for disaster relief victims. After the hackers penetrated the payment card processor’s computer network, compromised the American Red Cross prepaid card accounts, and manipulated the balances and withdrawal limits, casher cells across the globe operated a coordinated ATM withdrawal campaign. In total, more than 15,000 ATM transactions were conducted in approximately 18 countries using the compromised disaster relief prepaid cards, resulting in $14 million in financial loss worldwide.
The defendant, also known by the aliases `cl0sEd’ and `cL0z,’ participated in the cyber-attack from overseas by obtaining account information from co-conspirators who directly hacked into the payment card processor’s database and selling that account information to other co-conspirators over the Internet, including to an individual in Brooklyn, New York. The defendant was arrested in an apartment in Stuttgart, Germany in March 2012 by the German federal criminal police and subsequently extradited to the United States.

In his plea agreement Dobruna agreed to forfeit `an amount of money to be determined before sentencing.’ At sentencing, the Court asked the Government to submit a memorandum on the appropriateness of a forfeiture order. On July 23, 2015, the Government requested a forfeiture money judgment of $14 million, pursuant to 18 U.S.C. § 981(a)(1)(C) and 28U.S.C. § 2461(c), as criminal proceeds `traceable to’ a violation of 18 U.S. Code § 1344. On August 23, 2015, the defendant submitted a letter opposing that request. . . .
U.S. v. Dobruna, supra.
The District Court Judge began his ruling on the “appropriateness of a forfeiture order” by explaining that criminal forfeiture of 
property related to certain crimes is mandated by statute. See U.S. v. Schlesinger, 261 Fed.Appx. 355 (U.S. Court of Appeals for the 2d Circuit 2008). It punishes the offender by stripping him of the fruits of his criminal conduct. U.S. v. Contorinis, 692 F.3d 136 (U.S. Court of Appeals for the 2d Circuit 2012). (`Criminal forfeiture focuses on the disgorgement by a defendant of his “ill-gotten gains”’) (quoting U.S. v. Kalish, 626 F.3d 165 (U.S. Court of Appeals for the 2d Circuit 2010)).

By forcing wrongdoers to give back the fruits of their illegal conduct, forfeiture seeks `to make lawbreaking unprofitable for the law-breaker’ and, thus, to `deter[ ] subsequent fraud.’ S.E.C. v. Contorinis, 743 F.3d 296 (U.S. Court of Appeals for the 2d Circuit 2014) (quoting S.E.C. v. Cavanagh, 445 F.3d 105 (U.S. Court of Appeals for the 2d Circuit 2006)).

However, because forfeiture serves no punitive function, `the disgorgement amount may not exceed the amount obtained through the wrongdoing.’ S.E.C. v. Congorinis, supra. This comports with the `broadly accepted principle that forfeiture is calculated based on a defendant's gains.’ S.E.C. v. Contorinis, supra.
U.S. v. Dobruna, supra.
He went on to explain that the
measurement of a defendant's gains—the proceeds subject to disgorgement—is not a speculative event. It must be shown by a preponderance of evidence.  U.S. v. Kalish, supra. To determine whether the requisite proof exists, a court may rely on `evidence already in the record, including any written plea agreement, and on any additional evidence or information submitted by the parties and accepted by the court as relevant and reliable.’ Federal Ruleof Criminal Procedure Rule 32.2(b)(1)(B).  

Further, `[t]he district court has broad discretion not only in determining whether or not to order disgorgement but also in calculating the amount to be disgorged.’ S.E.C. v. First Jersey Sec., Inc., 101 F.3d 1450 (U.S. Court of Appeals for the 2d Circuit 1996).
U.S. v. Dobruna, supra.
The Judge then analyzed the appropriate level of restitution that should be ordered in this case, explaining that
[p]roceeds traceable to the fraud that Dobruna aided are subject to forfeiture. See 18 U.S.C. §981(a)(1)(C) (`Any property . . . which constitutes or is derived from proceeds traceable to a violation of section . . . 1344 of this title’ is `subject to forfeiture to the United States [.]’). However, since no evidence has been presented that Dobruna personally derived any `ill-gotten gains’ from his criminal conduct, forfeiture here would be of property that is undefined if even existent or recognizable. As such, it would be a brutum fulmen.

The conduct giving rise to Dobruna's conviction is as follows: he was contacted online by another hacker; he transmitted account and credit card information to that hacker; the hacker used information provided by Dobruna to steal money from JPMorgan.

Dobruna played no role in the subsequent events. He did not participate in the hacker's illegal withdrawals from JPMorgan, nor did he independently withdraw or receive money from any compromised JPMorgan account. There is no evidence that he realized any tangible benefit from his transmissions to the hacker and, therefore, there is nothing to forfeit.

The $14 million stolen from JPMorgan is a proper measure of restitution for which Dobruna may be jointly and severally liable. See U.S. v. Nucci, 364 F.3d 419 (U.S. Court of Appeals for the 2d Circuit 2004). But a forfeiture order would defy the purpose and spirit of forfeiture law.
For the reasons stated above, the Government's request is DENIED.
U.S. v. Dobruna, supra. 

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