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United States v. Sheth

United States District Court, N.D. Illinois, Eastern Division

January 6, 2017

UNITED STATES OF AMERICA, Plaintiff,
v.
SUSHIL SHETH, Defendant, and FIDELITY INVESTMENTS a/k/a FIDELITY EMPLOYER SERVICES CO., HARTFORD LIFE & ANNUITY INS. CO., MORGAN STANLEY SMITH BARNEY, LINCOLN NATIONAL LIFE INS. CO., and THE VANGUARD GROUP, Third-Party Citation Respondents.

          MEMORANDUM OPINION AND ORDER

          REBECCA R. PALLMEYER United States District Judge.

         From 2002 through 2007, Defendant Sushil Sheth, a cardiologist, submitted fraudulent bills to Medicare and other insurance company victims for medical services Sheth had never provided. In August 2009, Sheth pleaded guilty to a single count of health care fraud. The court sentenced Sheth to 60 months in custody and ordered him to pay $12, 376, 310.47 in restitution to the victims. The court also entered an in personam forfeiture order that imposed judgment against Sheth in the amount of $13, 000, 000, and identified certain specific property to be forfeited. Sheth's plea agreement required that “any payments made in satisfaction of the forfeiture judgment shall be credited to any outstanding restitution judgment.”

         Over the next several years, the government collected and liquidated more than $10 million in assets to satisfy the criminal judgments against Sheth. In September 2012, the government moved for turnover of some $300, 000 held in Sheth's retirement and life insurance accounts. Sheth resisted the motion, arguing that the government had collected assets sufficient to satisfy his restitution obligation and was not permitted to collect the retirement accounts. This court observed that Sheth's indebtedness (including a related civil judgment owed to the government) vastly exceeded the amounts the government had received, and granted the government's motion.

         Sheth appealed, and the Seventh Circuit vacated the turnover order. The Court of Appeals noted that the retirement accounts are protected by the anti-alienation provisions of the Employment Retirement Income Security Act (ERISA), 29 U.S.C. § 1056(d), and can be collected only if there is a deficiency on the criminal restitution judgment, 18 U.S.C. § 3613(a). The Court of Appeals remanded for discovery and an evidentiary hearing on Sheth's claim that the restitution judgment has been satisfied by the amounts already forfeited. United States v. Sheth, 759 F.3d 711, 717-18 (7th Cir. 2014). Following discovery, the government renewed its motion for a turnover order for the proceeds of the retirement accounts. As explained below, the motion is granted.

         BACKGROUND

         Sushil Sheth pleaded guilty in August 2009 to an information charging him with health care fraud in violation of 18 U.S.C. § 1347. (Plea Agrmnt. [35], at 1.) Sheth billed Medicare and private insurers for approximately $13, 000, 000 in fraudulent charges between January 2002 and December 2007. (Id. at 3-5.) As part of the plea agreement, Sheth forfeited his interest in numerous assets, including real estate and personal property, which were proceeds of the crime. (Id. at 12-13.) The government agreed that amounts collected by forfeiture would be credited against his restitution obligation:

17. Defendant further understands that while forfeiture of property is not typically treated as satisfaction of any fine, restitution, cost of imprisonment, or any other penalty the Court may impose, it is agreed by the parties that any payments made in satisfaction of the forfeiture judgment shall be credited to any outstanding restitution judgment.

(Id. at 15.)

         As noted, the court sentenced Sheth to 60 months in prison, ordered him to pay restitution in the amount of $12, 376, 310.47, and entered a forfeiture judgment and order forfeiting assets identified in the parties' agreement. (J. Order, Aug. 10, 2010 [84]; Prelim. Order of Forfeiture [66], at 5.)[1] In addition to this judgment, the United States also has a civil judgment in a False Claims Act case arising from the same conduct; Sheth owes $20, 000, 000 as a result of that judgment. United States ex rel. Lokesh Chandra v. Sushil Sheth, No. 06 C 2191, Consent J. & Settlement Agrmnt. [37], at 3 (N.D. Ill. Sept. 28, 2010).

         I. Government Collection Efforts

         After the forfeiture order was entered in August 2010, the government collected and attempted to liquidate all of the assets identified in the forfeiture orders. First, the government collected funds held in various accounts for which seizure orders were entered prior to the filing of the criminal case. In June 2007, Magistrate Judge Keys entered several seizure warrants freezing four Harris Bank accounts (Decl. of Dorothy Cuadra, attached to Mem. of United States in Supp. of Mot. to Ratify Turnover Orders [260], at ¶ 3); on September 11, 2007, Harris Bank released $6, 513, 229.58 to the government, which the United States Marshal Service (USMS) held in escrow pending further proceedings. (Id. at ¶¶ 11-13.) Next, the government received an additional $1, 043, 862.85 from other cash accounts at First Bank, Oppenheimer Funds, and Bright Start in September 2010 and June 2011 and deposited them with the USMS. (Id. at ¶ 15.) Though Judge Castillo had entered a temporary restraining order freezing these funds in February 2008 (id. at ¶ 4), the government did not move to collect them from the institutions until after the preliminary order of forfeiture was entered more than two years later. (See Return of Prelim. Order of Forfeiture as to First Bank, Sept. 17, 2010 [82]; see, e.g., Third Party Citations to Discover Assets as to Fidelity Service Co., Apr. 18, 2011 [107]). All of the funds were held by the USMS until July 2013, when they were turned over to the Clerk of the Court for dispersal to the non-federal victims, and to the Department of Justice Debt Accounting and Operations Group for dispersal to the government victims. (Mot. for Order Directing U.S. Marshals Service to Release Funds [199], at 6; Order, Jul. 18, 2013 [201].)

         In addition to funds in these accounts, Sheth had investment assets, including several accounts with Advanced Equity Investments (AEI). (Aff. of Byron Crowe, attached to Mem. of United States in Supp. of Mot. to Ratify Turnover Orders [260], at 1.) Each AEI account consists of a membership interest in a limited liability company in the information and green technology field. (Crowe Aff. 2.) In response to the forfeiture order, AEI successfully liquidated five of the eight accounts for a total of $2, 524, 777.84 and turned the funds over to the government. (See Cuadra Decl. ¶ 17.) Two of the accounts could not be liquidated, the government contends, because they were unregistered securities that would be “complex and costly” to liquidate. (Mem. of United States in Supp. of Mot. to Ratify Turnover Orders [hereinafter Gov't Br.] [260], at 9; Crowe Aff. 4.) One account, the Altra Investments II vehicle in which Sheth had invested $250, 000, was a complete loss. (Crowe Aff. 3-4.) According to Byron Crowe, the administrator of the AEI investments between 2006 and 2014 (id. at 1), Altra Biofuels, Inc., the company in which the account was invested, spun off a technology (presumably the only technology or the only valuable one) to a new company. (Id. at 3.) Altra issued a capital call, which Sheth did not meet, resulting in Sheth's having no interest in the new company. (Id. at 4.) Neither Crowe nor the parties say exactly when these two events occurred, though Sheth implies that it was after the forfeiture orders were entered and he was accordingly powerless to take action. (Sheth Br. 5.) In 2013, Altra's board of directors deemed Altra worthless. (Crowe Aff. 4.) Crowe does not provide more information about why Altra was deemed worthless by its Board, but Sheth does not contest the current value of the account in his response brief.

         The government also liquidated two undeveloped lots in Arizona, one located at 9121 East Andora Hills Drive, Scottsdale, Arizona and another at 40121 East 107th Street, Scottsdale, Arizona. (Cuadra Decl. ¶ 19.) Sheth purchased the properties in 2006 for a combined $710, 000.[2] (Id.) According to the government, the value of the two properties declined precipitously; they were appraised in July 2007 at $690, 000, but three years later were appraised again at just $197, 000. (Id. at ¶ 20.) On June 22, 2011, the court granted the government's motion for interlocutory sale of the properties to preserve the availability of equity in the property. (Order Directing Interlocutory Sale of Certain Property, Jun. 22, 2011 [136], at ¶ (j).) The properties sold for just $77, 000, and after paying off unpaid property taxes and closing costs, the government reports that it netted only $35, 237.57 on the sale. (Cuadra Decl. ¶¶ 21-25.)

         The government credited other miscellaneous amounts to Sheth's restitution judgment as well. First, the government reduced Sheth's judgment by $231, 921 owed to him; the government cannot identify the source of this account payable, but suspects it is a Medicare provider reimbursement. (Gov't Br. 10.) Unsurprisingly, Sheth does not object to the credit. Second, the Bureau of Prisons withheld $25 per quarter from Sheth's prison wages as part of its Inmate Financial Responsibility Program, netting Sheth a $300 credit. (Id.; Reply by United States in Supp. of Mot. to Ratify Turnover Orders [hereinafter Gov't Reply Br.] [270], at 17 (conceding Sheth was due a total of $300).) Finally, Sheth's former wife, Anita Sheth, sold the home that he owned with her in Flossmoor, for which Sheth was credited half of the net proceeds in the amount of $108, 181.42. (Decl. of Christopher Burton, attached to Gov't Br [260], at ¶ 6.)

         II. Assets Relinquished to Anita Sheth

         Sheth claims he is entitled to credit for several assets that were the subject of the forfeiture order, but which the government ultimately relinquished to Anita Sheth. In September 2010, just one month after the entry of the preliminary order of forfeiture, Ms. Sheth and her two children filed a petition asserting a claim to substantially all of the property in the forfeiture order. (Pet. of Anita Sheth et al. [70].) This petition was served only on the United States Attorney, the Pretrial Services Office, and the U.S. Probation Department. (Id. at “Certificate of Service.”) Ms. Sheth moved for adjudication of her rights in the property, serving that motion on the same offices. (Notice of Mot. of Claimants, Nov. 16, 2010 [88], at 2.) Ms. Sheth's attorneys presented the motion in court on November 29, 2010. (Minute Order [94].) On June 21, 2011, the government filed a motion proposing an order to settle Anita's claims, but there is no evidence that this motion, either, was served on Sheth. (Mot. for Order Dismissing the Claims of Anita, Serena & Rishi Sheth [129]; Notice of Mot. [130].) The court granted the motion, adopting the parties' proposed order on June 22, 2011 [134]. Sheth contends that he did not receive notice of Anita's claims or the proposed settlement. (Def.'s Resp. to Mot. for Issuance of Judicial Deed [225], at 2, 8.)[3]

         The settlement relinquished just four assets to Ms. Sheth. First, Sheth was co-owner of an investment account held at Harris Bank containing assets worth $760, 944 (this is a different account than the four Harris cash accounts discussed above). (Gov't Reply Br. 8-9.) At the time Sheth agreed to the forfeiture of that account, the government believed, based on a 2007 bank statement, that the account contained $1, 002, 544. (Id. at 9 n.5, see also Resp. by Sushil Sheth Regarding Mot. to Ratify Turnover Orders [hereinafter Sheth Br.] [266], at 4.) By the time the forfeiture order was executed in 2010, however, the account contained only $760, 944- according to the government, a function of the 2008 market crash. (Gov't Reply Br. 9 n.5.) In its brief, the government explains that it relinquished its interest in the Harris account to Anita because it had no basis to rebut her claim that she or her family were the source of all of the funds in the account, and that Sheth's name had been added to the account only for estate-planning purposes in the event she predeceased him. (Id. at 9.)

         Second, Sheth owned two properties in joint tenancy with Anita located in Burr Ridge, Illinois at 8691 Crown Court and 850 Village Center Drive. (Pet. of Anita Sheth 9.) The government conducted appraisals of both properties in July 2010. (U.S. Marshals Serv., Real Property Net Equity Worksheets, attached as Ex. C and Ex. D to Gov't Reply Br.) The government found that the Crown Court property was worth $1, 086, 000, substantially exceeded by the $1, 559, 500 mortgage on the property. (See Id. at Ex. C.) The Village Center Drive similarly was appraised at $345, 000, but was encumbered by a $417, 000 mortgage. (See Id. at Ex. D.) Sheth also forfeited a vehicle, a 2002 BMW X5. The government's position as to these assets is that there was no recoverable value: the Burr Ridge properties had no equity because the mortgages exceeded the assessed value, and the vehicle “was worth not much more than it would cost to sell it.” (Gov't Reply Br. 16.)

         III. Sheth's ERISA-protected Accounts

         In September 2012, the government filed a motion requesting that the court issue a turnover order for five retirement and life insurance accounts worth a total of $300, 738.61, accounts otherwise exempt from collection under ERISA. (Consolidated Mot. for Turnover Orders [143], at 2.) Sheth resisted the government's motion, asserting that he had forfeited sufficient assets to satisfy the restitution order and that the government had refused to provide an accounting of its activities in liquidating his assets. (Resp. to Consolidated Mot. for Turnover Orders [160].)

         The court granted the government's motion for a turnover order. The court reasoned that the retirement funds were subject to recovery because even if the restitution amount had been met in the criminal case, Sheth would still owe $20 million on the civil judgment. The Seventh Circuit vacated and remanded that ruling, noting that retirement accounts are protected by the anti-alienation provisions of ERISA, and may be collected only under the authority of the Mandatory Victims Restitution Act, 18 U.S.C. § 3613, which supersedes the anti-alienation provisions. United States v. Sheth, 759 F.3d 711, 716, 718 (7th Cir. 2014) (citing 29 U.S.C. § 1056(d)). Though Sheth has a $20 million civil judgment against him, certain assets-such as the retirement accounts that are the subject of these turnover orders-are not subject to collection to satisfy a civil judgment, and may only be collected to satisfy an outstanding restitution balance. Id. at 716. Therefore, if the assets that ...


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