InfoBytes Blog

DOJ Announces Racketeering Indictment Alleging Money Laundering Schemes

On December 10, the DOJ announced three unsealed indictments of a total of 20 defendants in connection with various money laundering schemes. Fifteen of the defendants were arrested and taken into custody, while the remaining individuals are still being sought by authorities.

The first indictment alleges that the former president and CEO of an Orange County, California bank and five other individuals, as members of a narcotics trafficking and international money laundering organization, violated the Racketeer Influenced and Corrupt Organizations Act (RICO) by participating in schemes to launder drug proceeds. According to the DOJ, the former bank official used his position, insider knowledge, and connections to “promote and facilitate money laundering transactions involving members and associates of the enterprise.” The DOJ alleges that the six defendants (i) arranged to convert purported drug proceeds, in the form of cash provided by an undercover informant, into cashier’s checks made out to a company the informant claimed to own; (ii) proposed to an informant that the informant and his boss purchase a controlling interest in the Orange County bank to more easily facilitate money laundering operations; and (iii) proposed to set up a foundation in Liechtenstein to be used, in part, to launder the informant’s drug sale proceeds. The DOJ also asserts that the bank official introduced the five other defendants to operatives of a drug cartel aspiring to launder millions of dollars monthly and discussed plans to purchase the bank with the drug cartel operatives. In addition to the RICO count, the indictment charges a total of 16 defendants with 27 additional counts, including conspiracy, money laundering, structuring transactions to avoid federal reporting requirements, and evidence tampering.

The two additional unsealed indictments charge a total of four defendants with conspiring to launder money they believed to be proceeds from narcotics trafficking.

Anti-Corruption DOJ RICO

Federal District Court Dismisses Borrowers' Subprime Lending RICO Claims

On October 30, the U.S. District Court of the Northern District of California dismissed, without prejudice, claims brought by two borrowers alleging that their mortgage lender engaged in fraudulent loan practices which violated RICO. The court held that the claims were time-barred and that the complaint failed to allege facts about predicate acts and a pattern of activity necessary to sustain a civil RICO claim. Cabrera v. Countrywide Fin., No. 11-4869, 2012 WL 5372116 (N.D. Cal. Oct. 30, 2012). The court rejected the borrowers’ arguments that (i) the statute of limitations began to run not from the date they entered into their adjustable rate mortgage, but from the date the rate adjusted, and (ii) equitable tolling should apply because the borrowers’ could not have discovered their adjusted rate absent a forensic loan audit they obtained years into the contract. With regard to equitable tolling, the court held that the plain terms of the mortgage provide information about the rate at issue, which could have been uncovered by “a reasonably diligent investigation of the loan documents.” The court similarly dismissed the borrowers’ claims that the lender discriminated against minority borrowers in violation of the ECOA, as time-barred. It also held that the borrowers, who are Hispanic, failed to state a claim under ECOA in that, although they offered statistical evidence that Hispanics were given less favorable loans than white borrowers with the same risk characteristics, they failed to allege that they themselves qualified for better loans. The borrowers’ claim of unfair business practices under the state’s unfair competition law survived. The court held that the borrowers pled facts sufficient to support their claim that the lender’s effort to initiate a foreclosure while a loan modification was pending violated public policy reflected in the California Homeowner Bill of Rights, even though the specific provision of that statute that prohibits such practices was not codified until after the foreclosure occurred.

Subprime ECOA RICO