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United States v. Elias

United States District Court, E.D. Michigan, Southern Division

May 7, 2018

UNITED STATES OF AMERICA, Plaintiff,
v.
WILLIAM ELIAS (D-1) and KIMBERLY DOREN (D-2), Defendants.

          OPINION AND ORDER DENYING DEFENDANTS' MOTION TO DISMISS THE INDICTMENT [32]

          NANCY G. EDMUNDS, UNITED STATES DISTRICT JUDGE

         This matter comes before the Court on Defendants William Elias ("Elias") and Kimberly Doren's ("Doren") motion to dismiss the indictment with prejudice, filed by Elias on January 26, 2018. (Dkt. # 32). Doren filed a Notice of Joinder on April 10, 2018.[1] (Dkt. # 40). Defendants argue that pre-indictment delays violated their Sixth Amendment right to a speedy trial and their Fifth Amendment due process rights. According to Defendants, the Government has no legitimate excuse for the delay in indicting Defendants, and the Government's conduct demonstrates that this prosecution has been vindictively instituted. The Court heard oral argument on this motion on May 2, 2018. For the reasons stated below, Defendants' motion is DENIED.

         I. BACKGROUND

         A. Charges

         On August 29, 2017, the grand jury returned an indictment against Defendants. (Dkt. # 1). Elias is charged with: Conspiracy to Commit Bank Fraud (Count One); Bank Fraud (Count Two); Falsification of Records in a Federal Investigation (Count Three); Conspiracy to Commit Money Laundering (Count Four); Money Laundering (Counts Five through Twelve); and HUD Transactions Fraud (Count Thirteen). Id. Doren is charged with: Conspiracy to Commit Bank Fraud (Count One); Bank Fraud (Count Two); Falsification of Records in a Federal Investigation (Count Three); Conspiracy to Commit Money Laundering (Count Four); Money Laundering (Counts Seven through Eight); and HUD Transactions Fraud (Count Thirteen). Id.

         The allegations against Defendants concern a fraud scheme involving short sales of homes, known as "buy and bail, " which Defendants allegedly devised and executed. A "short sale" is a real estate transaction in which a mortgaged property is sold for less than the amount of the outstanding mortgage loan. The Government describes the alleged scheme as follows: Under Elias's leadership, Defendants targeted homeowners whose homes were "under water, " meaning that the present market values of the houses were less than the outstanding principal balances of the mortgages. Elias, a real estate broker, represented in radio advertisements and on his website that he and his company, Elias Realty, could help clients obtain new homes, sell their existing homes, and eliminate their existing debt. Doren was a processing manager and senior negotiator at Elias Realty. When new clients came to Elias's offices, Elias or one of his employees advised them to purchase a new home prior to completing a short sale transaction, and to conceal from the new lender that they intended to short sell their existing homes. According to the Government, Elias caused loan officers and clients to make two false material representations on the paperwork to buy the new homes: first, that the existing homes were worth substantially more than their actual market values; and second, that the homeowners intended to keep the existing homes and rent them out. In reality, the existing homes were worth much less, and the homeowners intended to sell them via short sales. Nevertheless, Defendants misrepresented each borrower's existing home as rental property, even as they required clients to sign exclusive listing agreements with Elias Realty to sell the existing homes.

         In order to qualify for second homes when they already owned homes, Elias allegedly advised clients to obtain Federal Housing Administration ("FHA") loans, which allowed them to obtain approval for new loans despite having high debt. The purchases of the new homes with the FHA-insured mortgages needed to be completed prior to the short sales because the homeowners' credit would be adversely affected by the short sales, which would inhibit them from being approved for new home loans. After purchasing the new homes, Defendants would assist clients with unloading the original under-water houses in short sales.

         According to the Government, Defendants profited from this buy and bail scheme through real estate commissions, kickbacks from the title company that closed the deals, commissions from the mortgage company that underwrote the new mortgages, software fees designed to circumvent the Federal Trade Commission's prohibition on charging for loan modification services, and additional fees to a fictitious law firm that Elias created and owned. Defendants also allegedly used other entities and people to funnel illicit profits and hide their role in various transactions.

         B. Procedural History

         The Department of Housing and Urban Development Office of Inspector General, the Federal Housing Finance Agency Office of Inspector General, the Federal Home Loan Mortgage Company ("Freddie Mac"), and the Federal Bureau of Investigation ("FBI") began investigating Elias and his affiliated business entities[2] in 2012. In October 2012, Freddie Mac notified Elias and its loan servicers that it was considering adding Elias and his businesses to Freddie Mac's Exclusionary List. This list identifies individuals and businesses whom Freddie Mac suspects of engaging in fraud or whose business practices are deemed to present an undue risk to Freddie Mac. According to Defendants, mortgage servicers began cancelling all pending transactions involving Defendants or Elias Realty at that point.

         On February 26, 2013, Magistrate Judge Steven R. Whalen issued a search warrant for two of Elias's business locations for evidence showing violations of the federal mail fraud, wire fraud, and bank fraud statutes. On February 27, 2013, federal agents executed the search warrant and seized some of Elias's property.

         On April 8, 2013, Elias filed a motion to unseal in Case No. 13-mc-50293 in order to inspect the application for the search warrant and the federal agent's affidavit in support of the application. The Government then attached a redacted copy of the application for the search warrant and affidavit to its response.[3] Magistrate Judge Laurie J. Michelson held a hearing and observed that, after filing the application for the search warrant and affidavit under seal, the Government violated the order it had requested: "[Y]ou redacted it in a way that's most beneficial to the Government without, it appears, any discussion with the Defendant. . . . part of it seems a little bit vindictive, I suppose." Assistant United States Attorney ("AUSA") Abed Hammoud maintained that the filing was redacted to protect third parties from either vindictive action by Elias or from their identity being known, as well as for judicial economy. Magistrate Judge Michelson ultimately denied Elias's motion to strike the redacted search warrant affidavit because Elias himself had already publicly disclosed the fact of the investigation, the targets of the investigation, the subject matter of the investigation, and documents involved in the investigation in that case, as well as in a separate civil lawsuit that Elias filed against Freddie Mac, Case No. 13-cv-10387.

         Through its investigation, the Government learned that proceeds from the alleged buy and bail scheme were eventually used to purchase six real properties, including Elias's family home and properties belonging to Elias's new business, Michigan Property Ventures, LLC .[4] Pursuant to Mich. Comp. Laws § 565.451a, the Government recorded affidavits of interest in the properties in April 2013, November 2013, and January 2014, indicating that it had knowledge of facts that supported their potential forfeiture. Elias became aware of the affidavits after a potential buyer ran a title check.

         Elias, as owner of Michigan Property Ventures, LLC, then filed a Quiet Title Action, Case No. 14-cv-10215. Michigan Property Ventures, LLC complained that the affidavits of interest clouded the title to its properties and rendered them unmarketable. It asked the court to declare that the affidavits were unauthorized under Michigan law and to remove them. On June 11, 2014, during a hearing on the Government's Motion to Dismiss, Judge Patrick J. Duggan requested the Government's reasonable assurance that it would file a civil forfeiture complaint within a month, and the Government assured the court that it would withdraw the affidavits of interest if it did not file a civil forfeiture complaint within one month. Elias notes that the Government went far longer than 30 days before it withdrew any affidavit of interest and did not file a civil forfeiture complaint until July 2015.[5]The quiet title action was ultimately dismissed for lack of subject matter jurisdiction because the Government had not waived its sovereign immunity.

         From July 2014 to March 2015, the parties had a number of discussions regarding the criminal investigation against Defendants and the potential forfeiture action, which included the exchanging of discovery. However, these discussions eventually broke down. On March 9, 2015, movants Elias, Vicky Elias, Michigan Property Ventures, LLC, and Michigan Real Estate Ventures, LLC's filed a motion for return of property under Federal Rule of Criminal Procedure 41(g) in Case No. 13-mc-50293. Shortly thereafter, the Government withdrew its affidavits of interest and filed a motion to dismiss the 41(g) motion. The Government also filed a motion for a restraining order in case No. 15-mc-50512. This Court held a hearing on June 10, 2015, and Elias notes that the Court voiced the following at the outset:

[B]efore I let you get into your argument, and I guess this is for the government, I don't really understand what the government's doing here. You've had this case for two years, and I don't want this to be a case where no good deed goes unpunished and you've been trying to work it out and couldn't work it out so now you're back here, maybe that's the only answer, but it seems to me if you were going to do something, either charge these guys criminally or forfeit the property, you've had plenty of time do it. So what's up?

         The Government responded that it was well within the statutes of limitations for these crimes, and that this was a large investigation with multiple witnesses and a large amount of documents seized from Elias's business. The Government also referred to the scarcity of government resources.

         On June 15, 2015, this Court denied the motion for return of property, granted the Government's motion to dismiss the 41(g) motion, and granted the Government's motion for a restraining order. The Court found that there was a substantial probability that Elias engaged in an illegal scheme to defraud financial institutions, that proceeds were generated from the scheme, and that those proceeds-along with funds commingled and laundered with those proceeds-were used to purchase the six real properties at issue in the case. The Court granted the restraining order for a period of 45 days, not the full 90 days requested by the Government, reasoning that 45 days was sufficient given the substantial amount of time and resources that had already been invested in the case. In its opinion, the Court also noted that, while it understood the movants' frustrations with the large lapse of time involved in this matter and the unsuccessful negotiations to resolve it, the statutes of limitations had not yet run on the criminal statutes alleged to have been violated, and the Government was within its rights to pursue the indictment on that time line. See Case No. 13-mc-50293, Dkt. # 42, Pg ID 983 n.2.

         On July 30, 2015, the Government filed a civil forfeiture complaint in Case No. 15-cv-12679, [6] which ultimately resulted in a consent judgment and final order of forfeiture entered on November 3, 2015.[7] Elias notes that, in this case, the Government filed a motion to strike the claimants' answer because they had not filed verified claims with the Court and therefore had no statutory standing to contest the forfeiture action. Claimants' counsel filed a verified claim of interest the next day, which was six days past the due date. The Government moved to strike the claim of interest as untimely. Claimant's counsel then filed a motion for enlargement of time to file the claim of interest, claiming that it was not timely filed due to an oversight by the assistant to claimants' counsel. Claimant's counsel also filed an affidavit in which his assistant swore that claimants' counsel had given him the claim of interest to attach to the Answer, but that he had inadvertently failed to file the claim. The Government maintained that the assistant's signature on the affidavit was not authentic and issued a subpoena seeking testimony and documents related to the preparation of the verified claim of interest. The claimants moved to quash the subpoena. This Court granted this request, finding that the information sought by additional testimony or documents was not sufficiently relevant to justify the burden of complying with the subpoenas. The Court further noted:

If the government is correct [that the assistant's signature on the affidavit is not authentic], there may be appropriate sanctions levied against Putative Claimants for submitting falsified documents to the Court. This does not, however, change the underlying facts here: the Government seeks forfeiture of six properties in which (as the Government is well aware) Putative Claimants have an interest. But for being six days tardy, the verified claim of interest appears to comply with Supplemental Rule G(5). Any further explanation of the six-day delay is neither sufficiently relevant, nor necessary.

Case No. 15-cv-12679, Dkt. # 25, Pg ID 815.

         In Elias's affidavit in support of the instant motion to dismiss the indictment, Elias claims that Kassem Dakhlallah, his attorney at the time, urged him to enter into a consent judgment in the forfeiture proceeding and a plea agreement in the criminal proceeding because Mr. Dakhlallah was eager to have Elias be agreeable to the Government after the Government accused Mr. Dakhlallah of forging the affidavit from his assistant. Elias asserts that Mr. Dakhlallah was not forthcoming with him about the various motions and responses filed in the civil forfeiture proceeding. Elias believes that Mr. Dakhlallah did file a fraudulent affidavit to cover himself and then pressured Elias to enter into the consent judgment and plea agreement. See Case No. 17-cr-20576, Dkt. # 32-2, Pg ID 166-67.

         The criminal bank fraud investigation continued in parallel to the civil forfeiture case and involved multiple potential targets, dozens of witnesses, over thirty boxes of files seized from Elias's offices, thousands of pages of records obtained by grand jury subpoenas, and fourteen hard drives containing several terabytes of electronic files. AUSA Hammoud, Mr. Dakhlallah, and Michael Rex (Doren's attorney) attempted to reach a pre-indictment resolution of the criminal case through several plea negotiations. The negotiations intensified in 2015, around the time Elias and the Government reached a resolution of the civil case. At this time, the criminal case was scheduled to be presented to the grand jury on November 3, 2015. However, as a result of the negotiations between the parties, the grand jury appearance was cancelled. Elias signed a negotiated plea agreement on November 19, 2015, and Doren signed a negotiated plea agreement on December 4, 2015. An information was filed on December 9, 2015 in Case No. 15-cr-20785.

         On January 22, 2016, Mr. Dakhlallah notified AUSA Hammoud that he no longer represented Elias, and that Elias did not want to proceed with the plea agreement. In her affidavit, Doren states that she also decided that she did not want to proceed with the plea agreement. Later in January, attorney Mark Krieger notified the AUSA that Elias was in the process of retaining him, and that he would contact the AUSA again when the representation was finalized. Krieger confirmed the representation on May 4, 2016. At the time, AUSA Hammoud was the only assigned criminal AUSA on the case, and he was preparing for a year-long overseas detail with the State Department. The AUSA notified Defendants' attorneys of that development, and the information was dismissed without prejudice on June 23, 2016 because the parties were still unable to resolve the case by way of a plea agreement.

         AUSA Hammoud returned from the overseas detail in June 2017 and contacted Mr. Krieger, who stated that it was not a certainty that he would continue to represent Defendant. AUSA Hammoud was then deployed overseas again during the months of July and August 2017. On August 29, 2017, the grand jury returned the indictment against Defendants in the current case.

         II. ANALYSIS

         A. Whether Pre-Indictment Delays Violated Defendants' Sixth ...


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