Ancillary Claim – Recover Assets Seized for Criminal Forfeiture

Sometimes, the property at issue in a criminal forfeiture proceeding is extremely valuable. For instance, the federal government seized BTC-e in 2017 as part of a criminal prosecution. At the time, BTC-e was worth hundreds of millions of dollars. In May of 2024, the BTC-e founder Alexander Vinnik entered a plea. The sentencing is set for June 2025. After sentencing, the prior owners of the accounts who lost their cryptocurrency in the seizure will have a short window to file an ancillary claim.

The government also brought a civil action against BTC-e a/k/a Canton Business Corporation (“BTC-e”) and Alexander Vinnik (“Vinnik”) (collectively “Defendants”) to recover civil money penalties imposed under the Currency and Foreign Transactions Reporting Act of 1970, 31 U.S.C. §§ 5311-5314 and 5316-5332, which is commonly referred to as the Bank Secrecy Act (“BSA”). FinCEN has determined that the proper penalties in this matter are a penalty of $110,003,314 imposed on BTC-e and a penalty of $12,000,000 imposed on Alexander Vinnik.” Neither BTC-e nor Vinnik contested the civil penalty. That civil penalty case was under a “stay” until after sentencing.

The attorneys at Sammis Law Firm have another case now in which the Government has confirmed that “[l]aw enforcement maintains a copy of the BTC-e server as a result of law enforcement’s 2017 seizure of the BTC-e server.” Furthermore, federal authorities can search for information from the BTC-e server by the username of the BTC-e account or the email address used to open the account. The authorities can also see all transactions that went into or out of that account and the amount that remained when the contents were seized by the federal government.

How do you know what property the government seized? The property is usually listed at the end of the indictment in the forfeiture section of the pleadings. You might also find seized property the government intends to forfeit in a bill of particulars. For example, in the BTC-e case, some of the seized property was listed in the bill of particulars that described some of what was seized in the criminal forfeiture case, which included:

• Approximately 925.93922019 BTC seized between August 2, 2017 and August 17, 2017;
• Approximately 4036.9181716832 l Ethereum seized on August 5, 2017;
• Approximately 2249 .25 Litecoin seized between August 7, 2017 and August 11, 2017;
• Approximately 284553.52143074 Namecoin seized on August 10, 2017;
• Approximately 1946.609 Novacoin seized on August 7, 2017;
• Approximately 279.05 Peercoin seized on August 11, 2017;
• Approximately 33.03682558 Dash seized between August 7, 2017 and August 11, 2017.

The government might take a “hide the ball” approach when dealing with third parties claiming ownership of property seized for criminal asset forfeiture proceedings.

When the federal government seeks to have property criminally forfeited, third parties with claims to the property cannot intervene in the criminal action against the defendant or commencing an action against the United States concerning the validity of an alleged property interest. 21 U.S.C. § 853(k). Instead, those third parties must wait until the court has entered a preliminary order of forfeiture (POF) based on a criminal conviction before filing pleadings seeking the return of the property, called an “ancillary claim.”

At that point, the third party’s property interest may be vindicated using the procedures in Section 853(n). After the finding of forfeitability and the entry of a preliminary order of forfeiture (POF), the third party may assert an interest in forfeited property by petitioning the court for an ancillary proceeding to adjudicate the validity of that property interest. 21 U.S.C. § 853(n)(2).

That proceeding “is the only avenue by which a third-party claimant may seek to assert an interest in property that has been included in an indictment.” United States v. Puig, 419 F.3d 700, 703 (8th Cir.2005).

To prevail at a Section 853(n) ancillary proceeding, a claimant must demonstrate a vested legal right, title, or interest in the property superior to the defendant’s or that the claimant is a bona fide purchaser for value of the property interest. 21 U.S.C. § 853(n)(6)(A)–(B). When a third party’s interest in the forfeited property, at the time of the criminal acts, is superior to the criminal defendant’s interest, then “the interest that the government acquires when it steps into the defendant’s shoes is subordinate to that of the third party.” United States v. Lavin, 942 F.2d 177, 185 (3d Cir.1991).

If the claimant demonstrates a property interest superior to the defendant’s, the court will amend the order of forfeiture accordingly, 21 U.S.C. § 853(n)(6). After the court resolves petitions filed under Section 853(n), the court may enter a final order of forfeiture as allowed by 21 U.S.C. § 853(n)(7).

The third party must file a valid judicial petition before the deadline announced in the seizure notice. If the third party fails to file the petition, the government takes the property when the court enters a final order. Guess what? The attorneys for the government know most victims will miss the deadlines. One could argue the system is set up that way by design.

When the third party manages to file a valid claim on time, the court will schedule a hearing during which the burden of proof is on the third party to demonstrate that they fall within one of two categories of third-party claimants.

The Burden on the Third Party During the Ancillary Proceeding

To succeed at the ancillary proceeding, third parties must prove by a preponderance of the evidence that either they:

• had an interest in the property at the time of the offense that is superior to the government’s interest; or
• acquired the interest after the offense as a bona fide purchaser for value, which means at the time of the purchase, they didn’t have reasonable cause to believe that the property was subject to forfeiture.

21 U.S.C. § 853(n)(6)(B).

The court in United States v. Reckmeyer, 836 F.2d 200 (4th Cir. 1987) held that it must interpret “‘bona fide purchaser for value’ . . . liberally to include all persons who give value to the defendant in an arms’-length transaction with the expectation that they would receive equivalent value in return.” Id. at 208.

If the third party meets the burden of proof, the court will amend the preliminary order of forfeiture (POF).

Once the third party hearings have been held, or time for filing third party claims has passed, a final order will be issued that gives the government clear title to the property forfeited.

The issues become more complicated when the Court enters a preliminary order of forfeiture (POF) for substitute assets.

Third Party Claims for a Preliminary Forfeiture Order for Substitute Assets

How does Section 853(n)(6)(A) apply to substitute assets? Fed. R. Crim. P. 32.2(e) sets forth the procedure for amending an order for forfeiture to include substitute assets. If the government demonstrates that the requirements of the substitute assets statute, 21 U.S.C. § 853(p), have been satisfied, the court amends the order of forfeiture to include the substitute asset, subject to the resolution of third party rights in the ancillary proceeding. Thus, property of the defendant is subject to forfeiture as substitute assets even if it is held in the name of a third party, but third parties have the right to challenge the forfeiture of the substitute asset in the ancillary proceeding.

Section 853(p) requires that the court find that the substitute asset belongs to the defendant before amending the order of forfeiture to include the property as a substitute asset. Since the government cannot forfeit property owned by a third party, the issue to be resolved in ancillary proceedings revolves around ownership.

Does interpreting § 853(n) to prohibit a third party from challenging the forfeitability of the substitute asset violates the third party’s procedural due process rights under the Fifth Amendment of the U.S. Constitution?

In United States v. Daugerdas, 892 F.3d 545 (2d Cir. 2018), the court dealt with a third party’s due process challenge for a defendant forfeiting “substitute property,” 892 F.3d at 553-58, which involves a distinct set of statutory provisions. See 21 U.S.C. § 853(p). The court in Daugerdas described due process concerns with substitute property (untainted assets) as arising from a “glitch in § 853’s procedural structure.” Id. at 892 F.3d at 550, 554.

21 U.S.C. § 853(n)(1) on Third Party Claims

For interests in property by third parties, 21 U.S.C. § 853(n)(1) provides:

Following the entry of an order of forfeiture under this section, the United States shall publish notice of the order and of its intent to dispose of the property in such manner as the Attorney General may direct.

The Government may also, to the extent practicable, provide direct written notice to any person known to have alleged an interest in the property that is the subject of the order of forfeiture as a substitute for published notice as to those persons so notified.

In other words, a third party may only show it is the “‘rightful owner[]’ of forfeited assets.” Caplin & Drysdale, Chartered v. United States, 491 U.S. 617, 629, 109 S. Ct. 2646, 105 L. Ed. 2d 528 (1989).

Fed. R. Crim. P. 32.2(c) on Third Party Claims

The rules for ancillary proceedings before entering a final order of forfeiture are listed in Fed. R. Crim. P. 32.2(c) which provides:

(1) In General.

If, as prescribed by statute, a third party files a petition asserting an interest in the property to be forfeited, the court must conduct an ancillary proceeding, but no ancillary proceeding is required to the extent that the forfeiture consists of a money judgment.

(A) In the ancillary proceeding, the court may, on motion, dismiss the petition for lack of standing, for failure to state a claim, or for any other lawful reason. For purposes of the motion, the facts set forth in the petition are assumed to be true.

(B) After disposing of any motion filed under Rule 32.2(c)(1)(A) and before conducting a hearing on the petition, the court may permit the parties to conduct discovery in accordance with the Federal Rules of Civil Procedure if the court determines that discovery is necessary or desirable to resolve factual issues.

When discovery ends, a party may move for summary judgment under Federal Rule of Civil Procedure 56.

(2) Entering a Final Order.

When the ancillary proceeding ends, the court must enter a final order of forfeiture by amending the preliminary order as necessary to account for any third-party rights.

If no third party files a timely petition, the preliminary order becomes the final order of forfeiture if the court finds that the defendant (or any combination of defendants convicted in the case) had an interest in the property that is forfeitable under the applicable statute.

The defendant may not object to the entry of the final order on the ground that the property belongs, in whole or in part, to a codefendant or third party; nor may a third party object to the final order on the ground that the third party had an interest in the property.

Can Third Parties Re-Litigate Whether the Property Was Subject to Forfeiture?

Some courts have permitted third-party claimants in Section 853(n) proceedings to re-litigate whether property was properly subject to forfeiture in the first place. These courts have reasoned that a third-party should not be bound by a finding of forfeitability in case where they were statutorily prohibited from participating.

For example, in United States v. Reckmeyer, 836 F.2d 200, 206 (4th Cir. 1987), the court found “[n]othing in 853(n) explicitly acknowledges the right of third parties to attack the validity of the forfeiture order by proving that a particular asset was not forfeitable under the terms of the statute. Serious due process questions would be raised, however, if third parties asserting an interest in forfeited assets were barred from challenging the validity of the forfeiture.”

In United States v. Farley, 919 F. Supp. 276, 278 (S.D. Ohio 1996), the court reasoned: “Section 853(n) presents a reasonable process whereby a third party may assert an interest [*474] in the property subject to forfeiture. Confining a third party to the facts as determined by another’s guilty plea when that third party is statutorily prohibited from participating in the proceeding . . . files in the face of logic as well as basic due process.”

Sample Petition for Ancillary Proceeding

This sample of a petition for ancillary proceedings is for informational purposes only. These cases are so complicated that it would be difficult to represent yourself in filing these pleadings without an attorney. Before you take any action, contact an experienced federal asset forfeiture attorney.

Petition for Ancillary Proceeding

I, [Petitioner’s name], hereby submit this petition for an ancillary proceeding pursuant to Rule 32.2 of the Federal Rules of Criminal Procedure and 21 U.S.C. § 853(n)(1) claiming an interest in the forfeited property listed in the published notice.

I swear under penalty of perjury that the information provided in this petition is true and correct to the best of my knowledge.

Nature and Extent of Interest in Forfeited Property:

[Provide a detailed description of the petitioner’s interest in the forfeited property, including any legal or equitable interest held by the petitioner.]

Time and Circumstances of Acquisition of Interest:

[Provide information on when and how the petitioner acquired the interest in the forfeited property.]

Additional Facts Supporting Claim:

[Provide any additional facts or evidence that support the petitioner’s claim to the forfeited property.]

Relief Sought:

[Provide a clear statement of the relief being sought, such as a request for the return of the forfeited property or for a monetary judgment.]

I respectfully request that this petition be considered and that the court grant the relief sought.

Signed,

[Petitioner’s name]

[Petitioner’s signature]

[Date]

Petition to Mitigate, Remit, or Restore a Forfeited Property

Although such petitions are rarely successful (when you look at the overall statistics), third parties may petition the U.S. Attorney General for discretionary relief to mitigate, remit, or restore a forfeited property or take “any other action to protect the rights of innocent persons which is in the interest of justice.” 21 U.S.C. § 853(i)(1).

Most third parties would be better off filing a Petition for Ancillary Proceeding by the deadline announced in their notice, instead of the petition.

This article was last updated on Wednesday, March 26, 2025.