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United States v. Carpenter

United States Court of Appeals, First Circuit

October 18, 2019

DANIEL E. CARPENTER, Defendant, Appellant.

          Appeal From the United States District Court for the District of Massachusetts [Hon. George A. O'Toole, Jr., U.S. District Judge].

          Kimberly Homan for appellant.

          Kirby A. Heller, Attorney, U.S. Department of Justice, with whom Andrew E. Lelling, United States Attorney, Brian A. Benczkowski, Assistant Attorney General, and Matthew S. Miner, Deputy Assistant Attorney General, were on brief for appellee.

          Before Lynch, Stahl, and Lipez, Circuit Judges.

          Lynch, Circuit Judge.

         Daniel Carpenter's conviction for nineteen counts of mail and wire fraud in 2008 was affirmed by this court in 2013. United States v. Carpenter, 736 F.3d 619 (1st Cir. 2013) (Carpenter II). He now challenges on several grounds a forfeiture order entered against him on May 23, 2014 by the district court in the amount of $14, 053, 715.52. This is the sum he obtained from only six of his investor/exchangor clients through his fraudulent scheme.

         He initially argues that the district court lacked what he calls "subject matter jurisdiction" to enter the forfeiture order when it did. He then argues that the forfeiture order of over $14 million must be vacated because: (1) he never "acquired" the funds to be forfeited, as required by 18 U.S.C. § 981(a)(2)(B); (2) the amount forfeited violates the Excessive Fines Clause of the Eighth Amendment; and (3) the imposition of the forfeiture order by the district court violated his right to a jury trial under the Sixth Amendment.

         He argues it is unfair to make him forfeit a much larger sum than he gained and/or than his clients lost. In doing so, he loses sight of the fact that the purpose of forfeiture is not merely restitution or disgorgement of ill-gotten gains. It is also to "deter future illegality." Kaley v. United States, 571 U.S. 320, 323 (2014). There would be no effective deterrence if the sums forfeited were no greater than the sums he gained through his scheme. Forfeitures must have a greater bite than that in order to deter future illegality by Carpenter and by others.


         A. Carpenter's Role at Benistar

         The factual basis for Carpenter's convictions for mail and wire fraud is set forth in Carpenter II, and we describe here only that evidence most pertinent to the forfeiture issue.

         In 1998, Carpenter and his business partner, Martin Paley, founded Benistar, which performed property exchanges under § 1031 of the Internal Revenue Code, 26 U.S.C. § 1031(a)(1). In order to gain tax benefits in a property exchange business, clients entrust funds from property sales to an "intermediary" company, which invests the funds until the client purchases replacement property. See id. Carpenter was the chairman of such an "intermediary" company, Benistar. He worked out of Benistar's Simsbury, Connecticut office, which was responsible for handling client funds. Carpenter and a single employee who reported to him conducted Benistar's § 1031 exchange business from Simsbury.

         Carpenter opened accounts at Merrill Lynch in which he deposited client funds. Carpenter used one of the accounts, the "B01" account, for depositing client funds, and used the other, the "B10" account, primarily for trading. He opened the accounts under Benistar's corporate name and listed himself as the sole signatory on the accounts.

         When checks and wire transfers were sent to Benistar, the employee who reported to Carpenter deposited the funds at Merrill Lynch (and later, PaineWebber). Carpenter had sole authority to invest these funds, once deposited, as he chose. Acting in the name of Benistar, Carpenter routinely moved funds from the B01 account to the B10 account. He did so to pursue aggressive option trading strategies with clients' money, contrary to representations made to these clients. These trades exposed the funds to risk of significant losses, contradicting the promises Benistar made about the security of exchangor funds in its marketing materials.

         In June 1999, Carpenter confirmed to his partner Paley that he "want[ed] to continue having everything come through the Simsbury office." Carpenter's letter listed procedures and stated that "[a]t no time are any procedures to be changed by any staff of the Benistar Property Exchange without the prior approval of Daniel Carpenter."

         At first, Carpenter's strategy made money, even after paying exchangors their promised 3% or 6% return. In consequence, he made money in his role at Benistar. But by September 2000, Carpenter had lost about $4 million of the clients' money and Merrill Lynch prohibited him from opening any new options positions. These losses were hidden from existing clients. Further, Benistar continued to take on new clients. In the fall of 2000, Carpenter transferred funds to PaineWebber and again listed himself as the point person for the accounts. He continued his risky trading, and the trades continued to lose money. By 2001, Carpenter had lost about $9 million.

         His conviction established that Carpenter, through his knowing use of marketing materials, had induced clients to invest in his Benistar endeavor. The superseding indictment alleged that six of these clients invested $14, 053, 715.52.[1]

         B. Procedural History of the Forfeiture Order

         On February 26, 2014, following this court's affirmance of Carpenter's conviction after his second trial, the district court sentenced Carpenter to thirty-six months' imprisonment. The district court also ordered Carpenter to pay restitution in the amount of $310, 033.96, which represented the outstanding balance owed to two exchangors.[2] The sentencing judgment stated that "[t]he defendant shall forfeit [his] interest in the following property to the United States," and specified, "[i]f there are any proceeds, they are to be forfeited. The court to scheduled [sic] a hearing to determine the amount to be forfeited." That order did not set the amount to be forfeited. Carpenter filed a notice of appeal on March 17, 2014.

         On May 23, 2014, the district court ordered that Carpenter forfeit $14, 053, 715.52, pursuant to 18 U.S.C. § 981 and 28 U.S.C. § 2461(c). Carpenter then filed a supplemental notice of appeal on June 5, 2014 from the May 23 forfeiture order. In 2015, this court affirmed Carpenter's sentence in United States v. Carpenter, 781 F.3d 599 (1st Cir. 2015) (Carpenter III), and rejected his speedy trial challenges to his conviction. Id. at 608-18. The Carpenter III court did not reach the May 23 forfeiture order because "both parties . . . agree[d] that the forfeiture order [was] not properly before [the] court." Id. at 623. Carpenter's appeal from the May 23 forfeiture order was docketed as a separate appeal from the appeal decided in Carpenter III.

         The present case concerns Carpenter's June 5, 2014 appeal after entry of the May 23, 2014 forfeiture order, which set ...

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