United States v. Silverman

          RECOMMENDATION ON (1) DEFENDANT ANDREW SILVERMAN'S OBJECTION, CLAIMS OF EXEMPTION AND RESPONSE TO WRITS OF GARNISHMENT (DKT. #42) AND (2) INTERESTED PARTY TRACEY SILVERMAN'S OBJECTION, CLAIMS O

          N. Reid Neureiter U.S. Magistrate Judge

         I. Introduction and Procedural Background

         This matter comes before the Court on Defendant Andrew Silverman's Objection, Claims of Exemption, and Response to Writs of Garnishment, filed October 9, 2019. Dkt. #42. Also before the Court is a similar Objection, Claims of Exemption, and Response to Writs of Garnishment (also dated October 9, 2019) filed by Mr. Silverman's wife, Tracy Silverman. Dkt. #43. At issue are attempts by the United States to garnish various bank and investment accounts owned by the Silvermans to satisfy a restitution judgment of more than $2 million that Mr. Silverman was ordered to pay in connection with his criminal sentence.

         On October 10, 2019, Judge Brimmer referred the Objections to me. Dkt. #44. Both Mr. and Mrs. Silverman sought an evidentiary hearing. On October 10, 2019, I set a hearing on these issues for November 5, 2019. Dkt. #45.

         On October 24, 2019, Mr. Silverman sought leave to present by telephone testimony of his attorney in the criminal matter, Mr. Gerald Krovatin. Dkt. #51. The United States did not oppose the request and I granted the Motion of October 25, 2019. Dkt. #53. Mr. Silverman submitted an exhibit list and a witness list the morning of the November 5, 2019 hearing. See Dkt. ##60 & 61.

         The afternoon of November 5, 2019, I held an evidentiary hearing and argument on the Silvermans' objections and claims of exemption. See Dkt. #64 (Transcript of Proceedings). The hearing lasted approximately three hours. I heard live testimony from Mr. Silverman. Mr. Silverman's attorney in the underlying criminal matter, Gerald Krovatin, did testify by telephone from New Jersey.

         At the commencement of the hearing, the United States objected to Mr. Silverman testifying. The United States asserted that the hearing was initially scheduled as a “motions hearing, ” and that it had only learned that Mr. Silverman was going to testify the morning of the proceeding. The United States' objection to Mr. Silverman's testimony was overruled on basis that the United States had been given adequate notice that it would be an evidentiary hearing. The Court had approved in advance the telephone testimony of Mr. Krovatin. It was apparent that this was likely to be an evidentiary hearing, and the United States should have been prepared to cross-examine Mr. Silverman.

         II. Background Facts

         A. The Underlying Offense and Judgment

         In July 2015, the United States District Court for the District of New Jersey entered a criminal judgment against the Defendant, Andrew Silverman. United States v. Silverman, Crim, No. 15-cr-70, Dkt. #14 at 1 (D.N.J., July 21, 2015). Mr. Silverman had pled guilty to wire fraud in violation of 18 U.S.C. §1343.

         Mr. Silverman was President, CEO and owner of DataQ Internet Equipment Corporation, located in King of Prussia, Pennsylvania. Mr. Silverman pled guilty to taking unlawful advantage of certain discount programs created by Hewlett-Packard and Cisco Systems which authorized substantial discounts to specific end-users who agreed to use purchased electronics and computer products internally and not re-sell them. To take advantage of these discounts, a customer had to verify in writing that the products were intended solely for the customer's internal use, would remain in the country of origin, and were not for resale. Mr. Silverman committed fraud by obtaining large quantities of Hewlett-Packard and Cisco computer equipment via straw buyers at deeply discounted prices to which he was not entitled. He did so by making materially false and fraudulent representations about his identity and intended uses of the equipment and then reselling the computer equipment for his own benefit. This involved fraud across international borders, including in Japan, Indonesia, Germany and Latin America. It was contrary to the terms of HP's and Cisco's programs and contrary to Mr. Silverman's representations to HP and Cisco. Dkt. #2 at 7-8.

         The victim impact statements submitted by Cisco and Hewlett-Packard indicated harm to Cisco of more than $8 million and harm to Hewlett-Packard in excess of $17 million.

         Once he was contacted by law enforcement, Mr. Silverman admitted his conduct, provided significant cooperation, and entered into an early plea agreement. In its victim impact statement, Hewlett-Packard did not request that the court enter any additional amount of restitution beyond the $2.5 million agreed between Mr. Silverman and the United States. But Hewlett-Packard did express disappointment that Mr. Silverman was only required to pay $500, 000 of the restitution amount prior to sentencing. Said Hewlett-Packard, “It is unfortunate, however, that Mr. Silverman has only paid $500, 000 of that restitution amount, and in fact there is uncertainty regarding when or even if HP will be paid the remainder of the restitution obligation. In light of the magnitude of the losses caused by Mr. Silverman, HP would have expected that he would have paid the remaining $2, 000, 000 restitution in advance of sentencing.” Dkt. #2 at 16. Prior to his sentencing, Mr. Silverman did pay $500, 000 toward the restitution amount.

         Mr. Silverman was sentenced to a six-month prison term and ordered to pay (1) a $100 special assessment, (2) a $75, 000 fine and (3) $2.5 million in restitution. See Dkt. #42-1 at 2-9 (Judgment in a Criminal Case, attached as Exhibit to Affidavit of Gerald Krovatin). Restitution was to be paid to Hewlett-Packard Company ($2.167 million) and Cisco systems, Inc ($332, 500). Id.

         The judgment of conviction contains the following language with respect to the $75, 000 fine:

This fine, plus any interest pursuant to 18 U.S.C. § 3612(f)(1), is due immediately. In the event the fine is not paid prior to the commencement of supervision, the defendant shall satisfy the amount due in monthly installments of no less than $1, 000, to commence 30 days after release from confinement.

Dkt. #42-1 at 9. (emphasis added). The judgment also contains similar language with respect to the ordered restitution:

The restitution is due immediately. It is recommended that the defendant participate in the Bureau of Prisons Inmate Financial Responsibility Program. (IFRP). If the defendant participates in the IFRP, the restitution shall be paid from those funds at a rate equivalent to $25 every 3 months. In the event the entire restitution is not paid prior to the commencement of supervision, the defendant shall satisfy the amount due in monthly installments of no less than $1, 000, to commence 30 days after release from confinement.

Dkt. #42 at 10 (emphasis added).

         B. The Silvermans' Assets and Residences

         As reflected in the pre-sentence report, Mr. Silverman disclosed that he and his wife, Tracy, had a net worth of nearly five million dollars, including four vehicles, a boat, two jet skis, and residences in Gladwyne, Pennsylvania, on the Jersey Shore, in Snowmass, Colorado, and a condo in Penn Valley, Pennsylvania.^[1] Dkt. #2 at 25.

         Mr. Silverman and his wife now reside at the single-family home in Snowmass. Prior to moving to Colorado, the Silvermans lived in Gladwyne, in the Eastern District of Pennsylvania, near Philadelphia. Mr. Silverman testified that were he and his wife to sell the house in Gladwyne, he would hope to generate somewhere between $1.5 and $1.8 million. Dkt. #64 at 60:1-4. The house in Snowmass, Colorado is worth in the range of $800, 000. Id. at 65:20-22. Mr. Silverman testified that he contributed money from his earnings for the purchase of all of this real estate. See Id. at 64-65. Based on Mr. Silverman's income level as President and CEO of his company, and the fact that Mrs. Silverman's occupation was that of a teacher with a relatively modest income, it is a reasonable inference that substantially all of these real estate assets were purchased using funds generated from Mr. Silverman's income from and ownership of DataQ. On May 5, 2017, jurisdiction in Mr. Silverman's case was transferred from the District of New Jersey to the Eastern District of Pennsylvania, where Mr. Silverman first resided on his release from prison.

         C. The Writs of Garnishment

         On June 26, 2017, the United States Attorney's Office for the Eastern District of New Jersey applied to the District Court for the District of New Jersey for writs of garnishment directed at the following garnishees: TD Ameritrade, Inc., Oppenheimer & Co. Inc., and the Vanguard Group, Inc. See United States v. Silverman, Crim. No. 15-cr-70, Dkt. ##18, 20, 24. Because jurisdiction had been transferred from the District of New Jersey to the District of Pennsylvania, the District of New Jersey arguably did not actually have jurisdiction to issue the writs. But it did so anyway, the same day the writs were requested. Silverman, Crim. No. 15-cr-70, Dkt. ##19, 21 & 25.

         On March 1, 2018, nearly a year after jurisdiction had been transferred to the Eastern District of Pennsylvania, the District of New Jersey withdrew the writs of garnishment, purportedly at the request of the United States Attorney's Office in New Jersey. The motivation for the withdrawal is disputed.

         On September 6, 2018, jurisdiction over Mr. Silverman as a supervised releasee was transferred to the District of Colorado from the Eastern District of Pennsylvania. See Dkt. #1.

         On February 12, 2019, the United States applied for writs of garnishment from the District of Colorado directed at Oppenheimer, TD Ameritrade, and Vanguard. Dkt. ##5-7. The District Court for the District of Colorado issued the writs the next day. Dkt. ##8-10. Vanguard filed its Answer on February 26, 2019. Dkt. #11. Oppenheimer filed its Answer on March 4, 2019. Dkt. #12. Ameritrade filed its Answer on March 12, 2019. Dkt #20.

         In its Answer, Vanguard identified an IRA brokerage account in the name of Andrew F. Silverman, with a total value of $309, 655.62 as of February 15, 2019. Vanguard also maintains a joint brokerage account registered in the names of Tracey L. Silverman and Andrew F. Silverman, joint tenants. (“Joint Account” or “Vanguard Joint Account”). The assets of Joint Account consisted of various securities and had a market value of $179, 569.98 as of February 15, 2019. Also with Vanguard was a Uniform Transfer to Minor Account (“UTMA”) account registered to Andrew F. Silverman, as custodian of Shayna B. Silverman. Dkt #11 at 1. On March 7, 2019, the United States stipulated to release of the UTMA Account held by Vanguard as custodian for Shayna Silverman. Dkt. #16.

         Based on a recent payment history report, a balance of approximately $2, 059, 077 remains outstanding on Mr. Silverman's fine and restitution debt. Defendant's Hearing Exh. A (Debtor Statement dated October 4, 2019 issued by U.S. Department of Justice for Andrew Silverman).

         III. Genesis of the Dispute

         The Silvermans object to the United States seeking to seize assets of Mr. Silverman to satisfy the outstanding judgment so long as Mr. Silverman continues to pay $1, 000 per month as specified in the judgment of conviction. One element of the dispute between Mr. Silverman and the United States is the language in the judgment with respect to payment of the fine and the restitution. The language says that if the amounts are not paid prior to the commencement of the sentence, then “the defendant shall satisfy the amount due in monthly installments of no less than $1, 000, to commence 30 days after release from confinement.” (emphasis added). Mr. Silverman had not paid the entire amount due prior to the commencement of the sentence. Instead, per the language of the judgment, he has been paying timely $1, 000 a month to satisfy the restitution and fine. But at the rate of $1, 000 per month, the roughly $2, 059, 000 outstanding restitution amount (plus interest) will not be repaid for approximately 170 years. Therefore, the United States, charged as it is with the duty to recover full and timely restitution for victims of Mr. Silverman's crime, is seeking to satisfy the outstanding $2 million fine and restitution judgment by seizing Mr. Silverman's other assets-including via garnishment of his IRA and other accounts. The question before me is whether the United States is precluded from doing so, either by the language of the judgment itself, by actions or statements by the United States that estop the government from collecting the debt via garnishment, or by other principles of equity or law.

         IV. The Silvermans' Specific Objections to the Writs of Garnishment

         A. Unfair Increase in Judgment Fine Amount Resulting from ...