Federal Restitution and Forfeiture lasts 20 Years: How We Help Clients Protect Retirement Assets From Government Collection Efforts

Most people assume that once they complete their prison sentence and finish supervised release, their criminal case is behind them. For many federal criminal defendants, that assumption is wrong. Nonetheless there are ways to safeguard valuable assets that may otherwise be subject to restitution and forfeiture.

A federal restitution and/or forfeiture judgment can remain enforceable for decades and gives the United States government collection powers that rival — and often exceed — those available to the IRS. Under the Mandatory Victims Restitution Act (“MVRA”), restitution obligations are enforceable as federal liens against virtually all property (there are exceptions) owned by the defendant as part of their federal sentencing guidelines and penalties. The government also has less powerful options to collect on a forfeiture judgment. The government may garnish wages, levy bank accounts, seize investment accounts, place liens on real estate, and even reach retirement assets that are ordinarily protected from creditors.

Importantly, restitution and forfeiture are generally (there are, again, exceptions) due immediately upon entry of judgment, even if the sentencing court establishes a payment schedule during supervised release. Many defendants mistakenly believe that compliance with a monthly payment schedule protects them from additional collection efforts. In reality, the government often retains the ability to pursue other assets regardless of the payment schedule.

Federal restitution and forfeiture judgments remain enforceable for 20 years from the date of judgment or 20 years after the defendant’s release from incarceration, whichever is later. As a result, collection efforts frequently continue long after supervision ends.

Although the Department of Justice has broad authority to collect restitution and forfeiture, we have successfully negotiated resolutions that protected clients from losing their entire retirement savings. Below are two recent examples.

Collection for restitution gives the government the greatest leeway to levy upon assets, including retirement accounts. Collection for forfeiture is almost as powerful but it’s not clear that the government may collect forfeiture from a retirement account.

Case One: Commercial Fisherman Avoids Liquidation of $240,000 IRA

Our client, a lifelong commercial fisherman, was convicted of fraud offenses related to overfishing and ordered to pay approximately $725,000 in restitution to the New York State Department of Environmental Conservation. The court ordered an initial payment of $500 as well as 10% of his monthly gross income after his release toward the restitution obligation.

Soon thereafter though, the government levied upon our client’s IRA worth approximately $240,000. This was the entirety of his retirement savings, accumulated through decades of lawful fishing, and he was nearing retirement. He had no other significant assets.

Legally, the government possessed the authority to pursue and recover the entirety of the retirement account. Nevertheless, we presented compelling equitable arguments to the Financial Litigation Unit (“FLU”) of the United States Attorney’s Office. This was not a violent offense. The client had worked his entire life, had limited assets outside his retirement account, and would suffer severe tax consequences if forced to liquidate the IRA. More importantly, seizure of the entire account would have left him effectively destitute in retirement.

Result

After negotiations, the government agreed not to pursue the full retirement account.

Instead of seizing approximately $240,000 from the IRA, the matter was resolved through:

·       A lump-sum payment of $60,000 from non-retirement sources; and

·       Monthly payments of $200 going forward.

The resolution preserved the overwhelming majority of our client’s retirement savings while satisfying the government’s collection objectives.

Case Two: Former Public Company CFO Preserves Retirement Assets and Family Home

In a second example, we represented a former Chief Financial Officer of a publicly traded company who pleaded guilty in the Southern District of New York to securities fraud involving the backdating of stock options.

The court imposed approximately $1 million in restitution.

Over the years, she paid approximately $63,597 toward the restitution judgment. Nearly a decade after sentencing, however, the government intensified its collection efforts by issuing a writ of garnishment upon her retirement accounts. Including:

·       Approximately $497,000 held in a Merrill Lynch retirement account;

·       Approximately $23,000 held in a T. Rowe Price account; and

·       A lien against her Maryland residence valued at approximately $500,000.

The likely catalyst for the government’s action was that she stopped making payments after completing post-release supervision.

By the time we became involved, our client was no longer the highly compensated executive she once had been. While she earned approximately $135,000 annually, she lived modestly, had two school-age children, and relied upon the retirement accounts as the family’s principal nest egg. While ERISA often protects retirement accounts from private creditors, those protections generally do not prevent the federal government from enforcing criminal restitution judgments.

We emphasized these realities to the government and argued that complete liquidation of the retirement accounts would be unnecessarily punitive and financially devastating to the family.

Result

Following negotiations, the government agreed to:

·       Release its lien against the jointly owned family residence;

·       Forego seizure of the retirement accounts;

·       Accept a lump-sum payment of $175,000; and

·       Accept ongoing monthly payments equal to five percent of her gross income.

The agreement also provided flexibility by allowing future payment adjustments if her financial circumstances changed.

The resolution preserved hundreds of thousands of dollars in retirement assets and protected the family’s home.

The matter illustrates an important point: even when the government has a clear legal right to pursue retirement assets, practical and equitable considerations often create opportunities for negotiated resolutions.

The Takeaway

Many federal defendants are shocked to learn that retirement accounts, including IRAs and ERISA-qualified 401(k) plans, may be subject to garnishment to satisfy criminal restitution obligations.

The government’s legal authority is powerful. But powerful does not mean unlimited.

Every case presents unique facts. Age, health, earning capacity, family obligations, tax consequences, the nature of the offense, the source of the retirement funds, payment history, and the client’s overall financial circumstances can all play important roles in negotiations with the Department of Justice’s Financial Litigation Unit.

Our criminal defense law firm regularly represents individuals facing federal restitution collection efforts, working to protect homes, retirement accounts, and other assets that satisfy the government’s interests without destroying a client’s financial future.

If you are facing garnishment, a federal lien, or enforcement of a criminal restitution judgment, experienced counsel can make a significant difference. 

Nicholas Kaizer

Levitt & Kaizer

40 Fulton Street

New York, NY 10038

212 480-4000

nkaizer@landklaw.com