United States v. Approximately 1

Background

The United States brought this civil forfeiture action against property, rather than against an individual or company. The property consisted of approximately 1,360,000.748 Tether, a cryptocurrency also known as USDT, and approximately $3,859,703.65 in U.S. currency.

The government alleged that Victim 1 and family members were deceived into sending cryptocurrency to a fake investment platform called NYMEX. According to the complaint, the platform displayed false investment gains and later demanded additional money before allowing withdrawals. The government traced funds from Victim 1 and another victim through multiple cryptocurrency addresses and conversions before they reached an account holding the defendant property. The government also alleged that addresses involved in the transfers appeared in reports of other scams.

The government sought forfeiture under 18 U.S.C. § 981 based on alleged wire fraud and money laundering. It said the U.S. currency represented proceeds of the alleged wire-fraud scheme and subsequent money laundering, and that the Tether was traceable to funds covered by seizure warrants.

Notice and Default

The government published notice of the action on the official government forfeiture website for 30 consecutive days. It also sent the complaint, notice, and warrant by email to counsel for the only known potential claimant. No claim or answer was filed, and the deadline to do so expired. The clerk entered default against the defendant property on December 13, 2023.

Because this was an in rem action—an action against property itself—the court concluded that it had authority to enter judgment after the government, the only party that had appeared, consented to the magistrate judge’s jurisdiction. The court also found that it had jurisdiction over the subject matter and over the property because seizure and arrest warrants had been issued and served.

Default-Judgment Standard

Under Federal Rule of Civil Procedure 55(b)(2), a court may enter default judgment after a defendant fails to respond. The court applied the seven factors identified by the Ninth Circuit in Eitel v. McCool, including the possible prejudice to the plaintiff, the strength of the claims, the sufficiency of the complaint, the amount at stake, the likelihood of factual disputes, whether the failure to respond resulted from excusable neglect, and the policy favoring decisions on the merits.

A default does not automatically establish legally insufficient claims. However, well-pleaded factual allegations about liability generally are treated as admitted when a party does not respond.

Court’s Analysis

The court found that the government would be left without another way to establish its claimed right to the property if default judgment were denied. It also found that the verified complaint described the property, stated the jurisdictional and forfeiture grounds, identified the seizure location, and provided enough detail to support a reasonable belief that the government could prove the property was subject to forfeiture.

The court concluded that the amount at stake—about $5.2 million—was tied to the alleged conduct and that no person had come forward to challenge the forfeiture. It found little likelihood of a factual dispute because the government had provided notice and no potential claimant had entered the case. Nothing in the record suggested that the failure to respond resulted from excusable neglect. The court also determined that the policy favoring decisions on the merits did not prevent default judgment because no claimant had appeared to present the opposing side of the case.

Disposition

The court granted the government’s motion for default judgment against the defendant property. It directed the government to file a proposed form of judgment within 14 days of the order, after which judgment would be entered separately.