Tenth Circuit Rules on Meaning of "Proceeds" in 18 U.S.C. 981(a)(2)

In United States v. Nacchio, 573 F.3d 1062 (10th Cir. 2009), the court of appeals correctly construed the CAFRA’s definition of the key word "proceeds" in 18 U.S.C. §981(a)(2). This is the first circuit decision to interpret §981(a)(2)’s language. The issue arose in the long–running appeal of Joseph Nacchio, the former CEO of Qwest Communications Int’l, from his conviction on 19 counts of insider trading. The district court ordered Nacchio to forfeit $52 million. However, the court of appeals agreed with Nacchio that the district court erred in not allowing Nacchio a deduction for the "direct costs" incurred by him in his insider trading activity.

According to Nacchio, after the deduction of his direct costs, his net profit would be "only" $44.6 million — still a king’s ransom, but less than the $52 million ordered forfeited by the district court. The court of appeals agreed with Nacchio that the amount of the forfeiture should have been calculated under 18 U.S.C. §981(a)(2)(B), which allows the defendant to deduct the "direct costs" he incurred in generating the proceeds. The district court had erroneously applied the broader definition of proceeds found in §981(a)(2)(A), which only applies to crimes involving the provision of "illegal goods and services" and "inherently unlawful activities" such as robbery. The court of appeals held that the securities at issue were "lawful goods" that were sold in an illegal manner and thus the narrower definition of proceeds found in §981(a)(2)(B) applied to Nacchio’s case.

Mr. Smith filed an amicus curiae brief in support of Mr. Nacchio on behalf of the National Association of Criminal Defense Lawyers. The court of appeals relied heavily on Mr. Smith’s discussion of the "proceeds" issue in his treatise. 573 F.3d at 1087–90.