-19 karmaJoined Nov 2022



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    Responding to Jason’s comment asking for an example of potential criminal liability: a recent example comes from the ongoing Tom Girardi bankruptcy in Los Angeles, and what is happening with his ex-wife Erika Jayne’s $750,000 diamond earrings.

    As background, Girardi was a prominent lawyer in California. It turns out he was stealing his clients’ settlement money and running his law firm as a Ponzi scheme. It imploded in 2021. The firm is now in bankruptcy, and Girardi (who has Alzheimer’s) is in a conservator ship.

    Back in 2007, Girardi gave his wife Erika a $750,000 pair of earrings. The jewelry was paid for out of stolen client funds. The bankruptcy trustee wants the earrings returned, to be sold to benefit creditors. Erika claims she innocently received the jewelry and wants to keep it.

    The bankruptcy judge ruled for the trustee, accepting the trustee’s argument that once Erika was informed the earrings were proceeds of stolen money, and refused to return them, she then had committed a potential criminal violation of California Penal Code 496 by refusing to return known stolen property.

    Here is how the trustee phrased the issue: “Her refusal to turn over the stolen property [the earrings] upon demand when told of its status is a crime, freshly committed, under California’s Penal Code [section] 496(a); and, under 496(c) subjects her to treble damage civil liability.”

    And later the trustee states: “when Mrs. Girardi refused to turn over the Earrings to the Trustee, and refused to relinquish her claim of ownership to the Earrings after being advised of her husband’s conduct, she violated California Penal Code [section] 496(a) (refusing to turn over stolen property, after demand, to the rightful owner upon learning the property was obtained by theft or fraud) subjecting her to potential criminal prosecution.”

    Erika has appealed the bankruptcy judge’s ruling to the district court, where the appeal is pending.

    This is all publicly available, the bankruptcy case number is 2:20-BK-21020-BR; the adversary action against Erika Jayne is 2:21-AP-01255-BR; Erika’s appeal to the district court is 2:22-CV-05176-DSF.

    Erika may be in more trouble, according to public reports she may have surrendered less valuable earrings to the trustee than the ones that were purchased for $750,000.

    The example that Jason cited does not address the retaining stolen property issue. Minnesota simply reduced its state civil fraudulent transfer statute of limitations to two years, to harmonize with federal bankruptcy law; previously the state statute of limitations had been longer. Significantly, St. Benedict college had spent the donated Ponzi funds years before, so the issue of retaining known stolen proceeds did not arise. That case cite is 901 F.Supp.2d 1233 (D. Minn. 2012).

    If a person or entity is still holding unspent donated funds from FTX they may want to read the briefs in the Erika Girardi matter - and consult a lawyer.

    (Again, I have never owned any cryptocurrency, and I have no connection whatsoever with FTX or any crypto entity, I am simply an outside observer.)

    Meant “not an economic benefit to the grantor

    You make some persuasive points.

    Imagine person A steals your car. Person A then gives the car to Person B, who does not know at that point that the car is stolen. B is going to use the car to deliver food for a food bank or some other good purpose - A nods and gives B the car.

    The police then find B has your car, and tell B that the car is stolen and belongs to you.

    B starts looking at his shoes and shuffling his feet. He mumbles that he filled up the gas tank, and it was only half full when he got the car. Maybe he even put some new wiper blades on it. He keeps repeating that he didn’t know the car was stolen when A gave it to him, and that he was supposed to use it for good purposes.

    It dawns on you that B is not going to return your car. B is straining to think up excuses to keep your car.

    That’s how the FTX grant situation looks from the outside.

    Grants are gifts. They are, as you say, up front payments, and in return you say you’re going to use them for some purpose, but it’s not an economic benefit to the grantee. It’s like a rich donor giving a university money to build a sports stadium - it’s a gift even though the university does have to use it to build the stadium.

    In the scenario, B should return the car to you. If he doesn’t he may be committing the crime of refusing to return known stolen property.

    Well, if doing the right thing isn’t enough in itself to convince grant recipients (see ARC’s commendable statement that they are returning their $1.25 million grant) then how about wanting to stay out of prison.

    Right now FTX grant recipients are relying on the fig leaf that FTX and/or its former executives have not yet been been charged or convicted of criminally defrauding (embezzling from) FTX’s depositors.

    But even at this point grant recipients are on notice that their grant money likely was stolen funds. If criminal convictions are obtained, this will be cemented - the money is stolen property.

    Therefore, grant recipients who possess stolen funds (grants from FTX made with stolen money) are on the cusp of potentially committing a crime themselves if they refuse to return it - the crime of retaining known stolen property. It matters not that they did not know at the time they received it that it was stolen. They know now and yet are retaining the money rather than returning the money to its rightful owners.

    In many jurisdictions retaining know stolen property is a crime (not talking about receiving stolen property - there you do have to know at the time you received it that it was stolen; talking about retaining known stolen property once you know it is stolen - that is an independent crime). Look for example at Model Penal Code 223.6(1) “A person is guilty of theft if he purposely … retains or disposes of … property of another knowing that it has been stolen, or believing that it probably has been stolen, unless the property is … retained, or disposed with purpose to restore it to the owner.”

    Imagine you are a grant recipient, and in two years are in court trying to explain why you kept the grant money and then spent it, after you were on notice that it was likely stolen funds.

    Right now there is a window where people can freely choose to do the right thing, or not. That window will likely close, and then the discussion will reduce to return the money or potentially commit a crime and go to jail.

    (Again, I have have never owned or speculated in any cryptocurrency, and I have no connections whatsoever with FTX or any crypto business - I do not have a dog in this fight.)

    Excellent for ARC! I am heartened to hear this. ARC is to be commended and I applaud them. Well done, ARC.

    Again with the janitors. It raises the eyebrow to see the efforts to compare FTX grant recipients with janitors. It’s an attempt at misdirection and diffusion of responsibility: “If I can say that everyone who got FTX money is the same, then I can point to a sympathetic person and say I’m the same - how about a janitor? How about a janitor who used the money to pay for their mom’s life-saving operation?”

    The answer is that grant recipients are not janitors. Grant recipients received gifts of money from FTX. Grant recipients did not scrub toilets or empty trash cans. The janitors can figure out what they want to do. That has no bearing on what the grant recipients should do, which is return the money (at least the unspent portion). What janitors do or don’t do had no bearing on the grant recipients’ responsibility.

    What about the janitors, please.

    1. I think you are correct that, as a practical matter, there is a difference between FTX grant money that has already been spent and grant money that is unspent. Unspent money should be returned. It would be asking too much for grant recipients to also return money already spent. That would be ideal but it is unrealistic.

    3c. Janitors? Please. That is a false equivalency equating grant recipients with janitors. Grant recipients didn’t scrub any toilets or empty any trash cans at FTX. Instead, grant recipients were given a gift of money from FTX. This is another example of misdirection and searching around for a rationalization to keep the tainted grant money, it is an unseemly form of what-aboutism. “But, what about the janitors?” Let the janitors figure out what they want to do. What are the grant recipients going to do?

    As for the celebrity endorsers, of course they should return all the money they were paid. They affirmatively helped lure more depositors into the scheme. But again, that’s a separate issue from the EA grant recipients.

    3e. Is someone seriously arguing that because the amount of FTX grants was ‘only’ $140 million the money should not be returned because it’s only a fraction of the stolen $8 billion? That is an unworthy and unseemly argument. “Hey, I’m only going to keep a portion of the stolen money, so it’s okay.” If that argument is indeed advanced then the moral compass has been tossed overboard and the ship is being intentionally run onto the reef.

    1. You are correct that there have been expressions of sympathy for the ripped-off FTX investors. I overstated the lack of empathy expressed by the forum.

    What appears absent, however, is anyone saying, “I received a grant from FTX and I am returning the money.” So verbal expressions of empathy exist, but actions appear lacking.

    1. Raising the issue of where does one abstractly draw the line between clean money and dirty money - this is the kind of misdirection and casting around for rationalizations to keep the grant money that raise eyebrows to non-EA people like me who read this forum. Wherever that line is drawn in the abstract, FTX’s criminal fraud crossed it and FTX’s money is dirty, tainted proceeds of theft. Saying, “what about fossil fuels?” does not change FTX’s criminal fraud. That’s the concrete issue at hand.

    2. Nice try at implying that grant recipients are equal victims to FTX’s depositors. Grant recipients are not victims at all. Grant recipients received gifts of money from FTX. Money they now know was stolen.

    3. Many of the grant recipients appear to be making a lack-of-knowledge argument to justify their keeping the money. They didn’t know it was stolen when they received it, so now they want to feel justified retaining it.

    At the same time they don’t want the cognitive dissonance of recognizing that by keeping the grant money they just gave up their pretense of EA ideals. So they search around for rationalizations, and this lack of knowledge argument is one.

    It’s not persuasive. Say you are walking down the street and you see person A rob person B at gunpoint. You then ask person A for money and he tosses you B’s wallet. Hopefully everyone would agree you should give the wallet back to B.

    Now imagine you are walking down the street and A runs around the corner. You ask him for money and he tosses you a wallet and runs off. Two seconds later a crowd of people, including B, come around the corner. They explain that A robbed B of his wallet 30 seconds ago, and that you are holding the wallet. Do you start arguing that you too are the victim because when A gave you the wallet you didn’t know it was stolen? Well you know now and you should return it to B. Or, if you decide to keep the wallet, you should not pretend you are doing so out of anything other than pure self-interest.

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