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Mail Fraud Defendant Could Not Prevent Attachment of his Retirement Account 7th Circuit Appeals Court Holds

Persons convicted of federal financial crimes who are ordered to pay restitution cannot expect their retirement funds to be off-limits to the government.

The Seventh Circuit Court of Appeals recently ruled that a defendant who committed mail fraud could be required to pay court-ordered restitution out of his retirement account because it was not protected as earned income. (United States v. Rafi Sayyed, No. 16‐2858 (7th Cir. 2017))

Rafi S. pled guilty to federal mail fraud for receiving kickbacks from contractors as an executive for the American Hospital Association. He was ordered to pay $940,000 in restitution to AHA pursuant to the Mandatory Victims Restitution Act. In post-conviction proceedings, the federal government sought to enforce the judgment by accessing some $327,000 in non-exempt funds that Rafi held in two retirement accounts.

Rafi objected on the grounds that the funds were exempt “earnings” subject to the 25-percent garnishment cap of the Consumer Credit Protection Act. The district court found that because Rafi, who was 48 at the time, had the right to withdraw all his funds at will, the funds were not “earnings” exempted under CCPA.

On appeal, Rafi argued that the Seventh Circuit had held in United States v. Lee (659 F.3d 619 (7th Cir. 2011)) that all retirement monies are earnings subject to the garnishment cap, and in the alternative, that the government must wait until he reaches retirement age and elects either lump-sum distribution or periodic payments before it could be determined whether the garnishment cap applies. He contended that his retirement accounts were earnings because they were funded by his earned wages.

The court rejected these arguments, noting that Lee held only that annual periodic payments from the defendant’s retirement accounts met the definition of “earnings” subject to the 25-percent cap, as CCPA expressly defines them as such.

Lee applies only to the government’s ability to access funds periodically paid out from a retirement fund, not [its] ability to access a lump‐sum payment of funds contained within a retirement account, as is the issue here,” the court wrote.

The court dismissed Rafi’s assertion that the government must wait nearly 20 years until he qualifies to elect penalty-free lump-sum distributions or periodic payments, noting that he failed to show support for this theory in Lee or anywhere else. “A restitution order is a lien in favor of the government on ‘all property and rights to property’ of the defendant and is treated as if it were a tax lien. …This means the government steps into the defendant’s shoes, ‘aquir[ing] whatever rights the [defendant] himself possesses.’

“It would be illogical for us to find that the government acquires every interest in property [Rafi] has, but then impose a limitation requiring the government to wait nearly twenty years to see what form of distribution [he] elects simply because he states he would not exercise his present right to receive lump‐sum distributions.” The court noted the law is based on the rights Rafi actually possesses, not the rights he would prefer to exercise.

The court further noted that lump-sum retirement distributions are not compensation paid for personal services in the same way as wages, merely because a person’s employer deposits part of his wages into a retirement account.

Finally, in affirming the district court’s order granting turnover of the funds, the Seventh Circuit cited the intent of Congress in enacting CCPA, which was to protect “periodic payment of compensation needed to support the wage earner and his family on a week‐to‐week, month‐to‐month basis,” including persons already receiving periodic retirement payments.Super Lawyers named Illinois commercial law trial attorneys Peter Lubin and Vincent DiTommaso Super Lawyers and Illinois business dispute attorneys Patrick Austermuehle and Andrew Murphy Rising Stars in the Categories of Class Action, Business Litigation, and Consumer Rights Litigation. DiTommaso Lubin Austermuehle’s Illinois business trial lawyers have over thirty years of experience in litigating complex class action, copyright, non-compete agreement, trademark and libel suits, consumer rights and many different types of business and commercial litigation disputes.  Our Naperville and Evanston business dispute lawyers, civil litigation lawyers and copyright attorneys handle emergency business law suits involving copyrights, trademarks, injunctions, and TROS, covenant not to compete, franchise, distributor and dealer wrongful termination and trade secret lawsuits and many different kinds of business disputes involving shareholders, partnerships, closely held businesses and employee breaches of fiduciary duty. We also assist businesses and business owners who are victims of fraud. You can contact us by calling (630) 333-0000 or our toll-free number (877) 990-4990.  You can also contact us online here.