United States v. Approximately 1,360,000.748 Tether and $3,859,703.65 in U.S. Currency

• Court: District Court, N.D. California
• Decided: January 30, 2024
• Docket: 3:23-cv-04400
• Status: Unknown

Opinion

1 2 3 4 UNITED STATES DISTRICT COURT 5 NORTHERN DISTRICT OF CALIFORNIA 6 7 UNITED STATES OF AMERICA, Case No. 23-cv-04400-TSH

8 Plaintiff, ORDER GRANTING MOTION FOR 9 v. DEFAULT JUDGMENT

10 APPROXIMATELY 1,360,000.748 Re: Dkt. No. 15 TETHER AND $3,859,703.65 IN U.S. 11 CURRENCY,

12 Defendant.

13 14 I. INTRODUCTION 15 In this in rem forfeiture action, Plaintiff United States of America moves for default 16 judgment against the Defendant Property, which includes approximately 1,360,000.748 Tether 17 (“USDT”) and approximately $3,859,703.65. To date, no formal claim or answer has been filed. 18 The Court determines that this matter is appropriate for resolution without a hearing. See Civ. 19 L.R. 7-1(b). For the reasons stated below, the Court GRANTS the government’s motion. 20 II. BACKGROUND 21 A. Factual Allegations 22 1. Wire Fraud Scheme 23 On or about August 8, 2022, Victim 1, a 61-year-old resident of San Francisco, connected 24 with a person identifying themselves as Hao William Yang on a real-estate platform known as 25 Homesnap. Compl. ¶¶ 21, 23, ECF No. 1. Homesnap is a real-estate listing platform with a 26 consumer-facing application for buyers. Id. ¶ 23. Yang claimed to be looking for real estate in the 27 San Francisco Bay Area. Id. Two days after the initial contact, Yang sent Victim 1 a message on 1 discussed personal matters on LINE such as their backgrounds, relationship statuses, businesses, 2 and finances. Id. Within a week their relationship became personal, with Yang sending many 3 messages about his “love” for Victim 1. Id. 4 During their initial LINE conversation, Yang often discussed cryptocurrency futures 5 trading, unprovoked and unrelated to the topic of conversation. Id. ¶ 26. Yang claimed that in 6 addition to being a successful automobile parts manufacturer, he had made millions of dollars 7 through cryptocurrency trading. Id. Yang represented himself as a cryptocurrency expert. Id. 8 On or about August 15, 2022, Yang introduced Victim 1 to a company called NYMEX. 9 Id. ¶ 27. Yang claimed that NYMEX was a beginner-friendly cryptocurrency exchange based in 10 Chicago. Id. Yang directed Victim 1 to download the NYMEX application through a link that he 11 provided through LINE. Id. Victim 1 pressed the link, and it downloaded the NYMEX 12 application onto their smartphone. Id. Although NYMEX appeared to be a legitimate 13 cryptocurrency platform and application, with graphics and layouts consistent with most extant 14 smartphone currency trading applications, it was, in reality, a fraudulent application. Id. ¶ 28. 15 The displayed investment amounts and gains were entirely fictitious, and the perpetrators of the 16 fraud had the ability to adjust the displays as they pleased over the course of the scam to reflect 17 gains on investments when, in reality, no gains were accruing and the funds were not in the 18 exchange account as represented. Id. 19 On or about August 18, 2022, Yang instructed Victim 1 to purchase cryptocurrency known 20 as U.S.D. Coin (“USDC”) from cryptocurrency exchanges BitStamp and Coinbase for the purpose 21 of investing into the NYMEX exchange. Id. ¶ 29. On August 27, 2022, Victim 1 made their 22 initial investment into the NYMEX application, with a transfer of 199,990.00 USDC from their 23 Coinbase account to a USDC address ending in 2f20 (the “NYMEX address”). Id. ¶ 30. 24 Following the initial investment, Victim 1 was able to view their fabricated “earnings” on the 25 NYMEX application, which reported gains of twenty to thirty percent against Victim 1’s initial 26 investment in less than a week. Id. ¶ 31. Those purported gains were enough to convince Victim 27 1 to invest an additional $1,099,990.00 in USDC into the NYMEX platform on September 2, 1 At the request of Yang, Victim 1 asked family members to invest with them. Id. ¶ 32. Six 2 family members collectively gave Victim 1 $2,450,000.00 to invest under Yang’s guidance, as 3 follows: 4 a. Victim 1 invested approximately $3,050,000; 5 b. Relative 1 invested approximately $200,000; 6 c. Relative 2 invested approximately $200,000; 7 d. Relative 3 invested approximately $200,000; 8 e. Relative 4 invested approximately $200,000; 9 f. Relative 5 invested approximately $600,000; and 10 g. Relative 6 invested approximately $1,900,000. 11 Id. 12 Sometime in September 2022, Victim 1 received multiple message requests in the same 13 day on Homesnap from men living in Asia to view property in San Francisco. Id. ¶ 33. When 14 Victim 1 mentioned this oddity to Yang during one of their conversations on LINE, Yang became 15 angry and accused Victim 1 of “cheating” on him. Id. Yang demanded that Victim 1 delete their 16 LINE messages up to that point to prove Victim 1’s dedication to him. Id. Victim 1 did as Yang 17 asked and deleted all previous LINE messages with Yang, including the NYMEX application link. 18 Id. 19 By December 2022, Victim 1’s NYMEX account on the fictitious application showed that 20 their and their family’s investments had grown to nearly $10,000,000. Id. ¶ 34. On or about 21 December 19, 2022, Victim 1 tried to withdraw the $10 million from their NYMEX account but 22 received a message from NYMEX “customer service” saying that Victim 1 needed to pay 23 $200,000 in taxes to withdraw the funds. Id. ¶ 35. At Yang’s urging, Victim 1 paid the $200,000 24 in USDC to NYMEX, but they were still unable to withdraw the funds. Id. Victim 1 ultimately 25 learned of the fraud when they reported the incident to Coinbase and Bitstamp. Id. 26 Between August 27, 2022 and December 14, 2022, Victim 1, on their own and on behalf of 27 their relatives, conducted 16 investment transactions into the NYMEX exchange totaling 1 transfers were all sent to the NYMEX Address. Id. 2 2. Laundering 3 For each of Victim 1’s transactions, the funds were traced on the publicly available 4 blockchain through a series of transfers between cryptocurrency addresses, known as hops, to their 5 arrival at the Subject Account. Id. ¶ 41. Victim 1’s funds were swapped for various 6 cryptocurrencies, specifically, DAI, USDC, and Tether (or “USDT”).1 Id. ¶ 42. All three of these 7 cryptocurrencies are known as stablecoin, a virtual currency whose value is tied to that of another 8 “stable” currency, commodity, or financial instrument. Id. ¶¶ 14, 42. DAI is issued by 9 MakerDAO, a foundation headquartered in Denmark. Id. ¶ 15. USDC is issued by Centre, a 10 company headquartered in the U.S. Id. ¶ 17. USDT is issued by Tether Ltd., a company 11 headquartered in Hong Kong. Id. ¶ 14. Each of their respective values are tied to the U.S. Dollar 12 at a ratio of approximately 1:1. Id. ¶ 42. As such, there is no apparent financial or legitimate 13 business benefit to conducting the swaps performed in this instance. Id. Indeed, each of the 14 swaps and transfers resulted in a net loss due to fees paid for the swaps and subsequent transfers. 15 Id. 16 During the funds tracing and analysis, law enforcement analyzed the DAI, USDC, and 17 USDT wallet addresses utilized in the various hops between Victim 1’s initial transactions to the 18 NYMEX Address and the funds’ ultimate arrival in the Subject Account. Id. ¶ 43. That analysis 19 revealed a pattern where the same addresses appeared in other complaints where individuals 20 reported falling victim to scams. In these instances, law enforcement located victim complaints on 21 either the FBI’s Internet Crime Complaint Center, known as IC3 (http://www.ic3.gov), or the 22 Federal Trade Commission’s Consumer Sentinel Database (http:/reportfraud.ftc.gov). Id. The 23 cryptocurrency tracing revealed two separate transaction paths, both of which ultimately ended 24 25 1 Tether, widely known as “USDT,” is a blockchain-based cryptocurrency whose tokens in 26 circulation are backed by an equivalent amount of U.S. dollars, making it what is known as a “stablecoin.” Id. ¶ 14. A stablecoin is a virtual currency whose value is tied to that of another 27 “stable” currency, commodity, or financial instrument. Id. USDT is issued by Tether Ltd., a 1 with deposits into the Subject Account. Id. ¶ 44.2 2 3. Additional Fraud 3 Victim 1’s funds were traced through 14 hops before arriving at the Subject Account. Id. 4 ¶¶ 70-74. The government analyzed each of the addresses in the movement of funds and 5 repeatedly located reports of additional fraud. Id. ¶ 70. These victims collectively reported losses 6 of approximately $2,118,23.14. Id. ¶ 75. 7 Another victim (“Victim 2”) reported another scam who was similarly induced to “invest” 8 in a fraudulent cryptocurrency exchange. Id. ¶ 76. Victim 2 was contacted on LinkedIn by a 9 person identifying themselves as Dot Qian, who said she was investing cryptocurrency and 10 making large profits on those investments. Id. ¶ 77. Qian offered to assist Victim 2 in conducting 11 similar investments and told them to send Ethereum to a deposit address ending in 2C39fF66. Id. 12 ¶ 78. Over the course of 20 days, from December 1 to December 20, 2022, Victim 2 sent a total of 13 157.01 Ethereum across six transactions and 40,002.33 USDC to the 2C39fF66 address. Id. ¶ 79. 14 Law enforcement traced the path Victim 2’s Ethereum took and found that it was converted to 15 DAI, combined with other funds, and then converted to USDT before being deposited into the 16 Subject Account. Id. ¶ 80. Law enforcement traced the path Victim 2’s USDC took and found 17 that it was converted to DAI, combined with other funds, and then converted to USDT before 18 arriving in the subject account. Id. ¶ 81. Based on the tracing, the subject account received the 19 full value of Victim 2’s stolen funds, to wit, 157.01 Ethereum and 40,002.33 USDC. Id. ¶ 82. 20 Pursuant to a seizure warrant obtained on March 7, 2023, the government sought to seize 21 the assets held in the Subject Account for forfeiture as proceeds of money laundering. Id. ¶ 83. 22 The government subsequently learned that between the time the warrant was served and the time it 23 took to freeze the funds, the funds in the account were converted to Australian Dollars (“AUD”). 24 Id. ¶ 84. Specifically, the account contained 5,767,900 AUD, along with 200,000.748 of the 25 original USDT, all of which was traceable to the original funds subject to the seizure warrant. Id. 26 A second seizure warrant was obtained on March 15, 2023. Id. Prior to being transferred from the 27 1 Subject Account, the AUD contained therein was converted to U.S. Dollars so that they could be 2 processed by the Federal Reserve in a wire transaction. The resulting U.S. Currency is one of the 3 Defendant Properties in this case as those funds constitute the proceeds of the wire fraud scheme, 4 as well as the proceeds of the money laundering that followed. Id. 5 On March 21, 2023, the government learned that approximately five hours after the service 6 of the initial warrant, the Subject Account received an additional USDT deposit of 1,160,000 7 USDT. Id. ¶ 85. This deposit was received into the Subject Account via a USDT address ending 8 in 5LuH. Id. The source of these funds was a transfer from a second cryptocurrency exchange 9 account traced three hops prior. Id. This account was owned by a 37-year-old Chinese national. 10 Id. ¶ 86. Moreover, an Ethereum USDT address used by this account to receive USDT, to wit, an 11 address beginning with 0x12b0897f. Id. The government analyzed incoming USDT deposits into 12 the 0x12b0897f address and observed a frequent pattern where this account repeatedly interacted 13 with other USDT addresses involved in a variety of scams, per reports of fraud to the FBI. Id. ¶ 14 87. Specifically, the government identified eight separate USDT addresses where 29 individuals 15 reported sending their funds as part of a scam. Id. ¶ 88. These individuals reported their scams to 16 IC3 and reported losing over $2.6 million to fraud. Id. 17 B. Procedural Background 18 On August 25, 2022, the government filed a verified complaint seeking the forfeiture of 19 the Defendant Property. Compl., ECF No. 1. The government brings two claims for forfeiture 20 under 18 U.S.C. § 981: (1) wire fraud in violation of 18 U.S.C. § 1343 and (2) money laundering 21 in violation of 18 U.S.C. § 1956(a)(1)(B)(i). Id. ¶¶ 2, 89-93. 22 After the government filed the complaint, it published notice of the action on the official 23 government forfeiture website (www.forfeiture.gov) for 30 consecutive days, beginning on 24 September 8, 2023, as required by Rule G of the Supplemental Rules for Admiralty or Maritime 25 Claims and Asset Forfeiture Actions of the Federal Rules of Civil Procedure (the “Supplemental 26 Rules”) and Rule 6-1 of the Admiralty & Maritime Local Rules of the Northern District of 27 California. ECF No. 8. On September 6, 2023, the government sent notice of this forfeiture 1 Phillips Decl., Ex A, ECF No. 15-1. While counsel has since represented they “no longer 2 represent the prospective claimants,” id. at 1, when counsel accepted service of the complaint they 3 did so pursuant to their representation of the only known potential claimant, id. at 2. 4 On December 13, 2023, the Clerk of Court entered default as to the Defendant Property. 5 ECF No. 13. The government filed the present motion on December 29, 2023. 6 III. MAGISTRATE JUDGE JURISDICTION 7 As an initial matter, the Court must address whether it has jurisdiction to enter judgment. 8 Under 28 U.S.C. § 636(c)(1), a magistrate judge may enter judgment in a civil action “[u]pon the 9 consent of the parties.” The term “parties” under 28 U.S.C. § 636(c)(1) includes “all plaintiffs and 10 defendants named in the complaint—irrespective of whether the complaint has been properly 11 served.” Williams v. King, 875 F.3d 500, 503 (9th Cir. 2017). 12 In in rem actions such as this, the action is against the property itself. Only those who file 13 a claim to the property are parties to the actions, such that their consent to magistrate judge 14 jurisdiction becomes necessary. See United States v. Real Prop., 135 F.3d 1312, 1317 (9th Cir. 15 1998) (“[A]bsent the filing of a claim to a property subject to forfeiture, a putative claimant is not 16 a party to the action;” it is therefore unnecessary to obtain the consent of the putative claimant to 17 the jurisdiction of a magistrate judge prior to the entry of a default judgment against the claimant's 18 interest in the property) (citation and internal quotation marks omitted). These principles remain 19 undisturbed after Williams. See Williams, 875 F.3d at 504 (recognizing the principles in Real 20 Property as applicable to in rem actions, and explaining that the “same principle[s]” did not apply 21 to the case before it because, among other reasons, it was not in rem); Keefe Kaplan Mar., Inc. v. 22 Vessel “Cygnet,” 2018 WL 534300, at *2 (N.D. Cal. Jan. 24, 2018) (explaining that the Ninth 23 Circuit “affirmed [the] narrow exception” for magistrate jurisdiction consent described in Real 24 Property for in rem forfeiture proceedings). 25 Applying these principles, this action is in rem against the Defendant Property. Notice was 26 provided to all putative claimants, and no one has filed a claim to the property. The only party in 27 this action is the government, which has consented to this Court’s jurisdiction pursuant to 28 1 See, e.g., Keefe Kaplan Mar., Inc., 2018 WL 534300, at *2 (finding magistrate jurisdiction to enter 2 default judgment against a vessel in in rem forfeiture action upon the consent of the plaintiff, 3 which was the only party to the action). 4 IV. LEGAL STANDARD 5 A. Civil Forfeiture 6 Forfeiture is a “harsh and oppressive procedure” that is “not favored by the courts.” 7 United States v. $191,910.00 in U.S. Currency, 16 F.3d 1051, 1069 (9th Cir. 1994). The Ninth 8 Circuit is “particularly wary of civil forfeiture statutes” because they “impose ‘quasi-criminal’ 9 penalties” but do not provide property owners with the degree of procedural protections provided 10 to criminal defendants. See id. at 1068; United States v. Marolf, 173 F.3d 1213, 1217 (9th Cir. 11 1999) (quoting $191,000.00 in U.S. Currency, 16 F.3d at 1068). Accordingly, strict adherence to 12 procedural rules is paramount in civil forfeiture proceedings. See Marolf, 173 F.3d at 1217 13 (denying forfeiture where government “erred” by failing to provide due notice to property owner); 14 see also $191,000.00 in U.S. Currency, 16 F.3d at 1068-69 (strictly construing currency forfeiture 15 provisions of 19 U.S.C. § 615 against government and holding that “the burden on the government 16 to adhere to procedural rules should be heavier than on claimants”). Supplemental Rules for 17 Admiralty or Maritime Claims and Asset Forfeiture Claims Rule G provides the procedural 18 contours “govern[ing] a forfeiture action in rem arising from a federal statute.” Fed. R. Supp. 19 G(1). 20 B. Default Judgment 21 Federal Rule of Civil Procedure 55(b)(2) permits a court, following default by a defendant, 22 to enter default judgment in a case. “The district court’s decision whether to enter default 23 judgment is a discretionary one.” Aldabe v. Aldabe, 616 F.2d 1089, 1092 (9th Cir. 1980). 24 At the default judgment stage, the factual allegations of the complaint, except those 25 concerning damages, “together with other competent evidence submitted” are deemed admitted by 26 the non-responding parties. Shanghai Automation Instrument Co. v. Kuei, 194 F. Supp. 2d 995, 27 1000 (N.D. Cal. 2001); see also Fair Hous. of Marin v. Combs, 285 F.3d 899, 906 (9th Cir. 2002) 1 that well-pled allegations in the complaint regarding liability are deemed true.”). “However, a 2 defendant is not held to admit facts that are not well-pleaded or to admit conclusions of law.” 3 DIRECTV, Inc. v. Hoa Huynh, 503 F.3d 847, 854 (9th Cir. 2007) (citation and quotation omitted)). 4 Therefore, “necessary facts not contained in the pleadings, and claims which are legally 5 insufficient, are not established by default.” Cripps v. Life Ins. Co. of N. Am., 980 F.2d 1261, 6 1267 (9th Cir. 1992) (citing Danning v. Lavine, 572 F.2d 1386, 1388 (9th Cir. 1978)); accord 7 DIRECTV, 503 F.3d at 854. Further, the scope of relief is limited by Federal Rule of Civil 8 Procedure 54(c), which states that a “default judgment must not differ in kind from, or exceed in 9 amount, what is demanded in the pleadings.” 10 In determining whether default judgment is appropriate, the Ninth Circuit has enumerated 11 the following factors for courts to consider:

12 (1) the possibility of prejudice to the plaintiff, (2) the merits of plaintiff's substantive claim, (3) the sufficiency of the complaint, (4) 13 the sum of money at stake in the action; (5) the possibility of a dispute concerning material facts; (6) whether the default was due to 14 excusable neglect, and (7) the strong policy underlying the Federal Rules of Civil Procedure favoring decisions on the merits. 15 16 Eitel v. McCool, 782 F.2d 1470, 1471–72 (9th Cir. 1986). 17 V. DISCUSSION 18 A. Jurisdiction 19 In considering whether to enter default judgment, a district court must first determine 20 whether it has jurisdiction over the subject matter and the parties to the case. In re Tuli, 172 F.3d 21 707, 712 (9th Cir. 1999). “[T]he district court is not restricted to the face of the pleadings, but 22 may review any evidence, such as affidavits and testimony, to resolve factual disputes concerning 23 the existence of jurisdiction.” McCarthy v. United States, 850 F.2d 558, 560 (9th Cir. 1988) 24 (considering subject matter jurisdiction on a 12(b)(1) motion). 25 1. Subject Matter Jurisdiction 26 The Court has subject matter jurisdiction under 28 U.S.C. §§ 1345 and 1355 and 18 U.S.C. 27 § 981 because the Defendant Property constitutes or is derived from proceeds obtained, directly or 1 otherwise provided by Act of Congress, the district courts shall have original jurisdiction of all 2 civil actions, suits or proceedings commenced by the United States, or by any agency or officer 3 thereof expressly authorized to sue by Act of Congress.”); 28 U.S.C. § 1355 (“The district courts 4 shall have original jurisdiction, exclusive of the courts of the States, of any action or proceeding 5 for the recovery or enforcement of any fine, penalty, or forfeiture, pecuniary or otherwise, incurred 6 under any Act of Congress[.]”); see also United States v. $6,190.00 in U.S. Currency, 581 F.3d 7 881, 884 (9th Cir. 2009) (discussing district court’s subject matter jurisdiction in civil forfeiture 8 proceeding brought pursuant to 18 U.S.C. § 981). 9 2. In Rem Jurisdiction 10 The Court must also determine whether it has jurisdiction over the Defendant Property. 11 See In re Tuli, 172 F.3d at 712. In rem jurisdiction treats an item of property as a person against 12 whom suits can be filed and judgments can be entered. United States v. $29,959.00 U.S. 13 Currency, 931 F.2d 549, 551 (9th Cir. 1991). The Ninth Circuit relies on a plain reading of 28 14 U.S.C. § 1355(b) as the appropriate jurisdictional test for in rem proceedings. United States v. 15 Approximately $1.67 Million (US) in Cash, Stock & Other Valuable Assets, 513 F.3d 991, 996 16 (9th Cir. 2008). That statute provides that “[a] forfeiture action or proceeding may be brought in 17 the district court for the district in which any of the acts or omissions giving rise to the forfeiture 18 occurred.” 28 U.S.C. § 1355(b)(1)(A). 19 A district court obtains in rem jurisdiction when it issues a warrant for arrest of the 20 defendant property and that warrant is successfully served. See Ventura Packers, Inc. v. F/V 21 Jeanine Kathleen, 424 F.3d 852, 858 (9th Cir. 2005) (“Once the district court issued warrants for 22 the arrest of the three vessels pursuant to Rule C, and the warrants were successfully served, 23 ‘jurisdiction was complete.’”). On September 6, 2023, this court issued a warrant for arrest for the 24 Defendant Property. ECF No. 7. The same day the warrant was served on then counsel for the 25 only known potential claimant. Phillips Decl., Ex. A. In addition, the government had already 26 seized the Defendant Property pursuant to seizure warrants issued on March 7, 2023, and March 27 15, 2023. Compl. ¶¶ 83-84. Thus, the Court has in rem jurisdiction over this civil forfeiture. 1 B. Notice 2 Supplemental Rule G(4) requires the government to provide both general notice to the 3 public and direct notice of the forfeiture action to any known person who reasonably appears to be 4 a potential claimant. Fed. R. Civ. P. Supp. G(4)(a), (b); see also United States v. $22,050.00 U.S. 5 Currency, 595 F.3d 318, 320 n.1 (6th Cir. 2010) (“Under the Supplemental Rules, the government 6 does not have to comply with the formal service of process provisions of Federal Rule of Civil 7 Procedure 4 when providing notice of forfeiture to potential claimants. This is because potential 8 claimants are not defendants in an in rem action, the seized objects or assets are. Instead, all that 9 is required is that the government provide notice of the action ‘to any person who reasonably 10 appears to be a potential claimant on the facts known to the government . . . by means reasonably 11 calculated to reach the potential claimant.’”). 12 1. Notice by Publication 13 Rule G(4)(a)(ii) provides that “a published notice must: (A) describe the property with 14 reasonable particularity; (B) state the times under Rule G(5) to file a claim and to answer; and (C) 15 name the government attorney to be served with a claim and answer.” Here, the government 16 published notice of the action on an official government website (www.forfeiture.gov) for 30 17 consecutive days, beginning on September 8, 2023, as required by Rule G of the Federal Rules of 18 Civil Procedure and Rule 6-1 of the Admiralty & Maritime Local Rules of the Northern District of 19 California. ECF No. 8. An individual who receives notice by general publication must first file a 20 claim to the property with the court no later than 60 days after the first date of publication on an 21 official government forfeiture website. Fed. R. Civ. P. Supp. G(5)(a)(ii)(A). Sixty days after 22 September 8, 2023, (the first date of publication) is November 7, 2023. Sixty days after October 23 7, 2023 (the last date of publication) is December 6, 2023. The notice names Chris Kaltsas as the 24 government attorney to be served with the claim and answer. Thus, the government has satisfied 25 the requirements of Rule G(4)(a)(ii). 26 2. Notice to Known Claimants 27 Supplemental Rule G(4)(b) also sets forth the requirements for notice to known potential 1 complaint to any person who reasonably appears to be a potential claimant on the facts known to 2 the government before the end of the time for filing a claim under Rule G(5)(a)(ii)(B).” Fed. R. 3 Civ. P. Supp. G(4)(b)(i). The notice must state “(A) the date when the notice is sent; (B) a 4 deadline for filing a claim, at least 35 days after the notice is sent; (C) that an answer or a motion 5 under Rule 12 must be filed no later than 21 days after filing the claim; and (D) the name of the 6 government attorney to be served with the claim and answer.” Fed. R. Civ. P. Supp. G(4)(b)(ii). 7 On September 6, 2023, the government sent notice of this forfeiture action, including the 8 complaint, notice, and warrant, by email to the only known potential claimant’s counsel. Phillips 9 Decl., Ex. A. Counsel “accept[ed] this as service of process.” Id. at 2. Supplemental Rule G does 10 not require notice to be provided by a specific means but instead contemplates that “notice must be 11 sent by means reasonably calculated to reach the potential claimant.” Fed. R. Civ. P. Suppl. 12 G(4)(b)(iii)(A). And courts have acknowledged that sending notice via email is “an appropriate 13 form of notice” when a case, as here, involves “international defendants whose locations are hard 14 to pin down and the nature of the crimes necessarily entails some degree of cyber-proficiency . . . 15 .” United States v. Twenty-Four Cryptocurrency Accts., 473 F. Supp. 3d 1, 6 (D.D.C. 2020). The 16 potential claimant’s claim was due by October 11, 2023, which is 35 days from September 6, 17 2023. To date, the potential claimant has not filed a claim or otherwise entered this action, and the 18 time to do so has elapsed. 19 In sum, the government has adhered to the procedural rules governing civil forfeiture 20 actions as required by federal statute. The Court now addresses whether default judgment is 21 warranted. 22 C. Eitel Factors 23 Applying the seven Eitel factors, the undersigned finds default judgment is warranted in 24 favor of Plaintiff. 25 1. The Possibility of Prejudice 26 The first factor the Court considers is the possibility of prejudice if a default judgment is 27 not entered. Eitel, 782 F.2d at 1471–72. This factor weighs in favor of default judgment “when a 1 relief.” Vietnam Reform Party v. Viet Tan - Vietnam Reform Party, 416 F. Supp. 3d 948, 962 2 (N.D. Cal. 2019) (citations omitted); IO Grp., Inc. v. Jordon, 708 F. Supp. 2d 989, 997 (N.D. Cal. 3 2010) (prejudice exists where denying the requested default judgment would leave the plaintiff 4 without a proper remedy). 5 Here, no party has attempted to oppose the verified complaint or otherwise make a claim 6 against the Defendant Property. If the government’s motion is not granted, it “will have no other 7 opportunity to establish its right to the Currency pursuant to the verified complaint.” United 8 States v. Approximately $50,000 in U.S. Currency, 2017 WL 3616443, at *6 (N.D. Cal. Aug. 7, 9 2017), report and recommendation adopted, 2017 WL 3605224 (N.D. Cal. Aug. 22, 2017). 10 Therefore, the first factor weighs in favor of default judgment. 11 2. Substantive Claims and the Sufficiency of the Complaint 12 The second and third Eitel factors focus on the merits of the substantive claims and the 13 sufficiency of the complaint. Eitel, 782 F.2d at 1471–72. “These two factors are often analyzed 14 together and require courts to consider whether a plaintiff has ‘state[d] a claim on which [it] may 15 recover.’” Vietnam Reform Party, 416 F. Supp. 3d at 962 (quoting PepsiCo, Inc. v. California 16 Sec. Cans, 238 F. Supp. 2d 1172, 1175 (C.D. Cal. 2002)). “Of all the Eitel factors, courts often 17 consider the second and third factors to be ‘the most important.’” Id. (quoting Sanrio, Inc. v. Jay 18 Yoon, 2012 WL 610451, at *4 (N.D. Cal. Feb. 24, 2012)). 19 The government brings its claims pursuant to 18 U.S.C. § 981(a)(1), under which property 20 linked to violations of 18 U.S.C. §§ 1343 and 1956 are subject to forfeiture. Section 1343 21 prohibits transmitting “by means of wire, radio, or television communications in interstate or 22 foreign commerce, any writings, signs, signals, pictures, or sounds for the purpose of executing” a 23 scheme to defraud. Section 1956(a)(1)(B)(i) prohibits conducting financial transactions with 24 funds known to be the proceeds of unlawful activity for the purpose of concealing or disguising 25 the proceeds. 26 The facts set forth in the government’s complaint establish that the Defendant Property is 27 property traceable to wire-fraud victims, property involved in money laundering, or both. See 1 complaint:

2 1. is verified by Special Agent Alfonso Speed from the U.S. Secret Service (Compl. Verification, ECF No. 1 at 18); 3 2. states the grounds for subject matter jurisdiction and venue (Compl. 4 ¶¶ 1-5);

5 3. describes the property with reasonable particularity (id. ¶ 7);

6 4. states the location where the seizure occurred (id. ¶¶ 7, 83-88);

7 5. identifies the statues under which forfeiture is sought (id. ¶¶ 1, 89- 93); and 8 6. states sufficiently detailed facts (as discussed above) to support a 9 reasonable belief that the government will be able to meet its burden of proof at trial (id. ¶¶ 20-88). 10 11 Thus, the Court finds the government’s complaint is sufficient and there are sufficient facts 12 alleged to show that the Defendant Property is subject to forfeiture. These factors both favor 13 default judgment. 14 3. The Sum of Money at Stake in the Action 15 Under the fourth Eitel factor, “the Court must consider the amount of money at stake in 16 relation to the seriousness of Defendant’s conduct.” Dr. JKL Ltd. v. HPC IT Educ. Ctr., 749 F. 17 Supp. 2d 1038, 1050 (N.D. Cal. 2010) (citation and quotation marks omitted). When the amount 18 at stake is substantial or unreasonable in light of the allegations in the complaint, default judgment 19 is disfavored. See Eitel, 782 F.2d at 1472 (affirming the denial of default judgment where the 20 plaintiff sought $3 million in damages and the parties disputed material facts in the pleadings). 21 “However, when the sum of money at stake is tailored to the specific misconduct of the defendant, 22 default judgment may be appropriate.” Yelp Inc. v. Catron, 70 F. Supp. 3d 1082, 1100 (N.D. Cal. 23 2014). 24 The government represents the Defendant Property consists of approximately 25 1,360,000.748 USDT and approximately $3,859,703.65. In total, the Defendant Property is worth 26 about $5.2 million. Mot. at 8. While $5.2 million is not an insignificant sum, no person has come 27 forward to challenge the forfeiture, despite the only known potential claimant receiving direct 1 conduct. See, e.g., United States v. Approximately $94,600 in U.S. Currency, 2018 WL 2215845, 2 at *8 (N.D. Cal. May 15, 2018) (finding this factor favors default judgment in forfeiture case 3 where “the Currency represents the entire amount of money actually seized” and “[n]o person has 4 come forward to challenge the forfeiture”). 5 4. The Possibility of Dispute Concerning Material Facts 6 The fifth Eitel factor examines the likelihood of dispute between the parties regarding the 7 material facts surrounding the case. Eitel, 782 F.2d at 1471–72. However, upon entry of default, 8 the defendant is “deemed to have admitted all well-pleaded factual allegations” in the complaint. 9 DIRECTV, Inc., 503 F.3d at 851 (citing Fed. R. Civ. P. 55(a)). 10 The likelihood of dispute in this case is minimal. As outlined above, the government 11 published appropriate notice of this action and served notice upon the only known potential 12 claimant. Having been made aware of the case, no potential claimant has chosen to enter the 13 action. Since this case began, no dispute regarding any material facts has been raised. Thus, this 14 factor, too, weighs in the government’s favor. 15 5. Whether Default was Due to Excusable Neglect 16 The sixth Eitel factor examines whether the defendant’s failure to respond to the complaint 17 was the result of excusable neglect. Eitel, 782 F.2d at 1471–72. Here, the government properly 18 served the known potential claimant, but no claim was ever filed in court and there was no 19 response to the motion for default judgment. Further, there is nothing in the record suggesting this 20 failure is based on excusable neglect. Given this record, there is nothing suggesting that the 21 failure to file a claim or otherwise participate in this litigation is due to excusable neglect, and this 22 factor supports default judgment. 23 6. Policy Favoring Deciding a Case on its Merits 24 The last Eitel factor examines whether the policy of deciding a case based on the merits 25 precludes entry of default judgment. Eitel, 782 F.2d at 1472. In Eitel, the Ninth Circuit 26 admonished that “[c]ases should be decided on their merits whenever reasonably possible.” Id. 27 “The existence of Federal Rule of Civil Procedure 55(b), however, shows that this policy is not 1 4380965, at *11 (N.D. Cal. July 16, 2015) (citing Kloepping v. Fireman’s Fund, 1996 WL 75314, 2 at *3 (N.D. Cal. Feb. 13, 1996)). Further, no claimant has come forward to contest the forfeiture, 3 making it impossible to obtain a decision on the merits. See Approximately $50,000 in U.S. 4 || Currency, 2017 WL 3616443, at *7 (finding that the seventh Eitel factor did not outweigh the 5 other six factors where there was no claimant in the case, and, as such, it was not possible to 6 obtain a decision on the merits). 7 7. Summary of the Eitel Factors 8 In sum, the majority of the Eitel factors weigh in favor of granting default judgment. 9 VI. CONCLUSION 10 For the reasons stated above, the Court GRANTS the government’s motion for default 11 || judgment against the Defendant Property. The government shall file a proposed form of judgment 12 || within 14 days of the date of this order, after which judgment will be entered separately. 5 13 IT IS SO ORDERED. 14 15 || Dated: January 30, 2024 A 16 Ay \ - ljoy~— THOMAS S. HIXSON 17 United States Magistrate Judge 18 19 20 21 22 23 24 25 26 27 28