Federal prosecutors are putting increased pressure on former Madoff employee, Daniel Bonventre, by demanding that his lawyer not use any more money provided by his client to defend the case.  In a letter dated 12/21, defense lawyer Andrew Frisch was told not to draw on the $820,000 given to him to defend the case because the money was subject to forfeiture if Mr. Bonventre was convicted of criminal charges stemming from his longtime boss’s fraud.

The lawyer responded by seeking to dismiss the charges against Mr. Bonventre if the government didn't withdraw the demand.  He characterized the demand as an intentional interference with his client's right to counsel and due process.  The U.S. attorney’s office took a similar approach several years ago in its tax shelter prosecution of several partners and employees of accounting giant KPMG but, in that case (U.S. v. Stein), the charges were dismissed.  Mr. Frisch, however, doubts his client's case will have the same outcome - because the freezing of assets subject to forfeiture has not been viewed as interfering with a defendant’s right to counsel.

In the Stein case, prosecutors pressured KPMG to withhold payment of the legal fees for individuals at the firm who were under investigation to demonstrate its cooperation with the government. The United States Court of Appeals for the Second Circuit found that this interfered with the Sixth Amendment right to counsel of the partners and employees because the firm had an obligation to pay for their lawyers and only refused to do so in order to pressure them to cooperate with the Justice Department.

    Critical Aspect in Bonventre Case, and Defendant's Options.   A critical distinction is that prosecutors have filed a criminal asset forfeiture claim against him, alleging that he can be held responsible for the billions of dollars of losses suffered by Mr. Madoff’s investors.  If convicted of the charges, the court can order Mr. Bonventre to forfeit any money traceable to the fraud along with what are called “substitute assets," which are any funds he has that can be used to satisfy the forfeiture judgment. 

Given that prosecutors are seeking the forfeiture of at least $154 billion from Mr. Bonventre, an order for just 1% of that figure would lead to the seizure of all of Mr. Bonventre’s assets.

In Caplin & Drysdale v. United States, the Supreme Court rejected the argument that a pretrial freeze on a defendant’s assets that prevented him from paying his legal fees violated the Sixth Amendment right to counsel. Because the money would be subject to forfeiture after a conviction, the court concluded that the “defendant has no Sixth Amendment right to spend another person’s money for services rendered by an attorney, even if those funds are the only way that that defendant will be able to retain the attorney of his choice.”

The government’s move to prevent any further use of the money that Mr. Frisch received to defend the case could put Mr. Bonventre at a severe disadvantage as the prosecution moves forward. If he cannot gain access to money from any of his bank accounts, or borrow against his two homes, to pay for his lawyer, then he will probably have to seek court-appointed counsel to represent him.

If Mr. Bonventre is unable to be represented by a privately retained lawyer, he would probably have to seek a court-appointed counsel to represent him, who would be paid only $125 an hour, and any reimbursement above $9,700 would have to be approved by the chief judge for the Southern District of New York.  That's not much to defend a case involving millions of pages of documents and transactions stretching back decades.  Hiring outside experts also would require judicial approval, and the amount made available to a defendant is usually quite limited.

Mr. Bonventre is one of five former Madoff employees charged in the case, and he is not the only defendant whose assets have been targeted by prosecutors.  Annette Bongiorno, Mr. Madoff’s former assistant, had her bail revoked in December and is now arguing that she should be released from jail because a freeze on her bank accounts will prevent her from fleeing before trial.  All in all, this latest development is a clear sign the government is using all of its available weapons to push the case forward.

For further details, and to access the Prosecutors’ Letter to Bonventre’s Lawyer, as well as the Defense Motion for Dismissal of Case Against Bonventre Letter to Lawyer, go to:    [NYT Dealbook, 1/6/11]