United States v. Bailey (926 F. Supp. 2d 739, 2013)

MEMORANDUM OF DECISION AND ORDER

MARTIN REIDINGER, District Judge.

THIS MATTER is before the Court on the ancillary petitions filed by former clients of the Defendant James W. “Bill” Bailey, Jr., a financial advisor who has admitted to engaging in a massive Ponzi scheme to defraud investors of millions of dollars over the course of a decade. The Petitioners whose matters are addressed by this Order forwarded funds from their individual retirement accounts (IRAs) to the Defendant for the purpose of purchasing real estate, or funding real estate purchases by others, with their IRA funds. Unlike so many of the Defendant’s other clients, whose funds were stolen and never invested as promised, the present Petitioners each received the real estate asset they had instructed the Defendant to purchase within the time promised. The Government now seeks the forfeiture of these properties from the Petitioners on the theory that these assets constitute the proceeds of the Defendant’s fraud. For the reasons that follow, the Court rejects the Government’s position and therefore orders that these properties should be removed from the preliminary order of forfeiture.

I. PROCEDURAL BACKGROUND

On February 1, 2011, the Defendant James W. “Bill” Bailey was charged in a Bill of Information with filing false tax returns, in violation of 26 U.S.C. § 7206(1); committing mail fraud, in violation of 18 U.S.C. § 1341; and committing securities fraud, in violation of 15 U.S.C. §§ 78j(b) and 78ff, 17 C.F.R. § 240.10b-5, and 18 U.S.C. § 2. [Doc. 1]. The Bill of Information contained a Notice of Forfeiture, which stated the Government’s intent to pursue the forfeiture of the Defendant’s interest in various properties pursuant to 18 U.S.C. § 982 and 28 U.S.C. § 2461(c), including “any and all assets titled in the name of LLCs established by Defendant and/or Southern Financial Services for the purpose of managing and/or purchasing assets.... ” [Id. at 3].

The Defendant entered a plea of guilty to the Bill of Information on February 16, 2011. [Doc. 15]. Following the Defendant’s plea of guilty, the Government and the Defendant presented the Court with a proposed Consent Order and Judgment of Forfeiture (“Consent Order”), pursuant to which the Defendant agreed to forfeit, among other things, his interest in the properties identified in the Notice of Forfeiture in the Bill of Information. [Doc. 16 at 8]. Beyond the Defendant’s consent to the proposed forfeiture and his stipulation as set forth in the Plea Agreement that he “has or had a possessory interest or other legal interest in each item or property” identified in the Bill of Information [Doc. 3 at ¶ 8(b) ], the Government presented no evidence supporting the forfeiture of these properties. The Consent Order was entered by the Magistrate Judge on February 16, 2011.

On March 11, 2011, several petitioners (collectively “the Sage Petitioners”) filed Verified Claims, seeking to adjudicate the validity of their interest in the certificated securities of Sage Automotive Interiors, Inc. (“Sage Certificates” or “Certificates”) that were identified in the Consent Order. [Docs. 23-38]. Other claims asserting interests in various properties identified in the Consent Order quickly followed. [See Docs. 40, 41, 42, 43, 46, 47, 62, 71, 72, 73, 74, 76, 79, 80, 82, 83, 85, 86, 87, 88, 89, 92, 93, 94, 96, 97, 98, 99, 100, 101, 103, 104, 110, 111, 113, 114, 115, 119, 120, 121, 122, 131, 168, 171, 174, 183, 186, 187, 200, 292].

On March 22, 2011, the Sage Petitioners moved for an expedited hearing on their claims. [Doc. 48]. The Court granted the Sage Petitioners’ motion and held an expedited hearing on April 5, 2011. Following the expedited hearing, on April 8, 2011, 2011 WL 1343192, the Court entered an Order (“the First Sage Order”), directing the return of the Certificates to the Sage Petitioners subject to certain requirements. [Doc. 164]. Particularly, the Court concluded that because the Defendant had obtained money from the Sage Petitioners through fraudulent means, a constructive trust arose in those funds at the time that they were conveyed to the Defendant. [Id. at 7]. Having determined that the Sage Petitioners had a valid legal interest in the funds under state law and that such interest was superior to any interest the Defendant may have had, the Court then conducted a tracing analysis. Using the bank record summaries that were prepared by the Government and introduced at the hearing without objection by the Sage Petitioners (“the Bank Summaries”), the Court applied the lowest intermediate balance rule (“LIBR”) to trace the Sage Petitioners’ funds and determine the amount of the Certificates’ value that should be returned to them. The Court recognized a constructive trust on the entirety of the Certificates issued on behalf of some of the Sage Petitioners. [Id. at 8-9]. With respect to other Sage Petitioners, for whom Certificates were purchased in whole or in part with commingled funds, the Court awarded only a percentage of the Certificates’ value. [Id. at 9-10].

Several of those Sage Petitioners who received only a percentage of the Certificates’ value filed a Motion to Clarify the Order on June 7, 2011, seeking reconsideration of the Court’s Order regarding the calculation of their percentage ownership of the Certificates. [Doc. 226]. While that motion was pending, the Court granted the motions of various other Petitioners to conduct discovery for a period of sixty (60) days. [Doc. 230].

In July 2011, the Court referred the remaining claims to the Magistrate Judge for the purpose of conducting such ancillary proceedings as may be required to adjudicate these claims [Doc. 239]. The Magistrate Judge proceeded to schedule hearings on the Petitioners’ claims for the end of September 2011. [Doc. 241],

On September 7, 2011, this Court entered an Order staying all proceedings pending resolution of the Sage Petitioners’ Motion to Clarify. [Doc. 286]. In ordering the stay, the Court noted that reconsideration of the First Sage Order “may have a significant impact on the manner in which the other pending ancillary claims are addressed by the parties and resolved by this Court.” [Id]. Subsequently, on November 10, 2011, 2011 WL 5509027, the Court granted the Sage Petitioners’ Motion to Clarify and vacated the First Sage Order with respect to these Petitioners (“the Second Sage Order”). A hearing was set to hear these Petitioners’ ancillary claims on December 12, 2011. [Doc. 306].

In the Second Sage Order, the Court stated that the filings in the ancillary proceedings had caused it to question the basis for the preliminary order of forfeiture obtained by the Government:

The Court determines that rehearing of this matter is necessary for another, more fundamental reason as well. Review of the Motion for Reconsideration, as well as the myriad of filing[s] by other claimants since the original Sage Hearing, has led the Court to question whether the Government satisfied its initial burden of proving the requisite nexus between the Defendant’s crimes and the property sought to be seized pursuant to the preliminary order of forfeiture.

[Doc. 306 at 12]. Accordingly, the Court determined that the Government would be required to show the requisite nexus between each property subject to forfeiture pursuant to the Consent Order and the offenses to which the Defendant pled guilty before the Petitioners would be required to go forward with their claims. mi

The hearing regarding the Sage Petitioners’ Motion to Clarify was held on December 12, 2011. During the hearing, the Government presented the testimony of five witnesses and offered into evidence voluminous documents as exhibits. Included among these witnesses were former clients of the Defendant, who had established Investment Management or Asset Management Accounts with Southern Financial. These witnesses testified that the Defendant never purchased any of the stocks, bonds, or securities that he had been instructed to purchase, and that he had provided them false account statements to hide his fraud. At the conclusion of the Government’s nexus presentation, the Sage Petitioners submitted nine exhibits of documents concerning their interests in the Sage Certificates. [Doc. 318]. The parties were given the opportunity to file post-hearing briefs, as well as proposed findings of fact and conclusions of law for the Court’s consideration. [Docs. 319, 320, 321, 322, 323, 324],

On February 22, 2012, 2012 WL 569744, the Court entered an Order granting the Petitions of those Sage Petitioners who challenged the First Sage Order, and the Consent Order and Judgment of Forfeiture was amended to reflect their superior rights in the Sage Certificates. [Doc. 331].

In light of the Court’s Order, a status conference was held with counsel on March 8, 2012 to address the remaining ancillary claims. At that time, the Government advised the Court that it did not intend to offer any additional evidence regarding the nexus between the Petitioners’ property that had been seized and the Defendant’s crimes. As a consequence of this status conference, the Court ordered motions to dismiss and/or summary judgment to be filed by April 23, 2012. [See TexNOnly Order entered March 8, 2012], With respect to Petitioner Mark Fox, the parties were given until May 14, 2012 to file such motions. [Zd.]. Pursuant to the Court’s Order, the remaining Petitioners filed the following motions:

(1) The Motion for Summary Judgment filed by William Stephen Aldridge regarding the forfeiture of the real property at 130 NW 5th Street, Oak Island, North Carolina, more particularly described in Deed Book 2810, Page 393 in the Brunswick County Register of Deeds (as described in Paragraph (l)(VI)(a) of the Consent Order and Judgment of Forfeiture) [Doc. 441];

(2) The Motion for Summary Judgment filed by James F. Combest, the James F. Combest Self Directed IRA, LLC, and the James F. Com-best Individual Retirement Account (collectively, “Combest Petitioners”) regarding the forfeiture of the membership interest in Griffin Stafford Lodging One, LLC (as described in Paragraph l(VI)(zz) of the Consent Order and Judgment of Forfeiture) [Doc. 435];

(3) The Motion for Summary Judgment filed by Peter L. Contrastano, the Peter L. Contrastano self-directed Real Estate Individual Retirement Account, and the Peter L. Contrastano Real Estate IRA, LLC (collectively, “Contrastano Petitioners”) regarding the forfeiture of the real property at 1525 NW 57th St, Unit 626, Seattle, Washington, more particularly described as Parcel Number 20080917000400 in the King County Register of Deeds (as described in Paragraph l(VI)(c) of the Consent Order and Judgment of Forfeiture) [Doc. 413];

(4) The Motion for Summary Judgment filed by Beverly J. Daggett, the Beverly J. Daggett self-directed Real Estate Individual Retirement Account, and the Beverly J. Daggett Real Estate IRA, LLC (collectively, “Beverly Daggett Petitioners”) regarding the forfeiture of one or more promissory notes secured by deeds of trust on the real property known as the “Louise B Buckner Property” and more particularly described in Buncombe County Register of Deeds Book 4613, Page 1947 (as described in Paragraph l(VI)(d) of the Consent Order and Judgment of Forfeiture) [Doc. 418];

(5) The Motion for Summary Judgment filed by Russell L. Daggett, the Russell L. Daggett self-directed Real Estate Individual Retirement Account, and the Russell L. Daggett Real Estate IRA, LLC (collectively, “Russell Daggett Petitioners”) regarding the forfeiture of one or more promissory notes secured by deeds of trust on the real property known as the “Louise B Buckner Property” and more particularly described in Buncombe County Register of Deeds Book 4613, Page 1947 (as described in Paragraph l(VI)(d) of the Consent Order and Judgment of Forfeiture) [Doc. 422];

(6) The Motion for Summary Judgment filed by James R. Eddy and the James R. Eddy Real Estate IRA, LLC (“James Eddy Petitioners”), and Susann M. Eddy and The Susann M. Eddy Revocable Living Trust (“Susann Eddy Petitioners”) (collectively, “Eddy Petitioners”) regarding the forfeiture of the real property known as 156 Allegra Lane, Silverstone, CO 80498, more particularly described in Summit County records as “Unit 156 BLDG N-6 PONDS AT BLUE RIVER CONDO SEVENTH AMENDMENT” (as described in Paragraph l(VI)(e) of the Consent Order and Judgment of Forfeiture) [Doc. 367];

(7) The Motion for Summary Judgment filed by Jeffrey E. Efird and Melissa P. Efird (collectively, “Efird Petitioners”) regarding the forfeiture of: the real property at 23 Sequoia Drive, Greenville, South Carolina, more particularly described in Deed Book 2367, Page 5518 in the Green-ville County Register of Deeds (as described in Paragraph l(VI)(f) of the Consent Order and Judgment of Forfeiture); the real property at 1608 E. North Street, Greenville, South Carolina, more particularly described in Deed Book 2374, Page 4994 in the Greenville County Register of Deeds (as described in Paragraph l(VI)(g) of the Consent Order and Judgment of Forfeiture); the real property at 409 Morris Street, Greenville, South Carolina, more particularly described in Deed Book 2364, Page 3399 in the Greenville County Register of Deeds (as described in Paragraph l(VI)(h) of the Consent Order and Judgment of Forfeiture); and the real property at 121 Henderson Avenue, Greenville, South Carolina, more particularly described in Deed Book 2366, Page 698 in the Greenville County Register of Deeds (as described in Paragraph l(VI)(i) of the Consent Order and Judgment of Forfeiture) [Doc. 371] ;

(8) The Motion for Summary Judgment by James R. Fatland Real Estate IRA, LLC regarding the forfeiture of the real property at 602 Highlands Mountain Club, Highlands, North Carolina, more particularly described in Deed Book A-33, Page 1328 in the Macon County Register of Deeds (as described in Paragraph l(VI)(j) of the Consent Order and Judgment of Forfeiture) [Doc. 365];

(9) The Motion for Summary Judgment filed by Mark A. Fox and Mark A. Fox Real Estate IRA, LLC (collectively, “Fox Petitioners”) regarding the forfeiture of Lot S-8 as shown on a Plat in Plat Book 5 at Page 881 in Madison County Register of Deeds, North Carolina (as described in Paragraph l(VI)(i) of the Consent Order and Judgment of Forfeiture) [Doc. 520],

(10) The Motion for Summary Judgment filed by William R. Ghormley, the William R. Ghormley Individual Retirement Account, and the William R. Ghormley Real Estate IRA, LLC (“Ghormley Petitioners”) regarding the forfeiture of the real property known as “100 acres more or less Big Hickory Bear Pen Branch,” more particularly described in Deed Book 336, Page 554 in the Madison County, North Carolina Register of Deeds (as described in Paragraph l(VI)(m) of the Consent Order and Judgment of Forfeiture) [Doc. 424];

(11) The Motion for Summary Judgment filed by Julia Kathleen Harold, individually and on behalf of the Julia Kathleen McCarthy Real Estate IRA, LLC (collectively, “Harold Petitioners”), regarding the forfeiture of the real property at 13 Old Candler Town Road, Candler, North Carolina, more particularly described in Deed Book 4688, Page 792 in the Buncombe County Register of Deeds (as described in Paragraph l(VI)(bb) in the Consent Order and Judgment of Forfeiture) [Doc. 404];

(12) The Motion for Summary Judgment filed by Victor D. Howard, the Victor D. Howard Real Estate Individual Retirement Account, and the Victor D. Howard Real Estate IRA, LLC (collectively, “Howard Petitioners”) regarding the forfeiture of the real property at 2622 Dayton Street, Knoxville, Tennessee, more particularly described in Instrument No. 200810270027933 in the Knox County Registry of Deeds (as described in Paragraph l(VI)(r) of the Consent Order and Judgment of Forfeiture) [Doc. 402];

(13) The Motion for Summary Judgment filed by Joan T. Johnstone, individually and on behalf of the Joan T. Johnstone Real Estate IRA, LLC (collectively, “Johnstone Petitioners”) regarding the forfeiture of the real property at Flowery Branch Road, Buford, Georgia, more particularly described in Deed Book 49644, Page 1 in the Gwinnett County Register of Deeds (as described in Paragraph l(VI)(s) of the Consent Order and Judgment of Forfeiture) [Doc. 436];

(14) The Motion for Summary Judgment filed by Harold K. Ledford IRA, LLC regarding the forfeiture of the real property known as Parcel 1-1 Township, Parcel B, Plat Book 6 at page 29, Madison County, North Carolina, more particularly described in Deed Book 415, Page 475 in the Madison County Register of Deeds (as described in Paragraph l(VI)(u) of the Consent Order and Judgment of Forfeiture) [Doc. 369];

(15) The Motion for Summary Judgment' filed by the Richard J. Les-sow Real Estate IRA and Richard J. Lessow, M.D., both individually and in his capacity as owner/beneficial owner of the Lessow IRA and the fictitious Richard J. Lessow Real Estate IRA, LLC (collectively, “Lessow Petitioners”) regarding the forfeiture of the interests secured by a Mortgage Security. Agreement on file at the New York City Department of Finance, Office of the City Register, Document 2009061601107002, in regard to real property at Manhattan Borough Block 1497, Lot 1001, also known as 1049 5th Avenue (as described in Paragraph l(VI)(t) of the Consent Order and Judgment of Forfeiture) [Doc. 453];

(16) The Motion for Summary Judgment filed by James H. Lucas, Jr., the James H. Lucas, Jr. self-directed Real Estate Individual Retirement Account, and the James H. Lucas, Jr. Real Estate IRA, LLC (collectively, “Lucas Petitioners”) regarding the forfeiture of: the real property at 22 Harris Lane, Maylene, Alabama, more particularly described as Instrument No. 20080530000219090 in the Shelby County Register of Deeds (as described in Paragraph l(VI)(w) of the Consent Order and Judgment of Forfeiture); the real property at 78 Harris Lane, Maylene, Alabama, more particularly described as Instrument No. 20080530000219080 in the Shelby County Register of Deeds (as described in Paragraph l(VI)(x) of the Consent Order and Judgment of Forfeiture); and the real property at 122 Harris Lane, Maylene, Alabama, more particularly described as Instrument No. 20080530000219100 (as described in Paragraph l(VI)(y) of the Consent Order and Judgment of Forfeiture) [Doc. 427];

(17) The Motion for Summary Judgment filed by David R. McCartney, David R. McCartney Individual Retirement Account, and the David R. McCartney Real Estate IRA, LLC (collectively, “McCartney Petitioners”) regarding the forfeiture of the membership interest in David R. McCartney Real Estate, IRC., LLC, a North Carolina limited Liability Company and the real property at 2896 Treadwell Street, Mt. Pleasant, South Carolina, more particularly described in Deed Book 651, Page 45 in the Charleston County Register of Deeds (as described in Paragraph l(VI)(aa) of the Consent Order and Judgment of Forfeiture) [Doc. 448];

(18) The Motion for Summary Judgment filed by Michael James Mehaffey, Michael James Mehaffey Real Estate IRA, LLC, and The Michael James Mehaffey Individual Retirement Account (collectively, “Mehaffey Petitioners”) regarding the forfeiture of the real property at Richland Creek Road, Clyde, North Carolina, more particularly described in Deed Book RB713, page 1363 in the Haywood County Register of Deeds (as described in Paragraph l(VT)(cc) of the Consent Order and Judgment of Forfeiture) [Doc. 433];

(19) The Motion for Summary Judgment filed by Paul L. Miller and Paul L. Miller Real Estate IRA, LLC (collectively, “Miller Petitioners”) regarding the forfeiture of the real property at 420 Hells Hollow Lane, Blue Ridge, Georgia, more particularly described in Deed Book 829, Page 312 in the Fannin County Real Estate Index (as described in Paragraph l(VI)(gg) of the Consent Order and Judgment of Forfeiture) [Doc. 439];

(20) The Motion for Summary Judgment filed by John C. Myers, The John C. Myers Individual Retirement Account, and John C. Myers Real Estate IRA, LLC (collectively, “Myers Petitioners”) regarding the forfeiture of the real property at Lot 2 at Sweetwater Hills, Ridge-view, Henderson County, North Carolina, more particularly described in Deed book 1411, Page 113 in the Henderson County Register of Deeds (as described in Paragraph l(VI)(ii) of the Consent Order and Judgment of Forfeiture) [Doc. 275];

(21) The Motion for Summary Judgment filed by William Ellis Peacock, William Ellis Peacock Real Estate IRA, LLC, and The William Ellis Peacock Individual Retirement Account (collectively, “Peacock Petitioners”) regarding the forfeiture of the real property at 261 3rd Street, Key Colony Beach, Florida, more particularly described as Parcel Number 010072750-000000 in the Monroe County Register of Deeds (as described in Paragraph l(VT)(jj) of the Consent Order and Judgment of Forfeiture) [Doc. 407];

(22) The Joint Motions for Summary Judgment filed by Becky B. Pope (“Becky Pope”) and Keith Pope, the Keith Pope Individual Retirement Account, and Keith Pope Real Estate IRA, LLC (collectively, “Keith Pope Petitioners”) regarding the forfeiture of the real property at Lot 1, The Gorges at Lake Toxaway, more particularly described in Deed Book 484, Page 811 in the Transylvania County Register of Deeds (as described in Paragraph 1(VI)(11) of the Consent Order and Judgment of Forfeiture) and the real property at Bayside Lot # 58, Grainger County, Tennessee, more particularly described in Deed Book IN289, Page 1211, in the Grainger County Register of Deeds (as described in Paragraph l(VI)(kk) of the Consent Order and Judgment of Forfeiture) [Docs. 416, 420];

(23) The Motion for Summary Judgment filed by Terry L. Price and Terry L. Price Real Estate IRA, LLC (collectively, “Price Petitioners”) regarding the forfeiture of the real property at Bayside Lot # 57, Grainger County, Tennessee, more particularly described in Deed Book IN289, Page 1208 in the Grainger County Register of Deeds (as described in Paragraph l(VI)(mm) of the Consent Order and Judgment of Forfeiture) [Doc. 452];

(24) The Motion for Summary Judgment filed by Terry R. Sloan, Terry R. Sloan Individual Retirement Account, and the Terry R. Sloan Real Estate IRA, LLC (collectively, “Sloan Petitioners”) regarding the forfeiture of: the membership interest in Terry R. Sloan Real Estate IRA, LLC a North Carolina Limited Liability Company; the real property at 141 Wexford Drive, Condominium 200, County of Anderson, Anderson, South Carolina 29621, more particularly described in Deed Book 8550, Page 218 in the Anderson County Register of Deeds (as described in Paragraph l(VI)(pp) of the Consent Order and Judgment of Forfeiture); and the real property at 107 and 108 Highfield Court, Anderson, South Carolina, more particularly described in Deed Book 8716, Page 176 in the Anderson County Register of Deeds (as described in Paragraph l(VI)(qq) of the Consent Order and Judgment of Forfeiture) [Doc. 450];

(25) The Motion for Summary Judgment filed by Kenneth L. Talley, the Kenneth L. Talley self-directed Real Estate Individual Retirement Account, and the Kenneth L. Talley Real Estate IRA, LLC (“Talley Petitioners”) regarding the forfeiture of the forfeiture of the real property at 301-305 West Oaklane Avenue, Johnson City, Tennessee, more particularly described at Roll 587, Image 2028 in the Washington County Register of Deeds (as described in Paragraph l(VI)(w) of the Consent Order and Judgment of Forfeiture) [Doc. 401]; and

(26) The Motion for Summary Judgment filed by Glenn A. Warren, the Glenn A. Warren self-directed Real Estate Individual Retirement Account, and the Glenn A. Warren Real Estate IRA, LLC (collectively, ‘Warren Petitioners”) regarding the forfeiture of the real property at Rich Square Township, Northampton County, North Carolina, more particularly described as Parcel Number 06-01907 in the Northampton County property records (as described in Paragraph l(VI)(xx) of the Consent Order and Judgment of Forfeiture) [Doc. 409].

Also pending before the Court are the Government’s Motions to Dismiss, or in the Alternative, for Summary Judgment with respect to the above-referenced Petitioners’ claims [Docs. 373, 375, 376, 377, 378, 380, 381, 382, 383, 384, 385, 386, 387, 388, 389, 390, 391, 392, 393, 394, 395, 396, 397, 398, 399, 400, 432] and its Motion to Correct Clerical Errors [Doc. 286], These motions have been fully briefed and are ripe for adjudication.

II. STANDARD OF REVIEW

A. Standard of Review Applicable to Motions to Dismiss

The Government moves to dismiss each of the remaining ancillary claims on the grounds that the Petitioners lack standing to assert their claims. A motion to dismiss a third-party petition for lack of standing in a forfeiture proceeding is analyzed under the same standards as a motion to dismiss a civil complaint under Federal Rule of Civil Procedure 12(b). Pacheco v. Serendensky, 393 F.3d 348, 352 (2d Cir.2004). Thus, in order to survive a motion to dismiss, an ancillary petition “must contain sufficient factual matter, accepted as true, to ‘state a claim to relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). The petition’s factual allegations must be taken as true and construed in favor of the petitioner. See United States v. Salti, 579 F.3d 656, 667 n. 11 (6th Cir.2009); Fed. R.Crim.P. 32.2(c)(1)(A) (stating that for purposes of considering a motion to dismiss a third-party petition for lack of standing in an ancillary proceeding, “the facts set forth in the petition are assumed to be true”).

B. Standard of Review Applicable to Motions for Summary Judgment

While these ancillary proceedings arise in the context of criminal forfeiture, the Federal Rules of Criminal Procedure allow for a party to move for summary judgment pursuant to Rule 56 of the Federal Rules of Civil Procedure. See Fed. R.Crim.P. 32.2(c)(1)(B). Accordingly, in reviewing the parties’ summary judgment motions, the Court applies the same standard of review that would be applied in a civil case. United States v. Corpus, 491 F.3d 205, 208-09 (5th Cir.2007).

Summary judgment is proper “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A fact is “material” if it “might affect the outcome of the case.” News and Observer Pub. Co. v. Raleigh-Durham Airport Auth., 597 F.3d 570, 576 (4th Cir.2010). A “genuine dispute” exists “if the evidence is such that a reasonable [fact finder] could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).

A party asserting that a fact cannot be genuinely disputed must support its assertion with citations to the record. Fed.R.Civ.P. 56(c)(1). “Regardless of whether he may ultimately be responsible for proof and persuasion, the party seeking summary judgment bears an initial burden of demonstrating the absence of a genuine issue of material fact.” Bouchat v. Baltimore Ravens Football Club, Inc., 346 F.3d 514, 522 (4th Cir.2003). If this showing is made, the burden then shifts to the non-moving party who must convince the Court that a triable issue does exist. Id.

A party opposing a properly supported motion for summary judgment may not rest upon the mere allegations or denials of his pleadings, but rather must set forth specific facts showing that there is a genuine issue for trial. Furthermore, neither unsupported speculation, nor evidence that is merely colorable or not significantly probative, will suffice to defeat a motion for summary judgment; rather, if the adverse party fails to bring forth facts showing that reasonable minds could differ on a material point, then, regardless of any proof or evidentiary requirements imposed by the substantive law, summary judgment, if appropriate shall be entered.

Id. (internal quotation marks and citations omitted).

In considering the facts for the purposes of a summary judgment motion, the Court must view the pleadings and materials presented in the light most favorable to the nonmoving party and must draw all reasonable inferences in the non-moving party’s favor. Adams v. Trustees of the Univ. of N.C.-Wilmington, 640 F.3d 550, 556 (4th Cir.2011). Where both parties seek summary judgment, the Court “must review each motion separately on its own merits to determine whether either of the parties deserves judgment as a matter of law.” Rossignol v. Voorhaar, 316 F.3d 516, 523 (4th Cir.2003) (internal quotation marks and citation omitted).

III. FACTUAL BACKGROUND

At the outset, the Court notes that the vast majority of the Government’s summary judgment motions do not present a summary of the undisputed facts in support of each particular motion. Rather than presenting a forecast of evidence in support of these motions, the Government relies on purely legal arguments to argue in favor of denying the Petitioners’ claims. Accordingly, the following summary of the forecast of evidence is derived primarily from the Petitioners’ verified petitions, as well as the affidavits, depositions, and other filings presented in support of the Petitioners’ motions for summary judgment; the depositions of Defendant Bailey, taken July 18, 2011 and August 23, 2011; the Memorandum of Interview prepared by Department of Treasury Special Agent Eric Veater; and the testimony of the Government’s witnesses at the November 12, 2011 hearing regarding the Sage Petitioners. As the Government has offered no forecast of evidence to the contrary of that presented by the Petitioners, the following forecast of evidence as presented by the Petitioners is undisputed.

From approximately January 2000 and continuing through December 2010, Defendant Bailey operated a number of companies, including Southern Financial Services Inc. (“Southern Financial”), 1031 Exchange Services, LLC (“1031 Exchange”), and AVL Properties, LLC (“AVL Properties”) in Asheville, North Carolina. Bailey originally started Southern Financial as an estate planning and insurance business. He later expanded the scope of Southern Financial’s services to include various investment vehicles, which will be described in greater detail infra. Bailey founded AVL Properties as a real estate holding company. In 2004, Bailey created 1031 Exchange to act as a qualified intermediary for 1031 exchanges.

Throughout the relevant time period, the Defendant’s Companies purported to operate as separate entities with separate bank accounts. If one of the Companies had a shortage of money, however, Bailey would transfer funds from the other businesses to the business that was short. For example, Bailey occasionally funded real estate purchases by AVL Properties with funds provided by Southern Financial clients. Further, Bailey occasionally used funds from the 1031 Exchange bank accounts to fund purchases on behalf of Southern Financial clients.

Through Southern Financial, Defendant Bailey offered four basic types of services to clients: (1) trust and estate administration ; (2) asset management accounts (“AMAs”); (3) investment management accounts (“IMAs”); and (4) self-directed real estate individual retirement accounts (“self-directed IRAs”). Clients who established AMAs with Southern Financial either instructed Bailey to purchase specific assets, such as bonds, foreign currencies or gold, or simply deposited funds with Southern Financial and entrusted Bailey to manage the money. Unbeknownst to these clients, however, when their funds were forwarded to Southern Financial, either for the purchase of a specific asset or for the management of an investment fund, Bailey did not utilize the funds as directed but rather deposited these funds in Southern Financial’s bank accounts for use as he saw fit. The AMA clients were then provided fictitious account statements falsely stating that their money was invested.

Similarly, clients who established IMAs with Bailey would deposit funds with Southern Financial for investment. Essentially, an IMA was supposed to function like a private certificate of deposit with a guaranteed rate of return for a specific period of time. Like the AMA clients, IMA clients received fictitious account statements purporting to show their investments growing at the promised rate of return when in fact Bailey had deposited the clients’ funds in Southern Financial accounts for general use by himself and his Companies. In short, Bailey’s treatment of the funds from his AMA and IMA clients was a Madoff-type Ponzi scheme.

The final type of service Bailey purportedly offered to provide through Southern Financial was related to the establishment and operation of self-directed IRAs. In order to maintain the protected status of these IRA funds under Section 408 of the Internal Revenue Code, 26 U.S.C. § 408, real estate IRAs require a qualified custodian who can provide custodial services similar to those services provided for traditional IRA accounts by financial institutions. A qualified custodian’s primary responsibility is to manage the account so that it does not engage in prohibited transactions as defined by § 408. Such prohibited transactions may result in a loss of tax-deferred status, as the assets may be deemed “distributed” by virtue of the prohibited transaction. Any distribution of IRA funds to a third party who is not a qualified custodian under § 408 also results in a loss of tax-deferred status, and the owner of those funds incurs substantial taxes and penalties for this distribution. The real estate IRA investment vehicle offered by Bailey and Southern Financial purportedly allowed clients to use their existing IRA funds to purchase real estate while protecting the tax-deferred status of such funds.

The Petitioners addressed by the present Order were clients of Bailey who sought the establishment of self-directed IRAs with Southern Financial for the purpose of purchasing real estate or other assets with their IRA funds. These Petitioners — William Stephen Aldridge, the Combest Petitioners, the Contrastano Petitioners, the Beverly Daggett Petitioners, the Russell Daggett Petitioners, the Eddy Petitioners, the Efird Petitioners, the James R. Fatland Real Estate IRA, LLC, the Fox Petitioners, the Ghormley Petitioners, the Harold Petitioners, the Howard Petitioners, the Johnstone Petitioners, the Harold K. Ledford IRA, LLC, the Lessow Petitioners, the Lucas Petitioners, the McCartney Petitioners, the Mehaffey Petitioners, the Miller Petitioners, the Myers Petitioners, the Peacock Petitioners, Becky B. Pope, the Keith Pope Petitioners, the Price Petitioners, the Sloan Petitioners, the Talley Petitioners, and the Warren Petitioners — shall be hereinafter referred to collectively as “the IRA Petitioners.”

For each of the IRA Petitioners, unless otherwise noted below, Southern Financial provided the following services. Southern Financial, through Bailey, entered into a standard management agreement with each client for the establishment of a self-directed real estate IRA. Pursuant to that agreement, Bailey established a North Carolina limited liability company (LLC) for the client’s real estate IRA, usually using the client’s name within the name of the LLC (ie“the John Q. Smith Real Estate IRA, LLC”). Bailey utilized a standard form operating agreement, pursuant to which the LLC was designated as a manager-managed LLC, with Southern Financial or Bailey designated as the manager and the client (or the client’s IRA) designated as the sole member of the LLC. It is therefore undisputed that Defendant Bailey had no membership interest in any of the LLCs created on behalf of the IRA Petitioners.

These Petitioners understood that they held 100% membership in their respective LLCs, with Southern Financial or Bailey designated as the manager. All of the LLCs that were organized by Bailey were in fact organized in precisely this manner, even though only some of the Petitioners actually received copies of this written operating agreement.

The standard operating agreement utilized by Defendant Bailey with regard to all of the LLCs that were established describes the control reserved by the client and the limitations which applied to the Defendant. Pursuant to this agreement, the client could replace Defendant Bailey as manager and could dissolve the LLC at the client’s option. The language of the Operating Agreement executed by Petitioner William Ellis Peacock is typical of the standard agreement utilized to establish an LLC for a Southern Financial client:

This Operating Agreement of William Ellis Peacock Real Estate IRA, LLC, a limited liability company organized pursuant to the Act, is entered into and shall be effective as of the Effective Date, by and between the Company and William Ellis Peacock, its sole member.

ARTICLE II. DEFINITIONS

For purposes of this operating agreement, unless the context clearly indicates otherwise, the following terms shall have the following meanings:

1.1. Organization. The Member has organized the Company as a North Carolina Limited Liability Company pursuant to the provisions of Article 57C, the North Carolina Limited Liability Company Act, of the North Carolina General Statutes. The Member hereby confirms that it has appointed Southern Financial Services of North Carolina, Inc. as Manager of the Company.

2.4. Company. William Ellis Peacock Real Estate IRA, LLC, a limited liability company formed under the laws of the State, and any successor limited liability company.

2.6. Company Property. Any Property owned by the Company.

2.10. Manager shall mean one or more managers. Specifically, Manager shall mean Southern Financial Services of North Carolina, Inc. or any Entity, Company, Person or Persons who succeeds it in that capacity....

ARTICLE VI. MANAGEMENT

6.1. Management Rights. Subject to subsection 6.2 of this Article, the business of the Company shall be conducted by the Manager and all management of the Company shall be vested in the Manager----

6.2. Certain Powers of Managers and Restrictions on Authority of the Managers. Notwithstanding subsection 6.1 of this Article, only the Member may take the following actions or may direct the Manager to take the following actions: 6.2.1. The Appointment of another or additional Manager;

6.2.8. The sale, exchange or other Disposition of all, or substantially all, of the Company Property other than in the ordinary course of the Company’s business.

ARTICLE XI. DISSOLUTION AND WINDING UP

11.1. Dissolution. The Company shall be dissolved and its affairs wound up, upon the will of the Member. Notwithstanding any provision of the Act to the contrary, the Company shall continue and not dissolve as a result of the death, retirement, resignation, expulsion, bankruptcy or dissolution of any Member or any other event that terminates the continued membership of the Member....

[Peacock Operating Agreement, Doc. 276-8].

In both the articles of organization filed for each LLC and in subsequent filings with the Secretary of State, Bailey or Southern Financial was identified as a manager, custodian, or registered agent of the Petitioners’ LLCs, as opposed to a member or owner of it. As set forth in the standard operating agreement, Bailey acted as an agent of the Petitioners, with fiduciary obligations and with the authorization to perform only administrative tasks to accomplish the purchase and maintenance of assets funded by the IRAs.

Neither Bailey nor Southern Financial participated in any way in selecting the assets to be purchased with the IRA Petitioners’ funds. The IRA Petitioners performed all of the due diligence in identifying and purchasing their investments. The only service performed by Bailey and Southern Financial with respect to the purchase of the real properties was to accept the IRA proceeds, set up the IRA LLCs, and transfer the IRA funds to complete the purchases of the properties for the benefit of the IRA LLCs. When the purchase of the property selected by the client closed, the title to the property was held by the client’s self-directed IRA LLC. At all times since the closing, the properties have been held and titled in the name of the Petitioners, or their respective LLCs.

Following these purchases, each IRA Petitioner received quarterly statements which listed the purchased property as an asset of the Petitioner’s self-directed IRA LLC. Some Petitioners directed Defendant Bailey to expend funds they had deposited with Southern Financial to pay certain expenses, such as property taxes and association fees, and Defendant Bailey performed those tasks as instructed. These expenditures never exceeded the amount that the IRA Petitioners initially deposited. In the case of those Petitioners who funded mortgages or engaged in the leasing of their properties, Southern Financial collected payments and retained such funds on behalf of the LLCs. The Petitioners paid Southern Financial annual custodial fees, and Southern Financial paid the necessary property taxes and filed the required annual reports with the North Carolina Secretary of State for each LLC that was created.

Unbeknownst to the Petitioners, Defendant Bailey was not in fact a qualified custodian under § 408. Bailey failed to manage the self-directed IRAs appropriately, thus in many cases causing his clients to engage (unknowingly) in prohibited transactions and thereby compromise the tax-deferred status of their funds. When Southern Financial received a wire transfer of funds from a client’s IRA, the money was wired into Southern Financial bank accounts and not into an account designated solely for the client. As a result, the Petitioners’ IRA funds were, at least for a brief time, held in the same account as funds provided by other clients of Southern Financial.

Despite the fact that Bailey failed to manage the self-directed IRAs appropriately, he did properly establish LLCs for all of the IRA Petitioners except one. While operating agreements were not identified for every LLC that Bailey established, each Petitioner asserts — and the Government does not contest — that for each LLC that was created, the specific Petitioner (or the Petitioner’s IRA) was designated as the sole member and owner with Defendant Bailey designated only as the organizer and manager. It is undisputed that Bailey was not, and never had been, a member of any of the Petitioners’ LLCs. Thus, while the procedures Bailey followed were insufficient to preserve certain tax benefits for the Petitioners, the LLCs themselves that were created were at all times valid, properly organized, and existing under North Carolina law. Further, while the Petitioners’ funds may have been temporarily co-mingled with the funds of other Southern Financial clients, all of the transactions for which the Petitioners forwarded funds to Bailey were completed as directed.

Common to all of the Petitioners is the fact that when the Petitioners forwarded their funds to Defendant Bailey and their respective investments were made, they had no notice of any irregularities concerning the operations of Southern Financial or the criminal conduct of Defendant Bailey. Until learning of Defendant Bailey’s guilty plea and the entry of the Preliminary Order of Forfeiture in February 2011, none of the Petitioners had any notice or reason to believe that Defendant Bailey had engaged in any criminal wrongdoing or that the assets they had purchased could be subject to forfeiture. It is undisputed that none of the Petitioners ever authorized or intended either Defendant Bailey or Southern Financial to have any right, title or membership interest in their respective LLCs, or in any of the assets purchased on their behalf.

IV. DISCUSSION

A. Criminal Forfeiture Procedure

The Defendant is subject to mandatory forfeiture due to his convictions for securities fraud and mail fraud. The criminal forfeiture statute, 18 U.S.C. § 982(a)(2), requires the forfeiture of “any property constituting, or derived from, proceeds the person obtained directly or indirectly, as the result of’ certain enumerated offenses, including mail fraud affecting a financial institution. Another forfeiture statute, 18 U.S.C. § 981(a)(1)(C), authorizes the civil forfeiture of “[a]ny property, real or personal, which constitutes or is derived from proceeds traceable to” certain enumerated offenses, such as mail fraud or securities fraud. The provisions of § 981(a)(1)(C) are applicable to this case pursuant to 28 U.S.C. § 2461(c) (allowing criminal forfeiture where civil forfeiture is authorized). These statutory provisions require that the district court “shall order” forfeiture. See 18 U.S.C. § 982(a)(2); 28 U.S.C. § 2461(c). “The mandatory nature of that phrase is clear: When the government has met the requirements for criminal forfeiture, the district court must impose criminal forfeiture, subject only to statutory and constitutional limits.” United States v. Newman, 659 F.3d 1235, 1240 (9th Cir.2011), cert. denied, — U.S. -, 132 S.Ct. 1817, 182 L.Ed.2d 635 (2012) (emphasis added).

Federal Rule of Criminal Procedure 32.2 and 21 U.S.C. § 853, as incorporated by 18 U.S.C. § 982(b), dictate the procedures applicable to a criminal forfeiture proceeding. Rule 32.2(b)(1) provides for entry of a preliminary order of forfeiture upon the entry of a guilty verdict or a plea of guilty if the Court determines by a preponderance of the evidence that there is a nexus between the identified property and the offense. See Libretti v. United States, 516 U.S. 29, 38-40, 116 S.Ct. 356, 133 L.Ed.2d 271 (1995). Following the entry of a preliminary forfeiture order, a third party “asserting a legal interest in property which has been ordered forfeited to the United States ... may ... petition the court for a hearing to adjudicate the validity of his alleged interest in the property.” 21 U.S.C. § 853(n)(2). The Court must amend the order of forfeiture if the third party demonstrates by a preponderance of the evidence that:

(A) the petitioner has a legal right, title, or interest in the property, and such right, title, or interest renders the order of forfeiture invalid in whole or in part because the right, title, or interest was vested in the petitioner rather than the defendant or was superior to any right, title, or interest of the defendant at the time of the commission of the acts which gave rise to the forfeiture of the property under this section; or

(B) the petitioner is a bona fide purchaser for value of the right, title, or interest in the property and was at the time of purchase reasonably without cause to believe that the property was subject to forfeiture under this section ....

21 U.S.C. § 853(n)(6). Section 853 provides that its provisions “shall be liberally construed to effectuate [the section’s] remedial purposes.” 21 U.S.C. § 853(o)'.

Although forfeiture is an issue of federal law, courts generally refer to the law of the state that created the property right to determine what interests, if any, the claimant has in the forfeited property. United States v. Oregon, 671 F.3d 484, 490 (4th Cir.2012); United States v. Schecter, 251 F.3d 490, 494 (4th Cir.2001). Once the legal interests have been defined under state law, federal law determines whether such interests are sufficient for the claimants to prevail under § 853(n)(6). Oregon, 671 F.3d at 491-92; United States v. Buk, 314 Fed.Appx. 565, 568-69 (4th Cir.2009).

B. Standing

As a preliminary matter, the Government moves to dismiss all of the Petitioners’ claims for a lack of standing. As noted above, when reviewing a motion to dismiss for lack of standing, the Court must construe all of the well-pled allegations in the third party’s petition as true.

To contest a government forfeiture action, a claimant must establish both Article III standing and statutory standing. “In order to establish Article III standing, a claimant must have a color-able ownership, possessory or security interest in at least a portion of the [seized] property.” United States v. Munson, 477 Fed.Appx. 57, 62-63 (4th Cir.) (citing United States v. 16510 Ashton, 47 F.3d 1465, 1470 (6th Cir.1995); United States v. $321,470.00 in United States Currency, 874 F.2d 298, 302 (5th Cir.1989); United States v. $122,043.00 in United States Currency, 792 F.2d 1470, 1473 (9th Cir.1986)), cert. denied, — U.S.-, 133 S.Ct. 315, 184 L.Ed.2d 187 (2012). To establish statutory standing in a forfeiture case, a claimant must satisfy the standing requirements of 21 U.S.C. § 853(n). Specifically, § 853(n)(2) “allows any person, other than the defendant, asserting a ‘legal interest’ in the property to petition the district court for a hearing to adjudicate its asserted interest.” Oregon, 671 F.3d at 490. Thus, the possession of a “legal interest” in the forfeited property is “the touchstone for standing” of a third party to challenge a preliminary order of forfeiture. Id.

The Government makes two arguments to support its contention that the Petitioners lack standing to pursue their claims. First, the Government contends that once the Petitioners transferred funds to Defendant Bailey, those funds became proceeds of the Defendant’s “fraudulent scheme,” and thus, under the relation-back doctrine, the Petitioners cannot assert any legal interest in the forfeited properties that were subsequently purchased with the proceeds of the Defendant’s fraud. As the Court explained, however, in one of its prior Orders addressing the Sage Petitions [Doc. 331 at 35-41], and as is discussed in greater detail below, the relation-back doctrine does not preclude the Petitioners from asserting a legal interest in the forfeited properties, and to find otherwise would produce an absurd result. Thus, the Court finds the Government’s first standing argument to be without merit.

Second, the Government argues that the individual Petitioners lack standing to bring petitions to challenge the forfeiture of the subject properties because it is the LLCs, not the individual clients, who are the titled owners of these forfeited properties. This argument fails for many reasons. First, the Government ignores the fact that many of the present Petitions were brought on behalf of not only individual clients, but also the IRAs and the LLCs established for the benefit of those clients. Even for those Petitions that were brought only on behalf of individual clients, however, the Government’s argument is specious. Where the subject properties are owned by, and titled in the name of, LLCs created by Defendant Bailey, such LLCs were formed for the benefit of the individual Petitioners. The individual Petitioners and/or their respective IRAs are the sole members of the LLCs created by Bailey. In light of these circumstances, if the individual Petitioners do not have standing, the Court is hard-pressed to identify anyone who would have standing to challenge the Government’s forfeiture of these properties.

The Government also moves to dismiss the Petitioners’ claims on the ground that Petitioners have not “stated a claim upon which relief can be granted.” [Government’s Motion at 9]. The Government does not provide any support or explanation for this conclusory argument, and on this basis alone, the Government’s motion to dismiss should be denied. Nevertheless, a review of the verified petitions in this case demonstrates that the Petitioners have made plausible allegations entitling them to relief under 21 U.S.C. § 853. The Government’s motion to dismiss the Petitioners’ claims is therefore denied.

C. Nexus

Before a preliminary order of forfeiture is entered, a judicial determination must be made as to whether the “requisite nexus” exists between the property to be seized and the offenses of conviction. See Fed.R.Crim.P. 32.2(b)(1)(A). As noted previously, the Government bears the burden of proving nexus by a preponderance of the evidence. United States v. Cherry, 330 F.3d 658, 669-70 (4th Cir.2003).

The preliminary determination of nexus is made independently of any interests alleged by third parties. United States v. Cox, 575 F.3d 352, 358 (4th Cir.2009). Any third party interests are instead appropriate for adjudication only in ancillary proceedings pursuant to Federal Rule of Criminal Procedure 32.2(c). Id.; United States v. Ivanchukov, 405 F.Supp.2d 708, 714 n. 12 (E.D.Va.2005) (citing Fed.R.Crim.P. 32.2(b)(2) (“Determining whether a third party has such an interest must be deferred until any third party files a claim in an ancillary proceeding under Rule 32.2(c).”)).

At the Rule 11 hearing before the Magistrate Judge, the Government obtained a preliminary order of forfeiture on a number of properties and other assets, including the properties and assets at issue here. The issue of forfeiture was dealt with summarily, as evidenced by the following exchange between the Magistrate Judge and counsel for the parties:

THE COURT: Based upon the representations and answers given by the defendant and his attorney in the foregoing Rule 11 proceeding, I find that the defendant’s plea is knowingly and voluntarily made; and that the defendant understands the charges, the potential penalties, and the consequences of his plea; and his plea of guilty is hereby accepted.

Anything further from the government in regard to Mr. Bailey’s matter?

MR. ELLIS: Your Honor, Mr. Bailey has executed a Consent Order and Judgment of Forfeiture in regard to any of his interest in certain properties that are set forth in this consent order that’s been executed by the government. I’d like to approach with that, if I might.

THE COURT: All right. Mr. Parker, has that been signed by Mr. Bailey and either by yourself or Judge Payne?

MR. PARKER: Yes, sir, Your Honor.

THE COURT: I take it the parties are requesting that I execute that document?

MR. ELLIS: We are, Your Honor.

MR. PARKER: Yes, sir. That would be fine.

THE COURT: All right. I’ve now executed the Consent Order and Judgment of Forfeiture in this matter. Anything further, Mr. Ellis?

MR. ELLIS: No, Your Honor, not from me.

* * *

THE COURT: Mr. Parker, anything further?

MR. PARKER: No, sir, Your Honor. We thank you.

[Doc. 257 at 35-36]. The Consent Order and Judgment of Forfeiture entered by the Magistrate Judge summarily recites a finding “that there is a substantial nexus between the property listed below and the offenses to which the defendant has pled guilty....” [Doc. 16 at 1],

In its prior Orders regarding the Sage petitions, the Court questioned whether the Government had actually shown the nexus required to support such a finding and therefore directed the Government to present further evidence to demonstrate nexus. [Doc. 306 at 12], While objecting to the Court’s decision to re-examine the nexus issue, at the December 12, 2011 hearing on the Sage petitions, the Government presented evidence to support its nexus theory. Specifically, the Government presented the testimony of some of the individuals who were victims of the Defendant’s Ponzi scheme, ie., individuals who forwarded funds to the Defendant for the purpose of opening AMA or IMA accounts, and who in return received false accounting statements representing that their money had been invested in certain funds and was earning certain rates of return when in fact no such investments had been made. [Transcript of Dec. 12, 2011 Hearing, Doc. 318 at 12-45], The Government further presented the testimony of an employee of Home Trust Bank and the case agent to establish that the Defendant was engaged in a check kiting scheme using Southern Financial’s account with HomeTrust Bank at the time that the Sage Certificates were purchased with funds deposited in the same Account. [Id. at 54-112], The Government also relied upon the Defendant’s Affidavit, which had previously been submitted to the Court, as well as the Petitions of record, as further proof of nexus. [Id. at 113]. Most of this evidence, however, pertained to investors other than the Sage Petitioners, to assets other than the Sage Certificates, and to transactions that were of an entirely different nature from those at issue in the Sage hearing. The Court thus concluded that this evidence “did little, if anything, to show any specific connection between the Defendant’s criminal activity and the [Sage] Certificates.” [Doc. 331 at 26].

Since the December 2011 Sage Hearing, the Government has declined to present any further evidence of nexus, even though it has been afforded the opportunity to do so, apparently taking the position that it has satisfied its burden on this issue. The Government further contends that the Petitioners are precluded from challenging the Magistrate Judge’s nexus determination and therefore it is improper for the Court to reexamine the issue of nexus in the context of the present ancillary proceedings.

In arguing that the Court is precluded from revisiting the nexus issue, the Government cites Courts of Appeals cases which have held that third parties are generally barred from relitigating the forfeitability of the property. See, e.g., United States v. White, 675 F.3d 1073, 1077-78 (8th Cir.2012); United States v. Davenport, 668 F.3d 1316, 1321 (11th Cir.), cert. denied, — U.S.-, 132 S.Ct. 2731, 183 L.Ed.2d 70 (2012); United States v. Andrews, 530 F.3d 1232, 1236-37 (10th Cir.2008). The reasoning of these courts was summarized succinctly by the Eighth Circuit Court of Appeals as follows: “if the forfeited property really belongs to the third party, she can prevail and recover her property during the ancillary proceeding ‘whether there were defects in the criminal trial or the forfeiture process or not; and if the property does not belong to the third party, such defects in the finding of forfeitability are no concern of hers.’ ” Davenport, 668 F.3d at 1321 (quoting in part Andrews, 530 F.3d at 1237).

The Fourth Circuit, however, has recognized the right of third party claimants to challenge the validity of a.preliminary forfeiture order in a subsequent ancillary proceeding:

Nothing in § 853(n) explicitly acknowledges the right of third parties to attack the validity of the forfeiture order by proving that a particular asset was not forfeitable under the terms of the statute. Serious due process questions would be raised, however, if third parties asserting an interest in forfeited assets were barred from challenging the validity of the forfeiture. The determination made at the defendant’s criminal trial that the property was subject to forfeiture cannot be considered binding on persons who were not only not parties to the criminal action but were specifically barred from intervening. See 21 U.S.C. § 853(k) (barring third parties from intervening in the criminal trial); Parklane Hosiery Co. v. Shore, 439 U.S. 322, 327 n. 7, 99 S.Ct. 645, 649, 58 L.Ed.2d 552 (1979) (citing Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313, 329, 91 S.Ct. 1434, 1443, 28 L.Ed.2d 788 (1971)) (“It is a violation of due process for a judgment to be binding on a litigant who was not a party or a privy and therefore has never had an opportunity to be heard.”).

United States v. Reckmeyer, 836 F.2d 200, 206 (4th Cir.1987). Thus, while other courts have concluded that third party claimants cannot challenge the underlying determination of forfeitability, the Fourth Circuit in Reckmeyer clearly has held to the contrary. Reckmeyer remains binding precedent in this Circuit. See United States v. McHan, 345 F.3d 262, 270 (4th Cir.2003) (noting that “§ 853(n) is a means by which third persons who raise challenges to the validity of the forfeiture order [can] have their claims adjudicated”) (citing Reckmeyer with approval) (emphasis added). In light of binding Fourth Circuit