United States of America v. $1,150,049.51316 TetherUS et al

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WO
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF ARIZONA
United States of America,
Plaintiffs,
v.
$1,150,049.51316 TetherUS, et al.,
Defendantss.
No. CV-23-00147-TUC-RM (MSA)
REPORT AND
RECOMMENDATION
Before the Court is Claimant Haiqiang Lu’s motion to dismiss and return property.
The motion has been fully briefed and is suitable for decision without oral argument. For
the following reasons, the Court will recommend that the motion be denied.
I. Background
This case arises from an FBI investigation into an investment fraud scam commonly
referred to as “pig butchering.” (Doc. 8-1, ¶¶ 6–7.) This scam involves finding victims on
social media and directing them to sham websites to invest in cryptocurrency. (Id. ¶ 6.) The
victims are directed to transfer their cryptocurrency into wallets controlled by the
scammers, and the scammers complete further transfers to try and prevent law enforcement
from tracing the funds. (Id. ¶¶ 6, 10.) The FBI investigation here traced money from several
victims to Claimant’s wallet. (Id. ¶ 8.)
On October 27, 2022, a federal magistrate judge signed a warrant for the seizure of
“[a]ny and all funds and cryptocurrency” in Claimant’s wallet. (MB-22-8946, Doc. 2.) The
warrant was executed that day, resulting in the seizure of 1,150,049.51316 TetherUS and
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59,939.992 Ethereum Classic. (MB-22-8946, Doc. 3.) On March 27, 2023, the Government
initiated this case by filing a motion to seal its complaint for forfeiture in rem. (Docs. 1, 2.)
The Court ordered that the complaint be sealed based on the Government’s assertion that
the investigation remained ongoing. (Doc. 7.) This case remained under seal until June 23,
2025, when the Court unsealed it upon motion of the Government. (Docs. 14, 15.)
On July 12, the Government posted a Notice of Forfeiture Action on forfeiture.gov,
a government website. (Doc. 18 at 71.) On August 5, Claimant entered an appearance and
filed a verified claim. (Doc. 17.) He filed his motion to dismiss on August 22. (Doc. 18.)
II. Discussion
Claimant argues that the Government violated his due process rights by not
providing sufficient notice of this case, and that the complaint does not adequately plead
that the Defendant cryptocurrencies are forfeitable. As such, he says, this case must be
dismissed and the cryptocurrencies must be returned. The Court disagrees.
A. Claimant has not shown a due process violation.
The U.S. Supreme Court has held that delay in initiating a civil forfeiture case can
violate a claimant’s right to due process. United States v. Eight Thousand Eight Hundred
& Fifty Dollars ($8,850) in U.S. Currency, 461 U.S. 555, 564 (1983). In determining
whether due process has been violated, the court must weigh four factors: (1) the “length
of delay,” (2) “the reason for the delay,” (3) the claimant’s “assertion of his right,” and (4)
the “prejudice” to the claimant. Id. (citing Barker v. Wingo, 407 U.S. 514, 530 (1972)).
“[N]one of these factors is a necessary or sufficient condition for finding unreasonable
delay. Rather, these elements are guides in balancing the interests of the claimant and the
Government to assess whether the basic due process requirement of fairness has been
satisfied in a particular case.” Id. at 565. This test also applies to delays that occur after the
forfeiture case is filed. United States v. Banco Cafetero Panama, 797 F.2d 1154, 1163
(2d Cir. 1986).
The first and second factors (length of delay and reason for the delay) generally are
analyzed together. See $8,850, 461 U.S. at 565 (“Closely related to the length of the delay
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is the reason the Government assigns to justify the delay.” (citing Barker, 407 U.S. at 531)).
The Government filed this case 5 months after the seizure and immediately moved to seal
it due to a pending FBI investigation. The Court granted the motion, and the case remained
sealed for 27 months. The Government began publishing notice 19 days after the case was
unsealed, and Claimant saw the notice on August 5 (the date of his appearance) at the latest.
Thus, there was a total delay of about 33 months between the seizure and Claimant’s receipt
of notice. This delay is much longer than the 18-month delay that the Supreme Court found
to be “quite significant.” Id. at 565. Thus, the reason for it must be especially convincing.
See id. (“Obviously, short delays—of perhaps a month or so—need less justification than
longer delays.”).
The current record supports finding that the delay was justified. Claimant does not
specifically challenge the 5-month delay in filing this case, and that delay is shorter than
others that have been found reasonable. See United States v. $874,938.00 U.S. Currency,
999 F.2d 1323, 1326 (9th Cir. 1993) (finding that an 11-month delay was reasonable). In
any event, that delay was justified by the Government’s ongoing criminal investigation.
See United States v. Approximately $1.67 Million (US) in Cash, Stock, & Other Valuable
Assets, 513 F.3d 991, 1001 (9th Cir. 2008) (accepting “the government’s explanation that
the simultaneous criminal investigation against [the claimant] delayed the forfeiture
action”). So too was the ensuing 27-month delay, during which this case was sealed so as
not to jeopardize the investigation. Claimant faults the Government for not providing notice
during this period “despite knowing his status as a potential claimant.” But it would have
been improper for the Government to reveal sealed information to him without a Court
order.1 And since the Government’s purpose in requesting sealing was to avoid disclosing
information about the investigation, it would have made little sense for the Government to
seek an order allowing it to disclose information to potential claimants and victims (and
possibly suspects). At least as of now, then, the delay appears to be justified. See United
States v. $131,551.03 Plus Accrued Interest, No. C 06–05256, 2010 WL 1135743, at *2
1 For this reason, it is irrelevant that the Court did not separately grant a stay or an
extension of any deadline to provide notice.
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(N.D. Cal. 2010) (holding that a 2-year post-filing delay was justified by an ongoing FBI
investigation).
The third factor is “the claimant’s assertion of the right to a judicial hearing.”
$8,850, 461 U.S. at 568. The Government argues that this factor weighs against finding a
due process violation because Claimant “did nothing to prompt more rapid action from the
government, such as filing motions in court demanding the return of his property.”
However, the Court agrees with Claimant that he acted reasonably by sending multiple
emails to the FBI agent who requested the search warrant and by hiring a lawyer to send a
follow-up inquiry letter. Given that this case was sealed and that Claimant’s inquiries went
unanswered, it is unclear how he could have known how and where to seek judicial relief.
This factor weighs in his favor.
The fourth factor is prejudice. “The primary inquiry here is whether the delay has
hampered the claimant in presenting a defense on the merits, through, for example, the loss
of witnesses or other important evidence.” Id. at 569. Claimant argues that he “suffers
immense prejudice because of the delay, because if he truly purchased the cryptocurrencies
from criminals, those criminals have long since disappeared and any attempts to track down
the criminals or investigate will be futile.” A 33-month delay, he says, “can cause critical
evidence and records to disappear, thereby causing immense prejudice.” These arguments
are premature and speculative. Moreover, the Court agrees with the Government that
Claimant “is under no obligation to track down the criminals to prove his innocent
ownership.” Indeed, Claimant asserts in his reply brief that the “evidence in [his] Verified
Claim . . . prove[s] by a preponderance of the evidence that he is an innocent owner of the
seized cryptocurrencies.” Given his assertion that he already has enough information to
prove his defense, the Court finds at this point that he has not established prejudice.
The Court finds, based on the limited record before it, that Claimant has failed to
show that his due process rights were violated. In particular, the delay, while lengthy, was
justified, and Claimant has not suffered any prejudice from it. The Court will recommend
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that Claimant’s motion to dismiss be denied on this basis.2
B. Claimant has not shown a statutory or rule violation.
The parties argue about whether certain statutory provisions and rules apply and
about whether the Government violated any such provisions or rules. The Court clarifies
here that Claimant has not shown a violation of any applicable statute or rule.
Claimant argues that the Government failed to comply with Supplemental Rule
G(4)(a)(i), which provides that “[a] judgment of forfeiture may be entered only if the
government has published notice of the action within a reasonable time after filing the
complaint or at a time the court orders.” The Government first published notice on July 12,
2025, about 27.5 months after this case was filed. This delay seems unreasonable at first
glance, but what is reasonable depends on the circumstances. As previously explained, the
Government was justified in not publishing notice during the sealing period, because doing
so would have jeopardized an ongoing investigation. The Government published notice 19
days after the case was unsealed. Under the circumstances, this was a reasonable time after
the complaint was filed.
Claimant also argues that the Government failed to comply with Supplemental Rule
G(4)(b)(i), which provides that “[t]he government must send notice of the action and a
copy of the complaint to any person who reasonably appears to be a potential claimant on
the facts known to the government before the end of the time for filing a claim under Rule
G(5)(a)(ii)(B).” Rule G(5)(a)(ii)(B), in turn, specifies a deadline of “no later than 60 days
after the first day of publication on an official internet government forfeiture site.” So, the
Government had until September 10, 2025 (60 days after it first published notice), to send
direct notice to Claimant. It did so on August 11, well before the deadline. (Doc. 21-2 at 2.)
Of course, Claimant already knew about this case because of the online notice. Such actual
2 The Court’s findings are qualified because of the lack of evidence in the record. In
the end, it may be that the Government was not diligent during the sealing period, such that
the delay was unreasonable, and that Claimant has indeed been prejudiced by the delay.
Those issues should be left for a later day and a fuller record. See Approximately $1.67
Million, 513 F.3d at 1001 (finding that the Government failed, on summary judgment, to
“fully account for why its investigation and prosecution of [the claimant] resulted in such
a disproportionate delay”).
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notice means that Claimant “may not oppose or seek relief from forfeiture because of the
government’s failure to send the required notice.” Fed. R. Civ. P. Supp. R. G(4)(b)(v).
Claimant argues further that the Government failed to comply with Federal Rule of
Civil Procedure 5(a)(3), which provides that “[i]f an action is begun by seizing property
and no person is or need be named as a defendant, any service required before the filing of
an appearance, answer, or claim must be made on the person who had custody or possession
of the property when it was seized.” Claimant also points to Federal Rule of Civil Procedure
4(n)(1), which provides that “[n]otice to claimants of the property must be given as
provided in the statute or by serving a summons under this rule.” The “service required”
here was direct notice to Claimant within 60 days of publishing notice online. As just noted,
the Government completed such service, and, in any event, Claimant had actual notice
before the deadline. As such, there was no violation.
The parties debate whether the Government complied with 18 U.S.C. § 983(a), but
that provision does not apply to this case. Section 983(a)(1)(A)(i) requires that notice of a
“nonjudicial civil forfeiture proceeding” (i.e., an administrative forfeiture proceeding)
must be sent within 60 days of the seizure. Subsequent provisions specify that the Court
may extend the deadline for notice upon motion of the Government, and that notice is not
required if the Government initiates a judicial forfeiture proceeding and provides notice of
that proceeding. Importantly, “administrative forfeiture is the starting point for all the other
deadlines set forth in the statute.” In re Funds on Deposit, 919 F. Supp. 2d 169, 177
(D. Mass. 2012). The seized cryptocurrencies here are not subject to administrative
forfeiture because their value exceeds $500,000. Omidi v. United States, 851 F.3d 859, 862
(9th Cir. 2017) (citing 19 U.S.C. § 1607(a)). Since this case did not begin as an
administrative forfeiture, § 983(a) does not apply. See In re Funds on Deposit, 919 F. Supp.
2d at 177 (“[A]side from due process limitations, there is no deadline in the statute for
commencing a judicial forfeiture proceeding when the Government chooses not to pursue
administrative forfeiture or is prohibited from doing so.”).
Finally, the briefing includes some discussion of Supplemental Rule G(3)(c), which
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pertains to execution of a warrant and other process on the property that is the subject of
the forfeiture action. It requires that execution of process occur “as soon as practicable”
unless “the property is in the government’s possession, custody, or control,” or “the court
orders a different time when the complaint is under seal, the action is stayed before the
warrant and supplemental process are executed, or the court finds other good cause.” Fed.
R. Civ. P. Supp. R. G(3)(c)(ii). The Court does not see how this rule is relevant to whether
Claimant received adequate notice. Moreover, the record reflects that the Government
executed the warrant on the property the day after the warrant was issued. (Docs. 9, 10.)
C. The complaint sufficiently alleges that the seized cryptocurrencies are
forfeitable.
A forfeiture complaint must “state sufficiently detailed facts to support a reasonable
belief that the government will be able to meet its burden of proof at trial.” Fed. R. Civ. P.
Supp. R. G(2)(f). At trial, the Government must prove by a preponderance of the evidence
that the seized property is forfeitable. 18 U.S.C. § 983(c)(1). The alleged grounds for
forfeiture here are that the seized cryptocurrencies were involved in, or are the proceeds
of, money-laundering and wire fraud activities. Thus, the complaint must contain enough
facts to “support a reasonable belief” that the Government will be able to connect the
cryptocurrencies to such activities by a preponderance of the evidence. This standard is
more demanding than “notice pleading” but is nevertheless a “low bar.” United States v.
Aguilar, 782 F.3d 1101, 1109 (9th Cir. 2015).
The complaint details the path of the seized TetherUS from numerous victims to
Claimant’s account, and it contains facts indicating that those funds were obtained through
fraudulent conduct. For instance, it alleges that victim G.C. lost $450,000 using the sham
website massusa.com, and that victim L.L. lost about $1 million using the sham website
directedgebro.com. (Doc. 8-1, ¶¶ 12–15.) It alleges that funds from both victims ended up
in two different cryptocurrency wallets that were created on the same date using the same
device, but under two different names. (Id. ¶¶ 17–22.) And it alleges that the funds were
then transferred to the same wallet before being transferred to Claimant. (Id. ¶¶ 23–24.)
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These and other facts provide a reasonable belief that the Government will show that the
seized TetherUS is forfeitable.
The complaint does not contain any facts indicating that the seized Ethereum Classic
was obtained through fraudulent conduct. However, as the Government observes, “in a
money laundering charge, the commingling of tainted money with clean money taints the
entire account.” United States v. Lazarenko, 564 F.3d 1026, 1035 (9th Cir. 2009).
Furthermore, “the government need not show that all of the claimed property is tainted to
satisfy Supplemental Rule G(2)(f),” and the Ninth Circuit Court of Appeals has
“consistently instructed district courts to wait until trial to adjudicate arguments that a
portion of the property that the government claims is not subject to forfeiture.” Aguilar,
782 F.3d at 1109. Given these authorities and the factual allegations discussed above, the
Court finds that the complaint is also sufficient as to the seized Ethereum Classic.
D. The Court lacks jurisdiction as to any other cryptocurrencies.
As a final matter, Claimant asserts that he had cryptocurrencies seized from his
account aside from the Defendant cryptocurrencies. He requests that the Court order the
return of that property. However, the Government asserts that it seized only the Defendant
cryptocurrencies, and the Court has no reason to doubt that assertion. Claimant responds
that “[i]f the Government truly did not seize anything more than the Defendants, such a
corrective order [for the return of his other property] would not affect the Government.”
But the Court can exercise jurisdiction only over property that is within its control. See
Cooper v. Reynolds, 77 U.S. (10 Wall.) 308, 319 (1870) (“[T]he seizure of the property . .
. is the one essential requisite to jurisdiction, as it unquestionably is in proceedings purely
in rem. Without this the court can proceed no further.”). Here, there is no control and thus
no jurisdiction to enter any “corrective” order.
III. Conclusion
The Court recommends that the motion to dismiss (Doc. 18) be denied, and that
Claimant Haiqiang Lu be directed to file an answer to the complaint.
This recommendation is not immediately appealable to the United States Court of
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Appeals for the Ninth Circuit. The parties have 14 days to file specific written objections
with the district court. Fed. R. Civ. P. 72(b)(2). The parties have 14 days to file responses
to objections. Id. The parties may not file replies on objections absent the district court’s
permission. A failure to file timely objections may result in the waiver of de novo review.
United States v. Reyna-Tapia, 328 F.3d 1114, 1121 (9th Cir. 2003) (en banc).
Dated this 18th day of November, 2025.
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