Big Game Asset Hunters

It's boom times for the asset-forfeiture experts who reclaim ill-gotten gains from Ponzi schemes and other frauds

An attorney for hire, Diaz knows the game: He protects as well as pursues financial loot Jeffrey Salter

By Roben Farzad

Puerto Plata, Dominican Republic - Here in Puerto Plata, on the northern coast of the Dominican Republic, world-class opulence and wretched poverty are neighbors. Barefoot children mill among the shanties that dot the inland hills, while down on the coast, Americans enjoy Lobster Thermidor and candied papayas at lush resorts. Miami is just 90 minutes away by plane, New York a tad over three hours.

The proximity to the U.S. has been convenient for Michael Diaz Jr., a Miami lawyer whose team of investigators has been making frequent trips to this 517-year-old former Spanish slave colony. Diaz is representing U.S. investors who say they were burned in a $170 million Ponzi scheme. The plaintiffs allege that a pair of Canadian real estate developers, Frederick C. Elliott and his son, Derek, used their money to pay back earlier investors in a Puerto Plata resort and to fund shopping sprees and vanity projects. The investors are suing to get their hands on the Elliotts' assets. Meantime, the Securities & Exchange Commission is looking into the Elliotts' dealings, according to people familiar with the matter, though no criminal charges have been filed. The Elliotts declined to comment.

The case is one of many recent financial blowups, from Bernard Madoff to Allen Stanford, that are reinvigorating the murky business of "asset forfeiture." Long a staple of the drug wars—and before that, bootlegger-busting in the Prohibition era—asset forfeiture is simply the process of reclaiming the spoils of crime (cash, homes, boats, and the like) from swindlers and parceling the plunder out to their victims.

Asset forfeiture is a civil action: Plaintiffs in effect sue for pieces of property, forcing the owners to explain how they paid for them. If the defendants can't come up with satisfactory answers, the judge can order the assets seized. Lawyers often file asset suits before prosecutors file criminal charges—the better to surprise the swindlers. Wayne B. Black, a Drug Enforcement Administration (DEA) task force veteran who now heads a financial investigation and security firm in Miami, calls the business "private law enforcement."

These are good times for asset hunters. Reports of Ponzis and other investment scams have tripled in the past year. While no reliable statistics track the size of the industry, Black says his firm has seen demand double so far this year.

The surge in activity has lured scores of former FBI, DEA, and customs agents; defense attorneys; and private investigators to join forces—many using skills honed decades ago during the height of the war on drugs. Diaz is a prototypical asset specialist, having earned his crime-fighting cred on the mean streets of 1980s Miami. "The two worlds aren't all that different," says Michael R. McDonald, a former IRS agent who 30 years ago spearheaded Operation Greenback, an interagency effort to gum up the financial works of drug kingpins. "As with drug dealers, asset forfeiture is about hitting financial criminals where it hurts—the money."

Yet helping crime victims is only a part of the business. Most practitioners also serve another set of clientele: the crooks. Financial scammers, wealthier and more sophisticated than the average criminal, often hire top lawyers to fend off asset grabs. For the shrewdest criminals, "there's a 99.9% chance that the dirty gains won't be confiscated," says Charles A. Intriago, a former federal prosecutor in Miami who took on drug traffickers and money launderers and now heads AssetForfeitureWatch, a consultant to law enforcement. All told, criminals in the U.S. rake in more than $500 billion a year, Intriago estimates. Of that, just $4 billion or so is forfeited, he says—mostly by drug dealers. Protecting the other $496 billion is big business.

Asset hunters and legal mercenaries traded secrets during the first Asset Forfeiture Global Conference in April at the Westin Diplomat Resort in Hollywood, Fla. Bernie Madoff's visage served as the event's unofficial logo, adorning PowerPoint presentations and handouts.

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