The Outrageous and Totally Legal Threat to Your Wealth

Posted On Oct 19, 2012 By Dave Gonigam

October 19, 2012

  • Lose your cash, lose your property, lose your retirement: “Civil asset forfeiture” and the threat it poses to your wealth
  • Fiscal cliff? More like a fiscal “abyss,” says I.O.U.S.A. protagonist David Walker
  • Another megabank sees a shift to physical gold, while Sprott pinpoints opportunities in gold equities
  • The world’s most anticlimactic stock market forecast
  • Readers weigh in on the “SWATification” of America, and a secession movement that might have succeeded…

  At age 68, Russ Caswell is on the verge of losing the business that’s been in his family for two generations. And it’s not for lack of customers.

Mr. Caswell is another object lesson that “If you’ve done nothing wrong, you have nothing to worry about” no longer applies.

On Nov. 5, a federal trial will begin with the curious name of United States of America v. 434 Main Street, Tewksbury, Massachusetts.

The defendant is not Mr. Caswell, but rather the Motel Caswell — a $1.5 million property Caswell owns mortgage-free. He had an eye toward possibly selling it so he could retire comfortably and take care of his gravely ill wife.

“I may sell it eventually, but the government doesn’t have the right to take it,” he tells the local site. “It’s not right.”

 Caswell is one of a growing number of Americans subject to “civil asset forfeiture” — or CAF.

“Asset forfeiture,” explains Duke professor Gary Hull, “is used by federal and state officials to seize cars, boats, cash, houses, businesses — all on the grounds that the asset might have been used or could conceivably be used in the commission of a crime, by someone, somewhere, at some point.”

Thus do the feds, along with the local police, allege that the Motel Caswell has been used for drug-related offenses going back to 1994. Note well: Russ Caswell stands accused of no crime. Nor is he accused of committing or facilitating crimes. Or that he was aware any crimes were going on at his motel.

  The feds alone collected $2.5 billion last year from 15,000 CAF cases.

Recourse is, to say the least, a challenge. “To retrieve that asset, you must enter Kafka’s universe,” professor Hull says.

“Even if you have the tens or hundreds of thousands of dollars necessary to mount a defense, CAF reverses the burden of proof and forces on the property owner an impossible standard — to prove that the asset was not used to facilitate a crime, or if it was, that you did not know that the property was being used for facilitation. Further, you have to prove that you did everything possible (whatever that means) to prevent the crime(s).”

The Motel Caswell: Guilty until proven innocent…The feds have been on Caswell’s case for three years now. Should they prevail in court, both the feds and the Tewksbury police stand to profit: Under a program called “equitable sharing,” the locals get up to 80% of the booty.

“In the Caswell case,” Hull says, “that could mean $1.2 million for the Tewksbury police to spend on new cars, uniforms, hi-tech equipment, junkets to Hawaii. Meanwhile, Caswell and his wife will have been impoverished.”

100  The “Hawaii junkets” is not hyperbole on the professor’s part.

Over the past four years, the Milwaukee County Sheriff’s Office in Wisconsin has hauled in forfeiture money totaling $825,577. An audit released last week reveals some of the ways that money was spent…

  • $11,400 on workout gear for Sheriff David Clarke Jr.’s command staff
  • $8,200 for 9 flat-screen TVs, also for the command staff
  • $24,900 for “customer-service training” provided by an outfit called Disney Destinations
  • $77,000 for upkeep of the sheriff’s mounted patrol ($43,000 of that was to buy a Dodge Ram pickup to haul the horses around).

But it’s all good: The audit found, “none of the spending violated federal rules governing asset forfeiture money,” according to the Milwaukee Journal-Sentinel.

  You don’t have to own property like Mr. Caswell to fall into Kafka’s universe. All you need to do is commit a moving violation and carry a wad of cash.

On Jan. 7, 2009, Anthony Smelley was pulled over on Interstate 70 in Putnam County, Ind. He was on his way from Detroit to St. Louis to visit his aunt. He’d had recently won a $50,000 settlement from a car accident. He was taking $17,500 of it to St. Louis to buy his aunt a new car.

You can see where this is going: Smelley was pulled over for an unsafe lane change and an obscured license plate. He was also driving with an expired license. During the stop, the officer asked Smelley to get out of the car and patted him down, discovering the cash. The dogs were called in and “alerted” to the presence of drugs.

But a search of the car turned up no drugs, and Smelley never faced criminal charges. The $17,500, however, was judged guilty as hell.

“To make matters worse,” wrote Reason’s Radley Balko, “the county was represented not by an elected public official, but by Christopher Gambill, an attorney in private practice who handles several Indiana counties’ forfeiture cases on a contingency basis, earning 25-33% of what he wins in court, a system stacked with twisted incentives.”

In the end, Smelley did prevail and got his money back. But it took 13 months… and he wasn’t compensated for his time, interest on the money, court costs or attorney’s fees.

  Your fellow 5 readers are keenly aware of the CAF scam, even if you’re not.

“I found a tractor for sale online that I wanted to buy,” a reader wrote us last April. “After filling out my forms for withdrawing over $10,000, I got scared. The seller and I had an appointment to meet on Sunday.

“The shame of it is I was more worried about getting pulled over and having my money confiscated by a policeman than I was by a thief or this seller whom I had never met face to face and knew I had $12,000 cash on me. What kind of freedom is this?”

“There’s a radical redefinition of America on the way,” says Addison by way of reply. “This redefinition includes not just a major financial fallout, but a ‘freedom’ fallout too.

“I can understand if this is hard for you to imagine. I only ask that you look at the evidence and decide for yourself.”

You won’t have to sit through a “long-winded presentation” to examine this evidence. He lays it out for you in black and white.

  “It’s not just the fiscal cliff, it’s the fiscal abyss,” says former comptroller general David Walker, reminding us that major financial fallout still looms large.

A glutton for punishment, Mr. Walker has once again embarked on a road trip aimed at raising awareness over the national debt. When he did so in 2007 — a venture that became the focus of I.O.U.S.A — the national debt totaled less than $10 trillion. Now it’s more than $16 trillion.

“We found out 97% of the people we interacted believe our fiscal challenge is a major challenge and should be a top priority for the presidential candidates as well as other candidates for office,” he tells CNBC, “yet only 8% have confidence in their ability to work together to get something done in 2013.”

We’d like to meet some of those 8%…

  “We’ve seen a huge pickup in demand for physical (gold) holdings,” says Deutsche Bank’s global chief of metals trading Raymond Key.

Hmmm… Barclays yesterday, Deutsche today.

“People are geographically moving out of Europe and into Asia,” Key tells Reuters, “and private wealth is becoming more sophisticated around how to manage credit exposure to banks, wanting to hold allocated physical metal in the right regions.”

One Asian country that’s not seeing an inflow, however, is China. “There’s a lot of money coming out of China, particularly into places like Singapore, so holding physical gold in Singapore has been a trend over the past three months.

“Either they’re taking capital out of China and looking to put it in Singapore or they’re concerned about the sovereign issues in Europe and moving gold holdings out to places like Singapore.”

  Don’t overlook gold mining shares, says Sprott Asset Management’s John Embry.

In fact, Embry says gold equities have never offered a better opportunity — especially the “juniors” that are his firm’s specialty. “If you have the right quality junior (and you’ve got to be selective because there’s a lot of junk in this sector, as you know)… I think you are talking five-10-baggers easy.”

And the majors? “I think they will be really good dividend-paying stocks,” he tells Mineweb. “I think that when this moves forward these people will spend a lot of money and they will become major dividend payers.”

As for a preferred allocation between the metal and the stocks, “I have always told people that the safest thing is the bullion. If you don’t have physical bullion in your possession, at least own a paper vehicle where there is full allocation and it can be documented — that has to be the core of your portfolio.

“Then I think you should own some large seniors… and then for the real pizazz in the portfolio, I think you should have liberal exposure to some good quality juniors.”

  Spot gold sank in overnight trading and hasn’t recovered much this morning. At last check, the bid was $1,736. Silver’s down to $32.51.

It’s a down day for stocks too, though nowhere near as bad as on this day 25 years ago – Black Monday, 1987, the biggest percentage drop the Dow ever made in a single day. This morning it’s down a paltry three-quarters percent to 13,450.

Earnings disappointments abound: McDonald’s, GE, Microsoft. That’s on top of Google’s big “miss” yesterday, vaporizing $20 billion in market cap.

Adding to the gloom: Existing home sales falling 1.7% from August to September.

  And now for the answer to a not-so-burning question: What happens to the stock market with the outcome of the presidential election?

The answer, according to a new report from Credit Suisse: Not much.

The report tracks the election year performance of the S&P going back to 1928 and finds the following…

So far this year, the S&P is 14.1% — right in the midrange of the only two possible outcomes in 2012.

  “Just as you guys have been raising my hackles over the SWATification of America,” a reader writes, “an incident happened here on Friday in my sleepy little town of Fairview, Pa., to make my blood boil over.

“I heard cop cars speeding past our office all morning, one after the next with sirens and horns blaring. Later that night, I watched the news, which detailed that SWAT teams (not one, but two!) were called to a house in a quiet, well-to-do neighborhood, where the wife had reported that her husband had locked himself in their basement with a gun and threatened to do harm to himself. To himself, mind you, not to the wife or anyone else.

“So what did the powers that be decide would be the most prudent course of action? Send in a mental health professional or maybe even a friend with a sympathetic ear? No, two SWAT teams, which spent the next 11 hours flooding the basement with tear gas bursts until the man finally came out.

“It makes me sick what is happening right before our eyes, and I thank The 5 for shedding light on the ugly truth on a national level. I’m starting to get so mad about it that I may actually write my elected representative (sorry, that was a joke I knew you guys would appreciate).”

  “I live near Beach Park, Ill.,” writes a reader about one of the SWAT raids we related, ” and was appalled, but not surprised.”

“I used to be a news reporter who covered cops and courts. I came to loathe cops and prosecutors and believe the drug war is not only worse than useless, but illegal. This country used to have a war on a class of drugs called alcohol. It was called Prohibition. For the government to do Prohibition, the Constitution needed to be amended to allow the government to ban the substance. Another amendment repealed the authority of Congress to ban substances, thus ending Prohibition. The authority to ban has never been put back. This is why I believe the drug war is illegal.”

  “I foresee the day,” a reader writes darkly, “when certain police department SWAT teams become a real bother and the local drug gangs do something about them.

“They will rent a house and in a month or two they set it up to look normal with cars out front, the lights on, etc. Then call in a fake tip to a booby-trapped house, and when the team shows up — BOOM! Local SWAT team problem solved.

“It will be like the fake robbery/distress calls done in the late ’60s/early ’70s where the police showed up and were assassinated by snipers looking for revenge and to terrorize the police for perceived wrongs in the local community. Some of the Mexican drug gangs are vicious enough to start doing this. If we don’t change our drug policy, the violence will increase on both sides. It’s just not worth it.”

  “My first reaction to revived talk of a Southern secession,” writes a reader on another ongoing thread, “was to think that everyone will to want to leave. Well, why should we ALL leave the party when it’s just one big fat bore who is making everyone miserable?

“Behold the reverse secession: We kick D.C. (and its government) out of the union and strip all federal employees in the legitimate 50 states of citizenship and rights. They may still live among us, and they are welcome to find other jobs, but are otherwise pariahs until they find a more tolerable reason for their existence.

“The idea needs work, but there are detail people for that.”

  “To the readers dissing California,” writes our final correspondent on the issue, “please don’t lump true Northern California in with the rest of California.

“San Francisco is not Northern California, and every time we hear S.F. and Northern California in the same sentence, it pisses us off. Look at a map: S.F. is more central.

“Northern Californians are mostly very conservative, and we have tried to secede from California in the past. Just do a Google search for the State of Jefferson.

“We have had it on the ballot before, but we do not have enough people up here to make the vote count and we have most of the water in the state and lots of farmland the rest of the state does not want to lose.”

The 5: Indeed, a Jefferson statehood movement for far Northern California and southern Oregon caught fire in late 1941… until Pearl Harbor intervened. “Driven by a sense of national obligation, the Jefferson secession was put aside and never really regained momentum,” says a 2008 CNN account.

That’s not the only secession movement during the Depression years: Folks in western South Dakota and northern Wyoming sought to form the state of Absaroka.

Makes you wonder what’s in store…

Have a good weekend,

Dave Gonigam
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