Case Closed: How We Took on the Government — and Won

Fry, Chris — congratulations. The US government spent nearly two years trying to seize your clients’ Beverly Hills property, with the threat of an ongoing criminal investigation.

But thanks to your cogent defense, the Department of Justice closed its investigation without bringing charges, and earmarking millions of dollars in proceeds for your clients once the property is sold. What can you tell me about the case?

Fry: Thank you. It has been a long time coming, but we’re all very pleased with the outcome. Our clients were two prominent Armenian businessmen — brothers Artyom and Gurgen Khachatryan — and their US company.

Beginning in 2011, Artyom and Gurgen invested tens of millions of dollars to purchase and develop the property, and the case centered on the source of the money they used to finance the purchase and development.

Chris: Right. The property was the most valuable of several Los Angeles County properties our clients had purchased and developed over the years — a real estate portfolio that was among their many successful entrepreneurial endeavors. Favorable market conditions in late 2021 presented an opportunity to turn a substantial profit on the property, so they decided to sell it.

We were aware that certain members of Armenia’s new political regime had raised meritless allegations about the brothers’ investments, so we notified leadership in the appropriate US federal agencies about our clients’ intention to sell — and received no objection at the time.

Yet in April 2022, just three weeks after the property was publicly listed, the government filed a civil forfeiture complaint against it in a California federal court. Needless to say, we were all shocked to see that.

What did the government allege?

Fry: Essentially, the government claimed that the brothers financed the purchase and development of the property with “sham loans” from another Armenian businessman designed to conceal a bribery scheme.

Chris: In the government’s telling, the loans were actually cover for alleged bribes to the brothers’ father, Gagik Khachatryan, in exchange for tax advantages that Gagik could purportedly provide through his then-capacity as Armenia’s minister of finance.

But the government’s complaint didn’t have a strong handle on the facts.

Chris: That’s putting it mildly. For example, the centerpiece of the complaint’s bribery theory was that the Armenian government had determined that certain companies associated with the Armenian lender had large unpaid tax liabilities from Gagik’s last full year in office.

Fry: The government identified three such companies that it said, together, owed tens of millions of dollars in back taxes. But as we quickly explained in court filings, Armenian courts had reviewed — and indeed, overturned as unfounded and arbitrary — the tax assessments for all three.

In some instances, the supposed tax liabilities addressed in the Armenian proceedings were allegedly incurred after Gagik had left office and thus no longer even had the power to deliver any tax benefits.

And the government didn’t acknowledge the overturned tax assessments?

Fry: It didn’t. This was one of several essential — and exculpatory — details that the complaint failed to include.

Wow, how could the government fail to include these details?

Chris: It’s important here to zoom out to the political environment in Armenia. Gagik served in the previous Armenian government until 2016. But when a new regime took power in 2018, it targeted political opponents for prosecution, and Gagik found himself on a long list of such political opponents. The brothers, who had no interest in politics, ended up being collateral damage to the political hit job aimed at their father.

Fry: To that end, Armenia furnished information to the United States about Gagik and our clients — much of it inaccurate, incomplete, or imprecise — and apparently urged the United States to file the complaint based on that information.

In our view, the only plausible explanation for the US government omitting key material facts from its complaint is that it wasn’t aware of them, because the Armenian government didn’t disclose them. We certainly don’t think the US government would have omitted this type of information intentionally.

These points must have been front and center when you answered the complaint.

Chris: Absolutely. To bring a civil forfeiture action, the government essentially must show that some underlying crime had been committed. But credible facts to support the crime alleged here — a foreign bribery scheme — didn’t exist, so the government could never have made that showing.

So, even taking all the facts plead by the government as true, they wouldn’t have been enough to establish a foreign bribery scheme.

Fry: Exactly. That’s why the government had to resort to conclusory arguments similar to those made in earlier Armenian proceedings, and to hinge its case on the circumstantial existence of purported tax liabilities.

Chris: It was quite a leap to conclude that the only reason money would be loaned to highly successful businessmen was to buy their father’s influence, but that’s essentially the leap the government made. Tellingly, the complaint failed to allege that the Armenian lender and Gagik had any relationship whatsoever, because there was none.

Let’s talk procedure. You were eager to have your day in court, but you had a sense that the government would try to delay proceedings. How did you navigate this dynamic?

Fry: Great question. We knew that the bribery theory would crumble under courtroom scrutiny, especially if we were able to conduct discovery on the support for the government’s rushed complaint.

We suspected that the government may have had an open criminal investigation related to the case, because subpoenas had been issued years beforehand. The standard for obtaining a stay in this type of circumstance favors the government, so we also suspected that they would seek a stay to slow things down. Doing so showed their hand.

Chris: So, we decided to start the clock on the stay as quickly as possible, and then continually challenge it. We wanted to signal strongly to the court — and to show the public, and more importantly our clients’ legitimate business partners who were closely following the case — that our clients had nothing to hide. It was important for us to show the court that the facts here were stale and that whatever investigation existed had not and would not substantiate the bribery theory.

Clever. How did you go about starting the clock?

Fry: Through the motion we chose to file. Typically, federal defendants choose to file a motion to dismiss at the outset of the case under Rule 12(b)(6) of the Federal Rules of Civil Procedure, which can delay the need to answer the complaint and start discovery. Instead, we chose to answer first and then file a motion for judgment on the pleadings under Rule 12(c), which enabled us to file our discovery requests immediately.

And your discovery requests were what triggered the government’s request for a stay.

Chris: Correct. The government’s rationale for a stay was that proceeding with discovery would undermine related criminal investigations, both here and in Armenia. But as we explained in opposing the stay, that rationale was weak.

Fry: Yes, for several reasons. The DOJ had already investigated the matter for more than three years and had failed to generate any evidence to support the bribery theory. The government couldn’t show that discovery would adversely impact its investigation, or even that it remained active. Any criminal case the government could have brought was time-barred by the relevant statute of limitations. And that’s just to name a few.

Chris: Of course, there was also the fact that staying the case would hold up our clients’ rights to their property, while causing them undue financial and reputational harm.

Yet the court did grant the stay, paving the way for the DOJ’s investigation to continue.

Chris: Yes, and we knew that the court would grant it. But we also knew that the court would entertain a challenge to the stay after a period of time passed, which was why we wanted the clock to start ticking as soon as possible. We spent much of the next two years working to convince the government that it had no case.

What did that work look like?

Fry: Broadly, it entailed interviewing dozens of witnesses, obtaining sworn statements, compiling hundreds of documents, and packaging it all into compelling presentations to the DOJ.

Chris: Our primary aims were to show that our clients repaid the money they borrowed, and that the loans were exactly what they appeared to be on their face — legitimate investments motivated by our client’s track record of entrepreneurial success.

Fry: We also aimed to show that the motivations behind the Armenian government’s referral were political, not grounded in actual evidence. I think it’s fair to say that we achieved all three of those aims.

More important, so did the DOJ.

Fry: Indeed. Not only did the DOJ close its investigation without bringing criminal charges, it issued a rare declination letter — written affirmation that it had no other ongoing criminal investigations into our clients.

But even with the investigation closed, there were still the outstanding civil forfeiture claims to resolve.

Chris: There were. And with the stay threatening to drag on, mounting costs, a worsening real estate market, and continued reputational harm to our clients, we moved quickly to resolve the claims, by negotiating a settlement that will enable the property to be sold and our clients to take a sizable share of the proceeds.

Fry: Not only did we secure the most money we could for our clients as quickly as possible, we ensured that the proceeds obtained by the US government would actually be sent to Armenia, so that we could leverage them to help resolve lingering issues with Armenian authorities.

An extraordinary result.

Fry: Well, we had an extraordinary team: Pete Thomas, Nataly Farag, Karina Pereira, and Katherine Galvin in DC, alongside Bob Wu, Elizabeth Matthews, and Danny Kim in San Francisco. Their talent, ingenuity, and commitment were essential to this victory.

Chris: And remember: Even though the facts were always on our side, the rules favor the government so heavily in cases of this type, so achieving this result was no walk in the park. It required exhaustive research, creative briefing, and a strong grasp of multiple procedural approaches — and our associates played a key role at every stage.

Any final reflections?

Fry: You know, early on, there was a sense of exasperation. We had tried to give the DOJ a full account of the facts — and had received informal assurances that the property could be sold — only for the property to be seized after our clients listed it.

But look, I’m a former federal prosecutor, and I know from experience that the DOJ will always try to reach the correct conclusion. Our job was to ensure that the DOJ found its way there, and we’re pleased to have done so for our clients.

Chris: Yes, the case took longer than it should have — in fact, it should never have been brought in the first place. But our clients are grateful that they can now begin to clear their name, repair their business relationships, and move forward with their lives. And we are, too.

 

Meet Fry Office: Washington, DC / Dallas Law school: University of Texas School of Law Hometown: Dallas Some favorite activities outside of work: Juggling knives, swallowing fire, and raising three crazy boys If I hadn’t become a lawyer, I would have been: Texas Longhorns Head Football Coach Meet Chris  Office: San Francisco / Los Angeles Law school: Washington University in St. Louis Hometown: St. Louis Some favorite activities outside of work: Amateur carpentry and amateur karaoke, and spending time with my wife and two young daughters. If I hadn’t become a lawyer, I would have been: So hard to say, since law had been the focus for so long. But when roads diverged long ago, the road not taken was biomechanical engineering.