On March 19, 2008, R. Gregory Gibbs entered a guilty plea to a single count of mail fraud as a part of fraudulent currency investments. As a part of his plea agreement, Mr. Gibbs agreed to make restitution to the victims of his fraud scheme. In all, 138 victims filed claims for restitution, totaling in excess of $14,000,000.00. Approximately $4,250,000.00 in assets were recovered by federal agents and placed in the custody of a court-appointed receiver for distribution. Of the 138 victims, only three filed claims that were disputed by the receiver. Among those was the claim addressed by the Court in this matter, United States v. Gibbs, 2008 WL 4377432 (E.D. Va. 2008), filed by an attorney from Arizona named Dwayne Farnsworth. Mr. Farnsworth filed a claim for restitution in the amount of $565,000.00. After hearing testimony from various individuals, including the claimant and Mr. Gibbs, the Court concluded that Mr. Farnsworth was not entitled to restitution based on unclean hands.
Mr. Farnsworth is an attorney from Arizona. Through testimony, Mr. Farnsworth alleged that he was primarily a bankruptcy attorney whose clients paid predominantly in cash. He also alleged that he travels approximately 7,000 miles a year commuting between bankruptcy courts. Mr. Farnsworth claimed to have invested $565,000.00 with Mr. Gibbs as a part of Gibbs’s fraud scheme. Mr. Farnsworth alleged that the large amount of cash invested was obtained from clients for “mileage reimbursements” and that this cash was stored in a box in his garage and accrued over a period of 13 years. While Mr. Farnsworth alleged that income tax was paid on the money, he was unable to produce any tax returns in support of his contention, stating that none were in his possession. Mr. Farnsworth’s explained that he refused to deposit the money with a bank as a result of fears of widespread bank failures, in addition to Y2K fears. In August 2006, Farnsworth learned of a lucrative investment scheme operated by Gibbs. Ultimately, the two met in West Virginia to exchange the cash for the investment, with Farnsworth traveling across country for the meeting by car, not by plane, because he was uncomfortable traveling by plane with so much cash. At the meeting, Farnsworth purportedly warned Gibbs to deposit the money incrementally to avoid raising any “red flags.” Farnsworth denied this allegation and later testified that the money was being accumulated to fund a charitable organization. The United States urged the Court to deny Farnsworth’s request in that the evidence demonstrated that the investment was actually an “illegal structured currency transaction” and that it was derived from or constituted unreported income. Ultimately, the Court agreed that the evidence demonstrated the investment was an illegally structured currency transaction and ruled that Mr. Farnsworth had unclean hands and therefore denied Mr. Farnsworth’s claim for restitution.
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