In a case arising out of the CityTime scandal, the Second Circuit issued a thoughtful opinion addressing the operation of restitution and asset forfeiture on victims of white-collar crime. The decision, Federal Insurance Company v. United States of America, Nos. 16-2967-op and 16-3402-cr, emphasizes that though restitution and forfeiture are both means for victims to be made whole, they are not subject to the same analysis. Ultimately, the Court (Parker, Lynch, Carney) affirmed the decision denying restitution, but remanded for additional proceedings on forfeiture. The decision is worth a careful read for those representing victims in white-collar criminal matters, and also serves as a road map for how district court judges might approach these issues in the future.
In a 12-page summary order issued on February 9, 2018, the Second Circuit affirmed an order of restitution in United States v. Quatrella, 17-1786. The order is interesting primarily because it addresses the question of when a victim of an offense is not really a victim but rather a fellow participant in the criminal scheme. The rule in the Circuit is clear: no order of restitution should be granted that has the effect of treating a coconspirator as a victim. At the same time, a victim may not be denied restitution simply because the victim had greedy or dishonest motives, so long as the victim’s intentions were not in pari materia with the defendant’s.
On January 9, 2018, the Second Circuit (Kearse, Cabranes, Wesley) rejected a request by ex-AOL Inc. employee Jason Smathers to junk the restitution component of his sentence, which requires him to recompense the online service provider for the losses it incurred after Smathers sold 92 million AOL screen names to spammers in the early 2000s—one of the earliest large-scale data security breaches of the Internet age. Smathers argued that his restitution award should be offset by damages later obtained by AOL in litigation against Smathers’s co-conspirators.
Second Circuit Finds Death Extinguishes Trial Convictions and Related Restitution Order – But Tax Offenses and Bail Forfeiture Survive
In 2010, a federal jury in the Eastern District of New York convicted body-armor tycoon David H. Brooks of multiple counts of conspiracy, insider trading, fraud, and obstruction of justice for his role in a $200 million scheme to enrich himself from company coffers. Brooks was the founder and former chief executive of DHB Industries, the leading supplier of bulletproof vests to police departments and the U.S. military. Brooks later pleaded guilty to associated charges of conspiracy to defraud the IRS and filing false income tax returns that had been severed from the rest of the case. While he appealed the result of his jury trial, he did not appeal the tax fraud convictions (pursuant to the terms of a plea agreement). Brooks died in prison while his appeal was pending, forcing the Second Circuit to revisit an obscure area of law to decide what aspects of his convictions, if anything, survived his death. Ultimately, Brooks’s death in prison led to the abatement of his trial convictions, and with that abatement, the erasure of significant restitution obligations that Brooks otherwise would have owed.
Second Circuit Holds that District Court Orders Determining Restitution Credits are Final, Appealable Orders
In United States v. Yalincak, No. 11-5446 (2nd Cir. Apr. 10, 2017) (Calabresi, Raggi, Lynch), the Second Circuit addressed a complicated issue of appellate procedure in the course of a decision on the law of restitution. Specifically, the Court weighed in on when a district court’s order crediting a defendant funds against his restitution obligations becomes a final, appealable order that cannot be revisited by the district court.