No Result
View All Result
SUBSCRIBE | NO FEES, NO PAYWALLS
MANAGE MY SUBSCRIPTION
NEWSLETTER
Corporate Compliance Insights
  • Home
  • About
    • About CCI
    • Writing for CCI
    • NEW: CCI Press – Book Publishing
    • Advertise With Us
  • Explore Topics
    • See All Articles
    • Compliance
    • Ethics
    • Risk
    • FCPA
    • Governance
    • Fraud
    • Internal Audit
    • HR Compliance
    • Cybersecurity
    • Data Privacy
    • Financial Services
    • Well-Being at Work
    • Leadership and Career
    • Opinion
  • Vendor News
  • Career Connection
  • Events
    • Calendar
    • Submit an Event
  • Library
    • Whitepapers & Reports
    • eBooks
    • CCI Press & Compliance Bookshelf
  • Podcasts
  • Videos
  • Subscribe
  • Home
  • About
    • About CCI
    • Writing for CCI
    • NEW: CCI Press – Book Publishing
    • Advertise With Us
  • Explore Topics
    • See All Articles
    • Compliance
    • Ethics
    • Risk
    • FCPA
    • Governance
    • Fraud
    • Internal Audit
    • HR Compliance
    • Cybersecurity
    • Data Privacy
    • Financial Services
    • Well-Being at Work
    • Leadership and Career
    • Opinion
  • Vendor News
  • Career Connection
  • Events
    • Calendar
    • Submit an Event
  • Library
    • Whitepapers & Reports
    • eBooks
    • CCI Press & Compliance Bookshelf
  • Podcasts
  • Videos
  • Subscribe
No Result
View All Result
Corporate Compliance Insights
Home Featured

Employee Fraud Investigation Costs Non-Recoverable Under MVRA

by Frank Schall
September 10, 2018
in Featured, Fraud
illustration: man in suit walking into large spider web

Supreme Court Decision Restricts Recompense

A recent Supreme Court ruling – in which the Mandatory Victims Restitution Act of 1996 was central – should put corporate victims of fraud on alert. Moore & Van Allen Partner Frank Schall discusses the decision and how it will impact those who fall prey to certain federal offenses.

with co-author Kim Cochran [1] 

In a decision with far-reaching implications for corporate victims of fraud, the U.S. Supreme Court recently held that the Mandatory Victims Restitution Act of 1996 (MVRA) does not entitle victims of certain federal offenses, including wire fraud, to reimbursement for costs incurred conducting investigations and participating in civil or bankruptcy proceedings related to the fraud.

Before Lagos, Many Courts of Appeal Allowed Recovery of Investigation Costs

In Lagos v. United States, 584 U.S. (2018), Sergio Fernando Lagos pleaded guilty to multiple counts of wire fraud and conspiracy to commit wire fraud. Over two years, Lagos caused Dry Van Logistics to generate false invoices for services that were never performed. Lagos then used those false invoices as collateral to borrow tens of millions of dollars from General Electric Capital Corporation (GECC). When Lagos’ scheme was discovered, Dry Van Logistics went bankrupt. Not surprisingly, GECC investigated the fraud and participated in the bankruptcy proceedings in an effort to recoup its losses at a cost of $5 million in professional fees.

At sentencing, the District Court ordered Lagos to pay GECC restitution for the $5 million that GECC spent investigating the fraud and participating in the bankruptcy proceedings. Lagos appealed, but the Fifth Circuit Court of Appeals affirmed the order of restitution in a decision in line with prior rulings from the Sixth, Seventh, Eighth and Ninth Circuits – that the MVRA allows for reimbursement of the costs of investigation and remedial proceedings. The U.S. Supreme Court disagreed.

The Supreme Court centered its decision on the language of the statute to determine “whether the scope of the words ‘investigation’ and ‘proceedings’ is limited to government investigations and criminal proceedings, or whether it includes private investigations and civil or bankruptcy litigation.” The Supreme Court engaged in a classic statutory analysis – it examined the order of the words, their typical usage and the statutory phrase as a whole.

The MVRA requires, in part, that a defendant convicted of certain crimes must:

… reimburse the victim for lost income and necessary child care, transportation and other expenses incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense.[2]

Ultimately, the Supreme Court reasoned that the word “prosecution” must refer to a government’s criminal prosecution, suggesting that the word “investigation” contained in the same phrase would refer to the government’s criminal investigation. Similarly, the Supreme Court interpreted the word “proceedings” as referring to the criminal proceedings. Using similar reasoning, the Supreme Court reasoned that terms referencing a victim’s “participation” and “attendance” are natural ways to describe a victim’s role in a government’s investigation and prosecution, whereas if the MVRA was meant to encompass a victim’s costs for private investigations and proceedings, then phrases such as “conducting an investigation” or being a “party to proceedings” would have been used. Also, the Supreme Court analyzed the three specifically listed items required to be reimbursed by the MVRA – lost income, child care expenses and transportation expenses – and reasoned that “[t]hese are precisely the kind of expenses a victim is likely to incur when missing work and traveling to participate in a government investigation or to attend criminal proceedings.”

The Supreme Court contrasted other statutes through which victims can recover the “full amount of the victim’s losses”[3]; however, those statutes are limited to victims of telemarketing and email fraud, sexual abuse or exploitation and domestic violence.

Additionally, the Supreme Court considered practical implications if the statute were interpreted broadly — the reimbursement of “necessary… expenses” likely would lead to endless litigation over issues such as what expenses are “necessary.” (For example, district courts might be asked to decide disputes over whether interviewing a particular witness in a private investigation was “necessary.”)

In response to the government’s argument that GECC should be allowed to recover its costs pursuant to the MVRA because it shared the results of the private investigation with the government and, therefore, GECC’s investigation should be subsumed within the government’s investigation, the Supreme Court responded that those costs were incurred before the information was shared with the government, whereas the statute allows recovery only of expenses incurred during participation in a government investigation.

The Implications of Lagos

It is not uncommon for companies in a position such as GECC to spend large sums for private, internal investigations and civil litigation in an attempt to uncover the manner of the fraud and recoup the related losses. Although civil remedies are an option, those civil judgments are rarely satisfied. Companies may spend more cautiously knowing that restitution via the MVRA is now limited.

However, the Supreme Court left open the question of reimbursement for the costs of an investigation pursued at the government’s invitation or request (as contrasted with investigations when results are shared with the government at the conclusion).

Corporate victims of fraud may want to weigh the costs and benefits of conducting an investigation in conjunction with and at the request of the government if they hope to recover costs through the MVRA.

This post was originally shared on Moore & Van Allen’s blog and is republished here with permission.

 

[1] Kim Cochran is a former associate and member of MVA’s White Collar Defense, Investigations, and Regulatory Advice teams. She has recently joined Wells Fargo’s Legal Department as counsel in the recovery and resolution planning space. (Kim is now with Well’s Fargo’s Legal Department acting as counsel in the recovery and resolution planning space.)

[2] 18 U.S.C. § 3663A(b)(4) (emphasis added).

[3] 18 U.S.C. §§2248(b), 2259(b), 2264(b), and 2327(b).

Supreme Court Decision Restricts Recompense

A recent Supreme Court ruling – in which the Mandatory Victims Restitution Act of 1996 was central – should put corporate victims of fraud on alert. Moore & Van Allen Partner Frank Schall discusses the decision and how it will impact those who fall prey to certain federal offenses.

with co-author Kim Cochran [1] 

In a decision with far-reaching implications for corporate victims of fraud, the U.S. Supreme Court recently held that the Mandatory Victims Restitution Act of 1996 (MVRA) does not entitle victims of certain federal offenses, including wire fraud, to reimbursement for costs incurred conducting investigations and participating in civil or bankruptcy proceedings related to the fraud.

Before Lagos, Many Courts of Appeal Allowed Recovery of Investigation Costs

In Lagos v. United States, 584 U.S. (2018), Sergio Fernando Lagos pleaded guilty to multiple counts of wire fraud and conspiracy to commit wire fraud. Over two years, Lagos caused Dry Van Logistics to generate false invoices for services that were never performed. Lagos then used those false invoices as collateral to borrow tens of millions of dollars from General Electric Capital Corporation (GECC). When Lagos’ scheme was discovered, Dry Van Logistics went bankrupt. Not surprisingly, GECC investigated the fraud and participated in the bankruptcy proceedings in an effort to recoup its losses at a cost of $5 million in professional fees.

At sentencing, the District Court ordered Lagos to pay GECC restitution for the $5 million that GECC spent investigating the fraud and participating in the bankruptcy proceedings. Lagos appealed, but the Fifth Circuit Court of Appeals affirmed the order of restitution in a decision in line with prior rulings from the Sixth, Seventh, Eighth and Ninth Circuits – that the MVRA allows for reimbursement of the costs of investigation and remedial proceedings. The U.S. Supreme Court disagreed.

The Supreme Court centered its decision on the language of the statute to determine “whether the scope of the words ‘investigation’ and ‘proceedings’ is limited to government investigations and criminal proceedings, or whether it includes private investigations and civil or bankruptcy litigation.” The Supreme Court engaged in a classic statutory analysis – it examined the order of the words, their typical usage and the statutory phrase as a whole.

The MVRA requires, in part, that a defendant convicted of certain crimes must:

… reimburse the victim for lost income and necessary child care, transportation and other expenses incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense.[2]

Ultimately, the Supreme Court reasoned that the word “prosecution” must refer to a government’s criminal prosecution, suggesting that the word “investigation” contained in the same phrase would refer to the government’s criminal investigation. Similarly, the Supreme Court interpreted the word “proceedings” as referring to the criminal proceedings. Using similar reasoning, the Supreme Court reasoned that terms referencing a victim’s “participation” and “attendance” are natural ways to describe a victim’s role in a government’s investigation and prosecution, whereas if the MVRA was meant to encompass a victim’s costs for private investigations and proceedings, then phrases such as “conducting an investigation” or being a “party to proceedings” would have been used. Also, the Supreme Court analyzed the three specifically listed items required to be reimbursed by the MVRA – lost income, child care expenses and transportation expenses – and reasoned that “[t]hese are precisely the kind of expenses a victim is likely to incur when missing work and traveling to participate in a government investigation or to attend criminal proceedings.”

The Supreme Court contrasted other statutes through which victims can recover the “full amount of the victim’s losses”[3]; however, those statutes are limited to victims of telemarketing and email fraud, sexual abuse or exploitation and domestic violence.

Additionally, the Supreme Court considered practical implications if the statute were interpreted broadly — the reimbursement of “necessary… expenses” likely would lead to endless litigation over issues such as what expenses are “necessary.” (For example, district courts might be asked to decide disputes over whether interviewing a particular witness in a private investigation was “necessary.”)

In response to the government’s argument that GECC should be allowed to recover its costs pursuant to the MVRA because it shared the results of the private investigation with the government and, therefore, GECC’s investigation should be subsumed within the government’s investigation, the Supreme Court responded that those costs were incurred before the information was shared with the government, whereas the statute allows recovery only of expenses incurred during participation in a government investigation.

The Implications of Lagos

It is not uncommon for companies in a position such as GECC to spend large sums for private, internal investigations and civil litigation in an attempt to uncover the manner of the fraud and recoup the related losses. Although civil remedies are an option, those civil judgments are rarely satisfied. Companies may spend more cautiously knowing that restitution via the MVRA is now limited.

However, the Supreme Court left open the question of reimbursement for the costs of an investigation pursued at the government’s invitation or request (as contrasted with investigations when results are shared with the government at the conclusion).

Corporate victims of fraud may want to weigh the costs and benefits of conducting an investigation in conjunction with and at the request of the government if they hope to recover costs through the MVRA.

This post was originally shared on Moore & Van Allen’s blog and is republished here with permission.

 

[1] Kim Cochran is a former associate and member of MVA’s White Collar Defense, Investigations, and Regulatory Advice teams. She has recently joined Wells Fargo’s Legal Department as counsel in the recovery and resolution planning space. (Kim is now with Well’s Fargo’s Legal Department acting as counsel in the recovery and resolution planning space.)

[2] 18 U.S.C. § 3663A(b)(4) (emphasis added).

[3] 18 U.S.C. §§2248(b), 2259(b), 2264(b), and 2327(b).


Previous Post

The Future of Outsourcing

Next Post

Interview: Richard Bistrong and Kristy Grant-Hart on Success in Compliance

Frank Schall

Frank Schall

Frank Schall is a Member at Moore & Van Allen PLLC. Frank has broad experience conducting internal investigations and representing clients in regulatory enforcement and white collar criminal defense matters, focusing on FCA and FCPA matters. He has represented clients in matters involving the SEC, the CFTC, the United Kingdom’s Financial Conduct Authority, the Monetary Authority of Singapore, the Hong Kong Monetary Authority, various U.S. Attorneys’ offices, the Department of Justice and the North Carolina Attorney General’s Office. In addition to his white collar and investigation experience, Frank has handled a range of commercial litigation and financial services matters, including complex commercial disputes, securities class actions, shareholder derivative suits, Sarbanes-Oxley litigation and allegations of unfair or deceptive trade practices.

Related Posts

Fox_DOJ Speeches_f

Analysis of Recent DOJ Statements

by Corporate Compliance Insights
March 23, 2023

DOJ leaders provide insight into agency's plans. Analysis of Recent Statements DOJ Shaping the Future of Corporate Criminal Enforcement What’s...

Fox_2023 ECCP Update_f

2023 Evaluation of Corporate Compliance Programs

by Corporate Compliance Insights
March 23, 2023

Keeping up with 2023 changes to DOJ guidelines. Additions, Deletions & Changes From 2020 2023 Evaluation of Corporate Compliance Programs...

encompass update

Encompass Launches pKYC Maturity Model

by Corporate Compliance Insights
March 22, 2023

KYC automation platform Encompass has unveiled a new perpetual Know Your Customer (pKYC) maturity model designed to help banks improve...

consilio onna partnership

Consilio, Onna Seek to Streamline eDiscovery for Cloud Apps

by Corporate Compliance Insights
March 22, 2023

Legal technology provider Consilio has launched a new platform, Sightline Collect, powered by data management supplier Onna. The platform is...

Next Post
New Resilient Podcast Series Explores the Stories of Executives in the Midst of Risk, Disruption and Crisis

Interview: Richard Bistrong and Kristy Grant-Hart on Success in Compliance

Compliance Job Interview Q&A

Jump to a Topic

AML Anti-Bribery Anti-Corruption Artificial Intelligence (AI) Automation Banking Board of Directors Board Risk Oversight Business Continuity Planning California Consumer Privacy Act (CCPA) Code of Conduct Communications Management Corporate Culture COVID-19 Cryptocurrency Culture of Ethics Cybercrime Cyber Risk Data Analytics Data Breach Data Governance DOJ Download Due Diligence Enterprise Risk Management (ERM) ESG FCPA Enforcement Actions Financial Crime Financial Crimes Enforcement Network (FinCEN) GDPR HIPAA Know Your Customer (KYC) Machine Learning Monitoring RegTech Reputation Risk Risk Assessment SEC Social Media Risk Supply Chain Technology Third Party Risk Management Tone at the Top Training Whistleblowing
No Result
View All Result

Privacy Policy

Founded in 2010, CCI is the web’s premier global independent news source for compliance, ethics, risk and information security. 

Got a news tip? Get in touch. Want a weekly round-up in your inbox? Sign up for free. No subscription fees, no paywalls. 

Follow Us

Browse Topics:

  • CCI Press
  • Compliance
  • Compliance Podcasts
  • Cybersecurity
  • Data Privacy
  • eBooks Published by CCI
  • Ethics
  • FCPA
  • Featured
  • Financial Services
  • Fraud
  • Governance
  • GRC Vendor News
  • HR Compliance
  • Internal Audit
  • Leadership and Career
  • On Demand Webinars
  • Opinion
  • Resource Library
  • Risk
  • Uncategorized
  • Videos
  • Webinars
  • Well-Being
  • Whitepapers

© 2022 Corporate Compliance Insights

No Result
View All Result
  • Home
  • About
    • About CCI
    • Writing for CCI
    • NEW: CCI Press – Book Publishing
    • Advertise With Us
  • Explore Topics
    • See All Articles
    • Compliance
    • Ethics
    • Risk
    • FCPA
    • Governance
    • Fraud
    • Internal Audit
    • HR Compliance
    • Cybersecurity
    • Data Privacy
    • Financial Services
    • Well-Being at Work
    • Leadership and Career
    • Opinion
  • Vendor News
  • Career Connection
  • Events
    • Calendar
    • Submit an Event
  • Library
    • Whitepapers & Reports
    • eBooks
    • CCI Press & Compliance Bookshelf
  • Podcasts
  • Videos
  • Subscribe

© 2022 Corporate Compliance Insights

Welcome to CCI. This site uses cookies. Please click OK to accept. Privacy Policy
Cookie settingsACCEPT
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
SAVE & ACCEPT