$5 Million In Legal, Accounting, And Consulting Fees Relating To Private Fraud Investigation In Bankruptcy Proceedings Not Recoverable Under The Act.
In Lagos v. United States, No. 16-1519 (U.S. Sup. Ct. May 29, 2018), petitioner was convicted of using a company he controlled to defraud a lender of tens of millions of dollars. After the scheme came to light and petitioner’s company went bankrupt, the lender conducted a private investigation of the alleged fraud in petitioner’s company’s bankruptcy proceeding, spending nearly $5 million in legal, accounting, and consulting fees related to the fraud investigation. After petitioner pleaded guilty to federal wire fraud charges, the district judge ordered him to pay about $5 million in restitution to the lender under the Mandatory Victims Restitution Act of 1996, 18 U.S.C. §3662A(b)(4). The Fifth Circuit affirmed, but SCOTUS reversed.
The U.S. Supreme Court, in an opinion delivered by Justice Breyer, determined that the Act was limited to government or criminal proceedings, not encompassing private, civil or bankruptcy investigations. Beyond that, the statute lists three types of reimbursable expenses to the victim—lost income; child care expenses; and transportation expenses—which does not encompass the broader expenses awarded by the district judge. The fact that the victim shares the results of its private investigation with the Government did not translate the expenses into those types which are reimbursable under the Act.