United States v. Goodrich, No. 19-208 (2d Cir. 2021)
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Defendant pleaded guilty to conspiracy to commit securities fraud in violation of 18 U.S.C. 371. Defendant, as a broker-dealer in the over-the-counter securities market, executed fraudulent trades for a co-defendant client with the effect of artificially inflating the share price of a sham company, Cubed. While defendant was involved in that activity, his co-defendants arranged the sale of Cubed shares outside the public market in a private placement. The district court concluded that defendant was liable under the Mandatory Victims Restitution Act of 1996 for restitution, both to purchasers of Cubed shares in the public market (in the amount of $479,000) and to purchasers in the private placement (in the amount of $1.85 million).
The Second Circuit reversed and remanded, agreeing with defendant that the Government did not show that the private placement losses are attributable to his offense of conviction, as the MVRA requires. The court explained that the MVRA authorizes restitution only for losses "directly and proximately" caused by a covered "offense" of conviction, 18 U.S.C. 3663A(a)(2), (c). This proximate cause element requires that the Government prove, by a preponderance of the evidence, that the losses for which restitution compensates were foreseeable to the defendant in the course of committing the offense of conviction. In this case, because the Government has not adduced sufficient evidence that the private placement losses were foreseeable to defendant during his participation in the conspiracy to manipulate the public share price of Cubed, the MVRA does not authorize the $1.85 million in restitution for these losses.
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