Court Opinion

ID: 1033899
Source: CourtListenerOpinion
Date Created: 2013-07-16 22:14:54.814506+00
Date Added: 2024-06-11T12:44:30.641471
License: Public Domain

12-1284-cr
United States v. Skowron

                            UNITED STATES COURT OF APPEALS
                                FOR THE SECOND CIRCUIT

                                     SUMMARY ORDER

RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A SUMMARY
ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY FEDERAL RULE
OF APPELLATE PROCEDURE 32.1 AND THIS COURT’S LOCAL RULE 32.1.1. WHEN CITING A SUMMARY
ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST CITE EITHER THE FEDERAL
APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION “SUMMARY ORDER”). A PARTY
CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON ANY PARTY NOT REPRESENTED BY
COUNSEL.

     At a stated term of the United States Court of Appeals for the Second Circuit, held at
the Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New
York, on the 16th day of July, two thousand thirteen.

Present:   SUSAN L. CARNEY
           CHRISTOPHER F. DRONEY,
                      Circuit Judges,
           PAUL G. GARDEPHE,
                      District Judge.*
–––––––––––––––––––––––––––––––––––––––––––––

UNITED STATES OF AMERICA,

                                Appellee,

                           v.                                  No. 12-1284-cr

JOSEPH F. SKOWRON, III,

                                Defendant-Appellant.

–––––––––––––––––––––––––––––––––––––––––––––

Appearing for Appellant:              JOSHUA H. EPSTEIN (Alan S. Gruber, on the brief),
                                      SorinRand LLP, New York, New York.

          *
        The Honorable Paul G. Gardephe, United States District Judge for the Southern District
of New York, sitting by designation.
Appearing for Appellee:             DAVID B. MASSEY, Assistant United States Attorney (Iris
                                    Lan, Assistant United States Attorney, on the brief), for
                                    Preet Bharara, United States Attorney, New York, New
                                    York.

Appearing for Amicus Curiae         KEVIN H. MARINO (John A. Boyle, on the brief), Marino,
Morgan Stanley:                     Tortorella & Boyle, P.C., Chatham, New Jersey.

                Appeal from the United States District Court for the Southern District of New

York (Denise Cote, Judge). ON CONSIDERATION WHEREOF, it is hereby

ORDERED, ADJUDICATED, and DECREED that the judgment of the District Court be

and it hereby is AFFIRMED.

                Defendant Joseph F. Skowron III appeals from that portion of the District

Court’s March 20, 2012 Opinion and Order and April 19, 2012 Second Amended Judgment

ordering Skowron to pay his former employer Morgan Stanley restitution in the amount of

$10,247,853.49. That sum represents 20% of Skowron’s compensation at Morgan Stanley

between 2007 and 2010 – amounting to $6,420,801.00 – and $3,827,052.49 in legal fees and

related costs. We assume the parties’ familiarity with the underlying facts, the procedural

history of the case, and the issues on appeal, which we reference only as necessary to explain

our decision.

                The District Court’s restitution order followed Skowron’s conviction, pursuant

to a guilty plea, for conspiring to commit securities fraud and to obstruct justice. On appeal,

Skowron argues that the restitution order violates the Mandatory Victim Restitution Act

(“MVRA”), codified largely at 18 U.S.C. §§ 3663A and 3664, because (1) his compensation

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was not Morgan Stanley’s “property,” and (2) the legal fees and costs were not incurred

“during the investigation or prosecution of the offense” or were not “necessary” expenses.

              “[W]e review the district court’s restitution order deferentially, reversing only

if in our view the trial court abused its discretion.” United States v. Amato, 540 F.3d 153,

159 (2d Cir. 2008). “To identify such abuse, we must conclude that a challenged ruling rests

on an error of law, a clearly erroneous finding of fact, or otherwise cannot be located within

the range of permissible decisions.” United States v. Boccagna, 450 F.3d 107, 113 (2d Cir.

2006) (internal quotation marks omitted).

              A.     Skowron’s Compensation

              We first turn to Skowron’s argument that the District Court erred in holding

that, because he committed honest services fraud against Morgan Stanley, a portion of his

compensation was Morgan Stanley’s “property” under the MVRA. The MVRA requires that

a defendant who has “committed [an offense] by fraud or deceit” pay restitution to

identifiable victims who have suffered a “pecuniary loss.” 18 U.S.C.

§§ 3663A(c)(1)(A)(ii), (c)(1)(B). In such cases, the defendant must pay restitution equal to

the value of the victim’s lost “property.” Id. § 3663A(b). A victim’s pecuniary losses may

be considered lost “property” where the victim has been deprived of “money to which it [is]

entitled by law.” United States v. Bengis, 631 F.3d 33, 40 (2d Cir. 2011) (internal quotation

omitted).

              This Court has held that an employer is entitled by law to compensation it paid

an employee when the “employer pays for honest services but receives something less.”

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United States v. Bahel, 662 F.3d 610, 649 (2d Cir. 2011). Following this precedent, the

District Court held that Skowron’s compensation was Morgan Stanley’s property because

“Skowron manifestly failed to provide the honest services for which Morgan Stanley

compensated him.” Specifically, the District Court found that Skowron violated Morgan

Stanley’s policies prohibiting insider trading, and actively deceived Morgan Stanley and

frustrated its investigation and attempts to cooperate with the SEC, thereby prolonging the

period during which he was paid by Morgan Stanley. On appeal, Skowron observes that he

was not convicted of honest services fraud and contends that he could not have been

convicted of honest services fraud under Skilling v. United States, 130 S. Ct. 2896 (2010),

and therefore no part of his compensation can be regarded as Morgan Stanley’s property.

              Skowron’s argument is unavailing. “There is no question that a portion of an

individual’s salary can be subject to forfeiture where, as here, an employer pays for honest

services but receives something less.” Bahel, 662 F.3d at 649. As a result, for purposes of

the MVRA, the “property” lost by an employer consists of “‘the difference in the value of the

services that [the defendant] rendered . . . and the value of the services that an honest

[employee] would have rendered.’” Id. (quoting United States v. Sapoznik, 161 F.3d 1117,

1121 (7th Cir. 1998). Here, Skowron deprived Morgan Stanley of his honest services by

participating in a bribery scheme to obtain inside information regarding the progression of

certain clinical trials. If not for Skowron’s deceit, Morgan Stanley would have learned of his

criminal conduct, terminated his employment, and discontinued his compensation.

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Accordingly, the District Court was authorized by the MVRA to require Skowron to pay

restitution to Morgan Stanley for a portion of his salary.

              Moreover, a defendant commits honest services fraud when he, “in violation of

a fiduciary duty, participate[s] in bribery or kickback schemes,” Skilling, 130 S. Ct. at 2930,

whether by giving or receiving such bribes or kickbacks. See United States v. Nouri, 711

F.3d 129, 140 (2d Cir. 2013); see also Skilling, 130 S. Ct. at 2933-34 (“The term ‘kickback’

means any money, . . . thing of value, or compensation . . . which is provided . . . to

[enumerated persons] for the purpose of improperly obtaining or rewarding favorable

treatment in connection with [enumerated circumstances].” (quoting 41 U.S.C. § 52(2))

(alterations in Skilling)). Here, Skowron stated during his plea colloquy that he provided

Benhamou with certain benefits, and that Benhamou, in turn, provided Skowron with

material, non-public information about pharmaceutical companies in which the hedge funds

Skowron managed were investing. Accordingly, Skowron participated in a bribery or

kickback scheme when he gave Benhamou benefits and received valuable information in

return.

              Given the circumstances, the District Court did not abuse its discretion in

ordering restitution equaling 20% of Skowron’s salary for the period of his offense. See

Bahel, 662 F.3d at 650 (“[W]e . . . find that requiring [the defendant] to repay less than 10%

of his total salary was a conservative estimate of the cost of the fraud with respect to his

salary.”); Sapoznik, 161 F.3d at 1121-22 (affirming a restitution award equal to 25% of a

defendant’s salary from the period during which he accepted bribes).

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              B.      Legal Fees and Costs

              Skowron also argues that the District Court erred in awarding Morgan Stanley

restitution for the attorneys’ fees and costs it incurred as a result of the SEC investigation.

Under the MVRA, a victim is entitled to restitution for “necessary . . . other expenses

incurred during participation in the investigation or prosecution of the offense or attendance

at proceedings related to the offense.” 18 U.S.C. § 3663A(b)(4) (emphasis added). Skowron

argues that the District Court failed to apply this standard, and instead relied on the broader

language of the Victim and Witness Protection Act (“VWPA”), which allows for restitution

of expenses “related to participation in the investigation or prosecution of the offense.” 18

U.S.C. § 3663(b)(4) (emphasis added).

              The District Court committed no error in awarding Morgan Stanley

restitution for the attorneys’ fees and costs it incurred as a result of the SEC investigation.

In United States v. Amato, 540 F.3d 153, 162 (2d Cir. 2008), this Court affirmed a

restitution award that included legal expenses incurred by the defendants’ employer in

connection with an internal investigation related to an official criminal investigation. Id.

Here, as the District Court found, the sequence of events is similar: Skowron’s acts

caused an internal investigation related to an SEC investigation that led directly to the

filing of parallel criminal insider trading and obstruction charges.

              Skowron further argues that the District Court erred in awarding Morgan

Stanley the attorneys’ fees and costs that it advanced to its employees. According to

Skowron, these expenses do not fall within the purpose of the MVRA, because the

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employees were not “victims” of Skowron’s scheme. This argument fails, because the

District Court found Morgan Stanley to be a “victim” under the MVRA, and it was

Morgan Stanley that incurred the expenses in question. While Skowron argues that

Morgan Stanley was not contractually obligated to cover the legal expenses of its

employees, and therefore the expenses were not “necessary,” it was reasonable for the

District Court to find that these employees had the same right to indemnification as

Skowron himself asserted and Morgan Stanley honored. Skowron presented no evidence

to the contrary, either in the district court or here.

               We have considered Skowron’s remaining arguments and find them to be

without merit. Accordingly, the judgment of the District Court is AFFIRMED.

                                             FOR THE COURT:
                                             Catherine O’Hagan Wolfe, Clerk of Court

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