Tag Archives: restitution

The Court Giveth, The Court Taketh Away – Update for May 18, 2017

We post news and comment on federal criminal justice issues, focused primarily on trial and post-conviction matters, legislative initiatives, and sentencing issues.

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TAKE MY MONEY

cartheft170519Kapelle Simpson-El had, in an earlier life, sold cars. Stolen cars. The feds caught up to him, and he was duly locked up. His sentence included the mandatory restitution obligation, in Kapelle’s case about $433,000.

Kapelle did his time, and after he was released, he dutifully paid at least 5% of his monthly paycheck toward restitution. No surprise there: on supervised release, an offender can be sure that his or her probation officer is first and foremost a collection agent for the court.

It will come as little surprise to anyone who has received Bureau of Prisons medical care that Kapelle, who was injured in prison, received “inadequate medical attention and a lack of treatment” from Health Services. After he got out, Kapelle sued under the Federal Tort Claims Act, and settled with the government for $200,000.

lord170519At that point, the government asked Kapelle’s sentencing judge to modify his restitution payment based on Kapelle’s “material change in economic circumstances.” The government wanted him to turn over the entire $200k for restitution. The district court ordered Kapelle to apply $145,640 of the settlement funds toward restitution.

Under 18 U.S.C. § 3664(k), a court can adjust a restitution order when there is a “material change in the defendant’s economic circumstances that might affect the defendant’s ability to pay restitution.” The district court invoked this authority, reasoning that the settlement funds could affect Kapelle’s ability to pay restitution.

Kapelle appealed, arguing that the settlement was just intended to make up for “a lifetime of lost income.” Earlier this week, the 10th Circuit upheld the shakedown.

The Circuit complained that Kapelle’s “lost income” characterization “rests on a questionable factual foundation, for the settlement might have included some compensation for non-economic harm. After all, the settlement resolved a suit in which Mr. Simpson-El had claimed ‘hedonic damage to his quality of life’ as well as economic loss.” Even if Kapelle was right, the 10th said, the fact that money he would earn in the future was delivered to him now in a lump sum was “time-savings [that] could reasonably be viewed as a material change in economic circumstances.”

lottoThe Circuit panel said the district court properly considered Kapelle’s current economic condition. “The court stated the obvious,” the 10th wrote. “There was now a substantial new fund that had not existed before the time of the settlement. Pointing to the newly created fund, the court relied on a readily apparent change: Before the settlement, Mr. Simpson-El would have had to wait years to earn $200,000; after the settlement, he would immediately recoup $200,000.”

Of course, if Kapelle had earned the $200,000 over 10 or 15 years, he would have paid 5% of that (or $10,000) in restitution on it. Receiving it all at once, he paid at the rate of 72%. Of course, Kapelle’s victims would see no problem with such an outcome, and they would have a point. Still, the math is troubling.

United States v. Simpson-El, Case No. 16-3107 (10th Cir., May 17, 2017)

– Thomas L. Root

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Pay the Man, Shirley – But It’s Not a Sentence – Update for May 8, 2017

We post news and comment on federal criminal justice issues, focused primarily on trial and post-conviction matters, legislative initiatives, and sentencing issues.

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OPPORTUNITY KNOCKS…

For the past 20 years, federal law has required that those convicted of crimes where victims suffer tangible harm pay restitution to those hurt by their conduct.

restitution170508While prosecutors and others of that ilk like to fume that drug offenses – where willing buyers purchase commodities that the government has deemed fit to outlaw from willing sellers – are not victimless, those offenses have thus far been exempted from restitution. But for economic crimes – bank fraud, tax evasion, even where executive misconduct causes a company’s stock price to fall – courts slap defendants with staggering restitution liabilities that affect them long after the sentence is served. Often it’s well deserved, such as where a Ponzi operator has fleeced elderly victims out of life savings. But we have seen cases where the “victims” vehemently denied they were due restitution, but it was ordered anyway.

To defendants, a big restitution judgment may seem like a sentence. It sure did to Zack Dyab. Zack pled guilty in 2010 to a couple of white-collar offenses, wire fraud and money laundering, for which he was sentenced to 10 years and ordered to pay $6.4 million in restitution. Like most people in his position, after his conviction, Zack filed a habeas corpus motion pursuant to 28 USC 2255. And like most people, his 2255 motion failed.

Two years later, the government moved to amend Zack’s restitution to reflect that one of his co-conspirators would be jointly and severally liable for a portion of the obligation, and to update the identities and addresses of some of the people entitled to share in the restitution. Somehow no one served Zack with the government’s motion – a common enough problem for federal inmates, who cannot participate in the federal courts’ electronic filing and service system – and the court issued an amended judgment in due course.

carpe170508Zack did receive a copy of the amended judgment. Being a carpe diem kind of guy, he took the opportunity presented by the amended judgment to file another § 2255 motion, this one claiming his due process rights were violated because he received no notice that the amended judgment was being considered. The district court denied the motion, and last week, the 8th Circuit agreed.

The Circuit held that a § 2255 motion was not the right means of challenging the amended judgment, because § 2255 motions can only be used for claims involving release from custody. Because “a dispute about restitution does not involve a claim of a right to be released from custody,” the Court said, “a prisoner cannot challenge the restitution portion of his sentence under § 2255.”

moneylaundering170508Zack also argued he ought to be allowed to challenge his money-laundering conviction all over again, because that conviction is what led to the restitution order, and there was a fresh judgment on file that he should be able to attack. Noting that “not every change to a judgment results in a new sentence or judgment that wipes clean the slate of post-conviction motions previously filed,” the 8th Circuit disagreed:

We think the district court’s order amending Dyab’s judgment did not result in a new sentence or judgment. There was no substantive proceeding that adjudicated Dyab’s guilt or determined the appropriate punishment. The court did not alter the amount of Dyab’s restitution obligation or otherwise change Dyab’s sanction. The court updated the addresses of certain restitution payees… and reflected that one of Dyab’s co-conspirators… was jointly and severally liable for some of the losses. These actions are not sufficient to create a new sentence or judgment that would permit Dyab to file a successive § 2255 motion.

Dyab v. United States, Case No. 16-1296 (8th Cir., May 4, 2017)

– Thomas L. Root

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Judges’ Decisions are Final… – Update for April 13, 2017

We post news and comment on federal criminal justice issues, focused primarily on trial and post-conviction matters, legislative initiatives, and sentencing issues.

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DON’T LOOK BACK

fasttalk170413Every so often, broadcast stations are required to air an announcement of their contest rules. This is because the FCC believes that listening to an avalanche of mumbo-jumbo delivered by the guy who used to do the Fedex fast-talking commercials makes us more informed listeners.

We were reminded of one of the actually discernable phrases in the contest rules by today’s case: “Judges’ decisions are final.” Finality is a concept that seems hard for people to appreciate, but one which is necessary if the judicial system is every going to work.

fat170413Normally, inmates are on the wrong side of this argument. A prisoner who believes she was wrongly convicted or sentenced wants to keep pleading the case until someone in authority finally agrees with her. There are exceptions to finality – new evidence that could not have been discovered before, a new court decision that meets requirements for being applied retroactively, even a retroactive change in the guidelines. But mostly, “final” means final.

It today’s case, finality actually worked in favor of the defendant. Hakan Yalincak was an NYU student a decade ago when he pled guilty to running a sham hedge fund. Along with a sentence, the court in April 2007 imposed restitution of $4.2 million.

Hakan immediately applied under 18 USC 3664(j)(2) to have money recovered in the fund’s bankruptcy be credited to his restitution. The government paid little attention to the request, noting only that it had no objection to grant of Hakan’s motion. The district court thus approved the request, ultimately applying about $1.55 million collected by the bankruptcy trustee to the amount Hakan was to pay.

bkptcyscam170413What no one appreciated was that the federal bankruptcy system works in a way that would a mere amateur fraudster like Hakan blush. Sure the trustee collected $1.55 million, but by the time all of the bankruptcy vultures – lawyers, trustees, experts – got done picking at it, the victims of the scam got about $300,000. In May 2015, the district court realized that the amount of money actually reaching the victims was about 20% of the credit it had given Hakan, it vacated the 2007 order under F.R.Civ.P. 60(a), which gives a court the power to “correct a clerical mistake or a mistake arising from oversight or omission whenever one is found in a judgment.”

Hakan appealed, arguing the 2007 order was final and could not be disturbed.

This week, the 2nd Circuit Court of Appeals agreed with Hakan. The Court said the issue turned on whether an order modifying restitution was a final, appealable order. If so, the district court could not later revisit it. If not, the order remained open to modification by the district court.

The Circuit decided the 2007 order was final:

When the district court granted Yalincak’s motion for credit, it made a conclusive determination as to Yalincak’s entitlement to credit… The order did not dispose of the issue of restitution entirely, given that the credits were not enough to discharge Yalincak’s restitution obligations in full and thereby end the restitution proceedings. Nonetheless, the district court’s resolution of the § 3664(j)(2) motion was a final decision as to Yalincak’s claim regarding the proper accounting for particular funds. If such a decision were not considered final and appeal had to wait until Yalincak had discharged his restitution obligations entirely, it is unclear as a practical matter whether the district court’s grant of the Sec 3664(j(2) motion could ever be challenged.

over170413Yalincak still owed close to $2 million, according to the district court’s calculations. The Circuit admitted that “the district court’s desire to correct an error largely attributable to the government’s somewhat casual consent is understandable. Nevertheless, considerations of finality dictate that by the time the error was noticed, it was beyond the power of the court to correct.”

United States v. Yalincak, Case No. 11-5446 (2nd Cir., April 10, 2010)

– Thomas L. Root

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The Second Thief Gets It All – Update for March 28, 2017

We post news and comment on federal criminal justice issues, focused primarily on trial and post-conviction matters, legislative initiatives, and sentencing issues.
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VICTIM BASHING

A verity beyond peradventure is the notion that a thief should return that which he or she stole to the victims. It’s not punishment: if it were, there would hardly be a legal deterrence to theft. But punishment alone, which exacts a penalty that vindicates the rights of society, does not vindicate the rights of the victims. People who have stuff taken from them ought to get it back.

theft170328Federal law pays lip service to this notion in the Mandatory Victims Restitution Act, which requires a district court to order restitution of the property stolen or defrauded or otherwise taken from a victim. Ponzi schemers are ordered to pay back their victims, bank robbers are ordered to repay the banks, tax cheats have to pony up to the government. And under a separate statute, 18 USC 2259, children who have been the victims of child porn have been found to be entitled to compensation from defendants who happened to have their pictures in their computers, despite the fact that the defendants acquired the pictures from the Internet with no idea who the victim was.

But here’s the rub. The law says that property acquired through crime does not ever belong to the person to acquired it criminally. At common law this was fine, because title stayed with the lawful owner. But trust Congress to (greedily) mess things up: under 18 USC 981 (and a host of other statutes), stolen property is forfeited to the government.

So Conrad Conman beats 50 investors out of $1 million in his fraud scheme. Unlike every other fraudster out there, Conrad happens to live frugally on earnings from his day job as a bilge pump operator, so the $1 million he stole remains intact, stuffed under his mattress.

When the Feds bust him, the civil forfeiture statute permits the government to seize the $1 million. That money becomes federal property. The victims, all of whom would like their money back are left with nothing but the warm contentment of knowing that the million will be spent prudently and constructively by Uncle Sam.

FLU170328The district court will sentence Conrad to 10 years, and order him to pay the victims back from his bilge pump operator’s salary. After he does his time, the U.S. Attorney’s Office Financial Litigation Unit – an understaffed and read-headed stepchild desk at the USAO – will take over collecting restitution. It’s little wonder that as of the end 2014, the FLUs nationwide had simply thrown up their collective hands, declaring a whopping 93% of the $78 billion owed to victims as uncollectible. Every dime of that is money the victims will never see again.

So Conrad bilked the investors, and the government rides into the sunset with their money. Moral: if you’re going to be a thief, be a government.

All of which brings us to today’s case. Christine Bodouva was a financial officer for an architectural firm. She made off with about $127,000 that employees had contributed to the office 401(k) plan. After she was caught, she repaid every dime to the bilked employees before her sentencing.

But at sentencing, the district court ordered her to forfeit the $127,000 she had stolen to the government. She said, “What $127,000? I paid it back.” The district judge said she had no authority to offset the forfeiture against the restitution already paid, and ordered Chris to forfeit the $127,000 she no longer had to the government anyway.

Last week, the 2nd Circuit agreed, holding that “restitution and forfeiture are authorized by different statutes and serve different purposes — one of remediating a loss, the other of disgorging a gain.” The Circuit noted that restitution and forfeiture are creations of two distinct statutes, and “nothing in the statutory scheme permitted the district court to reduce the mandated criminal forfeiture order because the defendant also had to satisfy her obligation to pay restitution or had already substantially done so.”

To be sure, Chris’s victims were luckier than most, because they ended up in line ahead of Uncle Sam. They were made whole. At the same time, Chris was no worse off than if she had forfeited the $127,000 she paid back to the victims, because under the MVRA, she would have had to pay the victims restitution anyway.

gvttheft170328We respectfully disagree with the Circuit’s observation that “criminal forfeiture is a form of punishment. As such, it is distinct from restitution or other remedial actions, which are intended to return the victim and the perpetrator to the status quo that existed before the violation took place.” Christine’s sentence – a year and a day – was a punishment. The fine of $5,000 levied by her district judge is a form of punishment. The forfeiture, however, was done civilly in this case, making the observation that it, too, is punishment harder to accept. Even the language of the Judgment is questionable: the Court ordered Christine to “forfeit the Defendant’s interest” in the money to the government. But a defendant has no interest in stolen property: rather, it remains the property of the people from which it was stolen.

Bluntly put, a forfeiture is less of a “punishment” than it is a statutorily authorized government theft of that which has already been stolen. Were it otherwise, the government would see to it that victims were compensated first, and then the forfeiture applied later.

United States v. Bodouva, Case No. 16-3937 (2nd Cir. Mar. 22, 2017)

– Thomas L. Root

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Child Victim of Long-Ago Sex Video Can Collect Damages from Current Downloader – Update for January 26, 2017

We post news and comment on federal criminal justice issues, focused primarily on trial and post-conviction matters, legislative initiatives, and sentencing issues.

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CRIME DOESN’T PAY

About 15 years ago or so, some depraved mutt made videos of a little girl being sexually molested. The videos – known in the kiddie porn world as the “Vicky Series”– has been circulating on the Internet ever since.

Crime doesn't pay... even for the victim.  Ask McGruff...
     Crime doesn’t pay… even for the victim. Ask McGruff…

The young woman at the center of the Vicky series is now trying to regain her life after years of psychological trauma brought on by knowing that disgusting images of her have been seen, actually drooled over, by thousands, if not millions, of people. The legal side of her effort is to make claim for restitution when people are convicted of child porn offenses and their computers are found with any of the “Vicky” series on the hard drives.

She is seeking about $1 million to date for counseling, lost wages, extra educational costs and evidence gathering, her lawyer, Carol Hepburn, said. So far, her client has filed for restitution in more than 200 federal criminal cases across the country, and received more than 50 orders for payment — though not much money has come in because many defendants have little means.

One of those proceedings involved Ricky Funke, convicted of possessing over 600 images and videos of child pornography. Among these were 21 videos from the “Vicky series,” depicting her sexual abuse at the age of 10 and 11. Some of the images and videos had been on his computer since 2001.

The young woman known as “Vicky” requested $27,500 in restitution and attorney’s fees. On the government’s recommendation, Funke’s court ordered $3,500 restitution to Vicky.

Funke challenged the award. On Tuesday, the 11th Circuit upheld the relatively modest award to Vicky.

The Mandatory Victims Restitution Act, which Congress beefed up with a special provision – 18 USC 2259 – for sex offenses, provides that restitution is to be awarded for the “full amount of the victim’s losses,” defined as costs incurred by the victim for medical services relating to physical, psychiatric, or psychological care, rehabilitation, lost income, attorneys’ fees, and other losses suffered by the victim as a proximate result of the offense.

Funke argued “costs incurred” did not include future costs, but the Circuit noted that five other courts of appeal had held that future losses are compensable, under Sec. 2259. The 11th said, “Congress chose unambiguously to use unqualified language in prescribing full restitution for victims,” and agreed that Vicky’s future costs could be estimated.

pornA160829Rick raised a more troublesome issue, that of whether his possession of 21 videos proximately caused any damage to Vicky. The Circuit held, however, that “where it can be shown both that a defendant possessed a victim’s images and that a victim has outstanding losses caused by the continuing traffic in those images but where it is impossible to trace a particular amount of those losses to the individual defendant by recourse to a more traditional causal inquiry, a court… should order restitution in an amount that comports with the defendant’s relative role in the causal process that underlies the victim’s general losses.”

Figuring the amount of loss in such a case is more of an art than a science. The Circuit held that a district court should consider the number of past defendants who had contributed to the victim’s general losses, a reasonable prediction of the number of future defendants likely to be convicted for crimes contributing to the victim’s general losses, reliable estimates of the broader number of offenders involved (most of whom will, of course, never be caught or convicted), whether the defendant distributed any of the images; whether the defendant had any connection to the initial production of the images; how many images of the victim the defendant possessed; and other facts relevant to the defendant’s relative causal role.

Here, the district court properly considered Ricky’s “possession of a large number of files involving [Vicky] and his role in distributing files to others over the BitTorrent program.” The appellate panel concluded the district court did not abuse its discretion in awarding Vicky $3,500 in restitution.

United States v. Funke, Case No. 16-1218 (8th Cir., Jan. 24, 2017)

– Thomas L. Root

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