12 F.4th 219
2d Cir.2021Background
- Darren Goodrich, a broker-dealer, pled guilty in 2016 to one count of conspiracy to commit securities fraud for participating in a scheme that manipulated the public OTC share price of Cubed, Inc. (CRPT).
- Goodrich joined the scheme on April 22, 2014 and executed coordinated wash/matched trades at the direction of A.J. Discala to inflate public market price and volume. His plea allocution and the indictment describe only public-market manipulation.
- Separately, Cane coordinated a private placement selling restricted Cubed shares at $1.00 per share via an escrow; roughly $2.21 million was deposited, about $2 million after Goodrich joined. The private placement was not mentioned in Goodrich’s plea materials.
- At sentencing the District Court ordered $2.329M restitution: $479,007 for public-market purchasers and $1.85M for private-placement purchasers, concluding Goodrich knew of and could foresee harm to private-placement victims (relying in part on a June 5, 2014 wiretapped call).
- The Second Circuit reversed the $1.85M portion, holding the Government failed to prove by a preponderance that the private-placement losses were directly and proximately caused (i.e., foreseeable) by Goodrich’s offense of conviction, and remanded for an amended judgment.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether MVRA restitution may include losses to private-placement purchasers for a defendant who pleaded to a conspiracy to manipulate the public market | Govt: Private-placement losses were caused by the conspiracy to manipulate the public price and were reasonably foreseeable to Goodrich, so MVRA restitution covers them | Goodrich: Plea and allocution limited the offense to public-market manipulation; private-placement losses are not attributable to his offense and were not foreseeable | Reversed as to $1.85M: restitution for private-placement victims reversed because Govt failed to prove proximate causation/foreseeability by a preponderance |
| Who bears the burden to prove causation for restitution under MVRA | Govt: restitution appropriate if losses result from offense; sought to rely on record evidence (wiretap) | Goodrich: Govt must prove the losses were caused by the offense of conviction | Held: Government bears the burden to prove causation and amount of loss by a preponderance of the evidence |
| Whether the wiretapped June 5, 2014 call and other record evidence suffice to show Goodrich knew of or could foresee private-placement victims | Govt: Discala’s reference to asking Cane what she had “at a buck” and related conversation demonstrate Goodrich knew of private placement and its linkage to the market-manipulation scheme | Goodrich: The call is ambiguous; plea materials omitted private placement; no evidence he planned or executed the private placement | Held: The call and record are too ambiguous and insufficient under the preponderance standard; District Court’s factual findings on knowledge/foreseeability were clearly erroneous |
Key Cases Cited
- Vilar v. United States, 729 F.3d 62 (2d. Cir. 2013) (restitution must arise from the specific conduct forming the basis of the offense of conviction)
- Robers v. United States, 572 U.S. 639 (U.S. 2014) (MVRA contains a proximate-cause/foreseeability requirement)
- Hughey v. United States, 495 U.S. 411 (U.S. 1990) (restitution limited to loss caused by conduct forming basis of conviction)
- Boyd v. United States, 222 F.3d 47 (2d. Cir. 2000) (restitution may include reasonably foreseeable acts of co-conspirators as part of defendant’s criminal conduct)
- Marino v. United States, 654 F.3d 310 (2d. Cir. 2011) (applies foreseeability/proximate-cause analysis to restitution in fraud cases)
- Young v. United States, 932 F.2d 1035 (2d. Cir. 1991) (scope of offense-of-conviction for restitution is informed by plea colloquy and plea materials)
- Gushlak v. United States, 728 F.3d 184 (2d. Cir. 2013) (standard of appellate review for MVRA restitution decisions)