United States v. Gushlak
728 F.3d 184
| 2d Cir. | 2013Background
- In 1999–2000 Myron Gushlak and coconspirators ran a pump-and-dump scheme to inflate GlobalNet (GBNE) stock, using broker-dealers LCP and Montrose; Gushlak sold shares at inflated prices.
- Gushlak pleaded guilty (conspiracy to commit securities fraud and money laundering) in 2003; sentenced in 2010 to prison and a fine; the district court left restitution to be determined post-sentencing.
- The government repeatedly submitted restitution calculations (four submissions over ~18 months); the district court rejected the first three as methodologically deficient.
- For the fourth submission the government relied on affidavits (coconspirators and an FBI agent) to establish timing/nature of the manipulation and on expert David DeRosa to estimate victims’ losses by computing a “fair market price” (using regression to a telecom index, CUTL) and measuring the inflationary component.
- The district court credited DeRosa’s methodology and entered restitution of $17,492,817.45 under the MVRA; Gushlak appealed raising statutory-authority, due-process, and loss-calculation challenges.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether district court lost authority to order restitution by missing the 90-day §3664 deadline | Government: district court retained power because it signaled before deadline it would order restitution and only amount remained to be determined | Gushlak: failure to enter within 90 days violated statute and divested court of authority | Court: Dolan controls — court retained authority where it clearly stated it would order restitution before deadline; affirmed authority to act later |
| Whether MVRA §3663A(c)(3)(B) required denial of restitution because proceedings were complex and prolonged | Government: victims’ right to restitution outweighed burden; district court should exercise discretion to proceed | Gushlak: complexity/duration should bar MVRA application and restitution | Court: no abuse of discretion — court considered complexity and concluded compensation outweighed burden; MVRA contemplates judicial balancing |
| Whether reliance on hearsay affidavits violated due process (no cross-exam) | Gushlak: affidavits lacked reliability indicia and defendant had no opportunity to cross-examine, denying due process | Government: affidavits were background; primary factual and numeric proof came from live expert testimony (DeRosa) | Court: no due-process violation — affidavits were background, defendant had ample opportunity to contest through submissions, hearings, and expert cross-examination |
| Whether the restitution amount was legally supported (methodology and causation) | Gushlak: DeRosa’s model failed to control for company-specific non-fraud factors; lacked event-study granularity; alternative experts not credited | Government: DeRosa provided a sound, commonly used regression approach to estimate a reasonable approximation of fair market price and inflationary component | Court: affirmed — MVRA requires a reasonable approximation supported by sound methodology; DeRosa’s approach was sufficient and district court did not clearly err in crediting it |
Key Cases Cited
- United States v. Zangari, 677 F.3d 86 (2d Cir.) (restitution depends on statutory grant of authority)
- United States v. Reifler, 446 F.3d 65 (2d Cir.) (standards for causation and loss in restitution; balancing complexity under §3663A(c)(3)(B))
- United States v. Catoggio, 326 F.3d 323 (2d Cir.) (requirement to identify victims' actual losses; restitution as essential part of sentence)
- Dolan v. United States, 130 S. Ct. 2533 (2010) (a court that states it will order restitution before the 90-day deadline retains authority to set amount later)
- Dura Pharm., Inc. v. Broudo, 544 U.S. 336 (2005) (discussion of when inflationary purchase payment becomes actual loss)
- United States v. Rutkoske, 506 F.3d 170 (2d Cir.) (expert modeling typically required to approximate investor loss in manipulation cases)
- United States v. Savoie, 985 F.2d 612 (1st Cir.) (MVRA loss measurement: reasonable approximation suffices)