27 F.4th 161
2d Cir.2022Background
- John Afriyie, an MSD Capital analyst, was convicted of securities and wire fraud for insider trading; he profited about $1.56 million.
- MSD (the corporate victim) retained Sullivan & Cromwell (S&C) and paid approximately $691,046.42 in legal fees responding to government subpoenas, preparing witnesses, and pursuing restitution; after earlier adjustments the district court ordered Afriyie to reimburse $511,368.92.
- The fees claimed fell into three categories: (1) responding to USAO and SEC subpoenas/document requests, (2) preparing four MSD witnesses for Afriyie’s criminal trial, and (3) representing MSD in post‑verdict restitution proceedings.
- The Supreme Court’s decision in Lagos v. United States narrowed the MVRA by holding the words “investigation” and “proceedings” refer to government investigations and criminal proceedings (and disallowed recovery for internal/private investigations), prompting further litigation over whether Lagos displaced this Circuit’s rule on attorneys’ fees and whether SEC (civil) investigation expenses are recoverable.
- The Second Circuit affirmed that attorneys’ fees can qualify as “other expenses” under 18 U.S.C. § 3663A(b)(4) but held that expenses tied to civil SEC investigations are not recoverable; it affirmed recovery for USAO‑related work, witness preparation, and restitution‑proceedings work, vacating recovery for SEC investigation work and remanding for recalculation.
Issues
| Issue | Plaintiff's Argument (MSD/Gov) | Defendant's Argument (Afriyie) | Held |
|---|---|---|---|
| Whether attorneys’ fees remain recoverable under the MVRA after Lagos | Amato remains binding; attorneys’ fees are "other expenses" when necessary to participate in a government criminal investigation/prosecution | Lagos narrowed MVRA and undermines Amato; attorneys’ fees are dissimilar to listed examples and should be excluded | Held: Amato’s attorneys’-fees rule survives Lagos; attorneys’ fees can be recovered if necessary and tied to government criminal investigations/prosecutions |
| Whether expenses incurred while participating in an SEC (civil) investigation are recoverable | Parallel/coordinated SEC and USAO work is functionally the same; SEC‑related fees are necessary and thus recoverable | Lagos limits MVRA to criminal investigations/proceedings; SEC is a civil enforcement agency so those fees fall outside the MVRA | Held: Expenses tied to SEC civil investigations are not recoverable under the MVRA as a matter of law; only criminal investigations/proceedings qualify |
| Application to categories of S&C fees (subpoena responses, witness prep, restitution work) | All three categories were necessary to MSD’s participation in the prosecution and should be reimbursed | Some entries are SEC‑only or not necessary; some commingled entries should be disallowed | Held: Affirmed recovery for USAO subpoena/document‑response work (to extent tied to criminal probe), witness preparation for criminal trial, and restitution‑proceedings work; vacated recovery for SEC‑only work and remanded to allocate commingled entries |
Key Cases Cited
- United States v. Amato, 540 F.3d 153 (2d Cir. 2008) (held attorneys’ fees can qualify as “other expenses” under § 3663A(b)(4); also allowed recovery for private investigations, the latter holding later limited)
- Lagos v. United States, 138 S. Ct. 1684 (2018) (held the words “investigation” and “proceedings” in the MVRA are limited to government investigations and criminal proceedings, disallowing recovery for private/internal investigations)
- United States v. Afriyie, 929 F.3d 63 (2d Cir. 2019) (prior appeal affirming conviction and remanding restitution in light of Lagos)
- United States v. Razzouk, 984 F.3d 181 (2d Cir. 2020) (appellate standard: review restitution orders deferentially for abuse of discretion)
- United States v. Bahel, 662 F.3d 610 (2d Cir. 2011) (district court resolves restitution disputes by preponderance of the evidence)
- United States v. Koutsostamatis, 956 F.3d 301 (5th Cir. 2020) (post‑Lagos decision applying ejusdem generis to deny recovery for unconventional private‑investigation expenses; contrasted by the Second Circuit)