In this appeal, we consider, as a matter of first impression in this Circuit, the propriety of substituting a defendant’s gain for his victims’ losses in calculating restitution under the Mandatory Victims Restitution Act (“MVRA”), 18 U.S.C. §§ 3663A-3664. Although we join several of our sister circuits in concluding that such a substitution is error, we decline to exercise our discretion under Federal Rule of Criminal Procedure 52(b) to notice the error in this case because the defendant failed to object to the restitution calculation before the District Court and has not satisfied his burden of persuading us that the erroneous restitution order both “affected [his] substantial rights” and “seri
*88
ously a£fect[s] the fairness, integrity or public reputation of judicial proceedings.”
Puckett v. United States,
BACKGROUND
From about August 1998 through October 2006, defendant-appellant Salvatore Zangari worked as a securities broker in the securities-lending departments of, first, Morgan Stanley and, subsequently, Bank of America. As a broker, Zangari’s responsibilities included borrowing and loaning securities on behalf of his employers and their clients in the securities-lending market.
As described by a leading commentator: Securities lending is an important and significant business that describes the market practice whereby securities are temporarily transferred by one party (the lender) to another (the borrower). The borrower is obliged to return the securities to the lender, either on demand, or at the end of any agreed term. For the period of the loan the lender is secured by acceptable assets delivered by the borrower to the lender as collateral.
Mark C. Faulkner, “An Introduction to Securities Lending,” in Securities Lending & Repurchase Agreements 3-4 (Frank J. Fabozzi & Steven V. Mann eds., 2005). Typically, the collateral — which, in the United States, often takes the form of cash 1 — is valued at 102%-105% of the market value of the loaned securities. Peter Economou, “Risk, Return, and Performance Measurement in Securities Lending,” in Securities Lending & Repurchase Agreements 152-53.
The borrower of securities may be motivated by any number of factors, including the desire to cover a short position, to sell the borrowed securities in hopes of buying them back at a lower price before returning them to the lender, or to gain tax advantages associated with the temporary transfer of ownership of the securities. See Faulkner, supra, at 21-25. The lender, meanwhile, is principally motivated by the ability to earn a return on the collateral during the course of the loan, either through fees paid by the borrower (in the case of noncash collateral) or (in the case of cash collateral) by reinvesting it or making short-term loans to other borrowers at a higher interest rate than that paid to the borrower. See id. at 6-9.
In addition to the lender and borrower, stock-loan transactions often involve a third party, known as a “stock-loan finder.” According to the Information filed in this case,
[s]tock-loan finders [are] entities that [are] in the business of facilitating stock loan transactions in exchange for fees.... Borrowers and lenders typically pa[y] the finders’ fees from the fees, rebates and negative rebates that they earn[ ] in connection with particular stock-loan transactions.
Information ¶ 3,
United States v. Zangari,
No. 10-cr-255 (E.D.N.Y. Apr. 15, 2010), EOF No. 3.
See generally Morgan, Olmstead, Kennedy & Gardner, Inc. v. Fed. Ins. Co.,
*89 The Information alleged that, while Zangari was employed as a broker with Morgan Stanley, he and a co-worker, Peter Sherlock, agreed to cause Morgan Stanley to enter into stock-loan transactions with two other financial institutions, Paloma Securities, LLC (“Paloma”) and Swiss American Securities, Inc. (“SASI”). As a result of those transactions, Paloma and SASI paid sham finder’s fees to Clinton Management, Ltd. (“Clinton Management”), a straw stock-loan finder operated by Anthony Lupo, an acquaintance of Sherlock’s. Lupo, in turn, paid cash kickbacks to Sherlock (among other co-conspirators) and Sherlock paid a portion of these kickbacks to Zangari. The arrangement continued when Zangari moved to Bank of America. Neither Morgan Stanley nor Bank of America approved the stock-loan transactions that were the subject of the Information.
According to the Government, as a result of the fraudulent scheme, Bank of America and Morgan Stanley suffered losses in the form of unrealized profit. As summarized in its brief on appeal:
Zangari knew Paloma and SASI were willing to charge less to loan or pay more to borrow securities than Morgan Stanley or Bank of America ultimately paid or received. Rather than obtain this readily available profit for his employers, however, Zangari had his employers pay the higher price and receive the lower price, thereby causing his employers and their clients to lose money.
Government’s Brief at 13. 2
On April 15, 2010, Zangari waived indictment and pleaded guilty to the Information, which charged him with one count of conspiracy to violate the Travel Act, in violation of 18 U.S.C. §§ 371 & 1952. By the terms of his plea agreement, Zangari conceded that his conduct involved a bribe greater than $70,000, but agreed to forfeit the smaller sum of $65,600, which represented the amount that he had actually deposited into his bank account. The plea agreement also stipulated that restitution was “[applicable, in an amount to be determined by the [District] Court.” Plea Agreement, United States v. Zangari, No. 10-cr-255 (E.D.N.Y. Apr. 15, 2010).
Following Zangari’s plea, the United States Probation Office prepared a Presentence Investigation Report (“PSR”), which laid out the facts underlying Zangari’s plea and calculated the applicable sentencing range pursuant to the United States Sentencing Guidelines (“Guidelines” or “USSG”). In calculating Zangari’s adjusted offense level, the PSR included a six-level enhancement under USSG § 2B4.1, reflecting that the amount of loss to the victims of Zangari’s crime was more than $30,000 and less than $70,000. 3 To support this enhancement, the PSR stated that, though neither Morgan Stanley nor Bank of America had submitted affidavits of *90 loss, it was decided following a conversation with Morgan Stanley’s legal counsel “that a starting point to determine the loss ... would be the amount of money each defendant gained from kickbacks.” Presentence Investigation Report ¶ 14, United States v. Zangari, No. 10-cr-255 (E.D.N.Y. July 12, 2010). Elsewhere, the PSR reported that, “[ajccording to the Government and Morgan Stanley representatives, the loss to Morgan Stanley and Bank of America is the difference between the selling price of the securities and the lower price that was negotiated by the defendants without Morgan Stanley and Bank of America’s authorization.” Id. ¶ 16. The PSR went on to state, without explanation, that “it was this difference in price that the defendants gained in kickbacks and bribes.” Id. Citing Application Note 3(b) to Guideline § 2B1.1, which allows a sentencing court to “use the gain that resulted from the offenses as an alternative measure of loss only if there is a loss, but it reasonably cannot be determined,” the PSR proceeded to substitute the amount of Zangari’s gain for the amount of the victims’ losses, resulting in a six-level increase in Zangari’s adjusted offense level. 4
The PSR also reported that restitution was required under the MVRA, and concluded that Zangari was “liable for restitution in the amount of $65,600 ($38,800 owed to Morgan Stanley and $26,800 owed to Bank of America).”
Id.
¶ 78. It did not include any explanation for this conclusion, except that it was “[pjursuant to the guidance found in
United States v. Liu,
200 [Fed.Appx.] 39, [
Prior to sentencing, Zangari’s attorney submitted a list of “objections, clarifications and additions” to the PSR. The list did not contain any objection to the PSR’s restitution calculation. At the sentencing hearing, the District Judge asked if there were any other objections or corrections to the PSR and Zangari, through counsel, confirmed that there were none. 5 Later, in the course of a discussion of whether Zangari ought to be made to pay a fine, given his significant assets, the District Judge asked if restitution had already been paid. The Assistant U.S. Attorney confirmed that forfeiture, not restitution, had already been paid, but that restitution was set at the same amount, $65,600. Once again, Zangari made no objection to the restitution amount. Finally, in their affirmative presentation to the court, neither Zangari nor his attorney made any reference to the restitution amount stated in the PSR. In short, Zangari failed on multiple occasions to alert the District Court to any potential error in the restitution calculation.
*91 The District Court entered judgment on November 3, 2010, sentencing Zangari to one year and one day of imprisonment, three years of supervised release, 80 hours of community service, a fine of $3,000, a $100 special assessment, and restitution in the amount of $65,600. Two days later, Zangari filed a notice of appeal. He now argues, for the first time, that restitution was improper because the victims of his fraud suffered no loss.
We agree that the restitution order was entered in error, but not because Zangari’s victims suffered no loss. Rather, we hold that it was error to base the restitution order on Zangari’s gain rather than the victims’ actual losses. However, because Zangari failed to object to the restitution order in the District Court, and because even now he has failed to show that he was unfairly prejudiced by the order, we decline to exercise our discretion to notice the District Court’s error.
DISCUSSION
A. Standard of Review
Ordinarily, we review a district court’s order of restitution under the MVRA for abuse of discretion.
See United States v. Boccagna,
B. The District Court Erred in Ordering Restitution in the Amount of the Defendant’s Gain Rather than the Amount of the Victims’Loss
Federal courts have no inherent power to order restitution, which is traditionally a civil remedy.
See United States v. Reifler,
1. A Restitution Order under the MVRA May Not Substitute the Defendant’s Gain for the Victim’s Losses
Because “the purpose of restitution is essentially compensatory,”
Boccagna,
In this case, it appears that the restitution order was not based on the victims’ actual losses, but rather on Zangari’s- ill-gotten gains. In ordering restitution, the District Court relied on the PSR prepared by the probation officer, which stated that the loss to the victims had not been calculated because it was “amorphous.” The PSR therefore substituted Zangari’s gain from unlawful kickbacks in the place of the victims’ losses. Assuming that the victims’ actual losses “reasonably [could ]not be determined,” this substitution was permissible for purposes of calculating Zangari’s adjusted offense level under § 2B1.1 of the Guidelines. See USSG § 2B1.1, application n. 3(B) (“The court shall use the gain that resulted from the offense as an alternative measure of loss only if there is a loss but it reasonably cannot be determined.”). However, the PSR proceeded to employ the same substitution for purposes of calculating restitution. There is no provision in the Guidelines or in the MVRA itself that allows the defendant’s gain to be substituted for the victim’s loss for purposes of calculating restitution. 7
We have not yet had occasion to address the precise question of whether a defendant’s gain may stand in as a proxy for his victim’s loss for restitution purposes. Several of our sister circuits have addressed the issue, however, and all have agreed that “a defendant’s gain cannot be used as a proxy for actual loss.”
United States v. Harvey,
We recognize that there may be cases where calculating the victims’ actual losses is difficult, particularly where there are multiple victims or complex issues of fact attending the offense conduct. But the MVRA, unlike Guideline § 2B1.1, does not allow a sentencing court to substitute gain for loss in such a case. Rather, it prescribes, in 18 U.S.C. § 3664(d), several measures that the court may take to determine restitution in hard cases. The court may, for example: “require additional documentation or hear testimony,” 18 U.S.C. § 3664(d)(4); allow additional time “for the final determination of the victim’s losses, not to exceed 90 days after the sentencing,” id. § 3664(d)(5); and “refer any issue arising in connection with a proposed order of restitution to a magistrate judge or special master for proposed findings of fact and recommendation as to disposition,” id. § 3664(d)(6). Ultimately, if the court finds that “complex issues of fact related to the cause or amount of the victim’s losses would complicate or prolong the sentencing process to a degree that the need to provide restitution to any victim is outweighed by the burden on the sentencing process,” then the court may, in the exercise of its sound discretion, decide not to order restitution at all. 18 U.S.C. § 3663A(c)(3)(B); see also USSG § 5El.l(b)(2) (same).
2. There Was No Direct Correlation Between the Victims’ Losses and the Defendant’s Gain
The Government argues that the PSR did not simply substitute Zangari’s gain for the victims’ losses; rather, the Government contends, the PSR “drew a direct correlation between the kickbacks and the loss suffered by Morgan Stanley and Bank of America.” Government’s Brief at 15. To be sure, there may be cases where there is a direct correlation between gain and loss, such that the defendant’s gain can act as a
measure
of — as opposed to a
substitute
for — the victim’s loss.
See, e.g., United States v. Berardini,
A concrete example may be of assistance. Suppose “Security X” is valued at $100. Paloma wishes to borrow Security X and pays Clinton Management $5 to arrange a loan, whereby Morgan Stanley loans Security X to Paloma in exchange for *94 $100 in cash. Because Paloma paid a total of $105 to secure the loan (and therefore effectively valued Security X at $105), it could be said that Morgan Stanley lost out on $5 of potential collateral that it might have received in a direct transaction with Paloma, cutting out the middleman. However, because the collateral (whether $100 or $105) would be returned to Paloma at the end of the loan term, it cannot be said that Morgan Stanley actually lost $5. Rather, it lost the opportunity to earn a return on that $5 over the duration of the loan.
Similarly, suppose SASI wishes to loan Security X for cash and pays a $5 finder’s fee to Clinton Management to arrange a loan, whereby Bank of America exchanges $100 cash for Security X. On these facts, it could be said that Bank of America paid $5 more in collateral than would have been necessary in a direct loan. (Because SASI paid $5 in finder’s fees, it effectively received only $95 to secure the loan; therefore, Bank of America could conceivably have paid only $95 to borrow Security X directly from SASI.) However, because the collateral (whether $100 or $95) would have been returned to Bank of America at the end of the loan term, Bank of America’s loss is really only the foregone return it could have earned on that $5 difference over the duration of the loan.
In short, based on the information provided in the PSR, whether the identified victims, Morgan Stanley and Bank of America, were borrowers or lenders in the subject transactions, their losses are not equivalent to the sham finder’s fees paid by Paloma and SASI to Clinton Management — let alone the kickbacks that Clinton Management in turn paid to Zangari and his coconspirators. 9 Therefore, this is not a case in which a direct correlation exists between the victims’ losses and the defendant’s gain such that the latter can be used as a measure of the former.
Accordingly, we hold that it was error for the District Court to order restitution in the amount of Zangari’s gain rather than the victims’ actual losses. However, because Zangari did not raise an objection to the restitution order before the District Court, the question remains whether this error was “plain error,” as defined by cases construing Rule 52(b), such that we may notice it and exercise our discretion to correct it.
C. Though the District Court’s Error was “Plain, ” We Decline to Exercise Our Discretion to “Correct” the Error
Federal Rule of Criminal Procedure 52(b) provides appellate courts with a
“limited
power to correct errors that were forfeited because [they were] not timely raised in [the] district court.”
United
*95
States v. Olano,
only where the appellant demonstrates that (1) there is an ‘error’; (2) the error is ‘clear or obvious, rather than subject to reasonable dispute’; (3) the error ‘affected the appellant’s substantial rights, which in the ordinary case means’ it ‘affected the outcome of the district court proceedings’; and (4) ‘the error seriously affect[s] the fairness, integrity or public reputation of judicial proceedings.’
United States v. Marcus,
— U.S. -,
1. An Erroneous Restitution Order Does Not Automatically Amount to “Plain Error ”
As a prefatory matter, we acknowledge that we have previously suggested, without elaboration, that a defendant’s failure to object to a restitution order in the district court “is no bar to appellate review because improperly ordered restitution constitutes an illegal sentence amounting to plain error.”
United States v. Thompson,
Therefore, while it may be true that an improper restitution order is always “error” that is “plain” — which is to say error that is “clear or obvious” — it does not follow that such an error is always “plain error” as the Supreme Court has explained that term of art. Rather, before an appellate court may exercise its discretion to correct unpreserved error, the defendant-appellant must satisfy the remaining prongs of the
Olano
test— namely, that the error “affected his substantial rights” and “seriously affect[s] the fairness, integrity or public reputation of judicial proceedings.”
Marcus,
2. Zangari Has Failed to Show That the District Court’s Error Prejudiced Him or Resulted in a Miscarriage of Justice
It has long been understood that, for an error to affect an appellant’s “substantial rights,” it is not enough that it affect the outcome of the district court’s
*96
proceedings; rather, “in most cases a court of appeals cannot correct.the forfeited error unless the defendant shows that the error was
prejudicial.” Olano,
To be sure, Zangari has maintained that the victims in this case suffered no loss, as evidenced by the fact that neither Morgan Stanley nor Bank of America actually claimed a loss pursuant to 18 U.S.C. § 3664(d)(2)(A)(vi). But the fact that the victims did not claim a loss does not mean that they did not sustain a loss, and where, as here, restitution is governed by the MVRA, a victim’s decision not to participate in the sentencing process does not relieve the defendant from having to pay restitution.
See United States v. Johnson,
As explained above, it is most likely that the victims in this case
did
sustain a loss (in the form of opportunity cost), albeit one that cannot be accurately measured by reference to Zangari’s gains. Because Zangari has never proposed an alternative measure of loss, it is impossible for us to know whether the restitution the District Court ordered in fact exceeded the actual losses suffered by the victim banks.
Cf. United States v. Pescatore,
Indeed, this may in the end be a case of salutary error, where the restitution award in fact understated the victims’ actual losses. '
Cf United States v. Hicks,
Moreover, under section 3663A(b)(4), a sentencing court is obliged to “reimburse the victim for ... 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) — meaning that, had Morgan Stanley and Bank of America undertaken to determine their actual losses, Zangari would have been liable for the cost of their investigations, including attorney fees and accounting costs.
See United States v. Amato,
We do not mean to suggest that a defendant appealing an unpreserved error in a restitution order must prove to a certainty that the ordered restitution in fact exceeded the victims’ actual losses. But in this case there has been literally no effort — at oral argument or anywhere in Zangari’s ten-page brief on appeal — to address any of the Olano prongs. Rather, Zangari (while acknowledging at oral argument that the standard of review in this case is plain error) appears to believe that, if he succeeds in persuading us that there was error below, we must automatically vacate the restitution order. This is not the law.
It was Zangari’s burden to persuade us to notice the error in the District Court’s order of restitution. Under the circumstances here, we conclude that he has not carried this burden because he has failed to show that the order prejudiced him or undermined the fairness, integrity, or public reputation of judicial proceedings. Accordingly, we decline to exercise our discretion- to notice the error and therefore affirm the judgment of the District Court.
CONCLUSION
For the reasons stated above, we hold that (1) it was error for the District Court to substitute Zangari’s gains for the victims’ losses in calculating restitution, but (2) we decline to exercise our discretion to notice the error, because Zangari has not shown that the error affected his substantial rights or undermined the fairness, integrity, or public reputation of judicial proceedings.
The judgment of the District Court is therefore AFFIRMED.
Notes
. Id. at 4, 8. When cash is posted as collateral, the lender is generally obligated to pay a rebate or interest charge to the borrower for its use. In contrast, when noncash collateral is employed, the borrower typically pays a fee to the lender. See Peter Economou, "Risk, Return, and Performance Measurement in Securities Lending," in Securities Lending & Repurchase Agreements 153.
. The Government has not specified whether Morgan Stanley and Bank of America were lenders or borrowers in these transactions, but it is clear from the Information and Plea Agreement that the finder’s fees were alleged to have been paid by wire transfers from Paloma and SASI to Clinton Management. Specifically, the overt acts supporting the charge of conspiracy consisted of three wire transfers that Zangari "caused” to be sent from Paloma to Clinton Management "as payment for finder’s fees.”
. Under USSG § 2B4.1(b)(1)(B), which provides for the calculation of an offense level in cases of commercial bribery, "[i]f the greater of the value of the bribe or the improper benefit to be conferred ... exceeded $5,000,” the offense level is to be "increase[d] by the number of levels from the table in § 2B1.1 (Theft, Property Destruction, and Fraud) corresponding to that amount.” Section 2B1.1, in turn, prescribes a six-level increase if the loss was more than $30,000, but less than $70,000. USSG § 2B1.1(b)(1)(D).
. The Base Offense Level for Zangari's crime, which involved commercial bribery, was 8. USSG § 2B4.1(a). Six levels were then added pursuant to USSG § 2B4.1(b)(l)(B) and another two levels pursuant to § 3B1.3, because Zangari abused a position of trust. Three levels were subtracted pursuant to § 3E 1.1(a) and (b) to reflect Zangari's acceptance of responsibility. Thus, his Total Offense Level was 13, which, in Criminal History Category I, resulted in a Guidelines range of 12-18 months’ imprisonment.
. The parties did correct an error in the PSR with respect its calculation of Zangari’s Total Offense Level. The PSR had understated Zangari's Total Offense Level because it had based its loss calculation on the amount of forfeiture, rather than the amount stipulated in the plea agreement. By agreement of the parties, the Total Offense Level was corrected to reflect a loss of more than $70,000.
. The Victim and Witness Protection Act ("VWPA"), 18 U.S.C. § 3663, is a predecessor to the MVRA, which still applies in cases that do not fall under the MVRA. For present purposes, the statutes are identical, because each states that "[a]n order of restitution” made under it "shall be issued and enforced in accordance with section 3664.” Id. § 3663(d), § 3663A(d). Section 3664 was itself amended as part of the MVRA. See Pub.L. No. 104-32, § 206, 110 Stat. 1214 (1996).
. The PSR states that its conclusion that Zangan is liable for $65,600 in restitution is based on "the guidance found in
United States v. Liu,
200 [Fed.Appx.] 39, [
. See also United States v. Judy Yeung,
. Of course, the analysis might be different if Paloma and SASI had been identified as victims. Because it was Paloma and SASI who were alleged to have paid the sham finder's fees, there is some correlation between (a) the sham finder's fees they paid to Clinton Management and (b) the kickbacks Clinton Management paid to Zangari. However, the Government has never suggested that Paloma and SASI were victims of the fraudulent scheme, and Zangari was ordered to pay restitution only to Morgan Stanley and Bank of America, who were not alleged to have paid any finder’s fees.
Neither the Information, the Plea Agreement, nor the PSR permit an inference that the losses to Morgan Stanley and Bank of America were in the form of sham finder’s fees. To the extent there was in fact a direct correlation between the victims' losses and Zangari's gain, this correlation is not reflected in the PSR. We would therefore still find that the restitution order was in error, because it was not based upon a presentence report containing “information sufficient for the court to exercise its discretion in fashioning a restitution order.” 18 U.S.C. § 3664(a).