United States v. Afriyie

27 F.4th 161

UNITED STATES of America, Appellee,

v.John AFRIYIE, Defendant-Appellant.

Docket No. 20-2269-cr

August Term, 2021

United States Court of Appeals, Second Circuit.

Argued: October 19, 2021

Decided: February 25, 2022

ROBERT A. CULP, Garrison, NY, for Defendant-Appellant.

EDWARD A. IMPERATORE, Assistant United States Attorney (Christine I. Magdo, Thomas McKay, Assistant United States Attorneys, on the brief), for Audrey Strauss, United States Attorney for the Southern District of New York, New York, NY, for Appellee.

Before: CALABRESI, POOLER, and PARKER, Circuit Judges.

POOLER, Circuit Judge:

The Mandatory Victims Restitution Act ("MVRA") requires defendants convicted of certain crimes to reimburse their victims for "lost income and necessary child care, transportation, and other 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). In United States v. Amato , we held that "other expenses" recoverable under the statute could include attorneys’ fees incurred by victims while helping the government investigate and prosecute the defendant. 540 F.3d 153, 159-60 (2d Cir. 2008). Amato also held that victims could recover costs incurred while privately investigating the defendant. Id. at 162.

A decade later, in Lagos v. United States , the Supreme Court adopted a "more limited interpretation" of the MVRA. ––– U.S. ––––, 138 S. Ct. 1684, 1690, 201 L.Ed.2d 1 (2018). Expressly abrogating Amato ’s second holding, Lagos held that "the words ‘investigation’ and ‘proceedings’ are limited to government investigations and criminal proceedings." Id. at 1687.

The appeal before us raises two issues of law prompted by Lagos : first, whether Amato ’s primary holding—that attorneys’ fees can sometimes be "other expenses"—survives Lagos ; and second, whether a victim can recover expenses incurred while participating in a Securities and Exchange Commission investigation of the defendant.

We answer yes to the first question and no to the second. Lagos abrogated Amato only to the extent it awarded restitution for private investigatory expenses. It remains the law of this Circuit that "other expenses" may include attorneys’ fees, provided the statute's other strictures are met. Lagos , however, instructs us to read narrowly the MVRA's requirement that expenses arise from a victim's "participation in the investigation or prosecution of the offense." 18 U.S.C. § 3663A(b)(4). Turning fresh eyes to this phrase, we hold that restitution is appropriate only for expenses associated with criminal matters. Civil matters—including SEC investigations, even if closely related to a criminal case—do not qualify.

On these bases, we affirm in part and vacate in part the restitution order in this case. John Afriyie was convicted of securities fraud and wire fraud after trading on inside information he misappropriated from his employer, MSD Capital. On July 1, 2020, the district court entered the restitution order on appeal now. It covers the fees MSD paid the law firm Sullivan & Cromwell to guide MSD's compliance with investigations by the U.S. Attorney's Office ("USAO") and the SEC; to help prepare four MSD witnesses to testify at Afriyie's criminal trial; and to represent MSD during the post-verdict restitution proceedings.

We affirm as to Sullivan & Cromwell's involvement in the criminal investigation, the preparation of trial witnesses, and the restitution proceedings. These expenses arose from Afriyie's criminal "investigation or prosecution," 18 U.S.C. § 3663A(b)(4), and the district court did not abuse its discretion in carefully considering, and then affirming, their necessity, see United States v. Razzouk , 984 F.3d 181, 185 (2d Cir. 2020) ("We review a restitution order ‘deferentially, and we will reverse only for abuse of discretion.’ " (citation omitted)). We vacate as to expenses related to the SEC investigation, which as a matter of law are not recoverable, and we remand for the district court to amend the order in accordance with this opinion.

BACKGROUND

This is our third appeal arising from Afriyie's insider trading. See United States v. Afriyie , 929 F.3d 63 (2d Cir. 2019) (" Afriyie I "); SEC v. Afriyie , 788 F. App'x 59 (2d Cir. 2019). To briefly summarize what brought us here: In January 2015, MSD hired Afriyie, a 2010 Cornell graduate, as an investment analyst. Afriyie's job at MSD was to research potential investments and make recommendations about those investments. He received trainings regarding MSD's policies against insider trading and the safekeeping of confidential client information. MSD rules prohibited him from trading in individual securities from his own brokerage account.

In January 2016, MSD was approached by Apollo Global Management, a private equity firm looking to fund an acquisition of ADT Corporation, the home security and alarm company. After MSD expressed interest in investing, Apollo gave MSD material nonpublic (i.e., inside) information about the deal. On January 27, 2016, MSD's compliance department sent a "potential restriction" email to its investment professionals, including Afriyie. Afriyie I , 929 F.3d at 66. The email indicated that MSD would receive inside information about a potential deal involving a "U.S. listed alarm monitoring services company" because of a "financing opportunity in connection with a potential take-private transaction by ... Apollo Global." Id.

The next morning, even though he was not assigned to work on the ADT deal, Afriyie accessed the ADT and Apollo folders on MSD's shared drive. He then bought an ADT call option. That afternoon, MSD added ADT to its list of "restricted" securities. Id. Afriyie received an email saying so. Over the next two weeks, in violation of both company policy and federal securities laws, Afriyie bought two thousand more ADT call options for around $25,000. On February 16, the day Apollo publicly announced the ADT acquisition, ADT's stock jumped 47.5 percent, and the value of Afriyie's call options investment increased by 6,000 percent. Afriyie's sale of the options over the following week netted him a profit of $1,564,071.60. Later, Afriyie changed the name on his brokerage account to his mother's name and, on several phone calls with TD Ameritrade about the account, pretended to be his mother.

Federal prosecutors in the Southern District of New York and SEC regulators began investigating Afriyie shortly after he sold his call options. On April 13, 2016, Afriyie was arrested, and the SEC filed a civil securities fraud complaint against him. A criminal indictment charging him with criminal securities fraud and wire fraud followed on June 1, 2016, as did criminal convictions by jury trial in January 2017 and a judgment of civil liability in November 2018.

In Afriyie's two earlier appeals, we upheld his criminal convictions and the civil judgment. Afriyie I , 929 F.3d at 66 (criminal); SEC v. Afriyie , 788 F. App'x at 60-61 (civil). Today our task is narrower: We review only Afriyie's criminal restitution bill. The restitution request MSD submitted before Afriyie's sentencing covered fees it paid lawyers at Sullivan & Cromwell during the USAO and SEC investigations, the criminal proceedings, and MSD's own investigation of Afriyie. More than a hundred pages of timesheets and invoices showed how Sullivan & Cromwell responded on MSD's behalf to three subpoenas from the SEC, two criminal trial subpoenas from Afriyie, and numerous requests for documents and information from the USAO and SEC. The firm produced more than 54,700 pages of documents and data in response to these requests. It also monitored the progress of the criminal proceedings and the SEC enforcement action; at the USAO's invitation, helped prepare four MSD employees to testify at Afriyie's criminal trial; and represented MSD during post-verdict restitution proceedings. All told, Sullivan & Cromwell produced roughly 1,200 hours of work for MSD. Its fees, which MSD paid fully and for which it sought reimbursement from Afriyie, totaled $691,046.42.

At sentencing, the district court ordered Afriyie to reimburse MSD for the full $691,046.42. A few months later, that figure was lowered to $663,028.92 after excising Sullivan & Cromwell's billings for "bare attendance at proceedings in Afriyie's case," App'x at 40, 42, following a decision from this Court clarifying that such expenses generally are not cognizable under the MVRA, see United States v. Cuti , 708 F. App'x 21, 25 (2d Cir. 2017).

Then, in our July 2019 ruling affirming Afriyie's convictions, we remanded for the district court to recalculate restitution yet again—this time in light of the intervening Supreme Court decision in Lagos prohibiting the recovery of internal investigation expenses. Afriyie I , 929 F.3d at 74 (citing Lagos , 138 S. Ct. at 1688-89 ). On remand, the government and MSD voluntarily cut $151,660 from the restitution request, excising Sullivan & Cromwell's fees related to MSD's internal investigation. But they urged that Afriyie remain responsible for the remaining $511,368.92, which covered three other categories of work done by Sullivan & Cromwell:

• Category 1: Responding to subpoenas and document requests from the USAO and the SEC;

• Category 2: Preparing the four MSD witnesses to testify at Afriyie's criminal trial; and

• Category 3: Representing MSD in connection with the post-verdict restitution proceedings.

The district court ordered Afriyie to reimburse MSD for all three categories of expenses, concluding that "[r]estitution for fees and expenses incurred in each ... categor[y] is consistent with the MVRA as construed in Lagos ." United States v. Afriyie , 16-CR-377 (PAE), 2020 WL 634425, at *2 (S.D.N.Y. Feb. 11, 2020). Afriyie disagreed and took this appeal.

DISCUSSION

"Any dispute as to the proper amount or type of restitution shall be resolved by the [district] court by the preponderance of the evidence."...