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United States of America v. Matthew Marino

August 18, 2011

UNITED STATES OF AMERICA, APPELLEE,
v.
MATTHEW MARINO, DEFENDANT-APPELLANT.



Appeal from a final order of conviction entered by the United States District Court for the Southern District of New York (Stephen C. Robinson, Judge), following a guilty plea to one count of misprision of felony in violation of 18 U.S.C. § 4 for failing to report a Ponzi scheme. Appellant challenges the district court's restitution order requiring appellant to pay restitution in the amount of $60 million pursuant to the Mandatory Victims Restitution Act ("MVRA"), 18 U.S.C. §§ 3663A.

The opinion of the court was delivered by: Winter, Circuit Judge:

09-1965-cr

United States v. Matthew Marino

Argued: May 10, 2010

15 Before: JACOBS, Chief Judge, WINTER, and MCLAUGHLIN, 16 Circuit Judges.

We affirm.

16 Matthew Marino appeals from his sentencing by Judge 17 Robinson, following a plea of guilty to misprision of felony in 18 violation of 18 U.S.C. § 4. The only issue on appeal involves 19 the district court's order that appellant pay restitution in 20 the amount of $60 million. Appellant argues that the district 21 court's order of restitution was improper because it relied on 22 events occurring outside the relevant time period and the 23 putative victims' losses were neither directly nor proximately 24 caused by his actions as required by the Mandatory Victims 25 Restitution Act of 1996 ("MVRA"), 18 U.S.C. §§ 3663A. 26 We affirm.

27 BACKGROUND

28 Appellant participated in the Bayou Hedge Fund Group 29 ("Bayou"), a classic Ponzi scheme masked as a group of domestic 30 and offshore hedge funds that, when it unraveled in 2005, 2 1 caused approximately $200 million in investor losses.*fn1 2 Samuel Israel III and James G. Marquez opened the original 3 Bayou fund in 1996, with approximately $1 million in capital.

4 Thereafter, they recruited investors to the fund, requiring a 5 minimum investment of $100,000. Israel and Marquez shared 6 responsibility for the fund's investment strategy and 7 recruiting investors. They hired appellant's brother, Daniel 8 Marino, a certified public accountant, to keep the fund's books 9 and to reconcile trading records. The fund retained accounting 10 firm Grant Thornton to act as Bayou's independent financial 11 auditor.

12 From the start, Bayou lost money. However, rather than 13 disclose these losses to investors, Israel and Marquez, upon 14 Daniel Marino's suggestion, remitted a portion of the 15 commissions they earned on trades to the fund's investors, 16 thereby creating the illusion that the fund was earning 17 positive returns.

18 By the end of 1998, the fund had accumulated substantial 19 trading losses and masking the losses with trading commissions 20 was no longer possible. On or about December 30, 1998, Israel, 21 Marquez, and Daniel Marino met to discuss the fund's losses.

1 They devised a scheme to conceal the losses by firing Grant 2 Thornton as independent auditor and having Daniel Marino 3 prepare and issue sham audits. In 1999, Daniel Marino, with 4 the help of appellant, created a fictitious independent 5 accounting firm, Richmond-Fairfield Associates ("RFA"), which 6 purported to maintain offices in Manhattan.

7 Thereafter, Israel, Marquez, and Daniel Marino began to 8 draft and mail to investors quarterly and monthly reports 9 indicating fictitious positive rates of returns and inflated 10 accumulated profits. Investors also received annual financial 11 statements that contained inflated rates of return on trading, 12 overstated net asset values, and certifications from RFA that 13 it had audited Bayou's financial reports.

14 In reality, however, the fund's losses continued to mount. 15 Increasingly, Israel and Marquez blamed each other for the 16 losses, and, in January 2001, Marquez was ousted from the fund 17 after a dispute with Daniel Marino. Thereafter, Daniel Marino 18 assumed the role of Bayou's Chief Financial Officer, where he 19 continued to manage the accounting portion of the fraud, and, 20 through RFA, drafted the fictitious audits and certifications 21 of the fund's financial reports. For his part, Israel 22 maintained responsibility for all the investment and trading 23 activities of Bayou, including the recruitment of new 24 investors.

1 Using the fictitious financial returns to claim a 2 profitable track record, Israel and Daniel Marino attracted 3 substantial numbers of new investors to the fund, receiving 4 investment capital in excess of $500 million. Israel and 5 Daniel Marino ultimately closed the original Bayou fund, and 6 opened four domestic hedge funds, as well as two different sets 7 of offshore funds in the Cayman Islands, all under the Bayou 8 banner. They hired additional employees, including traders, 9 accounting personnel, and administrative staff, all while 10 continuing to provide falsified information to Bayou investors. 11 Appellant's involvement with Bayou began in 2002, when he 12 was hired as an employee at a salary of $5,000 per month to 13 develop a North Carolina office for the fund's broker-dealer. 14 By the fall of 2002, appellant was making periodic trips to 15 Bayou's office in Connecticut.

16 In or about 2003, appellant's salary increased to $10,000 17 per month, and he began assisting his brother Daniel Marino 18 with private placement investments. These investments -- 19 including movie and real estate deals, an international money 20 transferring firm, and a French cable company -- were intended 21 to make up for Bayou's losses and to provide personal profit to 22 Israel and Daniel Marino. However, none of these investments 23 were ever disclosed to Bayou investors, nor were they the type 24 of investments that Bayou purported to be making with 25 investors' funds. Although appellant assisted in these private 5 1 placement investments, he claims to have been unaware that the 2 investments were unauthorized.

3 In 2003, appellant was tasked with locating new office 4 space for RFA in mid-town Manhattan. Aside from retaining two 5 temporary employees for a short period in the spring of 2003, 6 RFA never had any regular employees, save for appellant.

7 Appellant managed all of RFA's administrative tasks, including: 8 picking up the mail at RFA's office; checking RFA's voice mail 9 messages and reviewing written correspondence from Bayou 10 investors; paying RFA's bills using RFA's checkbook; and 11 picking up the phony audited financial statements from the 12 printer and copying them after Daniel Marino signed them on 13 behalf of RFA.

14 In addition, the record indicates that appellant had at 15 least some direct interaction with Bayou investors. For 16 example, the record includes several emails from appellant to 17 Daniel Marino regarding phone calls and other correspondence 18 from Bayou investors to RFA concerning RFA's audit of Bayou.

19 In an email dated May 23, 2005, appellant notified Daniel 20 Marino of a phone call from an investment advisor whose "client 21 . . . invested in the Bayou Superfund and was wondering whether 22 the audit is almost finished or not," to which appellant 23 inquired, "Let me know if you want me to call back and provide 24 what time frame the audit will be done." In another email, 25 dated July 12, 2005, appellant stated: "Call from [investment 6 1 advisor to a Bayou client] had a quick question. Asked for a 2 call. Wanted to check with you fir[s]t before calling back."

3 Another email, dated January 20, 2005, indicates that appellant 4 was signing written correspondence on behalf of RFA with Daniel 5 Marino's permission: "I have a certification letter from 6 [financial advisor] Anchin, Block & Anchin re: Custom Strategy 7 -- like last year. Go ahead and sign it?" The record also 8 indicates that appellant, as early as April 10, 2003, was 9 opening annual letters, referred to as "confirmation letters," 10 that the fund sent to each investor indicating the value of the 11 investor's position in the fund. Upon receipt of the 12 confirmation letter, the investors signed and returned the 13 letters, thereby confirming their understanding of their 14 account value.

15 In particular, the record includes two such faxes, sent by 16 appellant to Daniel Marino on April 10 and 29, 2003, 17 respectively (the "2003 faxes"), indicating both the dates when 18 confirmation letters were sent to particular investors and 19 whether the investors had subsequently confirmed the value of 20 their investments. Although the 2003 faxes were sent by 21 appellant, in the "from" line of the faxes appears the 22 pseudonym "M. Richmond," of RFA. In addition to the 2003 23 faxes, the record includes an email sent by appellant in 2005 24 indicating that he continued to open investors' confirmation 25 letters through 2005.

1 The record also indicates appellant's considerable 2 involvement in concealing the fraudulent nature of RFA and 3 Bayou. In particular, when Israel was involved in divorce 4 litigation in early 2005, appellant played an active role in 5 stonewalling, or otherwise preventing, Mrs. Israel's lawyers 6 from obtaining financial records for Bayou and RFA. For 7 example, in a January 7, 2004 memorandum to Daniel Marino, 8 appellant discussed RFA's litigation strategy with respect to 9 delaying its response to Mrs. Israel's subpoena for RFA's 10 financial information. In his memorandum, appellant stated 11 that he "would represent [RFA] and [outside counsel Kelley Drye 12 & Warren, LLP] would assist and perhaps be co-counsel in 13 arguing any motions/hearings," leaving open the possibility 14 that Kelley Drye would "represent[] [RFA] themselves with my 15 guidance." Appellant was keenly aware of the problem that Mrs. 16 Israel's subpoena created with respect to concealing the true 17 identity of RFA's principal and any other documentation that 18 might reveal the fraud. As appellant's memorandum states: 19 The issue . . . with me representing [RFA] is that the 20 opposing attorney would pick up on my relation to you 21 [Daniel Marino] and therefore seek an aggressive stance 22 of distrust.

24 The issue with [Kelley Drye] representing [RFA] is that 25 they need to speak to the [RFA] principal and review 26 what documents they have.

27 His memorandum also states: "[Kelley Drye] suggested that . . 28 as a second prong to the motion [to quash], [RFA] asks for a 8 1 protective order on any documents provided to keep them 2 confidential (this obviously doesn't help us)."

3 Later, on January 10, 2005, appellant sent an email to 4 Daniel Marino again discussing ways to stonewall Mrs. Israel's 5 attorney: "Another short term solution is to have Mr. R call the 6 opposing attorney and ask for a month on the pretext that he was 7 away in latter December and was sick during first week in 8 December and just got the subpoena." The record indicates that 9 appellant frequently used the pseudonym "M. Richmond" as the 10 fictitious principal of RFA.*fn2

11 On February 13, 2005, in an email to Daniel Marino regarding 12 RFA's then-outside counsel Leonard Benowich's response to Mrs. 13 Israel's subpoena, appellant again ...


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