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United States of America v. Joseph F. Skowron Iii

March 20, 2012

UNITED STATES OF AMERICA,
v.
JOSEPH F. SKOWRON III, DEFENDANT.



The opinion of the court was delivered by: Denise Cote, District Judge:

OPINION & ORDER

This Opinion addresses the one remaining restitution claim arising out of the conviction and sentencing of defendant Joseph F. Skowron III ("Skowron"). Morgan Stanley, Skowron's former employer, seeks restitution under the Mandatory Victims Restitution Act ("MVRA"), 18 U.S.C. § 3663A, for (1) the full disgorgement amount it paid the Securities and Exchange Commission ("SEC") to settle SEC claims against Skowron and the hedge funds Skowron managed; (2) legal fees and related costs incurred responding to the government investigation of Skowron's offense; and (3) a portion of the total compensation Morgan Stanley paid Skowron. Morgan Stanley's request for restitution is granted with respect to its legal fees and related costs, as well as to 20% of the compensation it paid Skowron in 2007-2010. Morgan Stanley's remaining restitution request is denied.

Background

On August 15, 2011, Skowron pleaded guilty to a one-count information charging him with conspiring to commit securities fraud and obstruct justice. On October 21, Morgan Stanley submitted a victim impact statement requesting restitution for losses incurred as a result of Skowron's offense.

Skowron was sentenced on November 18. As stated on the record at the sentencing hearing, and pursuant to an Order and Judgment entered against Skowron on November 22, Skowron was ordered to pay $5,956,152.30 in restitution to five victims.*fn1

At the sentencing hearing, the Court acknowledged the receipt of letters from Morgan Stanley, FrontPoint Partners LLC ("FrontPoint"), and Human Genome Sciences, Inc. ("HGSI"), each seeking restitution from Skowron. Morgan Stanley, FrontPoint, and HGSI were given leave to submit additional letters to substantiate their restitution claims, and a briefing schedule was set to address these claims. The Court also directed the Government to submit a letter on January 20, 2012, describing any remaining restitution disputes.*fn2

Pursuant to the schedule set by the Court, Morgan Stanley submitted a letter on December 14 requesting $44,873,878.49 in total restitution from Skowron. That sum reflected the following losses Morgan Stanley claims it suffered as a result of Skowron's offense conduct: (1) $33,020,825 in disgorgement Morgan Stanley paid to the SEC to settle an enforcement action brought by the SEC as a result of Skowron's conduct; (2) $3,827,052.49 in legal fees and related costs paid by Morgan Stanley as a result of Skowron's conduct; and (3) $8,026,001 that Morgan Stanley paid to Skowron as part of his compensation from 2007 to 2010, equivalent to 25% of Skowron's total compensation during that period.

On January 6, 2012, Skowron submitted a letter in opposition to Morgan Stanley's restitution request. Morgan Stanley made a further submission in support of its request on January 20, and Skowron made a further submission in opposition on January 30. On January 20, the Government submitted a letter indicating that HGSI had failed to pursue its restitution claims and that FrontPoint had assigned its claims to Morgan Stanley; accordingly, only Morgan Stanley's restitution claim remains in dispute.

Discussion

"The MVRA provides for mandatory restitution in all sentencing proceedings for convictions of any offense that is, inter alia, an offense against property under Title 18 in which an identifiable victim or victims has suffered a pecuniary loss." United States v. Bengis, 631 F.3d 33, 38-39 (2d Cir. 2011) (citing 18 U.S.C. §§ 3663A(c)(1)(A)(ii)-(c)(1)(B)). "Any dispute as to the proper amount or type of restitution shall be resolved by the court by the preponderance of the evidence." United States v. Bahel, 662 F.3d 610, 647 (2d Cir. 2011) (citation omitted). Nobody disputes that Skowron's offense is one to which mandatory restitution applies. Skowron and Morgan Stanley dispute, however, (1) whether Morgan Stanley is a "victim" as the term is defined in the MVRA, and therefore eligible to receive any restitution, and (2) to what extent Morgan Stanley's losses are recoverable as restitution.

I. The Court's Authority to Order Restitution

As an initial matter, the Government raises the question whether the Court may order Skowron to pay Morgan Stanley restitution more than 90 days after Skowron was sentenced. Title 18, United States Code, § 3664(d)(5), which governs victim restitution in criminal cases, states that "the court shall set a date for the final determination of the victim's losses, not to exceed 90 days after sentencing." 18 U.S.C. § 3664(d)(5). Skowron was sentenced on November 18, 2011, and more than 90 days have passed since that date.

"[A] sentencing court that misses the 90-day deadline nonetheless retains the power to order restitution where the sentencing court made clear prior to the deadline's expiration that it would order restitution, leaving open (for more than 90 days) only the amount." United States v. Pickett, 612 F.3d 147, 149 (2d Cir. 2010) (citation omitted). Moreover, where the court explains at sentencing that it intends to leave the sentence open to gather information regarding restitution, an order of restitution issued beyond the 90 days is enforced. Id. The Supreme Court has held that § 3664(d)(5)'s 90-day deadline is the type of deadline that "seeks speed by creating a time-related directive that is legally enforceable but does not deprive a judge . . . of the power to take the action to which the deadline applies if the deadline is missed." Dolan v. United States, 130 S.Ct. 2533, 2538 (2010). Accordingly, "[t]he fact that a sentencing court misses the statute's 90-day deadline, even through its own fault . . ., does not deprive the court of the power to order restitution." Id. at 2539.

Skowron was ordered to pay restitution on November 18. The only issues left open were whether Skowron would be forced to pay restitution to Morgan Stanley, FrontPoint, and HGSI, and the amount of the final restitution award. As the Court noted at the sentencing hearing, "[t]he final amount of restitution is yet to be determined." On consent of all interested parties, a briefing schedule was set to assess the claims of the remaining potential restitution recipients and the final restitution award. Under these circumstances, the Court retains the power to order restitution to Morgan Stanley should Morgan Stanley demonstrate that it is entitled to restitution.

II. Whether Morgan Stanley is a "Victim" under the MVRA

A district court's "statutory authority to award restitution under the MVRA is limited to awards to victims of the offense of conviction." United States v. Archer, --F.3d--, 2011 WL 4360013, at *16 (2d Cir. 2011). The MVRA defines the term "victim" as

[A] person directly and proximately harmed as a result of the commission of an offense for which restitution may be ordered including, in the case of an offense that involves as an element a scheme, conspiracy, or pattern of criminal activity, any person directly harmed by the defendant's criminal conduct in the course of the scheme, conspiracy, or pattern.

18 U.S.C. § 3663A(a)(2) (emphasis supplied).

Whether Morgan Stanley is a victim of Skowron's offense depends upon "whether [its] losses were caused by [the] offense" of conviction. Archer, --F.3d--, 2011 WL 4360013, at *16. "The necessary 'causal nexus' unquestionably exists" where the loss is "a significant part of the greater fraud" for which the ...


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