Forfeiture and Restitution Calculations in a Securities Fraud Case: U.S. v. Afriyie, Second Circuit Court of Appeals, Decided July 8, 2019

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Forfeiture and Restitution Calculations in a Securities Fraud Case: U.S. v. Afriyie, Second Circuit Court of Appeals, Decided July 8, 2019

In U.S. v. Afriyie, the Second Circuit Court of Appeals affirmed Afriyie’s convictions for securities fraud and wire fraud but found the restitution calculations were incorrect. The apellate court remanded the case solely for the District Court to recalculate the restitution amount.

Afriyie worked as an investment analyst for MSD Capital (MSD). Despite at least two emails warning employees that it was a restricted security that the company was involved in, Afriyie purchased over 2000 call options for a security company, ADT, just before it was acquired by Apollo Global Management.

Afriyie then sold the options for a total profit of $1,564,071.60. He was arrested within a month and charged with securities fraud and wire fraud. He was convicted at trial. On appeal, the Second Circuit found that there was no error in the trial court’s jury instructions, the admission of expert testimony by a lay witness at trial, the loss calculation, or the amount of forfeiture ordered.

The U.S. Supreme Court decided Lagos v. United States, 138 S. Ct. 1684 (2018), addressing the types of fees that are recoverable under the Mandatory Victims Restitution Act, after Afriyie’s sentencing hearing. Therefore, the Second Circuit remanded the case to the district court solely to recalculate the amount of restitution in light of the Lagos decision.

Loss Amount, Forfeiture, and Restitution Calculations in a Securities Fraud Case

The Second Circuit affirmed the loss amount of $1.53 million and the forfeiture amount of $2,780,720.02 but remanded the case to the district court for new restitution calculations based on Lagos.

Loss Amount Calculations in a Securities Fraud Case

The Second Circuit found that the trial court calculated the loss amount correctly. The Court attributed $1.53 million to Afriyie, which was the profit Afriyie made from selling the ADT call options.

Afriyie’s argument on appeal was that the Court should only consider the dollar value of the smallest gain made on a single trade because the jury returned a general verdict – United States v. Sturdivant, 244 F.3d 71 (2d Cir. 2001) held that, where a jury returns a general verdict, “sentencing must be based on the least punitive possible verdict.”

The Second Circuit agreed with the trial court, however, that:

  • The evidence supported a finding that the sales of multiple call options constituted a “unitary theme” – all the purchases were based on information that Afriyie had obtained from MSD’s database about the upcoming acquisition by Apollo; and
  • The jury made a separate forfeiture finding that the full $1.53 million represented gains from the insider trading scheme.

The loss amount is critical in any case because it determines the defendant’s guideline range – in this case, the $1.53 million loss amount increased Afriyie’s guidelines range by 16 levels, and he was sentenced to 45 months in prison.

Forfeiture Calculations in a Securities Fraud Case

The district court ordered forfeiture of $2,780,720.02:

The district court imposed forfeiture in the amount of $2,780,720.02. This amount represents $2,632,893.39, which is the liquidated value of the assets 21 formerly held in the brokerage account and seized on May 16, 2016, together with $147,826.63, the amount of proceeds of the offenses wired from the brokerage account into the savings account between February 17 and March 24, 2016.

Afriyie argued on appeal that the forfeiture amount should not include appreciation of the funds – it should be limited to the funds acquired through the illegal transactions. The Second Circuit disagreed, finding that 18 U.S.C. § 981(a)(1)(C) requires forfeiture of funds “derived from proceeds” of the illegal transactions, which includes the appreciated value of the illegal profits:

Under 18 U.S.C. § 981(a)(1)(C), as incorporated by 28 U.S.C. § 2461(c),4 a defendant convicted of insider trading must forfeit “[a]ny property, real or personal, which constitutes or is derived from proceeds traceable” to the offense. 18 U.S.C. § 981(a)(1)(C) (emphasis added)…

We hold that as a matter of law, forfeiture may extend to the appreciation of funds acquired through illegal transactions in an insider‐trading scheme.

Although the Court affirmed the loss calculation and forfeiture calculation, they remanded the case for a new determination of the amount of restitution.

Restitution Calculations in a Securities Fraud Case

The district court ordered $663,028.92 in restitution to be paid to Afriyie’s former employer, MSD. The restitution amount included “expenses [MSD] 25 incurred as a result of its participation in investigations into, and the eventual trial concerning, Afriyie’s insider trading while working as an analyst at MSD.”

After Afriyie’s conviction, the US Supreme Court held in Lagos that a corporate victim’s legal fees for their private investigation are not compensable as restitution:

After Afriyie’s sentencing, the Supreme Court issued its decision in Lagos v. United States, 138 S. Ct. 1684 (2018). In Lagos, the Court interpreted the Mandatory Victims Restitution Act and held that a private firm’s legal fees as to a corporate victim’s private investigation and related civil case were not compensable as “necessary” restitution. Id. at 1688‐89.

A small, inconsequential victory considering the 45-month prison sentence and forfeiture amount – the Second Circuit remanded the case solely for the district court to recalculate the restitution amount…

Federal Appellate Attorney in Columbia, SC

Elizabeth Franklin-Best is a federal white collar criminal defense and federal appeals lawyer located in Columbia, SC.

For more information, call us at (803) 331-3421 or send us an email to set up a consultation about your case.

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1 Comment

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Hi Elizabeth, the appreciation forfeiture issue in this case is very interesting and one I really want to learn more about. There appears to be a split in authority between the 1st and 2nd circuit on this issue. Appreciation is Plainly Not Proceeds Under 981(a)(2)(B).

The Courts reliance on the “derived from proceeds” language in 18 U.S.C.S 981(a)(1)(C) is misplaced. 18 U.S.C. 981(a)(1)(C), as incorporated by 28 U.S.C. 2461(c), sets forth that any property “which constitutes or is derived from proceeds traceable to a violation of any offense constituting specified unlawful activity” is subject to forfeiture. Indeed, 981(a)(1)(C) goes further. Congress intentionally set out the definition of proceeds under 18 U.S.C.S. 981(a)(2)(A)-(C).

The word “proceeds” when used in 981(a)(1)(C) has a multiplicity of possible meanings depending on the nature of the offense. Under 981(a)(2)(A), proceeds captures “property of any kind obtained directly or indirectly, as a result of the commission of the offense giving rise to forfeiture, and any property traceable thereto, and is not limited to net gain or profit.” Thus implicating property obtained “directly or indirectly”, “property traceable thereto” and the concept that forfeiture under 981(a)(2)(A) is “not limited to net gain or profit”. By contrast, 981(a)(2)(B) defines proceeds as “the amount acquired through the illegal transactions resulting in forfeiture, less any direct costs incurred in providing goods or services. As such, “981(a)(2)(B), does not explicitly render property forfeitable if that property is an indirect fruit of the crime”. United States v. George, 886 F.3d 31, 40 (1st Cir. 2018).

This Court’s ruling permits the words “derived from” to serve as a catch-all provision used by the government to trump Congress’s careful distinction between the definition of proceeds under 981(a)(2)(A)-(C). But the effect of 981(a)(1)(C)’s “derived from” language which precedes the term proceeds is contingent upon the definition of proceeds applied. But 981(a)(2)(B), plainly cannot be read to define proceeds to include any assets beyond the “net gain or profit realized from the offense”. 981(a)(2)(A). Neither does 981(a)(1)(C)’s language portend to expand the definition of proceeds under 981(a)(2)(B). See US v. George, 886 F.3d 31, 40 (concluding that “981(a)(2)(B), does not explicitly render property forfeitable if that property is an indirect fruit of the crime”). If that were the case it would be peculiar for Congress to have had the need to acknowledge that 981(a)(2)(A) “is not limited to net gain or profit” if both provisions could seemingly reach the same result. Rabin v. Wilson Coker, 362 F.3d 190, 196 (2d Cir. 2004) (“if the drafters choose to use one word in part of a statute and omit it in another, it is generally presumed that Congress acts intentionally and purposely in the disparate inclusion or exclusion.” (internal quotations marks omitted)).

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