WINTER, Circuit Judge:
Matthew Marino appeals from his sentencing by Judge Robinson, following a plea of guilty to misprision of felony in violation of 18 U.S.C. § 4. The only issue on appeal involves the district court's order that appellant pay restitution in the amount of $60 million. Appellant argues that the district court's order of restitution was improper because it relied on events occurring outside the relevant time period and the putative victims' losses were neither directly nor proximately caused by his actions as required by the Mandatory Victims Restitution Act of 1996 ("MVRA"), 18 U.S.C. § 3663A.
We affirm.
Appellant participated in the Bayou Hedge Fund Group ("Bayou"), a classic Ponzi scheme masked as a group of domestic and offshore hedge funds that, when it unraveled in 2005, caused approximately $200 million in investor losses.
Samuel Israel III and James G. Marquez opened the original Bayou fund in 1996, with approximately $1 million in capital. Thereafter, they recruited investors to the fund, requiring a minimum investment of $100,000. Israel and Marquez shared responsibility for the fund's investment strategy and recruiting investors.
From the start, Bayou lost money. However, rather than disclose these losses to investors, Israel and Marquez, upon Daniel Marino's suggestion, remitted a portion of the commissions they earned on trades to the fund's investors, thereby creating the illusion that the fund was earning positive returns.
By the end of 1998, the fund had accumulated substantial trading losses and masking the losses with trading commissions was no longer possible. On or about December 30, 1998, Israel, Marquez, and Daniel Marino met to discuss the fund's losses. They devised a scheme to conceal the losses by firing Grant Thornton as independent auditor and having Daniel Marino prepare and issue sham audits. In 1999, Daniel Marino, with the help of appellant, created a fictitious independent accounting firm, Richmond-Fairfield Associates ("RFA"), which purported to maintain offices in Manhattan.
Thereafter, Israel, Marquez, and Daniel Marino began to draft and mail to investors quarterly and monthly reports indicating fictitious positive rates of returns and inflated accumulated profits. Investors also received annual financial statements that contained inflated rates of return on trading, overstated net asset values, and certifications from RFA that it had audited Bayou's financial reports.
In reality, however, the fund's losses continued to mount. Increasingly, Israel and Marquez blamed each other for the losses, and, in January 2001, Marquez was ousted from the fund after a dispute with Daniel Marino. Thereafter, Daniel Marino assumed the role of Bayou's Chief Financial Officer, where he continued to manage the accounting portion of the fraud, and, through RFA, drafted the fictitious audits and certifications of the fund's financial reports. For his part, Israel maintained responsibility for all the investment and trading activities of Bayou, including the recruitment of new investors.
Using the fictitious financial returns to claim a profitable track record, Israel and Daniel Marino attracted substantial numbers of new investors to the fund, receiving investment capital in excess of $500 million. Israel and Daniel Marino ultimately closed the original Bayou fund, and opened four domestic hedge funds, as well as two different sets of offshore funds in the Cayman Islands, all under the Bayou banner. They hired additional employees, including traders, accounting personnel, and administrative staff, all while continuing to provide falsified information to Bayou investors.
Appellant's involvement with Bayou began in 2002, when he was hired as an employee at a salary of $5,000 per month to develop a North Carolina office for the fund's broker-dealer. By the fall of 2002, appellant was making periodic trips to Bayou's office in Connecticut.
In or about 2003, appellant's salary increased to $10,000 per month, and he began assisting his brother Daniel Marino with private placement investments. These investments — including movie and real estate deals, an international money transferring firm, and a French cable company — were intended to make up for Bayou's losses and to provide personal profit to Israel and Daniel Marino. However, none of these investments were ever disclosed to Bayou investors, nor were they the type of investments that Bayou purported to be making with investors' funds. Although appellant assisted in these private
In 2003, appellant was tasked with locating new office space for RFA in mid-town Manhattan. Aside from retaining two temporary employees for a short period in the spring of 2003, RFA never had any regular employees, save for appellant. Appellant managed all of RFA's administrative tasks, including: picking up the mail at RFA's office; checking RFA's voice mail messages and reviewing written correspondence from Bayou investors; paying RFA's bills using RFA's checkbook; and picking up the phony audited financial statements from the printer and copying them after Daniel Marino signed them on behalf of RFA.
In addition, the record indicates that appellant had at least some direct interaction with Bayou investors. For example, the record includes several emails from appellant to Daniel Marino regarding phone calls and other correspondence from Bayou investors to RFA concerning RFA's audit of Bayou. In an email dated May 23, 2005, appellant notified Daniel Marino of a phone call from an investment advisor whose "client ... invested in the Bayou Superfund and was wondering whether the audit is almost finished or not," to which appellant inquired, "Let me know if you want me to call back and provide what time frame the audit will be done." In another email, dated July 12, 2005, appellant stated: "Call from [investment advisor to a Bayou client] had a quick question. Asked for a call. Wanted to check with you fir[s]t before calling back." Another email, dated January 20, 2005, indicates that appellant was signing written correspondence on behalf of RFA with Daniel Marino's permission: "I have a certification letter from [financial advisor] Anchin, Block & Anchin re: Custom Strategy — like last year. Go ahead and sign it?" The record also indicates that appellant, as early as April 10, 2003, was opening annual letters, referred to as "confirmation letters," that the fund sent to each investor indicating the value of the investor's position in the fund. Upon receipt of the confirmation letter, the investors signed and returned the letters, thereby confirming their understanding of their account value.
In particular, the record includes two such faxes, sent by appellant to Daniel Marino on April 10 and 29, 2003, respectively (the "2003 faxes"), indicating both the dates when confirmation letters were sent to particular investors and whether the investors had subsequently confirmed the value of their investments. Although the 2003 faxes were sent by appellant, in the "from" line of the faxes appears the pseudonym "M. Richmond," of RFA. In addition to the 2003 faxes, the record includes an email sent by appellant in 2005 indicating that he continued to open investors' confirmation letters through 2005.
The record also indicates appellant's considerable involvement in concealing the fraudulent nature of RFA and Bayou. In particular, when Israel was involved in divorce litigation in early 2005, appellant played an active role in stonewalling, or otherwise preventing, Mrs. Israel's lawyers from obtaining financial records for Bayou and RFA. For example, in a January 7, 2004 memorandum to Daniel Marino, appellant discussed RFA's litigation strategy with respect to delaying its response to Mrs. Israel's subpoena for RFA's financial information. In his memorandum, appellant stated that he "would represent [RFA] and [outside counsel Kelley Drye & Warren, LLP] would assist and perhaps be co-counsel in arguing any motions/hearings," leaving open the possibility that Kelley Drye would "represent[]
His memorandum also states: "[Kelley Drye] suggested that ... as a second prong to the motion [to quash], [RFA] asks for a protective order on any documents provided to keep them confidential (this obviously doesn't help us)."
Later, on January 10, 2005, appellant sent an email to Daniel Marino again discussing ways to stonewall Mrs. Israel's attorney: "Another short term solution is to have Mr. R call the opposing attorney and ask for a month on the pretext that he was away in latter December and was sick during first week in December and just got the subpoena." The record indicates that appellant frequently used the pseudonym "M. Richmond" as the fictitious principal of RFA.
On February 13, 2005, in an email to Daniel Marino regarding RFA's then-outside counsel Leonard Benowich's response to Mrs. Israel's subpoena, appellant again discussed the problem of revealing RFA's principal:
Appellant's involvement in hiding information from Mrs. Israel's attorney is also evident in an email to Daniel Marino on July 14, 2005, regarding a draft letter from Benowich to Mrs. Israel's attorney. Benowich's draft letter attached to the email stated: "Please be advised that as far as... Dan Marino and Sam Israel are concerned, you will not receive any documents nor will you be deposing anyone associated with my client [RFA]." In the email, appellant also stated in reference to the draft letter: "It may be better to say `as far as my client is concerned' rather than Dan Marino and Sam Israel because there is supposed to be independence between [RFA] and the both of you."
Meanwhile, as appellant and Daniel Marino continued in their efforts to stonewall Mrs. Israel's attorney, Bayou had begun to unravel in a serious manner. By 2005, Israel and Daniel Marino had largely wound down and suspended trading on behalf of the various Bayou funds, while still representing to their clients that Bayou was actively managing an investment portfolio. Rather than pursuing legitimate trading activities, they instead invested the remaining Bayou funds in a series of fraudulent "prime bank" instrument trading programs in a desperate attempt to recoup Bayou's enormous losses.
For his part, appellant continued to play a substantial role in concealing Bayou's losses from its investors. For example, in March 2005, prior to mailing RFA's 2004
On May 23, 2005, after Israel transferred nearly $100 million to a New Jersey bank in pursuit of a prime bank investment opportunity, the Arizona Attorney General seized the funds after concluding that the funds were the proceeds of a fraudulent prime bank scheme. Thereafter, investors began to inquire in earnest about Bayou's activities, and, in mid-July 2005, one such investor requested documentation as to RFA's independence from Daniel Marino.
To allay the investor's concerns, and, as appellant stated in an email to Daniel Marino, "until snooping is done on [RFA] itself," appellant and Daniel Marino devised a scheme to provide the investor a fake purchase-sale agreement indicating that RFA had been sold by Daniel Marino to the fictitious Matt Richmond on September 31, 1999. However, the agreement was never provided to the investor.
The Bayou fraud was finally revealed in August 2005, when Daniel Marino issued a check for approximately $53 million to an investor who was asking questions about the fund and seeking to redeem his investment. After the check was returned for insufficient funds, on August 16, 2005, the investor attempted to meet Daniel Marino at Bayou's office in Stamford, Connecticut. There, the investor discovered a suicide/confession note from Daniel Marino which fully revealed the Bayou fraud. The investor notified the local police, who later located Daniel Marino and notified federal authorities.
Israel, Daniel Marino, and Marquez later pled guilty to charges related to the Bayou fraud. Israel and Daniel Marino were sentenced principally to 20 years' imprisonment and ordered to pay $300 million in restitution. Marquez was sentenced principally to 51 months' imprisonment and ordered to pay restitution in the amount of $6,259,650.
On September 3, 2008, appellant pled guilty to misprision of felony pursuant to a Pimentel letter.
On April 21, 2009, the district court sentenced appellant to 21 months' imprisonment, to be followed by a term of supervised release of one year, a mandatory $100 assessment, and restitution in the amount of $60 million. The court explained that the amount of restitution was appropriate because appellant's role was "significant and key to the perpetuation of the fraud." In particular, the court explained that, by maintaining the appearance that RFA was a legitimate accounting firm, appellant led investors to believe that "their investments [were being] scrubbed and reviewed" and that the Bayou Fund was "legitimate and real," thereby "allow[ing] the fraud to perpetuate." The
This appeal followed.
"We review a district court's order of restitution for abuse of discretion." United States v. Ojeikere, 545 F.3d 220, 222 (2d Cir.2008) (internal quotation marks omitted). We review the district court's legal conclusions de novo, and its factual findings for clear error. United States v. Amato, 540 F.3d 153, 158 (2d Cir.2008).
Appellant first argues that the district court erred by relying upon events that transpired outside the relevant time period. In particular, appellant asserts that his fraudulent faxes in 2003 while he was working at RFA fall outside the relevant period of the offense for which he was convicted — i.e., January through August 2005 — and the district court should therefore not have relied upon them in determining the restitution amount. We disagree.
Because appellant did not raise this argument as an objection at sentencing, we review it only for plain error. See United States v. Inserra, 34 F.3d 83, 90 n. 1 (2d Cir.1994). The district court considered appellant's 2003 faxes only to show knowledge of the consequences of his acts during the period of his criminal activity. The 2003 faxes established that appellant had knowledge of the severity of potential investor losses at stake in the Bayou fraud during the relevant time period in 2005. As the court explained at sentencing, "[the investors' losses were] also foreseeable to him because he's the person that is sending out confirmations with dollar figures... and waiting to see if people confirmed that they received these confirmations on their investment." Accordingly, we find no error, much less plain error, in the district court's use of the 2003 faxes at sentencing.
Appellant's second argument is that restitution is improper because the victims' losses were neither directly nor proximately caused by his actions or inactions as required under the MVRA. We disagree.
The MVRA requires sentencing courts to order restitution for certain crimes, such as "an offense against property under this title ... including any offense committed by fraud or deceit," and where an identifiable victim has suffered pecuniary loss. 18 U.S.C. § 3663A(a)(1); § 3663A(c)(1).
The statute defines "victim" broadly as any:
18 U.S.C. § 3663A(a)(2).
In addition, the MVRA provides that restitution may not be imposed if the determination of complex issues of fact relating to causation would unduly "complicate or prolong the sentencing process." Id. § 3663A(c)(3)(B). As we have noted, this latter provision reflects Congress's intent that "sentencing courts not become embroiled in intricate issues of proof," and that the "process of determining an appropriate order of restitution be streamlined." United States v. Reifler, 446 F.3d 65, 136 (2d Cir.2006) (citations and internal quotation marks omitted).
The procedures by which the sentencing court imposes a restitution order are set forth in 18 U.S.C. § 3664. Pursuant to Section 3664, after a defendant pleads or is found guilty of a covered crime, a federal probation officer provides the sentencing court with a report that includes, inter alia, details of the victims of the defendant's crime and their losses, as well as the economic circumstances of the defendant. 18 U.S.C. § 3664(a). Upon review of this report, and after a sentencing hearing, the sentencing court determines the amount of restitution the defendant owes, resolving any disputes as to the proper amount by a preponderance of the evidence. Id. § 3664(e).
As we explain in greater detail below, the MVRA's definition of "victim" tracks identically the definition of "victim" provided in the Victim Witness Protection Act ("VWPA"), 18 U.S.C. § 3663(a)(2), the general, discretionary restitution statute that preceded and was partially superseded by the MVRA. In particular, both the MVRA and the VWPA, as amended, require identical causation standards — i.e., the victim's harm must be "directly and proximately" caused by the defendant's criminal activity. See 18 U.S.C. § 3663A(a)(2); id. § 3663(a)(2).
Neither the VWPA nor the MVRA explicitly defines the requisite causation standard sufficiently to directly answer the question before us — i.e., whether appellant's admitted offense "directly and proximately" caused Bayou investors' losses.
The current causation standards are the result of several amendments to the federal restitution statutes. We therefore turn to the legislative history for insight into Congressional intent. Congress first authorized federal courts to order restitution during sentencing with the enactment of the VWPA in 1982. Under the 1986 version of the VWPA, federal courts were authorized, when sentencing for certain
Like the current version of the MVRA, the original version of the VWPA included a provision that limited a sentencing court's authority to order restitution where such restitution would "unduly complicate or prolong the sentencing process." See id. As the Senate Report explained, "the Committee added this provision to prevent sentencing hearings from becoming prolonged and complicated trials on the question of damages owed the victim." S.Rep. No. 97-532, at 31 (1982), reprinted in 1982 U.S.C.C.A.N. 2515, 2537.
The first major amendment to the VWPA came in 1990, with the passage of the Crime Control Act of 1990, Pub.L. No. 101-647, 104 Stat. 4789 (1990).
See Pub.L. No. 101-647, § 2509, 104 Stat. at 4863; 18 U.S.C. § 3663(a)(2). In introducing the causation standard that the victim be "directly harmed by the defendant's criminal conduct," Congress explained:
H.R.Rep. No. 101-681(I), at 177 n. 8 (1990), reprinted in 1990 U.S.C.C.A.N. 6472, 6583, n. 8.
The next major amendment to the federal restitution statutes came in 1996 with enactment of the MVRA, which was included
Congress explained these newly enacted causation standards as follows:
S.Rep. No. 104-179, at 19 (1995) reprinted in 1996 U.S.C.C.A.N. 924, 932.
To summarize, since 1982 when it authorized federal courts to impose restitution Congress has: (i) broadened this authority by, inter alia, allowing restitution for victims who directly suffered harm from crimes involving conspiracy or a criminal scheme, and allowing restitution for crimes pled in a plea agreement; (ii) made restitution mandatory for certain crimes; (iii) imposed a "direct and proximate" causation standard as to both discretionary and mandatory restitution; and (iv) remained insistent that restitution determinations not unduly prolong sentencing proceedings.
Although the legislative history is "suggestive rather than compelling" as to the requisite causation standard, United States v. Vaknin, 112 F.3d 579, 587 (1st Cir.1997), it may be aptly described as a "middle road" approach. For example, Congress's intent to expand restitution as a remedial measure cautions against a rigid "direct" causation standard that would foreclose restitution where even the slightest intervening event severs factually or temporally the link between defendant's crime and victim's loss. At the same time, however, Congress's preference for expeditious restitution determinations suggests that the factual and temporal link between crime and loss cannot be so tenuous as to require a "prolonged and complicated trial[]" on the issue of causation. S.Rep. No. 97-532 at 31, supra, 1982 U.S.C.C.A.N. at 2537; see also Vaknin, 112 F.3d at 589 ("Restitution should not be ordered in respect to a loss which would have occurred regardless of the defendant's conduct.... Even if but for causation is acceptable in theory, limitless but for causation is not. Restitution should not lie if the conduct underlying the offense of conviction is too far removed, either factually or temporally, from the loss.").
We turn next to our caselaw.
In Reifler, we addressed the MVRA's causation requirements at length and in the context of a financial fraud. There, the district court had imposed restitution orders against defendants who pled guilty to conspiracy, in violation of 18 U.S.C. § 371, to artificially inflate the price of securities, in violation of Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Securities Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5. Reifler, 446 F.3d at 135. We vacated the district court's restitution orders principally because they ordered restitution to persons who clearly were not victims of the conspiracy, or who were co-conspirators rather than victims. Id. at 125-26.
However, we also questioned whether restitution was appropriate even for the innocent persons who had made stock purchases during the conspiracy because of the difficulties in meeting the MVRA's causation requirements. See id. at 135-39.
As we explained, the MVRA's direct and proximate causation requirements both reflect "Congress's interest in maintaining efficiency in the sentencing process." Id. at 135. The MVRA's direct causation requirement promotes this efficiency because "`the less direct an injury is, the more difficult it becomes to ascertain the amount of a plaintiff's damages attributable to the violation.'" Id. at 135 (quoting Holmes v. Sec. Investor Prot. Corp., 503 U.S. 258, 269, 112 S.Ct. 1311, 117 L.Ed.2d 532 (1992)). Likewise, the MVRA's proximate causation requirement promotes efficiency in the sentencing process by "limit[ing] a person's responsibility for the consequences of that person's own acts[,] ... reflect[ing] ideas of what justice demands, or of what is administratively possible and convenient." Id. at 135 (citations and internal quotation marks omitted).
Applying these principles in Reifler, we expressed serious doubt, but did not decide, whether the MVRA's causation requirements should have foreclosed restitution for even innocent shareholder victims. See id. at 135-39. We first noted the difficulty that the victims would have encountered as private plaintiffs in a Rule 10b-5 civil action against defendants, either for their lack of standing as purchasers or sellers of securities, or for their failure to show reliance on any misrepresentation or omission by defendants, both of which are required in a private Rule 10b-5 action. Id. at 135-36 (citing Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723, 95 S.Ct. 1917, 44 L.Ed.2d 539 (1975)).
In light of the victims' difficulty in establishing Rule 10b-5's purchaser/seller standing requirement — a rule that is intended to avoid "severe problems of proof," Blue Chip Stamps, 421 U.S. at 758, 95 S.Ct. 1917 — we questioned whether the victims should be able to recover restitution under the MVRA, which, through its proximate causation requirement, is also intended to avoid problems of proof. Reifler, 446 F.3d at 136. On review of the statutory language and the legislative history, we concluded that there was nothing
Reifler should not be read, however, to suggest that someone who is otherwise a "victim" is not eligible for restitution because a private right of action is not available. Nor, if a private right of action exists, need such a person show that he or she fulfills every element of that action. Restitution under the MVRA is a remedy provided to victims independent of the availability, or lack thereof, of a private right of action against a defendant. What Reifler means is that where an analogous private right of action exists, caselaw under it may inform, but perhaps not control, causation determinations in restitution proceedings. In the present matter, appellant's misprision of felony concealed from authorities a massive, ongoing Ponzi scheme involving securities fraud. Securities fraud is the subject of numerous private actions and has caused us to discuss at great lengths the causation standards applicable in that context. See, e.g., Lentell v. Merrill Lynch & Co., 396 F.3d 161, 172 (2d Cir.2005); Suez Equity Inv., L.P. v. Toronto-Dominion Bank, 250 F.3d 87, 95-96 (2d Cir.2001). In particular, we have long held that "a securities-fraud plaintiff `must prove both transaction and loss causation.'" Lentell, 396 F.3d at 172 (quoting First Nationwide Bank v. Gelt Funding Corp., 27 F.3d 763, 769 (2d Cir. 1994)).
We have further stated:
In re Omnicom Grp., Inc. Sec. Litig., 597 F.3d 501, 509-10 (2d Cir.2010). Finally, we have explained that "a misstatement or omission is the `proximate cause' of an investment loss if the risk that caused the loss was within the zone of risk concealed by the misrepresentations and omissions alleged by a disappointed investor." Lentell, 396 F.3d at 173.
Appellant was convicted of having knowledge of, failing to report, and taking affirmative steps to conceal the Bayou fraud. See United States v. Cefalu, 85 F.3d 964, 969 (2d Cir.1996) ("The elements of Misprision of Felony are 1) the principal committed and completed the alleged felony; 2) defendant had full knowledge of that fact; 3) defendant failed to notify the authorities; and 4) defendant took steps to conceal the crime.")
In his view, his conduct was neither the direct nor the proximate cause, for purposes of the MVRA, of the Bayou investors'
We begin by noting that a Bayou investor may meet the causation requirement of the statutory definition of "victim" without showing individual reliance. The very nature of the crime — concealment — indicates the harm deemed to result from public ignorance in the securities fraud context. And, in any event, we may presume that had appellant disclosed the crime in a timely fashion, no investor would have invested fresh cash in the Ponzi.
For that reason, appellant cannot claim that his crime was not a cause in fact — a "but for" cause — of the investors' losses. Appellant was one of four individuals who knew of and should have revealed the Bayou fraud, but did not. During the relevant time period — between January and August of 2005 — investors entrusted over $60 million with Bayou in reliance on the false representation that Bayou was a legitimate investment firm that was audited by an independent financial accounting firm. But for appellant's role in affirmatively concealing the falsity of this representation, these investors would certainly not have invested in Bayou, as no reasonable investor would invest in a known Ponzi scheme.
We find no merit in appellant's argument that the curative effect of his reporting the Bayou fraud is merely speculative. It is true that enforcement agencies have, at times, failed to take action on the reports of so-called whistleblowers to financial fraud, see, e.g., U.S. Securities and Exchange Commission Office of Investigations, Case No. OIG-509, Investigation of Failure of the SEC to Uncover Bernard Madoff's Ponzi Scheme, Executive Summary, (Aug. 31, 2009), available at, www. sec.gov/news/studies/2009/oig-509.pdf ("SEC Madoff Investigation"); however, it is also true that whistleblower tips are among the most effective means of revealing financial frauds and accounting scandals. See, e.g., Douglas M. Branson, Too Many Bells? Too Many Whistles? Corporate Governance in the Post-Enron, Post-Worldcom Era, 58 S.C. L.Rev. 65, 78-79 (2006) ("Fraud and accounting imbroglios come to light because of a tip (42.6%), internal auditing (24.6%), accident (18%), outside auditors' discovery (16.4%), and ... internal control (8.2%)."); Jonathan Macey, Getting the Word Out About Fraud: A Theoretical Analysis of Whistleblowing and Insider Trading, 105 Mich. L.Rev. 1899, 1904-06 (2007) (noting the substantial recoveries of qui tam claimants — i.e., whistleblowers revealing fraud against the federal government by public companies — under the Federal False Claims Act).
Where, as here, the whistleblower has insider knowledge of the ongoing fraud, the whistleblower's tip will more likely be taken seriously by enforcement officials. See Richard E. Moberly, Sarbanes-Oxley's Structural Model to Encourage Corporate Whistleblowers, 2006 BYU L.Rev. 1107, 1107 (2006) ("[T]he [Enron, Worldcom and Global Crossing] scandals demonstrate employees' efficacy as monitors with accurate insider knowledge about the inner workings of their corporations."); Geoffrey Christopher Rapp, Beyond Protection: Invigorating Incentives for Sarbanes-Oxley Corporate and Securities Fraud Whistleblowers, 87 B.U. L.Rev. 91, 109 (2007) ("Overcoming an internal conspiracy can only succeed if insiders bring information about ongoing corporate and securities
Furthermore, appellant not only failed to disclose the fraud, but also took affirmative steps to conceal it. His conduct was, therefore, a cause in fact.
As to proximate causation,
As discussed above, appellant's primary role in the Bayou fraud was in sustaining the falsity that RFA was a legitimate accounting firm that conducted independent audits of Bayou's investment results. In arguing that his conduct was not "wantonly fraudulent," appellant greatly understates his role in the Bayou fraud. In essence, he asks us to ignore the importance of independent financial auditors as vouching to the investing public for the accuracy of a firm's books and the importance of his role in vouching such accuracy to Bayou's victim investors.
Courts have long recognized the important "public watch-dog" function of independent financial auditors to the investing public. As the Supreme Court has stated:
United States v. Arthur Young & Co., 465 U.S. 805, 817-19, 104 S.Ct. 1495, 79 L.Ed.2d 826 (1984); see also AUSA Life Ins. Co. v. Ernst & Young, 206 F.3d 202, 230 (2d Cir.2000) ("Reasonable investors surely view firms with an untrustworthy management and auditor far more negatively than they view financially identical firms with honest management and a watch-dog auditor.") (Winter, J., dissenting).
Here, the importance of RFA to the Bayou fraud was critical. Indeed, RFA was created precisely because Daniel Marino and Israel knew that without an independent financial auditor blessing Bayou's fictitious investment results, they would have been unable to carry out the Bayou fraud. Most important, without RFA, Bayou would have been unable to attract
Moreover, there is no question that Bayou investors continuously relied on RFA's "independent audits" of Bayou's financial results. The record indicates multiple instances where investors contacted RFA with questions regarding the Bayou audits and, later, with serious concerns regarding RFA's independent status. It is also clear that appellant was keenly aware of the importance to Bayou investors of RFA's independence. At various times, appellant stressed to Daniel Marino the importance of the illusion of independence. For example, in his email to Daniel Marino regarding the Benowich letter, appellant stressed that "there is supposed to be independence between [RFA] and the both of you [Daniel Marino and Israel]." Accordingly, we are unwilling to adopt the view that appellant's actions did not seriously injure Bayou's investors. Whether they were less serious than the actions of Israel and Daniel Marino is essentially irrelevant because, during the period of appellant's criminal activity, his acts were essential to Israel and Daniel Marino's criminal scheme.
We also disagree with appellant's view that his victims' losses were not foreseeable. Through his handling of the victims' confirmation statements, appellant knew first-hand the amounts the victims had at stake in the Bayou fraud. No reasonable person in his position could have failed to foresee that the victims who invested in Bayou from January through August of 2005 would ultimately face substantial or even complete loss of their investment.
To summarize, we find no error in the district court's conclusion that appellant's failure to report the Bayou fraud was both the direct and the proximate cause of the victim investors' losses.
For the foregoing reasons, we affirm.
Id. § 3663A.
A similar provision is included in the current version of the MVRA. 18 U.S.C. § 3663A(c)(2) ("In the case of a plea agreement that does not result in a conviction for [a covered offense], [restitution] shall apply only if the plea specifically states that [the covered offense] gave rise to the plea agreement."). Moreover, the MVRA provides that a court "shall []order, if agreed to by the parties in a plea agreement, restitution to persons other than the victim of the offense." 18 U.S.C. § 3663A(a)(3).
