United States v. Marino

09-1965-cr
United States v. Matthew Marino

1 UNITED STATES COURT OF APPEALS

2 FOR THE SECOND CIRCUIT

3 August Term, 2009

4 (Argued: May 10, 2010 Decided: August 18, 2011)

5 Docket No. 09-1965-cr

6 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

7 UNITED STATES OF AMERICA,
8
9 Appellee,
10 v.

11 MATTHEW MARINO,
12
13 Defendant-Appellant.

14 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

15 B e f o r e: JACOBS, Chief Judge, WINTER, and MCLAUGHLIN,

16 Circuit Judges.

17 Appeal from a final order of conviction entered by the

18 United States District Court for the Southern District of New

19 York (Stephen C. Robinson, Judge), following a guilty plea to
20 one count of misprision of felony in violation of 18 U.S.C. § 4

21 for failing to report a Ponzi scheme. Appellant challenges the

22 district court’s restitution order requiring appellant to pay

23 restitution in the amount of $60 million pursuant to the

24 Mandatory Victims Restitution Act (“MVRA”), 18 U.S.C. §§ 3663A.

25 We affirm.

1
 1 EUGENE J. RICCIO, Gulash &
2 Riccio, Bridgeport, Connecticut,
3 for Defendant-Appellant.
4
5 MARGERY B. FEINZIG, Assistant
6 United States Attorney, of
7 counsel (Preet Bharara,
8 United States Attorney for the
9 Southern District of New York,
10 Jesse M. Furman, Assistant United
11 States Attorney, of counsel), for
12 Appellee.
13
14
15 WINTER, Circuit Judge:

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.1

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
A final analysis of Bayou’s records indicated that there
were 392 investors who invested over $500 million in the various
Bayou funds. Of those investors, 288 lost an aggregate amount in
excess of $309 million in contributions to the fund. Of that
amount, however, $110 million plus interest was recovered.

3
 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.

25

4
 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.

7
 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.
23
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.2
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 discussed the problem of

14 revealing RFA’s principal:

15 In regards to [RFA], Benowich has prepared
16 Affidavits from himself, you and an individual at [RFA]
17 . . . . The Affidavit from [RFA] needs to come from an
18 individual and needs to be made as it discusses more
19 particularly the arguments [RFA] has in quashing the
20 motion. This is something [i.e., the identity of the
21 RFA principal] we will need to figure out who.
22
23 Appellant’s involvement in hiding information from Mrs.

24 Israel’s attorney is also evident in an email to Daniel Marino on

25 July 14, 2005, regarding a draft letter from Benowich to Mrs.

26 Israel’s attorney. Benowich’s draft letter attached to the email

2
The district court treated appellant as the alter-ego of
Matt Richmond: “[T]he documents were there in front of
[appellant] to see . . . as Mr. Richm[ond] of [RFA].”

9
 1 stated: “Please be advised that as far as . . . Dan Marino and

2 Sam Israel are concerned, you will not receive any documents nor

3 will you be deposing anyone associated with my client [RFA].”

4 In the email, appellant also stated in reference to the draft

5 letter: “It may be better to say ‘as far as my client is

6 concerned’ rather than Dan Marino and Sam Israel because there is

7 supposed to be independence between [RFA] and the both of you.”

8 Meanwhile, as appellant and Daniel Marino continued in their

9 efforts to stonewall Mrs. Israel’s attorney, Bayou had begun to

10 unravel in a serious manner. By 2005, Israel and Daniel Marino

11 had largely wound down and suspended trading on behalf of the

12 various Bayou funds, while still representing to their clients

13 that Bayou was actively managing an investment portfolio. Rather

14 than pursuing legitimate trading activities, they instead

15 invested the remaining Bayou funds in a series of fraudulent

16 “prime bank” instrument trading programs in a desperate attempt

17 to recoup Bayou’s enormous losses.

18 For his part, appellant continued to play a substantial role

19 in concealing Bayou’s losses from its investors. For example, in

20 March 2005, prior to mailing RFA’s 2004 “audit” of Bayou to

21 investors, appellant, at Daniel Marino’s direction, changed a

22 number in the “audited” financials that were later distributed to

23 investors.

24 On May 23, 2005, after Israel transferred nearly $100

25 million to a New Jersey bank in pursuit of a prime bank

10
 1 investment opportunity, the Arizona Attorney General seized the

2 funds after concluding that the funds were the proceeds of a

3 fraudulent prime bank scheme. Thereafter, investors began to

4 inquire in earnest about Bayou’s activities, and, in mid-July

5 2005, one such investor requested documentation as to RFA’s

6 independence from Daniel Marino.

7 To allay the investor’s concerns, and, as appellant stated

8 in an email to Daniel Marino, “until snooping is done on [RFA]

9 itself,” appellant and Daniel Marino devised a scheme to provide

10 the investor a fake purchase-sale agreement indicating that RFA

11 had been sold by Daniel Marino to the fictitious Matt Richmond on

12 September 31, 1999. However, the agreement was never provided to

13 the investor.

14 The Bayou fraud was finally revealed in August 2005, when

15 Daniel Marino issued a check for approximately $53 million to an

16 investor who was asking questions about the fund and seeking to

17 redeem his investment. After the check was returned for

18 insufficient funds, on August 16, 2005, the investor attempted to

19 meet Daniel Marino at Bayou’s office in Stamford, Connecticut.

20 There, the investor discovered a suicide/confession note from

21 Daniel Marino which fully revealed the Bayou fraud. The investor

22 notified the local police, who later located Daniel Marino and

23 notified federal authorities.

24 Israel, Daniel Marino, and Marquez later pled guilty to

25 charges related to the Bayou fraud. Israel and Daniel Marino

11
 1 were sentenced principally to 20 years’ imprisonment and ordered

2 to pay $300 million in restitution. Marquez was sentenced

3 principally to 51 months’ imprisonment and ordered to pay

4 restitution in the amount of $6,259,650.

5 On September 3, 2008, appellant pled guilty to misprision of

6 felony pursuant to a Pimentel letter.3 Appellant admitted that,

7 from January 2005 through August 2005, he was aware of the fraud

8 being perpetrated on Bayou’s investors, and failed to report the

9 crime. In addition, appellant admitted to having taken

10 affirmative action to conceal the fraud, including participating

11 in the administration of RFA, concealing RFA’s financial

12 information from Mrs. Israel, modifying the number in the

13 financial statements, and assisting Daniel Marino in creating the

14 fake purchase-sale agreement for RFA.

15 On April 21, 2009, the district court sentenced appellant to

16 21 months’ imprisonment, to be followed by a term of supervised

17 release of one year, a mandatory $100 assessment, and restitution

18 in the amount of $60 million. The court explained that the

19 amount of restitution was appropriate because appellant’s role

20 was “significant and key to the perpetuation of the fraud.” In

3
A Pimentel letter generally refers to an informational
letter from the government containing an estimate of a
defendant’s likely sentence under the Sentencing Guidelines. See
United States v. Pimentel, 932 F.2d 1029, 1034 (2d Cir. 1991).
It is not a binding contract nor a plea agreement, but it is
often relied upon by defendants in entering guilty pleas.

12
 1 particular, the court explained that, by maintaining the

2 appearance that RFA was a legitimate accounting firm, appellant

3 led investors to believe that “their investments [were being]

4 scrubbed and reviewed” and that the Bayou Fund was “legitimate

5 and real,” thereby “allow[ing] the fraud to perpetuate.” The

6 court determined that restitution in the amount of $60 million --

7 the estimated amount of losses suffered by Bayou Fund investors

8 between January and August 2005 -- was appropriate restitution

9 given the fact that these losses were reasonably foreseeable to

10 appellant.

11 This appeal followed.

12 DISCUSSION

13 “We review a district court’s order of restitution for abuse
14 of discretion.” United States v. Ojeikere, 545 F.3d 220, 222 (2d
15 Cir. 2008) (internal quotation marks omitted). We review the

16 district court’s legal conclusions de novo, and its factual

17 findings for clear error. United States v. Amato, 540 F.3d 153,

18 158 (2d Cir. 2008).
19 a) Reliance on Pre-2005 Events
20 Appellant first argues that the district court erred by

21 relying upon events that transpired outside the relevant time

22 period. In particular, appellant asserts that his fraudulent

23 faxes in 2003 while he was working at RFA fall outside the

24 relevant period of the offense for which he was convicted --

25 i.e., January through August 2005 -- and the district court

13
 1 should therefore not have relied upon them in determining the

2 restitution amount. We disagree.

3 Because appellant did not raise this argument as an

4 objection at sentencing, we review it only for plain error. See

5 United States v. Inserra, 34 F.3d 83, 90 n.1 (2d Cir. 1994). The

6 district court considered appellant’s 2003 faxes only to show

7 knowledge of the consequences of his acts during the period of

8 his criminal activity. The 2003 faxes established that appellant

9 had knowledge of the severity of potential investor losses at

10 stake in the Bayou fraud during the relevant time period in 2005.

11 As the court explained at sentencing, “[the investors’ losses

12 were] also foreseeable to him because he’s the person that is

13 sending out confirmations with dollar figures . . . and waiting

14 to see if people confirmed that they received these confirmations

15 on their investment.” Accordingly, we find no error, much less

16 plain error, in the district court’s use of the 2003 faxes at

17 sentencing.
18 b) Direct and Proximate Causation
19 Appellant’s second argument is that restitution is improper

20 because the victims’ losses were neither directly nor proximately

21 caused by his actions or inactions as required under the MVRA.

22 We disagree.

23 1. The Statutory Framework

24 The MVRA requires sentencing courts to order restitution for

25 certain crimes, such as “an offense against property under this

14
 1 title . . . including any offense committed by fraud or deceit,”

2 and where an identifiable victim has suffered pecuniary loss. 18

3 U.S.C. § 3663A(a)(1); § 3663A(c)(1).4 “The goal of restitution,

4 in the criminal context, is ‘to restore a victim, to the extent

5 money can do so, to the position he occupied before sustaining

6 injury.’” United States v. Battista, 575 F.3d 226, 229 (2d Cir.

7 2009) (quoting United States v. Boccagna, 450 F.3d 107, 115 (2d

8 Cir. 2006)).

9 The statute defines “victim” broadly as any:

10 person directly and proximately harmed as a result of

4
Section 3663 addresses restitution generally, and provides
that when sentencing a defendant, the court may order
restitution. 18 U.S.C. § 3663(a)(1)(A) (“The court, when
sentencing a defendant convicted of an offense under this title .
. . other than an offense described in section 3663A(c), may
order . . . that the defendant make restitution to any victim of
such offense . . . .”). Section 3663A mandates restitution for
specified offenses, and provides, in relevant part:

(a)(1) Notwithstanding any other provision of law,
when sentencing a defendant convicted of a [covered]
offense . . . , the court shall order . . . that the
defendant make restitution to the victim of the offense
or, if the victim is deceased, to the victim’s estate.

. . .

(c)(1) This section shall apply in all sentencing
proceedings for convictions of, or plea agreements
relating to charges for, any offense . . . (A) that is
. . . (ii) an offense against property under this
title, . . . including any offense committed by fraud
or deceit . . .

Id. § 3663A.
15
 1 the commission of an offense for which restitution may
2 be ordered including, in the case of an offense that
3 involves as an element a scheme, conspiracy, or pattern
4 of criminal activity, any person directly harmed by the
5 defendant’s criminal conduct in the course of the
6 scheme, conspiracy, or pattern.
7
8 18 U.S.C. § 3663A(a)(2).

9 In addition, the MVRA provides that restitution may not be

10 imposed if the determination of complex issues of fact relating

11 to causation would unduly “complicate or prolong the sentencing
12 process.” Id. § 3663A(c)(3)(B). As we have noted, this latter

13 provision reflects Congress’s intent that “sentencing courts not

14 become embroiled in intricate issues of proof,” and that the

15 “process of determining an appropriate order of restitution be

16 streamlined.” United States v. Reifler, 446 F.3d 65, 136 (2d

17 Cir. 2006) (citations and internal quotation marks omitted).

18 The procedures by which the sentencing court imposes a

19 restitution order are set forth in 18 U.S.C. § 3664. Pursuant to

20 Section 3664, after a defendant pleads or is found guilty of a

21 covered crime, a federal probation officer provides the

22 sentencing court with a report that includes, inter alia, details

23 of the victims of the defendant’s crime and their losses, as well

24 as the economic circumstances of the defendant. 18 U.S.C. §

25 3664(a). Upon review of this report, and after a sentencing

26 hearing, the sentencing court determines the amount of

27 restitution the defendant owes, resolving any disputes as to the
28 proper amount by a preponderance of the evidence. Id. § 3664(e).

16
 1 As we explain in greater detail below, the MVRA’s definition

2 of “victim” tracks identically the definition of “victim”

3 provided in the Victim Witness Protection Act (“VWPA”), 18 U.S.C.

4 § 3663(a)(2), the general, discretionary restitution statute that

5 preceded and was partially superseded by the MVRA. In

6 particular, both the MVRA and the VWPA, as amended, require

7 identical causation standards -- i.e., the victim’s harm must be

8 “directly and proximately” caused by the defendant’s criminal
9 activity. See 18 U.S.C. § 3663A(a)(2); id. § 3663(a)(2).
10 Neither the VWPA nor the MVRA explicitly defines the

11 requisite causation standard sufficiently to directly answer the

12 question before us -- i.e, whether appellant’s admitted offense

13 “directly and proximately” caused Bayou investors’ losses.

14 2. Legislative History

15 The current causation standards are the result of several

16 amendments to the federal restitution statutes. We therefore

17 turn to the legislative history for insight into Congressional

18 intent. Congress first authorized federal courts to order

19 restitution during sentencing with the enactment of the VWPA in

20 1982. Under the 1986 version of the VWPA, federal courts were

21 authorized, when sentencing for certain crimes, to order “that

22 the defendant make restitution to any victim of such offense.”

23 Hughey v. United States, 495 U.S. 411, 412 (1990). In contrast

24 to the current versions of the MVRA and VWPA, the 1986 version of

25 the VWPA omitted any causation standard, but, rather, simply

17
 1 provided that restitution would apply to “any victim of the

2 offense.” See Pub. L. No. 97-291, 96 Stat. 1248 (1982).

3 Like the current version of the MVRA, the original version

4 of the VWPA included a provision that limited a sentencing

5 court’s authority to order restitution where such restitution

6 would “unduly complicate or prolong the sentencing process.” See

7 id. As the Senate Report explained, “the Committee added this

8 provision to prevent sentencing hearings from becoming prolonged

9 and complicated trials on the question of damages owed the
10 victim.” S. Rep. No. 97-532, at 31 (1982), reprinted in 1982
11 U.S.C.C.A.N. 2515, 2537.

12 The first major amendment to the VWPA came in 1990, with the

13 passage of the Crime Control Act of 1990, Pub. L. No. 101-647,

14 104 Stat. 4789 (1990).5 The Crime Control Act amended the VWPA

5
Of less relevance here, a separate provision added to the
VWPA with the 1990 amendments permitted courts to order
restitution beyond the offense of conviction “to the extent
agreed to by the parties in a plea agreement.” 18 U.S.C. §
3663(a)(3). This amendment clarified an issue that had divided
the circuits - - whether Hughey barred restitution beyond the
count of conviction even where there was a plea agreement by the
defendant. See United States v. Silkowski, 32 F.3d 682, 689 (2d
Cir. 1994); United States v. Rice, 954 F.2d 40, 43 (2d Cir.
1992).
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).

18
 1 by, inter alia,6 adding § 3663(a)(2), which provides:

2 For the purposes of restitution, a victim of an offense
3 that involves as an element a scheme, a conspiracy, or
4 a pattern of criminal activity means any person
5 directly harmed by the defendant’s criminal conduct in
6 the course of the scheme, conspiracy, or pattern.
7 See Pub. L. No. 101-647, § 2509, 104 Stat. at 4863; 18 U.S.C. §
8 3663(a)(2). In introducing the causation standard that the

9 victim be “directly harmed by the defendant’s criminal conduct,”

10 Congress explained:

11 The use of ‘directly’ precludes, for example, an
12 argument that a person has been harmed by a financial
13 institution offense that results in a payment from the
14 insurance fund because, as a taxpayer, a part of that
15 person’s taxes go to the insurance fund.
16
17 H.R. Rep. No. 101-681(I), at 177 n.8 (1990), reprinted in 1990

18 U.S.C.C.A.N. 6472, 6583, n.8.

19 The next major amendment to the federal restitution statutes

20 came in 1996 with enactment of the MVRA, which was included as

21 Title II, Subtitle A, of the Antiterrorism and Death Penalty Act

22 of 1996 (“AEDPA”), Pub. L. No. 104-132, 110 Stat. 1214 (1996).

23 Most significantly, the MVRA partially superseded the VWPA

6
The Crime Control Act of 1990 was passed shortly after the
Supreme Court’s decision in Hughey. At issue in Hughey was
whether the VWPA authorized a sentencing court to order a
defendant who was charged with multiple offenses, but only
convicted of a single offense, to make restitution for victims’
losses related to all alleged offenses. Hughey, 495 U.S. at 412-
13. The Court held that it did not, and interpreted the term
“restitution to any victim of such offense” under the VWPA to
authorize restitution “only for the loss caused by the specific
conduct that is the basis of the offense of conviction.” Id.

19
 1 insofar as it made restitution that was previously discretionary

2 mandatory as to certain offenses, see 18 U.S.C. § 3663A(a)(1) &

3 (c), and amended the VWPA’s definition of “victim” to match that

4 of the newly enacted MVRA, including the requirement that a

5 victim be someone “directly and proximately harmed as a result”

6 of defendant’s committed crime. See AEDPA §§ 204, 205, 110 Stat.

7 at 1228, 1230.

8 Congress explained these newly enacted causation standards

9 as follows:

10 The committee intends this provision to mean, except
11 where a conviction is obtained by a plea bargain, that
12 mandatory restitution provisions apply only in those
13 instances where a named, identifiable victim suffers a
14 physical injury or pecuniary loss directly and
15 proximately caused by the course of conduct under [the
16 convicted offense(s)].
17
18 . . .
19
20 In all cases, it is the committee’s intent that highly
21 complex issues related to the cause or amount of a
22 victim’s loss not be resolved under the provisions of
23 mandatory restitution. The committee believes that
24 losses in which the amount of the victim’s losses are
25 speculative, or in which the victim’s loss is not
26 clearly causally linked to the offense, should not be
27 subject to mandatory restitution.
28
29 S. Rep. No. 104-179, at 19 (1995) reprinted in 1996 U.S.C.C.A.N.
30 924, 932.

31 To summarize, since 1982 when it authorized federal courts

32 to impose restitution Congress has: (i) broadened this authority
33 by, inter alia, allowing restitution for victims who directly

20
 1 suffered harm from crimes involving conspiracy or a criminal

2 scheme, and allowing restitution for crimes pled in a plea

3 agreement; (ii) made restitution mandatory for certain crimes;

4 (iii) imposed a “direct and proximate” causation standard as to

5 both discretionary and mandatory restitution; and (iv) remained

6 insistent that restitution determinations not unduly prolong

7 sentencing proceedings.

8 Although the legislative history is “suggestive rather than
9 compelling” as to the requisite causation standard, United States
10 v. Vaknin, 112 F.3d 579, 587 (1st Cir. 1997), it may be aptly

11 described as a “middle road” approach. For example, Congress’s

12 intent to expand restitution as a remedial measure cautions

13 against a rigid “direct” causation standard that would foreclose

14 restitution where even the slightest intervening event severs

15 factually or temporally the link between defendant’s crime and

16 victim’s loss. At the same time, however, Congress’s preference

17 for expeditious restitution determinations suggests that the

18 factual and temporal link between crime and loss cannot be so
19 tenuous as to require a “prolonged and complicated trial[]” on
20 the issue of causation. S. Rep. No. 97-532 at 31, supra, 1982
21 U.S.C.C.A.N. at 2537; see also Vaknin, 112 F.3d at 589

22 (“Restitution should not be ordered in respect to a loss which

23 would have occurred regardless of the defendant’s conduct. . . .

24 Even if but for causation is acceptable in theory, limitless but

25 for causation is not. Restitution should not lie if the conduct

21
 1 underlying the offense of conviction is too far removed, either

2 factually or temporally, from the loss.”).

3 3. Caselaw

4 We turn next to our caselaw.7 We have previously stated

5 that restitution is authorized only “for losses that [were] . . .

6 directly caused by the conduct composing the offense of

7 conviction,” United States v. Silkowski, 32 F.3d 682, 689 (2d

8 Cir. 1994), and only for the victim’s “actual loss.” United
9 States v. Germosen, 139 F.3d 120, 130 (2d Cir. 1998).
10 In Reifler, we addressed the MVRA’s causation requirements

11 at length and in the context of a financial fraud. There, the

12 district court had imposed restitution orders against defendants

13 who pled guilty to conspiracy, in violation of 18 U.S.C. § 371,

14 to artificially inflate the price of securities, in violation of

15 Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. §

16 78j(b), and Securities Exchange Commission Rule 10b-5, 17 C.F.R.

17 § 240.10b-5. Reifler, 446 F.3d at 135. We vacated the district

18 court’s restitution orders principally because they ordered

19 restitution to persons who clearly were not victims of the
20 conspiracy, or who were co-conspirators rather than victims. Id.

21 at 125-26.

7
Because the relevant statutory language in the MVRA and
VWPA is nearly identical, we include in our analysis cases
arising under both statutes. See United States v. Oladimeji, 463
F.3d 152, 158 n.1 (2d Cir. 2006)(applying Hughey, in
interpretation of the VWPA, to a review of a restitution order
imposed under the MVRA); In re Local # 46 Metallic Lathers Union,
568 F.3d 81, 86 (2d Cir. 2009) (same).

22
 1 However, we also questioned whether restitution was

2 appropriate even for the innocent persons who had made stock

3 purchases during the conspiracy because of the difficulties in

4 meeting the MVRA’s causation requirements. See id. at 135-39.

5 As we explained, the MVRA’s direct and proximate causation

6 requirements both reflect “Congress’s interest in maintaining

7 efficiency in the sentencing process.” Id. at 135. The MVRA’s

8 direct causation requirement promotes this efficiency because

9 “‘the less direct an injury is, the more difficult it becomes to

10 ascertain the amount of a plaintiff’s damages attributable to the

11 violation.’” Id. at 135 (quoting Holmes v. Sec. Investor Prot.

12 Corp., 503 U.S. 258, 269 (1992)). Likewise, the MVRA’s proximate

13 causation requirement promotes efficiency in the sentencing

14 process by “limit[ing] a person’s responsibility for the

15 consequences of that person’s own acts[,] . . . reflect[ing]

16 ideas of what justice demands, or of what is administratively

17 possible and convenient.” Id. at 135 (citations and internal

18 quotation marks omitted).
19 Applying these principles in Reifler, we expressed serious
20 doubt, but did not decide, whether the MVRA’s causation

21 requirements should have foreclosed restitution for even innocent
22 shareholder victims. See id. at 135-39. We first noted the

23 difficulty that the victims would have encountered as private

24 plaintiffs in a Rule 10b-5 civil action against defendants,

25 either for their lack of standing as purchasers or sellers of

23
 1 securities, or for their failure to show reliance on any

2 misrepresentation or omission by defendants, both of which are

3 required in a private Rule 10b-5 action. Id. at 135-36 (citing

4 Blue Chip Stamps v. Manor Drug Stores, 421 U.S. 723 (1975)).

5 In light of the victims’ difficulty in establishing Rule

6 10b-5's purchaser/seller standing requirement -- a rule that is

7 intended to avoid “severe problems of proof,” Blue Chip Stamps,

8 421 U.S. at 758 -- we questioned whether the victims should be

9 able to recover restitution under the MVRA, which, through its

10 proximate causation requirement, is also intended to avoid
11 problems of proof. Reifler, 446 F.3d at 136. On review of the

12 statutory language and the legislative history, we concluded that

13 there was nothing to suggest that “persons eligible to receive

14 restitution under the MVRA would include persons who lack

15 standing to sue, based on the conduct underlying the offense of

16 conviction, in a civil action.” Id. at 137.

17 Reifler should not be read, however, to suggest that someone

18 who is otherwise a “victim” is not eligible for restitution
19 because a private right of action is not available. Nor, if a

20 private right of action exists, need such a person show that he

21 or she fulfills every element of that action. Restitution under

22 the MVRA is a remedy provided to victims independent of the

23 availability, or lack thereof, of a private right of action
24 against a defendant. What Reifler means is that where an
25 analogous private right of action exists, caselaw under it may

24
 1 inform, but perhaps not control, causation determinations in

2 restitution proceedings. In the present matter, appellant’s

3 misprison of felony concealed from authorities a massive, ongoing

4 Ponzi scheme involving securities fraud. Securities fraud is the

5 subject of numerous private actions and has caused us to discuss

6 at great lengths the causation standards applicable in that

7 context. See, e.g., Lentell v. Merill Lynch & Co., 396 F.3d 161,

8 172 (2d Cir. 2005); Suez Equity Inv., L.P. v. Toronto-Dominion
9 Bank, 250 F.3d 87, 95-96 (2d Cir. 2001). In particular, we have

10 long held that “a securities-fraud plaintiff ‘must prove both

11 transaction and loss causation.’” Lentell, 396 F.3d at 172

12 (quoting First Nationwide Bank v. Gelt Funding Corp., 27 F.3d

13 763, 769 (2d Cir. 1994)).

14 We have further stated:

15 Use of the term “loss causation” is occasionally
16 confusing because it is often used to refer to three
17 overlapping but somewhat different concepts. It may be
18 used to refer to whether the particular plaintiff or
19 plaintiff class relied upon -- or is refutably presumed
20 to have relied upon -- the misrepresentation. ATSI
21 Commc’ns, Inc. v. Shaar Fund, Ltd., 493 F.3d 87, 107
22 (2d Cir. 2007). Generally, however, courts use the
23 term “transaction causation” to refer to this element.
24 See, e.g., Dura Pharms., 544 U.S. at 341-42, 125 S.Ct.
25 1627; Emergent Capital Inv. Mgmt., LLC v. Stonepath
26 Group, Inc., 343 F.3d 189, 197 (2d Cir. 2003) (“Like
27 reliance, transaction causation refers to the causal
28 link between the defendant’s misconduct and the
29 plaintiff’s decision to buy or sell securities.”).
30
31 “Loss causation” may also refer to the requirement
32 that the wrong for which the action was brought is a
33 but-for cause or cause-in-fact of the losses suffered,
34 also a requirement for an actionable Section 10(b)
35 claim.
36

25
 1 In re Omnicom Grp., Inc. Sec. Litig., 597 F.3d 501, 509-10 (2d

2 Cir. 2010). Finally, we have explained that “a misstatement or

3 omission is the ‘proximate cause’ of an investment loss if the

4 risk that caused the loss was within the zone of risk concealed

5 by the misrepresentations and omissions alleged by a disappointed

6 investor.” Lentell, 396 F.3d at 173.

7 4. Application

8 Appellant was convicted of having knowledge of, failing to

9 report, and taking affirmative steps to conceal the Bayou fraud.
10 See United States v. Cefalu, 85 F.3d 964, 969 (2d Cir. 1996)
11 (“The elements of Misprision of Felony are 1) the principal

12 committed and completed the alleged felony; 2) defendant had full

13 knowledge of that fact; 3) defendant failed to notify the

14 authorities; and 4) defendant took steps to conceal the crime.”)

15 In his view, his conduct was neither the direct nor the

16 proximate cause, for purposes of the MVRA, of the Bayou

17 investors’ losses from early 2005 until August of that year when

18 the fraud was revealed. He argues that, because he was not
19 directly engaged in the operational activity of the Bayou fraud
20 -- e.g., trading, investment or other related financial activity
21 -- his conduct in concealing the fraud was not the direct cause

22 that the MVRA requires. We disagree.

23 We begin by noting that a Bayou investor may meet the

24 causation requirement of the statutory definition of “victim”

25 without showing individual reliance. The very nature of the

26
 1 crime -- concealment -- indicates the harm deemed to result from

2 public ignorance in the securities fraud context. And, in any

3 event, we may presume that had appellant disclosed the crime in a

4 timely fashion, no investor would have invested fresh cash in the

5 Ponzi.

6 For that reason, appellant cannot claim that his crime was

7 not a cause in fact -- a “but for” cause -- of the investors’

8 losses. Appellant was one of four individuals who knew of and

9 should have revealed the Bayou fraud, but did not. During the

10 relevant time period -- between January and August of 2005 --

11 investors entrusted over $60 million with Bayou in reliance on

12 the false representation that Bayou was a legitimate investment

13 firm that was audited by an independent financial accounting

14 firm. But for appellant’s role in affirmatively concealing the

15 falsity of this representation, these investors would certainly

16 not have invested in Bayou, as no reasonable investor would

17 invest in a known Ponzi scheme.

18 We find no merit in appellant’s argument that the curative

19 effect of his reporting the Bayou fraud is merely speculative.

20 It is true that enforcement agencies have, at times, failed to

21 take action on the reports of so-called whistleblowers to
22 financial fraud, see, e.g., U.S. Securities and Exchange
23 Commission Office of Investigations, Case No. OIG-509,

24 Investigation of Failure of the SEC to Uncover Bernard Madoff’s

25 Ponzi Scheme, Executive Summary, (Aug. 31, 2009), available at,

27
 1 www.sec.gov/news/studies/2009/oig-509.pdf (“SEC Madoff

2 Investigation”); however, it is also true that whistleblower tips

3 are among the most effective means of revealing financial frauds

4 and accounting scandals. See, e.g., Douglas M. Branson, Too Many

5 Bells? Too Many Whistles? Corporate Governance in the Post-Enron,

6 Post-Worldcom Era, 58 S.C. L. Rev. 65, 78-79 (2006) (“Fraud and

7 accounting imbroglios come to light because of a tip (42.6%),

8 internal auditing (24.6%), accident (18%), outside auditors’

9 discovery (16.4%), and . . . internal control (8.2%).”); Jonathan
10 Macey, Getting the Word Out About Fraud: A Theoretical Analysis
11 of Whistleblowing and Insider Trading, 105 Mich. L. Rev. 1899,

12 1904-06 (2007) (noting the substantial recoveries of qui tam

13 claimants -- i.e., whistleblowers revealing fraud against the

14 federal government by public companies -- under the Federal False

15 Claims Act).

16 Where, as here, the whistleblower has insider knowledge of

17 the ongoing fraud, the whistleblower’s tip will more likely be
18 taken seriously by enforcement officials. See Richard E.
19 Moberly, Sarbanes-Oxley’s Structural Model to Encourage Corporate

20 Whistleblowers, 2006 BYU L. Rev. 1107, 1107 (2006) (“[T]he

21 [Enron, Worldcom and Global Crossing] scandals demonstrate

22 employees’ efficacy as monitors with accurate insider knowledge

23 about the inner workings of their corporations.”); Geoffrey

24 Christopher Rapp, Beyond Protection: Invigorating Incentives for

25 Sarbanes-Oxley Corporate and Securities Fraud Whistleblowers, 87

28
 1 B.U. L. Rev. 91, 109 (2007) (“Overcoming an internal conspiracy

2 can only succeed if insiders bring information about ongoing

3 corporate and securities fraud to the attention of regulators . .

4 . .”); cf. SEC Madoff Investigation at 37 (“The [SEC] Enforcement

5 staff claimed that [a Madoff whistleblower] was not an insider or

6 an investor, and thus, immediately discounted his evidence.”).

7 Indeed, when a Bayou investor notified authorities of the Bayou

8 fraud, Israel and Daniel Marino were immediately taken into

9 custody and the Bayou fraud was brought to a conclusion.

10 Accordingly, we regard the potential curative effect of

11 appellant’s reporting of the Bayou fraud as much more than

12 speculative.

13 Furthermore, appellant not only failed to disclose the

14 fraud, but also took affirmative steps to conceal it. His

15 conduct was, therefore, a cause in fact.
16 As to proximate causation,8 appellant first argues that his
17 actions were not substantial in comparison to the “wantonly

18 fraudulent” conduct of the Bayou principals, Israel, Marquez and
19 Daniel Marino. Appellant Br. 12. In addition, appellant asserts

20 that there was nothing to suggest that he could have foreseen the

21 extent of losses that the firm was incurring. Again we disagree.

8
Appellant’s actions were clearly the proximate cause of
the victims’ losses under the zone of risk approach to loss
causation. See Lentell, 396 F.3d at 172-73. By hiding the fact
that Bayou’s financial audits were a sham and modifying a
financial statement, appellant concealed the risk that Bayou was
a Ponzi scheme. See id.

29
 1 As discussed above, appellant’s primary role in the Bayou

2 fraud was in sustaining the falsity that RFA was a legitimate

3 accounting firm that conducted independent audits of Bayou’s

4 investment results. In arguing that his conduct was not

5 “wantonly fraudulent,” appellant greatly understates his role in

6 the Bayou fraud. In essence, he asks us to ignore the importance

7 of independent financial auditors as vouching to the investing

8 public for the accuracy of a firm’s books and the importance of

9 his role in vouching such accuracy to Bayou’s victim investors.

10 Courts have long recognized the important “public watchdog”

11 function of independent financial auditors to the investing

12 public. As the Supreme Court has stated:

13 By certifying the public reports that collectively depict a
14 corporation’s financial status, the independent auditor
15 assumes a public responsibility . . . . The independent
16 public accountant performing this special function owes
17 ultimate allegiance to the corporation’s creditors and
18 stockholders, as well as to investing public. This “public
19 watchdog” function demands that the accountant maintain
20 total independence from the client at all times and requires
21 complete fidelity to the public trust. . . . Thus, the
22 independent auditor’s obligation to serve the public
23 interest assures that the integrity of the securities
24 markets will be preserved . . . .
25
26 United States v. Arthur Young & Co., 465 U.S. 805, 817-19 (1984);
27 see also AUSA Life Ins. Co. v. Ernst & Young, 206 F.3d 202, 230

28 (2d Cir. 2000) (“Reasonable investors surely view firms with an

29 untrustworthy management and auditor far more negatively than

30 they view financially identical firms with honest management and

31 a watch-dog auditor.”) (Winter, J., dissenting).

32

30
 1 Here, the importance of RFA to the Bayou fraud was critical.

2 Indeed, RFA was created precisely because Daniel Marino and

3 Israel knew that without an independent financial auditor

4 blessing Bayou’s fictitious investment results, they would have

5 been unable to carry out the Bayou fraud. Most important,

6 without RFA, Bayou would have been unable to attract new

7 investors -- the sine que non of any successful Ponzi scheme.

8 Moreover, there is no question that Bayou investors

9 continuously relied on RFA’s “independent audits” of Bayou’s

10 financial results. The record indicates multiple instances where

11 investors contacted RFA with questions regarding the Bayou audits

12 and, later, with serious concerns regarding RFA’s independent

13 status. It is also clear that appellant was keenly aware of the

14 importance to Bayou investors of RFA’s independence. At various

15 times, appellant stressed to Daniel Marino the importance of the

16 illusion of independence. For example, in his email to Daniel

17 Marino regarding the Benowich letter, appellant stressed that

18 “there is supposed to be independence between [RFA] and the both

19 of you [Daniel Marino and Israel].” Accordingly, we are

20 unwilling to adopt the view that appellant’s actions did not

21 seriously injure Bayou’s investors. Whether they were less

22 serious than the actions of Israel and Daniel Marino is

23 essentially irrelevant because, during the period of appellant’s

24 criminal activity, his acts were essential to Israel and Daniel

25 Marino’s criminal scheme.

31
 1 We also disagree with appellant’s view that his victims’

2 losses were not foreseeable. Through his handling of the

3 victims’ confirmation statements, appellant knew first-hand the

4 amounts the victims had at stake in the Bayou fraud. No

5 reasonable person in his position could have failed to foresee

6 that the victims who invested in Bayou from January through

7 August of 2005 would ultimately face substantial or even complete

8 loss of their investment.

9 To summarize, we find no error in the district court’s

10 conclusion that appellant’s failure to report the Bayou fraud was

11 both the direct and the proximate cause of the victim investors’

12 losses.

13 CONCLUSION

14 For the foregoing reasons, we affirm.

32