The US Court of Appeals for the Second Circuit has affirmed the lower court’s order directing Joseph Skowron III, a convicted insider trader and former portfolio manager at Morgan Stanley, to pay his former employer $10.2 million in restitution.
The restitution awarded was comprised of $6.4 million in compensation Skowron received while he was at Morgan Stanley and $3.8 million in legal fees. On appeal, Skowron argued that his compensation was not Morgan Stanley’s “property,” as defined in the Mandatory Victim Restitution Act (MVRA), and that legal fees were neither part of the investigation nor necessary expenses.
The Second Circuit rejected Skowron’s argument, holding that restitution of his salary was appropriate because he had committed honest services fraud. The court held that the MVRA’s provisions applied even where the defendant was not convicted of honest services fraud, so long as he participated in a bribery or kickback scheme. Additionally, the court held that restitution of legal fees, including those Morgan Stanley advanced to its employees during the Securities and Exchange Commission investigation, were appropriate. Although these employees were not “victims” of Skowron’s scheme, they had a right to indemnification from Morgan Stanley during the investigation.
US v. Skowron, No. 12-1284 (2d Cir. July 16, 2013).