On Feb. 25, 2022, the U.S. Court of Appeals for the Second Circuit held in United States v. Afriyie that restitution orders under the Mandatory Victims Restitution Act (MVRA) do not allow victims to recover attorneys' fees associated with related Securities and Exchange Commission (SEC) investigations.1 Following the U.S. Supreme Court's unanimous decision in 2018 in Lagos v. United States - which resolved a circuit split and held that a criminal defendant is not required under the MVRA to pay a corporate victim's investigatory and legal fees associated with internal investigations or related civil and bankruptcy proceedings - the Second Circuit found that restitution is appropriate under the MVRA "only for expenses associated with criminal matters." Expenses arising from civil matters, including parallel SEC investigations closely related to a criminal case, do not qualify.

Under the MVRA, a defendant convicted of various fraud and other offenses is required to "reimburse the victim for lost income and necessary child care, transportation, and other expenses incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense." 18 U.S.C. §3663A(b)(4) (emphasis added). In Lagos, the Supreme Court rejected an expansive interpretation of the MVRA and held that the words "investigation" and "proceedings" in the MVRA are limited to government investigations and criminal proceedings. At issue in Afriyie was (i) whether, after Lagos, attorneys' fees are recoverable as "other expenses" within the meaning of the statute and (ii) whether a victim may recover for attorneys' fees incurred while participating in an SEC investigation of the defendant. 

A unanimous Second Circuit panel found that while attorneys' fees are recoverable as "other expenses" under the MVRA, fees incurred in connection with an SEC investigation or other noncriminal matters are not recoverable. In concluding that attorneys' fees are "not categorically excluded from recovery," the court found that Lagos "neither overruled . nor cast doubt on" the circuit's prior rulings that attorneys' fees are recoverable under the statute. However, with respect to whether attorneys' fees incurred for an SEC investigation may be recovered, the court explained that Lagos "instructs us to read narrowly the MVRA's requirement that expenses arise from a victim's 'participation in the investigation or prosecution of the offense.' Turning fresh eyes to this phrase, we hold that restitution is appropriate only for expenses associated with criminal matters. Civil matters - including SEC investigations, even if closely related to a criminal case - do not qualify."

The Second Circuit's decision vacates in part a ruling by the district court ordering John Afriyie - an analyst at a private investment firm who was convicted of securities fraud and wire fraud for insider trading - to pay approximately $511,000 in restitution to the company under the MVRA. The original restitution order covered the company's attorneys' fees incurred for three categories of expenses: (i) to respond to subpoenas and document requests in connection with parallel investigations by the U.S. Attorney's Office (USAO) and the SEC, (ii) to help prepare company witnesses to testify at Afriyie's criminal trial, and (iii) to represent the company during the post-verdict restitution proceedings. The Second Circuit's ruling affirmed the restitution for expenses relating to the USAO criminal investigation, the preparation of trial witness and the restitution proceedings. However, the court vacated the expenses relating to the SEC investigation and remanded to the district court to remove SEC-related attorneys' fees from the restitution order.

Although the parallel SEC investigation in Afriyie was conducted in close coordination with the USAO criminal investigation and targeted the same conduct (leading the district court to conclude that the investigations were "parallel, coextensive, and symbiotic"), the Second Circuit held that the expenses relating to the SEC investigation "as a matter of law are not recoverable." Specifically, the court concluded that when the MVRA refers to "investigation," it does not mean an SEC investigation.

The Second Circuit also noted a practical consideration in its decision. On remand, the district court will have to parse the law firms' time sheets because the time entries reflect work on both the civil and criminal investigations. The court deferred to the district court to "devise a reasonable solution concerning these commingled billing items" when calculating the company's recovery.

Notably, in a footnote, the Second Circuit also left open a question as to whether securities fraud is a covered offense under the MVRA. The MVRA applies in "sentencing proceedings for convictions of ... an offense against property under this title," i.e., Title 18, or of other specific crimes not relevant to Afriyie's case. 18 U.S.C. §3663A(c)(1) (emphasis added). Afriyie was convicted of securities fraud under Section 10(b) of the Exchange Act and Rule 10b-5 - a Title 15 offense. While the district court in Afriyie stated that the MVRA applies to "defendants convicted of a listed range of offenses, including securities fraud," other district courts in the Second Circuit have reached the opposite conclusion, finding that the MVRA does not allow restitution for securities fraud. The Second Circuit did not address the issue since Afriyie was also convicted of wire fraud, a Title 18 offense that is covered under the MVRA.


Applying Lagos' narrow construction of the MVRA, the Second Circuit's decision in Afriyie  has significant implications for companies seeking to allocate the costs of civil enforcement investigations to a convicted defendant. After Afriyie, a corporate victim can no longer recover expenses arising from SEC investigations and civil matters, even if closely related to a defendant's criminal case. Lagos and Afriyie represent a continuing trend toward a narrow reading of criminal restitution orders under the MVRA.


1 United States v. Afriyie, No. 20-2269-CR, 2022 WL 569701, at *1 (2d Cir. Feb. 25, 2022).

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