On 3 December 2019, in United States v. Calderon, the Second Circuit affirmed the convictions of two defendants for wire fraud and conspiracy to commit wire and bank fraud, but reversed the lower court's order that defendants pay $18.5 million in restitution to the U.S. Department of Agriculture (USDA).
By way of background, on 9 November 2016, Pablo Calderon and Brett C. Lillemoe were convicted after a trial of wire fraud and conspiracy to commit wire and bank fraud for submitting falsified shipping documents to domestic confirming banks so as to obtain loans for foreign banks under the USDA's loan guarantee program. From 2007 to 2012, foreign banks, such as the Russia-based International Industrial Bank (IIB), paid the defendants to make false statements on bills of lading that were sent to domestic confirming banks issuing USDA-guaranteed loans. The defendants also created multiple entities and bank accounts in an effort to gain access to more loans. IIB later defaulted on its loans and the USDA reimbursed the confirming banks for 98 percent of the confirming banks' losses. At sentencing, the defendants were ordered to pay $18,501,353 in restitution to the USDA under the Mandatory Victims Restitution Act (MVRA), a statute allowing courts to order restitution to victims directly and proximately harmed by an offense resulting in the loss or destruction of property.
On appeal, the Second Circuit upheld the convictions, but reversed the lower court's restitution order. In its decision, the court made clear that a conviction for fraud-related offenses does not automatically entitle a victim to restitution under the MVRA. The government must establish proximate cause, and the Second Circuit will hold the government to that strict standard. In so holding, the court emphasized the distinction between "but-for" causation of a loss and "proximate cause" of a loss, which is a requirement under the MVRA. The court stated that under the MVRA, a misstatement or omission is the proximate cause of a loss if the risk that caused the loss was "within the zone of risk" concealed by the misstatement or omission.
Here, the court found that the lack of creditworthiness of the foreign banks was the proximate cause of the loss, as opposed to the false statements that defendants made on the bills of lading. Specifically, the confirming banks' decision to issue the loans was made after the confirming banks and the USDA had conducted thorough financial analyses on the foreign banks. The bills of lading were sent after the confirming banks and the USDA had already pre-approved the loans. The risks concealed by the false statements—i.e. that the foreign banks would refuse to honor the letters of credit and the USDA would refuse to reimburse the banks for losses—did not materialize. The only risk that materialized was that the foreign banks would default on the loans, which was not attributable to defendants' false statements.
Notably, the court distinguished this case from United States v. Paul, where the defendant made misrepresentations concerning his stock holdings to obtain a loan and later defaulted after the stock price declined. The court held that under those circumstances the defendant proximately caused a loss by making misrepresentations about his own creditworthiness to conceal the risk that he would be unable to repay the loan.
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