Proposed Strategy for Compensating Bankman-Fried's Victims: Remission Over Restitutionby@legalpdf
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Proposed Strategy for Compensating Bankman-Fried's Victims: Remission Over Restitution

by Legal PDFMarch 22nd, 2024
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In complex criminal cases like this one, where restitution to victims would be administratively impractical and costly, the government proposes remission as an alternative compensation method. This strategy aims to efficiently distribute finally forfeited assets to victims, ensuring maximum recovery without prolonging the sentencing process or complicating victim compensation.
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USA v. Samuel Bankman-Fried Court Filing, retrieved on March 15, 2024 is part of HackerNoon’s Legal PDF Series. You can jump to any part in this filing here. This part is 32 of 33.

III. The Court Should Order Victim Compensation Through Remission as an Alternative to Restitution

The Government seeks to return all stolen assets that are finally forfeited to victims of the defendant’s crimes in the most efficient manner possible. Because of the complexity of the case and the number of victims involved, awarding restitution to victims in accordance with 18 U.S.C. § 3663A would be extremely costly and administratively impractical. The cost and time associated with calculating each victim’s loss, determining whether the victim has already been compensated through the pending bankruptcy, and then paying out a percentage of the victim’s losses, will delay payment and diminish the amount of money actually paid to victims. Therefore, consistent with the Government’s frequent approach in complex cases with numerous victims, the Government moves for entry of an order authorizing the United States to compensate victims with finally forfeited assets through a remission process, as restitution would be impracticable in this case. 18 U.S.C. § 3663A(c)(3). As noted in the defendant’s submission, he consents to this request.

Restitution to persons “directly and proximately harmed” by fraud and money laundering is ordinarily mandatory. See 18 U.S.C. §§ 3663A(a)(1), (c)(1)(A)(ii). In such a case, the Court is authorized to determine a restitution amount and a schedule of victims and payments. However, an order of restitution is not required when “the number of identifiable victims is so large as to make restitution impracticable,” or when imposing restitution would require “determining complex issues of fact related to the cause or amount of the victim’s losses” which “would complicate or prolong the sentencing process.” Id. § 3663A(c)(3). In those situations, instead of ordering restitution, courts have authorized the Government to compensate victims through the process of remission under the forfeiture statutes and related regulations. See, e.g., United States v. Madoff, 09 Cr. 213 (DC), Dkt. 106 & United States v. Bonventre, 10 Cr. 228, Dkt. 318 (Madoff Ponzi scheme); United States v. Sharma, 18 Cr. 340, Dkt. 407 (multi-million dollar cryptocurrency scheme); United States v. Dos Santos, 20 Cr. 398, Dkt. 283 (multi-million dollar cryptocurrency scheme).

The forfeiture statutes authorize the Attorney General to “grant petitions for mitigation or remission of forfeiture, restore forfeited property to victims of a violation of this subchapter, or take any other action to protect the rights of innocent persons which is in the interest of justice and which is not inconsistent with the provisions of this section.” 21 U.S.C. § 853(i)(1). The applicable regulations are set forth in 28 C.F.R. Part 9. In order to qualify for remission, a crime victim must provide information to support specific elements, including that they suffered a specific pecuniary loss directly caused by the criminal offense, that the victim did not contribute to the offense, that the victim has not been in compensated for the loss from another means, and that the victim has no other recourse available. See generally 28 C.F.R. § 9.8(b).

It is the policy of the Department of Justice, consistent with the Crime Victims’ Rights Act, to ensure that crime victims receive “full and timely restitution as provided in law.” See 18 U.S.C. § 3771(c)(1). Accordingly, when the Government seizes property in connection with a criminal case, the Government’s goal is to forfeit the property and then, in remission proceedings administered by the Attorney General through his delegee, the Chief of the Money Laundering and Asset Recovery Section of the Department of Justice’s Criminal Division (“MLARS”), to distribute funds to victims. Frequently MLARS will distribute those assets through a remission program by which victims may petition for portions of forfeited property. E.g. United States v. Sharma, 18 Cr. 340 (LGS), 2022 WL 1910026, at *2 (S.D.N.Y. June 3, 2022). In a multi-victim or complex case, the process of notifying potential victims, processing petitions, verifying losses, and recommending a distribution of available funds may be managed on behalf of the Department of Justice by a Special Master or trustee, as authorized by 28 C.F.R. § 9.9(c).

While use of such means is common, there are other methods of distribution that the Department has used. In cases that also involve bankruptcy proceedings, the Department has at times worked with the bankruptcy estate to distribute forfeited assets. E.g. United States v. $7,206,157,717 on Deposit at JP Morgan Chase Bank, N.A., 10 Civ. 9398, Dkt. 2 (S.D.N.Y. December 17, 2010) (stipulation and court ordered settlement whereby the estate of Jeffry Picower, who had received billions of dollars from Bernie Madoff, forfeited more than $7 billion; the Government agreed to credit $5 billion in payment to the bankruptcy estate to be allocated under bankruptcy rules, and then named the trustee as administrator for the remaining funds).

Victims’ interests will be best served in this case by ordering remission of finally forfeited funds and by using the remission process. The Government has been in frequent communication with MLARS about the most efficient way to do this, including by retaining a claims administrator or by transferring funds into the FTX bankruptcy estate upon specified conditions.[16]

An alternative arrangement whereby restitution is calculated and distributed to victims by the Government and the Court would be nearly impossible administratively, and would come at great expense to victims’ recovery. In order to enter an order of restitution, the Court would need to determine and corroborate each victim’s losses. That would require determining and corroborating for each customer victim both the amount of funds he or she transferred to FTX, and any funds withdrawn. That task, challenging as it would ever be for the global fraud which the defendant led, is compounded here further for victims who transferred funds via cryptocurrencies, given their ever-fluctuating value. There are millions of potential victims and substantial complexity in computing each victim’s investments and withdrawals. Restitution in this case is even more complicated by the different classes of victims: FTX’s dozens of equity investors, and the Alameda lenders who often lent or received funds via cryptocurrency.

Instead, a process whereby the Government distributes finally forfeited funds, either through a claims administrator or through a distribution to the bankruptcy estate, will more be efficient, and not “would complicate or prolong the sentencing process.” 18 U.S.C. § 3663A(c)(3).

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[16] The creditor class in the bankruptcy overlaps substantially but is not a perfect match with the victims of the defendant’s crimes. For example, customers of FTX’s US branch are not victims of the defendant’s crimes as charged in the Indictment, but are expected to recover in the FTX bankruptcy; conversely, equity investors are victims of the charged offenses but may not recover their losses in the bankruptcy.

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This court case retrieved on March 15, 2024, from storage.courtlistener is part of the public domain. The court-created documents are works of the federal government, and under copyright law, are automatically placed in the public domain and may be shared without legal restriction.