The Mandatory Victim Restitution Act of 1996 (“MVRA”) provides that defendants convicted of crimes committed by “fraud or deceit” compensate victims for the full amount of their losses. Whether the amount of restitution may be offset if an employer-victim actually profited from the fraud or deceit has been a question for the courts.
According to the U.S. Court of Appeals for the Eighth Circuit in United States v. Allison, No. 14-1540 (8th Cir. Dec. 1, 2014), the district court did not err in ruling that the cancellation of the employee-defendant’s stock options had not resulted in savings to his former employer-victim supporting an offset in the restitution owed under the MVRA as compensation for the employee-defendant’s mail fraud.
Michael Allison worked in various positions for the employer, including vice president of finance and chief financial officer, from 2000 to 2013. Starting in 2003, he began to defraud his employer by submitting false expense reimbursement requests. After an internal audit in 2012 uncovered these fraudulent claims in an amount of $630,350.40, Allison’s employment was terminated in February 2013. During the course of his employment, Allison acquired company stock options that were governed by an equity incentive plan that provided the stock options could be terminated if an employee engaged in criminal misconduct. Pursuant to this provision, his stock options were canceled. They would have had had a value of approximately $735,000.00 if exercised.
In June 2013, Allison pled guilty to one count of mail fraud. The court sentenced him to 24 months in prison and ordered him to pay restitution of $560,000.00, declining to credit Allison for the value he claimed for the canceled stock options. Allison appealed to the Eighth Circuit asserting the district court erred in not offsetting the restitution amount.
The Eighth Circuit declined to award an offset of restitution for the value of the canceled options. It contrasted this case with an earlier decision in United States v. Frazier, 651 F.3d 899 (8th Cir. 2011), where the Court offset the restitution value when the victim-owner of a home retained funds the defendant had deposited into an account for a future purchase prior to setting fire to the home he lived in under a rent-to-own contract. Unlike Frazier, where the offset was deemed appropriate because the victim likely was contractually entitled to retain the funds to secure itself against damage to the property, the Court found the equity plan in this case did not permit the company to retain the value of the stock options to secure itself against loss.
Allison shows the importance for companies to evaluate compensation plans periodically to help ensure the full value of restitution orders in the event of employee fraud. Jackson Lewis attorneys are available to advise companies on the Mandatory Victim Restitution Act and their rights in collecting amounts lost to criminal acts.