FEDERAL RESTITUTION: UPDATE & FREQUENTLY ASKED QUESTIONS
At Elizabeth Holmes’ sentencing, the judge will impose fines and restitution for the loss amount involved in her fraud conviction.
INTRODUCTION
At Elizabeth Holmes’ sentencing later this year, the judge will impose monetary fines and restitution for the loss amount involved in her fraud conviction.
The amount of restitution for Holmes will be at least $144 million, and some argue that it should be almost $1 Billion.
What does restitution mean in law?
Restitution means to reimburse victims for financial losses incurred due to a person’s criminal conduct.
Restitution in the federal criminal system seeks to address the victims’ losses and restore them to their financial status before the crime occurred. It is not intended to generate a windfall but to restore financial losses to the extent possible. It’s about the process of making victims whole.
The victims benefitting from the restitution process can be individuals or corporations.
Statistically, federal prosecutors recover $1 out of every $10 ordered. Still, restitution in the federal system is substantial, as federal prosecutors generally recover over $1 billion a year on behalf of the victims of federal crimes.
FREQUENTLY ASKED QUESTIONS
Restitution in federal criminal cases is part of a person’s criminal sentencing process.
What is federal restitution?
Restitution in the federal criminal system seeks to address the victims’ losses and restore them to their place before the crime occurred. It is not intended to generate a windfall but to restore financial losses to the extent possible. It’s about the process of making victims whole.
Moreover, while criminal defendants view restitution as punishment that the court doles out at sentencing, restitution is not a punishment per se. In reality, restitution is akin to disgorgement or debt that a criminal defendant owes the victims.
Another way to look at restitution is as compensation for the loss or injury a person causes the victim.
How broad is federal restitution defined?
According to the Department of Justice, restitution may cover lost income, property damage, counseling, medical expenses, funeral costs, or other financial costs directly related to the defendant’s crimes. However, some financial losses are not eligible for restitution, including:
- losses for pain and suffering;
- state or federal taxes, interest, penalties, or fines;
- expenses for private legal representation relating to personal or business legal issues raised by the crime;
- fees for tax advisors, accountants, or other professionals; and
- legal expenses for the civil recovery of financial losses.
What is an example of restitution?
An example of federal restitution is coming at Elizabeth Holmes’ sentencing. Holmes is convicted on four counts of wire fraud and conspiracy. She faces a $250,000 fine per count, plus restitution, and up to 20 years in prison. Holmes’ restitution amount will be hotly contested and likely appealed.
In most fraud cases, such as Holmes’ case, where the victims of the convicted federal offense have suffered the loss of money, the sentencing judge will impose a restitution order.
Other examples of cases that involve restitution are securities fraud, investor fraud, mortgage fraud, telemarketing scams, bank fraud, and credit card fraud. Identity theft and aggravated identity theft cases also call for restitution orders.
How long is the time to pay back restitution?
Under federal law, the government can pursue unpaid restitution for 20 years after release from prison. Per the Department of Justice, restitution judgments are in effect and enforced for 20 years after the period of a person’s prison term. The restitution order is like a lien against any property or assets the defendant has or will have in the future. For validation of this law on the government’s inability to collect on a debt, see the following resources:
- Title 18 USC Code Section 3613 (b) Termination of Liability
- https://www.law.cornell.edu/uscode/text/18/3613
- “The liability to pay a fine shall terminate the later of 20 years from the entry of judgment or 20 years after the release from imprisonment of the person fined, or upon the death of the individual fined….”
Who is eligible to receive restitution?
In federal criminal cases, federal statutes largely dictate who can receive restitution proceeds. There are specific statutes that identify the
victims who are eligible to receive restitution and the losses for which the federal government may compensate victims.
Which crimes trigger restitution?
Federal statutes dictate what criminal convictions trigger an
obligation to pay restitution and the process that leads to a restitution order and enforcement. Federal financial crimes, such as wire fraud, typically require that the sentencing judge order restitution.
Moreover, the sentencing judge has broad discretion to order restitution following a conviction for any crime in the federal criminal code, under a plea agreement, or as a condition of supervised release.
How much is federal restitution?
By law, a restitution order must cover the full extent of the victims’ losses that are the proximate result of the defendant’s crime. Even if a defendant may never be able to make full restitution, the court must order restitution for the victims’ losses provable by a preponderance of the evidence. Victims are entitled to their loss amount, no more and no less.
The court will usually order a defendant to pay a restitution amount equal to the actual loss caused to victims, typically the value of the property fraudulently obtained.
US Probation Services prepares a pre sentencing report that includes a preliminary assessment of a defendant’s restitution obligations.
Who can appeal a restitution order?
Both sides, prosecutors and defendants, may appeal the court’s restitution order. Using a process called mandamus, a victim may also appeal, though it is not a common step.
*Pro-Tip: In federal court, mandamus orders appear when a party to a suit wants to appeal a judge’s decision but is blocked by rules against interlocutory appeals. Instead of appealing directly, the party sues the judge, seeking a mandamus compelling the judge to correct his earlier mistake.
Can a victim enforce a restitution order?
The Department of Justice is who acts on behalf of victims to enforce a restitution order, using all reasonable means available to the government, including its mechanisms and ability to collect fines.
Victims, for their part, may secure liens in their own names against the defendant’s property in order to secure restitution, and they may also bring other civil actions against the defendant.
What is the abatement doctrine?
The abatement doctrine provides that the death of someone appealing a criminal conviction vacates the conviction. Courts have differing views on whether the abatement doctrine cuts off a defendant’s unpaid restitution obligations under a criminal restitution order.
Why does restitution exist?
Restitution aims to make the victims of a crime whole by ordering the defendant to pay back the losses. Restitution exists to hold people partially or fully accountable for the financial losses they directly caused or the loss amount their victims suffered.
What is the process to obtain a restitution order and how is the amount of restitution determined?
18 U.S.C. § 3663(A) mandates that restitution be made to victims in nearly all white-collar cases with financial loss.
Under 18 U.S.C.§ 3663(A), a victim is a person or entity that is “directly and proximately harmed as a result of the commission” of the offense.
The sentencing court determines the amount of restitution in a case.
The method for determining the amount can be found in 18 U.S.C. § 3664 and Fed. R. Crim. P. 32(c).
Basically, these statutes and rules direct the government, at least 60 days before sentencing, to consult with all identified victims in a case to obtain a restitution amount and provide that information to the pre-trial probation officer.
Once the probation officer receives this information, they must notify all the victims involved of the amount of restitution and the date of the sentencing hearing.
After finishing its restitution investigation, probation must submit a report to inform the court of the amount owed sufficiently to issue an order.
The report (either as part of the PSI/PSR or a separate document) must include an accounting of what loss each victim suffered, provide copies of any agreement[s] that may exist concerning restitution, and provide the court with information concerning the financial circumstances of the defendant.
It is important to note that the burden of establishing the restitution amount is on the government. The court may rely on the report submitted by the probation office or take additional evidence either in writing or in a hearing concerning the amounts that should be included. In these situations, the Court will ultimately resolve any dispute that may arise by a preponderance of the evidence standard.
After calculating the total amount of restitution, the court issues an order for that amount. The order contains the client’s identifying information, case number, restitution amount, schedule of payments, any modification and/or remission, a requirement that the client keeps her address current with the U.S. Attorney’s Office, and identification of the victims.
Once the order is entered, the United States Attorney’s Office is required to file a lien against the defendant for the total amount of the restitution plus interest, which will accrue at the current legal rate.
It is important to know that a Federal Judgment is good for (1) twenty years from the date of the entry of the Judgment, or (2) 20 years after the release of the person fined or (3) after the death of the individual fined. [See 18 U.S.C. 3613(c)].
What is the effect of the restitution lien?
Once a restitution order is entered, it has the same effect as an IRS Lien and allows the government to seize property or assets of any kind without prior notice to help satisfy the judgment. Incarceration does not stop the federal process to enforce the lien.
If a defendant receives “substantial resources” from any source, including inheritance, insurance settlement, life insurance as a beneficiary, or any other windfall, those funds must apply to any outstanding restitution or fine.
Do state debt collection laws limit federal restitution?
No. Under federal law, an order of restitution is enforceable through the procedures established in 18 U.S.C. § 3613.85, which expressly preempts state law. While many states have exemptions limiting a creditor’s ability to attach or seize personal assets, those limits do not apply to federal restitution orders. Federal prosecutors can attempt to reach even state law homestead exemptions and retirement accounts.
What about restitution payments while on supervised release?
The payment of outstanding restitution is always a condition of a person’s federal probation or supervised release. Failure to make restitution payments as ordered by the court may lead to revocation of supervised release as well as other penalties.
Even after supervised release is over, a defendant must continue to make restitution payments. Non-payment can result in a person’s return to prison and other sanctions.
What is the Financial Litigation Unit?
The Financial Litigation Unit is the US Attorney’s Office division charged with continuing enforcement of restitution obligations after the period of supervised release ends.
When a person’s period of supervised release is close to expiring, the Financial Litigation Unit will request a detailed financial disclosure statement. These disclosures, made under penalty of perjury, help the US Attorney’s Officer determine the amount of monthly restitution payments a person must continue to make after completing their federal probation or supervised release.
The Financial Litigation Unit reviews the defendant’s finances and ability to pay anew. They are not bound to set a person’s post-probation payments by the order governing payments while on supervised release.
They will adjust monthly restitution payments regularly based on the defendant’s income and ability to pay.
It is in a defendant’s best interest to reach an agreement with the Financial Litigation Unit and abide by any restitution payment agreement. Otherwise, the government is free to take any collection action it deems appropriate against the defendant. Failure to make restitution payments as agreed means the federal government can take action to collect, which may include:
- garnishing wages,
- levying against any of the defendant’s property,
- seizing bank accounts or other assets where the defendant has an ownership interest.
As long as the defendant abides by their agreement with the federal government, the government will refrain from pursuing any other collection action.
Does filing for bankruptcy discharge federal restitution debts?
Filing for bankruptcy to avoid paying restitution does not work. A bankruptcy filing does not discharge federal restitution obligations.
It is generally understood that federal restitution obligations are “nondischargeable” in bankruptcy. Nondischargeable debt is a type of debt that one cannot eliminate through a bankruptcy proceeding, including student loans, federal, state, and local taxes, money borrowed on a credit card to pay those taxes, and child support and alimony.
Can people negotiate or settle restitution orders?
Under certain circumstances, defendants can negotiate to settle federal restitution orders following their period of probation or supervised release. However, since courts must by law order an amount of restitution that covers the damage or loss caused by the defendant’s crimes, It is difficult for the defendant to negotiate for less than the loss amount. The reason is that as the Department of Justice unequivocally states, federal law mandates that a defendant pay back restitution when there is a loss to the victim.
Settling restitution orders will benefit from the expertise of legal counsel and mitigation experts.
CONCLUSION
Federal criminal restitution is a serious matter with long-term consequences for people unable to satisfy the judgment. These long-term consequences can directly affect a person’s estate and retirement plans.
The federal government can enforce a restitution order for 20 years and seize the person’s assets to satisfy restitution. People must take proactive steps before sentencing or as early as possible to mitigate the consequences of a 20-year long restitution order.
