Fraud Perpetrator Not Responsible for Cost of GE Capital Investigation

According to a recent decision handed down by the U.S. Supreme Court in the court of appeals for the fifth circuit, petitioner Sergio Fernando Lagos, a former executive with a controlling interest in Dry Van Logistics, who was convicted of defrauding GE Capital by borrowing against false invoices, won a $5 million restitution challenge.

According to the court documents, Lagos was ordered to pay $5 million as restitution to reimburse GE for expenses GE incurred during its own fraud investigation which consisted primarily of professional fees for attorneys, accountants and consultants. The $5 million in question was in addition to the amount of loss suffered by GE Capital as a result of the aforementioned fraud which was not challenged. The court documents show GE Capital obtained a $30+ million judgement against Lagos in connection with the fraud.

The government argued that the District Court must order restitution of this amount under the Mandatory Victims Restitution Act because these sums were “necessary… other expenses incurred during participation in the investigation…of the offense or attendance at proceedings related to the offense.” The District Court agreed as did the U.S. Court of Appeals for the Fifth Circuit.

In its opinion, the Supreme Court ruled GE Capital was not entitled to be reimbursed since it was a private investigation versus a government and/or criminal investigation given the scope of the words used in the outline of the Mandatory Victims Restitution Act.

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