Sergio Lagos ran a trucking company that tricked a credit provider into providing tens of millions of dollars of loans. Lagos’ company, USA Dry Van Logistics, altered its records to make the company look to be worth much more than it was. General Electric Capital Corporation (GECC), not recognizing the fraud, incurred around $15 million in losses.
Around $5 million of the losses are at issue here. The U.S. government prosecuted Lagos, and Lagos admitted to the fraud. Criminal law proceedings are geared primarily towards punishing the offender because they are brought by the government on behalf of society as a whole. They are not as focused on compensating the victim as civil cases are. Nevertheless, criminal law provisions allow for victims to be compensated to an extent.
The issue here is whether certain losses suffered by GECC are covered (i.e. payable to Lagos) under a particular law: the Mandatory Victims Restitution Act.
What were GECC’s losses for?
First and primarily, GECC lost $11 million in loans it provided to Dry Van that were never repaid. Criminal law definitely will order Lagos to pay GECC back for that. That’s not in dispute.
The contested losses, however, were incurred more indirectly by GECC as a result of Lagos’ fraud. Because of Lagos’ fraud, GECC ended up conducting an internal investigation. It hired lawyers and consultants to try to figure out what went wrong and the extent of the problem. Also as a result of the fraud, Dry Van went bankrupt and GECC was made a creditor. GECC incurred costs (in hiring lawyers, etc.) in attending the bankruptcy proceedings.
This case is about whether the losses incurred for the internal investigation and the bankruptcy proceedings are covered by the law allowing for compensation.
The Court’s interpretation
The relevant provision of the MVRA says a victim can get “lost income and necessary child care, transportation, and other expenses incurred during participation in the investigation or prosecution of the offense or attendance at proceedings related to the offense.”
According to the Court, the provision does not cover the broad set of losses that would include the disputed costs here. The investigations covered by the provision are only government investigations. Furthermore, the costs listed as examples (lost income, necessary child care, and transportation costs) are sensibly applied to a person’s attendance at a government investigation, while the types of costs incurred under the broader view advocated by the U.S. aren’t exemplified at all.
Here is a link to the Court’s opinion.