United States v. DeMizio, No. 12-1293 (2d Cir. Jan. 28, 2014) (Newman, Kearse, and Livingston), available here
Darin DeMizio was convicted in 2009 of conspiracy to commit honest-services wire fraud and securities fraud and of making a false statement. The government’s theory on the conspiracy count was that DeMizio caused his employer, Morgan Stanley, to conduct stock-loan transactions through intermediary firms in a manner that, at Morgan Stanley’s expense, caused large sums to be paid to DeMizio’s brother and father for little or no work.
On appeal, the defendant argued that, under the Supreme Court’s intervening decision in Skilling v. United States, 130 S. Ct. 2896, 2931 (2010), which narrowly interpreted the scope of the federal honest-services wire fraud statute, (1) the evidence was insufficient to support his conspiracy conviction; or (2) the jury instructions were erroneous and required a new trial on the conspiracy count.
The Circuit rejected both claims. First, the Court disagreed with the defendant’s argument that kickbacks do not include payments made to entities other than the employee who steers his employer’s business to a third party in exchange for those payments. The Court declared: “Although the kickback amount frequently is paid directly to the employee who steered the contract, the scheme is no less a kickback scheme when the employee directs the third party to share its profits with an entity designated by the employee in which the employee has an interest.” Accordingly, the government need not prove that the defendant employee himself or herself received the payoff. In Demizio’s case, it was sufficient for the government to prove that the defendant directed Morgan Stanley business to companies that agreed to pay commissions to his father or brother, “in whom DeMizio plainly had an interest.”
The Court also rejected the defendant’s argument that a private-sector scheme involves kickbacks only if the payoff recipient does not perform any work in return for being paid. “Although often the recipient does not in fact do any work, the scheme qualifies as a kickback scheme where the recipient receives inordinate amounts of money for doing minimal work.”
The Court then addressed the defendant’s challenge to the jury instructions. The Court agreed that the trial court erred by not instructing the jury that, to find the defendant guilty of conspiracy to commit honest-services wire fraud, it must find that his scheme involved either bribery or kickbacks. But the Court held that the error was harmless because the case was tried entirely on the theory that the scheme involved kickbacks, the court did not instruct the jury as to any other theory, and the evidence was ample to support findings of kickbacks.