In the case of Lagos vs. the United States, the U.S. Supreme Court ruled that Sergio Fernando Lagos, former CEO of trucking company USA Dry Van Logistics, does not have to reimburse GE Capital the $5 million the company paid to investigate his fraudulent activities. Lagos pled guilty to stealing more than $30 million from GE and was convicted of defrauding GE Capital by borrowing against false invoices.
After Lagos informed the company of the fraud, GE Capital began an internal investigation. As part of that investigation, GE Capital hired forensic experts, financial consultants and several law firms, including two high-powered firms that provided GE Capital with legal advice related to the fraud and represented the company in Dry Van’s bankruptcy proceedings. The costs of GE’s internal investigation and the legal representation totaled almost $5 million.
At sentencing, the court ordered Lagos to reimburse the company for those costs as part of a restitution order under the Mandatory Victims Restitution Act (MVRT). Lagos appealed before the U.S. Court of Appeals for the Fifth District, which upheld the lower court decision. Ultimately, the Supreme Court agreed to hear the case.
The Supreme Court overruled the lower courts, ruling the MVRA, as it stands, contains a provision that allows corporations to be reimbursed for corporate internal investigations and attorney’s fees under a civil proceeding and not, as GE did here, on the criminal sentencing process.