Lagos v. United States
The Supreme Court ruled that a federal restitution law only requires a convicted fraudster to reimburse a victim for costs tied to government investigations and criminal court proceedings, not for the victim's own private investigation or its participation in bankruptcy litigation.
The decision means a lender that spent nearly $5 million investigating fraud and fighting in bankruptcy court on its own initiative cannot recover those costs through the criminal restitution order, narrowing what victims can automatically collect after a fraud conviction.
How it got here: A federal trial court ordered Lagos to pay restitution for the lender's private investigation and bankruptcy costs; the Fifth Circuit affirmed, and the Supreme Court agreed to resolve a circuit split.
The Case in Depth
What happened
Sergio Lagos used a company he controlled to defraud a lender, General Electric Capital Corporation, of tens of millions of dollars through fake invoices used as loan collateral. When the fraud surfaced, the company went bankrupt, and the lender spent nearly $5 million on its own investigation and on participating in the bankruptcy case. Lagos later pleaded guilty to wire fraud.
The question before the Court
When a fraud victim has to pay restitution costs, does the law require the wrongdoer to cover the victim's own private investigation and bankruptcy legal fees?
Why it matters
Crime victims, especially businesses that hire lawyers, accountants, and investigators to look into fraud on their own, will not automatically get those costs back through a criminal restitution order. They may still sue civilly, but restitution orders in fraud and similar cases will now cover a narrower set of expenses tied specifically to government investigations and criminal proceedings.
What changes now
The case is sent back to the lower courts, where the restitution order will be recalculated to exclude the lender's private investigation and bankruptcy litigation costs. This is a final merits ruling on the meaning of the restitution statute, though the Court left open whether costs of a private investigation conducted at the government's request or invitation would be treated differently.
What this does not decide
The Court did not decide whether restitution would cover a private investigation that a victim conducted at the government's invitation or request, since GE's investigation was conducted entirely on its own initiative before any government involvement.
How the Court got there
The legal reasoning, step by step
- The Court read the statute's phrase 'investigation or prosecution' together, reasoning that because 'prosecution' clearly means a government criminal prosecution, the linked word 'investigation' must likewise mean a government criminal investigation, not a private one.
- The same logic applied to the word 'proceedings,' which the Court read as limited to criminal proceedings rather than any civil or bankruptcy proceeding a victim might join.
- The Court noted that the statute describes a victim's role using words like 'participation' in an investigation and 'attendance' at proceedings, language that fits a government-run process but reads oddly for a victim's own private investigation or its role as a party in bankruptcy litigation.
- Applying the interpretive principle that a word is known by the company it keeps, the Court observed that the statute's listed expenses (lost income, child care, transportation) match costs from missing work to help a government probe, not the professional fees typical of private investigations or civil litigation.
- The Court also weighed practical concerns, finding that a broader reading would force judges to resolve difficult, fact-heavy disputes over whether private investigation costs were 'necessary' or whether various proceedings were sufficiently 'related to the offense.'
- Concluding that the narrower reading better fit the statute's specific, limited list of covered expenses compared to broader restitution statutes elsewhere in federal law, the Court held that costs of a victim's self-initiated private investigation are not covered, even if the victim later shared results with the government.