Spending Spree Deemed Legal, yet 'Reprehensible'
PHILADELPHIA (CN) - A restitution order did not require full turnover of an inheritance, the 3rd Circuit ruled, reversing a ruling that would have sent a fraudster back to prison for six months.
The case stems from David Bagdy's plea of guilty to wire fraud arising from his scheme to embezzle hundreds of thousands of dollars from a small, family-owned lumber business that employed him as a consultant. Bagdy was sentenced to 36 months in prison, given three years of supervised release and ordered to pay $566,000 in restitution for his crimes, with at least 10 percent of his gross monthly income going toward said payments.
In March 2011, nearly a year after Bagdy got out of prison, he received an inheritance of more than $400,000 from his aunt. In paying just $41,000 of that amount toward restitution, Bagdy said he fulfilled his legal requirements. Bagdy did, however, pay an additional $60,000 toward restitution and then entered into settlement negotiations with the government over the inheritance.
The government worried, however, that Bagdy requested extensions during the proceedings as a stall tactic to deplete his inheritance. When a hearing finally occurred in December 2012, Bagdy has spent all but $52,000 of the money.
Prosecutors also discovered several unreported expenditures during this time and argued that Bagdy's expenditure of more than $280,000 of his inheritance in less than a year constituted bad faith. The District Court agreed and sentenced Bagdy to six months of incarceration.
Though a three-judge panel with the 3rd Circuit deemed Bagdy's conduct "reprehensible," the appellate judges found it improper Thursday to revoke his supervised release because "Bagdy did not violate a specific condition of supervised release in relation to the restitution obligation."
"Bagdy's failure to preserve a greater portion of his inheritance for satisfaction of the restitution order was not, on its own, a violation of the conditions of supervised release," Judge Thomas Vanaskie wrote for the court.
The 1983 Supreme Court ruling in Bearden v. Georgia authorizes federal courts to revoke supervised release when an offender fails to act in good faith with respect to paying restitution, but the panel deemed this inapplicable to Bagdy.
"What the government's argument ignores, however, is that there was a violation of the terms of supervision in Bearden; the offender had not made payments according to the court-imposed payment schedule," Vanaskie wrote.
"There is nothing to suggest that Bagdy failed to make payment as directed by his probation officer," the judge added.
Bagdy and the government had reached an informal agreement in early 2012 that said Bagdy "would not deplete his inheritance prior to reaching a settlement with the government," but Vanaskie found that, "even if Bagdy's conduct breached such an agreement, honoring that agreement was not a condition of supervised release."
The panel remanded the case back to the District Court for further proceedings, noting "the record suggests that Bagdy's conduct may have violated other conditions of supervised release."