BROOKLYN, N.Y. (CN) – Prosecutors have one more chance to calculate proper restitution owed by a man who pleaded guilty to making millions on securities fraud, a federal judge ruled. But if they overestimate for a fourth time, victims won’t get a dime.
Canadian-born stock promoter Myron Gushlak pleaded guilty in 2003 to conspiring to manipulate the stock price of the communications service GlobalNet and other publicly traded companies between January 1999 and December 2000.
At his Nov. 18 sentencing, he was sentenced to six years in prison and a $25 million fine, and prosecutors submitted a restitution estimate of approximately $20.4 million about a month later.
It was the first of three estimates that U.S. District Judge Nicholas Garaufis dismissed as faulty.
If they fall short again, Gushlak will not have to pay any restitution, the judge warned.
“This would be unfortunate,” the 16-page order states. “Gushlak has admitted to stealing from a large number of people what likely amounted to a significant portion of their personal wealth.”
Garaufis has criticized prosecutors for failing to show trading records or describe the methodology they used in reaching restitution estimates.
On Jan. 27, the government included a declaration by Financial Industry Regulatory Authority analyst Peter Melley, who described how he used the trading records to calculate victim losses. They also submitted spreadsheets of securities trading data for the judge to inspect.
But these calculations were faulty because they assumed “that GlobalNet had literally no intrinsic value,” Garaufis wrote.
On Tuesday, the judge ruled that the latest attempt failed because the government mistakenly argued that Gushlak’s fraud was the sole factor behind GlobalNet’s stock decline.
“Gushlak’s guilty plea establishes only transaction causation – the causal link between the fraud and the GlobalNet stock purchasers’ decisions to purchase GlobalNet stock,” Garaufis wrote. “The plea does not establish loss causation – a causal link between the fraud and the decline in GlobalNet’s share price.”
Garaufis gave prosecutors two pages of suggestions that might help their last attempt, but he acknowledged that even case law shows that such calculations are not an “exact science.”
“While determining the value of securities in the absence of fraud is ‘extremely difficult,’  and ‘cannot be an exact science,’  the Government should review the case law that instructs how it must be done, and strive diligently to carry its burden under 18 U.S. C. § 3664(e) to prove victim losses,” Garaufis wrote.
Prosecutors must submit evidence on Aug. 22, and discuss the evidence at a Sept. 6 hearing.