Circuit Denies Bid to Restrict Definition of Kickbacks

, New York Law Journal


In her opinion Tuesday, Kearse said the court rejected "DeMizio's argument that kickbacks (a) 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, and (b) do not include payments of large sums of money to those recipients so long as they perform some minimal amount of work."

"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," she said.

In light of "the failure of DeMizio to cite any authority to support his constrained conception of kickbacks, we reject his contention that a payment in a private-sector scheme does not qualify as a kickback unless the defendant employee himself or herself receives the payoff," the court held.

Kearse said there was ample evidence at trial to show that DeMizio benefitted from the payments.

"The evidence overwhelmingly established that DeMizio directed Morgan Stanley stock-loan business to companies that agreed to pay commissions to his father and/or brother, in whom DeMizio plainly had an interest," she said.

And the court found "meritless" DeMizio's contention "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," she said.

Kearse and her fellow judges agreed with Gleeson that the "any work" rule advocated by DeMizio would be "untenable" because it would allow potential fraudsters to "shield themselves from criminal liability merely by performing some token labor in exchange for what would otherwise be an illegal kickback."

Assistant U.S. Attorney Winston Paes argued for the government.

David Spears of Dysard, Spears & Imes argued for DeMizio.

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