In a recent ruling, the Second Circuit affirmed U.S. District Judge Kiyo Matsumoto’s ruling that disgraced former Katten Muchin Rosenman LLP partner Evan Greebel’s 401(k) accounts could be garnished by the government to pay a $10.4 million restitution order. Greebel, former attorney to Martin Shkreli, was convicted in 2017 for helping Shkreli plunder funds from Retrophin Inc. to satisfy hedge fund debts and for manipulating stock prices of Shkreli’s drug company. Greebel was sentenced to 18 months in prison and ordered to pay $10.4 million in restitution and forfeit more than $116,000.

The Second Circuit upheld both Greebel’s conviction and Judge Matsumoto’s decision that Greebel’s retirement accounts from Katten as well as his accounts from his time at Fried Frank Harris Shriver & Jacobson LLP could be collected to satisfy the restitution order. The three-judge panel reasoned that the Mandatory Victims Restitution Act gives the government the ability to garnish the funds because the Act explicitly states that criminal restitution orders may be enforced against “all property or rights to property,” even those funds subject to ERISA’s prohibitions on disbursing retirement funds to third parties. The panel was unconvinced by Greebel’s argument that he could not withdraw funds until he reached retirement age and reasoned that, because he has a right to withdraw the funds in those accounts, so does the government.

However, the Second Circuit did remand the case to the lower court to consider the tax implications of the ruling. Judge Matsumoto will consider whether the IRS’ potential 10% tax penalty for early withdrawal will impact the amount of funds subject to the garnishment and, if so, the amount subject to garnishment given those tax implications. The panel suggested that Judge Matsumoto may want to order the liquidation of Greebel’s accounts, while setting aside a portion of the funds in escrow for possible tax consequences.

While this ruling occurred in a securities fraud context, it would likely apply in any fraud context, including healthcare fraud. It is also an important reminder for those facing criminal investigations and considering plea agreements with the government to protect retirement funds to the extent possible before final judgment.