The U.S. Court of Appeals for the Second Circuit has vacated a lower court’s decision that blocked a negotiated restitution agreement between federal prosecutors and Evan Greebel, the former legal counsel to disgraced pharmaceutical executive Martin Shkreli. The appellate court ruled on Wednesday that the trial judge committed a legal error by rejecting a garnishment plan intended to utilize Greebel’s retirement funds to satisfy a portion of his multi-million dollar restitution debt while mitigating significant tax penalties that would otherwise diminish the recovery available to victims.
The decision marks a pivotal moment in the decade-long legal saga surrounding the collapse of Retrophin Inc. and the subsequent criminal prosecutions of Shkreli and Greebel. By allowing the garnishment of 401(k) assets under the Mandatory Victims Restitution Act (MVRA), the Second Circuit has reaffirmed the government’s broad authority to reach protected retirement accounts to compensate victims of federal crimes, even when such actions conflict with the anti-alienation provisions typically governing such funds.
The Appellate Decision and Judicial Error
The core of the dispute centered on the mechanics of how Evan Greebel, a former partner at the law firm Kaye Scholer LLP, would pay toward the $10.4 million restitution order imposed following his 2017 conviction. Greebel and the U.S. Department of Justice had reached a consensus to tap into his vested 401(k) account. However, the district court judge overseeing the enforcement of the judgment had previously balked at the arrangement, expressing concerns over the procedural path taken to access the funds and the potential for the deal to appear as though the court was assisting a convicted felon in avoiding federal tax liabilities.
In its Wednesday ruling, the Second Circuit panel found that the district court’s rejection of the deal was based on a misinterpretation of the court’s discretion under the MVRA. The appellate court noted that the MVRA serves a primary purpose: to ensure that victims are made whole as quickly and efficiently as possible. The panel reasoned that because the government and the defendant had agreed on a method that maximized the funds available for restitution by avoiding the 10% early withdrawal penalty and other immediate tax erosions, the trial court should have facilitated the agreement rather than obstructing it.
The Second Circuit emphasized that when the government seeks to garnish an account under the MVRA, the "anti-alienation" protections of the Employee Retirement Income Security Act (ERISA) are superseded. This allows the government to "step into the shoes" of the defendant, exercising the defendant’s right to withdraw funds to satisfy a criminal fine or restitution order.
The Underlying Fraud: The Shkreli-Greebel Partnership
To understand the weight of the Second Circuit’s ruling, one must look back at the complex fraudulent scheme that led to Greebel’s downfall. Evan Greebel served as outside counsel to Retrophin, a biopharmaceutical company founded by Martin Shkreli. In 2017, a jury found Greebel guilty of conspiracy to commit wire fraud and conspiracy to commit securities fraud.
The prosecution successfully argued that Greebel was not merely a passive advisor but a key architect in Shkreli’s efforts to loot Retrophin. The scheme involved using Retrophin’s assets to pay off defrauded investors in Shkreli’s failed hedge funds, MSMB Capital and MSMB Healthcare. To disguise these payments, Greebel helped draft "sham consulting agreements" and settlement deals that characterized the payments as legitimate business expenses for Retrophin, when in reality, the recipients had provided no services to the company.
While Shkreli was the public face of the scandal—earning the moniker "Pharma Bro" for his unapologetic public persona and price-gouging tactics—the government characterized Greebel as the sophisticated legal mind who provided the "veneer of legitimacy" necessary to carry out the fraud. Following the trial, Greebel was sentenced to 18 months in prison, a term he has since completed, though the financial weight of his conviction remains a central focus of the legal system.
The Restitution Mandate and the MVRA
Under the Mandatory Victims Restitution Act of 1996, federal courts are required to order full restitution to the victims of certain crimes, including fraud and other offenses against property. Unlike fines, which are punitive and paid to the government, restitution is intended to compensate the victims for their actual losses.
In the Greebel case, the court ordered a joint and several restitution amount of approximately $10.4 million, shared with Shkreli. However, collecting such vast sums from individuals whose primary assets may be tied up in protected accounts or have been dissipated is a perennial challenge for the Department of Justice.
Data from the Government Accountability Office (GAO) indicates that the vast majority of federal criminal restitution remains uncollected. In many years, the outstanding balance of criminal debt exceeds $100 billion, with a significant portion deemed "uncollectible." This context underscores why the government was eager to secure the 401(k) deal with Greebel; retirement accounts often represent one of the few tangible pools of capital available to satisfy judgments against white-collar defendants.
ERISA and the Protection of Retirement Assets
The conflict in this case highlighted a tension between two federal statutes: the MVRA and ERISA. Generally, ERISA protects 401(k) and pension plans from being seized by creditors through "anti-alienation" provisions, ensuring that individuals have a financial safety net for their senior years.
However, the Second Circuit clarified that the MVRA functions as a "statutory exception" to ERISA. Title 18, Section 3613 of the U.S. Code explicitly states that the government may enforce a judgment imposing a fine or restitution against all property of the person fined, "notwithstanding any other Federal law." The court’s decision on Wednesday reinforces the precedent that when a defendant’s liberty or property is at stake following a criminal conviction, the policy goal of victim compensation takes precedence over the policy goal of retirement security.
A Chronology of the Case: From Indictment to Appeal
The legal path leading to this week’s appellate ruling has spanned over a decade:
- December 2015: Evan Greebel and Martin Shkreli are indicted on federal charges related to the management of MSMB Capital and Retrophin.
- December 2017: After an eleven-week trial, a jury convicts Greebel on two counts of conspiracy.
- August 2018: U.S. District Judge Kiyo Matsumoto sentences Greebel to 18 months in prison and orders him to pay $10.4 million in restitution and $116,000 in forfeiture.
- 2019–2021: Greebel exhausts his direct appeals regarding his conviction and sentence. He serves his prison term and begins his term of supervised release.
- 2023–2024: The government initiates aggressive collection efforts. Negotiations begin regarding the liquidation of Greebel’s 401(k) assets.
- 2025: A district court judge rejects the proposed garnishment deal, prompting the government and Greebel to appeal to the Second Circuit.
- July 29, 2026: The Second Circuit vacates the district court’s order, backing the 401(k) restitution deal.
Financial Implications and Tax Considerations
A significant portion of the legal maneuvering in this appeal concerned the Internal Revenue Code. Specifically, Section 72(t) imposes a 10% additional tax on early distributions from qualified retirement plans. For a high-net-worth individual or someone with a substantial law-firm-funded 401(k) like Greebel, this penalty, combined with standard income tax, could effectively halve the amount of money actually reaching the victims.
By structuring the transfer as a court-ordered garnishment under the MVRA, the parties sought to navigate the tax code in a way that would classify the distribution as a "levy" or an involuntary transfer. The Second Circuit’s endorsement of this "deal" suggests that the court views the preservation of the capital for the victims as more important than the mechanical application of tax penalties that would only serve to divert funds from the defrauded parties to the Treasury.
The ruling essentially validates a "win-win" scenario for the prosecution and the victims: the defendant’s debt is reduced by the full value of the account, and the victims receive a larger payout than they would have if the defendant had withdrawn the money voluntarily.
Broader Legal Precedents and Future Enforcement
Legal analysts suggest that the Second Circuit’s decision will have a ripple effect across other white-collar cases. "This ruling provides a clear roadmap for the Department of Justice to pursue retirement assets more aggressively," said Marcus Thorne, a former federal prosecutor not involved in the case. "It removes the ambiguity that some district judges felt regarding their role in these settlements. If the government and the defendant agree on a way to liquidate a 401(k) for restitution, the courts should generally stay out of the way."
Furthermore, the decision highlights the ongoing shift in judicial attitudes toward "architects" of fraud. While Greebel did not personally pocket the millions that Shkreli did, his role in facilitating the movement of money was deemed sufficient to hold him financially responsible for the entirety of the loss. The ability of the government to now reach into his professional retirement savings serves as a stark warning to corporate attorneys regarding the long-term financial risks of aiding in fraudulent schemes.
Official Responses and Reactions
While representatives for the U.S. Attorney’s Office for the Eastern District of New York declined to comment on the specific figures involved, a spokesperson noted that the office remains "committed to using every tool at our disposal to ensure that victims of financial crimes receive the compensation they are owed."
Counsel for Evan Greebel issued a brief statement following the ruling, noting that their client has "consistently sought to resolve his financial obligations in a manner that is both responsible and compliant with the law." The defense had argued throughout the appeal that the district court’s rejection of the deal had created an unnecessary "financial purgatory" where the funds were locked away, benefiting neither the victims nor the defendant.
As the case returns to the district court, the judge will be required to enter the garnishment order in accordance with the Second Circuit’s mandate. This will likely result in the immediate transfer of several million dollars from Greebel’s former law firm retirement plan to the court’s registry for distribution to the victims of the Retrophin fraud.
The ruling stands as a testament to the enduring reach of the MVRA and the federal government’s persistence in chasing restitution long after the prison gates have closed. For the victims of the Shkreli-era frauds, it represents a rare, tangible step toward financial recovery in a case defined by its complexity and high-profile controversy.
