An attempt to limit the definition of kickbacks in the federal theft of honest services statute was rejected Tuesday by the U.S. Court of Appeals for the Second Circuit.

The panel said the statute’s definition, set forth by the U.S. Supreme Court in the case of Jeffrey Skilling, does nothing to help Darin DeMizio, a former Morgan Stanley & Co. stock-loan specialist who had third parties and companies pay his father and brother more than $1.5 million in fees in return for Morgan Stanley business.

DeMizio claimed that he did not violate the theft of honest services law, 18 U.S.C. §1346, because of the Supreme Court’s 2010 holding in United States v. Skilling, 130 S.Ct. 2896 (2010), where the court issued a narrow interpretation of the scope of the law.

DeMizio claimed that interpretation meant kickbacks don’t include third-party payments to people other than himself, or payments to people who perform a minimal amount of work, as was the case with his brother, Craig DeMizio, and their father, the late Robert DeMizio.

But in United States v. DeMizio, 12-1293, Judges Jon Newman (See Profile), Amalya Kearse (See Profile) and Debra Ann Livingston (See Profile) found those claims without merit. In an opinion written by Kearse, the court declined to buy DeMizio’s argument that the statute should largely be limited to theft of honest services by public officials.

DeMizio, a Morgan Stanley employee for 13 years, was head of the firm’s domestic stock-loan desk from 2001 to 2005 at a time when the FBI was investigating whether “finders”—people who locate stockholders willing to loan stock for short sale transactions—were paying kickbacks to brokerage firm employees who worked on securities lending desks.

The FBI interviewed DeMizio twice in 2007; he was indicted in 2008. The indictment accused DeMizio of steering money, typically through fees or stock-loan “rebates,” to family members, despite Morgan Stanley’s practice of not paying finder fees for such transactions.

At a 2009 trial before Eastern District Judge John Gleeson (See Profile), the prosecution presented evidence that DeMizio caused Morgan Stanley to conduct stock-loan transactions through intermediary firms which, at Morgan Stanley’s expense, paid Robert and Craig DeMizio for doing little or no work.

DeMizio was convicted of conspiracy to commit honest-services wire fraud and securities fraud and making a false statement during an FBI interview. He was sentenced to three years and two months in prison and ordered to pay $1.2 million in restitution.

While DeMizio’s appeal was pending, the Supreme Court issued the Skilling opinion, so the Second Circuit remanded to Gleeson, who held that the convictions must stand even in light of Skilling. The parties then returned to the Second Circuit, where oral arguments were heard on May 20, 2013.

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.