USA v. Thomas Melvin

Filing

Opinion issued by court as to Appellant Thomas D. Melvin. Decision: Affirmed. Opinion type: Published. Opinion method: Per Curiam. The opinion is also available through the Court's Opinions page at this link http://www.ca11.uscourts.gov/opinions.

Case: 16-12061

Date Filed: 02/03/2017

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[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
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No. 16-12061
Non-Argument Calendar
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D.C. Docket No. 3:14-cr-00022-TCB-RGV-1

UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
THOMAS D. MELVIN,
Defendant-Appellant.
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Appeal from the United States District Court
for the Northern District of Georgia
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(February 3, 2017)

Before TJOFLAT, WILLIAM PRYOR, and EDMONDSON, Circuit Judges.

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PER CURIAM:

Thomas Melvin appeals his convictions on six counts of security fraud, in
violation of 18 U.S.C. § 1348, after he pleaded guilty pursuant to a written plea
agreement. On appeal, Melvin challenges only the district court’s denial of his
motion to dismiss the indictment on double jeopardy grounds. 1 No reversible error
has been shown; we affirm.
Briefly stated, Melvin -- a certified public accountant -- disclosed
confidential insider information he received from a client about the pending sale of
a publicly-traded company. Although Melvin purchased no securities in his own
name, he enabled his tippees to make profitable purchases of stock for their own
benefit.
As a result of Melvin’s conduct, the United States Securities and Exchange
Commission (“SEC”) filed a civil suit against Melvin for insider trading, in
violation of Sections 10(b) and 14(e) of the Securities and Exchange Act of 1934,
15 U.S.C. § 78a et seq. (“Exchange Act”). Melvin ultimately settled with the SEC
and agreed to pay disgorgement totaling $68,826 (constituting the unlawful profits

1

As part of Melvin’s plea agreement, Melvin agreed to a limited waiver of appeal but retained
expressly his right to appeal the denial of his motion to dismiss the indictment based on double
jeopardy.
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of two of his four direct tippees plus prejudgment interest), 2 and a civil penalty of
$108,930, pursuant to 15 U.S.C. § 78u-1.
Following entry of final judgment in the civil proceeding, the SEC also
instituted an administrative proceeding against Melvin. The administrative law
judge issued an order disqualifying Melvin permanently from practicing
accountancy before the SEC, pursuant to 15 U.S.C. § 78d-3, and 17 C.F.R.
§ 201.102(e)(3)(iii).
Meanwhile, the government instituted the criminal proceeding underlying
this appeal, based on the same conduct for which Melvin was held responsible in
his civil and administrative proceedings. Pertinent to this appeal, Melvin moved to
dismiss the indictment, contending that -- in the light of the earlier disgorgement,
civil penalty, and professional disqualification -- further criminal prosecution was
barred by the Fifth Amendment’s Double Jeopardy Clause. The district court
denied the motion. Melvin then pleaded guilty pursuant to a plea agreement.
We review de novo possible violations of the Double Jeopardy Clause.
Grossfeld v. Commodity Futures Trading Comm’n, 137 F.3d 1300, 1302 (11th Cir.
1998).
The Double Jeopardy Clause provides that no “person [shall] be subject for
the same offence to be twice put in jeopardy of life or limb.” U.S. Const., amend.
2

Melvin’s settlement provided that Melvin was to be held jointly and severally liable with the
two tippees for the disgorgement amounts.
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V. “[T]he Double Jeopardy Clause does not prohibit the imposition of any
additional sanction that could, in common parlance, be described as punishment.”
Hudson v. United States, 118 S. Ct. 488, 493 (1997). Instead, it “protects only
against the imposition of multiple criminal punishments for the same offense.” Id.
(emphasis in original).
“Whether a particular punishment is criminal or civil is, at least initially, a
matter of statutory construction.” Id. We first look to see whether the legislature
has indicated -- either expressly or impliedly -- whether the punishment is meant to
be civil or criminal. Id. But even where the legislature has intended to establish a
civil remedy, we next consider “whether the statutory scheme was so punitive
either in purpose or effect as to transform what was clearly intended as a civil
remedy into a criminal penalty.” Id. (quotations and citations omitted).
The Supreme Court has identified several factors that serve as “useful
guideposts” for conducting this second inquiry. The guideposts include these
factors: (1) “whether the sanction involves an affirmative disability or restraint”;
(2) “whether it has historically been regarded as a punishment”; (3) “whether it
comes into play only on a finding of scienter”; (4) “whether its operation will
promote the traditional aims of punishment -- retribution and deterrence”; (5)
“whether the behavior to which it applies is already a crime”; (6) “whether an
alternative purpose to which it may rationally be connected is assignable for it”;
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and (7) “whether it appears excessive in relation to the alternative purpose
assigned.” Id. The Supreme Court has stressed that “these factors must be
considered in relation to the statute on its face,” and that “only the clearest proof
will suffice to override legislative intent and transform what has been denominated
a civil remedy into a criminal penalty.” 3 See id.; United States v. Ward, 100 S. Ct.
2636, 2641 (1980).
About the first inquiry, the monetary penalties provided by Congress in 15
U.S.C. § 78u-1 are labeled expressly as “civil penalties.” Congress has also
authorized the SEC, under certain situations, to deny a person permanently “the
privilege of appearing or practicing before the Commission.” 15 U.S.C. § 78d3(a)(3). Although the penalties provided for under section 78d-3 contain no
express “civil” designation, that Congress conferred upon the SEC -- an
administrative agency -- the authority to impose such a penalty “is prima facie
evidence that Congress intended to provide for a civil sanction.” See Hudson, 118
S. Ct. at 495.

3

On appeal, Melvin argues in large part that the district court erred in failing to consider whether
the penalties -- as applied to Melvin (or to a class of similarly-situated defendants who reaped no
personal profit as a result of the conduct) -- were punitive in effect. This argument is without
merit. The law is clear that, in considering whether a nominally civil remedy rises to the level of
a criminal penalty for purposes of the Double Jeopardy Clause, we consider only the statutory
language, and not the specific penalties as applied in a particular case. See Hudson, 118 S. Ct. at
496 (“we look only to ‘the statute on its face’ to determine whether a penalty is criminal in
nature.”); Grossfeld, 137 F.3d at 1303 n.7 (“Hudson makes it clear that we are to examine the
statute on its face.”).
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Having determined that Congress intended the penalties for violating the
Exchange Act to be civil in nature, we now determine -- looking only at the
statutory language -- whether those penalties are “so punitive in form and effect as
to render them criminal despite Congress’ intent to the contrary.” See id. First, the
penalties at issue -- disgorgement, a monetary penalty, and professional
disqualification from practicing before the SEC -- constitute no “affirmative
disability or restraint” approaching imprisonment. See id. at 496 (concluding that
neither money penalties nor debarment involved an “affirmative disability or
restraint,” and explaining that debarment was “certainly nothing approaching the
‘infamous punishment’ of imprisonment.”). About the second factor, the Supreme
Court has also said that “neither money penalties nor debarment have historically
been viewed as punishment.” See id. at 495-96.
Third, none of the penalties “comes into play only on a finding of scienter.”
The SEC may impose a monetary penalty against a person whom the SEC
determines has merely “violated” the Exchange Act. 15 U.S.C. § 78u-1(a)(1).
Although the amount of the penalty imposed is to be determined “in the light of the
facts and circumstances” -- which might include consideration of a person’s level
of culpability -- the statute authorizes the imposition of a penalty even in the
absence of scienter. Cf. Hudson, 118 S. Ct. at 496. Likewise -- although the SEC
may disqualify a person permanently from practicing before it based on that
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person’s willful violation of the Exchange Act -- the SEC may impose the same
penalty when it finds a person lacks “the requisite qualifications to represent
others,” is “lacking in character or integrity,” or has engaged in reckless or
negligent conduct: no “willfulness” is required. See 15 U.S.C. § 78d-3.
About the fifth factor, that the conduct triggering the penalties is also
criminal in nature is alone “insufficient to render the money penalties and
debarment sanctions criminally punitive.” See Hudson, 118 S. Ct. at 496. Under
the fourth factor, that the penalties at issue may have a deterrent effect, “the mere
presence of this purpose is insufficient to render a sanction criminal, as deterrence
may serve civil as well as criminal goals.” See id. We agree with the district
court’s assessment that the penalties for security fraud serve “other important
nonpunitive goals, such as encouraging investor confidence, increasing the
efficiency of financial markets, and promoting the stability of the securities
industry.” Accord Sec. & Exch. Comm’n v. Palmisano, 135 F.3d 860, 866 (2d Cir.
1998) (persuasive authority) (concluding that disgorgement and money penalties
under the Exchange Act were civil in nature for purposes of double jeopardy).
And we are unpersuaded that the penalties have no rational relationship to these
alternative, non-punitive purposes, or that they are excessive in relation to these
alternative purposes.

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Given all the circumstances, Melvin has failed to demonstrate with the
“clearest proof” necessary that the penalties imposed as a result of his earlier civil
and administrative proceedings were so punitive that they must be treated as
criminal penalties. Melvin’s criminal prosecution thus constitutes no violation of
the Double Jeopardy Clause. We affirm the district court’s denial of Melvin’s
motion to dismiss the indictment on double jeopardy grounds.
AFFIRMED.

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