SEC v. Conrad Seghers

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UNPUBLISHED OPINION FILED. [10-10029 Affirmed] Judge: TMR , Judge: FPB , Judge: EBC. Mandate pull date is 02/03/2011 [10-10029]

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SEC v. Conrad Seghersse: 10-10029 Ca Document: 00511319329 Page: 1 Date Filed: 12/13/2010 Doc. 0 IN THE UNITED STATES COURT OF APPEALS United States Court of Appeals FOR THE FIFTH CIRCUIT Fifth Circuit FILED December 13, 2010 N o . 10-10029 Lyle W. Cayce Clerk S E C U R I T I E S AND EXCHANGE COMMISSION, P la in t if f -A p p e lla n t v. C O N R A D P. SEGHERS, D e fe n d a n t -A p p e lle e A p p e a l from the United States District Court fo r the Northern District of Texas U S D C No. 3:04-CV-1320 B e fo r e REAVLEY, BENAVIDES, and CLEMENT, Circuit Judges. P E R CURIAM:* T h e Securities and Exchange Commission (SEC) appeals the district c o u r t's order denying disgorgement from Conrad P. Seghers. We affirm. A jury found Seghers liable for securities fraud in connection with the o p e r a t io n s of three hedge funds that he founded. The SEC sought disgorgement o f over $900,000, and the district court denied the request. In an earlier appeal, w e remanded for reconsideration but left to the district court's discretion w h e t h e r to order disgorgement. See SEC v. Seghers, 298 F. App'x 319, 33637 Pursuant to 5TH CIR. R. 47.5, the court has determined that this opinion should not be published and is not precedent except under the limited circumstances set forth in 5TH CIR. R. 47.5.4. * Dockets.Justia.com Case: 10-10029 Document: 00511319329 Page: 2 Date Filed: 12/13/2010 No. 10-10029 (5 t h Cir. 2008). On reconsideration, the district court held that the SEC failed t o meet its burden of establishing a reasonable approximation of illegallyo b ta in e d profits. The SEC appeals, and we review the district court's decision t o deny disgorgement for an abuse of discretion. See SEC v. AMX, Int'l, Inc., 7 F .3 d 71, 73 (5th Cir. 1993). D is g o r g e m e n t is an equitable remedy designed to wrest ill-gotten gains fr o m a wrongdoer. SEC v. Huffman, 996 F.2d 800, 802 (5th Cir. 1993). Because t h e remedy is remedial rather than punitive, "it is limited to `property causally r e la t e d to the wrongdoing' at issue." Allstate Ins. Co. v. Receivable Fin. Co., 501 F .3 d 398, 413 (5th Cir. 2007) (citation omitted). The party seeking disgorgement m u s t distinguish between gains that were legally and illegally obtained. Id.; see S E C v. First City Fin. Corp., 890 F.2d 1215, 1231 (D.C. Cir. 1989). The SEC argues that it presented sufficient evidence to establish Seghers' ille g a l profits. It also argues that because Seghers commingled funds, the d is t r ic t court erroneously required it to trace the specific funds that Seghers o b ta in e d from defrauded investors. In the district court, the SEC relied on a d e c la r a tio n by one of its accountants, along with nearly 600 pages of a c c o m p a n y in g financial documents, that primarily concerned transactions from a Comerica Bank account used by Seghers and his hedge funds. We agree with t h e district court that the declaration is conclusory and fails to explain a d e q u a t e ly the source of funds in the Comerica account. The district court e x p la in e d that it was unable to replicate the disgorgement amount sought by the S E C by examining the declaration and the supporting documents, some of which t h e court noted were poorly copied and illegible. The court also noted that the t im e period covered by the declaration included a period during which no fraud w a s alleged to have occurred. The SEC was required to present in the first in s t a n c e a reasonable approximation of Seghers' illegally-obtained profits. See F ir s t City Fin. Corp., 890 F.2d at 1232. Upon our review of the record, we find 2 Case: 10-10029 Document: 00511319329 Page: 3 Date Filed: 12/13/2010 No. 10-10029 n o abuse of discretion in the district court's conclusion that the SEC failed to m e e t its burden. A F F IR M E D . 3

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