SECURITIES AND EXCHANGE COMMISSION v. DURHAM et al
ORDER granting in part and denying in part 68 Motion for Summary Judgment - The Commission's Motion is GRANTED as it relates to Parts I, III, and IV of the Commission's requested relief as follows: Mr. Durham is permanently ENJOINED from future violations of the Securities Acts pursuant to Part I; Mr. Durham is ORDERED to pay a civil penalty in the amount of $1,300,000 pursuant to Part III; and Mr. Durham is permanently ENJOINED from acting as an officer or director pursuant to Parts IV. The Commission's Motion is DENIED as it relates to Part II of the Commission's requested relief for disgorgement. The Court requests that the Magistrate Judge convene a status conference with the parties at his earliest convenience in order to establish a plan to bring this case to a conclusion on the issue of disgorgement. SEE ORDER. Signed by Judge Jane Magnus-Stinson on 8/18/2017. (JRB)
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF INDIANA
SECURITIES AND EXCHANGE
TIMOTHY S. DURHAM,
JAMES F. COCHRAN,
RICK D. SNOW,
UNITED STATES OF AMERICA,
Over five years ago, a jury found now pro se Defendant Timothy S. Durham 1 guilty of wire
fraud, securities fraud, and conspiracy to commit wire and securities fraud. This parallel civil
proceeding, brought by the Securities and Exchange Commission (the “Commission”) one day
after Mr. Durham was indicted, was stayed for the duration of the criminal action and was
administratively closed without prejudice during Mr. Durham’s appeal of his criminal convictions.
Mr. Durham has since exhausted his criminal appellate rights, and the Court reopened this civil
securities fraud action on June 8, 2016. Presently before the Court is a Motion for Summary
Judgment filed by the Commission. 2
While Mr. Durham now represents himself, he was previously licensed as both an attorney and
Certified Public Accountant.
In addition to Mr. Durham, the Commission’s Motion for Summary Judgment also relates to pro
se Defendant James Cochran. However, Mr. Cochran subsequently advised this Court that he is
STANDARD OF REVIEW
A motion for summary judgment asks the Court to find that a trial is unnecessary because
there is no genuine dispute as to any material fact and, instead, the movant is entitled to judgment
as a matter of law. See Fed. R. Civ. P. 56(a). As the current version of Rule 56 makes clear,
whether a party asserts that a fact is undisputed or genuinely disputed, the party must support the
asserted fact by citing to particular parts of the record, including depositions, documents, or
affidavits. Fed. R. Civ. P. 56(c)(1)(A). A party can also support a fact by showing that the
materials cited do not establish the absence or presence of a genuine dispute or that the adverse
party cannot produce admissible evidence to support the fact. Fed. R. Civ. P. 56(c)(1)(B).
Affidavits or declarations must be made on personal knowledge, set out facts that would be
admissible in evidence, and show that the affiant is competent to testify on matters stated. Fed. R.
Civ. P. 56(c)(4). Failure to properly support a fact in opposition to a movant’s factual assertion
can result in the movant’s fact being considered undisputed, and potentially in the grant of
summary judgment. Fed. R. Civ. P. 56(e).
In deciding a motion for summary judgment, the Court need only consider disputed facts
that are material to the decision. A disputed fact is material if it might affect the outcome of the
suit under the governing law. Hampton v. Ford Motor Co., 561 F.3d 709, 713 (7th Cir. 2009). In
other words, while there may be facts that are in dispute, summary judgment is appropriate if those
facts are not outcome determinative. Harper v. Vigilant Ins. Co., 433 F.3d 521, 525 (7th Cir.
attempting to settle this matter with the Commission. [Filing No. 79.] The Court prefers agreed
resolutions whenever possible, and the finality they bring. As such, the Magistrate Judge assigned
to this case has been asked to convene a conference to attempt to resolve the claims against Mr.
Cochran and this Order only relates to the Commission’s claims against Mr. Durham.
2005). Fact disputes that are irrelevant to the legal question will not be considered. Anderson v.
Liberty Lobby, Inc., 477 U.S. 242, 248 (1986).
On summary judgment, a party must show the Court what evidence it has that would
convince a trier of fact to accept its version of the events. Johnson v. Cambridge Indus., 325 F.3d
892, 901 (7th Cir. 2003). The moving party is entitled to summary judgment if no reasonable factfinder could return a verdict for the non-moving party. Nelson v. Miller, 570 F.3d 868, 875 (7th
Cir. 2009). The Court views the record in the light most favorable to the non-moving party and
draws all reasonable inferences in that party’s favor. Darst v. Interstate Brands Corp., 512 F.3d
903, 907 (7th Cir. 2008). It cannot weigh evidence or make credibility determinations on summary
judgment because those tasks are left to the fact-finder. O’Leary v. Accretive Health, Inc., 657
F.3d 625, 630 (7th Cir. 2011). The Court need only consider the cited materials, Fed. R. Civ. P.
56(c)(3), and the Seventh Circuit Court of Appeals has “repeatedly assured the district courts that
they are not required to scour every inch of the record for evidence that is potentially relevant to
the summary judgment motion before them,” Johnson, 325 F.3d at 898. Any doubt as to the
existence of a genuine issue for trial is resolved against the moving party. Ponsetti v. GE Pension
Plan, 614 F.3d 684, 691 (7th Cir. 2010).
Mr. Durham declined to highlight any genuine issues of material fact or submit any
evidence in support of his opposition to summary judgment. He admits that there are sufficient
uncontested facts found by the jury in his criminal trial to support the violations alleged by the
Commission in this matter, but he argues about the preclusive effect of the facts. [Filing No. 78
at 2-3.] Before considering the merits of Mr. Durham’s arguments, the Court will first set forth
the relevant background.
In 2002, Mr. Durham purchased Fair Finance Company (“Fair Finance”) through his
holding company Fair Holdings, Inc.. [Filing No. 68-7.]
Up until that time, Fair Finance had
operated largely by purchasing consumer finance receivables and selling investors variable rate
investment certificates. [Filing No. 68-1 at 12-13; Filing No. 68-1 at 98-100.] Following the
purchase, Mr. Durham became Fair Finance’s President and Chief Executive Officer. [Filing No.
68-1 at 95-96.]
What occurred next was succinctly summarized by the Seventh Circuit as follows: Mr.
Durham and his business partners quickly turned Fair Finance “into their personal piggy bank.”
United States v. Durham, 766 F.3d 672, 675 (7th Cir. 2014).
They used money invested in Fair to support their lavish lifestyles and to fund loans
to related parties that would never be repaid. When the company’s auditors raised
red flags about its financial status, the auditors were fired. When Fair experienced
cash-flow problems, it misled investors and regulators so it could keep raising
Eventually the scheme began to unravel. One of the company’s directors, himself
under investigation in a separate matter, alerted the FBI that Fair was being
operated as a Ponzi scheme. After an investigation, the FBI seized Fair’s computer
servers and arrested Durham, Cochran, and Snow. A jury convicted them on various
counts of conspiracy, securities fraud, and wire fraud.
Id. at 675 - 76.
On March 16, 2011, the day after he was indicted in the criminal matter, the Commission
filed suit alleging that Mr. Durham committed civil violations of the Securities and Exchange Acts
of 1933 and 1934 (collectively, the “Securities Acts”), in particular, Section 17(a) of the Securities
Act, 15 U.S.C. § 77q(a), Section 10(b) of the Exchange Act, 15 U.S.C. § 78j(b), and Rule 10b-5,
17 C.F.R. § 240.10b-5 thereunder. [Filing No. 1 at 26-27.] The Commission requested that the
Court: (1) issue an injunction permanently restraining and enjoining Mr. Durham from violating
Sections 17(a) and 10(b) and Rule 10b-5; (2) order Mr. Durham to disgorge all ill-gotten gains
derived from his unlawful activities with prejudgment interest; (3) order Mr. Durham to pay civil
penalties pursuant to the Securities Acts; and (4) prohibit Mr. Durham from acting as an officer or
director pursuant to the Securities Acts. [Filing No. 1 at 28.]
Due to the parallel nature of the proceedings, the civil case was stayed, [Filing No. 18],
and then administratively closed, [Filing No. 37], throughout the lengthy criminal appeal. On June
8, 2016, the Court ordered the civil case reopened. [Filing No. 39.] The Commission then filed a
Motion for Summary Judgment, [Filing No. 68], which is now ripe for the Court’s review.
The crux of the Commission’s argument in support of its Motion for Summary Judgment
is straightforward – that the jury’s verdict in the criminal trial against Mr. Durham should be given
preclusive collateral effect to establish that Mr. Durham violated the Securities Acts, and the rules
promulgated thereunder. [Filing No. 69 at 26-27.] The Commission argues that “[a]ll of the
necessary elements to establish collateral estoppel are present here.” [Filing No. 69 at 28.] With
regard to Section 10(b) and Rule 10b-5, the Commission argues that the instructions under which
the jury in the criminal case found Mr. Durham guilty track the language of Rule 10b-5. [Filing
No. 69 at 29.] “Accordingly, when the jury found [Mr. Durham] guilty, they necessarily found
the existence of all the elements that make up a civil Section 10(b) claim.” [Filing No. 69 at 30.]
With regard to Section 17(a), the Commission argues that the elements thereof are substantially
similar to Section 10(b), with the addition that the former prohibits fraud in “connection with the
offer or sale of securities” and “under the facts here there is no doubt that the jury necessarily
concluded this element was present too.” [Filing No. 69 at 30.]
In response, Mr. Durham concedes that there are sufficient “uncontested ‘facts’ found by
the jury sufficient to support the violations of” Section 10(b) and Section 17(a). [Filing No. 78 at
2.] This Court agrees.
It bears note that Fair Finance and the Securities Acts under which Mr. Durham is now
charged all have their origins in the same volatile moment in American history – the Great
Depression. As Donald Fair testified at Mr. Durham’s criminal trial, Fair Finance began in the
1930s when Donald’s father began financing used dump trucks to sell “to workers who wanted to
get a job on a Government project known as the WPA [Works Progress Administration], which
was a very active part of Franklin Roosevelt’s recovery program in the early ‘30s.” [Filing No.
68-1 at 29.] At nearly the same time that the elder Mr. Fair was launching his nascent company,
President Roosevelt was urging Congress to regulate the offering and sale of securities to “bring
back public confidence” by putting “the burden of telling the whole truth on the seller,” thereby
adding “to the ancient rule of caveat emptor, the further doctrine ‘let the seller also beware.’”
President’s Message to Congress, H.R. 85, 73rd Cong. (1st Sess. 1933). Thus were born the
Securities Act of 1933, which largely concerns initial public offerings, and, one year later, the
Securities Exchange Act of 1934, which regulates securities transactions. Ernst & Ernst v.
Hochfelder, 425 U.S. 185, 195 (1976). Many years later, the Supreme Court reiterated the
importance of regulating securities, stating, “[i]t requires but little appreciation of what happened
in this country during the 1920’s and 1930’s to realize how essential it is that the highest ethical
standards prevail in every facet of the securities industry.” SEC v. Capital Gains Research Bureau,
Inc., 375 U.S. 180, 186-87 (1963).
To that end Section 10(b) of the Securities Exchange Act of 1934 is a “well-known
statutory provision” that “forbids the ‘use’ or ‘employ[ment]’ of ‘any manipulative or deceptive
device or contrivance’ ‘in connection with the purchase or sale of any security.’” Chadbourne &
Parke LLP v. Troice, __ U.S. __, 134 S. Ct. 1058, 1063 (2014) (quoting 15 U.S.C. § 78j(b)).
Similarly, “Securities and Exchange Commission Rule 10b-5 . . . forbids the use of any ‘device,
scheme, or artifice to defraud’ (including the making of ‘any untrue statement of a material fact’
or any similar ‘omi[ssion]’) ‘in connection with the purchase or sale of any security.’” Id. (quoting
17 C.F.R. § 240.10b-5). Section 17(a) of the 1933 Act, 15 U.S.C. § 77q(a), outlaws similar
behavior, with the primary distinction being that “§ 10(b) and Rule 10b-5 appl[y] to acts committed
in connection with a purchase or sale of securities while § 17(a) applies to acts committed in
connection with an offer or sale of securities.” SEC v. Bauer, 723 F.3d 758, 768 (7th Cir. 2013)
(quoting SEC v. Maio, 51 F.3d 623, 631 (7th Cir. 1995)).
The elements of Section 10(b), Rule 10b-5, and Section 17(a) are, indeed, nearly identical
to the jury instructions given for Count XII in Mr. Durham’s criminal trial. 3 Pursuant to those
The final instructions given to the jury in Mr. Durham’s criminal trial for Count XII (Securities
Fraud) are as follows:
In order for you to find a defendant guilty of this charge, the government must prove
each of the following beyond a reasonable doubt:
1. In connection with the purchase or sale of securities, the defendant did any one
or more of the following as described in the Superseding Indictment:
(a) employed a device, scheme, or artifice to defraud;
(b) made an untrue statement of material fact or omitted to state a material fact
necessary in order to make the statements made, in light of the circumstances under
which they were made, not misleading; or
(c) engaged in an act, practice or course of business that operated, or would operate,
as a fraud or deceit upon a purchaser.
2. The defendant acted willfully, knowingly, and with the intent to defraud; and
3. The defendant knowingly used, or caused to be used, any means or instrument
of communication in interstate commerce in furtherance of the fraudulent conduct.
instructions, the jury found Mr. Durham criminally guilty of securities fraud, thus finding that the
government had proved each element of that crime beyond a reasonable doubt. 4 [Cause No. 1:11cr-00042, Filing No. 354 at 13.] The question presently before this Court is whether, under the
doctrine of collateral estoppel, the jury verdict is sufficient to conclusively establish that Mr.
Durham also committed civil violations of Section 10(b), Rule 10b-5, and Section 17(a).
The doctrine of collateral estoppel (also known as issue preclusion), holds that “once an
issue is actually and necessarily determined by a court of competent jurisdiction, that
determination is conclusive in subsequent suits based on a different cause of action involving a
party to the prior litigation.” Our Country Home Enters., Inc. v. Comm’r of Internal Revenue, 855
F.3d 773, 782 (7th Cir. 2017) (internal citations omitted). Issue preclusion is appropriate when
the following four elements are met:
(1) the issue sought to be precluded is the same as an issue in the prior litigation;
(2) the issue must have been actually litigated in the prior litigation; (3) the
determination of the issue must have been essential to the final judgment; and (4)
the party against whom estoppel is invoked must have been fully represented in the
Adams v. City of Indianapolis, 742 F.3d 720, 736 (7th Cir. 2014) (citing Matrix IV, Inc. v. Am.
Nat’l Bank & Trust Co. of Chi., 649 F.3d 539, 547 (7th Cir. 2011)); see also Grede v. FCStone,
If you find from your consideration of all the evidence that [the] government has
proved each of these propositions beyond a reasonable doubt as to any defendant,
then you should find that defendant guilty of that charge.
[Cause No. 1:11-cr-00042, Filing No. 353 at 36.]
The jury’s verdict on Count XXII was subsequently confirmed on appeal by the Seventh Circuit.
Durham, 766 F.3d 672. However, as set forth herein in Part III.A, infra, this is not an essential
element of collateral estoppel.
LLC, __ F.3d __, 2017 WL 3470145, at *6 (7th Cir. Aug. 14, 2017). 5 Collateral estoppel “may be
applied in civil trials to issues previously determined in a criminal conviction.” Appley v. West,
832 F.2d 1021, 1025-26 (7th Cir. 1987). “The estoppel, however, extends only to questions
‘distinctly put in issue and directly determined’ in the criminal prosecution.” Williams v. Liberty,
461 F.2d 325, 327 (7th Cir. 1972) (quoting Emich Motors Corp. v. General Motors Corp., 340
U.S. 558, 568-69 (1950)). In the case of a criminal conviction based on a verdict of guilty, “issues
The Court notes that the Commission cites a slightly different version of the rule for collateral
estoppel than that set forth in Adams, 742 F.3d at 736. [Filing No. 69 at 28 (citing Scherer v.
Balkema, 840 F.2d 437, 442 (7th Cir. 1988)).] In Scherer, the Seventh Circuit stated that collateral
estoppel precludes relitigation of issues when “(1) the party against whom the doctrine is asserted
was a party to the earlier proceeding; (2) the issue was actually litigated and decided on the merits;
(3) the resolution of the particular issue was necessary to the result; and (4) the issues are identical.”
Scherer, 840 F.2d at 442. The test set forth in Sherer is similar to the test contained in Adams.
However, the latter contains the edict that the party against whom estoppel is invoked must have
been “fully represented” in the prior action. Id.
The first time the “fully represented” language appears in the test for collateral estoppel in this or
any other circuit was in 1986, when the U.S. District Court for the Northern District of Illinois
included it in Klingman v. Levinson, 66 B.R. 548, 552 (N.D. Ill. 1986). On appeal, the Seventh
Circuit repeated the Klingman test, including the “fully represented” language. Curiously, none
of the cases cited by Klingman for this proposition, either by the District Court or the Seventh
Circuit, include the “fully represented” language. See Klingman, 831 F.2d at 1295 (citing
Teamsters Local 282 Pension Trust Fund v. Angelos, 815 F.2d 452, 456 n. 3 (7th Cir.1987);
Gilldorn Sav. Ass’n v. Commerce Sav. Ass’n, 804 F.2d 390, 392 (7th Cir. 1986); Ferrell v. Pierce,
785 F.2d 1372, 1384-85 (7th Cir. 1986)); Klingman, 66 B.R. at 552 (citing Ray v. Indiana &
Michigan Elec. Co., 758 F.2d 1148, 1150 (7th Cir. 1985)).
Since 1986, the rule set forth in Klingman has been cited within the Seventh Circuit nearly 200
times, becoming the prevailing test for collateral estoppel within this circuit. However, none of
the cases containing the “fully represented” language involve claims of ineffective assistance of
counsel from the party against whom estoppel is invoked.
Here, Mr. Durham does not set forth any arguments concerning ineffective assistance of counsel
as it specifically relates to the “fully represented” language set forth in the Seventh Circuit’s test
for collateral estoppel. As such, any arguments to that effect are waived. See Williams v. Dieball,
724 F.3d 957, 961 (7th Cir. 2013) (quoting Puffer v. Allstate Ins. Co., 675 F.3d 709, 718 (7th Cir.
2012) (“It is a well-established rule that arguments not raised to the district court are waived on
which were essential to the verdict must be regarded as having been determined by the judgment.”
Here, as Mr. Durham acknowledges, the uncontested facts found by the jury support a
finding that he committed civil violations of Section 10(b), Rule 10b-5, and Section 17(a).
Elements at the very heart of the Securities Acts were distinctly and directly before the jury. As
such, this Court concludes that the issue of whether Mr. Durham violated Section 10(b), Rule 10b5, and Section 17(a) of the Acts was fully litigated in Mr. Durham’s criminal case and therefore
cannot be relitigated by him under the doctrine of collateral estoppel. However, Mr. Durham
makes two arguments in opposition to summary judgment, each of which the Court will consider
Issue Preclusion and a § 2255 Motion
First, Mr. Durham contends that the Commission may not use the results of his criminal
conviction for collateral estoppel purposes because he “has not been afforded a full and fair
opportunity to litigate the issues in the criminal proceedings” due to ineffective assistance of
counsel at his criminal trial. [Filing No. 78 at 3-4.] Mr. Durham argues that because he has not
yet filed a motion under 28 U.S.C. § 2255 to Vacate, Set Aside, or Correct Sentence by a Person
in Federal Custody (a “§ 2255 Motion”), his claims have not been fully and fairly adjudicated and
he “should not be precluded from litigating these issues anew in this matter.” [Filing No. 78 at 78.]
In response, the Commission argues that allowing Mr. Durham to avoid the preclusive
effect of his criminal conviction until his anticipated ineffective assistance of counsel claim is
finalized “would halt the process of justice.” [Filing No. 80 at 8.] In addition, the Commission
cites several cases indicating claim preclusion is not barred when there is a pending appeal, let
alone a pending § 2255 Motion. [Filing No. 80 at 8.]
In support of their arguments, both parties cite various iterations of SEC v. Black, a civil
enforcement action brought by the Securities and Exchange Commission in 2004, in which the
U.S. District Court for the Northern District of Illinois issued final judgment in 2012. See
generally S.E.C. v. Black, 2005 WL 1498893 (N.D. Ill. June 17, 2005); 2008 WL 4394891 (N.D.
Ill. Sept.24, 2008); 2009 WL 1181480 (N.D. Ill. April 30, 2009); 2012 WL 601858 (N.D. Ill.
Feb.21, 2012); 2012 WL 4856196 (N.D. Ill. Oct. 9, 2012); 2012 WL 5429908 (N.D. Ill. Nov. 6,
2012). The civil case against Black, like the one against Mr. Durham, involved a parallel criminal
proceeding, its subsequent appeal, and a related § 2255 Motion. In 2008, after the Seventh Circuit
affirmed several counts of Black’s criminal conviction, the District Court noted that “the collateral
estoppel effect of the criminal judgment is not affected” by any potential appeal to the Supreme
Court. Black, 2008 WL 4394891, at *1, n.1. Four years later, after the District Court entered final
judgment against Black in the civil case, he moved for a stay of execution pending resolution of a
§2255 Motion. Black, 2012 WL 5429908, at *1. The District Court rejected Black’s argument,
holding that Black had not met his burden of establishing that he was entitled to a stay. Id. at *2.
Mr. Durham highlights the latter ruling in his opposition to summary judgment, pointing
out that Black involved a post-judgment motion, while his case does not. [Filing No. 78 at 5.]
However, the District Court’s denial of the stay in Black was premised not on the fact that the case
involved a post-judgment motion, but on the fact that Black’s justification for a stay did not merit
the Court invoking its inherent authority to stay proceedings, including execution of judgments.
Black, 2012 WL 5429908, at *2. Moreover, Black merely serves to highlight that a pending §
2255 Motion is not a bar to rendering or executing final judgment. Mr. Durham fails to cite, and
this Court is unaware of, any contrary cases holding that a pending § 2255 Motion provides this
Court with grounds to abstain from applying issue preclusion.
Instead, the portion of Black that is instructive in this case provides that “the collateral
estoppel effect of the criminal judgment is not affected” by any potential appeal. Black, 2008 WL
4394891, at *1, n.1 (citing Ross ex rel. Ross v. Bd. of Educ. of Twp. High Sch. Dist. 211, 486 F.3d
279, 284 (7th Cir. 2007) (“the fact that an appeal was lodged does not defeat the finality of the
judgment”)); see also Deposit Bank of Frankfort v. Bd. of Councilmen of City of Frankfort, 191
U.S. 499, 511 (1903) (“We are unable to find reason or authority supporting the proposition that
because a judgment may have been given for wrong reasons or has been subsequently reversed,
that it is any the less effective as an estoppel between the parties while in force.”). If a direct
appeal is no bar to collateral estoppel, it logically follows that a § 2255 Motion is also not a bar to
As such, Mr. Durham’s arguments concerning his § 2255 Motion are unavailing. Issue
preclusion applies to his criminal convictions and he is collaterally estopped from relitigating the
elements of said convictions.
In addition to his arguments regarding preclusion generally, Mr. Durham argues that the
Commission cannot use issue preclusion to establish an amount for the purposes of disgorgement
because neither the court nor the jury made any determination as to how much profit he received
and, in any case, there can be no preclusive effect to findings at the sentencing stage of a criminal
trial. [Filing No. 78 at 8-13.]
In response, the Commission argues that disgorgement “need only be a reasonable
approximation of profits.” [Filing No. 80 at 9.] In addition, the Commission contends that “more
than enough evidence was presented at trial” to establish the ill-gotten gains that Mr. Durham
obtained. [Filing No. 80 at 9.]
Disgorgement is a form of “[r]estitution measured by the defendant’s wrongful gain.”
Kokesh v. SEC, __ U.S. __, 137 S. Ct. 1635, 1640 (2017) (quoting Restatement (Third) of
Restitution and Unjust Enrichment § 51, Comment a, p. 204 (2010)). When the Commission seeks
disgorgement, “it acts in the public interest, to remedy harm to the public at large, rather than
standing in the shoes of particular injured parties.” Id. at 1643. In cases where restitution has
already been ordered, courts generally hold that “the civil disgorgement amount should be reduced
by the amount already paid in restitution.” S.E.C. v. McCaskey, 2002 WL 850001, at *14
(S.D.N.Y. Mar. 26, 2002) (citing S.E.C. v. Palmisano, 135 F.3d 860, 863–64 (2d Cir. 1998)
(ordering that to the extent an individual “pays or has paid restitution as ordered in the criminal
judgment, such payments will offset his disgorgement obligation” under a civil judgment)).
Although there is little doubt that Mr. Durham was the beneficiary of significant ill-gotten
gains during the duration of his association with Fair Finance, the amount of his wrongful gains
have not been adequately established either by the jury’s verdict or by the Commission in its
Motion for Summary Judgment. The Commission urges this Court to order Mr. Durham to pay
disgorgement in excess of $230 million. [Filing No. 69 at 34 (“Defendants should be ordered to
pay disgorgement in the amount of $208,830,082.27 together with prejudgment interest of
$22,647,954.29 for a total obligation of $231,478,036.56”)]. This figure is identical to the
restitution amount that Mr. Durham and his co-defendants in the criminal trial were ordered to
pay. [Cause No. 1:11-cr-00042, Filing No. 456.] However, the amount of criminal restitution is
not a measure of a criminal’s wrongful gain but, rather, a measurement of a victim’s loss. United
States v. Navarrete, 667 F.3d 886, 888-89 (7th Cir. 2012) (explaining that criminal restitution “can
be based only on the victim’s loss”). As such, the amount of criminal restitution Mr. Durham was
ordered to make does not allow the Court to determine an appropriate amount of disgorgement.
Other numbers provided by the Commission also do not allow the Court to reasonably
estimate Mr. Durham’s ill-gotten gains as a matter of law. For example, the Commission
highlights the amount of claims that were filed by creditors in Fair Finance’s bankruptcy, which
exceeded $215 million. [Filing No. 80 at 9.] However, proof of claim totals again merely show
the loss that Fair Finance’s creditors incurred, rather than any wrongful gains obtained by Mr.
Durham. In addition, the Commission states that the amount of related party loans made with
investor money exceeded $200 million. [Filing No. 80 at 10.] Although it is possible that Mr.
Durham obtained wrongful gains as a result of these transactions, the amount of the related party
loans does not, in and of itself, establish this fact. This is particularly true at the summary judgment
stage, where this Court must view the record in the light most favorable to Mr. Durham.
In addition, evidence was presented at trial, that to some very limited extent, Mr. Durham
invested proceeds from Fair into legitimate business. While some had failed, others remained
viable and were assigned to the bankruptcy Trustee. Based on the evidence of which it is aware,
the Court cannot conclude that all Fair investor proceeds constitute ill-gotten gains as a matter of
law. The Commission’s presentation makes no attempt to account for this evidence.
As a final matter, as the Commission concedes, the Commission’s requested disgorgement
amount is likely inconsistent with the statute of limitations for securities fraud disgorgement
recently recognized by the Supreme Court in Kokesh __ U.S. __, 137 S. Ct. 1635. [Filing No. 80
at 10 n.8.]
Based on the record before this Court, the Commission has failed to adequately establish a
disgorgement amount. As such, the Court need not reach Mr. Durham’s argument regarding
whether the Court should give preclusive effect to sentencing findings.
The Commission’s Motion for Summary Judgment is DENIED as to Part II of its requested
relief, relating to disgorgement. [Filing No. 69 at 27-28.]
Injunctive Relief and Financial Remedies
The Court, having conclusively established that Mr. Durham violated the Securities Acts,
has jurisdiction to permanently enjoin Mr. Durham from future violations of the Securities Acts
and from acting as an officer or director pursuant to 15 U.S.C. § 77t(b), 15 U.S.C. § 77t(e), and 15
U.S.C. § 78u(d). The Commission’s Motion for Summary Judgment is therefore GRANTED as
it relates to Parts I and IV of its requested relief. [Filing No. 69 at 25-30.]
In addition, the Court has jurisdiction to impose civil penalties against Mr. Durham
pursuant to 15 U.S.C. § 77t(d) and 15 U.S.C. § 78u(d)(3). “District courts have considerable
discretion when setting the amount of a civil penalty.” S.E.C. v. Cook, 2015 WL 5022152, at *29
(S.D. Ind. Aug. 24, 2015).
Here, the Commission seeks penalties under the third and highest available tier because
Mr. Durham’s violations “involved fraud, deceit, manipulation, or deliberate or reckless disregard
of a regulatory requirement” and “directly or indirectly resulted in substantial losses or created a
significant risk of substantial losses to other persons.” 15 U.S.C. § 77t(d)(2)(C); 15 U.S.C. §
78u(d)(3)(B)(iii). The Commission states that pursuant to the regulations in effect during the time
period at issue, this Court may impose a civil penalty of $130,000 per violation, or a penalty in the
amount of Mr. Durham’s gross pecuniary gain. 17 C.F.R. § 201.1001.
As previously explained in Part III.B of this Order, the Commission failed to provide
sufficient evidence to allow the Court to make a determination as to Mr. Durham’s gross pecuniary
gain. However, the Commission has conclusively established that Mr. Durham violated the
Securities Acts such that third tier penalties under 15 U.S.C. § 77t(d)(2)(C); 15 U.S.C. §
78u(d)(3)(B)(iii) are appropriate.
In deciding what the penalties should be, “the court should consider the seriousness of the
violations, the defendant’s intent, whether the violations were isolated or recurring, whether the
defendant has admitted wrongdoing, the losses or risks of losses caused by the conduct, and any
cooperation the defendant provided to enforcement authorities.” S.E.C. v. Church Extension of
Church of God, Inc., 429 F. Supp. 2d 1045, 1050 (S.D. Ind. 2005).
In this instance, the Court need not belabor a penalty analysis as it relates to Mr. Durham’s
remorse (or lack thereof), nor the seriousness of his violations or the immense losses caused by his
conduct. The Court discussed such factors extensively in sentencing Mr. Durham in 2012, noting
his lack of “sincere remorse,” the “long-standing nature” of his scheme, and the seriousness of the
losses caused by his conduct. [Filing No. 69-80.] The Court stated that the fraud perpetrated by
Mr. Durham was a “most serious offense, because it undermines the fabric of this country. And it
is utterly disrespectful [to] the law.” [Filing No. 69-80 at 130-131.] Nothing that has occurred in
the intervening five years has altered the Court’s analysis of this matter. Put simply, the factors
this Court must consider in assessing a civil penalty do not weigh in Mr. Durham’s favor, and he
has presented no arguments in his opposition to summary judgment to mitigate these factors.
As such, the Court concludes that Mr. Durham should pay a civil penalty in the amount of
$130,000 per violation consistent with 17 C.F.R. § 201.1001. However, this still leaves open a
determination of how many violations Mr. Durham committed. The Court is cognizant of both
the long-standing nature of Mr. Durham’s fraudulent scheme, and of Gabelli v. SEC, 568 U.S. 442
(2013), in which the Supreme Court held that a 5-year statute of limitations applies to civil
penalties imposed pursuant to the Securities Acts. See also S.E.C. v. Pentagon Capital Mgmt.
PLC, 725 F.3d 279, 287 (2d Cir. 2013) (noting that profits derived earlier than five years before
the Commission instituted its suit against the defendants may not be included as part of the civil
penalty under Gabelli).
The jury in the criminal trial found Mr. Durham guilty of twelve counts of wire fraud,
securities fraud, and conspiracy to commit wire and securities fraud in violation of the Securities
Acts. [Cause No. 1:11-cr-00042, Filing No. 353.] Ten of these convictions were upheld on appeal.
Durham, 766 F.3d at 672. The time period at issue for each conviction, set forth in the Superseding
Indictments upon which the jury based its verdicts, indicates that each violation falls within the
statute of limitations set forth in Gabelli. [Cause No. 1:11-cr-00042, Filing No. 217 at 11-21.]
Although it would be within the Court’s discretion to impose penalties by looking behind each
conviction for separate violations, see, e.g., Pentagon Capital Mgmt., 725 F.3d at 288 n.7 (finding
no error in the district court’s methodology of counting each late trade as a separate violation);
Church of God, 429 F. Supp. 2d at 1051 (noting that the evidence was sufficient to support a
finding of at least one violation for each Offering Circular), the Court exercises its considerable
discretion in setting the amount of the civil penalty against Mr. Durham at $130,000 for each of
his separate convictions, amounting to a total penalty of $1,300,000. Therefore, the Commission’s
Motion for Summary Judgment is GRANTED as it relates to Part III of its requested relief, [Filing
No. 69 at 28-39], and the Court ORDERS Mr. Durham to pay civil penalties in the amount of
For the reasons set forth herein, the Commission’s Motion for Summary Judgment, [Filing
No. 68], is GRANTED in part and DENIED in part.
The Commission’s Motion is GRANTED as it relates to Parts I, III, and IV of the
Commission’s requested relief as follows:
Mr. Durham is permanently ENJOINED from future violations of the Securities Acts
pursuant to Part I;
Mr. Durham is ORDERED to pay a civil penalty in the amount of $1,300,000 pursuant to
Part III; and
Mr. Durham is permanently ENJOINED from acting as an officer or director pursuant to
The Commission’s Motion is DENIED as it relates to Part II of the Commission’s
requested relief for disgorgement. The Court requests that the Magistrate Judge convene a status
conference with the parties at his earliest convenience in order to establish a plan to bring this case
to a conclusion on the issue of disgorgement.
TIMOTHY S. DURHAM
MCCREARY - USP
MCCREARY U.S. PENITENTIARY
P.O. BOX 3000
Pine Knot, KY 42635
JAMES F. COCHRAN
LEXINGTON - FMC
LEXINGTON FEDERAL MEDICAL CENTER
P.O. BOX 14500
LEXINGTON, KY 40512
RICK D. SNOW
Federal Correctional Institution
P O Box 5000
Pekin, IL 61555
Jennifer Chun Barry
U.S. SECURITIES AND EXCHANGE COMMISSION (Philadelphia)
Scott Alexander Thompson
U.S. SECURITIES AND EXCHANGE COMMISSION
Disclaimer: Justia Dockets & Filings provides public litigation records from the federal appellate and district courts. These filings and docket sheets should not be considered findings of fact or liability, nor do they necessarily reflect the view of Justia.
Why Is My Information Online?