United States Securities and Exchange Commission v. Delphi Corporation et al

Filing 379

MEMORANDUM Regarding Final Judgment Against J.T. Battenberg, III Signed by District Judge Avern Cohn. (JOwe)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF MICHIGAN
SOUTHERN DIVISION

UNITED STATES SECURITIES AND
EXCHANGE COMMISSION,
Plaintiff,
Case No. 06-14891
v.
HON. AVERN COHN
J.T. BATTENBERG, III,
Defendant.
________________________________________/
MEMORANDUM
REGARDING FINAL JUDGMENT AGAINST J.T. BATTENBERG, III
I. Introduction
This is a securities fraud case. On January 13, 2011, a jury returned a verdict
against J.T. Battenberg, III (Battenberg), former Chief Executive Officer of Delphi
Corporation (Delphi), and Paul Free (Free), former Chief Accounting Officer of Delphi
(Doc. 297). Four transactions from 2000 and 2001 falsely reported by Delphi were
involved: GM Settlement Transaction (GM Transaction); Bank One - Precious Metals
Transaction (PGM Transaction); BBK - Cores and Batteries Transaction (BBK
Transaction); and EDS - $20 Million Dollar Transaction (EDS Transaction).
An overview of the case before the jury can be gained from a read of the
Decision And Order Denying Paul Free’s Renewed Motion For Judgment As A Matter
Of Law Or, In The Alternative, For A New Trial (Doc. 356). Battenberg was implicated
only in the GM Transaction. As to that transaction, the jury found that Battenberg
knowingly and unreasonably falsified the books, records or accounts of Delphi, and

made or caused to be made a materially false or misleading statement or omission to
an accountant in connection with an audit, review or examination of Delphi’s financial
statements in connection with the September 2000, settlement between Delphi and the
General Motors Corporation, which was falsely reported to the public in Delphi’s Form
10-Q for the third quarter of 2000, in Delphi’s Form 10-K for 2000, and through other
public communications. The jury further found that the SEC did not establish by a
preponderance of the evidence that Battenberg, in so doing, acted with scienter, that is
to say, with intent to defraud, or with reckless disregard for the truth.
Now before the Court is the SEC’s Motion for Entry of a Final Judgment as to
Defendant Battenberg (Doc. 342). This motion raises the issue of remedies for
Battenberg’s violations of the securities laws. The remedies are for the Court to decide.
As the Court of Appeals for the Second Circuit explained, “[o]nce the equity jurisdiction
of the district court has been properly invoked by a showing of a securities law violation,
the court possesses the necessary power to fashion an appropriate remedy.” S.E.C. v.
Manor Nursing Centers, Inc., 458 F.2d 1082, 1103 (2d Cir. 1972). The remedies may
include:
C

a permanent injunction

C

disgorgement

C

pre-judgment interest

C

civil penalties or sanctions

The issue of remedies has been fully briefed.

After careful review of the evidentiary record at trial and the added evidence
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proffered in the parties’ papers relating to the motion, the Court decides the following.
II. Remedies
A. Permanent Injunction
In S.E.C. v. Youmans, 729 F.2d 413, 415 (6th Cir. 1984), the Court of Appeals for
the Sixth Circuit listed seven factors a court should consider regarding a permanent
injunction:
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the egregiousness of the violation

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the isolated or repeated nature of the violation

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the degree of scienter involved

C

the sincerity of the defendant’s assurance, if any,
against future violations

C

the defendant’s recognition of the wrongful nature of
his conduct

C

the likelihood that the defendant’s occupation will
present opportunities (or lack thereof) of future
violations

C

the defendant’s age and health

Applying these factors to Battenberg’s conduct in the GM Settlement
Transaction, the SEC has not established a case for a permanent injunction. A
multitude of senior Delphi executives, outside accountants and an outside law firm were
involved in the misreporting. Of those involved in the misreporting, Battenberg had the
least experience in accounting matters. Battenberg was involved in only a single
instance of falsification. Battenberg did not act with scienter. Battenberg, while still
Chief Executive Officer of Delphi, acknowledged that the accounting for the GM
Transaction was wrong. Battenberg is now fully retired. Therefore, a permanent
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injunction will not enter.
B. Disgorgement
As to disgorgement, the parties dispute the amount of profits in the form of the
bonuses Battenberg gained as a result of his involvement in the GM Settlement
Transaction. Battenberg urges the Court to limit the amount by which his Performance
Achievement Plan (PAP) bonus may have been decreased had Delphi properly
accounted for the GM Transaction. Of the total $237 million dollars paid to GM,
Battenberg calculates that at least $150.6 million dollars would have been charged to
Delphi’s warranty reserve, and at most $86.4 million dollars to net income. The
resulting impact on Battenberg’s PAP bonus would have decreased Battenberg’s PAP
bonus for the years 2000 to 2006 by $196,999.00.
A multitude of factors were involved in Battenberg’s annual bonus under Delphi’s
Annual Incentive Plan. Calculation of the amount by which it was affected because of
the misreporting of the GM Settlement Transaction would be a guess at best.
Therefore, the Court is satisfied that measuring the amount of disgorgement by the
increase in Battenberg’s PAP bonus is appropriate. However, because of the
uncertainties, and in its discretion, the Court will order Battenberg to disgorge
$198,500.00.
C. Prejudgment Interest
Including prejudgment interest in the remedy is a matter committed to the broad
discretion of the Court. See S.E.C. v. Conaway, 697 F. Supp. 2d 733, 747 (E.D. Mich.
2010). As explained in S.E.C. v. First Jersey Securities, Inc., 101 F.3d 1450, 1476 (2d
Cir. 1996):
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In deciding whether an award of prejudgment interest is
warranted a court should consider ‘(i) the need to fully
compensate the wronged party for actual damages suffered,
(ii) considerations of fairness and the relative equities of the
award, (iii) the remedial purpose of the statute involved,
and/or (iv) such other general principles as are deemed
relevant by the court.’ (citations omitted).
The Court is satisfied that in the circumstances here, an award of prejudgment
interest is not appropriate. As noted above, the jury found Battenberg responsible for
books and records and reporting violations, neither of which involved scienter.
Battenberg was implicated in only one transaction and was the least experienced in
accounting, rather he depended on the accounting advice of others.
D. Civil Penalties
As to penalties, 15 U.S.C. §78u(d)(3)(B) lists three tiers and corresponding
amounts. The first tier amount, which is appropriate here, is $5,500.00. Battenberg
was found liable for three separate violations of the securities laws. Accordingly, the
amount of the penalty is $16,500.00.
III. Conclusion
Accordingly, the final judgment will total $215,000.00, representing $198,500.00
for disgorgement and $16,500.00 for penalties.

Dated: October 31, 2011

S/Avern Cohn
AVERN COHN
UNITED STATES DISTRICT JUDGE

I hereby certify that a copy of the foregoing document was mailed to the attorneys of
record on this date, October 31, 2011, by electronic and/or ordinary mail.
S/Julie Owens
Case Manager, [phone]
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