Securities and Exchange Commission v. Jones

Filing 112

MEMORANDUM DECISION AND ORDER Regarding Disgorgement - The court finds disgorgement is both authorized and appropriate in the present case, and disgorgement in the amount of $600,000 reasonably approximates Jones's profits from his Bar Order violations. Judgment shall be entered against Jones for disgorgement in the amount of$600,000. Signed by Judge Bruce S. Jenkins on 12/18/2015. (las)

FILED
2015 DEC 18 PM 1:11
CLERK
IN THE UNITED STATES DISTRICT COURT U.S. DISTRICT
COURT
FOR THE DISTRICT OF UTAH

SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,

MEMORANDUM OPINION AND
ORDER REGARDING
DISGORGEMENT

v.
R. GORDON JONES,

Case No. 1:13-CV-00163-BSJ
Defendant.

District Judge Bruce S. Jenkins

Following a bench trial, the court issued a Memorandum Opinion and Order finding (i)
under a valid 102(e) Bar Order, R. Gordon Jones ("Jones") was not allowed to practice before
the Securities and Exchange Commission ("SEC" or "Commission"), and (ii) Jones did practice
before the SEC during the prohibited time period and thereby violated such Bar Order. 1
The remaining issue before the court is the authority, method, and amount of an
appropriate remedy.
Having considered the parties' briefs, the evidence and arguments of counsel present in
the record, and the relevant law, the court finds (i) the court has authority to order disgorgement;
(ii) disgorgement is the proper remedy to be applied in the present case; and (iii) the amount to
be disgorged is $600,000.

1

Mem. Op. and Order, filed Sep. 30, 2015, (CM/ECF No. 106) at 32.

BACKGROUND 2
On May 4, 2001, the SEC issued an order against Jones pursuant to Rule 102( e) of the
SEC's Rules of Practice-the "Jones Bar Order"-which precluded Jones from appearing or
practicing before the Commission as an accountant. 3
The court held a bench trial July 7, 2015 through July 10, 2015 on the SEC's allegations
that Jones violated his Bar Order and profited thereby. In its September 30, 2015 Memorandum
Opinion and Order, the court found Jones did indeed violate his Bar Order's prohibition on
appearing or practicing before the Commission as an accountant. 4 Jones's prohibited conduct
included (i) creating, compiling, or editing information incorporated into filings with the
Commission, (ii) making non-quantitative accounting decisions, (iii) drafting responses to SEC
comment letters, and (iv) managing others involved in the preparation of materials filed with the
SEC. 5 The court reserved, however, on the question of disgorgement or remedy, and it instead
directed parties to file briefing on the authority, the method, and the amount of an appropriate
remedy to be applied in the present case. 6 The SEC filed its brief on disgorgement on October
20, 2015/ which Jones responded to on November 8, 2015. 8 The SEC filed its reply brief on
November 19, 2015. 9

2

Note: additional background information can be found in the court's prior Memorandum Opinion and
Order. See id. at 2.
3

See Ex. 136.

4

See Mem. Op. and Order, filed Sep. 30, 2015, (CM/ECF No. 106) at 32.

5

See id. at 12-23. Note: the court reiterates that this list is not an exclusive or exhaustive list of every form
of Jones's violative conduct. The court focused on examples sufficient to demonstrate that Jones did in fact engage
in conduct prohibited by and thereby violative of the Jones Bar Order. See id. at 12.
6

Jd. at 32.

7

Br. in Supp. ofReq. for Disgorgement, filed Oct. 20,2015 (CM/ECF No. 108) [hereinafter SEC's PostTrial Disgorgement Br.].

2

DISCUSSION
Having previously determined that Jones violated a valid 102(e) Bar Order by practicing
before the SEC during a period in which the Bar Order prohibited him from doing so, the
remaining issue for the court is the appropriate remedy for Jones's violation. The SEC asks the
court to order Jones to disgorge the funds he procured through his violation of the Bar Order.

10

Jones argues disgorgement would not be an equitable remedy in the present case and that there is
no basis for its imposition.

11

The court finds disgorgement can and should be ordered in the present case. In making
this determination, the court analyzed (i) the court's authority to order the equitable remedy of
disgorgement; (ii) the appropriateness of disgorgement in the present case; and (iii) the proper
amount to be disgorged. The court will discuss each in turn.

I.

Court's Authority to Order Disgorgement

The court has authority to order disgorgement. As noted by the Tenth Circuit,
"Disgorgement is by nature an equitable remedy as to which a trial court is vested with broad
discretionary powers." 12 Courts around the country have likewise confirmed the authority of
federal courts to order the equitable remedy of disgorgement, specifically within the context of

8

Def. Jones's Post-Trial Disgorgement Mem., filed Nov. 8, 2015 (CM/ECF No. 109) [hereinafter Jones's
Post-Trial Disgorgement Br.].
9

Reply in Supp. ofReq. for Disgorgement, filed Nov. 19, 2015 (CM/ECF No. 111).

10

See SEC's Post-Trial Disgorgement Br., supra note 7, at 1.

uSee Jones's Post-Trial Disgorgement Br., supra note 8, at 26.
12

S.E.C. v. Maxxon, Inc., 465 F.3d 1174, 1179 (lOth Cir. 2006) (quoting ArnoldS. Jacobs, Disclosures &
Remedies Under the Securities Laws§ 20:109 (footnotes omitted)).

3

SEC enforcement actions. 13 Similarly, courts have fotmd that the SEC has authority to seek an
order of disgorgement from the court. 14
Jones initially seems to concede in his brief that disgorgement is an equitable remedy that
the court has authority to order. Jones stated, "The Commission devotes the lion's share of its
disgorgement memo to the proposition that federal courts have the power to grant equitable relief
and that 'disgorgement'-the additional remedy it seeks-is a form of equitable relief. But Jones
has never disputed these two academic points. This is not the issue." 15 Instead, Jones argues
"[t]he real issue is whether this court's equitable relief powers should be further exercised by
additionally awarding the Commission money." 16 But then Jones seems to walk away from this
framing of the issue-whether the court should order disgorgement, not whether it could-by
stating "there is no statutory or other basis in this case for the additional imposition of an
'equitable monetary remedy'-a seeming oxymoron-whether it is labeled 'disgorgement' or
something else." 17 In the remainder ofhis brief, Jones argues disgorgement should not-or could

13

See, e.g., S.E.C. v. Cavanagh, 445 F.3d 105, 120-21 (2d Cir. 2006); S.E.C. v. Rind, 991 F.2d 1486, 1493
(9th Cir. 1993); S.E.C. v. First City Financial Corp., Ltd., 890 F.2d 1215, 1230 (D.C. Cir. 1989); S.E.C. v. Texas Gulf
Sulphur Co., 446 F.2d 1301, 1307-08 (2d Cir. 1971); S.E.C. v. DiBella, 409 F. Supp. 2d 122, 130-32 (D. Conn.
2006).
14

See S.E.C. v. Texas GulfSulphur Co., 446 F.2d 1301, 1307-08 (2d Cir. 1971) ("There is little doubt that§
27 of the Act confers general equity power upon the district courts. Appellants' contention is that the SEC is without
the authority to request the exercise of these powers. However, as stated in Mills v. Electric Auto-Lite Co., 396 U.S.
375,391,90 S.Ct. 616,625,24 L.Ed.2d 593 (1970): 'We cannot fairly infer from the Securities Exchange Act of
1934 a purpose to circumscribe the courts' power to grant appropriate remedies.' While Mills was dealing with relief
to private litigants, we deem the above statement to be fully applicable in enforcement actions by the SEC. Thus we
hold that the SEC may seek other than injunctive relief in order to effectuate the purposes of the Act, so long as such
relief is remedial relief and is not a penalty assessment."); S.E. C. v. DiBella, 409 F. Supp. 2d 122, 130-32 (D. Conn.
2006) ("These statutory references evidence Congress' acknowledgement and encouragement of the SEC's long held
authority to seek disgorgement in civil actions."); see also S.E.C. v. Manor Nursing Centers, Inc., 458 F.2d 1082,
1103-04 (2d Cir. 1972) ("Accordingly, we reiterate our previous holding in Texas GulfSulphur that the SEC may
seek other than injunctive relief to effectuate the purposes of the federal securities laws.").
15

Jones's Post-Trial Disgorgement Br., supra note 8, at 2.

16

1d. (emphasis in original).

!7Id.

4

not-be ordered, because his Bar Order violation does not involve a victim, a fraud, or a
violation of federal securities laws. 18 In such absence, Jones argues disgorgement is not an
equitable remedy in the present case but a damages remedy at law. He cites the United States
Supreme Court case Great-West Life &Annuity Ins. Co. v. Knudson, 534 U.S. 204 (2002) in
support of this contention. 19 Additionally, Jones argues that since disgorgement is not equitable,
it is a civil fine, penalty, forfeiture, or criminal remedy barred by the five-year statute of
limitations under 28 U.S.C. § 2462. 20
The court disagrees with Jones's arguments that disgorgement is not an equitable remedy
in the present case. First, the argument that a victim is necessary in order for disgorgement to be
equitable misunderstands the purpose of disgorgement. In a securities enforcement action, the
primary purpose of disgorgement is not to compensate victims. 21 "Instead, disgorgement has
been used by the SEC and courts to prevent wrongdoers from unjustly enriching themselves
through violations, which has the effect of deterring subsequent fraud." 22 "As the Second Circuit
stated in SEC v. Commonwealth Chern. Sec., 574 F.2d 90 (2d Cir.1978), 'the primary purpose of
disgorgement is not to compensate investors. Unlike damages, it is a method of forcing a
defendant to give up the amount by which he was unjustly enriched.' !d., at 102."23 "The

18

See id. at 7-9.

19

See id. at 8-9.

20

See id. at 14-15.

21

S.E. C. v. Cavanagh, 445 F. 3d 105, 117 (2d Cir. 2006).

221d.
23

S.E. C. v. DiBella, 409 F. Supp. 2d 122, 129 (D. Conn. 2006).

5

emphasis on public protection, as opposed to simple compensatory relief, illustrates the equitable
nature of the remedy."24
Second, there is no evidence that an absence of fraud would transfonn disgorgement in
the present case into something other than an equitable remedy. As an initial matter, merely
because courts have ordered disgorgement in fraud cases does not mean disgorgement is only
equitable in fraud cases. Further, several courts have granted disgorgement outside the context of
fraud. 25 Jones cites no contrary cases.
Third, there is likewise no support for Jones's argument that his Bar Order violation is an
insufficient basis for ordering disgorgement. Jones identifies no case in which the SEC sought
disgorgement for a bar order violation and disgorgement was denied? 6 In contrast, the SEC cites
three cases where a court ordered disgorgement for bar order violations: (i) S.E. C. v. Taber, 2013
WL 6334375 (S.D.N.Y. Dec. 4, 2013); (ii) S.E.C. v. Martino, 255 F. Supp. 2d 268 (S.D.N.Y.
2003); and (iii) S.E.C. v. Telsey, 1991 WL 72854 (S.D.N.Y. Mar. 13, 1991). 27
There are strong similarities between S.E. C. v. Taber and the present case. In S.E. C. v.

Taber, Michael H. Taber is subject to a Rule 102(e) bar order suspending him from appearing or

24

S.E.C. v. Cavanagh, 445 F.3d 105, 117 (2d Cir. 2006) (citing Commonwealth Chem. Sec., Inc., 574 F.2d
90, 102 (2d Cir. 1978); SEC v. Petrofimds, Inc., 420 F.Supp. 958, 960 (S.D.N.Y. 1976)); see also S.E.C. v. First City
Financial Corp., Ltd., 890 F.2d 1215, 1230 (D.C. Cir. 1989) ("Disgorgement is an equitable remedy designed to
deprive a wrongdoer of his unjust enrichment and to deter others from violating the securities laws.").
25

See, e.g., S.E. C. v. Merch. Capital, LLC, 311 F. App'x 250 (11th Cir. 2009); S.E. C. v. M & A W., Inc., 538
F.3d 1043, 1054 (9th Cir. 2008); S.E.C. v. Cavanagh, 445 F.3d 105 (2d Cir. 2006); S.E.C. v. First City Financial
Corp., Ltd., 890 F.2d 1215 (D.C. Cir. 1989).
26

This is in contrast to Jones's arguments surrounding In the Matter ofRobert W. Armstrong, III, 2005 WL
1498425 (June 24, 2005) and S.E.C. v. Prince, 942 F. Supp. 2d 108 (D.D.C. 2013). See Jones's Post-Trial
Disgorgement Br., supra note 8, at 12-13. The SEC did not seek disgorgement in either case, and, as a consequence,
the issue was never discussed.
27

See SEC's Post-Trial Disgorgement Br., supra note 7, at 8.

6

practicing before the SEC as an accountant. 28 Nonetheless, Taber engaged in prohibited
behavior, including drafting and editing footnotes to financial statements and editing data and
other infonnation that was incorporated into SEC filings. 29 The SEC sought and was granted a
court order enforcing Taber's compliance with the bar order. 30 In addition, the SEC sought and
was granted disgorgement of the monies Taber gained by violating the bar order. 31 The court
found, "Once a district court finds a federal securities law violation, 'it has broad equitable
power to fashion appropriate remedies, including ordering that culpable defendants disgorge
their profits. "' 32 And consistent with that "broad equitable power" to order defendants to
disgorge their profits, the court ordered disgorgement against Taber in the amount of $400,000. 33
Likewise, S.E. C. v. Martino and S.E. C. v. Telsey support this court's authority to order
disgorgement in the present case. Though neither is as similar to the present case as S.E. C. v.

Taber, each considers the violation of an SEC bar order and the disgorgement remedy. In S.E. C.
v. Martino, a SEC bar order precluded Carol Martino from associating with any broker, dealer,
investment adviser, investment company or municipal securities dealer. 34 Notwithstanding the
bar order, Martino engaged in brokerage activities and stock manipulation. 35 The court found
Martino's violation of the bar order to be a basis for ordering $4.416 million in disgorgement:
"Martino's repeated and flagrant violations of securities laws and Bar Order for more than three
28

See 2013 WL 6334375, at *1 (S.D.N.Y. Dec. 4, 2013).

29

See id.

30

See id.

31

See id. at *1, 3.

32

Jd. at *2 (citing SEC v. FirstJersey Sees., Inc., 101 F.3d 1450, 1474 (2d Cir.1996)).

33

See id. at *3.

34
35

See S.E.C. v. Martino, 255 F. Supp. 2d 268,272 (S.D.N.Y. 2003).

See id. at 283-88.

7

years more than amply demonstrate the Commission's entitlement to disgorgement." 36 Similarly,
in S.E.. C. v. Telsey, a SEC bar order prevented Steven Telsey from associating with any broker,
dealer, registered investment adviser or registered investment company. 37 Telsey nonetheless
violated that order by engaging in multiple business relationships with broker-dealers registered
with the SEC. 38 As a remedy, the court ordered Telsey to disgorge the sums he received from his
violations. 39
Thus, the cases S.E.C. v. Taber, S.E.C. v. Martino, and S.E.C. v. Telsey demonstrate that
disgorgement in SEC bar order cases is an equitable remedy within the court's equitable power.
Finally, the court is unpersuaded that the case Great- West Life & Annuity Ins. Co. v.
Knudson, 534 U.S. 204 (2002) should be read as indicating that disgorgement is not an equitable
remedy in the present case. In Great-West, the Supreme Court analyzed§ 502(a)(3) of the
Employee Retirement Income Security Act ("ERISA"), which authorizes a civil action seeking
"appropriate equitable relief." 40 The petitioners sought to compel the plan beneficiary to comply
with a plan provision requiring the plan beneficiary to reimburse the plan for any proceeds
recovered from third parties. 41 The petitioners argued their suit was authorized under§ 502(a)(3)
as equitable reliefbecause they sought restitution. 42 After a discussion of restitution at law verses
restitution in equity, however, the Supreme Court disagreed. The Supreme Court held that
because petitioners' claim was not that the plan beneficiary held particular funds belonging to
36

See id. at 289.

37

See 1991 WL 72854, at *1 (S.D.N.Y. Mar. 13, 1991).

38

See id. at *1-2.

39

See id. at *2.

40

Great-West Life &Annuity Ins. Co. v. Knudson, 534 U.S. 204,209 (2002).

41

See id. at208.

42

See id. at 212.

. 8

them, but that they were "contractually entitled to some funds," the restitution they sought was
legal in nature. 43
Jones does not clarify why the Supreme Court's analysis of§ 502(a)(3) of ERISA and the
restitution remedy should be determinative in this court's analysis of Jones's violation of a
102(e) Bar Order and the disgorgement remedy. Jones cites to no case finding Great-West
pertinent in an SEC enforcement action seeking disgorgement, and the court has found none.
Instead, two district courts have found Great- West does not prevent the SEC from pursuing
disgorgement in enforcement actions. 44
First, inS. E. C. v. Buntrock the court analyzed Great-West and held as follows:
[W]e agree with the SEC that the disgorgement remedy it seeks is
equitable in nature and, therefore, an acceptable fonn of relief. As
the SEC has accurately stated, disgorgement has historically been
viewed as an equitable remedy employed against those who profit
by abusing positions of tmst. In essence, it deprives a wrong-doer
of ill-gotten gains. Compensation is not an element ofthe claim. In
fact, the Supreme Court has held, in the ERISA context, that
disgorgement is a viable equitable remedy to recover improperly
received profits. See Harris Trust & Savings Bank v. Salomon
Smith Barney, Inc., 530 U.S. 238, 250-51, 120 S.Ct. 2180, 147
L.Ed.2d 187 (2000); Mertens v. Hewitt Associates, 508 U.S. 248,
260, 113 S.Ct. 2063, 124 L.Ed.2d 161 (1993). Furthermore,
virtually every federal court of appeals has recognized
disgorgement as an appropriate equitable remedy under the
securities laws. See, e.g., SEC v. Lipson, 278 F.3d 656, 662-63
(7th Cir.2002); SEC v. Infinity Group Co., 212 F.3d 180 (3d
Cir.2000); SEC v. Rind, 991 F.2d 1486 (9th Cir.1993); SEC v.
Commonwealth Chern. Sec., Inc., 574 F.2d 90 (2d Cir.1978). We
view these decisions as consistent with the Supreme Court's
holding in Great-West.

43

See id. at 214 (emphasis in original).

44

The law review article Jones cites acknowledges the absence of case law supporting Jones's position on

Great-West. See Russell G. Ryan, "The Equity Fa<;ade of SEC Disgorgement," Harvard Bus. L. Rev. Online (2013),
at 11 n.66 ("Only two district court opinions appear to have squarely considered the relevance of Great- West to SEC
disgorgement, and both ruled in the SEC's favor. SEC v. DiBella, 409 F. Supp. 2d 122, 132-33 (D. Conn. 2006);
SEC v. Buntrock, 2004 U.S. Dist. LEXIS 9495, at *6-9 (N.D. Ill. May 25, 2004).").

9

Therefore, we conclude that the disgorgement remedy is
equitable in nature and, thus, is within the arsenal of weapons
available to the SEC when prosecuting enforcement actions.
This conclusion is based not only the applicable federal precedent
but also on our understanding of Congress' intent in creating this
enforcement regime.
S.E.C. v. Buntrock, 2004 WL 1179423, at *3 (N.D. Ill. May 25, 2004) (emphasis added).

Second, in S.E. C. v. DiBella the court cited favorably to S.E. C. v. Buntrock and ruled as
follows:
Here, the SEC presents not a claim for damages, but rather a
typical and traditional claim for equitable relief in the form of
disgorgement. "[D]isgorgement has historically been viewed as an
equitable remedy employed against those who profit by abusing
positions oftrust. In essence, it deprives a wrong-doer of ill-gotten
gains." Buntrock, 2004 WL 1179423, *3, 2004 U.S. Dist. LEXIS
9495, at *7-*8 (permitting SEC disgorgement claim despite
defendant's claim that Great- West precludes SEC from seeking
disgorgement). Disgorgement is equitable in nature and
therefore Great-West does not preclude the SEC's claim.
S.E.C. v. DiBella, 409 F. Supp. 2d 122, 133 (D.Conn. 2006) (emphasis added).

Here, the court reaches the same conclusion reached by the courts in S.E. C. v. Buntrock
and S.E. C. v. DiBella-disgorgement is an equitable remedy that the SEC is authorized to seek
and the court is authorized to order. The Great-West decision does not dictate otherwise. 45

II.

Appropriateness of Disgorgement in the Present Case

Having determined that disgorgement is authorized, the court must next determine
whether disgorgement is appropriate in the present case. The court concludes that it is, because
(i) disgorgement is equitable and therefore not barred by the five-year statute of limitations in 28

45

See also S.E.C. v. DiBella, 409 F. Supp. 2d 122, 131 (D. Conn. 2006) ("Congress has made various
amendments to the securities laws, including the Private Securities Litigation Reform Act (1995) and the SarbanesOxley Act (2002), but has declined these opportunities to limit or eliminate the SEC's practice of seeking and
obtaining orders of disgorgement. In fact, a review of the text and legislative history of the various securities laws
supports the continued recognition by the courts of the SEC's disgorgement authority.").

10

U.S.C. § 2462; and (ii) disgorgement is an important means of deterring other bar order
violations.
A. Disgorgement Not BatTed by Five-Y car Statute of Limitations
In addition to arguing disgorgement is not an equitable remedy in the present case, Jones
argues that disgorgement is therefore a civil fine, penalty, forfeiture, or criminal remedy barred
by the five-year statute of limitations described in 28 U.S.C. § 2462. 46
Section 2462 requires that enforcement of any civil fine, penalty, or forfeiture be
commenced within five years from the date when the claim first accmed. 47 Section 2462 is
simply inapplicable in the present case, as disgorgement is an equitable remedy and not a civil
fine, penalty, or forfeiture. 48 And the U.S. Supreme Court case Gabelli v. S.E.C., cited by Jones,
does not say otherwise. In Gabelli v. S.E. C., the SEC sought civil penalties against investment
advisors for aiding and abetting fraud. 49 The question before the Supreme Court was whether the

46

See Jones's Post-Trial Disgorgement Br., supra note 8, at 14-15.

47

28

u.s.c. § 2462.

48

See Riordan v. S.E. C., 627 F. 3d 1230, 1234 (D.C. Cir. 201 0) ("The five-year statute of limitations in 28
U.S.C. § 2462 applies to an action for the enforcement of a 'fine, penalty, or forfeiture.' Does that list include
disgorgement? This Court has said no. We have reasoned that disgorgement orders are not penalties, at least so long
as the disgorged amount is causally related to the wrongdoing. See, e.g., Zacharias v. SEC, 569 F.3d 458,471-72
(D.C.Cir.2009); SEC v. Bilzerian, 29 F.3d 689, 696 (D.C.Cir.l994); SEC v. First City Financial Corp., 890 F.2d
1215, 1231 (D.C.Cir.1989). Because we have held that disgorgement is not a 'civil penalty,' the Court in Zacharias
held that disgorgement was not subject to the five-year statute of limitations. 569 F.3d at 471-72. In light of our
precedents, we must reject Riordan's similar argument here." (footnote omitted)). See also S.E. C. v. DiBella, 409 F.
Supp. 2d 122, 127 (D. Conn. 2006) ("Section 2462 does not preclude disgorgement actions brought by the SEC
where the claim seeks to 'deprive[] one of wrongfully obtained proceeds.' LorinL 869 F.Supp. at 1122.
'[D]isgorgement merely returns the wrongdoer to the status quo before any wrongdoing had occurred.' I d. 'In
contrast, fines, penalties, and forfeitures alter the status quo before the unlawful activity took place.' I d. Penalties
and forfeitures are meant to be punitive. They punish a wrongdoer for his or her violation. Disgorgement, on the
other hand, merely dispossesses the wrongdoer of the profits earned from illegal conduct."); S.E.C. v. Texas Gulf
Sulphur Co., 446 F.2d 1301, 1308 (2d Cir. 1971) ("Appellants, of course, contend that the required restitution is
indeed a penalty assessment ... This contention overlooks the realities of the situation ... Restitution of the profits
on these transactions merely deprives the appellants of the gains of their wrongful conduct.").
49

See 133 S. Ct. 1216, 1219-20 (2013).

11

discovery rule applied to § 2462, and the Supreme Court said no. 50 Importantly, the Supreme
Court dealt with civil penalties-not disgorgement. The Supreme Court noted, "The SEC also
sought injunctive relief and disgorgement, claims the District Court found timely on the ground
that they were not subject to § 2462. Those issues are not before us." 51 The Gabelli v. S.E. C.
decision does not require applying a statute oflimitations to disgorgement. 52
Thus, the court finds disgorgement in the present case is not barred by the five-year
statute of limitations in § 2462 and is therefore appropriate. 53
B. Importance ofDisgorgement
The court finds disgorgement is appropriate in the present case as an important deterrent
to other bar order violations. "Disgorgement plays a central role in the enforcement of the
securities laws." 54 "The primary purpose of disgorgement in securities law cases 'is to deprive
violators of their ill-gotten gains, thereby effectuating the deterrence objectives ofthose laws.'" 55
"The effective enforcement of the federal securities laws requires that the SEC be able to make
50

51

See id. at 1224.

Id. at 1220 n.l.

52

See S.E. C. v. Geswein, 2 F. Supp. 3d 1074, 1084 (N.D. Ohio 2014) ("Again, in its earlier Order, this Court
further determined, that 'to the extent that the SEC seeks to enjoin [Defendants] from violating or aiding and
abetting the violation of securities laws, or an order directing them to disgorge profits to remedy an alleged past
wrong and protect the public from future harm, Section 2462 does not apply.' (9/29/11 Order, ECF DKT # 63 at 5).
Since those claims were not before the Supreme Court in Gabelli ... this Court has no reason to reconsider its own
decision in that regard."). See also S.E.C. v. Amerindo Inv. Advisors, Inc., 2014 WL 405339, at *9 (S.D.N.Y. Feb. 3,
20 14) ("[T]he statute of limitations at issue in Gabelli applies only to civil penalties, and does not prevent a finding
of liability or an awarding of other kinds of remedies.").
53
The court notes S.E.C. v. Graham, wherein the U.S. District Court for the Southern District of Florida
found that§ 2462 reached all forms of relief sought by the SEC in that case, including disgorgement. 21 F. Supp. 3d
1300, 1309 (S.D. Fla. 2014). The court finds Graham unpersuasive and inapplicable to the case at hand. This
court's position in declining to follow Graham is consistent with the positions of other courts that have also
considered Graham. See S.E.C. v. Stoecldien, 2015 WL 6455602 (S.D. Cal. Oct. 26, 2015); S.E.C. v. Funinaga, 2014
WL4977334 (D. Nev. Oct. 3, 2014); S.E.C. v. LeCroy, 2014 WL 4403147 (N.D. Ala. Sept. 5, 2014).

54

S.E.C. v. Rind, 991 F.2d 1486, 1491 (9th Cir. 1993).

55

S.E.C. v. Taber, 2013 WL 6334375, at *2 (S.D.N.Y. Dec. 4, 2013) (citing SEC v. Credit Bancorp, Ltd.,
No. 99 Civ. 11395,2011 WL 666158, at *2 (S.D.N.Y. Feb. 14, 2011)).

12

violations unprofitable. The deterrent effect of an SEC enforcement action would be greatly
undennined if securities law violators were not required to disgorge illicit profits." 56 "By
deterring violations of the securities laws, disgorgement actions further the Commission's public
policy mission of protecting investors and safeguarding the integrity of the markets." 57
Thus, the court determines that disgorgement is an appropriate remedy for Jones's Bar
Order violations.

III.

Amount of Disgorgement

Having found that disgorgement is both authorized and appropriate in the present case,
the court must next determine the proper amount to be disgorged. 58 The district court in S.E. C. v.

Taber provides helpful analysis on calculating a disgorgement amount:
The district court "has broad discretion not only in determining
whether or not to order disgorgement but also in calculating the
amount to be disgorged." First Jersey Sees., 101 F.3d at 1474-75
(citation omitted). In calculating such amount, the court "should
include all gains flowing from illegal activities, plus prejudgment
interest, and 'need only be a reasonable approximation of profits
causally connected to the violation.' " Credit Baneorp, Ltd., 2011
WL 666158, at *2 (quoting First Jersey Sees., 101 F.3d at 1475);
see also SEC v. Absolutefitture.eom, 393 F.3d 94, 96 (2d Cir.2004)
("[T]he amount of disgorgement, as an equitable remedy, is
detennined by the amount of profit realized by the defendant.")
(citation omitted). This calculation does not require exactitude;
rather, "[s]o long as the measure of disgorgement is reasonable,
'any risk of uncertainty should fall on the wrongdoer whose illegal
conduct created that uncertainty.' "SEC v. Warde, 151 F.3d 42, 50

56

S.E.C. v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1104 (2d Cir. 1972); see also S.E.C. v. Texas Gulf
Sulphur Co., 446 F.2d 1301, 1308 (2d Cir. 1971) ("It would severely defeat the purposes of the Act if a violator of
Rule 10b-5 were allowed to retain the profits from his violation.").
57

S.E.C. v. Rind, 991 F.2d 1486, 1491 (9th Cir. 1993).

58

Jones notes in his briefing that "[a]fter the close of the Commission's case-in-chief, Jones made a motion
to dismiss the Commission's claim of disgorgement on the ground that the Commission had put on insufficient
evidence of any amount." Jones's Post-Trial Disgorgement Br., supra note 8, at 3. Jones states that the court needs
to rule on Jones's outstanding motion. See id. The court disagrees with Jones's contention that the SEC put on
insufficient evidence of disgorgement. To the extent necessary, the court herein denies Jones's motion to dismiss.

13

(2d Cir.1998) (quoting SEC v. Patel, 61 F.3d 137, 140 (2d
Cir.1995)).
2013 WL 6334375, at *2 (S.D.N.Y. Dec. 4, 2013). Other courts have likewise found a
reasonable approximation of ill-gotten profits to be sufficient in calculating disgorgement. 59 And
requiring approximation rather than exactitude makes particular sense in the present case, where
the record amply demonstrates that Jones's QuickBooks records often described his work as
"consultation," even where he was actually engaging in Bar Order violating behavior. 60
The SEC puts forth three possible calculations for disgorgement. 61 The first suggested
calculation relies on Jones's investigative testimony that roughly 50 percent of J&J Consultants
LLC's ("J&J") business from2001 through 2013 was financial statement preparation work, and
of that work, roughly 60 percent was for public companies. 62 This testimony suggests 30 percent
of J&J's business from 2001 through 2013 was financial statement preparation for public
companies. 63 As such, the SEC's first suggested disgorgement calculation multiplies Jones's .T&J
income from 2008 through 20 13--a gross amount of $1,487, 097-by 30 percent, 64 for a total
disgorgement amount of $446,129. 65

59

See S.E. C. v. Curshen, 372 F. App'x 872, 883 (lOth Cir. 2010) ("As for the disgorgement order, '[t]he SEC
is entitled to disgorgement upon producing a reasonable approximation of [Mr. Curshen's] ill-gotten gains.' SEC v.
Calvo, 378 F.3d 1211, 1217 (11th Cir.2004)."); S.E.C. v. First City Financial. Corp., 890 F.2d 1215, 1231 (D.C. Cir.
1989) ("Accordingly, disgorgement need only be a reasonable approximation of profits causally connected to the
violation.").
60

See Hr'g Tr., (CM/ECF No. 102-1) at 203:25-224:25.

61

See SEC's Post-Trial Disgorgement Br., supra note 7, at 15-21.

62

See id. at 16; Hr'g Tr., (CM/ECF No. 102) at 186:14-187:18, 189:4-190:22.

63

See SEC's Post-Trial Disgorgement Br., supra note 7, at 16.

64

See id.; Ex. 319.

65

See SEC's Post-Trial Disgorgement Br., supra note 7, at 21.

14

The SEC's second suggested disgorgement calculation analyzes Jones's QuickBooks
accounting records. It embraces all public companies for which Jones performed either SEC
related work or work described as "consultation."66 Starting with year 2008, 67 the SEC totaled
the number of hours billed for SEC related or "consultation" work that year, and then divided
that number by the total number of hours Jones billed for that year. 68 The resulting percentage
was then multiplied against Jones's total taxable income for 2008 to ascertain Jones's 2008
earnings attributable to SEC related or "consultation" work. This method was repeated for the
years 2009, 2010, 2011, 2012, and 2013. 69 The SEC's second suggested disgorgement
calculation adds together each year's earnings attributable to SEC related or "consultation" work
for a total disgorgement amount of$916,926. 70
The SEC's third suggested disgorgement calculation follows the same method as the
second, but it assumes as true Jones's argument the disgorgement should be limited to the 21
public companies identified in Lynn Turner's expert report as companies Jones inappropriately
performed work for. 71 The SEC's third suggested calculation relies on Jones's Exhibit 320 and

66

See id. at 17-18.

67

At trial, the SEC confirmed that it is only seeking disgorgement for 2008 forward, even though the SEC
alleged a more expansive time period for Bar Order violations. See Hr'g Tr., (CM/ECF No. 104-1) at 555:10-556:6.
68

See SEC's Post-Trial Disgorgement Br., supra note 7, at 20; Ex. 245.

69

See SEC's Post-Trial Disgorgement Br., supra note 7, at 20; Ex. 245.

70

See SEC's Post-Trial Disgorgement Br., supra note 7, at 21; Ex. 245.

71

See SEC's Post-Trial Disgorgement Br., supra note 7, at 17-18.

15

calculates Jones's profits for all of Jones's work for the 21 companies. 72 This results in a total
disgorgement amount of$292,316. 73
In opposition to the SEC's suggested disgorgement amounts, Jones put forth his own
calculation. Jones argues that only work related to financial statement preparation for the 21
companies should be a basis for disgorgement. 74 Thus, relying on Exhibit 319, Jones argues for a
total disgorgement amount between $27,722 and $81,464. 75
The court rejects the suggestion that a disgorgement calculation is limited to the 21
companies identified in Lynn Turner's expert report. That report does not indicate that the 21
companies identified are an exhaustive list of all public companies for which Jones performed
impermissible work. 76 Neither was Jones's testimony at trial limited to work performed
exclusively for those 21 companies. It would undermine the important deterrent effect of
disgorgement if the court were to artificially limit the disgorgement analysis. Thus, the court
rejects both the SEC's and Jones's disgorgement calculations premised on a 21 company
limitation.

72

See id. at 18, 20-21; Ex. 320.

73

See SEC's Post-Trial Disgorgement Br., supra note 7, at 21; Ex. 320. Note: Exhibit 320 identifies
$292,316 as the portion of total taxable income related to the 21 companies, not the $294,316 figure the SEC
suggests.
74

See Jones's Post-Trial Disgorgement Br., supra note 8, at 21-24.

75

See id; Ex. 319.

76

See Expert Report of Lynn Turner, Ex. 263.

16

Instead, the court finds $600,000 to be a reasonable approximation of the profits Jones
derived from his Bar Order violations. Disgorgement in that amount is supported by the evidence
in the record and provides an appropriate remedy for Jones's Bar Order violations. 77
The court therefore orders disgorgement in the amount of$600,000. 78
CONCLUSION
The court finds disgorgement is both authorized and appropriate in the present case, and
disgorgement in the amount of $600,000 reasonably approximates Jones's profits from his Bar
Order violations.
Judgment shall be entered against Jones for disgorgement in the amount of$600,000.

tff\DATED this _l_!i__ day of December, 2015.

United States enior Distry Judge
/

77

Jones's total gross income and total net income for 2008 through 2013 is $1,487,097 and $1,151,330,
respectively. See Ex. 319, Ex. 320. A disgorgement amount of $600,000 is approximately 40 percent of Jones's total
gross income and approximately 52 percent of Jones's total net income. Regardless of whether one uses total gross
income or total net income as a reference point, the court believes $600,000 to be an equitable and reasonable
disgorgement amount.
78

The court finds $600,000 a sufficient remedy for Jones's Bar Order violations. The court declines to
additionally impose prejudgment interest on that amount. See S.E.C. v. Taber, 2013 WL 6334375, at *3 (S.D.N.Y.
Dec. 4, 2013) ("The determination of whether to impose prejudgment interest is at the discretion of the court."
(citing S.E.C. v. First Jersey Sees., Inc., 101 F.3d 1450, 1476 (2d Cir. 1996))).

17