Securities And Exchange Commission v. Hallam

42 F.4th 316 (5th Cir 2022)

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Nature of the Case

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Facts

The SEC (P) accused D of violating antifraud and registration provisions of the Securities Act and antifraud provisions of the Exchange Act and Rule 10b-5. D neither admitted nor denied those allegations but consented to a judgment containing four relevant prongs of relief. D agreed to pay a civil penalty in an amount to be determined by the court. D agreed that the court could determine whether he should be permanently enjoined from dealing in securities except for his own account. D agreed to 'pay disgorgement of ill-gotten gains.' D agreed to pay 'prejudgment interest' on those gains, 'based on the rate of interest used by the [IRS] for the underpayment of federal income tax.' Three years later, P moved the district court to calculate the monetary remedies and enjoin D from dealing in securities. P requested a finding that d's ill-gotten gains totaled $1,901,480. P asked for 'disgorgement' in that amount and calculated the prejudgment interest at $424,375.38. P did not specify the appropriate civil penalty but requested that the court impose one of the options in the highest tier allowed by statute. The Supreme Court decided Liu, which identified constraints on the 'disgorgement' remedy sought by P. D told the district court that Liu 'banished' existing precedent on securities remedies, which he said vitiated his prior consent. According to D, Liu also foreclosed P's ability to get prejudgment interest, a 'penalty offset,' or an injunction against his future securities dealings, even though Liu didn't directly address those topics. D requested a 'live' evidentiary hearing to help the court 'in the assessment of [which civil] penalty tier ' to apply to his conduct. Just before the district court ruled, Congress amended the Exchange Act explicitly to authorize 'disgorgement' of wrongdoers' 'unjust enrichment.' The court rejected D's positions and denied his request for a hearing. It read Liu to reaffirm disgorgement's availability in Exchange Act cases. It relied on pre-Liu precedent to hold that P was entitled to disgorgement. It concluded that Liu imposed no new constraints on P's ability to get prejudgment interest, a 'penalty offset,' or an injunction against his future securities dealings. And it didn't mention the (then very recent) statutory amendment. The court ordered Hallam to pay $1,901,480 in 'disgorgement' and $424,375.38 in prejudgment interest. It also imposed a civil penalty of an extra $1,901,480 after concluding that D's conduct merited the highest amount provided by the Exchange Act: a penalty equal to his 'pecuniary gain.' The court enjoined D from 'participating . . . in the issuance, purchase, offer, or sale of any unregistered securities' except in regard to his own account. P appealed in part for a denial of due process and opposing all the penalties levied.