Securities & Exchange Commission v. Merchant Capital, LLC , 397 F. App'x 593 ( 2010 )

[DO NOT PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
________________________ ELEVENTH CIRCUIT
SEPT 27, 2010
No. 09-14890 JOHN LEY
________________________ CLERK
D. C. Docket No. 02-02984-CV-MHS-1
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff-Appellant,
versus
MERCHANT CAPITAL, LLC,
STEVEN C. WYER,
KURT V. BEASLEY,
Defendants-Appellees,
NEW VISION FINANCIAL, LLC,
Defendant.
________________________
Appeal from the United States District Court
for the Northern District of Georgia
_________________________
(September 27, 2010)
Before EDMONDSON and CARNES, Circuit Judges, and GOLDBERG,* Judge.
PER CURIAM:
This appeal is the third time this Court has seen this case. See SEC v.
Merchant Capital, LLC, 311 F. App’x 250 (11th Cir. 2009) (hereinafter “Merchant
Capital II”), rev’g and remanding 1:02-CV-2984-MHS (N.D. Ga. June 10, 2008);
SEC v. Merchant Capital, LLC, 483 F.3d 747 (11th Cir. 2007) (hereinafter
“Merchant Capital I”), rev’g in part, vacating in part, and remanding 400
F.Supp.2d 1336 (N.D. Ga. 2005). The case is a civil enforcement action brought
by the SEC against Merchant Capital and the two people who own it.
The history has been set out and made in earlier opinions. Briefly stated, the
SEC has consistently contended that Defendants failed to register securities and
made material omissions about the securities and made the omissions in bad faith;
the District Judge has regularly disagreed. As the case stands before us now, we
look at two questions:
1. Whether the District Court clearly erred in determining that
Defendants acted no worse than negligently in withholding
*
Honorable Richard W. Goldberg, United States Court of International Trade Judge,
sitting by designation.
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information from investors?
On this question, we know that we review the District Court’s findings on scienter
for clear error. Merchant Capital I, 483 F.3d at 754. Credibility is important.
Especially given that the District Judge heard the oral testimony of the individual
Defendants, we accept that a finding of mere negligence was not clearly erroneous.
2. Whether the District Court abused its discretion in its decisions on
imposing equitable remedies, including disgorgement, permanent
injunctions, and civil monetary penalties?
Particularly given the finding of mere negligence, we affirm the District Court’s
decision on the permanent injunction and on the civil monetary penalties.
But we reverse the District Court’s decision to order no disgorgement. From
our opinion in the last appeal, we point out this sentence: “The district court is
instructed to order the appropriate disgorgement . . . for violations of the anti-fraud
statutes.” Merchant Capital II, 311 F. App’x at 252. And we point out this
sentence about violation of registration requirements: “Because these violations are
strict-liability violations, the district court is instructed to order appropriate
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disgorgement . . . .” Id. at 252-53. Our instructions were not suggestions.
Nevertheless, in the face of our opinion, the District Court on remand wrote “an
order of disgorgement is not appropriate in this case.”
Because of the burden of responsibility the Circuit Court bears, we must
insist that the instructions that we set out in our opinions be taken, for the pertinent
cases, as commands: the mandate. The Circuit Court’s orders to the District Court
to take a specific action must be treated seriously and carried out fully. As the
District Court acknowledged in its most recent order, the chief purpose of
disgorgement is to “deprive violators of their ill-gotten gains.” Disgorgement is
not dependent on scienter, but is tied instead to the idea of unjust enrichment: the
broad idea is that persons not profit from breaking the securities laws.
We meant for disgorgement to be ordered by the District Court. Given the
instructions set out in our earlier opinion, “appropriate disgorgement” must not
become -- in this case on remand -- an outright District Court order of “No
disgorgement.”
We have read the District Judge’s spirited explanation on remand for his
own negative conclusion about disgorgement; the words are no substitute for the
necessary action. In the light of our earlier opinion, disgorgement, as a matter of
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law, was -- and is -- warranted in this case.1 The outright denial of disgorgement is
reversed. The case is again remanded to the District Court for further proceedings
not inconsistent with this decision. In the District Court, the Chief Judge of the
Northern District of Georgia is directed to reassign the case to a different judge to
determine the amount2 of disgorgement that will be imposed and to preside over
this case for all other purposes and proceedings in that honorable Court.
AFFIRMED IN PART, REVERSED IN PART, REMANDED WITH
INSTRUCTIONS.
1
As ordered by this Court, Merchant Capital II, 311 F. App’x at 252, the District Court
entered judgment concluding that the Defendants had violated Sections 5(a) and 5(c) of the
Securities Act, 15 U.S.C. §§ 77e(a), 77e(c), as well as Section 15(a) of the Securities Exchange
Act, 15 U.S.C. § 78o(a). The District Court also concluded that the Defendants had violated
Sections 17(a)(2) and 17(a)(3) of the Securities Act, 15 U.S.C. §§ 77q(a)(2), 77q(a)(3).
2
We express no view on the correct amount of disgorgement: a calculation of causation
and figures.
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