SEC v. De Maison ( 2021 )

18-2564 (L)
SEC v. de Maison
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
SUMMARY ORDER
RULINGS BY SUMMARY ORDER DO NOT HAVE PRECEDENTIAL EFFECT. CITATION TO A
SUMMARY ORDER FILED ON OR AFTER JANUARY 1, 2007, IS PERMITTED AND IS GOVERNED BY
FEDERAL RULE OF APPELLATE PROCEDURE 32.1 AND THIS COURT=S LOCAL RULE 32.1.1.
WHEN CITING A SUMMARY ORDER IN A DOCUMENT FILED WITH THIS COURT, A PARTY MUST
CITE EITHER THE FEDERAL APPENDIX OR AN ELECTRONIC DATABASE (WITH THE NOTATION
“SUMMARY ORDER”). A PARTY CITING A SUMMARY ORDER MUST SERVE A COPY OF IT ON
ANY PARTY NOT REPRESENTED BY COUNSEL.
At a stated term of the United States Court of Appeals for the Second Circuit, held at the
Thurgood Marshall United States Courthouse, 40 Foley Square, in the City of New York, on the
16th day of December, two thousand twenty-one.
Present:
DEBRA ANN LIVINGSTON,
Chief Judge,
GERARD E. LYNCH,
Circuit Judge,
CLAIRE R. KELLY,
Judge.*
_____________________________________
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff-Appellee,
v. 18-2564 (L), 21-620 (Con)
ANGELIQUE DE MAISON,
Defendant-Cross Defendant-Appellant,
PETER VOUTSAS, RONALD LOSHIN,
Defendants,
JASON COPE, IZAK ZIRK DE MAISON, FKA IZAK ZIRK
ENGELBRECHT, LOUIS MASTROMATTEO, TRISH
*
Judge Claire R. Kelly, of the United States Court of International Trade, sitting by designation.
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MALONE, KIERAN T. KUHN, GEPCO, LTD., SUNATCO
LTD., SUPRAFIN LTD., WORLDBRIDGE PARTNERS,
TRAVERSE INTERNATIONAL, SMALL CAP RESOURCE
CORP., GREGORY GOLDSTEIN, STEPHEN
WILSHINSKY, TALMAN HARRIS, WILLIAM
SCHOLANDER, JUSTIN ESPOSITO, KONA JONES
BARBERA, VICTOR ALFAYA,
Defendants-Cross Defendants,
JACK TAGLIAFERRO,
Defendant-Cross Claimant-Cross Defendant.
_____________________________________
For Plaintiff-Appellee: THEODORE WEIMAN, Senior Litigation Counsel
(Michael A. Conley, Solicitor, John B. Capehart,
Senior Counsel, on the brief), United States
Securities and Exchange Commission, Washington,
D.C.
For Defendant-Cross Defendant-Appellant: JEFFREY B. COOPERSMITH (Lauren B. Rainwater,
Davis Wright Tremaine LLP, Seattle, Washington,
on the brief), Orrick, Herrington & Sutcliffe LLP,
Seattle, Washington.
Appeal from a judgment of the United States District Court for the Southern District of
New York (Cote, J.).
UPON DUE CONSIDERATION, IT IS HEREBY ORDERED, ADJUDGED, AND
DECREED that the judgment of the district court is AFFIRMED.
Defendant-Cross Defendant-Appellant Angelique de Maison appeals from a judgment of
the district court entered against her following a consent agreement with Plaintiff-Appellee United
States Securities and Exchange Commission (“SEC”). This case returns to us after the Supreme
Court vacated our judgment affirming the district court’s prior order, SEC v. de Maison, 785 F.
App’x 3 (2d Cir. 2019), and remanded the case for further consideration in light of Liu v. SEC, 140
S. Ct. 1936 (2020). See de Maison v. SEC, 141 S. Ct. 186 (2020) (mem.). After we vacated the
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district court’s judgment and remanded the case to the district court and the SEC recommended a
reduced disgorgement sum, the district court ordered de Maison to disgorge $524,885 and imposed
a third-tier civil penalty of $4,240,049.30. SEC v. Cope, No. 14-cv-7575, 2021 WL 653088, at
*3 (S.D.N.Y. Feb. 19, 2021). On appeal, de Maison argues that the district court failed to
properly account for her personal net profits in ordering the revised disgorgement award; that the
district court abused its discretion in reimposing the initial civil penalty of $4,240,049.30; and that
the record warrants reassigning the case to another judge on remand. We otherwise assume the
parties’ familiarity with the underlying facts, the procedural history of the case, and the issues on
appeal.
“[O]nce the district court has found federal securities law violations, it has broad equitable
power to fashion appropriate remedies.” SEC v. Fowler, 6 F.4th 255, 265 (2d Cir. 2021) (quoting
SEC v. Sourlis, 851 F.3d 139, 146 (2d Cir. 2016)). “The court’s choice of remedies is reviewed
for abuse of discretion.” SEC v. Frohling, 851 F.3d 132, 139 (2d Cir. 2016). “Under this
standard, we will reverse only if we have a definite and firm conviction that the court below
committed a clear error of judgment in the conclusion that it reached upon a weighing of the
relevant factors.” SEC v. Rajaratnam, 918 F.3d 36, 41 (2d Cir. 2019) (quoting SEC v. Bankosky,
716 F.3d 45, 47 (2d Cir. 2013) (per curiam)). For the following reasons, we conclude that the
district court acted within its discretion in ordering the revised disgorgement award and reimposing
the civil penalty and that its order aligned with the principles articulated in Liu.
I. Disgorgement Award
De Maison contends that the $524,885 disgorgement award exceeds her true net profits of
$184,652 and that the SEC failed to sufficiently relate the recommended disgorgement amount to
her fraudulent conduct. She challenges several portions of the SEC’s disgorgement calculation,
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asserting that about $180,000 in investor funds ultimately reached the appropriate destination
accounts, $80,000 reflected a personal loan that she repaid with interest, and $80,000 was
transferred to an account on which the original investor was a joint owner. The district court
rejected de Maison’s arguments, concluding that her claims “ignore the fungibility of money.”
Cope, 2021 WL 653088, at *2. The district court held that the impossibility of determining
whether “the precise tranche of money diverted to de Maison’s accounts was the precise tranche
of money deposited by an investor” did not overcome the SEC’s demonstration that de Maison
transferred investor funds to personal accounts and used investor funds for personal expenses. Id.We agree.
De Maison correctly notes that Liu limits disgorgement awards issued as “equitable relief”
under 15 U.S.C. § 78u(d)(5) to a “wrongdoer’s net profits.” Liu, 140 S. Ct. at 1940. Yet
“separating legal from illegal profits exactly may at times be a near-impossible task.” SEC v.
Razmilovic, 738 F.3d 14, 31 (2d Cir. 2013) (quoting SEC v. First City Fin. Corp., 890 F.2d 1215,
1231 (D.C. Cir. 1989)), as amended. Thus, “[t]he amount of disgorgement ordered need only be
a reasonable approximation of profits causally connected to the violation,” and “any risk of
uncertainty should fall on the wrongdoer whose illegal conduct created that uncertainty.” Id.(internal quotation marks and citations omitted). “Once the SEC has met the burden of
establishing a reasonable approximation of the profits causally related to the fraud, the burden
shifts to the defendant,” id., who is “obliged clearly to demonstrate that the disgorgement figure
was not a reasonable approximation,” id. at 32 (quoting First City, 890 F.2d at 1232). We
recently reaffirmed these principles in the wake of Liu. See Fowler, 6 F.4th at 267. Moreover,
Liu did not disturb this Court’s longstanding principle that “specific tracing [is] unnecessary in
ordering disgorgement for securities fraud.” SEC v. Contorinis, 743 F.3d 296, 303 n.3 (2d Cir.
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2014); see also FTC v. Bronson Partners, LLC, 654 F.3d 359, 374 (2d Cir. 2011) (“[T]he Federal
Reporter is replete with instances in which judges of this Court deeply familiar with equity practice
have permitted the SEC to obtain disgorgement without any mention of tracing.”).
Here, the district court ordered disgorgement of $524,885 upon a showing by the SEC that,
shortly after large sums of investor funds were deposited into bank accounts designed for the
benefit of investors, de Maison transferred those funds to her personal accounts or used those funds
for her personal expenses. We discern no basis for concluding that the district court abused its
discretion in finding that the SEC fulfilled its burden of establishing “a reasonable approximation
of the profits causally related to the fraud,” and that de Maison had failed to meet her corresponding
burden to demonstrate that the disgorgement figure was not a reasonable approximation.
Razmilovic, 738 F.3d at 31. As the district court noted, de Maison’s citation of roughly
concurrent transfers of investor funds to appropriate destination accounts does not overcome the
SEC’s showing that de Maison transferred investor funds to personal accounts and used investor
funds for personal expenses. Cope, 2021 WL 653088, at *2. Likewise, de Maison’s assertion
that a portion of investor funds reached an account jointly owned by an investor does not
demonstrate that those funds did not in fact constitute her net profits, especially given that “any
risk of uncertainty should fall on the wrongdoer,” Razmilovic, 738 F.3d at 31 (internal quotation
marks and citation omitted). Finally, as to de Maison’s claim that certain investor funds served
as a personal loan, she fails to clearly demonstrate that the SEC’s inclusion of this sum in her net
profits was unreasonable.
II. Civil Penalty
De Maison also challenges the district court’s reimposition of a civil penalty of
$4,240,049.30. In issuing the penalty, the district court noted that the maximum statutory fine —
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the “gross amount of pecuniary gain” — remained the same and perceived “no reason to reconsider
its conclusion that the maximum fine is appropriate.” Cope, 2021 WL 653088, at *3. On
appeal, de Maison argues, inter alia, that the penalty was disproportionate in light of the reduced
disgorgement sum; that the district court failed to adequately address statutory limits on civil
penalties; and that the penalty did not reflect a proper accounting of mitigating circumstances and
de Maison’s “reduced culpability,” Defendant-Cross Defendant-Appellant’s Br. at 29, in the wake
of the revised disgorgement award.
We conclude that the district court acted within its discretion in reimposing the civil
penalty. A district court enjoys “wide discretion” in devising civil penalties, Fowler, 6 F.4th at
266, and need not adjust its civil penalty in light of a revised disgorgement award. Indeed, the
Supreme Court in Liu did not directly speak to the relationship, if any, between the equitable
disgorgement awards authorized under § 78u(d)(5) and civil penalties authorized elsewhere in the
statute. 140 S. Ct. at 1940. Pre-Liu cases often equated the “disgorgeable gain” available in
equity with the maximum civil penalty based on a wrongdoer’s “gross amount of pecuniary gain,”
see Razmilovic, 738 F.3d at 38 (quoting 15 U.S.C. § 78u(d)(3)(B)(iii)), but those concepts have
always been distinct under the law. By emphasizing that equitable disgorgement is limited to the
“net profits from wrongdoing,” Liu, 140 S. Ct. at 1945 (emphasis added), the Supreme Court
severed any equation of disgorgement amounts from the “gross amount of pecuniary gain,” that
constitutes the maximum civil penalty for a third-tier civil violation, 15 U.S.C. § 78u(d)(3)(B)(iii)
(emphasis added). Accordingly, this Court has noted since Liu that “[w]e have not previously
held that the civil penalty for a securities fraud offense needs to be proportional to the disgorgement
amount.” Fowler, 6 F.4th at 266; see also SEC v. Penn, No. 14-cv-581, 2021 WL 1226978, at
*14 n.23 (S.D.N.Y. Mar. 31, 2021) (“[N]othing in Liu disturbs the Court’s power to order civil
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penalties.”). Thus, we find no basis for reversal either in the fact that the civil penalty initially
equaled and now exceeds the disgorgement amount or in any alleged relationship between civil
penalties and disgorgement awards imposed by courts and recommended by the SEC.
Furthermore, the reimposed civil penalty falls within statutory bounds. A district court
may impose a third-tier civil penalty for securities law violations that “resulted in substantial
losses,” with the option to impose up to the “gross amount of pecuniary gain to such defendant as
a result of the violation.” See 15 U.S.C. §§ 77t(d)(2)(C), 78u(d)(3)(B)(iii). Here, the SEC’s
complaint alleged that de Maison acted as an unregistered broker-dealer in the sales of unregistered
securities that totaled $4,240,049.30, thus violating sections 5(a), 5(c), and 15(a) of the Exchange
Act, 15 U.S.C. §§ 77e(a), 77e(c), 78o(a). See Joint App’x at 116, 125–28, 147–48, 156. In her
consent with the SEC, de Maison agreed that “the allegations of the Complaint shall be accepted
as and deemed true” for the purposes of a motion for a civil penalty, and that she could neither
“argu[e] that she did not violate the federal securities laws as alleged” nor “challenge the validity
of th[e] Consent or the Final Judgment.” Joint App’x at 177. The district court imposed a civil
penalty of $4,240,049.30 upon determining that “the SEC has demonstrated that . . . de Maison[]’s
illegal conduct generated proceeds of $4,240,049.30” and that a maximum fine was warranted.
SEC v. Cope, No. 14-cv-7575, 2018 WL 3628899, at *6 (S.D.N.Y. July 30, 2018); see id. at *8.
Following the remand, the SEC’s updated declaration reaffirmed that the $4,240,049.30 figure
“undisputedly represented the amount of money raised from investors in the illegal offerings in
which de Maison participated,” Supp. App’x at 48, a stipulation that de Maison does not directly
contest on appeal. 1
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At oral argument, de Maison’s counsel suggested that her gross pecuniary gain should be limited
to the net profits calculated by the SEC (i.e., the disgorgement award) because the SEC had not
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Accordingly, the district court acted within statutory limits in reimposing the same civil
penalty, which continued to represent the “gross amount of pecuniary gain” to de Maison. See
15 U.S.C. §§ 77t(d)(2)(C), 78u(d)(3)(B)(iii). Contrary to de Maison’s assertions, the district
court’s original decision indicated only its choice to impose the maximum fine, not necessarily its
commitment to impose a civil penalty equal to the disgorgement sum. Moreover, de Maison’s
citation to cases involving the relationship between disgorgement awards and statutory pecuniary
gains before the Supreme Court decided Liu falls short of demonstrating that the district court
abused its discretion in reimposing the civil penalty under a post-Liu understanding of
disgorgement.
Finally, the district court properly accounted for mitigating factors in imposing the civil
penalty. As de Maison recognizes, “several factors determine an appropriate civil penalty award:
‘(1) the egregiousness of the defendant’s conduct; (2) the degree of the defendant’s scienter; (3)
whether the defendant’s conduct created substantial losses or the risk of substantial losses to other
persons; (4) whether the defendant’s conduct was isolated or recurrent; and (5) whether the penalty
should be reduced due to the defendant’s demonstrated current and future financial condition.’”
identified any deductible business expenses to explain the apparent difference between de
Maison’s “net” and “gross” proceeds. We disagree. The essence of the fraud here was the sale
by de Maison of unregistered, essentially worthless stock. Thus, all of the proceeds from the
sale — the gross revenue obtained from the fraud — were due to de Maison and came to the
accounts that she designated. It is arguable that amounts distributed to co-conspirators should
not reduce the “net profits” that should be disgorged. See Liu, 140 S. Ct. at 1950 (“[W]hen the
entire profit of a business or undertaking results from the wrongdoing, a defendant may be denied
inequitable deductions . . . [b]ut that exception requires ascertaining whether expenses are
legitimate.” (internal quotation marks and citations omitted)). Yet that issue is not before us.
To the extent that the SEC acquiesced by calculating only “net profits” from the proceeds that
went directly to de Maison’s use, that approach does not alter the fact that the gross amount of the
proceeds of the fraud in which de Maison played a central role — and that was, at least initially,
under her control — consisted of the entire $4.2 million in receipts from the illegal securities sale.
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Fowler, 6 F.4th at 266 (quoting Rajaratnam, 918 F.3d at 44). On appeal from the district court’s
initial imposition of the $4,240,049.30 civil penalty, we held that “de Maison’s argument that the
district court failed to give adequate consideration to mitigating factors when calculating the civil
penalty is belied by the record.” de Maison, 785 F. App’x at 7 n.2. Given that the district court
cited its original reasoning in ordering the same civil penalty on remand, we discern no basis for
holding that the district court “committed a clear error of judgment,” Rajaratnam, 918 F.3d at 41
(citation omitted), in reimposing the penalty. See Cope, 2021 WL 653088, at *3 (noting the
district court’s earlier finding that “de Maison’s ‘egregious and recurrent conduct’ justified a
‘serious punitive response’” and “see[ing] no reason to reconsider its conclusion” (quoting Cope,
2018 WL 3628899, at *8)). More fundamentally, we disagree with de Maison’s contention that
the “vast reduction” in the disgorgement sum “must track some reduction in the understanding of
[her] culpability and role in the charged conduct.” Defendant-Cross Defendant-Appellant’s Br.
at 24. The revised sum reflects only the Supreme Court’s clarification of the proper calculation
of disgorgement awards, not a shift in our understanding of de Maison’s securities law violations
or her culpability.
* * *
Because we conclude that the district court acted within its discretion in ordering the
revised disgorgement award and reimposing the civil penalty, we do not entertain de Maison’s
assertion that the record warrants reassigning the case to another judge on remand. We have
considered de Maison’s remaining arguments and find them to be without merit. Accordingly,
we AFFIRM the judgment of the district court.
FOR THE COURT:
Catherine O’Hagan Wolfe, Clerk
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