United States District Court, D. Nevada
before the court is plaintiff Securities and Exchange
Commission's (“SEC”) motion for entry of
final judgment against defendant James B. Catledge. (ECF No.
58). Catledge filed a response (ECF No. 61), but the SEC has
not filed a reply, and the time for doing so has passed.
court's September 18, 2019 and October 22, 2019 orders
(ECF Nos. 63, 72), the SEC has also submitted two
supplemental briefs. (ECF Nos. 69, 75).
24, 2012, the SEC filed a complaint against Catledge, Derek
F.C. Elliott, EMI Resorts (S.V.G.) Inc., EMI Sun Village, and
Sun Village Juan Dolio, Inc., alleging the defendants
solicited investments in a fraudulent scheme involving the
offer and sale of over $163 million of investment contracts
in unregistered transactions to approximately 1, 200
investors. (ECF No. 1). The complaint includes five causes of
action: (1) violation of Section 17(a)(1) of the Securities
Act of 1933, 15 U.S.C. § 77q(a)(1), against all
defendants; (2) violation of Section 17(a)(2) and (3) of the
Securities Act, 15 U.S.C. § 77q(a)(2) and (3), against
all defendants; (4) violation of Sections 5(a) and (c) of
the Securities Act, 15 U.S.C. § 77e(a) and (c), against
Catledge, Elliott, EMI Sun Village, and Sun Village Juan
Dolio; (5) violation of Section 15(a) of the Exchange Act, 15
U.S.C. § 780(a), against Catledge and Elliott; and (6)
unjust enrichment of relief defendant D.R.C.I. trust.
December 20, 2012, and SEC and Catledge filed a joint
stipulation to stay this case pending resolution of the
criminal charges against Catledge in United States v.
James Catledge, et al., No. 3:12-cr-00678 (N.D.
Cal.) (“criminal action”). (ECF No. 20). The
court granted the motion to stay on December 21, 2012. (ECF
2, 2018, Catledge pleaded guilty to one count of mail fraud.
Catledge, No. 3:12-cr-00678, ECF Nos. 241, 242. On
December 12, 2018, he was sentenced to a term of sixty (60)
months imprisonment to be followed by three (3) years of
supervised release. Id. at ECF No. 303. Restitution
in the amount of $32, 737, 143.65 was imposed on May 15,
2019. Id. at ECF No. 339.
3, 2018, the court approved a consent judgment between the
SEC and Catledge. (ECF No. 44). The Catledge consent judgment
fully incorporates the stipulated consent, which provides, in
relevant part, that:
[T]he Court shall determine whether it is appropriate to
order disgorgement of ill-gotten gains and/or a civil penalty
pursuant to Section 20(d) of the Securities Act [15 U.S.C.
§ 77t(d)] and Section 21(d)(3) of the Exchange Act [15
U.S.C. § 78u(d)(3)] and, if so, the amount(s) of the
disgorgement and/or civil penalty. The Defendant further
understands that, if disgorgement is ordered, Defendant shall
pay prejudgment interest thereon, calculated from October,
2004, based on the rate of interest used by the Internal
Revenue Service for the underpayment of federal income tax as
set forth in 26 U.S.C. § 6621(a)(2).
(ECF Nos. 43 at 2, 44 at 4). The consent judgment also
provides that “solely for the purposes of such motion
[for disgorgement], the allegations of the Complaint shall be
accepted as and deemed true by the Court.” (ECF No.
44). No. provision is made for the imposition of a civil
penalty. Id. In addition, the Catledge consent
judgment provides for the issuance of a permanent injunction,
enjoining future violation of the federal Securities Act and
Exchange Act. Id.
28, 2019, the SEC filed a motion to lift the stay (ECF No.
56) following the resolution of the criminal action against
Catledge, which this court granted on July 3, 2019 (ECF No.
their initial motion for final judgment as to Catledge, the
SEC asked this court to “order Catledge to pay $32,
737, 143.65 in disgorgement but deem it satisfied based upon
the entry of the restitution order in that amount, and not
impose any prejudgment interest.” (ECF No. 58 at 4).
The SEC also asked this court to issue a permanent injunction
against Catledge, enjoining him from future violation of the
federal Securities Act and Exchange Act. Id.
September 18, 2019, the court ordered the SEC to submit
supplemental briefing to explain how the approximately $163
million taken from investors was used. (ECF No. 63). In that
same order, the court declined to issue a civil penalty
against Catledge. Id. The SEC submitted its response
on October 2, 2019. (ECF No. 69). The SEC again requested
disgorgement in the amount $32, 737, 143.65. Id.
light of the Supreme Court's decision in Kokesh v.
S.E.C., 137 S.Ct. 1635 (2017),  the court ordered additional
supplemental briefing. (ECF No. 72). The SEC was directed to
explain what amount of the approximately $163 million at
issue was appropriated by the defendants prior to May 24,
2007. Id. The SEC submitted its response on November
26, 2019. (ECF No. 75). The SEC now seeks disgorgement in the
amount of $6, 375, 927.58. Id.
now received the SEC's supplemental briefing, the court
will address Catledge's liability for disgorgement and
the entry of a permanent injunction.
district court has broad powers in equity to order the
disgorgement of “ill-gotten gains” obtained
through the violation of federal securities laws. SEC v.
First Pac. Bancorp., 142 F.3d 1186, 1191 (9th Cir.
1998); see also SEC v. Colello, 139 F.3d 674, 679
(9th Cir. 1998) (“To order disgorgement, the district
court … need find only that [the defendant] has no
right to retain the funds illegally taken from the
victims.”). “Disgorgement is designed to deprive
a wrongdoer of unjust enrichment, and to deter others from
violating securities laws by making violations
unprofitable.” SEC v. Platforms Wireless Int'l
Corp., 617 F.3d 1072, 1096 (9th Cir. 2010) (quoting
First Pac. Bancorp., 142 F.3d at 1191) (internal
quotation marks omitted).
district court has broad discretion in calculating the amount
to be disgorged. SEC v. JT Wallenbrock &
Assocs., 440 F.3d 1109, 1113 (9th Cir. 2006). The amount
of disgorgement should include “all gains flowing from
the illegal activities, ” id. at 1114, though
the actual assessment need only be a “reasonable
approximation of profits causally connected to the violation,
” First Pac. Bancorp, 142 F.3d at 1192 n. 6
(internal citation omitted). The SEC “bears the
ultimate burden of persuasion that its disgorgement figure
reasonably approximates the amount of unjust
enrichment.” Platforms Wireless, 617 F.3d at
manner in which a defendant chooses to spend the illegally
obtained funds has no relevance to the disgorgement
calculation. JT Wallenbrock, 440 F.3d at 1116. A
court may order disgorgement even if the violator “is
no longer in possession of such funds due to subsequent,
unsuccessful investments or other forms of discretionary
spending.” Id. at 1115-16 ...