SEC v. Guy Gentile ( 2019 )

PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
____________
No. 18-1242
____________
SECURITIES AND EXCHANGE COMMISSION,
Appellant
v.
GUY GENTILE
____________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. No. 2:16-cv-01619)
District Judge: Honorable Jose L. Linares
____________
Argued November 6, 2018
Before: HARDIMAN, KRAUSE, and GREENBERG, Circuit
Judges.
(Opinion Filed: September 26, 2019)
Daniel Staroselsky [Argued]
Sarah Prins
United States Securities & Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Counsel for Appellant
Adam C. Ford [Argued]
Ford O’Brien LLP
575 Fifth Avenue
17th Floor
New York, NY 10017
Counsel for Appellee
___________
OPINION OF THE COURT
___________
HARDIMAN, Circuit Judge.
A five-year statute of limitations applies to any “action,
suit or proceeding for the enforcement of any civil fine,
penalty, or forfeiture, pecuniary or otherwise.” 28 U.S.C.
§ 2462. In Kokesh v. SEC, 137 S. Ct. 1635 (2017), the Supreme
Court held that “[d]isgorgement in the securities-enforcement
context” is a “penalty” subject to that five-year limitations
period. Id. at 1639. At issue in this appeal are two different
remedies sought by the SEC: an injunction against further
violations of certain securities laws and an injunction barring
participation in the penny stock industry. The District Court
held that those remedies—like the disgorgement remedy at
issue in Kokesh—were penalties. We see these questions of
first impression differently and hold that because 15 U.S.C.
§ 78u(d) does not permit the issuance of punitive injunctions,
the injunctions at issue do not fall within the reach of § 2462.
We will vacate the District Court’s order dismissing the
Commission’s enforcement action and remand the case for the
2
District Court to decide whether the injunctions sought are
permitted under § 78u(d).
I1
Appellant Guy Gentile, the owner of an upstate New
York broker-dealer, was involved in two pump-and-dump
schemes to manipulate penny stocks2 from 2007 to 2008. In
both schemes, Gentile promoted and “manipulated the market
for . . . stock by placing trades and trade orders that created the
false appearance of liquidity, market depth, and demand for the
stock.” Am. Compl. ¶ 3, No. 2:16-cv-01619 (D.N.J. Oct. 6,
2017), ECF No. 47 (Complaint); see id. ¶ 7.
1
The District Court had jurisdiction under sections
20(b) and 22(a) of the Securities Act (15 U.S.C. §§ 77t(b) and
77v(a)), sections 21(d) and 27 of the Exchange Act (15 U.S.C.
§§ 78u(d) and 78aa), and 28 U.S.C. § 1331. We have
jurisdiction under 28 U.S.C. § 1291. We review de novo the
District Court’s order granting a motion to dismiss under
Federal Rule of Civil Procedure 12(b)(6). Mayer v. Belichick,
605 F.3d 223, 229 (3d Cir. 2010). We accept the Commission’s
well-pleaded allegations as true, construe them in the light
most favorable to the Commission, and draw all reasonable
inferences from those allegations in the Commission’s favor.
Davis v. Wells Fargo, 824 F.3d 333, 341, 351 (3d Cir. 2016).
2
“Penny stocks are low-priced, high-risk equity
securities for which there is frequently no well-developed
market.” Newton v. Merrill Lynch, Pierce, Fenner & Smith,
Inc., 259 F.3d 154, 175 n.14 (3d Cir. 2001), as amended (Oct.
16, 2001) (quoting Hoxworth v. Blinder, Robinson & Co., 980
F.2d 912, 914 n.1 (3d Cir. 1992)).
3
The United States Attorney’s Office for the District of
New Jersey filed a sealed criminal complaint against Gentile
in June 2012 and he was arrested a few weeks later. Gentile
agreed to cooperate against his confederates, but the deal fell
apart in 2016 after the Government rejected Gentile’s demand
for a non-felony disposition. United States v. Gentile, 235 F.
Supp. 3d 649, 651 (D.N.J. 2017). A grand jury indicted Gentile,
but the District Court dismissed the indictment as untimely. Id.
at 656.
Gentile “maintains an active presence in the securities
industry” as the CEO of a Bahamas-based brokerage and the
beneficial owner of a broker-dealer. Compl. ¶ 82. Since his
criminal charges were dismissed, he has expressed an intention
to expand that brokerage and hire new employees. Id. ¶ 14(alleging Gentile announced plans to “increas[e] staff by 60 to
80 employees by year-end 2017, target[] 30 per cent growth,
and reactivat[e] ‘stalled’ expansion plans”). And he has been
quite candid about his view of the Commission’s enforcement
action. He called it a “witch hunt,” and stated in the news and
on social media that he “did nothing wrong” and “never
scammed anyone.” Id. ¶ 80.
The Commission disagrees. In this civil enforcement
action, filed eight years after Gentile’s involvement in the
second scheme, it alleges violations of several provisions of the
Securities and Exchange Acts.3 It initially sought: (1) an
3
Section 5(a) and 5(c) of the Securities Act, 15 U.S.C.
§ 77e(a), (c); section 17(b) of the Securities Act, 15 U.S.C.
§ 77q(b); section 17(a) of the Securities Act, 15 U.S.C.
§ 77q(a); and section 10(b) of the Exchange Act, 15 U.S.C.
§ 78j(b) and Rule 10b-5, 17 C.F.R. § 240.10b-5.
4
injunction prohibiting Gentile from violating those provisions
in the future; (2) disgorgement of wrongful profits; (3) civil
money penalties; and (4) an order barring him from the penny
stock industry. Following Kokesh, the Commission dropped its
requests for disgorgement and penalties. That left only its
requests for an “obey-the-law” injunction and a prohibition on
Gentile’s participation in penny-stock offerings. SEC v.
Gentile, No. 2:16-cv-01619, 2017 WL 6371301, at *1 (D.N.J.
Dec. 13, 2017).
The District Court granted Gentile’s motion to dismiss.
Id. at *4. Applying Kokesh, the Court found that the remedies
the Commission sought were penalties under § 2462. Id. at *3–
4. And because Gentile’s illegal activity ceased in 2008, id. at
*1, the Court dismissed the case as untimely.
In holding the obey-the-law injunction was a penalty,
the Court first noted that the injunction would not require
Gentile to do anything the public at large is not already obliged
to do, but it would stigmatize him. Nor would the injunction
restore the status quo ante or compensate any victim of
Gentile’s schemes. Similarly, the Court found the penny stock
bar would punish Gentile by “restrict[ing] [his] business
structure and methodology, in perpetuity,” without benefitting
any victim or remediating the schemes’ effects. Id. at *4.
Though it “underst[ood] [the Commission’s] desire to protect
the public from predatory conduct,” the Court could not
conclude “that, under the limited set of facts currently before
it, the requested injunctions are anything more than a penalty.”
Id. The Commission filed this appeal.
5
II
The default federal statute of limitations requires that
“an action, suit or proceeding for the enforcement of any civil
fine, penalty, or forfeiture, pecuniary or otherwise,” be brought
within five years of the claim’s accrual. 28 U.S.C. § 2462. In
Kokesh, the Supreme Court held disgorgement, “as it is applied
in SEC enforcement proceedings, operates as a penalty under
§ 2462.” 137 S. Ct. at 1645. The Court defined a “penalty” as
a “punishment, whether corporal or pecuniary, imposed and
enforced by the State, for a crime or offen[s]e against its laws.”
Id. at 1642 (alteration in original) (quoting Huntington v.
Attrill, 146 U.S. 657, 667 (1892)). The Court’s definition of
“penalty” was informed by two principles. First, whether a
sanction is a penalty turns in part on whether the wrongdoing
it targets was perpetrated against the public, rather than an
individual. Id. Second, “a pecuniary sanction operates as a
penalty only if it is sought ‘for the purpose of punishment, and
to deter others from offending in like manner’—as opposed to
compensating a victim for his loss.” Id. (quoting Huntington,
146 U.S. at 668).
The Court held SEC disgorgement “readily” satisfies
these criteria because (1) it is imposed for violations of public
laws; (2) it is imposed for punitive purposes; and (3) in many
cases the disgorged money is not used to compensate victims.
Id. at 1643–44. The Commission protested that disgorgement
sometimes does compensate victims, but the Court was
unpersuaded. While “sanctions frequently serve more than one
purpose,” a “civil sanction that cannot fairly be said solely to
serve a remedial purpose, but rather can only be explained as
also serving either retributive or deterrent purposes, is
punishment.” Id. at 1645 (quoting Austin v. United States, 509
U.S. 602, 610, 621 (1993)).
6
According to Gentile, the Supreme Court’s definition of
“penalty” applies equally to injunctions prohibiting future
lawbreaking and participation in penny stock offerings. There
is no question the Commission’s action is to enforce what
Kokesh described as “public laws.” Id. at 1643; see SEC v. Teo,
746 F.3d 90, 101–02 (3d Cir. 2014). So this case turns on
whether the remedies the Commission seeks are imposed for
punitive reasons.
III
Both remedies are found in 15 U.S.C. § 78u(d).4 The
Commission’s general authority to seek injunctions against
ongoing or threatened violations, § 78u(d)(1), states:
Whenever it shall appear to the Commission that
any person is engaged or is about to engage in
acts or practices constituting a violation of any
provision of this chapter, [or] the rules or
regulations thereunder . . . it may in its discretion
bring an action in [district court] to enjoin such
acts or practices, and upon a proper showing a
permanent or temporary injunction or restraining
order shall be granted without bond.
4
The Commission has parallel injunction and penny-
stock bar authority under the Securities Act. See 15 U.S.C.
§ 77t(b), (g). Those provisions are materially indistinguishable
from the Exchange Act provisions we set forth below, and our
analysis applies equally to them.
7
Section 78u(d)(1) injunctions that simply reference or restate
the text of statutory prohibitions are called “obey-the-law”
injunctions.
The Commission’s authority to seek a penny-stock
industry bar is found in § 78u(d)(6)(A):
In any proceeding under paragraph (1) against
any person participating in, or, at the time of the
alleged misconduct who was participating in, an
offering of penny stock, the court may prohibit
that person from participating in an offering of
penny stock, conditionally or unconditionally,
and permanently or for such period of time as the
court shall determine.
Paragraph (6) does not use the word “enjoin” like paragraph
(1) does, so first we must determine whether § 78u(d)(6)
penny-stock industry bars are a species of injunction. Several
considerations convince us they are.
First, take the text. Section 78u(d)(6) authorizes a court
to “prohibit” a defendant from participating in penny stock
offerings. Just like a typical injunction, this is a judicial order
“to refrain from doing a particular thing . . . . which operates as
a restraint upon the party in the exercise of his real or supposed
rights.” 2 Joseph Story, Commentaries on Equity
Jurisprudence § 861, at 154 (1836). It is “wholly preventive,
prohibitory, or protective,” 4 John Norton Pomeroy, A Treatise
on Equity Jurisprudence § 1337, at 3206 (4th ed. 1919), and it
“directs the conduct of a party . . . with the backing of [the
court’s] full coercive powers.” Nken v. Holder, 556 U.S. 418,
428 (2009) (quoting Weinberger v. Romero-Barcelo, 456 U.S.
305, 312 (1982)).
8
The statute’s structure also suggests the penny stock bar
is injunctive. It is only “in a[] proceeding [for an injunction
under § 78u(d)(1)]” that the statute empowers courts to issue
the bar. Consistent with that close relation, courts use similar
factors to decide whether to issue both industry bars and obey-
the-law injunctions. See SEC v. Kahlon, 873 F.3d 500, 506–07
(5th Cir. 2017) (per curiam). Compare SEC v. Bonastia, 614
F.2d 908, 912 (3d Cir. 1980), with SEC v. Patel, 61 F.3d 137,
141 (2d Cir. 1995). And paragraph (6), like paragraph (1),
bespeaks equitable discretion. See 15 U.S.C. § 78u(d)(6)(A)
(“[T]he court may prohibit that person from participating in an
offering of penny stock, conditionally or unconditionally, and
permanently or for such period of time as the court shall
determine.” (emphases added)). Because it can be sought only
“[i]n a[] proceeding under paragraph (1),” id., a district court
may impose a penny stock bar only “upon a proper showing,”
id. § 78u(d)(1). Thus, like paragraph (1), paragraph (6)
contemplates injunctive relief’s “nice adjustment and
reconciliation between the public interest and private needs,”
Aaron v. SEC, 446 U.S. 680, 701 (1980) (quoting Hecht Co. v.
Bowles, 321 U.S. 321, 329 (1944)).
Finally, at least two courts of appeals have
acknowledged that these court-ordered industry bars are
injunctive. See Kahlon, 873 F.3d at 508 (penny stock bar);
Patel, 61 F.3d at 141 (director-and-officer bar). That makes
sense, since courts have also reasoned that the statutory D&O
bar authority merely codifies courts’ preexisting power to
include these bars in injunctions. See SEC v. First Pac.
Bancorp, 142 F.3d 1186, 1193 & n.8 (9th Cir. 1998); SEC v.
Posner, 16 F.3d 520, 521 (2d Cir. 1994). For all these reasons,
we hold § 78u(d)(6) penny-stock industry bars are injunctive
in nature.
9
IV
We next consider the question whether properly issued
and framed § 78u(d)(1) and (6) injunctions can be penalties
subject to the statute of limitations. We look first to the
equitable principles governing injunctions, before turning to
the text and history of the Commission’s authority to seek
them.
A
The federal courts’ equity jurisdiction mirrors that of the
High Court of Chancery in England in 1789, when Congress
passed the first Judiciary Act. Grupo Mexicano de Desarrollo,
S.A. v. All. Bond Fund, Inc., 527 U.S. 308, 318 (1999). This
does not mean, however, that equitable relief is strictly a
common law matter. Innumerable acts of Congress explicitly
provide for injunctions, and courts must account for the policy
judgments exemplified by those statutes when exercising their
equitable discretion. See Hecht, 321 U.S. at 331. But unless
Congress clearly states an intention to the contrary, statutory
injunctions are governed by the same “established principles”
of equity that have developed over centuries of practice.
Weinberger, 456 U.S. at 313; see eBay Inc. v. MercExchange,
L.L.C., 547 U.S. 388, 391 (2006); Hecht, 321 U.S. at 329. This
clear statement rule applies to regulatory statutes enforced by
government agencies. Hecht, 321 U.S. at 329–30.
Gentile’s argument that SEC injunctions are penalties,
even when properly issued and framed, runs headlong into a
core tenet of equity jurisprudence. “The historic injunctive
process was designed to deter, not to punish.” Hecht, 321 U.S.
at 329. Or as one treatise put it, a court may not by injunction
“interfere for purposes of punishment, or . . . compel persons
10
to do right” but may only “prevent them from doing wrong.”
1 James L. High, A Treatise on the Law of Injunctions § 1, at 3
(4th ed. 1905). This principle is a corollary to the most basic
rule of preventive injunctive relief—that the plaintiff must
show a cognizable risk of future harm. See United States v. Or.
State Med. Soc’y, 343 U.S. 326, 333 (1952).
Besides being an element of Article III standing for
prospective relief, the need to show risk of harm is also a
traditional equitable requirement that applies to enforcement
agencies pursuing statutory injunctions. See United States v. W.
T. Grant Co., 345 U.S. 629, 633 (1953); Douglas Laycock,
Modern American Remedies 278 (4th ed. 2010); Gene R.
Shreve, Federal Injunctions and the Public Interest, 51 Geo.
Wash. L. Rev. 382, 405 (1983). Unless the agency shows a real
threat of future harm, “there is in fact no lawful purpose to be
served” by a preventive injunction. SEC v. Torr, 87 F.2d 446,
450 (2d Cir. 1937).
In Kokesh’s parlance, a preventive injunction
unsupported by that showing could not “fairly be said solely to
serve a remedial purpose,” 137 S. Ct. at 1645 (quoting Austin,
509 U.S. at 621). Cf. Conmar Prods. Corp. v. Universal Slide
Fastener Co., 172 F.2d 150, 155–56 (2d Cir. 1949) (L. Hand,
C.J.) (rejecting injunction that would not prevent harm and so
“must rest upon the theory that it is a proper penalty for the
[defendant’s] wrong” because “we can find no support [for the
injunction] in principle”). But a properly issued and framed
injunction is “fairly” so described, because its “sole function
. . . is to forestall future violations.” Or. State Med. Soc’y, 343
U.S. at 333. We think this prevention principle most sharply
distinguishes SEC injunctions from the disgorgement remedy
at issue in Kokesh. See SEC v. Commonwealth Chem. Sec., Inc.,
574 F.2d 90, 103 n.13 (2d Cir. 1978) (Friendly, J.) (holding that
11
even if the Commission fails “to show the likelihood of
recurrence required to justify an injunction,” courts may still
impose disgorgement); Jayne W. Barnard, The SEC’s
Suspension and Bar Powers in Perspective, 76 Tul. L. Rev.
1253, 1258 (2002) (“All of these [SEC] injunctions except the
disgorgement injunction depend on the government’s ability to
demonstrate that, in the absence of an injunction, there is a
reasonable likelihood of future violations.”). In short,
injunctions may properly issue only to prevent harm—not to
punish the defendant.
B
As we have explained, Congress must provide a clear
statement to substantially depart from traditional equitable
principles like that one. See Hecht, 321 U.S. at 329 (“We
cannot but think that if Congress had intended to make such a
drastic departure from the traditions of equity practice, an
unequivocal statement of its purpose would have been made.”).
We perceive no such intent in the text of § 78u(d)(1) and (6).
And while this clear statement rule might suffice to decide the
case, requiring all injunctions under § 78u(d)(1) and (6) to be
preventive and thus bringing them out of the realm of penalties,
we are mindful that the Kokesh Court analyzed how SEC
disgorgement operates in practice.5 So we also analyze the
history and caselaw surrounding these provisions. That
analysis reinforces our conclusion but also impels us to
5
The disgorgement remedy addressed in Kokesh was
not created by statute, see 137 S. Ct. at 1640, so there would
have been nowhere to look for a clear statement of
congressional intent to deviate from traditional equitable
principles. See infra Part IV(B)(2).
12
reinforce the parameters within which an SEC injunction is
properly issued and framed.
1
Once again, we start with the text. When the
Commission believes a person “is engaged or is about to
engage” in securities violations, it may bring a suit “to enjoin
such acts or practices, and upon a proper showing a permanent
or temporary injunction or restraining order shall be granted
without bond.” 15 U.S.C. § 78u(d)(1). If the suit is against a
“person participating in, or, at the time of the alleged
misconduct who was participating in, an offering of penny
stock” and a “proper showing” has been made as to likelihood
of future harm, the court may also “prohibit that person from
participating in an offering of penny stock, conditionally or
unconditionally, and permanently or for such period of time as
the court shall determine.” Id. § 78u(d)(1), (6)(A).
Nothing in either provision just quoted suggests
Congress meant to depart from the rule that injunctions are
issued to prevent harm rather than to punish past wrongdoing.
Neither provision mentions retribution or general deterrence.
See Kokesh, 137 S. Ct. at 1645; cf. Tull v. United States, 481
U.S. 412, 423 (1987) (“[A provision’s] authorization of
punishment to further retribution and deterrence clearly
evidences that [it] reflects more than a concern to provide
equitable relief.”). Neither shows an intent—let alone a clear
intent—that injunctions should issue automatically on a
finding of past violations or without a proper showing of the
likelihood of future harm. Each uses open-ended language that
suggests traditional equitable discretion. Compare 15 U.S.C.
§ 78u(d)(1) (“[U]pon a proper showing . . . .”), and id.
§ 78u(d)(6)(A) (“[T]he court may prohibit that person from
13
participating in an offering of penny stock, conditionally or
unconditionally, and permanently or for such period of time as
the court shall determine.” (emphases added)), with Hecht, 321
U.S. at 321–22, 329–30 (holding no clear intent to strip
traditional discretion in statute that provided that an injunction
or other order “shall be granted” “upon a showing . . . that [the
defendant] has engaged or is about to engage in [prohibited]
acts or practices”), and id. at 327 (noting distinction between
“shall be granted” language and statutes, like § 78u(d)(1), that
“provide that an injunction or restraining order shall be granted
‘upon a proper showing’” (citations omitted)). In sum,
“[a]bsent much clearer language than is found in the [Exchange
Act], the entitlement of a plaintiff to an injunction thereunder
remains subject to principles of equitable discretion.” SEC v.
Tex. Gulf Sulphur Co., 401 F.2d 833, 868–69 (2d Cir. 1968) (en
banc) (Friendly, J., concurring).
2
The history of the Commission’s injunction authority
leads to the same conclusion. “Prior to the labor injunctions of
the late 1800’s, injunctions were issued primarily in relatively
narrow disputes over property.” Int’l Union, United Mine
Workers of Am. v. Bagwell, 512 U.S. 821, 842 (1994) (Scalia,
J., concurring). But that changed as more and more conduct
came to be regulated by injunction through a rough analogy to
public nuisance. See Comment, The Statutory Injunction as an
Enforcement Weapon of Federal Agencies, 57 Yale L.J. 1023,
1024 n.5 (1948). Securities enforcement injunctions emerged
as part of this expansion of American equity jurisprudence into
public law enforcement. See Daniel J. Morrissey, SEC
Injunctions, 68 Tenn. L. Rev. 427, 437–39 (2001).
14
Before Congress created the SEC, states authorized
injunctive enforcement of laws that targeted “speculative
schemes which have no more basis than so many feet of ‘blue
sky,’” Hall v. Geiger-Jones Co., 242 U.S. 539, 550 (1917). Part
of a new breed of statutory remedy, these injunctions were an
extension of traditional equity “even less directly traceable to
the remedial devices fashioned by the common law” than
previous remedies that had “f[ound] a basic analogy in the
common-law right of the state to abate and restrain public
nuisances.” Note, Statutory Extension of Injunctive Law
Enforcement, 45 Harv. L. Rev. 1096, 1097, 1099 (1932). Those
predecessor nuisance actions distinguished punishment from
prevention. See Eilenbecker v. Dist. Court of Plymouth Cty.,
134 U.S. 31, 40 (1890) (“[I]t seems to us to be quite as wise to
use the processes of the law and the powers of the court to
prevent the evil, as to punish the offence as a crime after it has
been committed.”), overruled in part on other grounds by
Bloom v. Illinois, 391 U.S. 194 (1968); Mugler v. Kansas, 123
U.S. 623, 672–73 (1887) (“In case of public nuisances,
properly so called, an indictment lies to abate them, and to
punish the offenders. But an information, also, lies in equity to
redress the grievance by way of injunction.” (quoting 2 Story,
supra, §§ 921–922)). And while statutory injunctions aimed at
fraud on the public were an innovation, they too respected this
fundamental distinction.
New York’s Martin Act is perhaps the best-known
example. That blue sky law empowered the state attorney
general to seek information and commence actions in equity or
criminal prosecutions. See Dunham v. Ottinger, 154 N.E. 298,
300 (N.Y. 1926). Injunction actions were meant to “stop[]” or
“prevent” threatened violations, id., while prosecutions were
meant to “punish” them. Id. Other states sought to use the
15
injunctive process to “stop” and “suppress” securities fraud.
E.g., Stevens v. Washington Loan Co., 152 A. 20, 23 (N.J. Ch.
1930). Then, responding to the 1929 stock market crash and
the Great Depression, Congress entered the fray. See SEC v.
Capital Gains Research Bureau, Inc., 375 U.S. 180, 186
(1963). It enacted first the Securities Act of 1933 and then the
Securities Exchange Act of 1934, which created the SEC.
At first the Commission had only one arrow in its
quiver: injunctions against future violations of the securities
laws.6 See Kokesh, 137 S. Ct. at 1640. Much like those
authorized by blue sky laws, SEC injunctions were “a classic
example of modern utilization of traditional equity jurisdiction
for the enforcement of a congressionally declared public policy
administered by a regulatory agency established for that
purpose.” SEC v. Advance Growth Capital Corp., 470 F.2d 40,
53 (7th Cir. 1972). For a time, courts were too quick to issue
injunctions on modest showings of threatened harm. See
Commonwealth Chem., 574 F.2d at 99 (“It is fair to say that the
current judicial attitude toward the issuance of injunctions on
the basis of past violations at the SEC’s request has become
more circumspect than in earlier days.”). But spurred by
renewed attention to the statute’s text and the harsh
consequences of SEC injunctions, courts began taking a harder
6
Decades later, Congress granted the authority to seek
penny stock bars. That authority came in 1990 as part of an
amendment to the Exchange Act designed “to provide
additional enforcement remedies for violations of [the
securities] laws and to eliminate abuses in transactions in
penny stocks, and for other purposes.” Securities Enforcement
Remedies and Penny Stock Reform Act of 1990, Pub. L. No.
101-429, 104 Stat. 931, 931 pmbl.
16
look at whether violators posed a real threat of recidivism. See
id. at 99–100 (collecting cases).
Citing Commonwealth Chemical with approval, the
Supreme Court said of SEC injunctions that “the proper
exercise of equitable discretion is necessary to ensure a ‘nice
adjustment and reconciliation between the public interest and
private needs.’” Aaron, 446 U.S. at 701 (quoting Hecht, 321
U.S. at 329). To merit an injunction based on threatened harm,
“the Commission must establish a sufficient evidentiary
predicate to show that such future violation may occur.” Id. Our
Court makes that determination based on factors including not
merely the fact of a past violation, but more importantly “the
degree of scienter involved [in the past violation], the isolated
or recurrent nature of the infraction, the defendant’s
recognition of the wrongful nature of his conduct, [and] the
sincerity of his assurances against future violations.” Bonastia,
614 F.2d at 912.
Moreover, “in deciding whether to grant injunctive
relief, a district court is called upon to assess all those
considerations of fairness that have been the traditional
concern of equity courts.” SEC v. Manor Nursing Ctrs., Inc.,
458 F.2d 1082, 1102 (2d Cir. 1972) (citing Hecht, 321 U.S. at328–30). Those considerations include not only the need to
protect the public where the circumstances of the offense and
of the offender give rise to a substantial risk of future harm,
Bonastia, 614 F.2d at 912, but also the stigma, humiliation, and
loss of livelihood attendant to the imposition of the two
injunctions sought here, whether temporary or permanent. So
“the adverse effect of an injunction upon defendants is a factor
to be considered by the district court in exercising its
discretion.” Manor Nursing Ctrs., 458 F.2d at 1102; see Aaron,
446 U.S. at 703 (Burger, C.J., concurring) (“An [SEC]
17
injunction is a drastic remedy, not a mild prophylactic, and
should not be obtained against one acting in good faith.”); SEC
v. Warren, 583 F.2d 115, 122 (3d Cir. 1978) (weighing hardship
to defendant in approving injunction’s dissolution). In other
words, the harsh effects of an SEC injunction demand that it
not be imposed lightly or as a matter of course, that it be
imposed only upon a meaningful showing of necessity, and
when it is imposed, that it be as short and narrow as reasonably
possible.
These principles would be dishonored if courts aimed to
inflict hardship instead of tailoring injunctions to minimize it.
A preventive injunction must be justified by a substantial
showing of threatened harm, assuring the court that the
opprobrium and other collateral consequences that accompany
it are outweighed by a demonstrated public need; retribution is
not a proper consideration to support this showing. See
Hartford-Empire Co. v. United States, 323 U.S. 386, 433–35
(1945) (striking part of antitrust injunction applicable to
directors and officers who, though they “may have rendered
themselves liable to prosecution,” had not been shown to pose
a threat of future violations), supplemented, 324 U.S. 570. As
the Court of Appeals for the D.C. Circuit aptly explained,
“[j]ustifying an injunction, even in part, in terms of propitiating
public sentiment, is objectionable as a matter of law.” SEC v.
First City Fin. Corp., 890 F.2d 1215, 1229 (D.C. Cir. 1989).
Nor is general deterrence a proper consideration. See Arthur
Lipper Corp. v. SEC, 547 F.2d 171, 180 n.6 (2d Cir. 1976)
(Friendly, J.) (distinguishing “injunctive proceedings, the
objective of which is solely to prevent threatened future harm”
from administrative sanctions used “not so much to control the
respondent as to warn others . . . [which] has a significant
18
‘penal’ component” (quoting Louis L. Jaffe, Judicial Control
of Administrative Action 267–68 (1965))).
And the principle that injunctions may issue only “to
prevent threatened future harm,” not to punish, Arthur Lipper,
547 F.2d at 180 n.6, applies equally to an injunction’s scope.
See SEC v. Am. Bd. of Trade, Inc., 751 F.2d 529, 542–43 (2d
Cir. 1984) (Friendly, J.). Just as it is error to issue an injunction
for punishment’s sake, it is error to broaden the scope of an
injunction because of moral desert or to make an example of
the defendant. That principle is implicit in the well-established
rule that “injunctive relief should be no more burdensome to
the defendant than necessary to provide complete relief to the
plaintiff[].” Madsen v. Women’s Health Ctr., Inc., 512 U.S. 753,
765 (1994) (quoting Califano v. Yamasaki, 442 U.S. 682, 702
(1979)).
Indeed, rather than using punishment to justify SEC
injunctions, courts must shape those injunctions to provide full
relief without inflicting unnecessary pain. See, e.g., Patel, 61
F.3d at 142 (“The loss of livelihood and the stigma attached to
permanent exclusion from the corporate suite certainly requires
more.”); Am. Bd. of Trade, 751 F.2d at 542–43. And courts
have consistently explained that SEC injunctions must be
intended to deter the violator from further infractions (and
thereby protect the public), not punish past misconduct. See,
e.g., Bonastia, 614 F.2d at 912; SEC v. Graham, 823 F.3d 1357,
1361–62 (11th Cir. 2016); SEC v. Steadman, 967 F.2d 636, 648
(D.C. Cir. 1992); SEC v. Savoy Indus., Inc., 587 F.2d 1149,
1169 (D.C. Cir. 1978); SEC v. Geon Indus., Inc., 531 F.2d 39,
54–56 (2d Cir. 1976) (Friendly, J.). Because an injunction must
be fully supported by threatened harm, we reject Gentile’s
argument that a properly issued and framed SEC injunction can
be a “penalty” as defined by Kokesh.
19
The SEC itself agrees with this approach in principle. In
Saad, Exchange Act Release No. 86751, 2019 WL 3995968(Aug. 23, 2019), the Commission was asked to evaluate a
disciplinary sanction barring an individual from associating
with any FINRA member firm. Id. at *1. The Commission
observed at the outset that “if a sanction is imposed for punitive
purposes as opposed to remedial purposes, the sanction is
excessive or oppressive and therefore impermissible.” Id. at *3.
The Commission went on to explain that a reasonable, well-
grounded finding that the sanctioned party “posed a clear risk
of future misconduct” such that “the bar was . . . necessary to
protect investors” was what distinguished an “appropriately-
issued FINRA bar[]” from an impermissibly punitive bar. Id.
at *4 (internal quotation marks and citation omitted).
Conversely, “[a] sanction based solely on past misconduct . . .
would be impermissibly punitive and thus excessive or
oppressive.” Id. at *5.
That an injunction is permissible only where necessary
“to prevent . . . misconduct from occurring in the future,” and
not merely “to punish past transgressions,” Saad, 2019 WL
3995968, at *12, is a standard to which the SEC must also hold
itself. When it does not, the buck stops here: Lest we return to
those days when only a modest showing was considered
sufficient, Commonwealth Chem., 574 F.2d at 99, federal
courts may not grant SEC injunctions except “upon a proper
showing” of the likelihood of future harm.7
7
As we explain below, we perceive an important
distinction between the statutorily authorized equitable relief
at issue here and the administrative sanctions at issue in Saad.
So we do not think all of the Saad Release’s reasoning is
20
Other courts are divided on whether an injunction can
ever be a § 2462 penalty. The Eleventh Circuit, bound by its
precedent, held that injunctions cannot be penalties under
§ 2462 because they are equitable. Graham, 823 F.3d at 1360.
It went on to explain that even had that precedent not been
established, it would hold § 2462 “does not apply to
injunctions like the one in [that] case.” Id. The court reasoned
that injunctive relief is forward looking, while penalties
address past wrongdoing. See id. at 1361–62. By contrast, the
Fifth Circuit held in a non-precedential opinion that SEC
injunctions and D&O bars could be—and in that case were—
penalties under § 2462. SEC v. Bartek, 484 F. App’x 949, 957
(5th Cir. 2012) (per curiam). The Eighth, Sixth, and Tenth
Circuits declined to say whether injunctions can ever be § 2462
penalties, instead holding the particular injunctions before
them were not punitive. See SEC v. Collyard, 861 F.3d 760,
764 (8th Cir. 2017); SEC v. Quinlan, 373 F. App’x 581, 587
(6th Cir. 2010) (non-precedential); United States v. Telluride
Co., 146 F.3d 1241, 1245–48 (10th Cir. 1998). The D.C.
Circuit has taken yet another approach in the agency context.
That court evaluates whether an administrative sanction
constitutes a penalty for purposes of § 2462 on a case-by-case
basis, considering “the degree and extent of the consequences
applicable to the injunction context. In particular, we do not
believe that, under § 78u(d)(1) or (6), “general deterrence . . .
may be considered as part of the overall remedial inquiry.”
Saad, 2019 WL 3995968, at *2 (alteration in original) (quoting
PAZ Sec., Inc. v. SEC, 494 F.3d 1059, 1066 (D.C. Cir. 2007)).
21
to the subject of the sanction.” Johnson v. SEC, 87 F.3d 484,
488 (D.C. Cir. 1996).8 None of this is inconsistent with our
holdings here; these courts simply have not decided the scope
of injunctions permitted under § 78u(d).
In our view, the Graham court got it right. We have
deemed inappropriate an injunction that was the functional
equivalent of a monetary penalty. United States v. EME Homer
City Generation, LP, 727 F.3d 274, 295–96 (3d Cir. 2013)
(“Such injunctive cap-and-trade relief is the equivalent of
awarding monetary relief and ‘could not reasonably be
characterized as an injunction.’” (quoting United States v.
Midwest Generation, 781 F. Supp. 2d 677, 685 (N.D. Ill.
2011))); see United States v. Luminant Generation Co., 905
F.3d 874, 890–91 (5th Cir. 2018) (Elrod, J., concurring in part
and dissenting in part) (advocating our Court’s approach in
EME Homer City), reh’g en banc granted, 929 F.3d 316 (5th
8
While we agree with the D.C. Circuit that
considerations of both purpose and effect are relevant to
whether an injunction constitutes a penalty, we believe these
considerations bear on the authority of the district court to enter
an SEC injunction, not on whether that injunction, while within
the court’s power to grant, is nonetheless time barred. We
question too the consistency and administrability of this
approach, which appears to contemplate the imposition of both
punitive and remedial injunctions within § 2462’s limitations
period but of only remedial injunctions outside of it, with the
time bar conclusively determined on appeal only after the fact.
The approach we espouse today has the virtue of providing
clear guidance ex ante by focusing instead on the SEC’s
authority to seek and the court’s authority to impose an
injunction under § 78u(d)(1) and (6).
22
Cir. 2019); cf. Edelman v. Jordan, 415 U.S. 651, 668 (1974)
(“While the Court of Appeals described this retroactive award
of monetary relief as a form of ‘equitable restitution,’ it is in
practical effect indistinguishable in many aspects from an
award of damages against the State.”). A similar principle
applies here. Injunctions may not be supported by the desire to
punish the defendant or deter others, so courts abuse their
discretion when they issue or broaden injunctions for those
reasons. We therefore hold SEC injunctions that are properly
issued and valid in scope are not penalties and thus are not
governed by § 2462. If an injunction cannot be supported by a
meaningful showing of actual risk of harm, it must be denied
as a matter of equitable discretion—not held time barred by
§ 2462.
There is one puzzle we feel compelled to address. The
Kokesh Court held SEC disgorgement is a penalty—despite the
maxim that “[a] civil penalty was a type of remedy at common
law that could only be enforced in courts of law,” Tull, 481
U.S. at 421–22; see Decorative Stone Co. v. Bldg. Trades
Council of Westchester Cty., 23 F.2d 426, 427–28 (2d Cir.
1928) (“Courts of equity do not award as incidental relief
damages penal in character without express statutory authority
. . . .”). If SEC disgorgement is both an equitable remedy and a
§ 2462 penalty, could an injunction be both too?
We think not. First, unlike § 78u(d)(1) and (6)
injunctions, SEC disgorgement is not authorized by statute. It
has instead been justified as part of courts’ “inherent equity
power to grant relief ancillary to an injunction.” Kokesh, 137
S. Ct. at 1640 (quoting SEC v. Tex. Gulf Sulphur Co., 312 F.
Supp. 77, 91 (S.D.N.Y. 1970)). Without any textual basis, it is
hard to see where the Supreme Court would look for a clear
statement of congressional intent to deviate from equitable
23
traditions. Indeed, at the Kokesh oral argument several Justices
expressed frustration that the lack of statutory text made it hard
to define SEC disgorgement. See Transcript of Oral Argument
at 7–9, 13, 31, 52, Kokesh, 137 S. Ct. 1635 (No. 16-529), 2017
WL 1399509.
Second, the Hecht admonition—that “[t]he historic
injunctive process was designed to deter, not to punish,” 321
U.S. at 329—is at the core of preventive injunctive relief. By
contrast, Tull spoke to equity more broadly. So
notwithstanding what Kokesh might suggest about equitable
relief in general, we do not believe it opens the door to punitive
injunctions.
Finally, though the Kokesh Court was careful to reserve
the issue, see 137 S. Ct. at 1642 n.3, we note its skepticism that
SEC disgorgement is applied in conformity with traditional
equitable principles. Compare id. at 1640 (“Generally,
disgorgement is a form of ‘[r]estitution measured by the
defendant’s wrongful gain.’” (alteration in original) (quoting
Restatement (Third) of Restitution and Unjust Enrichment § 51
cmt. a, at 204 (Am. Law Inst. 2010))), with id. at 1644 (“[I]t is
not clear that disgorgement, as courts have applied it in the
SEC enforcement context, simply returns the defendant to the
place he would have occupied had he not broken the law. SEC
disgorgement sometimes exceeds the profits gained as a result
of the violation.”). For these reasons, we conclude that proper
injunctions do not fall within the definition of penalties as
defined in Kokesh.
V
Our analysis to this point disposes of most of Gentile’s
arguments, but a few remain. First, Gentile argues that the
24
Hecht admonition—that “[t]he historic injunctive process was
designed to deter, not to punish”—does not apply because it is
inconsistent with Kokesh’s treatment of § 2462. That is, Hecht
sets forth a dichotomy—punishment versus deterrence—that is
untenable because Kokesh holds deterrence is punitive. We
think this overreads Kokesh. Though the Court referred several
times to “deterrence” without elaboration, we understand those
references to address general deterrence. See Kokesh, 137 S.
Ct. at 1642 (“[A] pecuniary sanction operates as a penalty only
if it is sought ‘for the purpose of punishment, and to deter
others from offending in like manner’ . . . .” (quoting
Huntington, 146 U.S. at 668)). Our Court’s gloss on Hecht
reflects this important distinction between restraining the
defendant on fear of contempt and making an example of him
to deter others. See Bonastia, 614 F.2d at 912 (noting that
injunctive relief serves “to deter [the violator] from
committing future infractions of the securities laws,” not to
“punish” him for past misconduct (emphasis added)). The
former is the very point of preventive injunctive relief; the
latter is punitive. “When it comes to discerning and applying
[traditional equitable] standards . . . ‘a page of history is worth
a volume of logic.’” eBay, 547 U.S. at 395 (Roberts, C.J.,
concurring) (quoting N.Y. Tr. Co. v. Eisner, 256 U.S. 345, 349
(1921)). All the more so here—where Gentile’s logic is based
on a strained reading of a single word in a case addressing a
different remedy.
And unlike in Kokesh, there are few signs that courts
issue SEC injunctions for general deterrence. True, there are
isolated examples. See, e.g., Posner, 16 F.3d at 522 (“We
intend our affirmance . . . as a sharp warning to those who
violate the securities laws that they face precisely such
banishment.”). But the caselaw in the main reflects the
25
traditional principles we have discussed. We also find it
significant that cases prior to Kokesh addressing both SEC
injunctions and disgorgement often discuss general deterrence
only with respect to the latter. See, e.g., SEC v. Kokesh, 834
F.3d 1158, 1162–64 (10th Cir. 2016), rev’d, 137 S. Ct. 1635;
SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1474, 1477–78
(2d Cir. 1996); First City Fin. Corp., 890 F.2d at 1228–29,
1231–32; see also Collyard, 861 F.3d at 765. What is more, we
have explained in an SEC case that “there is no great public or
national interest to be served by an injunction in essence
against a single individual.” Warren, 583 F.2d at 121. That
would hardly be true if we sought to implement a program of
general deterrence through injunctions.
Part of our disagreement with Gentile stems from his
focus on the Commission’s intent. It may well be that in its zeal
for enforcement, the Commission more recently has tended to
seek injunctions in part for their general deterrent effect. See
James D. Cox et al., SEC Enforcement Heuristics: An
Empirical Inquiry, 53 Duke L.J. 737, 751 (2003). The impetus
may be understandable; after all, SEC enforcement actions are
“independent of the claims of individual investors” and are
aimed at “promot[ing] economic and social policies.” Teo, 746
F.3d at 102 (alteration in original) (quoting SEC v. Rind, 991
F.2d 1486, 1490 (9th Cir. 1993)); see Comment, Federal
Agencies, supra, at 1048–49. But any tendency in that
direction would be at odds with the Commission’s own
understanding of the limits on its powers, cf. Saad, 2019 WL
3995968, at *3–5, *12. And ultimately, rather than probe the
agency’s rationale for seeking a judicial remedy, we look to the
nature of the remedy itself as explained by the courts imposing
it. See Kokesh, 137 S. Ct. at 1643–44 (analyzing why
disgorgement “is imposed by the courts”); cf. Tull, 481 U.S. at
26
423 (“Thus, the District Court intended not simply to disgorge
profits but also to impose punishment.”).
Second, Gentile argues that because obey-the-law
injunctions require mere compliance with preexisting
obligations, they must be punitive. Citing Bonastia, the
Commission responds that “injunctions that track the statutory
language charged in a complaint are permissible in this
Circuit.” SEC Br. 30 n.5. Gentile’s argument has some force to
the extent that obey-the-law injunctions pose a risk of
overbreadth, lack of fair notice, unmanageability, and
noncompliance with Federal Rule of Civil Procedure 65(d).
See Graham, 823 F.3d at 1362 n.2 (collecting cases); SEC v.
Smyth, 420 F.3d 1225, 1233 n.14 (11th Cir. 2005) (collecting
cases); Savoy, 665 F.2d at 1318; United States v. Corn, 836 F.2d
889, 892 & n.6 (5th Cir. 1988); Laycock, supra, at 274–75. So
in some cases—and perhaps in this one—an obey-the-law
injunction will add little if anything to the sanctions already in
place. There has been and continues to be “a difference of
opinion as to whether as a general proposition injunctions to
‘obey the law’ should be issued in order that enforcement by
administrative agencies may be sought by contempt rather than
by the statutory route.” SEC v. Thermodynamics, Inc., 464 F.2d
457, 461 (10th Cir. 1972).
But Gentile has not asked us to hold obey-the-law
injunctions impermissible—he argues only that they are
subject to the § 2462 statute of limitations. So we note only that
the appropriate scope of an injunction against further
lawbreaking depends on the facts and circumstances of each
case. Courts should make this determination on a developed
record, SEC v. Gabelli, 653 F.3d 49, 61 (2d Cir. 2011), rev’d on
other grounds, 568 U.S. 442 (2013), assuming the plaintiff has
stated a plausible claim for relief, see EME Homer City
27
Generation, 727 F.3d at 295–96 (affirming dismissal of claims
for improper injunctive relief). It is true that in Bonastia we
reversed the district court’s refusal to grant an obey-the-law
injunction. See 614 F.2d at 910–11. We have also struck
overbroad language enjoining parties to obey the law. See
Belitskus v. Pizzingrilli, 343 F.3d 632, 650 (3d Cir. 2003)
(citing Pub. Interest Research Grp. of N.J., Inc. v. Powell
Duffryn Terminals, Inc., 913 F.2d 64, 83 (3d Cir. 1990), and
Warren, 583 F.2d at 121). The “degree of particularity required
of an injunction depends on the subject matter involved.” Pub.
Interest Research Grp., 913 F.2d at 83 (quoting Calvin Klein
Cosmetics Corp. v. Parfums de Coeur, Ltd., 824 F.2d 665, 669
(8th Cir. 1987)). Ultimately, “[t]he district courts are invested
with discretion to model their orders to fit the exigencies of the
particular case, and have the power to enjoin related unlawful
acts which may fairly be anticipated from the defendants’
conduct in the past, but a decree cannot enjoin conduct about
which there has been no complaint.” United States v. Spectro
Foods Corp., 544 F.2d 1175, 1180 (3d Cir. 1976) (footnotes
omitted); see NLRB v. Express Publ’g. Co., 312 U.S. 426, 435–
37 (1941).
We stress that the District Court, on remand, should not
rubber-stamp the Commission’s request for an obey-the-law
injunction simply because it has been historically permitted to
do so by various courts. After all, Bonastia was decided almost
40 years ago, when the landscape for SEC enforcement actions
was significantly different than today’s. See Kokesh, 137 S. Ct.
at 1640. Indeed, Congress did not enact the penny-stock bar
until ten years later. If the District Court, after weighing the
facts and circumstances of this case as alleged or otherwise,
concludes that the obey-the-law injunction sought here serves
no preventive purpose, or is not carefully tailored to enjoin
28
only that conduct necessary to prevent a future harm, then it
should, and must, reject the Commission’s request. We note
that the District Court has already addressed some of the
relevant concerns involved in its opinion. We are also troubled
by the fact that the Commission appears to seek two
injunctions that attempt to achieve the same result.
Third, Gentile argues the penny stock bar is punitive
because it “provides no benefit to victims of alleged past
securities violations, nor does it purport to do so.” Gentile Br.
27. In making this argument, he tacitly agrees with us that
§ 78u(d)(6) penny stock bars are injunctive in nature. But then
he cites a series of cases that involve administrative
suspensions and debarments, not court-ordered injunctive
relief. See De La Fuente v. FDIC, 332 F.3d 1208, 1214–15,
1219–20 (9th Cir. 2003); Proffitt v. FDIC, 200 F.3d 855, 860–
61 (D.C. Cir. 2000); Johnson, 87 F.3d at 488; Saad v. SEC, 873
F.3d 297, 304 (D.C. Cir. 2017) (Kavanaugh, J., concurring).
We concede some courts have used similar logic. See Collyard,
861 F.3d at 764 (citing Riordan v. SEC, 627 F.3d 1230, 1234
(D.C. Cir. 2010) (Kavanaugh, J.), abrogated on other grounds
by Kokesh, 137 S. Ct. 1635); Telluride, 146 F.3d at 1246–47;
Bartek, 484 F. App’x at 956–57. But we think the distinction
between injunctions and administrative sanctions makes all the
difference. See supra Part IV; Arthur Lipper, 547 F.2d at 180
n.6. Our analysis is, after all, predicated on traditional
principles of judicial relief. Gentile is quite right to point out
that exclusion from one’s chosen profession is a devastating
sanction. But the question is not whether an administrative
sanction can be punitive; it is whether a federal court can issue
a § 78u(d)(6) injunction for punitive purposes. It cannot.
Finally, Gentile argues that the obey-the-law injunction
and penny stock bar are punitive because they do not seek to
29
restrain imminent violations. Gentile concedes, as he must, that
an injunction against an imminent violation is not a penalty.
See Gentile Br. 42 (“Of course the SEC has unlimited power to
obtain an injunction against an individual who is actually
violating the securities laws or on the precipice of doing so.”).
He objects that his case does not rise to that standard. It is true
that we apply a somewhat less demanding imminence standard
in SEC enforcement cases than we do in reviewing the FTC’s
exercise of similar statutory injunction authority. Compare
Bonastia, 614 F.2d at 912 (“The well established standard . . .
is based on a determination of whether there is a reasonable
likelihood that the defendant, if not enjoined, will again engage
in the illegal conduct.”), with FTC v. Shire ViroPharma, Inc.,
917 F.3d 147, 158 (3d Cir. 2019) (“‘[I]s about to violate’ means
something more than a past violation and a likelihood of
recurrence.”). But neither Bonastia nor the Aaron Court (which
seemed to approve a test much like ours) dispensed with the
requirement of “a proper showing.” See Aaron, 446 U.S. at 701(“[T]he Commission must establish a sufficient evidentiary
predicate to show that such future violation may occur.” (citing
Commonwealth Chem., 574 F.2d at 98–100)); Bonastia, 614
F.2d at 913 (concluding that the SEC had made “a strong
showing” that justified the reversal of the district court and
entry of an injunction). Nor did either suggest that the fact of a
past violation alone was sufficient to impose so onerous and
stigmatizing a sanction as an industry bar or obey-the-law
injunction. Rather, even with a lesser imminence requirement,
we insisted the showing itself be substantial and based as well
on “the circumstances surrounding the particular defendant.”
Bonastia, 614 F.2d at 912.
Along those same lines, we are mindful that we are
interpreting the meaning of “penalty” for statute of limitations
30
purposes. Even assuming a valid preventive injunction could
be a penalty, it is hard to see when it would accrue. See
Johnson, 87 F.3d at 489 n.7. Gentile’s argument must reject
either Bonastia or our conclusion that § 78u(d)(1) and (6)
conform to traditional equitable principles. We can do neither.
VI
SEC injunctions come with serious collateral
consequences. Commonwealth Chem., 574 F.2d at 99; Am. Bd.
of Trade, 751 F.2d at 535. They can lead to administrative
sanctions and disabilities, see Thomas J. Andre, Jr., The
Collateral Consequences of SEC Injunctive Relief: Mild
Prophylactic or Perpetual Hazard?, 1981 U. Ill. L. Rev. 625,
643–68, and collaterally estop defendants in subsequent
private litigation, see Parklane Hosiery Co. v. Shore, 439 U.S.
322, 331–33 (1979). Enjoined defendants suffer harm to their
personal and business reputations. See Sec. Inv’r Prot. Corp. v.
Barbour, 421 U.S. 412, 423 n.5 (1975) (“The moment you
bring a public proceeding against a broker-dealer who depends
upon public confidence in his reputation, he is to all intents and
purposes out of business.” (quoting Milton V. Freeman,
Administrative Procedures, 22 Bus. Law 891, 897 (1967)));
Warren, 583 F.2d at 122; ABA Committee on Federal
Regulation of Securities, Report of the Task Force on SEC
Settlements, 47 Bus. Law. 1083, 1091, 1149–50 (1992). And
when a court bans a defendant from his industry, it imposes
what in the administrative context has been called the
“securities industry equivalent of capital punishment.” Saad v.
SEC, 718 F.3d 904, 906 (D.C. Cir. 2013) (quoting PAZ Sec.,
Inc. v. SEC, 494 F.3d 1059, 1065 (D.C. Cir. 2007)).
So we conclude by repeating Judge Friendly’s warning:
an SEC injunction “often is much more than [a] ‘mild
31
prophylactic.’” Commonwealth Chem., 574 F.2d at 99. When
the Commission seeks an injunction, “the famous admonitions
in [Hecht] must never be forgotten.” Am. Bd. of Trade, 751 F.2d
at 535–36.
* * *
Because properly issued and framed injunctions under
§ 78u(d)(1) and (6) are not penalties governed by § 2462, we
will vacate the District Court’s judgment and remand for
proceedings consistent with this opinion.
32