Securities & Exchange Commission v. Seghers , 404 F. App'x 863 ( 2010 )


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  •      Case: 10-10029 Document: 00511319329 Page: 1 Date Filed: 12/13/2010
    IN THE UNITED STATES COURT OF APPEALS
    FOR THE FIFTH CIRCUIT  United States Court of Appeals
    Fifth Circuit
    FILED
    December 13, 2010
    No. 10-10029                         Lyle W. Cayce
    Clerk
    SECURITIES AND EXCHANGE COMMISSION,
    Plaintiff-Appellant
    v.
    CONRAD P. SEGHERS,
    Defendant-Appellee
    Appeal from the United States District Court
    for the Northern District of Texas
    USDC No. 3:04-CV-1320
    Before REAVLEY, BENAVIDES, and CLEMENT, Circuit Judges.
    PER CURIAM:*
    The Securities and Exchange Commission (SEC) appeals the district
    court’s order denying disgorgement from Conrad P. Seghers. We affirm.
    A jury found Seghers liable for securities fraud in connection with the
    operations of three hedge funds that he founded. The SEC sought disgorgement
    of over $900,000, and the district court denied the request. In an earlier appeal,
    we remanded for reconsideration but left to the district court’s discretion
    whether to order disgorgement. See SEC v. Seghers, 298 F. App’x 319, 336–37
    *
    Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
    be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
    R. 47.5.4.
    Case: 10-10029 Document: 00511319329 Page: 2 Date Filed: 12/13/2010
    No. 10-10029
    (5th Cir. 2008). On reconsideration, the district court held that the SEC failed
    to meet its burden of establishing a reasonable approximation of illegally-
    obtained profits. The SEC appeals, and we review the district court’s decision
    to deny disgorgement for an abuse of discretion. See SEC v. AMX, Int’l, Inc., 
    7 F.3d 71
    , 73 (5th Cir. 1993).
    Disgorgement is an equitable remedy designed to wrest ill-gotten gains
    from a wrongdoer. SEC v. Huffman, 
    996 F.2d 800
    , 802 (5th Cir. 1993). Because
    the remedy is remedial rather than punitive, “it is limited to ‘property causally
    related to the wrongdoing’ at issue.” Allstate Ins. Co. v. Receivable Fin. Co., 
    501 F.3d 398
    , 413 (5th Cir. 2007) (citation omitted). The party seeking disgorgement
    must distinguish between gains that were legally and illegally obtained. Id.; see
    SEC v. First City Fin. Corp., 
    890 F.2d 1215
    , 1231 (D.C. Cir. 1989).
    The SEC argues that it presented sufficient evidence to establish Seghers’
    illegal profits. It also argues that because Seghers commingled funds, the
    district court erroneously required it to trace the specific funds that Seghers
    obtained from defrauded investors. In the district court, the SEC relied on a
    declaration by one of its accountants, along with nearly 600 pages of
    accompanying financial documents, that primarily concerned transactions from
    a Comerica Bank account used by Seghers and his hedge funds. We agree with
    the district court that the declaration is conclusory and fails to explain
    adequately the source of funds in the Comerica account. The district court
    explained that it was unable to replicate the disgorgement amount sought by the
    SEC by examining the declaration and the supporting documents, some of which
    the court noted were poorly copied and illegible. The court also noted that the
    time period covered by the declaration included a period during which no fraud
    was alleged to have occurred. The SEC was required to present in the first
    instance a reasonable approximation of Seghers’ illegally-obtained profits. See
    First City Fin. Corp., 890 F.2d at 1232. Upon our review of the record, we find
    2
    Case: 10-10029 Document: 00511319329 Page: 3 Date Filed: 12/13/2010
    No. 10-10029
    no abuse of discretion in the district court’s conclusion that the SEC failed to
    meet its burden.
    AFFIRMED.
    3
    

Document Info

Docket Number: 10-10029

Citation Numbers: 404 F. App'x 863

Judges: Benavides, Clement, Per Curiam, Reavley

Filed Date: 12/13/2010

Precedential Status: Non-Precedential

Modified Date: 8/3/2023