The Securities and Exchange Commission sued individual and corporate defendants for violations of Sections 5 and 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, arising from defendants’ sale of securities to finance the production of various entertainment projects.
Following entry of consent injunctions against each defendant barring future securities law violations, the court ordered disgorgement in an amount to be determined after discovery, finding that disgorgement was appropriate to ensure that the defendants did not profit from their improper actions. Thereafter the SEC reached agreement with all defendants but one as to the amount of disgorgement.
As to the sole remaining defendant, following an evidentiary hearing, the court found that the defendant had perpetrated a “massive securities fraud lasting at least eight years” during which he raised at least $300 million through the operation of a Ponzi scheme. The court further found that the SEC’s disgorgement request of $4,035,479 reasonably approximated the amount the defendant had caused his companies to improperly pay on his behalf for such things as alimony, artwork, exotic cars, personal income taxes, etc. The court then ruled that because the SEC had presented evidence reasonably approximating the amount of the defendant’s ill-gotten gain, the burden shifted to the defendant to show the amount was not reasonable.
The defendant argued that the disgorgement amount was too high because he did not receive any salary during the eight years in issue. He offered evidence of salaries earned by executives in businesses in the same industry and sought to reduce the disgorgement amount demanded by the SEC by netting out a reasonable salary. While acknowledging that the defendant had not been paid a salary, the court rejected the argument, ruling that there was no compensation to which defendant was entitled based upon his operation of an illegal Ponzi scheme. (SEC v. Utsick, 2007 WL 1404726 (S.D. Fla. May 19, 2009))