The opinion of the court was delivered by: BASSLER
Plaintiff, the Securities and Exchange Commission ("SEC"), moves for summary judgment as to the amount of liability for each defendant. This court's jurisdiction is pursuant to 28 U.S.C. § 1331, 15 U.S.C. § 78aa and 15 U.S.C. § 77v(1). For the reasons set forth in this opinion, plaintiff's motion is GRANTED as to disgorgement and DENIED as to restitution.
This action involves violations of the federal securities laws committed in connection with, the initial public offering and subsequent sales of Hughes Capital Corporation ("Hughes Capital") securities. Essentially, the defendants, with varying levels of involvement, orchestrated a sham public offering in which they acquired all of the offered units, artificially inflated the securities' price by disseminating false and misleading information about Hughes Capital's business prospects, and then sold them at a substantial profit. The Court has granted summary judgment as to the liability of each of the defendants.
On the summary judgment motions relating to liability, the court determined the following: (1) Hughes Capital, Reifler, Beall, and Knoblauch "acted intentionally in organizing and carrying out the Hughes IPO fraud", Opinion filed September 2, 1993 at 27; (2) Victor negligently opened nominee accounts through which the defendants could secretly purchase units of the Hughes public offering; (3) Lachance and Mascolo negligently approved and issued materially false press releases; and (4) Ackerman was negligent in "assisting in the closing of the fraudulent Hughes Capital public offering and for receiving and concealing the proceeds from the sale of Hughes Capital Securities." Opinion filed December 9, 1994 at 29.
The SEC is seeking both restitution of $ 2,737,507.50 of investor losses and disgorgement of the $ 1,950,562.98 profits of the scheme. Although the SEC can only recover up to the higher of the two amounts, $ 2,737,507.70, it seeks both judgments because of certain restrictions placed on the collection of restitution awards under the Federal Debt Collections Procedures Act of 1990. 28 U.S.C. § 3001 et seq.; SEC v. Huffman, 996 F.2d 800 (5th Cir. 1993) rehg. denied 4 F.3d 992 (5th Cir. 1993). The SEC is also seeking $ 2,381,595.69 in prejudgment interest on the amount of disgorgement and $ 3,121,095.23 in prejudgment interest on the amount of restitution. The SEC moves for summary judgment on the amount of liability for each defendant.
A. Summary Judgment Standard
The standard for granting summary judgment pursuant to Federal Rule of Civil Procedure 56 is a stringent one. Summary judgment is appropriate only if all the probative materials of record "show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c); Hersh v. Allen Prods. Co., 789 F.2d 230, 232 (3d Cir. 1986); Lang v. New York Life Ins. Co., 721 F.2d 118, 119 (3d Cir. 1983). In determining whether there remain any genuine issues of material fact, the court must resolve all reasonable doubts in favor of the nonmoving party. Meyer v. Riegel Prods. Corp., 720 F.2d 303, 307 n.2 (3d Cir. 1983) cert. dismissed, 465 U.S. 1091, 79 L. Ed. 2d 910, 104 S. Ct. 2144 (1984); Smith v. Pittsburgh Gage & Supply Co., 464 F.2d 870, 874 (3d Cir. 1972). Significantly, "at the summary judgment stage the judge's function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986).
Under the standards announced by the Supreme Court's trilogy in Celotex Corp v. Catrett, 477 U.S. 317, 91 L. Ed. 2d 265, 106 S. Ct. 2548 (1986), Anderson, 477 U.S. 242, 91 L. Ed. 2d 202, 106 S. Ct. 2505 (1986), and Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 89 L. Ed. 2d 538, 106 S. Ct. 1348 (1986), "the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment." Anderson, 477 U.S. at 247-48 (emphasis in original). "The substantive law governing the dispute will determine which facts are material, and only disputes over those facts 'that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment.'" Farid S. Khair v. Campbell Soup Co., 893 F. Supp. 316, 326 (D.N.J. 1995) (citations omitted). Indeed, where the moving party has made a properly supported motion for summary judgment, it is incumbent upon the nonmoving party to come forward with specific facts to show that there is a genuine issue of material fact for trial. Anderson, 477 U.S. at 248.
Thus, once the moving party has carried its burden of establishing the absence of genuine issues of material fact, the nonmoving party "may not rest upon mere allegations or denials" of its pleadings, Fed. R. Civ. P. 56(e), but must produce sufficient evidence that will reasonably support a jury verdict in its favor, id. at 249; J.E. Mamiye & Sons, Inc. v. Fidelity Bank, 813 F.2d 610, 618 (3d Cir. 1987) (Becker, J., concurring), and not just "some metaphysical doubt as to material facts." Matsushita, 475 U.S. at 586. If the moving party is the defendant, or does not bear the burden of proof on the underlying claim, the moving party may satisfy its burden by demonstrating the absence of an essential element of the opponent's case. 893 F. Supp. 316 at 325; see National State Bank v. Federal Reserve Bank, 979 F.2d 1579, 1581-82 (3d Cir. 1992). In such a situation, the movant has no obligation to negate the other party's case. National State Bank, 979 F.2d at 1582.
"There is no issue for trial unless there is sufficient evidence favoring the nonmoving party for a jury to return a verdict for that party. If the evidence is merely colorable or is not significantly probative summary judgment may be granted." Anderson, 477 U.S. at 249-50. "Consequently, the court must ask whether, on the summary judgment record, reasonable jurors could find facts that demonstrated, by a preponderance of the evidence, that the nonmoving party is entitled to a verdict." In re Paoli R.R. Yard PCB Litigation, 916 F.2d 829, 860 (3d Cir. 1990) cert denied 499 U.S. 961 (1991).
B. Restitution and Disgorgement
Disgorgement is not precisely restitution. Disgorgement wrests ill-gotten gains from the hands of a wrongdoer. It is an equitable remedy meant to prevent the wrongdoer from enriching himself by his wrongs. Disgorgement does not seek to compensate the victims of the wrongful acts, as restitution does. Thus, a disgorgement order might be for an amount more or less than that required to make the victims whole. It is not restitution.
SEC v. Huffman, 996 F.2d 800, 802 (5th Cir. 1993) (citations omitted). The court will consider each remedy independently.
Disgorgement of illegally derived funds is a remedy within the equitable powers conferred on this Court by Section 22(a) of the 1933 Act, 15 U.S.C. § 77v(1), and Section 27 of the 1934 Act, 15 U.S.C. § 78aa. SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1103 (2d Cir. 1972). "The district court has broad discretion in fashioning the equitable remedy of a disgorgement order." SEC v. Huffman, 996 F.2d 800, 803 (5th Cir. 1993). "Since disgorgement serves primarily to prevent unjust enrichment, the court may exercise its equitable power only over property causally related to the wrongdoing." SEC v. First City Financial Corp., 281 U.S. App. D.C. 410, 890 F.2d 1215, 1231 (D.C. Cir. 1989). "Disgorgement may not be used punitively," however, "the line between restitution and penalty is unfortunately blurred, and the risk of uncertainty should fall on the wrongdoer whose illegal conduct created the uncertainty." 890 F.2d at 1231, 1232.
The SEC has the initial burden of establishing that "its disgorgement figure reasonably approximates the amount of unjust enrichment." First City, 890 F.2d at 1232. See also SEC v. Graystone Nash, Inc., 820 F. Supp. 863, 875 (D.N.J. 1993) rev'd on other grounds 25 F.3d 187 (3d Cir. 1994); SEC v. Hasho, 784 F. Supp. 1059, 1111 (S.D.N.Y. 1992); SEC v. Benson, 657 F. Supp. 1122, 1133 (S.D.N.Y. 1987). In meeting its burden, the "plaintiff is not required to trace every dollar of proceeds misappropriated by the defendants . . . nor is plaintiff required to identify monies which have been commingled by them." SEC v. Great Lakes Equities Co., 775 F. Supp. 211, 214 n.21 (E.D. Mich. 1991) aff'd, 12 F.3d 214 (6th Cir. 1993).
Once the plaintiff has established that the disgorgement figure is a reasonable approximation of unlawful profits, the burden of proof shifts to the defendants, who must "demonstrate that the disgorgement figure is not a reasonable approximation." First City, 890 F.2d at 1232. See also Benson, 657 F. Supp. at 1133; Hasho, 784 F. Supp. at 1111. "All doubts concerning the determination of disgorgements are to be resolved against the defrauding party." Great Lakes, 775 F. Supp. at 214 (internal quotations omitted).
The SEC established that an illegal scheme existed, and this Court previously found each defendant liable for participation in the scheme. See Opinions filed June 16, 1995, December 9, 1994 and September 2, 1993. The SEC calculates that the participants were unjustly enriched by $ 1,950,562.98. Moldowan Decl. P3. Craig Moldowan, a certified public accountant, performed the calculation by totalling the actual price received for the Hughes securities sold from the 33 nominee accounts that the defendants established in connection with the fraudulent closing of the Hughes capital offering, and adding the moneys received by Hughes itself from the initial public offering and the exercise of warrants. Moldowan Decl. P3-20.
Once the SEC met its initial burden, the burden shifted to the defendants to establish that the calculation was not a reasonable approximation of the fraud proceeds. The defendants have not contested the total calculation. Several defendants, however, have attempted to limit their individual liability by demonstrating that they received less than the total amount of the fraud profits.
None of the defendants' evidence is sufficient to withstand the SEC's motion for summary judgment. This Court has already ruled that categories (1) and (3) are inadmissible. Opinion filed Oct. 17, 1995. Category (2) consists of conclusory affidavits which either recite the figures in Ackerman Exhibit 13, or deny liability. This court has already determined that the defendants are liable, thus, the statements denying liability are irrelevant. The affidavits which recite figures from ...