Chris Lazarini Provides Insight on Appeal of Disgorgement Order

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Bass, Berry & Sims attorney Chris Lazarini provided insight on a case in which the defendant appealed a verdict claiming the court abused its discretion and issued a “highly excessive” judgment when it ordered him to disgorge approximately $3.7 million in ill-gotten gains and pay approximately $1 million in interest and also permanently enjoined him from future violations of the securities laws and barred him, for 10 years, from serving as an officer or director of a public company. The court upheld the verdict, reinforcing that the amount of disgorgement and severity of injunctive relief are within the sound discretion of the trial court and the court’s ruling will be disturbed only upon a showing of abuse of that discretion.

Chris provided the analysis for Securities Online Litigation Alert (SOLA). The full text of the analysis is below and used with permission from the publication.

SEC vs. Hall, No. 17-13897 (11th Cir., 1/4/19)

*Disgorgement is a form of restitution measured by the Defendant’s ill-gotten gains.

**Ordering disgorgement, and the amount thereof, and imposing injunctive relief, and for how long, are within the sound discretion of the trial court and the court’s ruling will be disturbed only upon a showing of abuse of that discretion.

This appeal follows a unanimous jury verdict finding that Defendant violated Section 10(b) of the Securities Exchange Act of 1934 and Section 17(a) of the Securities Act of 1933. At trial, the SEC established that, while serving as Chairman and controlling shareholder of Call Now, Inc., which operated a Texas horse-race track, Defendant misrepresented facts to obtain millions of dollars in margin loans from a brokerage firm for himself and Call Now. The SEC also established that when faced with liquidation of the Call Now shares he had pledged as collateral for the loans, Defendant made additional misrepresentations to the brokerage firm and obtained more loans.

The district court entered a final judgment against Defendant ordering him to disgorge approximately $3.7 million in ill-gotten gains and pay approximately $1 million in interest. The court also permanently enjoined Defendant from future violations of the securities laws and barred him, for ten years, from serving as an officer or director of a public company. On appeal, Defendant argued the district court abused its discretion and issued “highly excessive” remedies. The Court finds no abuse of discretion and affirms.

On disgorgement, the Court notes exactitude is not a requirement and the risk of uncertainty falls on the wrongdoer who created it. The SEC’s burden, the Court explains, is to show a reasonable approximation of Defendant’s ill-gotten gains. The burden then shifts to Defendant to show the SEC’s estimate was not reasonable. The Court finds the district court did not abuse its discretion in ruling that Defendant did not meet his burden. The Court similarly finds no abuse of discretion in the amount of interest assessed against Defendant.

On the permanent injunction and the officer-and-director bar, the Court likewise finds no abuse of discretion. The evidence showed Defendant was a repeat violator, who acted egregiously, and with a high degree of scienter, and who showed no remorse. Absent the injunctive relief, and because Defendant continued to press his innocence despite the jury verdict, the Court concludes Defendant would likely encounter opportunities for future violations.

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