Securities Industry Commentator by Bill Singer Esq

The Double Jeopardy Clause of the Fifth Amendment protects against multiple criminal prosecutions and punishments for the same offense. Recently, the Supreme Court held that "[d]isgorgement, as it is applied in SEC enforcement proceedings, operates as a penalty under [28 U.S.C.] § 2462." Kokesh v. SEC, 137 S. Ct. 1635, 1645 (2017). In this criminal sentencing appeal, we must consider whether SEC civil disgorgement is now a criminal punishment after Kokesh. It is not, so we AFFIRM Defendants' sentences.

The district court held a sentencing hearing in the Criminal Case on September 29, 2017 and adopted the recommendations from the PSR. The court denied each objection from Defendants. The court ruled that Kokesh did not apply to Defendants' Double Jeopardy claims, that the court was allowed to consider "relevant conduct" that could not be prosecuted separately because of the statute of limitations, and that Brennan did not qualify as a first offender given his previous censure by the Financial Industry Regulatory Authority ("FINRA"). The court then analyzed the 18 U.S.C. § 3553(a) factors and sentenced Brennan to 48 months and Dyer to 60 months. The court also ordered Brennan and Dyer to pay restitution in the full amount of loss, $4,942,070.18. Brennan and Dyer were ordered to pay additional amounts of $184,022.84 and $354,251.58, respectively, to the IRS for their tax evasion. 

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On January 30, 2018, the SEC moved for disgorgement in the Civil Case. Two weeks later, the court entered an order of disgorgement against Brennan and Dyer, jointly and severally, in the amount of $4,942,070.18, to be offset by the amount of restitution ordered to be paid in the Criminal Case.

It is important to recognize what the Court did not say in Kokesh. The Court did not say that SEC civil disgorgement is a criminal punishment. Nor did it say anything about Double Jeopardy. Defendants ask us to read between the lines in the Kokesh opinion. They assert it should be read broadly to mean that every "penalty" is a "punishment," and in turn that every "punishment" necessarily implicates the Double Jeopardy Clause. This is based on the general language from Kokesh defining "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)). But even if a civil penalty is a punishment, the Double Jeopardy Clause still allows the successive imposition of some "sanctions that could . . . be described as punishment." Hudson v. United States, 522 U.S. 93, 98-99 (1997) (citation omitted). Rather, only multiple criminal punishments are prohibited. Id. And apart from a single mention of the word "crime," nothing in Kokesh suggests that the Court considered SEC disgorgement to be a criminal punishment. Kokesh, 137 S. Ct. at 1642 (quoting Huntington, 146 U.S. at 667). Therefore, Defendants' broad reading seems improper, especially considering that just four years earlier the Supreme Court analyzed the exact same statute of limitations at issue in Kokesh -- 28 U.S.C. § 2462 -- as the "general statute of limitations for civil penalty actions." Gabelli v. SEC, 568 U.S. 442, 444 (2013).

LPL Financial's database has been hacked, causing a major breach of investor names, addresses, social security numbers and account numbers, according to an unpublicized memo sent to all LPL reps last week by LPL CEO Dan Arnold. Other firms were likely hit as well. Palatine, Ill.-based Capital Forensics, Inc. (CFI) was the apparent source of the so-called "data security incident," according to Arnold's Nov. 9 memo, a copy of which has been obtained by RIABiz. Firms with CFI document protection and data analysis agreements were the likely targets.

Morgan Stanley permitted Baldeck to resign after it found that Baldeck "requested and received reimbursement from the Firm for expenses described as client meal expense[s], when the meals were actually personal in nature." Subsequently, FINRA staff sent a request dated August 9, 2018 to Baldeck to appear and provide on-the-record testimony pursuant to FINRA Rule 8210 on September 14, 2018. Baldeck and FINRA staff subsequently agreed to reschedule the testimony for October 23, 2018. Baldeck appeared for testimony pursuant to Rule 8210 on that date and provided a partial day of testimony. However, before the testimony was complete, Baldeck informed staff that he would not complete his on-the-record testimony that day or at any time. By refusing to complete his on-the-record testimony as requested pursuant to FINRA Rule 8210, Baldeck violates FINRA Rules 8210 and 2010. 

• Securities Industry Commentator by Bill Singer Esq