Securities and Exchange Commission v. Cope

Background

The Securities and Exchange Commission (SEC) brought an enforcement action alleging that Angelique de Maison and others conducted a securities-fraud scheme violating provisions of the Securities Act of 1933 and the Securities Exchange Act of 1934. In 2015, the Court entered a consent agreement requiring de Maison to pay disgorgement, prejudgment interest, and a civil penalty. Disgorgement is the repayment of money obtained through wrongdoing; prejudgment interest is interest accruing before judgment; and a civil penalty is a monetary punishment.

In a July 30, 2018 opinion, the Court ordered de Maison to pay $4,240,049.30 in disgorgement, plus prejudgment interest, and a $4,240,049.30 civil penalty. The Second Circuit affirmed. The Supreme Court later vacated that judgment and sent the matter back for further consideration in light of Liu v. Securities and Exchange Commission. The Second Circuit then remanded the matter to this Court.

Disgorgement

The Supreme Court’s decision in Liu held that disgorgement in an SEC enforcement action cannot exceed a defendant’s net profits from wrongdoing. It also explained that courts should generally return the money to injured investors, consider whether liability for affiliates’ gains is consistent with equitable principles, and deduct legitimate expenses.

The SEC revised its disgorgement request to $524,885. It submitted a declaration from SEC attorney John Enright and financial records showing that, shortly after investor funds were deposited into accounts belonging to investment entities, de Maison transferred money to her personal accounts or used it to pay personal debts. The Court held that this evidence reasonably approximated profits causally connected to the violations.

De Maison did not appear to dispute the amounts transferred or the timing of the transfers. She argued instead that similar amounts had been sent to their intended destinations, that the investment-entity accounts contained more money than the recently deposited investor funds, and that the transferred funds therefore could not be traced to particular investors. The Court rejected those arguments because money is interchangeable and because de Maison had transferred money from accounts holding funds for investors. The Court concluded that she had not shown that the SEC’s calculation was unreasonable.

The SEC represented that it had identified the wronged investors and intended to return the funds to them. It also did not seek joint liability against de Maison and stated that no deduction for legitimate expenses was required. The Court therefore imposed a disgorgement judgment of $524,885. Because the SEC no longer sought prejudgment interest, the Court declined to award it.

Civil Penalty

The Court held that Liu did not limit its authority to impose the civil penalty authorized by the federal securities laws. Those provisions permit a penalty of up to the defendant’s gross pecuniary gain, which can be greater than the net profits relevant to disgorgement.

The Court had previously found that de Maison’s “egregious and recurrent conduct” justified a serious punitive response and had imposed the maximum penalty of $4,240,049.30. The Court rejected de Maison’s argument that the civil penalty should be reduced because the disgorgement amount had been reduced. The Court explained that the earlier opinion treated $4,240,049.30 as the appropriate maximum fine, not simply as an amount matching the disgorgement award.

Disposition

The Court imposed a $524,885 disgorgement judgment against de Maison and ordered her to pay a $4,240,049.30 civil penalty. It directed the SEC to submit a proposed order implementing those rulings by February 26, 2021.