SEC v. Huff: Disgorgement Amount in Civil Enforcement Suit does not have to be Exact

On January 3, 2012, the 11th Circuit Court of Appeals in SEC v. Huff, No. 11-10758 (11th Cir. Jan. 3, 2012) affirmed the trial court’s decision to order the defendant to disgorged all of the profits associated with the fraudulent scheme.   

The Securities and Exchange Commission (“SEC”) filed a civil enforcement action against Anthony Huff (“Huff”) for allegedly diverting millions of dollars from Certified Services, Inc. (“Certified”) to another company, Midwest Merger Management, LLC.  The district court held Huff liable for five counts of securities law violations and ordered Huff to disgorge over $10 million plus interest.  SEC v. Huff, No. 08-60315-CIV-ROSENBAUM (S.D. Fla.).  Huff appealed the decision, claiming that the trial court’s liability determination and disgorgement amount were based on insufficient evidence and constituted an abuse of discretion.

In a per curiam opinion, the 11th Circuit held that the trial court did not abuse its discretion in ordering the multimillion dollar disgorgement.  More specifically, the court explained that the defendant had failed to meet “his heavy burden” of showing that the trial court had erred in finding that he fit the requirements of a “controlling person” under section 20(a) of the Securities Exchange Act.  15 U.S.C. § 78t(a).   The finding that Huff reviewed and approved the misleading SEC filings was considered “wholly plausible” and the court held that the lower court did not err in finding that Huff in fact “had the requisite power to directly or indirectly control or influence the specific corporate policy” which led to the fraudulent conduct.
Huff also appealed the trial court’s calculation of $10.017 million plus interest as an appropriate amount of money for disgorgement.  He claimed that the trial court’s amount was not exact.  A court, however, is not required to be precise in its approximation.  SEC v. ETS Payphones, Inc., 408 F.3d 727, 735 (11th Cir. 2005) (stating that the SEC’s burden for showing the amount subject to disgorgement is “light”).  In addition, the 11th Circuit held that the trial court did not abuse its “broad discretion” in ordering disgorgement of “the profits associated with the fraudulent scheme” based upon the “pervasive” nature of the fraud.  As a result, the 11th Circuit upheld the trial court’s holding that Huff should pay over $10 million plus interest for his securities law violations.

The primary materials for this case may be found on the DU Corporate Governance website.

Erica Woodruff