SEC v. Lauer: $60 Million Verdict Affirmed

In SEC v. Lauer, No. 13-13110, 2015 BL 112518 (11th Cir. Apr. 21, 2015), the Eleventh Circuit affirmed a judgment of over $60 million against Michael Lauer (“Defendant”) and declined to vacate the judgment as void pursuant to Federal Rule of Civil Procedure 60(b)(4) (“FRCP”) and to vacate the judgment for fraud on the court pursuant to FRCP 60(d)(3).

On appeal, Lauer raised three arguments: (1) the judgment of the district court was void pursuant to Rule 60(b)(4); (2) the judgment of the district court was void pursuant to Rule 60(d)(3) because the SEC committed a fraud on the court; and (3) Lauer was entitled to additional discovery or an evidentiary hearing. To prevail in voiding a judgment, pursuant to Rule 60(b)(4), an appellee must show there was a due process violation. A “mere error” in jurisdiction does not afford relief under Rule 60(b)(4).

Lauer made six arguments in an attempt to demonstrate the judgment of the district court was void under Rule 60(b)(4): (1) the asset freeze was a denial of due process; (2) the SEC never approved of the action against Lauer; (3) the court lacked subject matter jurisdiction; (4) the SEC interfered with Lauer’s attorney-client privilege; (5) Chief Judge Zloch failed to recuse himself and influenced the reassignment of the case; and (6) the court granted prejudgment interest.

The court rejected these arguments.  With suspect to the asserted non-approval of the action by the SEC, Lauer asserted that four commissioners had signed the “Request for Commission Action.”  In two cases, however, “the commissioners had two sets of initials next to their names, and the second pair of initials did not match each respective commissioner's initials.”  Lauer asserted that the evidence established that, in fact, a majority of the commissioners had not approved the action.  As the court reasoned:  

The Commission used its seriatim process to initiate the action. Under that process, the commissioners individually consider the matter and then report their votes to the Secretary. 17 C.F.R. § 200.42(a). Lauer has pointed to no statute or regulation that requires a commissioner to use only his personal signature to report his vote. And the minor potential irregularity does not overcome the “presumption to which administrative agencies are entitled—that they will act properly and according to law.”

Lauer also sought to have the judgement vacated because the Chief Judge “behaved impermissibly”.  Lauer alleged that the Chief Judge should have recused himself upon Lauer’s motion and had “impermissibly influenced the reassignment of the case”.  The court found that Lauer had not established that the Chief Judge was “personally biased” or that the reassignment process had been mishandled.  Id. (“But the change in judge was hardly mysterious. The case was selected for random reassignment to a new judge to maintain a balanced workload within the district. Judge Cooke, to whom it was reassigned, recused herself, so the case was returned to Chief Judge Zloch. Chief Judge Zloch then recused himself so that the case would be randomly reassigned again, and this time it was Judge Marra who drew the assignment.”). 

The court also rejected the argument that the SEC committed a fraud on the court. “Lauer argues that we must vacate the judgment because the Commission committed a ‘fraud on the court’ when it told the district court that it planned to call witnesses who asserted their Fifth Amendment right against self-incrimination and refused to be deposed.” 

To prevail under Rule 60(d)(3), fraud must be shown by clear and convincing evidence. This fraud is limited to serious transgressions against the legal process. The court initially noted Lauer failed to raise this issue in his merits appeal. The court also determined that Lauer had not sufficiently established that the Commission “intentionally deceived the district court”.  Id. (“Lauer has not established by “clear and convincing evidence,” that the Commission intentionally deceived the district court when it stated that it would call Barbarosh, Isaacson, and Levie as witnesses. “[W]hatever else it embodies, [fraud on the court] requires a showing that one has acted with an intent to deceive or defraud the court.” Lauer has not established that the Commission knew that these witnesses would never testify.”) (citations omitted).    

Accordingly, the Court affirmed the $60 million judgment against Lauer.

The primary materials for this post can be found on the DU Corporate Governance website.

Austin Chambers