One day after our post describing the SEC’s rampant overreaching in the remedies it seeks in enforcement actions (see here), it is reported to be seeking more than $2 billion in remedies in a case in which it lost 9 of the 12 claims it asserted. A Law 360 article available in our links to the right, “Life Partners, Execs Blast SEC’s Move For $2B Judgment,” describes the dispute in the federal court in the Western District of Texas over the appropriate remedy in SEC v. Life Partners Holdings, Inc., Civil Action No.: 1-12-cv-00033. The defendants are nonplussed, to say the least. We have attached their extraordinary response here (SEC v. LPHI Reply Brief), which would make for amusing reading if the abusive prosecution tactics were not so outrageous:
If you don’t want to bother reading the entire linked brief, here is a juicy excerpt:
In a remarkable filing, Plaintiff is urging the Court to enter a Judgment in its favor — ordering disgorgement, assessing penalties and interest, and ordering “reimbursement” under SOX Section 304 — in an amount exceeding $2,050,000,000. This comes in a case where Plaintiff obtained no finding of fraud against Defendants, no finding that Defendants acted with scienter, no finding of insider trading, and Plaintiff failed to prevail on nine (9) of the twelve (12) claims against Defendants. Such a massive judgment would destroy the Defendants (an objective Plaintiff has been trying to accomplish for many years) and would devastate LPHI shareholders. Perhaps the Motion was drafted before the trial of the case? Perhaps the Motion relates to some other case entirely? It bears no resemblance to what happened in this jury trial and its aftermath.Plaintiff’s Motion is littered with misstatements, half-truths, hyperbole, and inconsistencies. Similarly, if there was any credence to Plaintiff’s fanciful assertions that Defendants “knowingly misled shareholders, customers, and the public” in a “vast…scheme” of “prolonged” and “rampant and systemic wrongdoing,” one might believe that Plaintiff would have prevailed on all of its claims at trial. But Plaintiff didn’t. More importantly, the jury and the Court rejected Plaintiff’s primary claims for securities fraud.The Motion to Enter Judgment also represents a disturbing trend in SEC enforcement actions. From the Wyly case in New York — where the Commission sought over $480 million in disgorgement, which was rejected out-of-hand by Judge Shira Scheindlin — tothe most recent example in the Southern District of Texas — where Judge Lynn Hughes described as “abusive” the Commission’s request for an officer and director bar against two executives of a failed mortgage company — this case is another example of increasingly common government overreaching.
It is rare indeed that a defendant would lambast the SEC so overtly in a federal court filing. As discussed in our earlier post, the SEC seems to have adopted as enforcement policy the most unprofessional aspects of securities plaintiffs’ lawyers in years past, after those lawyers have realized these are not winning tactics. The LPHI defendants’ lament that perhaps the SEC’s post-trial motion “was drafted before the trial of the case” rings oh so true for those who have struggled trying to understand why SEC litigators continue to repeat their own allegations in court filings made long after those allegations remain unproved, or even worse, disproved. To SEC enforcement lawyers and litigators, the need for evidence to support allegations sometimes seems a foreign concept. But the SEC’s repeated and inexplicable overreaching and excesses may be coming home to roost. Stay tuned.
August 22, 2014
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