Wednesday, June 29, 2016

Timbervest proceeding remanded to SEC to hear additional evidence

By Amanda Maine, J.D.

The D.C. Circuit has remanded proceedings against Timbervest LLC to the SEC for the purpose of hearing additional evidence relating to the SEC’s original disgorgement order; in particular, an agreement of settlement Timbervest made with the aggrieved party. The SEC had not opposed remand, but objected to Timbervest’s request that the SEC’s order be vacated (Timbervest, LLC v. SEC, June 24, 2016, per curiam).

Commission’s order. The SEC brought proceedings against Timbervest and several executives alleging that they defrauded AT&T, one of their pension fund clients, by selling one of AT&T’s assets at a below-market rate to another Timbervest client without disclosing the conflict of interest their role in the transaction created. An SEC administrative law judge concluded, and the Commission agreed, that the Timbervest respondents were unjustly enriched, and ordered disgorgement.

Timbervest motion. Timbervest moved to vacate the SEC’s order on several grounds, including that Timbervest had since reached a settlement with AT&T to pay in complete satisfaction all claims relating to the disposition fee paid by AT&T, which was the amount used to determine disgorgement in the SEC’s final order. Under the recently decided case SEC v. Graham (11th Cir.), disgorgement and forfeiture are “effectively synonymous” and thus barred by the five-year statute of limitations in 28 U.S.C. 2462 because it goes beyond remedying the damage caused to the harmed parties by the respondents’ action.

Remand, not vacate. The SEC did not oppose the request to remand the proceedings for the purpose of taking additional evidence on the settlement. However, the SEC argued that Timbervest’s claim that the original order has been materially altered by the settlement means that the district court may not consider it because those material facts were not before the Commission, and under the SEC’s statutory review scheme, the Commission, not the courts, must first be given an opportunity to adduce the new evidence.

Circuit court’s order. In a one-page order, a panel of the D.C. Circuit ordered that the record be remanded to the Commission for the “limited purpose of allowing the Commission to consider additional evidence” that Timbervest cited in its motion to determine its effect, if any, on the Commission’s original order. The panel also ordered that Timbervest’s appeal be held in abeyance pending further court action.

Other issues remain. Timbervest’s brief to the D.C. Circuit had cited several other issues it felt the court should consider, including the unconstitutionality of the SEC’s administrative forum, equal protection rights afforded to respondents under the SEC’s in-house regime, and evidentiary failures resulting into unwarranted sanctions. The SEC’s administrative regime has come under fire over the last year, with litigants bringing suit in various federal courts. Most challenges to the regime have so far been unsuccessful.

The case is No. 15-1416.