Friday, March 15, 2024

Supreme Court asked to decide if seized assets can be offset against disgorgement

By John Filar Atwood

A petition for certiorari asks the Supreme Court to determine whether seized assets can be credited against disgorgement and whether the district court’s nominee analysis on three discrete relief defendant assets was legally sufficient to satisfy the requirements of the nominee doctrine. The district court and Second Circuit found that the seized assets could not be offset against disgorgement because they were not ill-gotten gains from the misconduct. The petitioner contends that the disgorgement is punitive and that the Supreme Court’s holding in SEC v. Liu demands that disgorgement remain within equitable limits (Ahmed v. SEC, March 6, 2024).

The petitioner is the wife of Iftikar Ahmed who allegedly defrauded Oak Management Corp., his employer, and investors out of $65 million over a ten-year period. The SEC ordered Ahmed to disgorge $64.2 million. In connection with the action against Ahmed, Oak seized assets belonging to Ahmed and his wife, a relief defendant, in the amount of $35 million. Ahmed sought unsuccessfully to have the seized assets credited against the disgorgement total.

Limitations on disgorgement. The petitioner is seeking review on the grounds that the Second Circuit decision conflicts with the Supreme Court’s authority on equitable limitations inherent in disgorgement. She noted that in Liu the Supreme Court invalidated punitive measures in disgorgement remedies, ruling that a remedy grounded in equity must be deemed to contain the limitations upon its availability that equity typically imposes. In her view, the Circuit Court decision punishes her by charging her twice for disgorgement and providing the victim a double recovery.

The petitioner also disagrees with the district court’s ruling that the value of shares returned to the alleged victims in two specified transactions could not be offset against the calculation of disgorgement as Ahmed’s conflict of interest in one transaction and his position on both sides of the second deal precluded the credit of the value of shares against disgorgement. The petitioner asks the Supreme Court to consider that an equitable remedy presupposes a loss to the victims, but there was no loss in the two transactions at issue.

Nominee doctrine. The petitioner also asks the Supreme Court to consider the legal requirements necessary to declare a relief defendant a nominee of a primary defendant such that her assets are deemed equitably owned by the defendant and can be used towards satisfaction of the SEC’s judgment. In her view, the Second Circuit’s affirmance of nominee status of certain relief defendant assets conflicts with the Supreme Court’s precedents that mandate reversal when decisions are made on an erroneous basis of law. It also creates a circuit split on the legal sufficiency needed to satisfy the requirements of the nominee doctrine to conclude certain assets as nominees, she contends.

The petitioner concludes that the case provides the Supreme Court with an opportunity to weigh in on the government’s ability to avoid judicial scrutiny of its disgorgement calculations and on the proper application of the nominee doctrine.

The case is No. 23-987.