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No. 17-132

In the Supreme Court of the United States

BRIAN BOSCO, JASMINE LEE, AND RONALD PRICE, PETITIONERS

v.

SECURITIES AND EXCHANGE COMMISSION.

ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF APPEALS

FOR THE FOURTEENTH CIRCUIT

BRIEF FOR THE RESPONDENT

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QUESTIONS PRESENTED

1. Under federal regulation, an issuer’s principal executive and principal financial officer must certify annual and quarterly reports. In addition, federal law allows the SEC to disgorge any bonuses, incentive-based or equity-based compensation, and profits the certifying officers realized from the sale of issuer securities during the 12-month period following a noncompliant financial filing. Are Brian Bosco and Jasmine Lee liable for recklessly certifying a noncompliant disclosure and failing to investigate issuer misconduct?

2. Federal law imposes a five-year statute of limitations on punitive actions under 28 U.S.C § 2462. The SEC disgorgement remedy seeks to dispose wrongdoers of ill-gotten profits. Should the disgorgement remedy, which is not listed among the punitive penalties, be subject to the five-year statute of limitations under 28 U.S.C. § 2462?

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TABLE OF CONTENTS

Questions Presented ................................................................................. i Table of Authorities ................................................................................ iii Parties to the Proceedings Below ............................................................. 1

Statement of the Case ............................................................................. 1

Summary of the Arguments ..................................................................... 3

Argument ................................................................................................ 4 I. THE PURPOSE AND INTENT OF RULE 13A-14 AND SOX SECTION 304 DO NOT REQUIRE A CERTIFYING OFFICER TO POSSESS ACTUAL KNOWLEDGE OF THE FALSITY OR PERSONAL MISCONDUCT. .................................................... 4

A. A Certifying Officer Violates Rule 13a–14 When They Recklessly Certify an Issuer’s Noncompliant Annual or Quarterly Filings. ............................................. 5 B. Requiring Personal Misconduct Would Improperly Allow Certifying Officers to Realize a Pecuniary Benefit, Despite an Issuer’s Misconduct, Shareholder Injury, and Fraud on the Marketplace. .......................................................................... 10

II. DISGORGEMENT ACTIONS ARE EQUITABLE REMEDIES NOT SUBJECT TO THE FIVE-YEAR STATUTE OF LIMITATIONS UNDER 28 U.S.C. § 2462 BECAUSE § 2462 ONLY APPLIES TO PUNITIVE REMEDIES ............................ 13

A. Disgorgement is an Equitable Remedy and Not a Civil Penalty Subject to the Statute of Limitations Under 28 U.S.C. § 2462 ................................................... 14

1) Disgorgement is an Equitable Remedy Because Its Intended Purpose and Effect Are Remedial and Not Punitive. ....................................................... 14

2) Ordering a Disgorgement of Illicit Profits Received by Cohorts Does Not Constitute a Penalty. ............................................................................... 16

3) Disgorgement Is Not a Penalty if it is Causally Related to the Illicit Wrong-Doing. ...................................................................................................... 18

B. Fundamental Differences in the Plain Meaning and Mechanics Distinguish Disgorgement Remedies from Forfeitures ........................................................... 20

1) Based on the Plain Meaning of "Disgorgement" and "Forfeiture", the Terms are "Meaningfully Different". ..................................................................... 20

2) Disgorgement Actions and Forfeitures can be Distinguished Based on the Mechanics of the Remedies. ...................................................................... 24

C. The Real World Outcome of Subjecting Disgorgement Actions to 28 U.S.C. § 2462 Would Run Counter to the Mission of the SEC .......................................... 27

Conclusion ............................................................................................ 28

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TABLE OF AUTHORITIES Supreme Court Cases Austin v. United States, 509 U.S. 602 (1993) .......................................... passim

Bowles v. Seminole Rock & Sand Co., 325 U.S. 410 (1945) .............................. 6

Browning-Ferris Indus. of Vermont, Inc. v. Kelco Disposal, Inc., 492 U.S. 257 (1989) ........................................................................................................... 23

Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. 663 (1974) ................... 22

Curtis v. Loether, 415 U.S. 189 (1974) ........................................................... 15

Dir., Office of Workers’ Comp. Programs, Dept. of Labor v. Greenwich Collieries, 512 U.S. 267 (1994) ...................................................................................... 21

Kaley v. United States, 134 S. Ct. 1090 (2014) .............................................. 25

Perrin v. United States, 444 U.S. 37 (1979) .................................................... 20

Porter v. Warner Holding Co., 328 U.S. 395 (1946) ......................................... 15

Tull v. United States, 481 U.S. 412 (1987) ..................................................... 15

Udall v. Tallman, 380 U.S. 1 (1965) ................................................................. 6

United States v. 92 Buena Vista Ave., 507 U.S. 111 (1993) ............................ 26 Circuit Court Cases Garfield v. NDC Health Corp., 544 F.3d 1255 (11th Cir. 2006) ..................... 6, 7

Howard v. Everex Sys., Inc., 228 F.3d 1057 (9th Cir. 2010) ............................. 7

Mizzaro v. Home Depot., 544 F.3d 1230 (11th Cir. 2008) ............................. 6, 7

Ponce v. SEC, 345 F.3d 722, 737 (9th Cir. 2003) ............................................. 8

Riordan v. SEC, 627 F.3d 1230 (D.C. Cir. 2010) ............................................ 13

SEC v. Banner Fund Int’l, 211 F.3d 602 (D.C. Cir. 2000) ................................ 17

SEC v. Bilzerian, 29 F.3d 689 (D.C. Cir. 1994) ............................................... 18

SEC v. Blatt, 583 F.2d 1325 (5th Cir. 1978) ................................................... 24

SEC v. Cavanagh, 445 F.3d 105 (2d Cir. 2006) ......................................... 15, 22

SEC v. Commonwealth Chem. Sec., Inc., 574 F.2d 90 (2d Cir. 1978) ............... 15

SEC v. Contorinis, 743 F.3d 296 (2d Cir. 2014) ......................................... 15, 16

SEC v. First City Fin. Corp., 890 F.2d 1215 (D.C. Cir. 1989) ........................... 18

SEC v. Graham, 823 F.3d 1357 (11th Cir. 2016) ..................................... passim

SEC v. JT Wallenbrock & Assoc., 440 F.3d 1109 (9th Cir. 2006) ..................... 17

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SEC v. Jensen, 835 F.3d 1100 (9th Cir. 2016) ...................................... 7, 10, 11

United States v. Badger, 818 F.3d 563 (10th Cir. 2016) ................................. 14

United States v. Banks, 115 F.3d 916 (11th Cir. 1997) .................................. 14

United States v. Kokesh, 834 F.3d 1158 (10th Cir. 2016) ........................ passim

United States v. Reed, 924 F.2d 1014 (11th Cir. 1991) .................................. 24

United States v. Telluride Co., 146 F.3d 1241, 1244 (10th Cir. 1998) ............. 14

Zacharias v. SEC, 569 F.3d 458 (D.C. Cir. 2009) ........................................... 18 District Court Cases In re Omnicare, Inc. Sec. Litig., 2013 WL 1248243 (E.D. Ky. March 27, 2013) ... 8

SEC v. Ahmed, No. 3:15cv675 (JBA), 2016 U.S. LEXIS 170322 (D. Conn. Dec. 8, 2016) ........................................................................................................ 25

SEC v. e-Smart Tech., Inc., 82 F.Supp.3d 97 (D.D.C. 2015) .............................. 7

SEC v. Geswin, No. 5:10CV1235, 2011 WL 4541303 (N.D. Ohio Sept. 29, 2011)..................................................................................................................... 12

SEC v. Jensen, No. CV11-05316R (AGPx), 2011 WL 7563987 (C.D.Cal. June 24, 2011) ...................................................................................................... 11

SEC v. v. Life Partners Holdings, Inc., 71 F.Supp.3d 615 (W.D. Tex. 2014) ..... 12

SEC v. v. Saltsman, No. 07-CV-4370 (NGG) (RML), 2016 U.S. Dist. LEXIS 101757 (E.D.N.Y. Aug. 2, 2016) .................................................................... 21

SEC v. Subaye, Inc., No. 13 Civ. 3114 (PKC), 2014 WL 448414 (S.D.N.Y. Feb. 4, 2014) .............................................................................................................. 8 Statutes 15 U.S.C. § 78u-4 ........................................................................................... 6

15 U.S.C. § 7241 ............................................................................................ 5

15 U.S.C. § 7243(a) ....................................................................................... 11

28 U.S.C. § 2462 ................................................................................... passim

Pub. L. No. 107-204, 116 Stat. 745 ............................................................. 3, 5 Rules and Regulations 17 C.F.R. § 240.13a-14 ................................................................................... 5

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Other Authorities Black’s Law Dictionary (10th ed. 2014) .................................................... 23, 26

Certification of Disclosure in Companies’ Quarterly and Annual Reports, 67 Fed. Reg. 57280 (Sept. 9, 2002) (to be codified at 17 C.F.R. § 240.13a-14) ...... 7

Certification of Disclosure in Companies’ Quarterly and Annual Reports, Exchange Act Release No. 8124, 78 SEC Docket 875, 2002 WL 31720215 (Aug. 28, 2002) ........................................................................................................ 6

CSK Auto Corp., Securities Act Release No. 2974 (May 26, 2009) ................... 11

J. Kersey, A New English Dictionary (1702) ................................................... 23

J. Walker, A Critical Pronouncing Dictioanry (1791) ...................................... 23

Public Company Accounting Reform and Investor Protection Act of 2002, Sen. Rep. No. 107-205 (July 3, 2002) ...................................................................... 9

Restatement (Third) of Restitution and Unjust Enrichment, § 51(4) (Am. Law Inst. 2010) .................................................................................................... 16

SEC, DIV. OF ENFORCEMENT, ENFORCEMENT MANUAL (Oct. 28, 2016) .................. 27

T. Sheridan, A General Dictionary of the English Language (1780) ................ 23

U.S. House, Committee on Rules. H. Rep. No. 107–418 at 31, Providing for Consideration of H.R. 3767, Corporate and Auditing Accountability, Responsibility, and Transparency Act of 2002 (H. Rep. No. 107-418), 2002 WL 704333 (April 23, 2002) ................................................................................ 12

U.S. Senate, Committee on Banking, Housing, and Urban Affairs. Public Company Accounting Reform and Investor Protection Act of 2002 (S. Rep. No. 107–205), 2002 WL 1443523 (July 3, 2002) .................................................. 11

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PARTIES TO THE PROCEEDINGS BELOW

The Petitioners include the following Defendants and Appellants in the

proceedings below: Brian Bosco; Jasmine Lee; and Ronald Prince.

The Respondent is the Securities and Exchange Commission, Plaintiff

and Appellee below.

STATEMENT OF THE CASE

Burlingham Inc. (hereinafter, “Burlingham” or the “Company”) is a

microchip manufacturer was founded in 1981 and was publically listed in

1989. SEC v. Brian Bosco, Jasmine Lee, and Ronald Prince, No. 17-1887, at *1

(14th Cir. January 12, 2017). In 2001, Burlingham’s chief executive officer

(“CEO”) decided to add smartphone microchips to the Company’s product lines.

Id. In 2002, Ronald Price (“Prince”) was named Burlingham’s Executive Vice

President and managed the Communications Division. Id. at *2. By 2007,

Burlingham’s smartphone business controlled a 42% marketshare and

represented 52% of the Company’s net income. Id. In 2008, Prince secretly

started negotiated self-dealing terms into the Company’s purchase agreements

with certain Chinese smartphone manufacturers. Id. at *3. While

Burlingham’s agreements contained termination rights limited to force majeure

events that negatively impacted the UK’s smartphone market, Prince had been

offering unilateral termination rights to certain customers. Id. Prince

temporarily discontinued these practices in February 2010. Id.

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In 2011, Burlingham’s Board of Directors named Brian Bosco (“Bosco”)

the Company’s new chief executive officer (“CEO”). Id. Bosco quickly named

Jasmine Lee (“Lee”) to serve as the Company’s chief financial officer (“CFO”).

Id. at *4. Bosco and Lee were “hands-on managers who examined each

division’s cash flow and cost structure.” Id. at *3 (emphasis added).

Furthermore, Bosco and Lee were the officers who completed the Sarbanes-

Oxley Act of 2002 (“SOX”) certifications that accompanied each of Burlingham’s

SEC-required financial filings. Id. at *3.

While attending a technology conference in October 2014, both Bosco

and Lee were approached by the CEO of a major Japanese smartphone

manufacturer. Id. The CEO separately communicated with Bosco and Lee that

he was interested in amending the agreement between their respective

companies and including a favorably deal sweetener he had heard about,

specifically unilateral termination rights in the customer’s favor. Id. Bosco

and Lee later discussed the peculiar conversation they separately had with the

Japanese CEO and agreed that it would be “a good idea to” investigate why the

CEO believed Burlingham offered such termination rights. Id. Interestingly,

Bosco and Lee both failed to follow-up. Id. Moreover, Prince returned to his

questionable business practices and began offering certain Chinese

manufacturers unilateral termination rights. Id.

In March 2015, a 2.5% decline in UK GDP triggered the unilateral

termination right. Id. After 5 of the 11 customers exercised their rights, Bosco

and Lee asked the Burlingham board of directors (the “Board”) to investigate if

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this would have a materially adverse affect on the Company’s financial

operations. Id. at *4. The Board’s preliminary investigation revealed Prince’s

dealings substantially affected Burlingham’s 2014 financial statements, which

required the Company to file a restated fiscal year 2014 10-K. Id.

On January 1, 2016, the Securities and Exchange Commission (“SEC”)

filed a civil action against Bosco, Lee, and Prince. Id. at *6. The complaint

alleged Bosco and Lee violated Rule 13a–14 when they certified the erroneous

fiscal year 2014 financial statements and, as a result, triggered the SEC

disgorgement remedy, pursuant to SOX Section 304. Id. The SEC requested

disgorgement of gains during the periods of January 2008 to January 2010

and January 2014 to January 2015. Id.

SUMMARY OF THE ARGUMENTS

Congress enacted SOX to protect investors and the marketplace from the

possibility of fraudulent corporate accounting activities. Pub. L. No. 107-204,

116 Stat. 745 (2002). To achieve its goal, SOX mandated stricter obligations to

improve the accuracy of financial disclosures. Id. However, the Petitioners’

entire argument rests on the Court not upholding the purpose and intent of

SOX.

To the first question, Bosco and Lee seek an unprecedented disregard of

the duty imposed on corporate officers. Petitioners’ argue that they neither

possessed actual knowledge of the financial fraud nor were they personally

involved in the misconduct, and therefore they did not violate Rule 13a–14 and

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are not subject to the SEC disgorgement remedy, under Section 304. However,

both the Legislature and Judiciary have recognized that corporate officers are

liable for knowing and recklessness conduct and must remedy any damages

caused by such actions.

To the second question, the Petitioners’ argue that a disgorgement action

should fall under the purview of five-year statute of limitations mandated

under 28 U.S.C. § 2462. Petitioners misapply textual cannons of construction

and contend there is no meaningful difference between a disgorgement remedy

and the terms “forfeiture” and “penalty”, under to 28 U.S.C. § 2462. However,

the actions explicitly listed within the federal statute are punitive actions and

are fundamentally different from an equitable disgorgement action.

ARGUMENT

I. THE PURPOSE AND INTENT OF RULE 13A-14 AND SOX SECTION 304

DO NOT REQUIRE A CERTIFYING OFFICER TO POSSESS ACTUAL KNOWLEDGE OF THE FALSITY OR PERSONAL MISCONDUCT.

Bosco and Lee have come to this court seeking an acquittal. Despite

being officers who worked together and were “hands-on” with Burlingham’s

financials, Bosco and Lee believe they are not liable for certifying false financial

statements because they did not have actual knowledge of the falsity. Bosco,

No. 17-1887, at *4-7 (emphasis added). The courts below both agreed and

properly held that a cause of action exists under Rule 13a–14 when the CEO

and CFO certified false financial statements. Id. at *10-11. While this Court

has not yet addressed whether CEOs and CFOs must have actual knowledge

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for a cause of action to exist under Rule 13a–14, the text and intent of enabling

statutes and administrative rules do not require such. Furthermore, the

disgorgement remedy, authorized under SOX Section 304, does require the

CEO or CFO to personally engage in misconduct to trigger the reimbursement

requirements.

A. A Certifying Officer Violates Rule 13a–14 When They Recklessly Certify an

Issuer’s Noncompliant Annual or Quarterly Filings.

Following the Enron, Tyco, WorldCom, and several other corporate

disclosure scandals, there was mounting pressure to hold corporate executive

accountable for misleading disclosures. In response, Congress enacted SOX

Section 302 with the intent “[t]o protect investors by improving the accuracy

and reliability of corporate disclosures.” Pub. L. No. 107-204, 116 Stat. 745

(2002). Under Section 302, officers are required to certify in each annual or

quarterly report filed that: (1) they reviewed the report; and (2) the financials

are materially accurate. See 15 U.S.C.A. § 7241 (2016). Furthermore, Section

302 obligated the SEC to adopt its own officer certification rule. Id.

Accordingly, SEC Rule 13a–14 requires the principal executive officer(s) and

principal financial officer(s) of a public company to complete and attach a

certification with their company’s annual and quarterly filings. 17 C.F.R. §

240.13a-14 (2016); see also Bosco, No. 17-1887, at *24-25 (Khatibifar,

dissenting).

To clarify the “knowledge” standard articulated in Section 302, the SEC

stated that Rule 13a–14 would not increase the obligations imposed on the

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certifying officers with the discharge of their duties. Certification of Disclosure

in Companies’ Quarterly and Annual Reports, Exchange Act Release No. 8124,

78 SEC Docket 875, 2002 WL 31720215 (Aug. 28, 2002) [“Release No. 8124”].

However, certifying officers are required to reasonably investigate information

that they have acquired and raises a cause for concern within the scope of their

responsibilities. See id. at *9 (stating that Rule 13a–14 establishes certification

requirements that will hold principal executives and financial officers

accountable for failure to ensure accurate and complete disclosures).

Therefore, this Court should give Release No. 8124 substantial deference when

interpreting Rule 13a–14. See Bowles v. Seminole Rock & Sand Co., 325 U.S.

410, 413-14 (1945) (finding an agency’s interpretation of its regulation

“controlling weight unless it is plainly erroneous or inconsistent”); Udall v.

Tallman, 380 U.S. 1, 16 (1965).

In Mizzaro v. Home Depot., 544 F.3d 1230 (11th Cir. 2008), the Eleventh

Circuit addressed officer liability for certifying and filing fraudulent financial

disclosures required under securities laws, but under the heightened pleading

standards imposed by the Private Securities Litigation Reform Act of 1995. See

15 U.S.C.A. § 78u-4. In particular, the court considered whether the certifying

officers were liable for certifying financial statements, as required by SOX,

which concealed a fraud scheme that could “artificially inflate the company’s

earnings and profit margins.” Mizzaro, 544 F.3d at 1240-41. When evaluating

the type of fraud, the Eleventh Circuit turned to Garfield v. NDC Health Corp. to

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determine how difficult it would be to detect the scheme and if the

circumstances raised any “red flags.”

[A] [SOX] certification is only probative of scienter if the person signing the certification was severely reckless in certifying the accuracy of the financial statements. This requirement is satisfied if the person signing the certification had reason to know, or should have suspected, due to the presence of glaring accounting irregularities or other “red flags,” that the financial statements contained material misstatements or omissions.

Id. at 12501-52 (citing 544 F.3d 1255, 1266-67 (11th Cir. 2006) (emphasis

added)). In Mizzaro, the court noted how the fraud “was simple and did not

require … sophisticated accounting cover-ups.” 544 F.3d at 12501-52.

However, other cases have demonstrated more obvious circumstances that only

a reckless officer would not further examine. See Certification of Disclosure in

Companies’ Quarterly and Annual Reports, 67 Fed. Reg. 57280 (Sept. 9, 2002)

(to be codified at 17 C.F.R. § 240.13a-14) (discussing liability for false

certification and citing Howard v. Everex Sys., Inc., 228 F.3d 1057, 1064 (9th

Cir. 2010) (finding the certifying officer “had reasonable grounds to believe

material facts existed that were misstated or omitted” when financial

statements contained alarming information concerning the company’s financial

condition)); see, e.g., SEC v. Jensen, 835 F.3d 1100, 1117-18 (9th Cir. 2016)

(holding “that liability for false certification under Rule 13a–14 may lie only

where a CEO or CFO acts with knowledge or at least recklessness as to the

falsity of a certification.”) (emphasis added); SEC v. e-Smart Tech., Inc., 82

F.Supp.3d 97, 107-08 (D.D.C. 2015) (awarding summary judgment in the

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SEC’s favor on a Section 13(a) violation when a CEO had clear notice but

continued to neglect reporting requirements); SEC v. Subaye, Inc., No. 13 Civ.

3114 (PKC), 2014 WL 448414, at *7 (S.D.N.Y. February 4, 2014) (finding the

certifying officer’s actions “an egregious refusal to see the obvious, or to

investigate the doubtful giving rise to an inference of recklessness” when the

company could not verify corporate records, customers, or the capability to

support its services) (emphasis added); Ponce v. SEC, 345 F.3d 722, 737 (9th

Cir. 2003) (holding that knowledge, or at least recklessness in not

recognizing, of the falsity is required to hold a certifying officer liable for

violation of § 13(a)) (emphasis added); but see In re Omnicare, Inc. Sec. Litig.,

2013 WL 1248243 (E.D. Ky. March 27, 2013) (citations omitted) (finding a

plaintiff bringing a private securities action must demonstrate that the

defendants must possess actual knowledge of the scheme when the false

statements were certified).

All Burlingham purchase agreements contained termination rights, but

were limited to force majeure events specific to the UK’s smartphone market.

Bosco, No. 17-1887, at *3. But while attending the technology conference,

Bosco and Lee separately received notice of a highly suspicious, “red flag”

unilateral termination contract right included in some of Burlingham’s

agreements. Id. at *4. Furthermore, they became aware of this irregularity

from a credible source—the CEO of a Japanese smartphone manufacturer—

and, perhaps most concerning, Bosco and Lee acknowledged how concerning

this information was and agreed that it would be a good idea to investigate the

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matter further. Id. Despite identifying this “red flag” and the need to learn why

the CEO believed Burlingham was offering an abnormal unilateral termination

right, Bosco and Lee recklessly failed to further investigate and verify the

matter. Id. Arguably, had either of them taken reasonable further steps and

investigated the irregularity, Prince’s fraudulent scheme could have quickly

been discovered—illustrated by the Special Committee’s preliminary findings

uncovering the fraudulent scheme—and the Company’s financial statements

for the 2014 fiscal year would not have included material misstatements, which

were recklessly certified. Id. at *5. Therefore, Bosco and Lee violated Rule 13a–

14 when they failed to fulfill their duties as the certifying officers and endorsed

false financial statements.

Although Bosco and Lee may assert that they are not liable for violating

Rule 13a–14 because they did not possess actual knowledge of the falsity, this

would not only fail to serve the purpose of regulation and the statute it was

promulgated under, but more alarming, it would open the door for future

certifying officers to shirk their corporate duties. As mentioned, Congress

enacted SOX 302, and as a result Rule 13a–14, to hold corporate executive

accountable for misleading disclosures. In fact, the Senate unanimously

passed the corporate fraud bill to enhance penalties for corporate fraud. See

Public Company Accounting Reform and Investor Protection Act of 2002, Sen.

Rep. No. 107-205 (July 3, 2002). Therefore, if the Court were to hold that a

finding of actual knowledge is required to hold a certifying officer in violation of

Rule 13a–14, such officers would not be held accountable for recklessly

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certifying disclosure documents after failing to inquire and investigate potential

material financial misstatements, despite reasonable warnings signs that raise

“red flags.” See Jensen, 835 F.3d at 1112-1113 (“The wording of Rule 13a–14

supports the conclusion that a mere signature is not enough for compliance.”);

id. (Bea, concurring) (noting the plain meaning of the word “false” would

support imposing liability for under Rule 13a–14 when “a CEO or CFO acts

with knowledge or at least recklessness as to the falsity of a certification”)

(emphasis added). In sum, it is hard to imagine how a heightened legal

standard (i.e., actual knowledge) would hold certifying officers more

accountable and, ultimately, ensure that more reliable and materially accurate

information is disclosed to investors and the marketplace.

B. Requiring Personal Misconduct Would Improperly Allow Certifying Officers

to Realize a Pecuniary Benefit, Despite an Issuer’s Misconduct, Shareholder Injury, and Fraud on the Marketplace.

Defendants have come to this Court to protect their wrongfully realized

bonuses and compensation. Despite certifying false financial statements,

Bosco and Lee believe that they are entitled to keep $600,000 and $475,000,

respectively. Bosco, No. 17-1887, at *11-12. Instead, they believe that

Burlington should pay any reimbursement ordered by the Court because they

were not personally involved in the misconduct that caused the material

misstatements. Id. at *12. However, the reality is that Bosco and Lee’s

personal misconduct—their failure to investigate the questionable contract

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terms and reckless certification of the Company’s financial statements—is what

allowed them to receive such ill gotten compensation.

The purpose of SOX Section 304 is to prevent officers from benefitting

from inaccurate financial statements. See 15 U.S.C.A. § 7243(a); U.S. Senate,

Committee on Banking, Housing, and Urban Affairs. Public Company

Accounting Reform and Investor Protection Act of 2002 (S. Rep. No. 107–205, at

*26), 2002 WL 1443523 (July 3, 2002). The Ninth Circuit recently examined

SOX Section 304 in-depth. See Jensen, 835 F.3d at 1115. In Jensen, the SEC

sought a court order for the CEO to reimburse the company he worked for after

he personally benefitted from false financials that overstated the company’s

income. Id.; see also In the Matter of CSK Auto Corp., Securities Act Release No.

2974, at *2 (May 26, 2009) (available at

https://www.sec.gov/litigation/admin/2009/33-9032.pdf). However, the

SEC’s complaint did not allege that the CEO committed any securities laws

violation. SEC v. Jensen, No. CV11-05316R (AGPx), 2011 WL 7563987

(C.D.Cal. June 24, 2011). While the trial court favored a heightened standard

under Section 304, the Ninth Circuit reversed and found that disgorgement

under Section 304 applies regardless of whether the financial misstatement

was caused by the CEO’s or CFO’s personal conduct. Jensen, 835 F.3d at

1122 ( “‘[M]isconduct’ requires an intentional violation of a law or standard …

on the part of the issuer, which can be shown by evidence that any employee

of the issuer (not only the CEO or CFO), acting within the course and scope of

that employee's agency, intentionally violated a law or corporate standard.”)

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(emphasis added). The court reviewed Congress’s intent when enacting Section

304, in addition to prevailing case law, and focused on: (1) the language of

Section 304; and (2) the duties imposed on the certifying officers. See 15

U.S.C.A. § 7243(a) (“due to material noncompliance of the issuer”) (emphasis

added); Jensen, 835 F.3d at 1122-23 (“SOX 304 encourages vigorous

compliance with SOX 302 by making CEOs and CFOs subject to disgorgement

if their internal controls fail to prevent (or to detect prior to the publication

of a false or misleading financial report) intentional wrongdoing by any

authorized agent of the issuer.”) (emphasis added); see also S. Rep. No. 107–

205, at *26; U.S. House, Committee on Rules. H. Rep. No. 107–418 at 31,

Providing for Consideration of H.R. 3767, Corporate and Auditing Accountability,

Responsibility, and Transparency Act of 2002 (H. Rep. No. 107-418), 2002 WL

704333 (April 23, 2002); SEC v. v. Life Partners Holdings, Inc., 71 F.Supp.3d

615, 625 (W.D. Tex. 2014) (finding the disgorgement remedy, under SOX 304,

reinforces Rule 13a–14 d and the duty imposed on certifying officers to ensure

issuer disclosure compliance); SEC v. Geswin, No. 5:10CV1235, 2011 WL

4541303 (N.D. Ohio Sept. 29, 2011).

While Bosco and Lee may argue that the disgorgement remedy requires

personal misconduct of CEOs and CFOs, such an interpretation would fail to

keep corporate executives accountable for issuer misconduct and leave

investors susceptible to inaccurate and unreliable corporate disclosures. To

illustrate, such a holding would allow officers to keep substantial pecuniary

benefits (i.e., bonuses, incentive-based and equity-based compensation, and

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profits realized from the sale of issuer securities), despite the disproportionate

injury suffered by the issuer, its shareholders, and the marketplace, so long as

the certifying officers were not personally involved in the wrongdoing.

Notwithstanding, Bosco and Lee were in the best position to prevent Prince’s,

and as a result Burlingham’s misconduct. Bosco, No. 17-1887, at *4.

II. DISGORGEMENT ACTIONS ARE EQUITABLE REMEDIES NOT

SUBJECT TO THE FIVE-YEAR STATUTE OF LIMITATIONS UNDER 28 U.S.C. § 2462 BECAUSE § 2462 ONLY APPLIES TO PUNITIVE REMEDIES

The 5-year statute of limitations imposed by 28 U.S.C. § 2462 does not

apply to the disgorgement of Prince’s ill-gotten profits because disgorgement is

an equitable remedy that is neither explicitly nor implicitly subjected to § 2462.

See 28 U.S.C. § 2462 (2016). While there is a clear split between the Tenth

Circuit in United States v. Kokesh, 834 F.3d 1158 (10th Cir. 2016), and the

Eleventh Circuit in SEC v. Graham, 823 F.3d 1357 (11th Cir. 2016), sister

circuit courts have applied the Tenth Circuit’s reasoning and consistently held

that a disgorgement claim is remedial rather than punitive. See Kokesh, 834

F.3d at 1167 (“We hold that the disgorgement order and injunction in this case

are neither penalties nor forfeitures under 28 U.S.C. § 2462.”); see also Riordan

v. SEC, 627 F.3d 1230, 1234 (D.C.C. 2010) (“We have reasoned that

disgorgement orders are not penalties. . .”).

For the purposes of determining the applicability of the statute of

limitations under § 2462, courts must review the federal statute of limitations

de novo. United States v. Telluride Co., 146 F.3d 1241, 1244 (10th Cir. 1998).

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While courts must review de novo, prior jurisprudence has established that

federal statutes of limitations must be interpreted in the government’s favor to

“protect the public from the negligence of public officers in failing to timely file

claims in favor of the public interests.” Kokesh, 834 F.3d at 1162 (quoting

Telluride, 146 F.3d 1246 n.7; see also United States v. Banks, 115 F.3d 916,

919 (11th Cir. 1997) (“Any statute of limitations sought to be applied against

the United States must receive a strict construction in favor of the

government.”). Therefore, in determining whether a disgorgement claim is

subject to the statute of limitations under § 2462, this Court must conduct a

de novo review of the applicability of the statute and the statute must be

interpreted in favor of the SEC.

A. Disgorgement is an Equitable Remedy and Not a Civil Penalty Subject to

the Statute of Limitations Under 28 U.S.C. § 2462.

1) Disgorgement is an Equitable Remedy Because Its Intended Purpose and Effect Are Remedial and Not Punitive.

An SEC enforcement action ordering the disgorgement of profits obtained

by recklessly misleading investors, as in the case sub judice, is not punitive but

instead remedial in nature. Disgorgement addresses only the ill-gotten profits

themselves, as opposed to punishing wrong-doers by forcing them to pay a

separate penalty based on their illicit actions. See United States v. Badger, 818

F.3d 563, 566 (10th Cir 2016) (disgorgement “consists of fact-finding by a

district court to determine the amount of money acquired through

wrongdoing—a process sometimes called ‘accounting’—and an order compelling

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the wrongdoer to pay that amount plus interest to the court”). The strict

limitations of the ‘accounting’ process has led various Circuit and District level

courts to label the disgorgement action as remedial. See SEC v. Cavanagh, 445

F.3d 105, 116 & n.25 (2d Cir. 2006) (“Because the remedy is remedial rather

than punitive, the court may not order disgorgement . . .”); see also SEC v.

Commonwealth Chem. Sec., Inc., 574 F.2d 90, 95 (2d Cir. 1978) (“A historic

equitable remedy was the grant of restitution ‘by which defendant is made to

disgorge ill-gotten profits or to restore the status quo. . .’”) (citing Porter v.

Warner Holding Co., supra, 328 U.S. 395, 400-02 (1946)). It is the concept of

only restoring the status quo, rather than inflicting punishment, that separates

equitable remedies from punitive actions. More specifically, it is what

separates an order for disgorgement of profits from a civil penalty.

Civil penalties are distinct from equitable remedies, such as

disgorgement, in both their intent and purpose. The intent and purpose of civil

penalties is “to punish culpable individuals, as opposed to those intended

simply to extract compensation or restore the status quo…” See Tull v. United

States, 481 U.S. 412, 422 (1987); see also Curtis v. Loether, 415 U.S. 189, 197

(1974); SEC v. Contorinis, 743 F.3d 296, 301 (2d Cir. 2014) (“[D]isgorgement

does not serve a punitive function . . . [its] underlying purpose is to make law-

breaking unprofitable for the law-breaker.”). The language employed by the

Second Circuit in Contorinis is key because it highlights potential

consequences of holding that § 2462 applies to disgorgement actions. If this

Court finds that § 2462 applies, then a corporate insider and his cohorts, who

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misled investors, will be allowed to keep profits gained whilst taking advantage

of investors thereby making law-breaking profitable. See The Restatement

(Third) of Restitution and Unjust Enrichment, echoes this notion of making

“law-breaking unprofitable” stating “the object of restitution [in the

disgorgement context] . . . is to eliminate profit from wrongdoing while avoiding,

so far as possible, the imposition of a penalty.” § 51(4) (Am. Law Inst. 2010).

Therefore, because the intent and purpose of a disgorgement action is to return

parties to the status quo and not to punish, the action is not subject to the

statute of limitations under 28 U.S.C. § 2462.

2) Ordering a Disgorgement of Illicit Profits Received by Cohorts Does Not

Constitute a Penalty. The SEC’s order demanding Prince disgorge the $250,000 received in

bonuses by the Communications Division’s other executive manager (the

“Executive”), received as a result of his illicit behavior, does not render the

action a penalty. Bosco, No. 17-1887, at *7. Various Circuit Courts have held

that disgorgement of an affiliate’s ill-gotten benefits does not constitute a

penalty because “there is nothing punitive about requiring a wrongdoer to pay

for all the funds he caused to be improperly diverted to others as well as to

himself.” Kokesh, 834 F.3d at 1165; see also Contorinis, 743 F.3d at 307 (2d

Cir. 2014) ("[W]hen third parties have benefitted from illegal activity, it is

possible to seek disgorgement from the violator, even if that violator never

controlled the funds. The logic of this . . . is that to fail to impose disgorgement

on such violators would allow them to unjustly enrich their affiliates."); SEC v.

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JT Wallenbrock & Assocs., 440 F.3d 1109, 1114-15 (9th Cir. 2006) (finding the

defendant was not entitled to deduct business and operating expenses from the

amount of his disgorgement because “it would be unjust to permit the

defendants to offset against the investor dollars they received the expenses of

running the very business they created to defraud those investors into giving

the defendants the money in the first place”); SEC v. Banner Fund Int’l, 211

F.3d 602, 617, 341 U.S. App. D.C. 175 (D.C. Cir. 2000) (“[A]n order to disgorge

establishes a personal liability, which the defendant must satisfy regardless

whether he retains the selfsame proceeds of his wrongdoing.”). Whether the

affiliate or cohort is actively participating in the deceptive activity, or not, does

not matter. If benefits are received as a result of the illicit behavior, there is an

obligation to vacate said benefits.

The Tenth Circuit in Kokesh, points to tort law to justify disgorgement as

a non-penalty. See Kokesh, 834 F.3d at 1165 (“After all, we do not consider it

punitive to require a personal-injury tortfeasor to pay for all damages caused

by his tort (say, a motor-vehicle accident) even if he gained nothing thereby.”).

Furthering the Tenth Circuit’s analysis, the Court should look to the concept

joint and several liability. When there are multiple parties to a tort or contract

action, the concept of joint and several liability allows the aggrieved party to

sue one or all for a portion of or the entire amount of damages. This is a key

concept because historically joint and several liability is not considered

punitive. Therefore, because the Executive benefited from Prince’s wrongdoing,

Prince should be required to disgorge the $250,000.

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3) Disgorgement Is Not a Penalty if it is Causally Related to the Illicit

Wrong-Doing. While the SEC has broad discretion on disgorgement actions,

disgorgement must be “casually related” to the illicit behavior to be considered

equitable and not punitive. “[D]isgorgement orders are not penalties, at least

so long as the disgorged amount is casually related to the wrongdoing.”

Zacharias v. SEC, 569 F.3d 458, 471-72 (D.C. Cir. 2009); SEC v. Bilzerian, 29

F.3d 689, 696 (D.C. Cir. 1994); SEC v. First City Fin. Corp., 890 F.2d 1215,

1231 (D.C. Cir. 1989). In order for the disgorgement action against Prince,

each of the three disgorgement orders must separately be “casually related” to

his wrongdoing.

Prince was order to disgorge $1,770,000 in total profits gained from

illicitly signing side-letters without Burlingham’s consent. Bosco, No. 17-1887,

at *7. The disgorgement breaks down that total profit into three separate

figures beginning with the $1,025,000 profit earned directly from the side

letters. Id. This figure was obtained by encompassing each payment received

by Prince for a particular side letter, plus interest. Id. There is no question

that this figure was “casually related” to the wrongdoing because he received

these payments directly in exchange for the illicit behavior. The second figure

is $495,000, that “encompass[es] all bonuses and other discretionary

compensation received during the periods of January 2008 through January

2010 and January 2014 through January 2015, including the $45,000 bonus

in 2009.” Id. According to the lower court, the Compensation Committee

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determined executive compensation used five metrics on a consolidated basis

and then to each of Burlingham’s divisions individually to establish executive

discretionary bonuses. Bosco, No. 17-1887, at *2. Prince was the Executive

Vice President and had direct managerial responsibility for the

Communications Division, which handled the sale of smartphone microchips in

China. Id. The side letters that Prince negotiated with select Chinese

smartphone manufactures directly led to an uptick in both market share and

revenue, as evidenced by two key pieces of evidence in the record. First, Prince

signed a total of 41 side letters between January 2008 and January 2010 and

between January 2014 and January 2015. Id. at *3,4. Any bonus Prince

gained during either of those time frames will most likely be tied to the revenue

and increase in market share as a result of the 41 deals he closed. Therefore,

the 2008-10 and 2014-15 bonuses were casually related to Prince’s

wrongdoing.

In addition to the 2008-10 and 2014-15 bonuses, the SEC ordered

Prince to disgorge the $45,000 bonus he received in March 2009. Id. at *7.

The March 2009 bonus was casually related to his illicit behavior because the

success of Burlingham could be tied to the side letters negotiated by Prince.

Id. at *2. Prior to 2009, the smartphone microchips dominated Burlingham’s

business, making up 52% of its net income and Burlingham had a 42% market

share. Id. Majority of Burlingham’s success was in the smartphone microchip

business and not the tablet microchip business. Id. at *1,2. Had it not been

for the success in the smartphone microchip business Burlingham would likely

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not be able to enter into a major contract with a leading producer of computer

tablets in March 2009. That success can be directly linked to Prince’s

wrongdoing. Finally, the $250,000 in bonuses awarded to the Executive is

casually related to the wrongdoing because those benefits can be directly tied

to Prince’s illicit behavior. The SEC’s order to disgorge $1,770,000 is casually

related to Prince’s wrongdoing and, therefore, the disgorgement action is not a

penalty.

B. Fundamental Differences in the Plain Meaning and Mechanics

Distinguish Disgorgement Remedies from Forfeitures

1) Based on the Plain Meaning of "Disgorgement" and "Forfeiture", the Terms are "Meaningfully Different".

The historical plain meaning of “forfeiture” within § 2462 renders the

term distinct from a disgorgement action. To interpret the meaning of terms

within a particular statute, courts first look to the “ordinary, contemporary,

common meaning.” Perrin v. United States, 444 U.S. 37, 42 (1979) (“A

fundamental canon of statutory construction is that, unless otherwise defined

words will be interpreted as taking their ordinary, contemporary, common

meaning.”). In determining whether there is a distinction between the plain

meaning of the terms “forfeiture” and “disgorgement”, the Eleventh Circuit in

SEC v. Graham used modern definitions to hold that there is “no meaningful

difference” based on the modern day definitions of the terms. 823 F.3d at

1363. However, the court in Graham misinterpreted the plain meaning

analysis set forth in prior jurisprudence. The Supreme Court has interpreted

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the definition of terms based on its history and “presume Congress intended

the phrase to have the meaning generally accepted in the legal community at

the time of enactment.” Dir., Office of Workers’ Comp. Programs, Dept. of Labor

v. Greenwich Collieries, 512 U.S. 267, 275 (1994). Therefore, in order to

establish the meaning of civil forfeiture, courts must look to the earlier versions

of § 2462 to evaluate the meaning of the term at the time of enactment.

To make the distinction between the plain meaning of “forfeiture” and

“disgorgement”, the Tenth Circuit looks to the historic nature of a civil

forfeiture, particularly ships, cargo, and distilleries that were forfeited for

crimes such as piracy or tax fraud in relation to the sale of alcohol. Kokesh,

834 F.3d at 1166. Based on the context of forfeiture in the earlier versions of §

2462 that were enacted, the term was punitive and distinguishable from an

equitable remedy. SEC v. Saltsman, No. 07-CV-4370 (NGG) (RML), 2016 U.S.

Dist. LEXIS 101757, at *81 (E.D.N.Y. Aug. 2, 2016) (“Both at the time that

Section 2462’s antecedent statutes were first passed and continuing until

today, disgorgement and forfeiture have been independent remedies with

important procedural and substantive differences.”). To determine the plain

meaning of the term forfeiture at the time of enactment, the Supreme Court in

Austin v. United States, looked to English Law, in particular the Navigation Acts

of 1600. 509 U.S. 602, 612-13 (1993). The Court determined that “forfeiture

under the Navigation Acts was justified as a penalty for negligence.” The

ancient roots of forfeiture are distinguishable from those of disgorgement. The

Second Circuit in SEC v. Cavanagh described those roots as, “the ancient

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remedies of accounting, constructive trust, and restitution have compelled

wrongdoers to ‘disgorge’—i.e., account for and surrender—their ill-gotten gains

for centuries.” Austin v. United States, 509 U.S. at 613; SEC v. Cavanagh, 445

F.3d 105, 119 (2d Cir. 2006). Therefore, the historic plain meaning of

“forfeiture” and “disgorgement” illustrate the two are different from each other.

To further highlight the distinction, the Tenth Circuit in Kokesh theorized

a situation in which “the owner of the seized property could be completely

innocent of any wrongdoing, and the value of the property taken have no

necessary relation to any loss to others or gain to the owner.” 834 F.3d at

1166; see Calero-Toledo v. Pearson Yacht Leasing Co., 416 U.S. 663 (1974)

(affirming a forfeiture proceeding in which a yacht was seized from an innocent

owner after government officers apparently found only one marijuana cigarette

on the yacht while it was under the control of the lessee). Calero-Toledo and

the theorized situation in Kokesh provide modern-day examples that clearly

distinguish punitive forfeiture, which Congress intended to be subjected to §

2462, from equitable disgorgement.

“Forfeiture” and “disgorgement” can be further distinguished because

“forfeiture” has been used as a synonym for the term “fine”. See Austin, 509

U.S. at 614 n.7 (“[D]ictionaries [from the end of the 18th century] confirm that

‘fine’ was understood to include ‘forfeiture’ and vice versa.”). While the

Eleventh Circuit in Graham looked to the modern meaning of the term, the

Supreme Court in Austin used the original definitions at the time of enactment

in order to accurately determine the meaning that Congress intended. See T.

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Sheridan, A General Dictionary of the English Language (1780) (unpaginated)

(defining "fine" as: "A mulct, a pecuniary punishment; penalty; forfeit, money

paid for any exemption or liberty"); J. Walker, A Critical Pronouncing

Dictionary (1791) (unpaginated) (same); 1 Sheridan, supra (defining "forfeiture"

as: "The act of forfeiting; the thing forfeited, a mulct, a fine"); Walker, supra

(same); J. Kersey, A New English Dictionary (1702) (unpaginated) (defining

"forfeit" as a "default, fine, or penalty").

While “forfeiture” was used synonymously with the term “fine”,

disgorgement is distinct from a fine because a fine is defined as a “payment to

a sovereign as punishment for some offense.” Browning-Ferris Indus. of

Vermont, Inc. v. Kelco Disposal, Inc., 492 U.S. 257, 265 (1989); see also Black’s

Law Dictionary (10th ed. 2014) (defining “fine” as “[a] pecuniary criminal

punishment or civil penalty payable to the public treasury”.). Disgorgement,

however, is an equitable remedy that is simply a tool to return parties to the

status quo. The remedy is remedial in nature and not intended to be punitive.

A forfeiture, on the other hand, is a synonym for “fine” because they are both

punitive in nature. Austin, 509 U.S. at 613 (“The First Congress passed laws

subjecting ships and cargos involved in customs offenses to forfeiture. It does

not follow from that fact, however, that the First Congress thought such

forfeitures to be beyond the purview of the Eighth Amendment. Indeed,

examination of those laws suggests that the First Congress viewed forfeiture as

punishment.”). Therefore, “disgorgement” and “forfeiture” are distinct because

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based on the meaning and nature of the term “forfeiture” at the time of

enactment, it could be used interchangeably with the term “fine”.

2) Disgorgement Actions and Forfeitures can be Distinguished Based on the Mechanics of the Remedies.

The Eleventh Circuit erred in holding that there was no “meaningful

difference” between a disgorgement remedy and a forfeiture because not only

are the terms different in their intended purpose and effect, but they also refer

to fundamentally different actions. While disgorgement includes only direct

proceeds from wrongdoing, a forfeiture can include both ill-gotten gains and

any additional profits earned on those ill-gotten gains. Compare SEC v. Blatt,

583 F.2d 1325, 1335 (5th Cir. 1978) (recognizing that “[t]he court’s power to

order disgorgement extends only to the amount with interest by which the

defendant profited from his wrongdoing”), with United States v. Reed, 924 F.2d

1014, 1017 (11th Cir. 1991) (ordering a forfeiture of both the property owned

by the defendants guilty of a RICO offense and the value of that property).

While courts have expanded Blatt to include ill-gotten profits of cohorts that

benefited from the illicit behavior, a disgorgement action can be distinguished

from the forfeiture in Reed.

In Reed, the court ordered that the property and its value were directly

correlated to the defendant’s RICO offense and therefore both were subject to

forfeiture. Id. This exploits the “meaningful difference” between forfeiture and

disgorgement. For instance, if party A commits securities fraud earning a

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profit of one million dollars, and subsequently, buys a house worth one million

dollars. The house’s value appreciates and four years later is worth three

million dollars. The SEC disgorgement order would not be for the original one

million dollars earned through fraud, plus the increase in value of the home

bought through ill-gotten profits. Instead, the disgorgement order would

include the original one million dollars earned through fraud plus any interest.

See Kaley v. United States, 134 S. Ct. 1090, 1102 n.11 (2014) (“Courts

continue to view these two remedies as distinct, with different characteristics

and purposes. The Supreme Court recently noted that unlike forfeiture,

disgorgement is an equitable remedy that ‘applies only to specific assets.’”);

SEC v. Ahmed, No. 3:15cv675 (JBA), 2016 U.S. LEXIS 170322 (D. Conn. Dec.

8, 2016) (quoting Kaley v. United States, 134 S. Ct. 1090, 1102 n.11 (2014)).

Furthermore, in Ahmed, the court endorsed and restated Judge Nicholas

G. Garaufis’s rejection of the holding in Graham, finding that there was no

“meaningful difference” between forfeiture and disgorgement by summing up

three distinct differences: “(1) ‘the Graham court failed to consider the varied

historical meaning of the two terms, the continued differences between the two

remedies, and the statutory context of Section 2462’; (2) ‘even the dictionary

definitions the Graham court relied upon appear to have different meanings’;

and (3) ‘every court to consider the underlying district court’s ruling on

disgorgement has rejected it.’” Ahmed, 2016 U.S. LEXIS 170322, at *16 (citing

Saltsman, No. 07-CV-4370 (NGG) (RML), 2016 WL 4136829 at *27-28 (E.D.N.Y.

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Aug. 2, 2016). Therefore, the Eleventh Circuit erred in Graham, and there is a

fundamental difference between “forfeiture” and “disgorgement”.

The second “meaningful difference” between a disgorgement and a

forfeiture action is the mechanics of each action. The Tenth Circuit in Kokesh

held that in order to distinguish the terms, forfeiture “must be read in the

context of government causes of action— ’an action, suit or proceeding.’”

Kokesh, 834 F.3d at 1165 (quoting 28 U.S.C. § 2462). While a disgorgement

action takes the form of an order against the individual, forfeiture historically

was an in rem proceeding. See Austin, 509 U.S. at 612; United States v. 92

Buena Vista Ave., 507 U.S. 111, 118-19 (1993) (“Laws providing for the official

seizure and forfeiture of tangible property used in criminal activity have played

an important role in the history of our country. Colonial courts regularly

exercised jurisdiction to enforce English and local statutes authorizing the

seizure of ships and goods used in violation of customs and revenue laws.”).

Even modern definitions of the term point to the mechanics of forfeiture, in

particular, Black’s Law Dictionary describes it as “an in rem proceeding

brought by the government.” Civil Forfeiture, Black’s Law Dictionary (10th ed.

2014). Both prior jurisprudence and modern definitions establish a

“meaningful difference” between the mechanics of forfeiture and a

disgorgement, and therefore, they are distinct terms.

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C. The Real World Outcome of Subjecting Disgorgement Actions to 28 U.S.C. § 2462 Would Run Counter to the Mission of the SEC This Court should follow the reasoning set forth in the Tenth Circuit’s

decision in Kokesh and hold that a disgorgement is not subject to the statute of

limitations set forth in 28 U.S.C § 2462 based on the real world outcome.

When courts get bogged down in technical statutory interpretations of equally

complex federal statutes, it can become difficult to step back and broadly look

at the reality of the situation. Prince entered into 41 side letters, misleading

investors, and earned a profit of just under two million dollars for himself and

his cohorts. The purpose of the SEC’s Enforcement Division is to “protect

investors and the markets by investigating potential violations of the federal

securities laws and litigating the SEC’s enforcement actions.” SEC, DIV. OF

ENFORCEMENT, ENFORCEMENT MANUAL (Oct. 28, 2016). Allowing Prince

and his cohorts to retain these ill-gotten profits would effectively run counter to

the entire purpose of the SEC Enforcement Division. If this Court follows the

reasoning set forth in the Eleventh Circuit, Prince will be allowed to keep profit

gained from misleading investors, despite the lack of explicit guidance or

Congressional intent that the equitable remedy of disgorgement is subject to

the statute of limitations set forth in 28 U.S.C § 2462.

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CONCLUSION

For the foregoing reasons, the decision of the United States Court of

Appeals for the Fourteenth Circuit holding the Defendants violated Rule 13a–

14 and SOX 304 and that the 5-year statute of limitations in 28 U.S.C. § 2462

does not apply to SEC disgorgement claims should be affirmed.

Respectfully submitted,

Counsel for the Respondent.