Securities & Exchange Commission v. Teo

PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

__________

No. 12-1168
__________

SECURITIES AND EXCHANGE COMMISSION

v.

ALFRED S. TEO, SR.; TEREN SETO HANDELMAN;
MAAA TRUST, FBO MARK, ANDREW, ALAN AND
ALFRED TEO, JR.; JOHN D. REIER; CHARLES D.
FORTUNE; JERROLD J. JOHNSTON; MARK J. LAUZON;
PHILIP SACKS; MITCHELL L. SACKS; RICHARDA.
HERRON; LAWRENCE L. ROSEN; DAVID M. ROSS;
JAMES M. RUFFOLO

Alfred S. Teo, Sr. and MAAA Trust,
Appellants
__________

On Appeal from the United States District Court
for the District of New Jersey

(D.C. No. 2-04-cv-01815)
District Judge: Honorable Susan D. Wigenton
 ARGUED APRIL 23, 2013

BEFORE: SLOVITER, JORDAN, and NYGAARD, Circuit
Judges

(Filed: February 10, 2014)

Eric O. Corngold, Esq.
Mary E. Mulligan, Esq.
Friedman Kaplan Seiler & Adelman
7 Times Square
New York, NY 10036

Cheryl A. Krause, Esq. [Argued]
Dechert
2929 Arch Street
18th Floor, Cira Centre
Philadelphia, PA 19104

Counsel for Appellants Alfred S. Teo, Sr. and MAAA
Trust

David Lisitza, Esq. [Argued]
Securities & Exchange Commission
100 F Street, NE, Mail Stop 1090
Washington, DC 20549

Counsel for Appellee

__________

2
 OPINION OF THE COURT
__________

NYGAARD, Circuit Judge.

A jury concluded that defendants Alfred Teo and
MAAA Trust were liable for violating (inter alia) the
Securities Exchange Act of 1934, Sections 13(d) and 10(b)
(15 U.S.C. § 78m(d) and § 78j(b)). The District Court
subsequently denied the Defendants’ motions for judgment as
a matter of law and for a new trial. It also ordered (inter alia)
the Defendants to disgorge over $17 million, plus
prejudgment interest amounting to over $14 million. They
now appeal alleging errors arising from the admission of
certain evidence and the use of a general verdict form; and
challenging the District Court’s disgorgement and
prejudgment interest award. We will affirm the District
Court’s order on all issues.

I.

Alfred Teo is a businessman and an investor. In 1992,
he established the MAAA Trust. Teo was the beneficial
owner of the Trust, which also held various securities, for the
period relevant to this appeal. In February 1997 twenty-eight
brokerage accounts controlled by Teo (including those of the
Trust) held approximately 5.25 percent of the stock in
Musicland. Musicland was a Delaware corporation that was a

3
retailer of music, video, books, computer software and video
games.

Musicland had a “shareholder rights plan” that could
be activated when an individual or group reached 17.5
percent ownership of the company’s stock. This plan,
commonly known as a “poison pill,” was in place to protect
the company from a hostile takeover. Once initiated, it
enabled—among other things—shareholders to purchase
stock at a lower price to dilute the holdings of the hostile
buyer to a lower percentage.

Up to July 1998, in accord with Section 13(d), Teo
properly disclosed his Musicland holdings on SEC Schedule
13D, and those holdings were under the poison pill threshold.
On July 30, 1998, Teo filed “Amendment 7” to his Schedule
13D disclosure with the following statement: “Teo ceased to
have investment powers with respect to the [MAAA] Trust.” 1
After July 30, 1998 Teo consistently reported that his
ownership percentage in Musicland remained below 17.5
percent. Nonetheless, he continued to make investments in
Musicland on behalf of the Trust. In all, Teo filed three false
Schedule 13D disclosures, and he failed to file numerous
13Ds that were required when the change in the percentage of
his ownership in Musicland exceeded the reporting threshold.

1
Schedule 13D requires the disclosure of (inter alia): the
identity of the purchaser, including beneficial owners; a
description of the purpose of the purchase(s), including any
plans or proposals to change the Board of Directors or to
cause an extraordinary corporate transaction; and, the interest
of all persons and groups making the filing. 17 C.F.R. §
240.13d-101. (1997))

4
 The Trust subsequently filed two Schedule 13Ds
falsely stating that Teren Seto Handeleman, Teo’s sister-in-
law, had sole power to buy and sell Trust shares. By failing
to disclose his beneficial ownership of the Musicland stock
held by the MAAA Trust, Teo under-reported his Musicland
holdings, and failed to comply with his reporting obligations
under Section 13(d). Moreover, since Teo’s filings never
disclosed his ownership of Musicland stock to be at or above
the poison pill threshold, Musicland was kept in the dark
about this fact and it never activated this plan. This was
Teo’s intent for filing the false reports.

Additionally, after March 10, 2000, the Trust stopped
making amendments to its reports, even though changes in its
Musicland ownership interest continually exceeded the
reporting threshold. The District Court concluded that Teo
and the Trust controlled 17.79 percent of Musicland shares on
August 2, 1998, and 35.97 percent on December 6, 2000.
Their combined holdings in Musicland did not fall below
17.79 percent through January 31, 2001.

Throughout this period, Teo made multiple requests to
be placed on the Musicland Board of Directors (from
December 1998 through September 2000), and during 2000
he also pushed, unsuccessfully, for the selection of a number
of other Board candidates. Moreover, Teo repeatedly
proposed that Musicland become privately held. Teo
successively worked with Goldsmith-Agio-Helms, Trivest
Capital, and Financo on plans to take Musicland private. He
admitted that his motive for doing so was to open up the
opportunity for him to cash out. He did not file any Schedule
13D disclosures on any of these activities.

5
 In December 2000, Best Buy Co. announced its all-
cash tender offer of all Musicland shares, and it acquired
those shares in January 2001. The stock price rose after the
tender offer announcement.2 Teo sold a portion of his
Musicland shares in the market, and all of the remaining
shares to Best Buy as part of the tender offer. The District
Court determined that Teo’s original cost of acquiring his
shares was $89,453,549 and that the gross proceeds from his
sale of the stock amounted to $154,932,011. The District
Court set Teo’s profit from stock he held after July 30, 1998,
(taking into account the date of his first SEC reporting
violation) at $21,087,345, including shares held by the Trust,
and those held by accounts that Teo directly controlled.

In April, 2004 the SEC filed a civil law enforcement
action against Teo asserting violations of the Securities
Exchange Act, Sections 13(d) and 10(b), and numerous SEC
rules and regulations.3 The District Court granted summary
judgment on a number of rule-violation claims that Teo does
not challenge. At trial, a jury concluded that Teo violated
Section 10(b) and Rule 10b-5, and that Teo and the Trust
violated Section 13(d), Rule 12b-20, Rule 13d-1, and Rule
13d-2. Finally it held that the Trust violated Section 16(a)
and Rule 16a-3.

2
Teo admits that, in the fall preceding the Best Buy deal, he
received confidential communications about it from senior
management at Musicland and he subsequently bought
45,000 additional shares of Musicland stock.
3
In August, 2004, the Government indicted Teo. He pleaded
guilty to insider trading, in violation of 15 U.S.C. §§ 78j(b)
and 78ff(a) in June 2006.

6
 After trial, the District Court denied motions by Teo
and the Trust for a new trial and for judgment as a matter of
law. It subsequently enjoined Teo and the Trust from future
violations of securities law. Finally, upon the SEC’s motion,
the District Court held Teo and the Trust jointly and severally
liable for paying the civil penalty and for the disgorgement of
their illegally obtained profits.

Teo and the Trust now appeal the jury’s verdict, but do
not directly challenge the ruling on the injunction or their
joint and several liability. Specifically, they appeal the
District Court’s admission of Teo’s guilty plea allocution and
an exhibit that they assert is false evidence. They also claim
that there was insufficient evidence to prove a “plans and
proposals” theory of liability, and that this entitles them to a
new trial because the general verdict slip creates ambiguity on
the theory of liability grounding the jury’s verdict. Finally,
the Appellants appeal the District Court’s order disgorging
over $17 million, plus prejudgment interest.4 We now turn to
each of these issues.

II.

4
The District Court subtracted both amounts paid by the
Appellants in margin interest, and profits attributable to Teo’s
insider trading from the total amount to be disgorged,
reducing the disgorgement from $21,087,345 to
$17,422,054.13.

7
 On June 7, 2006, Teo pleaded guilty to five counts of
insider trading admitting that: he received advance
information that Best Buy was going to make a tender offer to
purchase Musicland stock; that he was aware that this was
private information; he was aware of his duty to refrain from
acting on or disclosing it to anyone; and finally, that he
enabled eight people to take advantage of this information.
He also admitted that he passed this information on to the
eight willfully, knowingly and with an intent to defraud. The
conduct underlying these admissions occurred
contemporaneously with his Section 13(d) violations in the
fall of 2000. The SEC’s use of the admissions contained in
the allocution was the subject of a motion in limine, and the
District Court ruled that—presuming Teo testified—it was
admissible.
During the SEC’s questioning of Teo at trial, it
introduced—over the Appellants’ objections—Teo’s
convictions and the allocution from his guilty plea to Section
10(b) insider trading. The Appellants now take issue only
with the admission of the allocution.5

The District Court grounded its decision to admit
Teo’s allocution on both Fed. R. Evid. 609 and Fed. R. Evid.

5
Teo argues that we should apply a de novo standard of
review. We review de novo “whether evidence falls within
the scope of Rule 404(b),” but since we regard the allocution
at issue to be appropriately considered in the context of Rule
404(b), we apply an abuse of discretion standard. United
States v. Ciavarella, 716 F.3d 705, 727 n.12 (3d Cir. 2013).

8
404(b).6Under Rule 404(b), evidence of a crime may not be
used to prove a person’s character, but may be used to prove
intent, knowledge, absence of mistake, or lack of accident.
We have long regarded this rule as inclusionary, meaning that
“evidence of other wrongful acts [is] admissible so long as it
[is] not introduced solely to prove criminal propensity.”
United States v. Green, 617 F.3d 233, 244 (3d Cir. 2010).
Moreover, we have adopted a four-prong test for admissibility
under Rule 404(b): (1) the evidence must have a proper
purpose under Rule 404(b); (2) it must be relevant under Rule
402; (3) its probative value must outweigh its prejudicial
effect under Rule 403; and (4) the court must charge the jury
to consider the evidence only for the limited purpose for
which it was admitted. United States v. Davis, 726 F3d 434,
441 (3d Cir. 2013).

6
Rule 609(a)(2) states: “[F]or any crime regardless of the
punishment, the evidence must be admitted if the court can
readily determine that establishing the elements of the crime
required proving--or the witness's admitting--a dishonest act
or false statement.” Teo challenges the admission of the
allocution on Rule 609, asserting that we have limited the
admission of such evidence to the “number of convictions,
the nature of the crimes, and the time and date of each.”
United States v. Mitchell, 427 F.2d 644, 647 (3d Cir. 1970).
Rule 609 was the basis for admitting Teo’s insider trading
conviction (which is uncontested), but we need not address
the admissibility of the allocution under Rule 609 because we
conclude that Rule 404(b) provided the court with a solid
foundation for its decision.

9
 The District Court, after reviewing the proposed
evidence, concluded that the allocution would be probative of
virtually all of the permissible reasons provided under Rule
404(b): Teo’s claimed absence of knowledge, his intent, and
the absence of mistake. It noted that the criminal case was
“an offshoot” of the civil case, and that this evidence was
relevant to “what [Teo] knew, what [Teo] did, [and] when he
did it.” We agree. The allocution was probative of Teo’s
willfulness and knowledge in evading SEC regulations as
they related to his Musicland stock holdings.

The Appellants attempt to construe the insider trading
conduct as irrelevant because it was subsequent to the acts
underlying the issues raised in the civil trial. This is factually
incorrect. The criminal acts occurred between September and
December of 2000, the same time as some of the acts at issue
here. Moreover, the criminal and civil misconduct are all
connected to Teo’s failure to comply with securities laws vis-
a-vis his Musicland holdings. Particularly in the
circumstances of this case, his admissions about his intent in
the criminal matter were probative of his intent in the civil
case. This is true whether or not some of the conduct
addressed in the civil suit predated the acts referenced in the
allocution. See United States v. Bergrin, 682 F.3d 261, 281
n. 25 (3d Cir. 2012). We find no error in the District Court’s
determination of relevance.

The District Court also demonstrated an awareness of
the potential for prejudice by noting from the outset that a
limiting instruction would be necessary. Highlighting that
this evidence “goes to the heart of the very issues are [sic] in
this case,” the District Court concluded that “while its
prejudicial, I don’t believe that the prejudicial effect

10
substantially outweighs the probative value.” Again, we
agree. Particularly in light of the fact that Teo’s insider
trading convictions were also part of the record (and are not
appealed) we see no error by the District Court.7

Finally, citing to Becker, the Appellants argue that the
limiting instruction was inadequate. Becker v. ARCO
Chemical Co., 207 F.3d 176 (3d Cir. 2000). In Becker, the
district court admitted evidence of an employer’s prior
fabrication of a pretext for terminating an employee as
relevant to a plan, pattern or practice in the case at bar, even
though the event was completely unrelated. Id. at 190-91. It
then provided a “cursory” limiting instruction to the jury
about this evidence. We reversed, partially due to the
inadequate instruction. Id. at 206. This case is
distinguishable on the relevance of the evidence. Moreover,
the instruction need not contain any particular language, as
long as it adequately prevents unfair prejudice. See United
States v. Daraio, 445 F.3d 253, 265 (3d Cir. 2006). The
District Court here did more than simply repeat the words of
the rule, providing a meaningful delineation of character
evidence from evidence that goes to intent and the absence of
mistake. Moreover, the instruction captures the key points of
this Court’s Model Jury Instructions. See Court of Appeals

7
The Appellants complain, among other things, that the
SEC’s use of the allocution at the end of its cross examination
was particularly prejudicial because it was more likely to
make an impression on the jury. However, so long as the
evidence raised in the cross-examination was admitted and
used for a permissible purpose, counsel is free to organize its
examination of the witness in any manner it sees fit.

11
for the Third Circuit Model Jury Instruction § 4:29.
Specifically, it said:

Mr. Teo is not on trial for insider
trading. You may not consider
this evidence as proof that Mr.
Teo has a criminal personality or
bad character. This evidence is
being admitted for more limited
purposes; namely whether Mr.
Teo knowingly and intentionally,
with a plan and motive,
committed the acts alleged in this
and did not act because of
mistake, accident or other
innocent reason

We do not see any error in the District Court’s limiting
instructions.
As a result, we conclude that the balancing test of Rule
403 supports a conclusion that any prejudice arising from the
admission of the allocution was both outweighed by the
probative value of the evidence and was properly limited by
the instruction. For all of these reasons, the District Court did
not abuse its discretion by admitting the allocution under Rule
404(b).8

8
Even if the admission of this evidence had been error, we
would have ruled that it was harmless. The Appellants have
not appealed the District Court’s admission of Teo’s
judgment of conviction on insider trading, which of itself
placed before the jury much of the potentially prejudicial
information about which the Appellants now complain.

12
 III.

The Appellants next claim that the SEC provided false
evidence to the jury, and that the District Court abused its
discretion by denying their motion for a new trial on this
basis. The issue centers on an exhibit, PX103, that contained
both a fax cover sheet and a marked-up draft of an
amendment (“Amendment 7”) that Teo made to his Schedule
13D filing. The Appellants complain that the SEC knowingly
presented this exhibit to the jury as one continuous document,
ostensibly faxed by Teo’s counsel to Teo, when in fact the
marked-up document was never faxed.9

Moreover, with the accumulation of other evidence on Teo’s
intent regarding the reporting violations, we are hard pressed
to find any credible basis to rule that the allocution was
substantially prejudicial to the Appellants.
9
The District Court authenticated the exhibit, which was
included in the Joint Proposed Final Pretrial Order, without
objection from the Appellants. Accordingly, as per the
agreement of the parties upon their submission of the joint
proposed order, the Appellants waived their appeal of this
issue. However, the District Court did not treat the issue as
waived when considering the Appellants’ motions for
judgment as a matter of law and for retrial. Regardless, we
conclude that the Appellants’ assertion of false evidence is
meritless.

13
 We review the denial of a motion for a new trial for
abuse of discretion. McKenna v. City of Philadelphia, 582
F.3d 447, 460 (3d Cir. 2009). A new trial is warranted when
the government, “although not soliciting false evidence,
allows it to go uncorrected when it appears at trial.” United
States v. Biberfeld, 957 F.2d 98, 102 (3d Cir. 1992). The
concept of false evidence is most often associated with
instances of perjured testimony (See e.g. Lambert v.
Blackwell, 387 F.3d 210, 242 (3d Cir. 2004)) and it is, to say
the least, a stretch to apply it to the facts of this case.

The exhibit at issue was comprised of two documents
that Teo submitted to the Government during his criminal
prosecution in response to a motion to compel. The first
document is a fax cover sheet indicating that Teo’s counsel
sent Teo a copy of Amendment 7 for his review prior to its
submission to the SEC. The second document is a marked-up
draft of Amendment 7 prepared by Teo’s counsel. There is
no dispute that the marked-up draft was not the document that
was referenced in the fax cover sheet. In fact, there is no
evidence that counsel ever gave the marked-up draft to Teo.

Yet, Teo’s counsel was the originator of the
documents, having submitted the fax cover sheet and marked
up document in response to a motion to compel during the
criminal prosecution. The Appellants have never disputed
that Teo reviewed a document that is substantially similar to
the marked-up version included in the exhibit. Therefore, it is
not an exaggeration to say that, from the time of its
production, Teo has been complicit in the conclusion that the
marked-up version was substantially the same as what Teo
reviewed prior to its submission. While the Appellants timely
objected to the SEC’s use of the exhibit at trial, no one—

14
particularly Teo—said at any time that any of the statements
from the exhibit that the SEC referenced while Teo was
testifying were incorrect or misrepresented. Teo testified that
he knew the contents of the amendment at issue and was
aware that, as a result of filing this amendment, the public
would believe that he no longer had beneficial ownership of
Musicland stock purchased by the Trust.

While the exhibit theoretically could have created
confusion, there is no evidence that it actually did, nor is there
any evidence that it influenced the outcome of the trial. The
SEC never represented to the jury, willfully or otherwise, that
the exhibit was one continuous document. Moreover, any
mistaken inference about the documents in the exhibit was
adequately highlighted by the Appellants during trial and
explained to the jury. The District Court permitted the
Appellants to distribute copies of the entire exhibit to the jury,
pointing to irregularities in pagination. As a result, to the
extent that the formatting of the exhibit could have created a
mistaken impression that the marked-up draft was faxed to
Teo, the jury was fully apprised of the potential for this error.

Even if the combination of the two documents in one
exhibit confused the jury—a contention for which we have no
evidence—we do not have any basis to conclude that the
exhibit prejudiced the outcome of the trial. To the contrary,
there was other evidence before the jury concerning Teo’s
awareness of his representations to the SEC. Therefore, if
there was any error in admitting this exhibit, it was harmless.
See United States v. DeMuro, 677 F.3d 550, 557 (3d Cir.
2012). For all of these reasons, as to Exhibit PX103, we
conclude that the District Court did not abuse its discretion by
refusing to grant a new trial on this basis.

15
 IV.

The Appellants next contend that the District Court
erred by denying their motions for judgment as a matter of
law and for a new trial that claimed insufficient evidence. In
a challenge to the District Court's denial of judgment as a
matter of law, we exercise plenary review, applying the same
standard as the trial court. Ambrose v. Twp. of Robinson, Pa.,
303 F.3d 488, 492 (3d Cir. 2002).

The SEC asserted at trial that the Appellants violated
Section 13(d) by failing to disclose plans and proposals for an
extraordinary corporate transaction, and to change the Board
of Directors.10 Appellants first assert that, regarding the
District Court’s review of their challenge to the sufficiency of
the evidence on the SEC’s plans and proposals theory, the
District Court actually assessed the materiality of the
evidence and mistook this for a review of sufficiency. This

10
Schedule 13D, Item 4 states: “State the purpose or
purposes of the acquisition of securities of the issuer.
Describe any plans or proposals which the reporting persons
may have which relate to or would result in: . . . (b) An
extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the issuer or any of its
subsidiaries; . . . (d) Any change in the present board of
directors or management of the issuer, including any plans or
proposals to change the number or term of directors or to fill
any existing vacancies on the board.” 17 CFR § 240.13d-101
(1997).

16
error, they claim, undermines the District Court’s conclusion
that there was sufficient evidence on this theory of liability.

This assertion alone would be of no moment in many
cases, because motions for judgment as a matter of law are to
be denied “if there is evidence reasonably tending to support
the recovery by plaintiff as to any of its theories of liability.”
Walmsley v. City of Philadelphia, 872 F.2d 546, 551 (3d
Cir.), cert. denied, 493 U.S. 955 (1989) (citation to quotation
omitted). Yet, we have also ruled that: “Where a jury has
returned a general verdict and one theory of liability is not
sustained by the evidence or legally sound, the verdict cannot
stand because the court cannot determine whether the jury
based its verdict on an improper ground.” Wilburn v.
Maritrans GP Inc., 139 F.3d 350, 361 (3d Cir. 1998).
Therefore, since the jury used a general verdict form in this
case, the Appellants would receive a new trial if they were
correct that the District Court both conducted a faulty review
and reached the wrong result on the Appellants’ sufficiency
of the evidence claim. However, the District Court’s use of a
general verdict form does not impact our ruling here because
we conclude that the District Court’s analysis of the SEC’s
plans and proposals theory of liability was not erroneous.

The District Court said: “[T]he jury had sufficient
evidence upon which to determine whether Teo’s plans and
proposals regarding Musicland would have resulted in an
extraordinary corporate transaction . . . .[or] a change to the
board of directors.” The Appellants seize upon the words
“would have resulted,” and claim that the District Court
ignored whether the evidence substantially showed
“concrete” plans and proposals (See Azurite Corp. Ltd. v.
Amster & Co., 52 F.3d 15, 18 (2d Cir. 1995)), and instead

17
mistakenly focused merely upon the materiality of the
evidence to the plans and proposals theory.11 As a result, they
claim that evidence suggesting nothing more than
“embryonic” plans by Teo was mistakenly regarded as
sufficient to ground the jury’s decision. This misconstrues
the District Court’s analysis.

The District Court, quoting Azurite, established the
basis for its review of the Appellants’ motions by noting that
“section 13(d) does not require disclosure of ‘preliminary
considerations, exploratory work or tentative plans.’ Azurite
Corp Ltd. V. Amster & Co., 844 F. Supp. 929, 934 (S.D.N.Y.
1994).’” Borrowing further from Azurite, the District Court
noted that “[p]lans or proposals should be disclosed where a
course of action has been decided upon or intended.” The
District Court made clear that this was the standard it used to
assess the evidence.

As to the record, the District Court highlighted the
following facts. In 1999 Teo met with representatives of
Goldsmith-Agio, who produced a financial analysis of a
proposal to privatize Musicland and discussed it in a meeting
with both Teo and Musicland. Musicland rejected this
proposal. Undeterred, Teo met with representatives of
Trivest in early 2000 and signed a term sheet. Trivest and
Teo met with Musicland to discuss the plan. Again, Teo was
not successful. However, in August of 2000 Teo began
discussions about his privatization plan with a number of

11
The SEC does not contest the Appellants’ reliance on
Azurite to express the appropriate standard for determining
whether a particular plan or proposal is sufficiently formed to
trigger reporting requirements under item 4 of Schedule 13D.

18
businessmen, culminating in meetings with a third investment
bank—Financo. Teo terminated this collaboration when he
learned that Musicland was in negotiations to be sold. The
District Court concluded that Teo’s serial efforts with three
investment banks to find backing for a leveraged buyout of
outstanding Musicland stock was substantial evidence for a
jury to conclude that Teo had a plan or proposal for an
extraordinary corporate transaction.

As to evidence relating to the Board of Directors, the
District Court detailed Teo’s numerous conversations with
Musicland representatives both about his intention to become
a Board member and about his intent to have three of his
associates placed on the Board. He sent the resumes of these
individuals, along with his written request for them to be
placed on the Board, to Musicland representatives. These
efforts spanned from 1998 up through 2000. In fact, Teo
made a request to be on the Musicland Board once a month
during 2000.

In consideration of all of this, we understand the
District Court’s holding to be that, in spite of Teo’s overall
lack of success in his privatization efforts, the record
contained sufficient evidence for the jury to conclude that Teo
had decided upon or intended a course of action for an
extraordinary corporate transaction and to change the Board
of Directors, triggering a Schedule 13D reporting duty. We
do not see any error in the District Court’s conclusion that
substantial evidence supported the jury’s decision.

As a result, we do not face the situation confronted in
Wilburn, where a general verdict left open the possibility that
one of the plaintiff’s theories of liability for which there was

19
insufficient evidence might have been the one on which the
jury grounded its determination of liability. Here, as the
District Court held, sufficient evidence supported the jury’s
verdict holding the Appellants liable for Section 13(d)
violations, regardless of whether it relied upon the plans and
proposals theory. Therefore, we conclude that the District
Court did not err by denying the Appellants’ motions for
judgment as a matter of law and for a new trial. 12

V.

Teo and the Trust next challenge the District Court’s
order to disgorge $17,422.054.13 in profit from transactions
tainted by their violation of the Securities Exchange Act. The
Appellants do not appeal the calculation of the disgorgement,
but rather assert the District Court wrongly granted the SEC’s
motion for this remedy. We review for an abuse of
discretion. SEC v. Hughes Capital Corp., 124 F.3d 449, 455
(3d Cir. 1997).13

12
Appellants also contend that cumulative evidentiary errors
support reversal even though, individually, there is no
reversible error. We reject this argument because no such
cumulative error exists here.
13
Teo does not, as he did before the District Court, make an
alternative argument challenging the District Court’s
calculation of the disgorgement which would have been
subject to a clear error review. SEC v. Whittemore, 659 F.3d
1, 7 (D.C. Cir. 2011).

20
 The Appellants note that the profits to be disgorged by
the District Court’s order resulted solely from the sale of the
Musicland shares under Best Buy’s tender offer. They assert
that the tender offer had nothing to do with their violations of
Section 13(d) and Section 10(b), and that the District Court’s
ruling is in error because it ignores the tender offer as the
proximate cause of their profits. The Appellants argue that
the District Court should have required the SEC to
demonstrate that disgorged profits ‘“proceed directly and
proximately from the violation claimed and [are] not . . .
attributable to some supervening cause.’” See e.g. Wellman v.
Dickinson, 682 F.2d 355, 368 (2d Cir. 1982) (quoting
Marbury Management, Inc. v. Kohn, 629 F.2d 705, 719 (2d
Cir. 1980)).14 They are not correct. Wellman is distinguished

14
Appellants also cite to a case from the Court of Appeals for
the Tenth Circuit in which, relying on Supreme Court
precedent, it required the District Court to use “[a]n approach
that focuses on arriving at a figure that approximates the gain
specifically resulting from Mr. Nacchio's offense [that] would
better recognize ‘the tangle of factors affecting price’ that the
Supreme Court addressed in [Dura Pharmaceuticals, Inc.v,.
Broudo, 544 U.S. 336, 343 (2005)].’” United States v.
Nacchio, 573 F.3d 1062, 1073-1075 (10th Cir. 2009).
However, because this was a sentencing case in an insider
trading criminal prosecution it is clearly inapposite because
compliance with the amount-of-loss calculation in the
Sentencing Guidelines was the central concern. See U.S.S.G.
§ 2B1.1(b)(1); United States v. Peppel, 707 F.3d 627, 642
(6th Cir. 2013). As the Sentencing Guidelines and a
calculation of loss are not an issue in this case—for purposes
of a remedy—no such concerns exists here. See infra.
Moreover, its citation to Dura Pharmaceuticals—a private

21
by the fact that it is a private civil enforcement action brought
under an implied right of action, and is therefore—for reasons
we will further explain—unpersuasive.

All civil enforcement actions, whether initiated by the
SEC or by a private party through an implied right of action
share the same general goal: “to maintain public confidence
in the marketplace.” Dura Pharmaceuticals, Inc. v. Broudo,
544 U.S. 336, 345 (2005). Yet, this unity of purpose belies
some fundamental differences. That distinctions exist
between private and SEC civil enforcement actions is, by no
means, revelatory.15 Yet, since this is the primary reason that
we invalidate the Appellants’ assertion of direct causation
analysis as a requirement here, it is necessary to go beyond a
mere acknowledgement of the differences to examine how
and why this is so.

Cases raised under an implied right in the Securities
Acts rely upon analogous cases at common law. See Rondeau
v. Mosinee Paper Corp., 422 U.S. 49, 63 (1975) (“[T]he
conclusion that a private litigant could maintain an action for
violation of the 1933 Act meant no more than that traditional
remedies were available to redress any harm which he may

enforcement case—makes its general reference to civil cases
similarly inopposite.
15
See e.g. Blue Chip Stamps v. Manor Drug Stores, 421 U.S.
723, 751 n.14 (1975); Chris-Craft Industries, Inc. v. Piper
Aircraft Corp., 480 F.2d 341, 391 (2d Cir.), cert. denied, 414
U.S. 910 (1973); SEC v. Manor Nursing Centers, Inc., 458
F.2d 1082, 1096 & n. 15 (2d Cir. 1972); see also S.E.C. v.
Apuzzo, 689 F.3d 204, 212 -213 (2d Cir. 2012).

22
have suffered; it provided no basis for dispensing with the
showing required to obtain relief.”). Indeed, while Section
13(d) and Section 10(b)—at issue here—did not incorporate
common law fraud into federal law (See Stoneridge Inv.
Partners, LLC, v. Scientific-Atlanta Inc., 552 U.S. 148, 162
(2008)) an analogy has been applied virtually from the
inception of implied-right cases between private enforcement
actions and civil fraud claims. See e.g. Dura
Pharmaceuticals, Inc., 544 U.S. at 343; Blue Chip Stamps v.
Manor Drug Stores, 421 U.S. 723, 744 (1975); Kardon v.
National Gypsum Co., 69 F.Supp. 512 (D.C. Pa. 1946).
Accordingly, as we have long stated, “a plaintiff bringing suit
under Section 10(b) and Rule 10b-5 must prove that the
defendant i) made misstatements or omissions; ii) of material
fact; iii) with scienter; iv) in connection with the purchase or
sale of securities; v) upon which the plaintiff relied; and vi)
that reliance proximately caused the plaintiff's injury.” In re
Phillips Petroleum Securities. Litigation., 881 F.2d 1236,
1244 (3d Cir. 1989); see also Manufacturers. Hanover Trust
Co. v. Drysdale Securities Corp., 801 F.2d 13, 20 (2d Cir.
1986).16 Wellman, the case on which the Appellants rely,

16
This association to civil fraud claims is also apparent in
heightened pleading requirements applied to Section 10(b)
claims (15 U.S.C. § 78bb(f)(1); Fed. R. Civ. P. 9(b)).
Moreover, this nexus was explicitly reinforced by Congress’
1995 Private Securities Litigation Reform Act. 109 Stat 737,
15 U.S.C, § 78u–4(2). While the 1995 Act and its companion
legislation in 1996 focus upon class action plaintiffs, these
expectations for pleading have been applied to non-class
plaintiffs as well. Rodriguez-Ortiz v. Margo Caribe, Inc., 490
F.3d 92 (1st Cir. 2007).

23
takes it a step further. Denying the class plaintiff’s motion
for disgorgement, the court said: “Since class plaintiffs have
not demonstrated that their alleged injury was directly caused
by the Section 13(d) violation, the district court properly
denied their claims for damages against Dickinson.”
Wellman, 682 F.2d at 368 (emphasis added).

In contrast, such comparisons to common law torts are
not part of the jurisprudence or the statutory developments
relating to SEC-initiated civil enforcement actions. Rather,
SEC civil suits are described as “promot[ing] economic and
social policies.” SEC v. Rind, 991 F.2d 1486, 1490 (9th Cir.
1993). Courts have made it clear that the SEC pursues its
claims “independent of the claims of individual investors.”
Id. The SEC has reinforced this notion, consistently stressing
that “it is not a collection agency for defrauded investors.”
George W. Dent Jr., Ancillary Relief in Federal Securities
Law: A Study in Federal Remedies, 67 Minn. L. Rev. 865,
930 (1983).17 This has practical implications for the nature of
civil suits brought by the SEC.

Stating the obvious, unlike private suits that redress
the claims of particular shareholders: “the Commission is not
an injured victim . . . .” Whittemore, 659 F.3d at 11 n.2.
Therefore, in proving Section 13(d) and 10(b) violations, the
Commission need not prove reliance, nor must it show that
any investor lost money as a result of the violation. SEC v.
Morgan & Co., Inc., 678 F.3d 1233, 1244 (11th Cir. 2012)
(citing SEC v. Blavin, 760 F.2d 706, 711 (6th Cir. 1985)).

17
But see Black, Barbara, Should the SEC Be a Collection
Agency for Defrauded Investors?, 63 Bus. Law 317 (2007-
2008).

24
These factors have no relevance to the question of whether
someone violated the law. Id. Rather, in the Section 10(b)
context it must show: “(1) material misrepresentations or
materially misleading omissions, (2) in the offer or sale of
securities, (3) made with scienter.” SEC v. Merchant Capital,
LLC, 483 F.3d 747, 766 (11th Cir. 2007).

From all of this, we can easily conclude that the
Appellants’ reliance upon Wellman is misplaced. While there
is strong legal support for the application of tort-based
proximate causation analysis in the context of private
enforcement litigation, we have no such authority on which
we can rely to impose any such requirement on SEC-initiated
civil actions. See SEC v. Apuzzo, 689 F.3d 204, 212-13 (2d
Cir. 2012) (The court eschews the defendant’s assertion of the
need for evidence of proximate causation, because it is a
concept that is derived from tort actions.).18

With that said, where the SEC seeks a disgorgement
remedy, the difference between private enforcement suits and
SEC suits does not entirely eliminate the need for proof of a
causal connection between the securities violation and the
disgorged funds. The Court of Appeals for the District of
Columbia Circuit correctly said:

Since disgorgement primarily
serves to prevent unjust
enrichment, the court may
exercise its equitable power only
over property that is causally
related to the wrongdoing. The

18
See infra, n. 22.

25
 remedy may well be a key to the
SEC's efforts to deter others from
violating the securities laws, but
disgorgement may not be used
punitively.

SEC v. First City Fin. Corp., 890 F.2d 1215, 1231 (D.C.
Cir.1989). Therefore, the more difficult question is whether,
in spite of the separate lines of decisional law that ground
private and SEC enforcement action, the doctrine of novus
actus interveniens has any place in the causal analysis that is
triggered by SEC motions for disgorgement?19 Our answer in
the affirmative, with considerable qualification, is drawn from
a deeper assessment of the constituent elements of causation.

It is important to “clearly [distinguish] for separate
analysis the empirical issue of causal contribution and the
normative issue of the extent of legal responsibility.” Richard
W. Wright, Once More into the Bramble Bush; Duty, Causal
Contribution, and the Extent of Legal Responsibility, 54
Vand. L.R. 1071, 1080 (2001). “[T]he phrase ‘proximate
cause’ is shorthand for the policy-based judgment that not all
factual causes contributing to an injury should be legally
cognizable causes.” CSX Transp., Inc. v. McBride, 131 S.Ct.
2630, 2642 (2011). As a result, it is critical to account for the
policy considerations that inform a particular approach to
causation to ensure their compatibility with the policies that
ground the cause of action.

19
See, e.g., H.L.A. Hart & A.M. Honoré, Causation in the
Law, 73–74 (2d ed. 1985) pp. 73-74.

26
 Assessing legal liability through the lens of direct
causation requires that we first look to tort causation
generally. Policies underlying the assignment of liability in
tort law are by no means settled.20 Nonetheless, it
traditionally has been grounded in a balance of two goals:
defining and deterring harmful conduct (consistent with
prevailing social norms); and, redressing personal injury.21
Yet, a third concern also has been given increasing weight
over the years. “[T]he loss causation requirement-as with the
foreseeability limitation in tort-‘is intended to fix a legal limit
on a person’s responsibility even for wrongful acts.’” Lentell
v. Merrill Lynch Co., 396 F.3d 161, 174 (2d Cir. 2005)
(citation to quotation omitted). Direct causation, as a type of
proximate causation, is focused upon limiting the liability of
tortfeasors to the temporally and sequentially immediate
consequences of an act.22 It is rooted primarily in a concern
to protect against a defendant’s broad exposure to liability.

The widespread acceptance of tort-based approaches to
causation regarding monetary remedies in private
enforcement cases suggest that there is an alignment of the

20
See generally Wright, 54 Vand. L.R. 1071; Jane Stapleton,
Choosing what we mean by “Causation” in the Law, 73 Mo.
L. R. 433 (2008).
21
See generally Patrick J. Kelly, Proximate Cause in
Negligence Law: History, Theory and the Present Darkness,
69 Wash.U.L.Q. 49 (1991).
22
W. Page Keeton et al. Prosser and Keeton on the Law of
Torts, at 174-76 (5th Ed. 1984).

27
policies underlying the assignment of liability in both tort
actions and private enforcement actions.23 Certainly, our
review of private enforcement cases shows convergent policy
interests in adequately compensating plaintiffs for injury,
while simultaneously protecting defendants from broad
liability, as in Wellman. 24 Concerns also have been raised
repeatedly about the abusive use of private enforcement and
the negative impacts that such practices have on the market.
See LaSala v. Bordier et Cie, 519 F.3d 121, 128 (3d Cir.
2008). However, as we have already alluded to, the policies
driving SEC-initiated civil enforcement suits are notably
different.

23
A private enforcement action is not at issue here, and we
make no conclusions about the propriety of applying direct
causation analysis to private enforcement suits. We do note,
however, that the Supreme Court also provided some basis
for caution in making an assumption about the compatibility
of tort principles to private enforcement actions, highlighting
that remedies in enforcement actions are grounded in equity.
Rondeau, 422 U.S. at 61-65; see also Bruschi v. Brown, 876
F.2d 1526, 1530 n. 6 (11th Cir. 1989).
24
See e.g. Dura Pharmaceuticals, Inc., 544 U.S. at 345.
(“[T]he statutes make [private enforcement suits] available,
not to provide investors with broad insurance against market
losses, but to protect them against those economic losses that
misrepresentations actually cause.”); Merrill Lynch, Pierce,
Fenner & Smith Inc. v. Dabit, 547 U.S. 71, 81 (2006);
Tellabs, Inc. v. Makor Issues & Rights, Ltd., 551 U.S. 308,
313 (2007).

28
 From the early days of the SEC’s pursuit of restitution,
its enforcement mission plainly has been front and center.

While in rare cases, as an adjunct
to injunctive relief, the
Commission has urged a court to
deprive violators of their illegal
gains by directing that these be
paid to individuals who have been
injured by their violations, even in
such cases the Commission does
not seek to make investors whole;
it seeks merely to deter violators
by making violations unprofitable.
Thus, the Commission recently
stated in one such case that it was
‘not acting on behalf of the * * *
[injured parties] to seek money
damages. * * *’ It continued: ‘As
a law enforcement agency it is
requesting disgorgement of profits
illegally obtained, because
effective deterrence requires more
than an injunction limited to
future violations.’

Dolgow v. Anderson, 43 F.R.D. 472, 483 (E.D.N.Y. 1968)
rev’d on other grounds, 438 F.2d 825 (2d Cir. 1970)(quoting
the SEC amicus brief).25 Accordingly, the SEC’s use of the

25
See also SEC v. Texas Gulf Sulphur Co., 446 F.2d 1301,
1308 (2d Cir.) cert. denied, 404 U.S. 1005 (1971), ( “It would
severely defeat the purposes of the Act if a violator of Rule

29
disgorgement remedy has been constructed around two
objectives: to ‘“deprive a wrongdoer of his unjust enrichment
and to deter others from violating securities laws.” Hughes
Capital Corp., 124 F.3d at 455 (quoting First City, 890 F2d
at 1230). “[T]he court is not awarding damages to which
plaintiff is legally entitled but is exercising the chancellor’s
discretion to prevent unjust enrichment.” SEC v.
Commonwealth Sec., Inc.¸ 574 F.2d 90, 95 (2d Cir. 1978).
The goal is “not to compensate for losses but to deprive the
wrongdoer of his ill-gotten gain.” Whittemore, 659 F.3d at 11
n.2.26

10b-5 were allowed to retain the profits from his violation.”);
Manor Nursing Centers, Inc., 458 F.2d at 1104 (“The
effective enforcement of the federal securities laws requires
that the SEC be able to make violations unprofitable. The
deterrent effect of an SEC enforcement action would be
greatly undermined if securities law violators were not
required to disgorge illicit profits.”); see also Rind, 991 F.2d
at 1490 (“The theory behind the [disgorgement] remedy is
deterrence not compensation.”); see also First City, 890 F.2d
at 1232 n. 24 (“deterrence is the key objective”). For a
general discussion of the development of the disgorgement
remedy in SEC civil enforcement actions, see John D.
Ellsworth, “Disgorgement in Securities Fraud Actions
Brought by the SEC,” 1977 Duke L. J. 641 (1977).
26
In this sense, Justice Douglas’ comments on divestiture in
the antitrust context could be applied to the SEC’s use of
disgorgement: It is an “equitable remedy designed in the
public interest to undo what could have been prevented had
the defendants not outdistanced the government in their

30
 Moreover, significantly, the absence of a particular
concern in our review pointed to another policy difference.
We did not see evidence of widespread concern that SEC-
initiated enforcement actions were being used abusively. As
a result, we could not find any jurisprudential basis to
conclude that policies underlying SEC enforcement actions
are focused upon limiting the defendant’s exposure to
remedial measures, beyond those imposed by general
considerations of equity. See e.g. First City Fin. Corp., 890
F.2d at 1231.

In light of all of these policy distinctions, it is
unsurprising that the analytic framework for determining a
remedy in an SEC enforcement suit is different from private
suits, placing the consideration of intervening causation in a
different posture. In First City, the court endorsed a burden
shifting approach to causation in which the SEC is required to
produce evidence supporting a reasonable approximation of
“actual profits on the tainted transactions,” which is
essentially satisfying a but-for standard. Id. at 1231 This
creates a presumption of illegal profits. Id. Once the SEC
has made this showing, the burden shifts back to the
defendant to “demonstrate that the disgorgement figure [is]
not a reasonable approximation.” Id. at 1232; accord Hughes
Capital Corp., 124 F.3d at 455.27 The court added that “the

unlawful project.” Schine Chain Theatres v. U.S., 334 U.S.
110, 128 (1948).
27
We read the term “reasonable approximation” in an
equitable context, focusing on the fairness of the SEC’s claim
to disgorgement.

31
risk of uncertainty should fall on the wrongdoer whose illegal
conduct created the uncertainty.” Id.; see also Rest. (Third)
Restituion § 51(5)(d). In this context, First City cites to a
case from the Court of Appeals for the First Circuit to
elaborate that the defendant could make its case by “pointing
to intervening events from the time of the violation.” Id.
(citing SEC v. MacDonald, 699 F.2d 47 (1st Cir. 1983)).

We draw two immediate points from First City and
MacDonald. First, intervening causation is not an element of
the SEC’s evidentiary burden in setting out an amount to be
disgorged that reasonably approximates illegal profits.
Second, if the issue of an intervening cause is to be raised, it
will normally be the defendant’s burden to do so.

Yet, even where evidence relating to an intervening
cause is raised, the Restatement (Third) of Restitution (on
which the First City framework appears to be based) suggests
that the court should consider such direct causation evidence
only in light of other factors.28 The Restatement envisions the
court having wide discretion in deciding the amount to be
disgorged: “In determining net profit [for purposes of
disgorgement] the court may apply such tests of causation and
remoteness . . . as reason and fairness dictate.” Rest. (Third)

28
Disgorgement is a type of restitution (See Porter v. Warner
Holding Co., 328 U.S. 395, 400-02 (1946)), and therefore the
Rest. (Third) of Restitution provides a logical point of
reference.

32
Restitution §51(5). 29 Moreover, although the official
comments to the Restatement say that a court “may deny
recovery of particular elements of profit on the ground of
remoteness” (id. at comment f), it counsels caution in giving
the degree of attenuation between the wrongdoing and the
monies to be disgorged inordinate weight:

To say that a profit is directly
attributable to the underlying
wrong, or (as sometimes
expressed) that the profit is the
“proximate consequence” of the
wrong, does not mean that the
defendant's wrong is the exclusive
or even the predominant source of
the defendant's profit. Indeed,
because the disgorgement remedy

29
The use of the term “net profit” is siginificant, as it
provides an indication of the boundary between remedial and
punitive. SEC v. Blatt, 583 F.2d 1325, 1335 (5th Cir. 1978).
“Profit includes any form of use value, proceeds, or
consequential gains (§ 53) that is identifiable and measurable
and not unduly remote.” Rest. (Third) Restitution § 51(4).
Profit disgorgement (net benefit) is generally regarded as
remedial and revenue disgorgement (gross benefit) is
generally understood as outside the traditional realm of
equity. See Id. § 51(4) & (5); see also SEC v. Cherif, 933
F.2d 403, 414 n. 10 (7th Cir. 1991); see also George P.
Roach, “A Default Rule of Omnipotence: Implied
Jurisdiction and Exaggerated Remedies in Equity for Federal
Agencies,” 12 Fordham. J. Corp. & Fin. L. 1 (2007).

33
 is usually invoked when the
defendant's profits exceed the
claimant's provable loss, it should
be possible in almost every case
to identify additional causes of
the profit for which the defendant
is liable.

Id. This point is elaborated upon in an example.

[I]f the defendant embezzles $100
and invests the money in shares
that he later sells for $500, the
$500 that the claimant recovers is
largely the result of causes
independent of the wrong:
favorable market conditions and
the defendant's investment
acumen or simply luck. The
determination in this easy case
that the embezzler's profit is
properly attributable to the
underlying wrong rests on a
number of related judgments. The
first, evidently a matter of
causation, is a finding (or a
presumption) that the defendant
would not have made the
investment (and realized the
profit) but for the wrong. But
causation in this sense gives only
part of the answer. The conclusion
that the defendant's profit is

34
 properly attributable to the
defendant's wrong depends
equally on an implicit judgment
that the claimant, rather than the
wrongdoer, should in these
circumstances obtain the benefit
of the favorable market
conditions, acumen, or luck, as
the case may be. The conclusion
draws further support from
another implicit judgment, that
there would be an incentive to
embezzlement if the defendant
were permitted to retain the
profits realized in such a
transaction.

Id.

In light of all of this (the statute, the jurisprudence, the
Restatement, and the policies grounding disgorgement
remedies in SEC enforcement suits), we are not persuaded by
Appellants’ argument that the SEC must do more than prove
but-for causation to assert a reasonable approximation of
illegal profits. Moreover, as to the role of proximate
causation in the court’s deliberation on SEC motions for
disgorgement, we conclude that when evidence of an
intervening cause is raised by the Defendant it is not
dispositive. The policies underlying the disgorgement
remedy—deterrence and preventing unjust enrichment—must
always weigh heavily in the court’s consideration of whether
particular profits are legally attributable to the wrongdoing,

35
constituting unjust enrichment.30 It is within this context that
the equitable power of the court to order disgorgement is
properly exercised. With this in mind, we turn to the
evidence considered by the District Court.

The SEC introduced evidence of the Appellants
violating Section 13(d) and Section 10(b), beginning on July
30, 1998, by intentionally misrepresenting Teo’s beneficial
ownership of shares held by the MAAA Trust, thereby
underreporting the percentage of Musicland shares that he
beneficially owned. It also provided the court with evidence
that the Appellants purchased 6.7 million Musicland shares
after July 30, 1998, eventually achieving a combined
ownership of over 35 percent of the company, all while
falsely reporting that Teo did not have beneficial ownership
of the MAAA shares. Finally, the SEC documented that,
while willfully still failing to correct the false filings, the
Appellants sold all of the Musicland shares, obtaining over
$21 million in profits from the portion of the shares that were
tainted with reporting violations. We agree with the District
Court that this evidence presumptively demonstrated a
reasonable approximation of the profits arising from
transactions tainted by the Section 13(d) and Section 10(b)
violations.31

30
This conclusion is consistent with the fact that the
Restatement allows for consequential gains in its definition of
net profits. Rest. (Third) Restitution § 51(5).
31
In making this determination we take note that the District
Court distinguished between profit that the Appellants earned
from the sale of stock purchased before July 30, 1998, and
stock earned after this date. Additionally, in its final order, it

36
 The Appellants did virtually nothing to rebut this
presumption. They argued that the SEC failed to produce any
evidence that the violations impacted the stock price. Yet,
having established a reasonable approximation of the profits
tainted by the violation, the SEC met its evidentiary burden.
The Appellants also asserted that the Best Buy tender offer
was the direct, intervening cause of their profits. However, it
was the Appellants’ burden to provide the District Court with
evidence that the SEC’s approximation of profits was
unreasonable. This burden is not simply one of carrying the
ball back across the fifty-yard line by presenting a merely
plausible alternative explanation for the profit. Rather, the
defendant must adduce—at a minimum—specific evidence
explaining the interplay (or lack thereof) among the
violation(s) at issue, the market valuation of the stock at fixed
points in time, and any other cause for the profits they assert
were untainted by illegality. In so doing, they must account
for the ambiguities, uncertainties and myriad market forces
inherent to any analysis of fluctuations in stock pricing to
credibly demonstrate the unreasonableness of the
government’s proposed disgorgement. Here, it might have
been possible for Appellants to demonstrate that intervening
causes made the profits in question greatly attenuated from

reduced the disgorgement amount to account for the margin
interest that the Appellants paid in connection with their
trades of Musicland stock. In doing so, the District Court
properly distinguished between legal and illegal profit, and
simultaneously met the equitable requirement that the amount
to be disgorged must be remedial rather than punitive. Blatt,
583 F.2d at 1335.

37
the violations at issue, but they failed to do so.32 Merely
positing the Best Buy tender offer as an intervening cause and
pointing to evidence that Appellants did not bring it about
was insufficient to overcome the presumption established by
the SEC that its approximation of illegal profits was
reasonable.33

Nonetheless, even if the Appellants had provided
evidentiary support that the Best Buy tender offer was the
direct cause of all of their profits, it would not have changed
our conclusion that the District Court was within its discretion
to grant the SEC’s motion for disgorgement. As was noted in
the example from the official comment to the Restatement:

[The profit] that the claimant
recover[ed] is largely the result of
causes independent of the wrong:

32
For example, Exhibit 12 to the Appellants’ Memorandum
in Opposition to the Motion for Disgorgement provides a
transcript of the SEC’s opening remarks at trial in which they
state that the Best Buy tender offer provided a $5 per share
premium over the market price. However, the Appellants
never referenced this figure in the body of their argument
before the District Court, or before this Court, and no context
was given to this figure.
33
The equities of each case are assessed by the totality of the
circumstances. Suffice to say that, in this case, merely
referencing the Best Buy tender offer only provided the
District Court with the reason that the Appellants sold the
tainted stock.

38
 favorable market conditions and
the defendant's investment
acumen or simply luck. The
determination in this easy case
that the . . . profit is properly
attributable to the underlying
wrong rests on a number of
related judgments.

Rest. (Third) Restitution § 51 comment f. The Best Buy
tender offer is likely one cause of the Appellants’ profits.
Yet, in the context of an SEC civil enforcement action,
whether the Appellants’ profit resulted directly—from a
causal perspective—from the wrongdoing or from the
operation of dumb luck is not dispositive on the question of
whether it is proper and fair to regard those profits as tainted
by the wrongdoing.34 The court must make this judgment in
equity, giving consideration to the elimination of unjust
enrichment and the deterrent impact this action might have in

34
The Appellants argued before the District Court “[t]hat the
Defendants happened to still be holding Musicland shares a
year and a half after July 1998, and at the time they increase
in value because of the Best Buy offer, is therefore not a
sufficient basis to permit disgorgement as a matter of law.”
To the contrary, the Appellants cannot now hide behind the
time-span of their reporting violations and Teo’s fraud as an
“undue attenuation” that prevents disgorgement when the
magnitude of their profit was made possible by the length and
scope of their wrongdoing, permitting them to accumulate a
large cache of shares without the market’s awareness that
resulted in enormous profit.

39
furthering future compliance with the Securities Exchange
Act.

The SEC grounded its motion for disgorgement on
Appellants’ serial Section 13(d) violations over the course of
years, and on the jury’s conclusion that Teo’s conduct was
motivated by fraud, in violation of Section 10(b). While the
Appellants were amassing Musicland shares, their collective
misreporting and Teo’s flagrant fraud insulated the valuation
of the Appellants’ Musicland stock holdings from the effects
of a poison pill that could have been activated if the extent of
their holdings in the company had been known. These were
serious violations of Section 13(d) enabling the Appellants to
acquire a sizeable ownership interest in a publically traded
company without the awareness of company directors, fellow
shareholders, the SEC, or the market-at-large. Moreover, all
of this was done with conscious intent, violating Section
10(b). See Rest. (Third) Restitution § 53(2). These
fraudulent acts enabled Appellants to surreptitiously acquire
and hold a large volume of stock that, in turn, netted huge
profits when sold to Best Buy. It is precisely this type of
shadowy dealing that the Securities Exchange Act—and
specifically Section 13(d) and Section 10(b)—was designed
to combat in order to uphold the integrity of the stock market.
In light of all of this, the District Court rightly judged the
enforcement objectives to weigh decisively in favor of
disgorgement. This decision was only made easier by the fact
that the Appellants provided virtually no evidence to support
a contrary conclusion. Moreover, by limiting the
determination of unjust enrichment to only the shares
acquired after the reporting violations began—leaving all
other profit untouched—the District Court guarded against an

40
overreach that would have transformed the award into a
punitive measure.

For all of these reasons, the District Court did not
abuse its discretion by determining that the profit the
Appellants realized from selling the stock they acquired while
consciously violating the law unjustly enriched the
Appellants, and that the enforcement objectives of this cause
of action warranted ordering the Appellants to disgorge
$17,422,054.13.

VI.

Finally, the Appellants challenge the District Court’s
order that they pay $14,649,034.89 in prejudgment interest.
They generally stress that there is no need for any interest
payment at all, but they focus their appellate argument on a
challenge to the timeframe on which the interest is based and
the use of the IRS tax underpayment rate to calculate the
amount owed. It is within the District Court’s equitable
discretion to decide whether payment of interest should be
ordered, and to decide upon both the interest rate and the
period of time on which the interest will be calculated. See
SEC v. First Jersey Securities, Inc., 101 F.3d 1450, 1476 (2d
Cir. 1996).

The Appellants assert that the District Court’s decision
to award prejudgment interest from January 2001 through
December 2011 was unfair, given their claims that over half
of that time was due to delays that were either beyond their
control, or were the result of holdups for which the SEC was
solely responsible. However, given that the Appellants were

41
in control of their ill-gotten gains throughout this entire
period, the District Court did not exceed its discretion in
ruling that it had no evidence that a reduction in prejudgment
interest for considerations of fairness was warranted.

We next examine the District Court’s application of
the IRS underpayment rate as the interest rate here. The
SEC’s request for this rate of interest on disgorged sums was
consistent with its own regulation. 17 CFR § 201.600. We
conclude that, as this is the rate that prevents unjust
enrichment by approximating the interest rate for a loan (See
Id. at 1476-77; SEC v. Platforms Wireless Inter. Corp., 617
F.3d 1072, 1099 (9th Cir. 2010)), the District Court’s choice
of this rate was reasonable, and well within its discretion.

VII.

For all of these reasons, we will affirm the Order of the
District Court.

42
SEC v. Teo, No. 12-1168
JORDAN, Circuit Judge, dissenting in part

A court may exercise its equitable power to order
disgorgement “only over … property causally related to the
wrongdoing.” CFTC v. Am. Metals Exch. Corp., 991 F.2d 71,
78-79 (3d Cir. 1993) (internal quotation marks omitted).
Because there is no legitimate dispute that Best Buy’s tender
offer was independent of the Appellants’ securities law
violations,1 the profits on their sale of Musicland stock that
are solely attributable to Best Buy’s tender offer should not
be subject to disgorgement. That is not to say that the balance
of their profits is untainted. The remaining profits may well
be subject to disgorgement to one degree or another, but
whether they are or not is a determination that the District
Court should make in the first instance, while properly
addressing the question of causation. For that reason, I would
vacate the District Court’s disgorgement order and remand
the case, and I therefore respectfully dissent from that part of
the Majority’s opinion that affirms the District Court’s ruling
on disgorgement.

“As an exercise of its equity powers, the court may
order wrongdoers to disgorge their fraudulently obtained
profits.” SEC v. Fischbach Corp., 133 F.3d 170, 175 (2d Cir.
1997). But “an order to disgorge is not a punitive measure; it
is intended primarily to prevent unjust enrichment.”

1
Specifically, the jury found that Teo had violated the
antifraud provisions of the Securities Exchange Act § 10(b)
and Rule 10b-6, and that both Teo and the Trust had violated
the reporting provisions of the Securities Exchange Act
§ 13(d) and Rules 13d-1 and 13d-2.

1
Zacharias v. SEC, 569 F.3d 458, 471 (D.C. Cir. 2009) (per
curiam) (internal quotation marks omitted); see also SEC v.
Bilzerian, 29 F.3d 689, 697 (D.C. Cir. 1994) (noting that
disgorgement is aimed at “depriv[ing] the wrongdoer of his
ill-gotten gain” (internal quotation marks omitted)). Given
that the primary goal of disgorgement is to prevent unjust
enrichment, the United States Court of Appeals for the
District of Columbia Circuit observed in SEC v. First City
Financial Corp. that there must be a causal relationship
between the property to be disgorged and the proven
wrongdoing. 890 F.2d 1215, 1231 (D.C. Cir. 1989). More
specifically, there must “be a relationship between the amount
of disgorgement and the amount of ill-gotten gain.” Am.
Metals Exch., 991 F.2d at 79; see also Bilzerian, 29 F.3d at
696. That causal link is what makes disgorgement a remedial
measure rather than a punitive one. As the Majority rightly
acknowledges, “[t]he remedy may well be a key to the SEC’s
efforts to deter others from violating the securities laws, but
disgorgement may not be used punitively.” (Maj. Op. at 27
(quoting First City, 890 F.2d at 1231).)2

2
It is well-established that “[r]etribution and
deterrence are not legitimate nonpunitive governmental
objectives.” United States v. Halper, 490 U.S. 435, 449
(1989) (alteration in original) (quoting Bell v. Wolfish, 441
U.S. 520, 539, n.20 (1979)) (internal quotation marks
omitted). Despite that, the notion that deterrence is an
acceptable goal of disgorgement has entered our
jurisprudence via First City. See, e.g., SEC v. Hughes Capital
Corp., 124 F.3d 449, 455 (3d Cir. 1997) (“Disgorgement is an
equitable remedy designed to deprive a wrongdoer of his
unjust enrichment and to deter others from violating securities

2
 The Appellants rely on Wellman v. Dickinson, 682
F.2d 355 (2d Cir. 1982), to argue that “the SEC bears the
burden of demonstrating that the profits sought to be
disgorged ‘proceed directly and proximately from the
violation claimed.’”3 (Appellants’ Opening Br. at 58 (quoting
Wellman, 682 F.2d at 368).) The Majority answers by
distinguishing Wellman, and I accept my colleagues’
conclusion that a direct and proximate causation standard is
not applicable in this case, that a lower “but-for” standard of
causation will suffice. The Majority also adopts the burden-
shifting framework from First City, in which the SEC has the
initial burden of showing “a reasonable approximation of
‘actual profits on the tainted transactions,’ … [which] creates
a presumption of illegal profits.” (Maj. Op. at 33 (quoting
First City, 890 F.2d at 1231).) Implicit in the statement that
the transactions are “tainted,” though, is a recognition that the
SEC must have satisfied its initial burden of showing
causation by producing evidence that a violation occurred and

laws.” (quoting SEC v. First City Fin. Corp., 890 F.2d 1215,
1230 (D.C. Cir. 1989)) (internal quotation marks omitted)).
3
The Appellants do not dispute that disgorgement is
an appropriate remedy when, as in this case, a defendant has
violated §§ 10(b) and 13(d) of the Securities Exchange Act,
nor could they credibly do so. See, e.g., First City, 890 F.2d
at 1230 (“[D]isgorgement is rather routinely ordered for
insider trading violations … [and] [w]e … see no relevant
distinction between disgorgement of inside trading profits and
disgorgement of post-section 13(d) violation profits.”); SEC
v. Bilzerian, 814 F. Supp. 116, 121 (D.D.C. 1993), aff’d, 29
F.3d 689 (“Defendant must disgorge the profits he obtained
as a result of … violations [of §§ 10(b) and 13(d)].”).

3
that some plausible relationship exists between that violation
and the profits gained.

With that showing, it may be “proper to assume that all
profits gained while defendants were in violation of the law
constitute[] ill-gotten gains,” SEC v. Bilzerian, 814 F. Supp.
116, 121 (D.D.C. 1993), aff’d, 29 F.3d 689. Hence, as the
Majority holds, the SEC’s initial burden can be satisfied by
demonstrating that, but for a defendant’s illegal actions, the
profits would have been different. That is a sensible
approach, as the risk of uncertainty about how differently
events would have unfolded “should fall on the wrongdoer
whose illegal conduct created that uncertainty.” First City,
890 F.2d at 1232; see also SEC v. MacDonald, 699 F.2d 47,
55 (1st Cir. 1983) (en banc) (adhering to the principle that
“doubts are to be resolved against the defrauding party”).

Here, the SEC made a showing that the shares of
Musicland stock that the Appellants acquired after July 30,
1998, were tainted because, but for the Appellants’ failure to
properly disclose information, the Appellants would have
obtained their shares of Musicland stock under different and
presumably more expensive market conditions. Had, for
example, Teo disclosed his true beneficial ownership and his
plans to change Musicland’s Board or take Musicland private,
Musicland’s stock price may well have increased. To the
extent the Majority relies on such reasoning, I agree with
them that the SEC met its initial burden to establish that a
plausible relationship exists between the Appellants’
securities violations and the profits gained.4

4
I use the term “profits gained” as shorthand for the
$17,422,054.13 in net profits, excluding margin interest paid,

4
 But disgorgement is not an all-or-nothing matter.
Again, only the extent of profits with a causal connection to
the wrongdoing – i.e., the ill-gotten gains – are subject to
disgorgement. See MacDonald, 699 F.2d at 55 (holding that
not all subsequent profits are subject to disgorgement, only
those “based upon the price of [the] stock a reasonable time
after public dissemination of the inside information”). Thus,
once the SEC has made the initial showing required to
presumptively establish causation, “the burden shifts … to the
defendant to ‘demonstrate that the disgorgement figure [is]
not a reasonable approximation.’” (Maj. Op. at 33 (alteration
in original) (quoting First City, 890 F.2d at 1232).) That
burden warrants some clarification. When the SEC comes
forward with a reasonable approximation of tainted profits,
the burden of production then shifts to the defendant to
produce evidence showing that all or some part of the sum in
question should not be subject to disgorgement. As the court
in First City explained, a defendant must show that “the
disgorgement figure [i]s not a reasonable approximation … ,
for instance, by pointing to intervening events from the time
of the violation.” See First City, 890 F.2d at 1232. Proof of
an intervening cause is therefore one way that a defendant can
challenge a disgorgement calculation, because an intervening
cause indicates that not all of the profits are, in fact, tainted
by wrongdoing.

Here is where it seems I part from my colleagues’
view of the case. It is true that the SEC met its initial burden
of showing that some plausible relationship exists between

that the District Court determined were not already subject to
the penalties imposed in connection with Teo’s insider
trading conviction.

5
the Appellants’ violations and the profits they gained.
However, it is also true that the Appellants then pointed to the
Best Buy tender offer as an independent cause. Neither the
District Court nor the Majority appropriately accounts for the
Best Buy tender offer. While the Majority pays lip service to
the limiting principle that, to avoid being a punitive measure,
a disgorgement order must be limited to ill-gotten gains, my
colleagues do not actually apply that principle to the admitted
premium associated with the Best Buy transaction.5

The Majority states that “[t]he Appellants do not
appeal the calculation of the disgorgement, but rather assert
the District Court wrongly granted the SEC’s motion for this
remedy.” (Maj. Op. at 22.) Admittedly, at oral argument the
Appellants called the causation analysis a threshold issue,
separate from the calculation of disgorgement. But the
Appellants’ submission of an independent cause is perfectly
sensible as a challenge to the calculation of a disgorgement
figure: implicit in their argument is the notion that the District
Court’s disgorgement figure is incorrect and that they should
not be penalized with respect to the Best Buy transaction. Cf.
Am. Metals Exch., 991 F.2d at 79 (“In crafting any

5
Used in the context of a tender offer, a “premium” is
generally the “amount over market value paid.” John
Downes & Jordan Elliot Goodman, Dictionary of Finance
and Investment Terms 531 (7th ed. 2006). In other words, it
is the amount that Best Buy paid for Musicland’s stock in
excess of the stock’s trading value at the time of the tender
offer. The Majority cites “a $5 per share premium over the
market price” (Maj. Op. at 39 n.32), and the SEC seems to
place the premium at $4.55 per share, or “a 60% takeover
premium” (Appellee’s Br. at 62).

6
disgorgement remedy on remand, the district court should
keep in mind the limitation placed on its equitable powers by
th[e] requirement that there be a relationship between the
amount of disgorgement and the amount of ill-gotten gain.”
(emphasis added)); First City, 890 F.2d at 1230 (addressing
intervening causes within “the question of how the court
measures th[e] illegal profits”); Bilzerian, 814 F. Supp. at 121
(discussing intervening causes within “[t]he sole remaining
issue [of] what portion of the[] profits is subject to
disgorgement”). Indeed, my colleagues consider the
Appellants’ evidentiary burden in the context of showing that
a “disgorgement figure” is an unreasonable “approximation of
profits” (Maj. Op. at 33, 39 (emphasis added)). On the
briefing and record before us, the Appellants’ independent-
cause argument fairly calls into question the disgorgement
figure.6

The Best Buy tender offer is clearly an independent
and intervening event. It bears no relationship to the
Appellants’ securities violations. According to Musicland’s
CEO, Teo “had nothing to do with finding Best Buy” (J.A. at
318) and was neither involved in the initial discussions nor
informed about them by Musicland. In addition, Best Buy

6
My colleagues view the Appellants’ argument as an
effort to rebut the SEC’s showing of but-for causation in the
burden-shifting framework that they have adopted. I agree
that it aims to rebut causation. The Appellants expressly
argue that they “would not have earned [their] profits had
Best Buy not made its tender offer” and, thus, point to a break
in causation. (Appellants’ Opening Br. at 66.) That does not
mean, however, that the argument is irrelevant when
considering the extent of disgorgement.

7
was fully aware of the combined ownership of Teo and the
Trust, notwithstanding Teo’s public disclaimer of beneficial
ownership of the Trust’s shares, and Best Buy required both
Appellants to sign “Shareholder Support Agreements” to
tender or otherwise sell all of their Musicland shares in
connection with Best Buy’s planned tender offer. (J.A. at
751-57, 758-64, 1814.) The Appellants have consistently –
and, in light of those facts, credibly – maintained that the Best
Buy tender offer constitutes an entirely independent cause of
profit on their stock.

Nevertheless, the District Court’s comment as to a
connection between the Appellants’ violations and the Best
Buy transaction was that “the Best Buy tender offer
constituted a market correction that Teo anticipated when he
bought what he considered to be undervalued shares,” as if
anticipating that shares are undervalued were, in itself,
somehow inappropriate. (J.A. at 20.) Making a profit on
undervalued shares, however, is a strategy pursued by law-
abiding investors all the time. There is nothing suspect about
it. No logical reason has been proposed by anyone for
presuming a connection between the Appellants’ profit
associated with the Best Buy tender offer and any
wrongdoing. The Majority, meanwhile, faults the Appellants
for “[m]erely positing the Best Buy tender offer as an
intervening cause.” (Maj. Op. at 39-40.) But the Appellants
have not simply uttered the words “Best Buy.” They have
cogently explained, with citations to the record, why the Best
Buy tender offer was independent of all action (or inaction)
on their part. (See Appellants’ Opening Br. at 65-66 (citing
J.A. at 318, 705, 708-10).) In light of the undisputed facts, it
is difficult to fathom how the Best Buy tender offer could be
anything other than an independent cause.

8
 The Majority states, without any supporting authority,
that the Appellants’ “burden is not simply one of carrying the
ball back across the fifty-yard line” but one of “adduc[ing] –
at a minimum – specific evidence explaining the interplay (or
lack thereof) among the violation(s) at issue.” (Maj. Op. at
39.) I fundamentally disagree with that assertion. It is
axiomatic that “the SEC bears the ultimate burden of
persuasion.” First City, 890 F.2d at 1232. Therefore, once a
defendant has pushed back with evidence of what is more
likely than not an intervening cause, it is the SEC’s
responsibility to carry the ball.

Again, a key point that is lost in the Majority’s football
analogy is that disgorgement is not an all-or-nothing
proposition. While, “[i]n the insider trading context, courts
typically require the violator to return all profits made on the
illegal trades,” id. at 1231, courts may limit disgorgement to
an amount based on the price of the stock “a reasonable time
after public dissemination of the inside information,”
MacDonald, 699 F.2d at 55. For example, in MacDonald, the
appellant had violated the antifraud provisions of § 10(b) of
the Exchange Act by purchasing a company’s stock without
disclosing the fact that the company would be acquiring an
office building and likely negotiating a profitable long-term
lease of space in that building. Id. at 48. When the company
publicly announced that acquisition and potential lease the
following day, the price of the stock jumped. Id. at 49. The
appellant held on to the stock for more than a year, after
which he sold at an even higher price. Id.

On appeal, the First Circuit, sitting en banc, considered
the question of

9
 whether, where [a defendant] fraudulently
purchased company shares while in possession
of material non-public information[,] [he should
be required, in an action brought by the
Commission,] to disgorge the entire profits he
realized from his subsequent sale of those
securities about a year later, rather than limiting
disgorgement to an amount representing the
increased value of the shares at a reasonable
time after public dissemination of the
information.

Id. at 52 (third alteration in original) (internal quotation marks
omitted). The court answered in the negative, holding that
profits made as a result of stock price increases after a
reasonable time following the disclosure of inside information
“are purely new matter” and not subject to disgorgement. Id.
at 54. “To call the additional profits made by the insider who
held until the price went higher ‘ill-gotten gains,’ or ‘unjust
enrichment,’ is merely to give a dog a bad name and hang
him.” Id.

To illustrate, the MacDonald court presented two
hypotheticals, both under the assumption that an insider
fraudulently bought stock at $4 per share and that, for the
entire month after the inside information became public, the
stock sold at $5 per share. Id. at 52. In the first scenario, the
insider sold the stock for $5 during that month. Id. For this
scenario, the court reasoned that the SEC could properly seek
$1 per share as ill-gotten gains. Id. The court then posited a
second scenario in which the stock price later increased to
$10 per share, at which point the insider sold his shares. Id.

10
The SEC argued that the disgorgement in this second scenario
– analogous to the exact facts before the MacDonald court –
should be $6 per share. Id. The court, however, disagreed
with the SEC’s assertion, noting that to award the entire
actual profits as disgorgement would be to measure
disgorgement “by purely fortuitous circumstances.” Id. at 54.
The court held that the “further profits were not causally
related” to the wrongdoing and that, “absent some special
circumstances,” an insider’s subsequent decision to retain his
original investment should not create any “legal or equitable
difference.” Id. Therefore, the court concluded that “[t]here
should be a cut-off date” for the profits to be disgorged and
remanded for the district court to “determine a
[disgorgement] figure based upon the price of [the] stock a
reasonable time after public dissemination of the inside
information.” Id. at 54-55; see also SEC v. Manor Nursing
Ctrs., Inc., 458 F.2d 1082, 1104 (2d Cir. 1972) (refusing to
extend disgorgement to income subsequently earned on the
initial illegal proceeds).

By limiting disgorgement to a reasonable time after
public dissemination of inside information, the court in
MacDonald soundly cordoned off profits that were too
attenuated from the non-disclosure and insulated them from
disgorgement. MacDonald therefore stands for the
proposition that, when there is a clear break in causation, only
profits attained prior to that break are subject to
disgorgement. Any additional profits, coming as they do
from fortuitous circumstances, are not sufficiently related to
the wrongdoing to be subject to disgorgement.

Unlike in MacDonald, the information that the
Appellants withheld in this case was not later released to the

11
market. Nevertheless, the premium that Best Buy offered was
unrelated to the wrongdoing at issue and created an analogous
causal break.7 As we have previously emphasized, “[i]n
crafting any disgorgement remedy ... , the district court
should keep in mind the limitation placed on its equitable
powers by th[e] requirement that there be a relationship
between the amount of disgorgement and the amount of ill-
gotten gain.” Am. Metals Exch., 991 F.2d at 79. By awarding
disgorgement on the profits related to the Best Buy
transaction, the District Court abused its discretion.8 And by

7
What sort of fortuitous event might constitute an
intervening cause is not a question that lends itself to a
broadly applicable response. Such a determination is fact-
specific. Looking at the facts of this case, I am confident that
the Best Buy transaction is an intervening cause. It had an
obvious and discernible market effect that can, and has, been
estimated by both the Majority and the SEC. Perhaps that is
why the SEC confines itself to arguing that the Appellants
should not avoid disgorgement entirely, rather than
contending that the Appellants’ violations and the Best Buy
tender offer are causally linked.
8
A challenge to the calculation of a disgorgement
award based on findings of fact is subject to clear error
review, SEC v. Whittemore, 659 F.3d 1, 9 (D.C. Cir. 2011),
but we are addressing the Appellants’ challenge that the
District Court did not properly limit the disgorgement award
such that the Court overreached its equitable powers. The
Majority is thus correct that an “abuse of discretion” standard
applies. Id. With respect to calculating disgorgement, it
bears repeating that, “despite sophisticated econometric
modeling, predicting stock market responses to alternative
variables is[] ... at best speculative. Rules for calculating

12
failing to limit disgorgement to ill-gotten gains, my
colleagues effectively endorse a penalty assessment, in the
name of enforcing federal securities law. Accordingly, I
dissent.9

disgorgement must recognize that separating legal from
illegal profits exactly may at times be a near-impossible
task.” First City, 890 F.2d at 1231. For that reason, courts
“have rejected calls to restrict disgorgement to the precise
impact of the illegal trading on the market price,” and the
amount of disgorgement “need only be a reasonable
approximation of profits causally connected to the violation.”
Id. at 1231-32.
9
Because the SEC sought, and the District Court
imposed, a civil penalty equal to the amount of disgorgement,
remanding the disgorgement award may have an effect on the
civil penalty. The prejudgment interest on both amounts
would also presumably be affected by a change in the
disgorgement figure.

13