United States District Court, N.D. Texas, Dallas Division
MEMORANDUM OPINION AND ORDER
J. BOYLE UNITED STATES DISTRICT JUDGE
the Court is the Security and Exchange Commission's (SEC)
Motion for Monetary Remedies, in which the SEC asks the Court
to order Matthew Sample to disgorge his ill-gotten gains, pay
prejudgment interest on the disgorged amount, and pay a civil
penalty (Doc. 10). The Court GRANTS the
SEC's motion. First, the Court ORDERS
Sample to disgorge $919, 875 less restitution payments made
to Lobo Fund victims. Second, the Court
ORDERS Sample to pay prejudgment interest
equal to the amount reached by applying the IRS underpayment
interest rate to the amount Sample must disgorge as of the
date of this order, which is $919, 875 less restitution
payments Sample has actually made to the Lobo Fund victims.
And Third, the Court ORDERS Sample to pay a
civil penalty of $919, 875.
December 2008, Sample created the Lobo Volatility Fund, LLC
(Lobo Fund). Doc. 1, Compl., ¶8. From October 2009 to
June 2012, Sample raised $982, 000 from investors whom he
promised he would invest their money and hopefully return
them a profit. Id. at ¶9; Doc. 11, App'x,
36. But it was all a ruse. Sample used the invested funds for
himself, spending the invested money on luxuries and paying
investors from a prior scheme-all the while telling his
victims he was investing their money. Doc. 1, Compl.,
¶¶11, 15. To support his con, Sample created false
IRS forms showing positive account balances and returns on
investments. Id. at ¶12. And he refused to
return investors' money to them when asked. Id.
at ¶13. Though, he eventually returned $50, 000.
Id. at ¶15.
April 4, 2014, the SEC filed this action, alleging that
Sample's Lobo Fund scheme violated various federal
securities laws. Id. at ¶¶17-25. Sample
then agreed to a bifurcated settlement in which he neither
admitted nor denied the SEC's allegations but agreed to
be permanently enjoined from violating the securities laws.
Doc. 3, Consent of Matthew Sample, ¶2. Sample agreed
also that he would disgorge his ill-gotten gains, pay
prejudgment interest on those gains, and pay a civil penalty.
Id. at ¶3. Per the settlement agreement, the
Court is now to decide how much Sample must pay. Id.
relevant is Sample's parallel criminal case. Doc. 11,
App'x, 1. In a case brought by the United States
Department of Justice, Sample pleaded guilty to mail and wire
fraud. Id. at 11. On March 23, 2015, a federal
district court in New Mexico sentenced Sample to five years
probation and ordered him to pay $1, 086, 453.62 in
restitution to the victims of the Lobo Fund scheme and a
prior fraudulent scheme. Id. at 29-33.
may order a party to disgorge profits flowing from
securities-law violations. SEC v. Huffman, 996 F.2d
800, 802-03 (5th Cir. 1993). Once the SEC has established
that a defendant violated the securities laws, a court may
order the defendant to disgorge a sum of money equal to all
the illegal payments he received. SEC v. Blavin, 760
F.2d 706, 713 (6th Cir. 1985). The SEC bears the initial
burden of showing that its requested disgorgement amount
reasonably approximates the amount of profits connected to
the violation, and then the burden shifts to the defendant to
show that this figure is not a reasonable approximation.
SEC v. Amerifirst Funding, Inc., No. 3:07-CV-1188-D,
2008 WL 1959843, at *2 (N.D. Tex. May 5, 2008). A court
enjoys broad discretion in determining the amount to be
disgorged. SEC v. First Jersey Secs., Inc., 101 F.3d
1450, 1474-75 (2d Cir. 1996). Further, “any risk of
uncertainty in calculating disgorgement should fall on the
wrongdoer whose illegal conduct created that
uncertainty.” SEC v. Patel, 61 F.3d 137, 140
(2d Cir. 1995).
must disgorge $919, 875, the amount Sample raised from the
Lobo Fund investors less what he gave back to them. Doc. 1,
Compl., ¶¶9, 15. Whether Sample lost in the market
the money he collected or spent it, he must pay the net
amount he collected from the Lobo investors. See SEC v.
Shapiro, 494 F.2d 1301, 1309 (2d Cir. 1974) (holding
that trading losses do not reduce the amount a fraudster must
disgorge); SEC v. Benson, 657 F.Supp. 1122, 1134
(S.D.N.Y. 1987) (“The manner in which [the defendant]
chose to spend his misappropriations is irrelevant as to his
objection to disgorge.”).
even though Sample agreed to disgorge his ill-gotten gains,
he now contends he need not. Doc. 13, Resp., 5. Sample's
argument hinges on the Supreme Court case Kokesh v.
SEC, 137 S.Ct. 1635 (2017), which Sample argues would
make ordering him to disgorge an unlawful penalty.
Id. at 5-6.
is wrong. Kokesh merely held that disgorgement
claims are subject to 28 U.S.C. § 2462's five-year
statute of limitations . Kokesh, 137 S.Ct. at 1638.
Kokesh had no effect on ...