SECURITIES CORNER

The Third Circuit affirmed a restitution order against a security broker-dealer (the “Individual”) convicted of fraud. The ruling was consistent with eight other circuits which held that the Fifth Amendment’s double jeopardy clause does not bar individuals from being subject to both restitution and civil disgorgement. The three-judge panel affirmed the lower court’s order of restitution despite a separate disgorgement order ($5.7 million) issued against the Individual in a civil case for the same misconduct. As part of the agreement, the Individual agreed to make full restitution. A U.S. Circuit judge also sentenced the individual and ordered payment of $2.4 million in restitution.

The individual appealed, arguing that they should not be required to pay the restitution since they were already ordered to disgorge all of the ill-gotten gains in the SEC action. The individual asserted that the restitution order was in violation of the Fifth Amendment’s double jeopardy clause and the principles of collateral estoppel. The Individual also cited the U.S. Supreme Court decision in Kokesh v SEC, which labeled disgorgement as “a penalty.” The Third Circuit noted that the high court decided that “disgorgement constitutes a penalty” specifically within the meaning of the civil statute while the double jeopardy clause “protects only against imposition of multiple criminal punishments for the same offense.”

The Third Circuit also rejected the equitable estoppel argument finding that the Individual had not pointed to the issue that was allegedly litigated and decided in their favor, which they believe should be barred from litigation again.