Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-cand-5_03-cv-04135/USCOURTS-cand-5_03-cv-04135-1/pdf.json

Nature of Suit Code: 850
Nature of Suit: Securities, Commodities, Exchange
Cause of Action: 15:78m(a) Securities Exchange Act

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United States District Court

For the Northern District of California

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*E-filed 1/30/07*

IN THE UNITED STATES DISTRICT COURT

FOR THE NORTHERN DISTRICT OF CALIFORNIA

SAN JOSE DIVISION

SECURITIES AND EXCHANGE

COMMISSION,

Plaintiff,

 v.

CHRISTINE B. HOBERG,

Defendant. /

Case No. 03-04135 HRL

INTERIM ORDER ON PLAINTIFF’S

MOTION TO DISBURSE PAYMENTS

TO THE TREASURY 

In September 2003 the Securities and Exchange Commission (“the Commission”)

brought this action against Christine Hoberg (“Hoberg”), alleging that Hoberg violated the

antifraud and other provisions of the federal securities laws in her capacity as Chief Financial

Officer of NVIDIA Corporation (“NVIDIA”). In brief, the Commission alleged that Hoberg

arranged a fraudulent “cost transfer” scheme with one of NVIDIA’s suppliers whereby costs

would appear lower in one fiscal quarter only to be raised in a subsequent fiscal quarter. This

caused NVIDIA’s income and profits to appear artificially high in the fiscal quarter ending in

April 2000. In September 2003, this court signed a stipulated Final Judgment against Hoberg,

providing for various injunctive relief as well as monetary disgorgement and civil monetary

penalties. That money, along with pre- and post-judgment interest, now totals $721,877.35 and

is being held by the court. The Commission explains that the disgorgement and prejudgment

interest payments were based on a percentage of the proceeds Hoberg derived from selling

Case 5:03-cv-04135-HRL Document 14 Filed 01/30/07 Page 1 of 4
United States District Court

For the Northern District of California

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 36,874 shares of NVIDIA stock on the open market in the 90 day period following NVIDIA’s

announcement of inflated earnings for the fiscal quarter ending in April 2000. The Final

Judgment Order provided that the Commission could later propose a disbursement plan for

court review. The Commission now moves to disburse these funds directly to the United States

Treasury, arguing that it would be too difficult and too expensive to locate and compensate

those individual investors harmed by Hoberg’s fraudulent financial reporting. Hoberg does not

oppose this motion. A hearing was held on January 30, 2007.

This court reviews the Commission’s plan to disburse the disgorged funds under its

general equitable powers to ensure that the plan is “fair and reasonable.” Securities and

Exchange Comm. v. Wang, 944 F.2d 80, 81 (2d. Cir. 1991). “Disgorgement is designed to

deprive a wrongdoer of unjust enrichment, and to deter others from violating securities laws by

making violations unprofitable.” Securities and Exchange Comm. v. First Pacific Bancorp, 142

F.3d 1186, 1191 (9th Cir. 1998). Thus, compensation of injured investors is not the primary

goal. See, e.g., Securities and Exchange Comm. v. Commonwealth Chemical Securities, Inc.,

574 F.2d 90, 102 (2d Cir. 1978). It is within the court’s discretion to order that disgorged funds

be used to compensate securities fraud victims. Securities and Exchange Comm. v. Henke, 275

F.Supp.2d 1075, 1083 (N.D. Cal. 2003) (citation omitted). There is, however, no statutory

requirement to that effect. Securities and Exchange Comm. v. Lorin, 869 F.Supp. 1117, 1129

(S.D.N.Y. 1994). Instead, disgorged proceeds may be given to the United States Treasury

where, for example, (1) numerous victims suffered relatively small losses, (2) the victims

cannot be identified, or (3) there are no victims entitled to damages. Id. at 1129 (reviewing

multiple authorities). 

In the present matter, the Commission contends that identifying potential injured

investors would require retaining a distribution consulting firm to send notices to all brokerages

that placed buy orders for the stock during the relevant period. Once potential claimants were

found, the distribution firm would have to send out claim forms and then determine each

buyer’s pro rata share. De minimis claims would have to be excluded. The SEC argues that

this process would be very difficult six years after the trades were made, and concludes that

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administrative expenses would likely consume large amounts of the fund, resulting in

meaningful recoveries for only a small number of investors.

Although the Commission’s arguments seem plausible, the court is not yet satisfied by

its showing. The only quantitative fact provided is that NVIDIA’s average trading volume was

over five million shares daily during the relevant 90 day period. The Commission makes no

attempt to estimate the number of potential claimants, the dollar amount of the average claim, or 

administrative costs. This is not a situation where a trustee has attempted to locate claimants 

but eventually concluded that further efforts are economically infeasible. Rather, the

Commission thinks the process will probably be difficult and thus it would rather not make the

attempt. (For example, the Commission fails to explain why a trustee should not be appointed

in this case, while such a course of action has been followed in other cases.) The court is not

prepared to disburse the $721,877.35 to the United States Treasury until the Commission

provides a better estimate of the expense and difficulty involved in compensating injured

investors. Hopefully, the Commission’s in-house resources may suffice. The defendant should

help if she can. Reasonable expenses incurred by the Commission on this task may be

reimbursed from the fund. The court ORDERS the Commission to file a supplemental

declaration responding to this order by March 6, 2007. 

IT IS SO ORDERED.

Dated: 1/30/07 _______________________________

HOWARD R. LLOYD

UNITED STATES MAGISTRATE JUDGE

Case 5:03-cv-04135-HRL Document 14 Filed 01/30/07 Page 3 of 4
United States District Court

For the Northern District of California

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Notice will be electronically mailed to: 

Leigh Aimee Kirmsse kirmssel@howrey.com, wortmans@howrey.com 

Helane L. Morrison morrisonh@sec.gov, uclusinw@sec.gov 

Patrick Thomas Murphy murphyp@ sec.gov 

John S. Yun yunj@sec.gov, johnstonj@sec.gov 

Counsel are responsible for distributing copies of this document to co-counsel who have not

registered for e-filing under the court's CM/ECF program.

Case 5:03-cv-04135-HRL Document 14 Filed 01/30/07 Page 4 of 4