Document ID: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-10-01034/USCOURTS-caDC-10-01034-0/pdf.json

Parties Involved:
Guy P. Riordan
Petitioner
Securities and Exchange Commission
Respondent

Document Text:

United States Court of Appeals 

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 20, 2010 Decided December 28, 2010 

No. 10-1034 

GUY P. RIORDAN, 

PETITIONER

v. 

SECURITIES AND EXCHANGE COMMISSION, 

RESPONDENT

On Petition for Review of an Order of 

the Securities and Exchange Commission 

Jason Bowles argued the cause for petitioner. With him 

on the briefs was Caren I. Friedman. 

Luis de la Torre, Senior Litigation Counsel, Securities 

and Exchange Commission, argued the cause for appellees. 

With him on the brief were David M. Becker, General 

Counsel, Securities and Exchange Commission, Mark D. 

Cahn, Deputy General Counsel, Securities and Exchange 

Commission, Jacob H. Stillman, Solicitor, Securities and 

Exchange Commission, and Dimple Gupta, Attorney, 

Securities and Exchange Commission. 

Before: TATEL, GARLAND, and KAVANAUGH, Circuit 

Judges. 

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 Opinion for the Court filed by Circuit Judge

KAVANAUGH. 

 KAVANAUGH, Circuit Judge: The New Mexico State 

Treasurer’s Office invested some of the state’s revenues in 

securities. From 1996 to 2002, the Treasurer’s Office 

selected Guy Riordan’s brokerage firms for many of those 

transactions. But the process for choosing brokerage firms 

was corrupt: Riordan paid kickbacks to New Mexico’s 

Treasurer for the business. The crooked scheme ultimately 

unraveled amid a series of government investigations and 

enforcement actions. Relevant here is an action brought by 

the Securities and Exchange Commission, in which the SEC 

found Riordan liable for various violations of the securities 

laws and imposed heavy sanctions on him. 

 In this Court, Riordan primarily argues that the SEC’s 

findings of fact lacked sufficient evidentiary support and that 

some of the SEC’s sanctions were imposed for conduct that 

occurred outside the statute of limitations. We disagree and 

therefore deny Riordan’s petition for review. 

I 

 The New Mexico state government regularly invested 

some of its revenue in securities so as to earn a return on 

funds that would otherwise sit idle in the state treasury. 

Michael Montoya became New Mexico’s Treasurer in 1995. 

He prolifically abused his office, steering state securities 

transactions to those who paid him kickbacks and bribes. 

Montoya was eventually nabbed, and in 2005 he pled guilty to 

extortion under color of official right, in violation of 18 

U.S.C. § 1951 and 18 U.S.C. § 2. Montoya agreed to 

cooperate in further investigations. 

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 After his arrest and as part of his post-plea cooperation, 

Montoya told the FBI that Guy Riordan had paid him 

kickbacks in return for channeling state transactions to 

Riordan’s brokerage firms. Although the Department of 

Justice did not file criminal charges against Riordan, the 

Securities and Exchange Commission brought a civil 

enforcement proceeding against him for violation of § 17(a) 

of the Securities Act of 1933, § 10(b) of the Securities 

Exchange Act of 1934, and SEC Rule 10b-5. See 15 U.S.C. 

§ 77q(a) (Securities Act); 15 U.S.C. § 78j(b) (Exchange Act); 

17 C.F.R. § 240.10b-5 (Rule 10b-5). Those provisions 

collectively prohibit the use of “any device, scheme, or 

artifice to defraud” in connection with the purchase or sale of 

any security. 

 At Riordan’s hearing before an SEC administrative law 

judge, Montoya testified at length and explained that, from 

1996 to 2002, he had directed business to Riordan through a 

variety of devices. For example, Riordan had been allowed to 

see competitors’ bids before placing his own and had been 

permitted to submit bids past the due date. In return for that 

preferential treatment, Riordan had typically given Montoya 

cash, between $300 and $3000, for each transaction. 

 Montoya’s powerful testimony was supplemented by a 

plethora of additional evidence against Riordan. One of 

Montoya’s associates testified that Montoya had told him to 

award state business to Riordan and had suggested that the 

business was in return for kickbacks paid by Riordan. The 

evidence also included a recording of a phone conversation in 

which Montoya and Riordan agreed to meet at a Bennigan’s 

after Montoya requested money. Riordan also acknowledged 

that, in 2002, Montoya had repeatedly called Riordan 

demanding a kickback and that they had then met at a gas 

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station. In addition, the SEC Enforcement Division’s 

financial expert submitted a report stating that Riordan often 

had received state business despite submitting the worst bid. 

 In his defense, Riordan produced his own expert’s 

analysis of the Treasurer’s Office records. Riordan also 

testified that he never paid Montoya in return for state 

business. 

 After hearing the evidence, the administrative law judge 

found that Riordan had paid extensive kickbacks to Montoya 

in order to land business from the State. She concluded that 

Riordan had thereby violated § 17(a) of the Securities Act, 

§ 10(b) of the Exchange Act, and Rule 10b-5, and she 

imposed a variety of sanctions. 

 Upon review, the full SEC upheld the administrative law 

judge’s order in relevant part, affirming a host of sanctions on 

Riordan. The sanctions included: civil fines of $500,000; a 

bar on future association with securities brokers or dealers; an 

order to cease and desist from violations of the securities 

laws; and disgorgement of all commissions and bonuses 

Riordan derived from his dealings with Montoya, amounting 

to $938,353.78. Including prejudgment interest on the 

disgorged funds, the disgorgement order rose to 

$1,397,870.62. Riordan was thus forced to pay the 

Government a total of $1,897,870.62 in fines and 

disgorgement. 

 Riordan filed a petition in this Court under 15 U.S.C. 

§ 78y(a)(1). Riordan contends that the SEC’s findings of fact 

were not supported by substantial evidence, as required by 15 

U.S.C. § 78y(a)(4), and that the administrative law judge 

improperly excluded some of his proffered evidence. 

Riordan also argues that most of the sanctions imposed on 

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him were based on conduct that occurred outside the statute of 

limitations. See 28 U.S.C. § 2462. 

II 

 Riordan argues that the record does not contain 

substantial evidence that he paid Montoya kickbacks from 

1996 to 2002. We disagree. The record overwhelmingly 

demonstrates that Riordan paid Montoya in return for state 

business. To recount just some of the most damning 

evidence: Montoya testified about the kickbacks at length 

and in detail; another witness corroborated key aspects of 

Montoya’s testimony; Riordan himself admitted to having 

met Montoya twice in response to Montoya’s demands for 

kickbacks; and the SEC’s financial expert found that the 

Treasurer’s Office records reflected a corrupt process – a 

conclusion that Riordan’s own expert was largely unable to 

contradict. 

 The issue is closer with regard to four of the five 

transactions that Montoya’s office awarded to Riordan in 

October 2002. Those four October 2002 deals are significant 

because they represent the portion of Riordan’s conduct that 

supports $400,000 of the $500,000 that the SEC imposed in 

civil fines. (Riordan’s pre-October 2002 conduct was outside 

the five-year statute of limitations for civil fines.) Those four 

October 2002 transactions involved sales of state securities. 

Riordan points out that Montoya testified that Riordan paid 

kickbacks only for state purchases of securities. 

 To begin with, Montoya’s testimony on this issue was 

confused and equivocal. When first asked about sales, 

Montoya was not certain whether he had taken kickbacks on 

them, stating, “I’m not saying I didn’t but I don’t – I guess 

best guess is no.” Transcript of Hearing at 188, Guy P. 

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Riordan, Securities Act Release No. 9085, Exchange Act 

Release No. 61153 (Dec. 11, 2009). But Montoya also 

appeared to have forgotten that nearly half the recorded 

transactions his office awarded to Riordan were sales, instead 

believing (incorrectly) that Riordan received very few sales. 

Id. Montoya did, moreover, state that he generally received a 

kickback on every transaction his office awarded to Riordan, 

and that no one in his office would award a sale without his 

approval. Id. at 181-82, 354-55. Thus, Montoya’s confusion 

may show only that he forgot what types of transactions 

Riordan received, but remained certain that Riordan paid him 

for each transaction. 

 Moreover, other record evidence supports the SEC’s 

conclusion that Riordan did in fact pay kickbacks on the four 

October 2002 sales. Montoya’s assistant testified that 

Montoya directed him to steer both sales and purchases to 

Riordan. And the SEC’s expert found that Riordan received 

the four October 2002 sales despite submitting the worst bids. 

Even Riordan’s expert could not provide any persuasive 

explanation why Riordan would receive the state’s business 

under those circumstances except for reasons of corruption. 

 This body of evidence regarding the October 2002 sales 

suffices under our deferential standard of review to sustain the 

SEC’s conclusion that Riordan paid kickbacks in connection 

with those sales. See Siegel v. SEC, 592 F.3d 147, 155 (D.C. 

Cir. 2010) (“The reviewing court may not substitute its own 

judgment for the agency’s ‘choice between two fairly 

conflicting views . . . .’”) (quoting Universal Camera Corp. v. 

NLRB, 340 U.S. 474, 488 (1951)). 

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III 

 Riordan also contends that the Commission erred in 

approving the administrative law judge’s exclusion of some of 

Riordan’s proffered evidence. In particular, the 

administrative law judge prevented Riordan from introducing 

evidence showing that Riordan had helped unravel another of 

Montoya’s corrupt deals. Riordan wanted to use this evidence 

to show that Montoya was biased against him and therefore 

should not be believed. But Riordan never demonstrated that 

Montoya knew anything about Riordan’s role in that separate 

deal. Any evidence about Riordan’s acts against Montoya’s 

interest therefore was irrelevant; those acts could not have 

biased Montoya against Riordan if Montoya did not know 

what Riordan had done. 

 Moreover, even if the exclusion of this evidence 

constituted error, the error would be harmless. See PDK 

Laboratories Inc. v. DEA, 362 F.3d 786, 799 (D.C. Cir. 2004) 

(“In administrative law, as in federal civil and criminal 

litigation, there is a harmless error rule . . . .”). It was already 

clear that Montoya disliked Riordan, rendering further 

evidence of that fact redundant. Further, the evidence against 

Riordan was utterly overwhelming on most issues. And on 

the one issue where it was not (the October 2002 sales), 

Montoya’s testimony actually favored Riordan, meaning that 

the excluded evidence would not have helped Riordan with 

regard to the October 2002 transactions. 

IV 

 Riordan’s most significant argument concerns the statute 

of limitations. The key question centers on the general fiveyear civil statute of limitations for certain actions by the 

Government, 28 U.S.C. § 2462. See 3M Co. v. Browner, 17 

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F.3d 1453, 1455-57 (D.C. Cir. 1994). That statute reads: “an 

action, suit or proceeding for the enforcement of any civil 

fine, penalty, or forfeiture, pecuniary or otherwise, shall not 

be entertained unless commenced within five years from the 

date when the claim first accrued.” 

 The SEC brought this action on September 25, 2007. 

Therefore, Riordan’s conduct before September 25, 2002, 

falls outside the applicable statute of limitations. 

 The Commission based two of its sanctions – the bar on 

association with brokers or dealers and the $500,000 in civil 

fines – solely on Riordan’s dealings with Montoya in October 

2002. Those sanctions therefore pose no statute of limitations 

problem. 

 In levying the disgorgement order, however, the SEC 

relied not only on the October 2002 transactions but on the 

entirety of Riordan’s misconduct, including the substantial 

portion of his wrongdoing that took place before September 

25, 2002. The SEC’s reliance on the pre-September 25, 2002, 

conduct for the disgorgement order is significant: Riordan 

was required to pay nearly $1.5 million in disgorgement and 

interest. But he would have to pay just a small portion of that 

amount if the SEC could consider only the five October 2002 

transactions when calculating disgorgement. 

 The five-year statute of limitations in 28 U.S.C. § 2462 

applies to an action for the enforcement of a “fine, penalty, or 

forfeiture.” Does that list include disgorgement? This Court 

has said no. We have reasoned that disgorgement orders are 

not penalties, at least so long as the disgorged amount is 

causally related to the wrongdoing. See, e.g., Zacharias v. 

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

Bilzerian, 29 F.3d 689, 696 (D.C. Cir. 1994); SEC v. First 

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City Financial Corp., 890 F.2d 1215, 1231 (D.C. Cir. 1989). 

Because we have held that disgorgement is not a “civil 

penalty,” the Court in Zacharias held that disgorgement was 

not subject to the five-year statute of limitations. 569 F.3d at 

471-72. In light of our precedents, we must reject Riordan’s 

similar argument here.1

 

 The final question is whether the cease-and-desist order 

poses a statute of limitations problem. We think not. That 

order simply requires Riordan not to violate the relevant 

securities laws in the future. In a related context, we have 

stated that a cease-and-desist order is “purely remedial and 

preventative” and not a “penalty” or “forfeiture.” Drath v. 

FTC, 239 F.2d 452, 454 (D.C. Cir. 1956). We see no reason 

for a different result here: The cease-and-desist order is not a 

“fine, penalty, or forfeiture” covered by the five-year statute 

of limitations in 28 U.S.C. § 2462. Cf. Johnson v. SEC, 87 

F.3d 484, 487-89 (D.C. Cir. 1996). 

 1

 In reaching that conclusion in Zacharias, the Court focused 

on the meaning of “penalty” in 28 U.S.C. § 2462. The statute also 

applies to “forfeiture.” It could be argued that disgorgement is a 

kind of forfeiture covered by § 2462, at least where the sanctioned 

party is disgorging profits not to make the wronged party whole, 

but to fill the Federal Government’s coffers. Our precedents have 

not expressly considered that point in holding that there is no 

statute of limitations for SEC disgorgement actions. But 

Zacharias’s holding at least implicitly rejects that argument and is 

binding on us as a three-judge panel. Here, moreover, the 

disgorged moneys will apparently be returned to the New Mexico 

State Government and not retained by the U.S. Government. See 

Guy P. Riordan, Securities Act Release No. 9085, Exchange Act 

Release No. 61153 at 39 (Dec. 11, 2009). 

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* * * 

 We have considered all of Riordan’s arguments and find 

them without merit. We deny the petition. 

So ordered. 

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