20-4080-cv 

SEC v. Rashid

In the

United States Court of Appeals

For the Second Circuit

________

AUGUST TERM 2021

ARGUED: JANUARY 19, 2022

DECIDED: MARCH 13, 2024

No. 20-4080-cv

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff-Appellee,

v.

MOHAMMED ALI RASHID,

Defendant-Appellant.

________

Appeal from the United States District Court for the Southern 

District of New York.

________

Before: KEARSE, WALKER, AND SULLIVAN, Circuit Judges.

________

This appeal arises from a Securities & Exchange Commission 

enforcement action brought against Defendant-Appellant 

Mohammed Ali Rashid, a former employee of private equity firm 

Apollo Management L.P. Rashid was accused of breaching his 

fiduciary duties to the Apollo-affiliated private equity funds he 
No. 20-4080-cv

2

advised by submitting expense reports for phony business expenses 

that were ultimately paid by the funds. The district court, following 

a bench trial, determined that Rashid was not liable under § 206(1) of 

the Investment Advisers Act because he was not aware that the funds, 

rather than Apollo, would pay for his expenses. The district court 

concluded, however, that Rashid was liable under § 206(2) of the Act 

because Rashid was “indifferent,” and therefore negligent, as to 

which entity would pay for his expenses.

Because it was not reasonably foreseeable to Rashid that the 

funds would pay for his expenses, we conclude that Rashid did not 

breach his duty of care to the funds or proximately cause their harm. 

Accordingly, we REVERSE the judgment of the district court. 

Judge Kearse dissents in a separate opinion.

________

WILLIAM K. SHIREY, Counsel to the Solicitor, 

(Michael A. Conley, Acting General Counsel, on 

the brief), Securities and Exchange Commission, 

Washington, DC, for Plaintiff-Appellee.

CAITLIN J. HALLIGAN, Selendy & Gay PLLC, New 

York, NY (Faith E. Gay, Ryan W. Allison, Selendy 

& Gay PLLC, New York, NY; Theresa Van Vliet, 

Genovese Joblove & Battista, P.A., Fort 

Lauderdale, FL, on the brief), for DefendantAppellant.

________

JOHN M. WALKER, JR., Circuit Judge:

This appeal arises from a Securities & Exchange Commission 

(“SEC”) enforcement action brought against Defendant-Appellant 

Mohammed Ali Rashid, a former employee of private equity firm 
No. 20-4080-cv

3

Apollo Management L.P. Rashid was accused of breaching his 

fiduciary duties to the Apollo-affiliated private equity funds he 

advised by submitting expense reports for phony business expenses 

that were ultimately paid by the funds. The district court, following 

a bench trial, determined that Rashid was not liable under § 206(1) of 

the Investment Advisers Act because he was not aware that the funds, 

rather than Apollo, would pay for his expenses. The district court 

concluded, however, that Rashid was liable under § 206(2) of the Act 

because Rashid was “recklessly indifferent,” and therefore negligent, 

as to which entity would pay for his expenses. Sec. & Exch. Comm'n 

v. Rashid, No. 17-cv-8223 (PKC), 2020 WL 5658665, at *1 (S.D.N.Y. 

Sept. 23, 2020).

Because it was not reasonably foreseeable to Rashid that the 

funds would pay for his expenses, we conclude that Rashid did not 

breach his duty of care to the funds or proximately cause their harm. 

Accordingly, we REVERSE the judgment of the district court.

Judge Kearse dissents in a separate opinion.

BACKGROUND

I. Factual Background1

A. Rashid, Apollo, and the Investment Funds

Apollo Management L.P., a subsidiary of Apollo Global 

Management, LLC (together, “Apollo”), is a private equity firm 

registered as an investment adviser with the SEC. As of 2018, Apollo 

managed more than $270 billion in assets. Defendant-Appellant 

1 The following facts are drawn from the district court’s findings of fact and 

conclusions of law, see SEC v. Rashid, No. 17-cv-8223, 2020 WL 5658665 (S.D.N.Y. 

Sept. 23, 2020), or are otherwise undisputed. 
No. 20-4080-cv

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Mohammed Ali Rashid worked for Apollo from 2004 to 2014, 

ultimately reaching the level of senior partner.

During the relevant period, Apollo managed several 

investment funds structured as limited partnerships. These private 

equity funds took large, often controlling, positions in portfolio 

companies. Each fund was managed by a distinct Apollo-controlled 

general partner, which delegated its authority to a distinct Apolloaffiliated management company. A limited partnership agreement 

governed the allocation of expenses between each fund and the 

corresponding management company. These limited partnership 

agreements specified that the Apollo-affiliated management 

company associated with that specific fund was responsible for 

“[a]dministrative [e]xpenses,” including “all costs and 

expenses . . . incurred in developing, negotiating and structuring 

Portfolio Investments” and “all ordinary costs and 

expenses . . . incurred in monitoring Portfolio Investments.” App’x 

121, 126, 130, 159–60.

As a senior partner at Apollo, Rashid helped manage several 

funds. In this role, Rashid acted as an “investment adviser” to these 

funds under the Investment Advisers Act by evaluating and 

recommending investments, monitoring these funds’ portfolio 

companies, and finding ways to improve their financial performance. 

See 15 U.S.C. § 80b-2(a)(11).2

B. Employee Expense Reports

Apollo tracked employee expenses using a data-entry platform 

called PeopleSoft. For all expenses, employees were required to enter 

2 “Investment adviser” is defined as “any person who, for compensation, 

engages in the business of advising others, either directly or through publications 

or writings, as to the value of securities or as to the advisability of investing in, 

purchasing, or selling securities . . . .” 15 U.S.C. § 80b-2(a)(11).
No. 20-4080-cv

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into a PeopleSoft spreadsheet the type of expense (e.g., “hotel & 

lodging”), a description of the expense (e.g., “dinner with lawyers 

while working late on [specific portfolio company]”), and the 

department associated with the expense (e.g., “private equity”). 

Rashid, 2020 WL 5658665, at *4 (internal quotation marks omitted) 

(capitalization standardized). The PeopleSoft spreadsheet also 

included a column titled “Investment,” which required employees to 

enter a numeric code—referred to herein as an “investment code”3—

and the name of an entity associated with that expense. Apollo had 

over 3,500 investment codes, the majority of which corresponded to 

specific portfolio companies and projects in which the funds invested. 

Some of the investment codes corresponded to specific funds, but 

none of the codes corresponded to the Apollo-affiliated management 

companies that managed these funds. 

Apollo maintained written reimbursement policies that 

outlined which expenses could and could not be reimbursed. The 

policies generally stated that “Apollo [would] reimburse employees 

for business and travel expenses incurred while performing their 

duties, provided the expenses [were] necessary, reasonable and 

appropriately documented.” App’x 119. The guidance given to 

Apollo employees, however, did not explain who ultimately paid for 

reimbursements. It also did not instruct employees on how to select 

the appropriate investment code or the project or entity to list in the 

“Investment” column of their expense reports.

Apollo employees such as Rashid were not responsible for 

choosing which entity would ultimately be charged for business 

expenses submitted on PeopleSoft. That was the responsibility of 

3 At Rashid’s trial, employees at Apollo variously referred to these codes as 

“investment code[s],” “project code[s],” “deal code[s],” and “allocation code[s].”

Rashid, 2020 WL 5658665, at *5.
No. 20-4080-cv

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Apollo’s accounts receivable department, which would use the 

information provided on PeopleSoft to determine which entity (e.g., 

the fund-specific Apollo management company, the fund, or the 

portfolio company in which a fund was invested) would be billed for 

the expense’s reimbursement. The controllers employed by the funds 

also played a role in ensuring that the expenses were charged to the 

appropriate entity, as they were able to “push back” if they thought 

the fund was improperly charged for any given expense. Id. at 83.

During the relevant time, Apollo’s accounts receivable 

department improperly charged all expenses relating to the 

monitoring of a fund’s portfolio company directly to the fund, in 

contravention of the fund partnership agreements requiring that the 

fund-specific Apollo management companies bear the cost of such 

“administrative expenses.”

C. Rashid’s Fraud

Although employees were supposed to submit only business 

expenses for reimbursement, Rashid regularly sought reimbursement 

for personal expenses. There is no question that, from 2010 to 2013, 

Rashid “engaged in a pattern of repeatedly, knowingly and falsely 

describing personal expenses as business expenses.” Rashid, 2020 WL 

5658665, at *8.4 These expenses included, for example, travel 

expenses to Montreal for a friend’s bachelor party, Miami for a 

friend’s wedding, Brazil for a vacation with his wife, and New 

Orleans for the Super Bowl. Rashid also sought reimbursement for 

expensive dinners and lavish gifts for his friends and family. Rashid 

intentionally submitted expense reports for these expenses in which 

4 The parties stipulated to a limitations period of June 13, 2011 to June 2013, but 

the district court appropriately considered evidence relating to expense reports 

submitted outside of that period as it relates to Rashid’s state of mind within the 

limitations period.
No. 20-4080-cv

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he falsely stated that the expenses were related to meetings with 

executives at his funds’ portfolio companies. Such expenses, if 

legitimate, would have constituted “administrative expenses” 

payable by the Apollo-affiliated management companies. 

Rashid’s actions did not escape Apollo’s notice. In 2010, Rashid 

submitted an expense report for a business dinner at “La Contessa,” 

which Apollo recognized was a hair salon and not a restaurant. 

Apollo admonished Rashid not to submit personal expenses for 

reimbursement and, following a review of the prior six months’ 

expense reports, Rashid reimbursed Apollo for nearly $8,000 in 

falsely reported personal expenses. In 2012, Apollo again confronted 

Rashid, this time for expensing thousands of dollars for personal 

expenses at a spa and a Beverly Hills clothing store. Apollo 

conducted a review of Rashid’s expenses from the prior year, and 

Rashid reimbursed Apollo for approximately $7,000 in falsely 

reported personal expenses.

In 2012, in anticipation of an SEC audit, Apollo retained Paul, 

Weiss, Rifkind, Wharton & Garrison LLP to review its firm-wide 

expense allocation procedures. In 2013, Paul, Weiss was retained to 

specifically review expenses submitted by Rashid. Paul, Weiss, with 

Rashid’s cooperation, identified hundreds of dubious expenses 

reported by Rashid and ultimately, in 2014, Rashid entered into a 

separation agreement with Apollo. As part of that agreement, Rashid 

paid Apollo $325,000 as reimbursement for his fraudulently 

submitted personal expenses.

In 2016, as part of a settlement, the SEC issued an 

administrative order requiring Apollo to pay over $52.7 million in 

disgorgement and fines in relation to Apollo’s breaches of its 

fiduciary duties to the funds. Two of these breaches—Apollo’s failure 

to make adequate disclosures to investors regarding accelerated 
No. 20-4080-cv

8

monitoring fees to portfolio companies and Apollo’s use of client 

funds to effectively take a $19 million interest-free loan—do not 

pertain to Rashid. As relevant to this case, the SEC also found that 

Apollo failed to reasonably supervise Rashid in his submission of 

expense reports and that Apollo “failed to implement its policies and 

procedure[s] concerning employees’ reimbursement of expenses.” 

App’x 180. 

II. Procedural History

In October 2017, the SEC commenced the present action against 

Rashid, alleging that Rashid violated §§ 206(1) and 206(2) of the 

Investment Advisers Act by submitting fraudulent claims for 

reimbursement, thereby intentionally and negligently defrauding the 

funds. See 15 U.S.C. § 80b-6(1)–(2).5 The SEC also alleged that Rashid 

aided and abetted Apollo’s violations of §§ 206(1) and 206(2). See 15 

U.S.C. § 80b-9(d), (f).

The district court (P. Kevin Castel, Judge) held a nine-day bench 

trial, during which 33 witnesses testified. Rashid testified that he had 

believed that the expenses for which he sought reimbursement were 

paid by the Apollo-affiliated management companies, not the funds. 

The district court did not credit his testimony, finding that Rashid was 

“recklessly indifferent” as to “who would pay [for] his phony 

business expenses” and that his testimony was “an after-the-fact 

construct to avoid liability.” Rashid, 2020 WL 5658665, at *22. 

Although other employees—including a senior partner and Apollo’s 

current and former CFOs—similarly testified that they had believed 

5 Section 206 provides, inter alia, that “[i]t shall be unlawful for any investment 

adviser by use of the mails or any means or instrumentality of interstate 

commerce, directly or indirectly[] (1) to employ any device, scheme, or artifice to 

defraud any client or prospective client; [or] (2) to engage in any transaction, 

practice, or course of business which operates as a fraud or deceit upon any client 

or prospective client . . . .” 15 U.S.C. § 80b-6. 
No. 20-4080-cv

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(mistakenly, as it turned out) that such expenses would be borne by 

the Apollo-affiliated management companies, the district court 

concluded that these employees did not have the same reason to 

investigate because they had not submitted false expense reports. The 

district court noted that “significant blame” resided with Apollo and 

its accounts receivable department’s billing practices, but that 

Rashid’s falsehoods “began a chain of events that operated as a fraud 

upon investors in the private equity funds.” Id. at *22; see also id. at 

*24, 27.

The district court determined that Rashid did not intend to 

defraud the funds because he had not known the source of 

reimbursement for his expenses. The district court also found, 

however, that it was reasonably foreseeable to Rashid that his entry 

of investment codes corresponding to specific portfolio companies 

would result in the funds being charged. Accordingly, Rashid should 

have ensured the funds would not pay for his false business expenses 

“by drilling down within Apollo.” Id. at *23.

Consistent with these findings, the district court found that the 

SEC had failed to prove that Rashid acted with scienter sufficient to 

support a finding that he violated § 206(1) or aided and abetted 

Apollo’s violation of § 206(1).6 But the district court found that Rashid 

had violated § 206(2) by at least negligently breaching his duties to 

the funds.7 In remedy, the district court permanently enjoined Rashid 

from violating § 206 and ordered him to pay a $240,000 civil penalty. 

6 The district court did not reach whether Rashid was liable for aiding and 

abetting Apollo’s violation of § 206(2).

7 The district court noted that scienter under § 206(1) could be proved by a 

finding of “‘conscious recklessness,’” Rashid, 2020 WL 5658665, at *23 (quoting 

Setzer v. Omega Healthcare Invs., Inc., 968 F.3d 204, 214 (2d Cir. 2020)), but found 
No. 20-4080-cv

10

This appeal followed. 

DISCUSSION

On appeal, Rashid argues that (1) the district court erred in 

finding him liable under § 206(2) of the Investment Advisers Act 

because his actions did not violate his duty of care to the funds or 

proximately cause the funds’ loss; (2) the district court erred by failing 

to address whether his conduct was material to investors; and (3) the 

district court abused its discretion by enjoining him from future 

violations of § 206 without considering collateral consequences to 

such an injunction. Because we conclude that the district court erred 

as to the first issue, we reverse without addressing the remaining 

issues.

I. Legal Standards 

This court reviews conclusions of law de novo, findings of fact 

for clear error, and mixed questions of law and fact under either the 

de novo or clearly erroneous standard, “depending on whether the 

question is predominantly legal or predominantly factual.” Fed. Hous. 

Fin. Agency v. Nomura Holding Am. Inc., 873 F.3d 85, 138 n.54 (2d Cir. 

2017) (internal quotation marks omitted). 

The purpose of the Investment Advisers Act is “to substitute a 

philosophy of full disclosure for the philosophy of caveat emptor and 

thus to achieve a high standard of business ethics in the securities 

industry.” SEC v. Cap. Gains Rsch. Bureau, Inc., 375 U.S. 180, 186 

(1963); see also SEC v. DiBella, 587 F.3d 553, 568 (2d Cir. 2009) (“The 

‘legislative history of the Advisers Act leaves no doubt that Congress 

intended to impose enforceable fiduciary obligations’ on investment 

that “Rashid’s reckless indifference to the source of his reimbursement did not 

reflect recklessness approximating actual knowledge.” Id. at *24.
No. 20-4080-cv

11

advisors.” (alteration marks omitted) (quoting Transamerica Mortgage 

Advisers, Inc. (TAMA) v. Lewis, 444 U.S. 11, 17 (1979))). To that end, 

§ 206(2) of the Act makes it unlawful for an investment adviser, such 

as Rashid, to “engage in any transaction . . . which operates as a fraud

or deceit upon any client or prospective client.” 15 U.S.C. § 80b-6(2). 

Section 206(2) does not have a scienter requirement, and so this 

section holds investment advisers liable for negligent acts. See DiBella, 

587 F.3d at 569. Negligence is the failure to exercise the degree of care 

that a reasonably prudent person would use under like 

circumstances. See Restatement (Third) of Torts: Liability for Physical 

& Emotional Harm § 3 (2010); 57A Am. Jur. 2d Negligence § 5 (2023); 

see also Restatement (Third) of Agency § 8.08 (2006) (“[A]n agent has 

a duty to the principal to act with the care, competence, and diligence 

normally exercised by agents in similar circumstances.”). A 

defendant acts negligently if he fails to exercise reasonable care and, 

as a result, causes reasonably foreseeable harm. See Restatement 

(Third) of Torts: Liability for Physical & Emotional Harm § 3 (2010). 

Here, the funds’ harm is not disputed, but the parties disagree about 

the extent of Rashid’s duty and, relatedly, whether he proximately 

caused their harm.

As to duty, the Investment Advisers Act established “federal 

fiduciary standards to govern the conduct of investment advisers,” 

Robare Grp., Ltd, 922 F.3d 468, 472 (D.C. Cir. 2019) (quoting TAMA, 444 

U.S. at 17). It imposed on advisers “an affirmative duty of utmost 

good faith, and full and fair disclosure of all material facts, as well as 

an affirmative obligation to employ reasonable care to avoid 

misleading [their] clients.” Cap. Gains Rsch. Bureau, 375 U.S. at 194

(internal quotation marks omitted). 

A primary consideration in evaluating whether a person’s 

conduct lacks reasonable care is the “foreseeable likelihood that the 
No. 20-4080-cv

12

person’s conduct will result in harm.” Restatement (Third) of Torts: 

Liability for Physical & Emotional Harm § 3 (2010); see also Cullen v. 

BMW of N. Am., Inc., 691 F.2d 1097, 1101 (2d Cir. 1982) 

(“[F]oreseeability of injury is an indispensable requisite of negligence, 

and . . . negligence exists only when there is a reasonable likelihood 

of danger as the result of the act complained of.”). An action is 

“reasonably foreseeable” when “a reasonably prudent person would 

anticipate [it] as likely to result” from the breach. 57A Am. Jur. 2d 

Negligence § 449 (2023).

This reasonable-foreseeability principle extends to the acts of 

intervening parties in the context of assessing proximate cause. “[A]n 

intervening act, tortious or criminal, will ordinarily insulate a 

negligent defendant from liability,” unless the intervening act or end 

result was reasonably foreseeable. Cullen, 691 F.2d at 1101; see also

57A Am. Jur. 2d Negligence § 620 (2023). 

II. Rashid’s Duty of Care and the Alleged Breach

In concluding that Rashid breached his duty of care to the 

funds, the district court found that Rashid did not have actual 

knowledge that the funds were paying for his phony business 

expenses, but that Rashid should have investigated the matter further 

to ensure that the funds would not pay for such expenses. See Rashid, 

2020 WL 5658665, at *23 (“Rashid[,] as a senior partner of 

Apollo, . . . had the ability to ensure, by drilling down within Apollo, 

that none of his false business expenses were paid by the funds.”). 

Rashid argues that the district court erred by imposing a heightened 

duty of care that would require him to have independently 

discovered Apollo’s misbilling practices. We agree that the district 

court erred because the record demonstrates that a reasonable person 

in Rashid’s shoes would not have known that the funds would pay 

for his claimed expenses. 
No. 20-4080-cv

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Rashid’s “affirmative obligation to employ reasonable care,” 

Cap. Gains Rsch. Bureau, 375 U.S. at 194 (internal quotation marks 

omitted) (emphasis added), is defined objectively, 57A Am. Jur. 2d 

Negligence § 131 (2023). As explained above, the record shows that 

many Apollo professionals—including Apollo’s current and former 

CFOs and an employee who held the same title as Rashid—believed 

that Apollo, and not the funds, would pay for expenses incurred

while monitoring the funds. These employees all owed to the funds 

similar fiduciary duties as Rashid. They are the “reasonable persons” 

against whom Rashid should be compared when evaluating whether 

he should have known that the funds would pay for his business 

expenses. But Rashid’s peers did not believe that the funds would 

pay for reimbursements. In fact, it would have been difficult for any 

of them to have discovered the truth: that Apollo’s accounts 

receivable department was improperly billing the funds for expenses 

that should have been allocated to the Apollo-affiliated management 

companies. And if Rashid had decided to look into the matter further, 

he would have reasonably consulted the fund partnership 

agreements and reached the same conclusion as his peers: that the 

Apollo-affiliated management companies were supposed to pay for 

his claimed expenses. Apollo’s reimbursement policies did not say 

otherwise, and Apollo never informed Rashid of any fact to the 

contrary when they caught him submitting fraudulent expense 

reports in 2010 and 2012. On this record, we cannot conclude that 

Rashid’s general fiduciary duties included undertaking the sort of 

extensive, independent investigation that might have revealed that 

the funds would pay for his business expenses. 

The district court suggests that Rashid owed the funds a 

heightened duty of care, stating that the other Apollo employees did 

not have “the same reason as Rashid to ensure that no fund was billed 

for an expense because they, unlike Rashid, were not submitting false 
No. 20-4080-cv

14

business expenses.” Rashid, 2020 WL 5658665, at *22. Nothing in the 

record suggests, however, that Rashid’s own fraud should have made 

him more aware of Apollo’s charging practices. Nor were the funds 

at greater risk because his expenses were fraudulent. Indeed, to the 

funds, all expenses charged to them in violation of the fund

partnership agreements, whether falsified or not, were harmful. 

Thus, nothing about Rashid’s fraud itself put him on heightened 

notice of Apollo’s billing practices or the potential harm that could 

result from it. His fiduciary duties to the funds therefore remained 

unchanged by his fraudulent conduct.

The SEC insists that Rashid violated his fiduciary duties to the 

funds because, as the district court found, he was “utterly 

indifferent,” id. at *23, as to who would pay for his phony expenses,

“notwithstanding his affirmative responsibilit[ies] as a fiduciary to 

the Funds.” Appellee’s Br. 41. Our dissenting colleague likewise 

observes that Rashid “made no effort to find out whether his personal 

expenses were being billed to the clients he identified.” Diss. Op. 9. 

But Rashid’s heightened duty of care as a fiduciary to the funds only 

required Rashid to “drill down” to the level of a reasonably prudent 

investment adviser—here, to that of his peers. Reviewing the fund 

partnership agreements or asking his colleagues would have led 

Rashid to reasonably believe that Apollo, not the funds, would pay 

for his claimed expenses. 

Any contrary conclusion would not just impose an unduly high 

duty of care on Rashid, but would be effectively the equivalent of

imposing strict liability. And that appears to be the implicit 

conclusion advanced by the dissent, which would affirm Rashid’s 

liability under § 206(2) simply because his conduct was generally 

improper. See id. at 4–5. Notwithstanding the propriety expected of 

fiduciaries, however, the Investment Advisors Act imposes only a 

duty of reasonable care on fiduciaries such as Rashid, even when those 
No. 20-4080-cv

15

fiduciaries’ conduct runs afoul of other legal or ethical proscriptions. 

Cap. Gains Rsch. Bureau, 375 U.S. at 194; see also Restatement (Third) of 

Agency § 8.08 cmt. d (2006) (“Although an agent has a duty of 

diligence, that duty is to make reasonable efforts to achieve a result 

and not a duty to achieve the result regardless of the effort, risk, and 

cost involved.”). A fiduciary’s duties under the Investment Advisers 

Act are demanding, but they are not boundless. Applying ordinary 

negligence principles to this case, we conclude that Rashid did not 

breach his duty of care to the funds by failing to discover that Apollo 

was improperly charging the funds for his reported expenses. 

III. Reasonable Foreseeability of the Intervening Cause

Rashid next argues that, because Apollo’s intervening actions 

in improperly charging the funds for administrative expenses were 

not reasonably foreseeable, his fraudulent reimbursement requests 

could not have been the proximate cause to the funds’ harm. We 

agree; just as reasonable foreseeability bears on the question of 

Rashid’s duty of care, it also affects our calculus as to proximate 

cause.

As noted earlier, an intervening action is “reasonably 

foreseeable” when “a reasonably prudent person would anticipate [it] 

as likely to result” from the breach. 57A Am. Jur. 2d Negligence § 449

(2023). This is an objective standard. As discussed above, Rashid’s 

peers—including the former and current CFOs of Apollo—believed 

that Apollo, not the funds, reimbursed employees for expenses

incurred while monitoring the funds. And the fund partnership 

agreements confirmed the same. Nevertheless, Apollo’s accounts 

receivable department contravened the terms of the fund partnership 

agreements—negligently or otherwise—and billed the funds directly 

for such administrative expenses. Even the funds’ controllers, whose 

job it was to ensure that the funds were not being overcharged, did 
No. 20-4080-cv

16

not bring to Apollo’s attention the fact that its accounts receivable 

department had erroneously billed the funds. On this record, we 

cannot say that a reasonably prudent person would have anticipated 

that the funds would be billed for Rashid’s fraudulent expenses. 

The district court found that “it was reasonably foreseeable to 

Rashid that in causing or acquiescing in the entry of a[n investment] 

code for a portfolio company that the expense would be borne directly 

by the fund or indirectly by charging it to the portfolio company in 

which it was heavily invested.” Rashid, 2020 WL 5658665, at *23; see 

also id. at *3, 25. But, as explained above, Apollo employees like 

Rashid were not responsible for choosing which entity would 

ultimately be charged for claimed expenses. Nor could they have 

been, since Apollo did not explain to employees how the 

reimbursement process worked. Instead, Apollo’s accounts 

receivable department would independently determine whether the 

fund-specific Apollo management company, the fund, or the portfolio 

company in which the fund was invested would be billed for the 

expense’s reimbursement. 

The district court and the dissent make much of the fact that the 

expense forms bore investment codes that specified the client fund 

associated with the expenses incurred. But the code identifier had 

nothing to do with how a particular expense would be allocated for 

reimbursement. Naturally, the accounts receivable department used 

the information on the expense forms in the process of deciding the 

entity to whom the expense should be billed. But the investment code

that an employee entered was not determinative of the accounts 

receivable department’s ultimate billing decision. In fact, our 

examination of these investment codes reveals that none of the more 

than 3,500 possible investment codes corresponded to the Apolloaffiliated management companies that were responsible for the 

administrative expenses claimed by Rashid. Thus, even if the 
No. 20-4080-cv

17

investment codes used by Rashid identified a particular fund or a 

portfolio company or project associated with a particular fund, there 

is no evidence that these investment codes distinguished between 

expenses chargeable to the fund-specific Apollo management 

companies and those chargeable to the funds themselves. 

Accordingly, it would not have been reasonably foreseeable to Rashid 

(or other employees who also entered such investment codes) that the 

funds would cover his expenses merely because he entered the

investment code associated with a particular fund, portfolio 

company, or project. 

The SEC argues that Rashid, who did not thoroughly read the 

fund partnership agreements or Apollo’s reimbursement policies, 

“should have reasonably expected as a default assumption that the 

Funds would be invoiced for the expenses.” Appellee’s Br. 42. The 

SEC cites the testimony of an accounting expert to support this default 

assumption. But the accounting expert at the same time testified that 

the fund partnership agreements usually govern expense allocation 

and that he would “defer first” to such agreements to ascertain which 

entity would pay for which expenses. D. Ct. Dkt. No. 201, at 74–75. 

The accounting expert’s testimony thus does not provide the support 

the SEC assigns to it.

The SEC’s argument fails for another reason: it faults Rashid for

not consulting the fund partnership agreements, but then creates a 

new (conjectural) “default assumption” for Rashid that is at odds with 

the agreements it claims Rashid should have consulted. See 

Appellee’s Br. 42 (“[T]he failure to investigate and understand 

Apollo’s expense-allocation practices was part and parcel of Rashid’s 

negligence.”). This position is internally inconsistent and also 

purports to treat Rashid differently based on his subjective ignorance 

of Apollo’s specific expense-allocation practices. If, as the SEC argues, 

a reasonably prudent adviser in Rashid’s position would have 
No. 20-4080-cv

18

consulted the fund partnership agreements to determine whether the

funds would be charged for his claimed expenses, it follows that the 

reasonable adviser would not foresee that the funds would bear the 

cost of such expenses.

Finally, the SEC argues that the causation requirements should 

be “loosen[ed]” where a defendant breaches his fiduciary duties and 

that we can therefore disregard “any negligence or error on the part 

of Apollo in connection with invoicing the Funds.” Id. at 42–43. It is 

true that we sometimes “loosen” the stringent causation requirements 

where a defendant has breached his fiduciary duties. See Milbank, 

Tweed, Hadley & McCloy v. Boon, 13 F.3d 537, 543 (2d Cir. 1994). 

Contrary to the SEC’s argument, however, we do not dispense with 

the causation analysis in its entirety in the context of fiduciary duties. 

See id. (plaintiff must show that defendant’s breach was a “substantial 

factor” contributing to her injury); Evvtex Co. v. Hartley Cooper Assocs. 

Ltd., 102 F.3d 1327, 1334 (2d Cir. 1996) (finding no error where district 

court’s finding of causation was “implicit”).8 And, in any case, we 

have concluded that Rashid did not breach his fiduciary duties to the 

funds, so no loosened analysis would be warranted here. 

In sum, we conclude that Apollo’s intervening actions in 

overbilling the funds were not reasonably foreseeable to Rashid, and 

Rashid therefore did not proximately cause the funds’ harm. 

8 In ABKCO Music, Inc. v. Harrisongs Music, Ltd., 722 F.2d 988 (2d Cir. 1983), we 

concluded that “the district judge was not required to find a ‘but for’ relationship 

between [the defendant’s] conduct and [the plaintiff’s injury]” where the 

defendant breached its fiduciary duty to the plaintiff. Id. at 996. Subsequently, in 

Evvtex, however, we clarified that the district court in ABKCO Music had “made 

an implicit finding of causation” and that “the broadest reading of the ABKCO 

Music holding would likely be limited to the unique facts of that case,” which 

“involved a conflict of interest and breach of fiduciary duty by use of confidential 

information.” Evvtex, 102 F.3d at 1334 & n.9. 
No. 20-4080-cv

19

* * *

We recognize that Rashid committed serious, and almost 

certainly criminal, misdeeds by improperly seeking reimbursement 

for personal expenses. But we must not confuse the fraud Rashid 

committed against his employer with fraud committed against the 

funds. Indeed, § 206(2) of the Investment Adviser Act is limited to a 

“transaction, practice, or course of business which operates as a fraud 

or deceit upon any client or prospective client.” 15 U.S.C. § 80b-6(2) 

(emphasis added). Section 206(2) of the Investment Adviser Act, 

while broad in its reach, was not intended as a catchall provision to 

penalize all acts of wrongdoing, untethered to the ordinary 

negligence principles that apply under that provision. 

CONCLUSION

For the foregoing reasons, we REVERSE the judgment of the 

district court. 
SEC v. Rashid,

No. 20-4080

1 KEARSE, Circuit Judge, dissenting:

2 Defendant Mohammed Ali Rashid was an "investment adviser" to

3 several private equity funds managed by his employer Apollo Management L.P.

4 ("Apollo"); as such, he was a fiduciary to the funds he managed. He does not

5 challenge on appeal the factual findings of the district court that, inter alia (see

6 Appendix hereto), for years he "intentionally submitted false expense reports for the

7 purpose of obtaining reimbursement for his personal expenses," SEC v. Rashid, 17-cv8 8223, 2020 WL 5658665, *2 (S.D.N.Y. Sept. 23, 2020) ("D.Ct. Op."). With all due respect

9 to the majority, I dissent from its rulings that, inter alia, "it was not reasonably

10 foreseeable to Rashid that the funds [managed by him] would pay for his [personal]

11 expenses [that he falsely claimed to be business expenses]" (Majority opinion ante

12 at 3), and that "Rashid did not breach his duty of care" (id.) or "his fiduciary duties to

13 the funds" (id. at 19).

14 Section 206 of the Investment Advisers Act ("Advisers Act" or "Act") not

15 only prohibits investment advisers from intentionally defrauding clients, see 15 U.S.C.

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1 § 80b-6(1), but also prohibits them from "directly or indirectly . . . engag[ing] in any

2 transaction, practice, or course of business which operates as a fraud or deceit upon any

3 client," id. § 80b-6(2) (emphasis added). A "fundamental purpose" of the Act was "to

4 achieve a high standard of business ethics in the securities industry," SEC v. Capital

5 Gains Research Bureau Inc., 375 U.S. 180, 186 (1963); and Congress's prohibition against

6 conduct that "operates as" a fraud is "not" limited to fraud "'technically,' as it has

7 traditionally been applied in damage suits between parties to arm's-length

8 transactions involving land and ordinary chattels," id. at 195. Instead, § 206

9 "regulat[es] the special fiduciary relationship between an investment adviser and his

10 client," and "it is quite clear that the [§ 206(2)] language," i.e., "'any . . . practice . . .

11 which operates . . . as a fraud or deceit,' . . . focuses not on the intent of the investment

12 adviser, but rather on the effect of a particular practice." Aaron v. SEC, 446 U.S. 680,

13 694 (1980) (emphasis in Aaron). Section "206 establishes federal fiduciary standards

14 to govern the conduct of investment advisers." Transamerica Mortgage Advisors, Inc.

15 (TAMA) v. Lewis, 444 U.S. 11, 17 (1979).

16 "A fiduciary relationship creates the highest duty of loyalty known to the

17 law." Restatement (Third) of Torts: Liability for Economic Harm § 16 comment a (2020). 

18 A fiduciary who "has benefited improperly by engaging in self-dealing, deception, or

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1 other disloyal conduct" has engaged in "conduct inconsistent with the fiduciary duty."

2 Id. § 16 comment c.

3 The Advisers Act, consistent with these exacting standards, imposes on

4 investment advisers not only "an affirmative obligation to employ reasonable care to

5 avoid misleading his clients," but also "an affirmative duty of utmost good faith." Capital

6 Gains, 375 U.S. at 194 (internal quotation marks and footnote omitted) (emphases

7 mine). An investment adviser "owe[s] a duty of uncompromising fidelity and

8 undivided loyalty to the Funds' shareholders." Operating Local 649 Annuity Trust Fund

9 v. Smith Barney Fund Management LLC, 595 F.3d 86, 93 (2d Cir. 2010) (internal

10 quotation marks omitted). Section 206(2), in prohibiting conduct that "operates as"

11 a fraud or deceit, reflects Congress's intent to eliminate "conflicts of interest" between

12 an investment adviser and his clients. Capital Gains, 375 U.S. at 191. And in

13 "focus[ing] not on the intent of the investment adviser, but rather on the effect of a

14 particular practice," Aaron, 446 U.S. at 694 (emphasis added), and thus prohibiting any

15 transaction that "functions or otherwise results in a fraud," the Act makes investment

16 advisers "liable [for] negligent acts," SEC v. DiBella, 587 F.3d 553, 569 (2d Cir. 2009).

17 In the present case, the district court concluded that Rashid could not be

18 held liable for intentional fraud under § 206(1) of the Act, despite his deliberate and

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1 knowing submission of false expense reimbursement requests, because Apollo's

2 "expense allocation and reimbursement process" had not been explained in its written

3 guidance to employees, D.Ct. Op., 2020 WL 5658665, at *21. To be clear, this did not

4 mean that the court "determined that Rashid did not intend to defraud the funds"

5 (Majority opinion at 9 (emphasis added)); rather the court determined that

6 the SEC failed to prove by a preponderance of the evidence that Rashid

7 acted with the scienter required of section 206(1) in employing a

8 device, scheme or artifice to defraud a fund. To be clear, the

9 record amply demonstrates that Rashid intentionally submitted

10 false expense reports for the purpose of obtaining reimbursement

11 for his personal expenses. But the SEC failed to prove that Rashid

12 had actual knowledge that the funds paid his expenses, or that his

13 recklessness was of a nature that satisfies the scienter required

14 under the federal securities laws, 

15 D.Ct. Op., 2020 WL 5658665, at *2 (emphases added).

16 The court rejected, as "not credi[ble]," Rashid's testimony that at the times

17 he submitted his false expense-reimbursement requests, it was his understanding that

18 the expenses would be "paid by an Apollo management company," id. at *22, i.e., a

19 company owned and operated by Apollo that was distinct from the fund managed,

20 id. at *6. The court found that this testimony was "an after-the-fact construct to avoid

21 liability under the securities laws." Id. at *22. It found that Rashid had made no effort

22 to determine whether or not his client funds were being billed for his falsely claimed

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1 expenses, noting that "[w]hen asked whether he took any steps to ensure that his

2 personal expenses were not being billed to individual private equity funds," Rashid

3 testified, "'I don't believe I did.'" Id. at *6 (quoting Trial Transcript 933 (emphasis

4 mine)). The court found that "Rashid was recklessly indifferent concerning who

5 would pay his phony business expenses as long as it was not him." Id. at *22.

6 I disagree with the majority's view that Rashid's lack of actual knowledge

7 that Apollo would bill his expenses to his client funds was excusable because other

8 Apollo fund managers, with respect to their respective clients and management

9 companies, also lacked such knowledge. Those other managers were not similar to

10 Rashid. While they too were fiduciaries with respect to their client funds, they were

11 not comparable to Rashid because their personal interests did not conflict with the

12 interests of their clients: The other managers were not seeking reimbursement for

13 their personal trips, meals, gifts, and hairstyling, etc., disguised as business expenses

14 on behalf of their clients.

15 Rashid knew that he was submitting fraudulent requests for

16 reimbursement of his personal expenses. He had a fiduciary obligation to his client

17 funds to attempt to avoid having those personal expenses passed on to his client. His

18 own testimony supported the finding that he had made no such effort.

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1 The district court, applying principles of negligence, found that, despite

2 the absence of disclosures in written instructions from Apollo, it was reasonably

3 foreseeable to Rashid that the funds he managed would be billed for the personal

4 expenses he claimed were business expenses. Unlike the majority, I see no error in

5 this finding. The expense report forms that Apollo required fund managers to use

6 instructed that the entities on whose behalf the claimed expenses had been incurred

7 were to be identified, using codes that were provided. There were "over 3,500

8 investment codes, [most] of which corresponded to specific portfolio companies and

9 projects in which the funds were invested," with some "correspond[ing] to specific

10 funds." (Majority opinion ante at 5 (emphasis added).) But while the Apollo limited

11 partnership agreements creating the funds provided that administrative expenses of

12 monitoring the funds were to be borne by Apollo, the majority opinion correctly notes

13 that "none of the [expense report form] codes corresponded to the Apollo-affiliated

14 management companies that managed those funds" (id. (emphasis added)).

15 Rashid, in submitting these forms and requesting reimbursement,

16 entered the codes for funds he managed or for portfolio companies in which those

17 funds were invested. The funds identified by Rashid were the entities to which

18 Apollo billed Rashid's claimed expenses. The district court found that Rashid's

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1 testimony that he believed his fraudulent expense requests would be borne by Apollo

2 was not credible. See D.Ct. Op., 2020 WL 5658665, at *22. It found that Rashid

3 "[r]epeatedly . . . caused or acquiesced in the entry of internal project codes

4 corresponding to a portfolio company in which a fund held a large equity position,

5 and, thus, it was reasonably foreseeable to him that these phony business expenses

6 would be charged to a fund." D.Ct. Op., 2020 WL 5658665, at *3. I cannot concur in

7 the majority's view that the district court erred in concluding that Rashid--who as a

8 fiduciary had both "an affirmative duty of utmost good faith" and "an affirmative

9 obligation to employ reasonable care to avoid misleading his clients," Capital Gains,

10 375 U.S. at 194 (internal quotation marks and footnote omitted), and who sought

11 reimbursement using Apollo-mandated forms that did not provide for attribution of

12 an expense to a management company but instead required identification of the

13 funds on whose behalf the expense was supposedly incurred--could reasonably

14 foresee that the expenses he claimed would be billed to the funds he specified.

15 Principally because of that sustainable finding of foreseeability, I also

16 disagree with the majority's ruling that Rashid's submission of fraudulent expense

17 claims was not a proximate cause of his clients' being billed for those expenses, on the

18 premise that Apollo's billing the clients constituted an "intervening" act (Majority

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1 opinion at 15-16, 19). See generally Restatement (Second) of Torts § 442A (1965) ("Where

2 the negligent conduct of the actor creates or increases the foreseeable risk of harm

3 through the intervention of another force, and is a substantial factor in causing the

4 harm, such intervention is not a superseding cause." (emphases added)); see also

5 Woodling v. Garrett Corp., 813 F.2d 543, 555 (2d Cir. 1987) ("If the intervening act was

6 foreseeable, it does not excuse the original actor that the intervening act was reckless,

7 . . . or intentional, . . . or even intentional and criminal . . . ." (internal quotation marks

8 omitted)).

9 Moreover, the original tort by Rashid was not his negligence in failing

10 to ensure that his clients were not paying for his personal expenses but rather his

11 deliberate fraud in seeking reimbursement for those expenses. While Rashid did not

12 care who would pay for those expenses, given (a) that he had identified the funds he

13 fraudulently linked to those expenses, (b) that the expense forms did not provide

14 codes for him to link the expenses to a management company, and (c) that his claimed

15 belief that those expenses would be paid by an Apollo management company was not

16 credible, the court did not clearly err in finding that Rashid had reason to expect that

17 the expenses he claimed would be billed to and paid by the funds he identified. Nor

18 did the court err in finding that "[t]he funds had every reason to believe that the

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1 expenses tendered to them as business expenses were legitimate business expenses,

2 but they were, in fact, personal expenses of Rashid." D.Ct. Op., 2020 WL 5658665,

3 at *23. In these circumstances, even if Rashid had not been a fiduciary, the

4 supposedly "intervening" acts of Apollo would not spare him from liability. See

5 generally Restatement (Second) of Torts § 533 (1977) ("The maker of a fraudulent

6 misrepresentation is subject to liability for pecuniary loss to another who acts in

7 justifiable reliance upon it if the misrepresentation, although not made directly to the other,

8 is made to a third person and the maker . . . has reason to expect that its terms will be

9 repeated or its substance communicated to the other, and that it will influence his

10 conduct in the transaction or type of transaction involved." (emphases added)).

11 In sum, the district court found that Rashid--a fiduciary to his client

12 funds--engaged in a long-running practice of knowingly and falsely submitting

13 personal expenses as business expenses, and that "Rashid's behavior was egregious,

14 reckless, and recurrent," D.Ct. Op., 2020 WL 5658665, at *27. These findings and

15 others (see, e.g., attached Appendix) were amply supported by the record, and they

16 are not challenged on appeal. Rashid deliberately sought to defraud someone into

17 paying for his personal expenses. On the requisite expense forms, no code was

18 provided for him to associate expenses with a management company; he provided

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1 the codes for the client funds he fraudulently linked to those expenses; those funds

2 were billed, and they paid. Despite his fiduciary obligation to avoid conflicts of

3 interest with his client funds, he made no effort to find out whether his personal

4 expenses were being billed to the clients he identified. Rashid self-identified 988

5 claims that he had submitted for his personal expenses, falsely represented as

6 business expenses for his client funds, totaling $220,796.87. See id. at *19.

7 I dissent from the majority's ruling that the district court erred in

8 concluding that Rashid's conduct "operated as a fraud," on his clients.

9 APPENDIX

10 The district court's findings of fact, see D.Ct. Op., 2020 WL 5658665,

11 at *1-*2, *20-*24--none of which is claimed to be erroneous--included the following:

12 # Rashid intentionally submitted false expense reports that "contained

13 a pattern of lies," id. at *20, *23;

14 # his claim of "false and fraudulent business expenses" was commonly

15 accompanied by "fabricated factual assertions," including "fabricated

16 attendees and business purposes for expensive restaurant dinners," id.

17 at *20;

18 # the "consistency and precision" of Rashid's fabrications--and the trial

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1 evidence from the purported attendees demonstrating the falsity of his

2 submitted details--constituted "strong evidence of his intent to lie, and

3 to intentionally submit personal expenses as business expenses," id.;

4 # that pattern of fabrications "negate[d Rashid's] claims of innocent

5 mistakes," id.;

6 # Rashid's claim that he believed business expenses would be borne not

7 by the investment funds but instead by Apollo was not credible and was

8 "an after-the-fact construct to avoid liability under the securities laws,"

9 id. at *22;

10 # it was reasonably foreseeable to Rashid that his advisee funds--whose

11 codes he caused to be entered into the expense spreadsheet--would be

12 responsible for the reimbursement of those charges, see id. at *23;

13 # as an Apollo senior partner, he had the position and ability to find out

14 whether his expenses were being paid by his advisee funds and to

15 prevent that, see id.;

16 # instead, Rashid exhibited a "wholesale lack of diligence and due care"

17 and was "reckless[ly] indifferen[t] to the source of his reimbursements,"

18 id. at *19, *24;

19 # "if he was not recklessly indifferent, he was at least negligent in failing

20 to protect the funds from the consequences of his thefts which were

21 reasonably foreseeable to him," id. at 23;

22 # Rashid did not inquire whether the entities he identified would be

23 billed, because he did not care "who would pay his phony business

24 expenses as long as it was not him," id. at *22;

25 # Rashid "engaged in a long-running practice of knowingly and falsely

26 submitting personal expenses as business expenses and that practice

27 operated as a fraud or deceit upon private-equity funds he advised," id.

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1 at *23;

2 # Rashid's "repeatedly lying over the course of several years"--which

3 "continued even after being caught"--"was egregious," id. at *27;

4 # Eventually, Rashid "voluntarily repaid all expenses that Apollo

5 identified to be personal in nature, totaling approximately $290,000," id.

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