20 - 4080 - cv SEC v. Rashid 

## In the **United States Court of Appeals For the Second Circuit** 

________ A UGUST T ERM 2021 A RGUED : J ANUARY 19, 2022 D ECIDED : M ARCH 13 , 202 4 No. 20

- 4080

- cv S ECURITIES AND E XCHANGE C OMMISSION , Plaintiff

- Appellee , v. M OHAMMED A LI R ASHID , Defendant

- Appellant

.

________ Appeal from the United States District Court for the Southern District of New York.

________ Before: K EARSE , W ALKER , AND S ULLIVAN , 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 heNo. 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 expense s. Because it was not reasonably foreseeable to Rashid that the funds would pay for his expense s, 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.

________ W ILLIAM K. S HIREY , Counsel to the Solicitor, (Michael A. Conley, Acting General Counsel, on the brief ), Securities and Exchange Commission, Washington, DC , for Plaintiff

- Appellee

. C AITLIN J. H ALLIGAN , 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 Defendant

Appellant

.

________ J OHN M. W ALKER , J R . , 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 firmNo. 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 expense s. 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 expense s, 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 Background 1 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

4 Mohamm e d 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 gene ral partner, which delegated its authority to a distinct Apollo

affiliated management company. A limited partnership agreement governed the allocation of expenses between each fund and the corresponding management company. These limited partnership agree ments 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

5 into a PeopleSoft spreadsheet the type of expense ( e.g. , “ h otel & l odging”), a description of the expense ( e.g. , “ d inner 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 “investm ent 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 spe cific 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

6 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 e xpense. 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

- spe cific 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 report s submitted outside of that period as it relates to Rashid’s state of mind within the limitations period.No. 20

- 4080

- cv

7 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 r eported 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 frau dulently 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 acceleratedNo. 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 compan ies , 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

9 (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 inv estment 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 finding s , 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 * 2 3 (quoting Setzer v. Omega Healthcare Invs., Inc. , 968 F.3d 204, 21 4 (2d Cir. 2020) ), but foundNo. 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 injunct ion. 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 * 2 4
.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 reasonabl y 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) o f 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 negligent ly 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 ha rm. 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 theNo. 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” f rom 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 th e 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 th at a reasonable person in Rashid’s shoes would not have known that the funds would pay for his claimed expenses.No. 20

- 4080

- cv

13 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 CFO s and an employee who held the same title as Rashid

— believed that Apollo, and not the funds, would pay for expenses incurr ed 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 discover ed 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 d id 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 submitt ing falseNo. 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 agreement s , 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 pote ntial 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 imposi ng 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 impose s only a duty of reasonable care on fiduciaries such as Rashid , even when thoseNo. 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) o f 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 Caus e 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. W e agree ; just as reasonable foreseeability bears on the question of Rashid’s duty of care, it also affects our calculus as to proximate cause. A s 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 CFO s 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 acc ounts 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 wa s to ensure that the funds were not being overcharged, didNo. 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 port folio 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 wor ked. 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 al located 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 determ inative 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 Apollo

affiliated management companies that were responsible for the administrative expenses claimed by Rashid. Thus, even if theNo. 20

- 4080

- cv

17 investment codes used by Rashid identified a particular fund or a portfolio company or project associated with a particular fund, the re i s no evidenc e that these investment codes d istin guished between expenses chargeable to the fund

- specific Apollo management compan ies and those chargeable to the funds themselves. Accordingly, it would not have been reasonabl y 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. Th e 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 agreement s usually govern expense allocation and that he would “defer first” to such agree ments 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.”). Th is position is internally inconsistent and also purports to treat Rashid differently based on hi s subjective ignorance of Apollo’s specific expense

- allocation practices. If, as the SEC argues, a reasonably prudent adviser in Rashid’s position would haveNo. 20

- 4080

- cv

18 consulted the fund partnership agreements to determine whether the funds would be charged for his claimed expense s , i t 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 dut ies 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 dut ies. 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 E v vtex , 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 con fuse 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 provisi on. 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 R ashid was an "investment adviser" t o 3 several private e quity funds managed by his employer Apollo Management L
. P.
4 ( "Apollo"); as such, he was a fiduci ary to the funds he managed. He does not
5 c hallenge o n appeal the factual findings of th e di strict court that, inter alia ( see 6 A ppe nd i x he r e t o ) , f o r y e a r s he " i n t e n t i o n a l l y s u b m i t t e d f a l s e e x p e n s e r e p o r t s f o r t he
7 p u r p o s e o f

o b t a i n i n gr e i mb u r s e m e n t f o r h i s p e r s o n a l e x p e n s e s , " S E C v . R a s h i d , 1 7

- c v 8 8 2 2 3 , 2 0 2 0 W L 5 6 5 8 6 6 5 , * 2 ( S
. D
. N
. Y
. S e p t
. 2 3 , 2 0 2 0 ) ( " D
. C t
. O p . " )
. W i t h a l ld u e r e s p e c t 9 t o the majority , I dissent from its rulings that, inter alia , " it was not reasonably
10 f o r e s e e ab l e t o R a shi d t ha tt he f u nd s [ ma n a g e d b y hi m] w o u l d pa y f o r hi s [ pe r so n a l ]
11 e xp en ses [that he falsely claimed to be business e x penses]" (Majority opinion ante
12 a t

3 ) , a n d th a t " R a s h i d d i d n o t b r e a c hh i s d u ty o f

c a r e " ( i d

. ) o r " h i s f i d u c i a r y d u t i e s t o 13 t he funds" ( id . at 19).
14 S e c t i o n 2 0 6 o f t h e I n v e s t m e n t

A d v i s e r s A c t

( " A d v i s e r s A c t " o r " A c t " ) n o t 15 o n l yp r o h i

b i t s i n v e s t m e n t

a d v i s e r s f r o m i n t e n t i o n a l l yd e fr a u d i n g c l i e n t s , s e e

1 5 U
. S
. C
.

- 1

-1 § 80b-6(1), b u ta l s o pr o hi bits them from "directly or indirectly . . . engag[ing] in any
2 t r a nsa c t i o n, pr a c t i c e , o r c o u r se o f b u s i ne ss w hi c h o p e r a t e s a s a f r a u d o rd e c e i t u p o n a n y 3 c l i e n t, " i d

. § 8 0 b

- 6 ( 2 ) ( e m pha si s a d d e d )
. A " f u nd a me nt a l pu r po s e " o f t he A c tw a s " t o 4 a chieve a high standard of business ethics in the securities industry," S EC v. Capital
5 G a i n s R e s e a r c h B u re a u I n c . , 3 7 5 U
. S
. 1 8 0 , 1 8 6 ( 1 9 6 3 ) ; a n d C o n g r e s s ' s p r o h i b i t i o n a g a i n s t 6 c onduct t hat "operates as" a fraud is "not" limited to fraud "'technic a l l y , ' as it has
7 t raditionally been app l ied in damage suits between parties to a rm's-length
8 t ransactions involving land and ordinary chattels," id

. at 195. Instead, § 206
9 " r e g u l a t [ e s ] th e s p e c i a l f i d u c i a r y r e l a t i o n s h i p b e t w e e na ni n v e s t m e n t a d v i s e r a n d h i s 10 c lient," and " it i s quite clear that the [§ 206(2)] language," i.e. , "'any
. . . practice
. . . 11 w h i c h o p e r a t e s . . . a s a f r a u d o r d e c e i t , '
. . . f o c u s e s n o t

o n t h e i n t e n t o f t h e i n v e s t m e n t
12 a d v iser, but rather on the effect of a particular pr a c t i c e . " A a r o n v . S E C , 4 4 6 U
. S
. 6 8 0 , 13 6 94 (1980) (emphasis in Aaron ). Section "206 e st a b l i she s f e d e r a l f i d uciary standards
14 t o govern the conduct of investment advisers." Transamerica Mortgage Advis o rs, Inc.
15 ( TAMA) v. Lewis , 444 U.S. 11, 17 (1979).
16 " A f i d u c i a r yr e l a t i o n s h i p c r e a t e s t h e h i g h e s t d u t yo f l o y a l t y k n o w n t o t h e 17 l a w . " R e s t a t e m e n t ( T h i r d ) o f T o r t s : L i a b i l i ty f

o r Economic Harm § 16 comme nt a ( 2 0 2 0 )
. 18 Afi d u c i a r yw h o " h a s b e n e fi t e d i m p r o p e r l y b ye n g a g i n g i n s e l f

- d e a l i n g , d e c e p t i o n

, o r

- 2

-1 o t

h e r d i s l o y a l c o n d u c t " h a s e n g a g e d i n " c o n d u c t

i n c o n s i s t e n t w i t

h t h e f i d u c i a ryd u t

y . "
2 I d . § 16 comment c . 3 T he A d v i se r s A c t , c o n s i s t e n t

w i thth e s e e x a c t i n gs t a n d a r d s , i mpo se s o n 4 i nvestment advisers not only "an affirmative obligation t o employ reasonable care t o 5 a v o i d mi sl e a d i nghi s c l i e nt s, " b u ta l so " a n a f f i r m a t i v e d u t

yo f u t m o s tg o o d f

a i t h

. " C a p i t a l
6 G ains , 375 U.S. at 1 9 4 ( i nternal quotation marks and f ootnote omitted) (emphases
7 mine). An investment adviser "owe[s] a duty of uncompromising fidelity and
8 u n d i v i d e d l o y a l t yt o t h e F u n d s ' s h a r e h o l d e r s . " O p e ra t i ng L o c a l 6 4 9 A n n u i t

y T r u s t F u n d
9 v . Smith Barney Fund M anagement LLC , 595 F.3d 86, 93 (2d Cir. 201 0 ) ( i ntern al
10 quotation marks o m i tted ). S ection 2 06(2), in prohibiting conduct that "operates as"
11 af r a u d o rd e c e i t , r e fl e c t s C o n g r e s s ' s i n t e n t t o e l i m i n a t e " c o n f l i c t s o f i n t e r e s t " b e t w e e n 12 a n investment adviser a nd h i s c l i ents. Capital Gains , 3 75 U.S. at 191. A nd in
13 " focus[in g ] n ot on the intent of the investment adviser, but rather on the effect of a 14 p a r t i cu l a r

p r a c t i c e , " A a r o n , 4 4 6 U
. S
. a t 6 9 4( e m p h a s i s a d d e d ) , a n d t h u s p r o h i b i ti n g a ny 15 t r a n s a c t i o n

t h a t " f u n c t i o n s o r o th e r w i s e r e s u l t s i na f r a u d , " t h e A c t m a k e s i n v e s t m e n t 16 a dvisers "liable [for] negligent acts," SEC v. DiBella , 587 F.3d 553, 569 (2d Cir. 2009).
17 I n t h e p r e s e n t

c a s e , t h e d i s t r i c t

c o u r t c o n c l u d e d th a t

R a s h i d c o u l d n o t

b e 18 held liable f o r i nt e nt i o na l f r a u d u nd e r § 2 0 6 ( 1 ) o f t he A c t , d e spite his deliberate and

- 3

-1 kn o w i ng submission o f false expense reimbursement r equests, because Apollo's
2 " e x p e n s e a l l o c a ti o n a n d r e i m b u r s e m e n t

p r o c e s s " h a d n o t

b e e n e x p l a i n e d i n

i t s w r i t t e n 3 g u i d a nc e t o e m p l o y e e s , D
. C t
. O p . , 2 0 2 0 W L 5 6 5 8 6 6 5 , a t* 2 1
. T o b e c l e a r , t hi s d i d no t
4 mean that t he court " d etermined that Rashid did no t 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 p reponderance of the evidence t hat R ashid 7 acted with the scienter required of section 206(1) in emp l oy i ng a 8 device, scheme or a rtifice to defraud a fund. To b e clear, the 9 record a m p l y demonstrates that Rashid i ntentionally submitted 10 f a l s e e x p e n s e r e p o r t s f o rt h e p u r p o s e o f

o b t a i n i n gr e i mb u r s e m e n t 11 for his personal expenses. But the SEC failed t o prove that Rashid 12 had ac t ua l knowledge that the funds paid his expenses, or that his 13 recklessness was o f a nature that satisfies th e s c i enter required 14 under the federal securities laws,
15 D .Ct. Op., 2020 WL 5658665, at *2 (emphases added).
16 Th e c o u r t r e j e c t e d , a s " n o t

c r e d i [ b l e ] , " R a s hi d ' s t e s ti m o n y t h a t a t t h e t i m e s 17 h e s u

b m i t t e d h i s f a l s e e x p e n s e - r e i m b u r s e m e n t

r e q u e s t s , i t w a s h i s u n d e r s t a n d i n g t h a t 18 t he expenses would be " paid by an Apollo ma n a g em ent company," id

. at *22, i.e. , a 1 9 c o mpa ny o w ne d a nd o pe r a t e d by Apollo that was distinct from the fund managed,
20 i d

. a t

* 6
. T h e c o u r t

f o u n d th a t

th i s t e s t i m o n yw a s " a n a ft e r - t h e - f a c t c o n s t r u c t

t o a v o i d
21 l i a

b i l i t yu n d e r t h e s e c u r i t i e s l a w s . " I

d

. a t * 2 2
. I t

f o u n d t h a t R a s h i d h a d m a d e n o e f f o r t
22 t o d e t e r m i n e w h e th e r o rn o t h i s c l i e n t

f u n d s w e r e b e i n gb i l l e d f o r h i s f a l s e l y c l a i m e d

- 4

-1 e xpenses, noting that "[w]hen asked whether he took any steps t o ensure that his
2 p e r sonal expenses were not beingb i l l e d t o i nd i v i d u a l pr i v a t e e qu i t y f u nd s, " R a shi d
3 t estified, "'I don't believe I d i d

. '" I d

. at *6 (quoting Trial T ranscript 933 (emphasis
4 mine)). The c ourt found that "Rash i d w a s recklessly i ndifferent concerning who
5 w ould pay his phony business expenses as long as it was not him." Id

. at *22.
6 Id i s a g r e e w i t h t h e m a j o r i t y ' s v i e w t h a t R a s h i d ' s l a c k

o f a c t u a lk n o w l e d g e 7 t hat A pollo would bill his expenses to his client funds was excusable because other
8 A pollo fund managers , w i th respect t o their r espective clients a nd management 9 c o mpa ni e s, a l so lacked such knowledge. Those other managers were not simi l a r t o 10 R a s h i d

. W h i l e t he y t o o w e r e f i d u c i a r i e s w i th r e spe c t t o t he i r c l i e n t f

u n d s , th e y w e r e 11 not comparable to Rashid bec ause their personal interests did not conflict with the
12 i nterests of their clients: T he other managers were not seeking r eimbursement for
13 t h e i r p e r s o n a l t r i p s , m e a l s , g i f t s , a n d h a i r s ty l i n g , e t c . , d i s g u i s e d a s b u s i n e s s e x p e n s e s 14 o n behalf of their clients.
15 Rashid knew that he was submitting fraudulent requests for
16 r e i mb ursement of his personal expenses. He ha d a f i d u c i a r y o b l i g a t i o n t o hi s c l i e nt 17 f u n d s t o a t t e m p t

t o a v o i d h a v i n g

t h o s e p e r s o n a l e x p e n s e s p a s s e d o n t o h i s c l i e n t
. H i s 18 o wn testimony supported the finding that he had made no such effort.

- 5

-1 T h e d i s t r i c t c o u r t , a p p l y i n gp r i n c i p l e s o f n e g l i g e n c e , f o u n d th a t

, d e s p i t e 2 t he absence of disclosures in written ins truc ti o ns from A pollo, it w as reasonably
3 f oreseeable to Rashid that th e f un d s h e managed would b e billed for the personal
4 e xpenses he c laimed were b us i n es s e xpenses. Unlike t he majority, I see no error in
5 th i s finding. T he expense report forms that A pollo required fund managers to us e 6 i nst r u c t e d t ha tt he entiti e s o n w ho s e b e h a l f t he c l a i me d e x pe nse s ha d b e e n i nc u r r e d
7 w ere t o b e identified, using codes that w ere provided. There were "over 3,500
8 i n v e s t m e n t

c o d e s, [ mo st ] o f

w h i c hc o r r e s p o n d e d t o s p e c i f i c p o r t f o l i o c o m p a n i e s a n d
9 projects in which the funds were inv es ted," w ith some "correspond[ing] to specific
10 f u n d s . " ( M a

j o r i ty o p i n i o n a n t e a t5 ( e mpha si s a d d e d )
. ) B u tw hi l e the A po l l o l i m i t e d
11 p a r tn e r s h i p a g r e e me nt s c r e a t i ngt he f u nd s pr o v i d e d th a t

a d m i n i s t r a t i v e e x p e n s e s o f
12 m o n i t o r i n g t

h e f u n d s w e r e t o b e b o rn e b yA p o l l o , t h e m a j o r i t yo p i n i o n

c o r r e c tl yn o t e s 13 t hat " none of the [ exp e n s e report form] codes corresponded to the Apollo-affiliated
14 m anagement companies that managed those funds " ( id . (emphasis added)).
15 Rashid, in submitting these f orms a nd requesting reimbursement,
16 e ntered the codes for f unds he managed or f or portfoli o companies in which those
17 funds were invested. The funds identified by Rashid were the entities to w h i c h
18 A pollo billed Ra shid's claimed expenses. The district court found that Rashid's

- 6

-1 t e s t i m o nyt h a t h e b e l i e v e d h i s fr a u d u l e n t e x p e n s e r e q

u e s t s w o u l d b e b o rn e b yA p o l l o 2 w as not c red ible. S ee D.Ct. Op., 2020 WL 5658665, at *22. It found that Rashid
3 " [r]ep ea ted ly

. . . c aused or acquiesced in the entry of internal project codes
4 c orresponding to a portfolio company in which a fund held a large equity position,
5 a nd, t hus, it wa s rea s o n ably foreseeable to him that these phony business expenses 6 w ould be charged to a fund." D.Ct. Op. , 2 0 2 0 W L 5 6 5 8 6 6 5 , a t* 3
. I c a n no tc o nc u r in
7 t he majority's view that the distri c tc o u r t e r r e d i n c o ncluding that Rashid--who as a
8 f iduciary had both "an affirmative duty o f utm o st good faith" and "an affirmative
9 o bligation to e mploy reasonable care to avoid misleading his clients," Capital Gains , 10 3 75 U.S. at 194 (internal quotation marks and footnote omitted), and who sought
1 1 r e i mb u r s e m e n t u s i n gA p o l l o - m a n d a t e d f o r m s th a t d i d n o t p r o v i d e f o r a t t r i b u t i o no f
12 a n expense to a management c o m p a n y but instead r equired identification of the
13 f unds on w hose behalf the expens e was supposedly incurred--could reasonably
14 f oresee that the expenses he claimed would be billed to the funds he specified.
15 Prin c ip a l l y because of that sustainable finding of foreseeability, I also
16 di s a g ree with the majority's ruling that R ashid's submission of f raudulent e xpense 17 c l a i m s w a s n o t

ap r o x i m a t e c a u s e o f

h i s c l i e n t s ' b e i n g b i l l e d f o r t h o s e e x p e n s e s , o n

t h e 18 premise that Apollo's billin g th e clients constituted a n "intervening" act (Majority

- 7

-1 o p i n i o n a t 1 5

- 1 6 , 1 9 )
. S e e g e n e r a l l y R e s t a t e m e n t( S e c o n d ) o f T o r t s § 4 4 2 A ( 1 9 6 5 ) ( " W h e r e 2 t he negligent conduct o f the actor creates or i ncreases the foreseeable risk of harm
3 t hrough the i n terv ention of another force, and is a substantial factor in causing the
4 harm, such intervention i s not a superseding cause." ( emphases added)); see also
5 W

o o d l i n gv . G a r r e t t C o r

p . , 8 1 3 F
. 2 d 543, 555 (2d Ci r . 1 9 8 7 ) ( " I f t he i nt e r v e ni nga c tw a s 6 f o r e s e e ab l e , i t

d o e s n o t e x c u s e th e o r i g i n a l a c t o rt h a t t h e i n t e r v e n i n g

a c t w a s r e c k l e s s , 7
. . . o r i n t e n t i o n a l, . . . o re v e n i n t e n t i o n a l a n d c r i m i n a l

. . . . " ( i n t e r n a l q u o t a t i o nm a r k s 8 o mitted)).
9 Moreover, the original tort by Rash i d w a s not his negligence in failing
10 t o ensure that his clients were not paying f or his personal expenses but rather his
11 d e l ib e r a t e f r a u d i n s e e k i n gr e i mb u r s e m e n t f o rth o s e e x p e n s e s . W h i l e R a s h i d d i d n o t 12 c a r e w h o w o u l d p a y f o r th o s e e x p e n s e s , g i v e n( a ) th a t h e h a d i d e n t i f i e d th e f

u n d s h e 13 f raudulently linked to those exp enses, (b) that the e xpense forms did not provide
14 c o d e s f o r

h i mt o l i nk

t h e e x p e n s e s t o am a n a g e m e n t c o m p a ny

, a n d ( c ) t h a t h i s c l a i m e d
15 b e l i e f t

h a t t h o s e e x p e n s e s w o u l d b e p a i d b y a n A p o l l o m a n a g e m e n t

c o m p a nyw a s n o t 16 c r e d ib l e , t

h e c o u r t d i d n o t c l e a r l y e r r i nf i n d i n g

th a t R a s h i d h a d r e a s o nt o e x p e c t th a t 17 t h e e x p e n s e s h e c l a i m e d w o u l d b e b i l l e d t o a n d p a i d b yt h e f u n d s h e i d e n t i f i e d

. N o r 18 d id the court err in f i n d ing that "[t]he funds had every reason to believe that the

- 8

-1 e xpenses tendered to them as b u si ne ss e x p e nse s w e r e l e g i t i ma t e b u si ne ss e x pe nses, 2 b u t they were, in fact, personal expenses of Rashid." D.Ct. Op., 2020 WL 56 5 8665,
3 a t *23. In these circumstances, even i f Ra s h i d had not been a fiduciary, the
4 supposedly "intervening" acts of Apollo would not s p are him from liability. See
5 g enerally Restatement ( Second) of Torts § 533 (1977) (" The maker of a fraudulent
6 m isrepresentation i s subject to liability for pecuniary loss to another who acts in
7 j u s t i f i ab l e r e l i a n c e u p o n i t i f t h em i s r e p r e s e n t a t i o n , a l t h o u g h n o tm a d e d i r e c t l yt o t h e o t h e r , 8 i s made to a third person and the maker

. . . h a s r e a s on to expect that i ts terms will be
9 r epeated or its substance communi c a ted to the other, and t hat it will i nfluence his
10 c onduct in the transaction or type of transaction involved." (emphases added)).
11 In sum, the district court f ound that Rashid--a f iduciary to h is c l i en t 12 f unds--engaged in a long-running p ra ctice of knowingly and falsely submitting
13 p e r so na l e x pe nse s a s b u si ne ss e x pe nse s, a nd t ha t " R a s hi d ' s b e h a v i o r wa s e g r e g i o u s, 14 r eckless, and recurrent," D.Ct. Op., 2020 WL 5 6 5 8 6 6 5 , at *27. These findings and
15 oth ers ( see , e.g. , attached Appendix) were amply supported by t he record, and they
16 a re not challenged o n appeal. Rashid deliberately sought to d efraud someo n e into
17 pa ying for his personal expenses. On the requisite expense forms, no code was 18 provided for him to associate expenses with a mana g em ent company; he provided

- 9

-1 t he c o des for the client funds he fraudulently linked t o those expenses; tho s e f un d s 2 w ere billed, a nd they paid . Des pite his fiduciary obligation t o avoid conflicts o f
3 i nterest with his client funds, he made no effort to f ind out whether his personal
4 e xpenses were b eing billed to the clients he i dentified

. Ra s h i d self-identified 988
5 c laims that he had submitted for his personal e x pens es , f a l s ely represented as 6 b u siness expenses for his client funds, totaling $220,796.87. See id . at *19.
7 I dissent from the majority's ruling t hat t he d istrict court erred in
8 c oncluding that Rashid's conduct "operated as a fraud," on his clients.

9 APPENDIX

10 Th e district court's findings of fact, see D.Ct. Op., 2020 WL 565 86 6 5,
11 a t *1-*2, *20-*24--none of which is claimed to be erroneous--included the following:
12 # R a shi d i ntentionally su b mi t t e d f a l se e x pe nse r e po r t s tha t" c o nt a i ne d 13 a pattern of lies," id . at *20, *23;
14 # hi s c l a i m o f " f a l se a nd f r a u d u l e n t b u s i n e ss e x pe nse s" w a s c o mmo nl y 15 a ccompanied by "fabri c ated f actual a ssertions," including "fabricated 16 a ttendees and business purposes for expensive restaurant di nn ers ," id

. 17 a t *20;
18 # t he " c o nsi st e nc y a nd pr e c i si o n" o f R a s h i d ' s f ab r i c a t i o ns- - a nd t he t r i a l

- 10

-1 e v idence from the pu r po r t e d a t t e nd e e s d e mo nst r a t i ngthe falsity of his 2 submitted d etails--constituted "strong evidence of his intent t o lie, a n d 3 t o intentionally submit personal expenses as business expenses," id .; 4 # that pattern of fabrications " negate[d Rashid's] claims of innocent 5 mistakes," i d .; 6 # R a s h i d ' s c l a i m t h a t h e b e l i e v e d b u s i n e s s e x p e n s e s w o u l d b e b o rn e n o t 7 b yt

h e i n v e s t m e n t

f u n d s b u t i n s t e a d b y

A p o l l o w a s n o t

c r e d i b l e a n d w a s 8 " an after-the-fact construct to a v oid liability under the securities laws," 9 i d . at *22;
10 # i t w a s r e a s o n ab l yf o r e s e e ab l e t o R a s h i d t h a t h i s a d v i s e e f

u n d s - - w h o s e 11 c odes he caused to be entered into the expense spreadsheet--would be 12 r esponsible for the reimbursement of those charges, see id

. at *23;
13 # a s a n

A p o l l o s e n i o rp a r t

n e r , h e h a d t h e p o s i t i o n

a n d a b i l i t yt o f i n d o u t 14 w hether his expenses were being paid by his a dvisee funds and t o 15 prevent that, see id

. ; 16 # i n s t e a d , R a s h i d e x h ib i t e d a " w h o l e s a l e l a c k o f d i l i g e n c e a n d d u e c a r e " 17 a n d w a s " r e c k l e ss[ l y ] i nd i f f e r e n[ t ] t o th e s o u r c e o f h i s r e i mb u r s e m e n t s , " 18 i d . at *19, *24;
19 # " i f h e w a s n o t r e c k l e s s l yi n d i ffe r e n t

, h e w a s a t

l e a s t n e g l i g e n t

i n f a i l i n g 20 t o protec t the funds from the consequences o f his t hefts which were 21 r easonably foreseeable to him," id . at 23;
22 # Rashid did not i n quire whether the entities he i dentified would be 23 b illed, bec ause he d id not care "who would pay his phony business 24 e x penses as long as it was not him," id . at *22;
25 # R a s h i d " e n g a g e d i na l o n g - r u n ni n g p r a c t i c e o f k n o w i n g l y a n d f a l s e l y 26 submitting personal expenses as business expenses a nd th a t practice 27 o p e r a t e d a s a f r a u d o r d e c e i tu po n pr i v a t e - e qu i t y f u nd s he a d v i s e d , " i d

.

- 11

-1 a t *23;
2 # Rashid's "repeatedly lying over the course of several y ears"--whi c h 3 " continued even after being caught"--"was egregious," id

. at *27;
4 # Eventually, Rashid "voluntarily rep aid all expenses that Apollo 5 i d e n t i f i e d t o b e p e r s o n a l i n na t u r e , t o t a l i nga ppr o x i ma t e l y $ 2 9 0 , 0 0 0 , " i d

.

- 12

-