FOR PUBLICATION

UNITED STATES COURT OF APPEALS

FOR THE NINTH CIRCUIT

In the Matter of: ANDREA P. 

SHERMAN; RICHARD G. SHERMAN,

Debtors,

No. 09-55880

RICHARD G. SHERMAN, D.C. No.  Appellant, 2:08-cv-02517-CAS

v. OPINION

SECURITIES AND EXCHANGE

COMMISSION,

Appellee. 

Appeal from the United States District Court

for the Central District of California

Christina A. Snyder, District Judge, Presiding

Argued and Submitted

October 7, 2010—Pasadena, California

Filed September 19, 2011

Before: Raymond C. Fisher and Jay S. Bybee, Circuit

Judges, and Lyle E. Strom, Senior District Judge.*

Opinion by Judge Bybee;

Dissent by Judge Fisher

*The Honorable Lyle E. Strom, Senior District Judge for the U.S. District Court for Nebraska, Omaha, sitting by designation. 

17725
COUNSEL

M. Jonathan Hayes, Law Offices of M. Jonathan Hayes,

Northridge, California, for the appellant.

Hope Hall Augustini, Senior Litigation Counsel, Securities

and Exchange Commission, for the appellee.

OPINION

BYBEE, Circuit Judge:

Ordinarily, an individual’s debts may be discharged in

Chapter 7 bankruptcy under 11 U.S.C. § 727. However, a debt

may not be discharged if it results from a violation of state or

federal securities laws. 11 U.S.C. § 523(a)(19)(A)(i). The

question in this case is whether the exception to discharge in

§ 523(a)(19)1 applies when the debtor himself is not culpable

for the securities violation that caused the debt. The bankruptcy court held that the debt was subject to discharge; the

district court disagreed and held that the debt was excepted

1For purposes of brevity, unless otherwise indicated, references to statutory sections throughout this opinion will refer to sections of the Bankruptcy Code (Title 11). 

17728 IN THE MATTER OF SHERMAN
from discharge in bankruptcy. We agree with the bankruptcy

court that the exception to discharge applies only to those who

have themselves violated the securities laws. We thus reverse

the judgment of the district court.

I

We have previously described the facts in this case, which

we will relate briefly. See In re Sherman (“Sherman I”), 491

F.3d 948, 953-56 (9th Cir. 2007). In 1997, the SEC instituted

an enforcement action against several companies, which,

among other things, led to the court appointment of a receiver.2

See id. at 953-54 & n.3 (citing SEC v. Whitworth Energy Res.

Ltd., 243 F.3d 549 (9th Cir. 2000) (unpublished table decision)). Debtor-Appellant Richard Sherman is an attorney who

represented some of the defendants in this enforcement

action. Id. at 954.

As part of the enforcement action, the receiver ordered

Sherman to disgorge two separate sums of money. Id. First,

he was ordered to disgorge $54,980 that he withdrew from his

clients’ litigation trust account in violation of a freeze order

issued by the district court. Id. This debt is not at issue in this

case. Second, the receiver ordered Sherman to return money

he had received and retained, but had not earned, in a separate

contingency case. Id. at 954-55. The district court calculated

2The receiver was, in relevant part, 

immediately authorized, empowered, and directed . . . to employ

attorneys and others to investigate and, where appropriate, to

defend, institute, pursue, and prosecute all claims and causes of

action of whatever kind and nature which may now or hereafter

exist as a result of the activities of present or past employees or

agents of Whitworth, Williston, Amerivest and their subsidiaries

and affiliates, including but not limited to Insured Energy Drilling Program 1986-4, a limited partnership, et al. v. Trust Company of the West, a California trust company, et al., Case No. BC

108-297, pending in Los Angeles County Superior Court. 

Sherman I, 491 F.3d at 953 n.2 (internal quotation marks omitted). 

IN THE MATTER OF SHERMAN 17729
that he was responsible for disgorging $581,313.43 plus interest. The court held that Sherman lacked any interest in the

money because he was obligated by the California Rules of

Professional Conduct to return the amount by which his

advances exceeded his ultimate fee. Importantly for our purposes, the SEC conceded that Sherman had not been found to

have committed any securities violations on his own. See id.

at 974 n.33 (“[T]he present case involves a debtor who was

not found to have himself violated the securities laws and has

not been alleged to have committed other acts of fraud by the

SEC.”).

Four days before the hearing on the disgorgement motion,

Sherman and his wife filed a petition for Chapter 7 bankruptcy. Id. at 954. The SEC and the receiver responded by filing a motion to dismiss the petition. Id. at 955. The receiver

independently filed a motion seeking a determination by the

court that Sherman’s debts arising from the disgorgement

order should be held nondischargeable under § 523(a)(4) and

(6)3 of the Bankruptcy Code. Id. The bankruptcy court denied

the motion, and the SEC appealed to the district court, which

reversed. Id. at 955-56. While the appeal was pending, the

bankruptcy court granted Sherman a discharge under 11

U.S.C. § 727. Id. at 955. In Sherman I, we addressed a number of standing-related questions4

 and held that Sherman’s

conduct did not constitute “cause” sufficient to warrant dis3Section 523(a)(4) creates an exception to discharge for debts “for fraud

or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” Section 523(a)(6) excepts debts “for willful and malicious injury by

the debtor to another entity or to the property of another entity.” 

4Specifically, we held that because the disgorgement judgment gave the

SEC an enforceable right against Sherman that had not been extinguished

by a settlement agreement, the SEC was considered a creditor with respect

to the disgorgement order and therefore had Article III standing to seek

dismissal of the Shermans’ bankruptcy petition. Sherman I, 491 F.3d at

965. We also held that the bankruptcy court’s entry granting discharge

under § 727 did not moot the appeal because it did not terminate the bankruptcy petition. Id.

17730 IN THE MATTER OF SHERMAN
missal under § 707(a) of the Code, which allows a bankruptcy

court to dismiss petitions filed in bad faith. Id. at 975. We

then mentioned that “the SEC could have filed—and still

could file—a complaint under § 523(a)(7) or (19),” though we

did not explicitly conclude whether the SEC would prevail

under either provision.5Id. at 975 n.39. 

In a subsequent adversary proceeding, the Shermans sought

declaratory relief to establish that their debt to the SEC had

been discharged under § 727 notwithstanding § 523(a)(19)’s

discharge exception. The bankruptcy court granted summary

judgment for the Shermans. It concluded, as a matter of law,

that the SEC’s disgorgement order did not arise from a violation of securities laws. It further ruled that “[s]ection

523(a)(19) was intended to apply to ‘wrongdoers’ and not to

persons who are simply found to owe a debt which the SEC

is authorized to enforce.”

The SEC appealed to the district court, which reversed the

bankruptcy court. The district court adopted a broad interpretation of § 523(a)(19), treating as paramount the SarbanesOxley Act’s goal of “protect[ing] investors by improving

accuracy and reliability of corporate disclosures made pursuant to the securities laws.” It expressed particular concern that

“[r]eading a limitation into the SEC’s ability to enforce its

powers to obtain disgorgement of ill-gotten funds in an appropriate case . . . would frustrate the ability of the SEC to

enforce the federal securities laws.” Sherman appeals.6

5We also noted that the SEC was time-barred from seeking nondischargeability under § 523(a)(2), (4), (6), and (15). Sherman I, 491 F.3d

at 975 n.39. 

6We review de novo a district court’s decision on appeal from a bankruptcy court. Greene v. Savage (In re Greene), 583 F.3d 614, 618 (9th Cir.

2009). We review the bankruptcy court’s conclusions of law de novo, but

defer to its factual findings unless they are clearly erroneous. Id.

IN THE MATTER OF SHERMAN 17731
II

We begin by making it clear that, in this case, the validity

of the disgorgement order against Sherman is not at issue. We

have previously held that a so-called “nominal defendant”

may be ordered to disgorge funds that are traceable to fraud.

See SEC v. Colello, 139 F.3d 674, 676 (9th Cir. 1998)

(“[A]mple authority supports the proposition that the broad

equitable powers of the federal courts can be employed to

recover ill gotten gains for the benefit of the victims of

wrongdoing, whether held by the original wrongdoer or by

one who has received the proceeds after the wrong.”). The

courts can order the disgorgement of proceeds of fraud held

by “nominal defendants” because they “ ‘hold[ ] the subject

matter of the litigation in a subordinate or possessory capacity

as to which there is no dispute.’ ” Id. at 676 (quoting SEC v.

Cherif, 933 F.2d 403, 414 (7th Cir. 1991)). A nominal defendant is “not a real party in interest because ‘he has no legitimate claim to the disputed property.’ ” SEC v. Ross, 504 F.3d

1130, 1141 (9th Cir. 2007) (quoting Colello, 139 F.3d at 676).7

We found that Sherman “was effectively acting as a depository for those funds, as he legitimately obtained them in the

first place but no longer had a valid claim to retain them,” and

thus could be ordered to disgorge “money . . . retained in

excess of his fee for the services rendered in the contingency

suits.” Sherman I, 491 F.3d at 959.

The only question at issue here is whether Sherman’s debt

resulting from the disgorgement order can be discharged

7

In Ross, we carefully distinguished between someone, such as an “employee or vendor,” who “receive[s] compensation in return for services

rendered,” and someone who receives funds as a result of his “own violations of the securities laws.” Ross, 504 F.3d at 1142. Here, as in Ross,

“nothing in the underlying [securities] action establishes that [Sherman]

has violated the securities laws. He was not a party to that action and, so

far as we can tell, had no reason to know that his own activities in connection with [the companies] were in question.” Id. No adverse inference may

be derived from the fact that Sherman is subject to a disgorgement order.

17732 IN THE MATTER OF SHERMAN
under § 727 of the Bankruptcy Code (“Code”), or whether it

falls under the exception to discharge created by § 523(a)(19).

The Code provides, in relevant part, that “[a] discharge under

§ 727 . . . does not discharge an individual from any debt,”

§ 523(a), that is for

(i) the violation of any of the Federal securities laws

(as that term is defined in section 3(a)(47) of the

Securities Exchange Act of 1934), any of the State

securities laws, or any regulation or order issued

under such Federal or State securities laws; or

(ii) common law fraud, deceit, or manipulation in

connection with the purchase or sale of any security

. . .

11 U.S.C. § 523(a)(19)(A). The bankruptcy court, siding with

Sherman, held that a debt cannot be “for” a securities violation when the debtor has not committed such a violation. The

district court, siding with the government, held that

§ 523(a)(19) is not limited to “persons who have been accused

or found guilty of violations of the securities laws.” Although

the question is a close one, we agree with the bankruptcy

court and hold that § 523(a)(19) only prevents the discharge

of a debt for a securities violation when the debtor is responsible for that violation.

A

[1] We begin with the statute. The question is whether a

debt can be “for” one of the violations listed in

§ 523(a)(19)(A) when the debtor has not committed any of

those violations. The dictionary definition of the word “for”

does not give us a clear answer. The word “for” is capacious,

meaning, among other things, “[a]s the price of, or the penalty

on account of”; “[i]n requital of”; or “[i]n order to obtain”;

and “[i]n consequence of, by reason of, as the effect of.” VI

OXFORD ENGLISH DICTIONARY 24-26 (2d ed. 1989), available at

IN THE MATTER OF SHERMAN 17733
http://www.oed.com/view/Entry/72761. On the one hand, in

some sense, Sherman’s debt was “the penalty on account of”

the securities violations committed by his clients. On the other

hand, we cannot say that Sherman owes the debt “in requital

of” fraudulent conduct — Sherman’s debt results from the

fact that he never “earned” the money he owes, and not

because he committed any wrongdoing.

The plain language of the statute alone does not clearly

resolve the interpretive question before us. But it does bring

into focus the interpretive dilemma in reading

§ 523(a)(19)(A): Should that section be read as if it said that

a debt shall not be discharged if it “is for the violation by the

debtor of any of the Federal securities laws”? Or, should the

section be read as if it said that a debt shall not be discharged

if it “is for the violation by the debtor or anyone else of the

Federal securities laws”?

The government encourages us to focus on the absence of

any explicit textual indication that the underlying violation

must be committed by the debtor. Essentially, the government

supports a bright-line interpretive rule: if the text of a discharge exception does not contain the limiting words “by the

debtor” (or equivalent language), then the exception must be

given its broadest natural reading.

There is some merit to the government’s argument. Indeed,

the text of a number of other discharge exceptions specifically

targets debts resulting from the conduct of the debtor. See,

e.g., 11 U.S.C. § 523(a)(2)(B) (exception for fraudulent written statements “that the debtor caused to be made or published with intent to deceive (emphasis added)); id.

§ 523(a)(6) (exception for debts “for willful and malicious

injury by the debtor to another entity or to the property of

another entity” (emphasis added)); id. § 523(a)(8)(B) (exception for educational loans “incurred by a debtor who is an

individual” (emphasis added)); id. § 523(a)(9) (exception “for

death or personal injury caused by the debtor’s operation of

17734 IN THE MATTER OF SHERMAN
a motor vehicle, vessel, or aircraft [while intoxicated]”

(emphasis added)); id. § 523(a)(15) (exception for spousal

and child support payments “incurred by the debtor” in the

course of divorce or separation proceedings (emphasis

added)). The government’s argument is corollary to the familiar doctrine of inclusio unius est exclusius alterius (the inclusion of one is the exclusion of another). When Congress

included the phrase “by the debtor” in these discharge exceptions, it excluded application of the discharge exception to all

others. Conversely, it is a reasonable inference that, when

Congress omitted the phrase “by the debtor” in

§ 523(a)(19)(A)(i), it intended to cover debtors and others to

whom the exception might reasonably apply. We might therefore conclude that Congress knew how to make it clear that

a discharge exception should apply only to debtorwrongdoers. Cf., e.g., Astrue v. Ratliff, 130 S. Ct. 2521, 2527

(2010) (concluding that “the [Social Security Act]’s express

authorization of . . . payments [to prevailing claimants’ attorneys] . . . shows that Congress knows how to make fees

awards payable directly to attorneys where it desires to do

so,” and rejecting the claim that 28 U.S.C. § 2412(d) should

therefore be interpreted to authorize fee compensation to a

prevailing litigant, and not her attorney); Hardt v. Reliance

Standard Life Ins. Co., 130 S. Ct. 2149, 2156 (2010) (“The

contrast between [29 U.S.C. § 1132(g)(1) and (2)] makes

clear that Congress knows how to impose express limits on

the availability of attorney’s fees in ERISA cases.”).

We do not think this point, although based on sound principles of statutory interpretation, is the end of the analysis. A

number of other discharge exceptions in § 523 do not explicitly refer to the debtor’s conduct, even though at first glance,

they seem to be best interpreted as targeting only debtors who

are also wrongdoers. See, e.g., 11 U.S.C. § 523(a)(2)(A)

(exception for debts “for money, property, services, or an

extension, renewal, or refinancing of credit, to the extent

obtained by . . . false pretenses, a false representation, or

actual fraud, other than a statement respecting the debtor’s or

IN THE MATTER OF SHERMAN 17735
an insider’s financial condition”); id. § 523(a)(4) (exception

for debts “for fraud or defalcation while acting in a fiduciary

capacity, embezzlement, or larceny”); id. § 523(a)(5) (exception for debts “for a domestic support obligation”).

For example, § 523(a)(2)(A) creates an exception to discharge for debts “for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained

by . . . actual fraud.” Even though the text of the statute does

not state that the fraudulent conduct must have been the debtor’s, we have nonetheless incorporated that assumption into

our understanding of the provision. See, e.g., Ghomeshi v.

Sabban (In re Sabban), 600 F.3d 1219, 1222 (9th Cir. 2010)

(“[M]aking out a claim of non-dischargeability under

§ 523(a)(2)(A) requires the creditor to demonstrate . . . [that]

the debtor made representations; . . . that at the time he knew

they were false; [and] that he made them with the intention

and purpose of deceiving the creditor.” (emphasis added));

Citibank v. Eashai (In re Eashai), 87 F.3d 1082, 1086 (9th

Cir. 1996) (“[T]o prove actual fraud, a creditor must establish

. . . that the debtor made the representations . . . .” (emphasis

added)). In fact, we have recently suggested that the debtor’s

involvement in the fraudulent activity might be the only relevant consideration in determining whether the exception

applies. See Sabban, 600 F.3d at 1222 (holding that a debtor

need not have received a benefit from the fraudulent activity

in order for § 523(a)(2)(A) to prevent a discharge).

[2] We have read § 523(a)(4) in a similar fashion.

Although the statute only prohibits the discharge of debts “for

fraud or defalcation while acting in a fiduciary capacity,

embezzlement, or larceny”—again, without any mention that

the misconduct must have been by the debtor—we have

strongly suggested that it applies only in cases where the

debtor is responsible for the misconduct. See, e.g., Cal-Micro,

Inc. v. Cantrell (In re Cantrell), 329 F.3d 1119, 1128 (9th Cir.

2003) (rejecting a claim under § 523(a)(4) because the defendant was not a fiduciary).

17736 IN THE MATTER OF SHERMAN
A contrary reading of these provisions would extend the

discharge exceptions to the “honest but unfortunate debtor,”

Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934), in cases

where the debtor was unwittingly involved with, and unknowingly received benefits from, a wrongdoer. For example, suppose we had not construed § 523(a)(2)(A) to apply only in

those cases where the debtor committed the fraud. Suppose,

further, that a bank loaned money to an innocent person under

the express condition that the loan be guaranteed by a third

party who had greater assets. If the third party lies about his

assets in order to qualify to be the guarantor, then the borrower will have, in effect, obtained “money . . . by . . . false

pretenses, a false representation, or actual fraud,” even if she

did not know or have reason to know about the guarantor’s

misconduct. If she is subsequently unable to repay her loan

and is driven to bankruptcy, we think it would contravene the

“fresh start” purposes of the system to deny her a discharge

on the basis of a third party’s misconduct.8

Admittedly, nothing in the text of any of these provisions

makes it clear that the exceptions should apply only to debtors

who are responsible for the wrongdoing that caused the debt.

However, the government’s rule would require us to adopt the

8The dissent rejects this comparison, arguing that “[nominal-defendant]

[d]isgorgement of the proceeds of a violation is owed for the violation,

whereas repayment of a loan is owed for the loan, not a fraud committed

antecedent to the granting of the loan.” Dissenting Op. at 17751 n.8. We

have previously recognized that the term “nominal defendant” encompasses both the “paradigmatic” case—a bank or trustee who has a custodial claim to the property—and “persons who are in possession of funds

to which they have no rightful claim.” Ross, 504 F.3d at 1141. 

It would be more accurate to say that Sherman owes the debt “for” the

advance payment he received from Whitworth and his subsequent failure

to earn those funds, rather than stating that Sherman owes the debt for the

violation of the securities laws. For example, if a bank-trustee misappropriates trust funds and the owner of a trust seeks to use those funds to pay

a loan, it would be more accurate to say that the bank-trustee owes a debt

“for” its misappropriation, and that the owners owes a debt “for” the loan,

than it would be to say that the bank-trustee owes a debt “for” the loan.

IN THE MATTER OF SHERMAN 17737
opposite presumption: that exceptions should be applied

broadly unless expressly confined to guilty debtors. We do

not think the structure of § 523, taken alone, enables us to

resolve this question. We must therefore examine

§ 523(a)(19) in light of the purposes of the Bankruptcy Code.

B

Although § 523(a)(19)’s text and structure do not resolve

the dispute before us, we believe that guidance from Supreme

Court, as well as our previous opinions, strongly favor the

bankruptcy court’s interpretation of the statute. At the core of

the Bankruptcy Code are the twin goals of ensuring an equitable distribution of the debtor’s assets to his creditors and giving the debtor a “fresh start.” See BFP v. Resolution Trust

Corp., 511 U.S. 531, 563 (1994). Put simply, the Bankruptcy

Code accomplishes this goal by including the bulk of the

debtor’s property in the bankruptcy estate, see 11 U.S.C.

§ 541(a), distributing that property to creditors in accordance

with various provisions of the Code, and finally discharging

the debtor’s remaining debts unless those debts either fall into

an exception or there is reason to deny a discharge altogether,

see id. § 727(a). Accordingly, the exceptions to discharge

enumerated in § 523 necessarily prevent a debtor from receiving a completely fresh start, as the debt remains a burden even

after all other debts are legally satisfied.

[3] With this in mind, the Supreme Court has adopted a

rule of construction interpreting exceptions to discharge narrowly. See Kawaauhau v. Geiger, 523 U.S. 57, 62 (1998)

(“[E]xceptions to discharge should be confined to those

plainly expressed” (internal quotation marks omitted)); Jett v.

Sicroff (In re Sicroff), 401 F.3d 1101, 1104 (9th Cir. 2005);

see also 4 COLLIER ON BANKRUPTCY ¶ 523.05 (2010) (“In determining whether a particular debt falls within one of the exceptions of § 523, the statute should be strictly construed against

the objecting creditor and liberally in favor of the debtor. Any

other construction would be inconsistent with the liberal spirit

17738 IN THE MATTER OF SHERMAN
that has always pervaded the entire bankruptcy system.”). We

also recognize that the Bankruptcy Code “limits the opportunity for a completely unencumbered new beginning to the

‘honest but unfortunate debtor.’ ” Grogan v. Garner, 498 U.S.

279, 286-87 (1991). Taken together, these two basic principles suggest that exceptions to discharge should be limited to

dishonest debtors seeking to abuse the bankruptcy system in

order to evade the consequences of their misconduct.

[4] Likewise, if we adopt the government’s interpretation

of § 523(a)(19), an innocent9 recipient of funds obtained by

another party’s participation in a securities violation can not

only be ordered to disgorge, but must also continue paying off

that debt even if he becomes insolvent and is forced to file for

bankruptcy. Although we do not dispute Colello’s conclusion

that a court may order recipients of these funds to disgorge

any funds that remain in their possession, we do not think

Congress wanted to immunize these debts from discharge in

bankruptcy, when the debtor has not been found guilty of any

wrongdoing.

C

[5] The legislative history of § 523(a)(19) offers modest

additional support for our interpretation. We begin by observing that it is unlikely that Congress actually considered the

specific question of whether innocent third parties subject to

disgorgement orders should be subject to a discharge exception. See Albernaz v. United States, 450 U.S. 333, 341 (1981)

(“Congress cannot be expected to specifically address each

9We do not suppose that every debtor who owes a disgorgement-based

debt is necessarily an innocent recipient for purposes of the rule we adopt.

For instance, in Colello itself, we found Colello liable in part because he

invoked his Fifth Amendment privilege not to testify and drew the adverse

inference that the funds he received were ill-gotten. 139 F.3d at 677. However, in cases like this one, where neither party claims that the debtor is

responsible for any securities-related wrongdoing, we believe the debtor

must be treated like an “innocent” one for purposes of § 523(a)(19). 

IN THE MATTER OF SHERMAN 17739
issue of statutory construction which may arise.”). The

§ 523(a)(19) exception, enacted as part of the Sarbanes-Oxley

Act, responded to concerns that the Bankruptcy Code “permit[ted] wrongdoers to discharge their obligations under court

judgments or settlements based on securities fraud and other

securities violations.” S. Rep. No. 107-146, at 8 (2002). Specifically, Congress sought to address the obstacles posed by

the fact that the elements of various securities violations do

not perfectly overlap with the elements of fraudulent conduct

within the meaning of § 523(a)(2)(A), frequently forcing the

SEC to relitigate otherwise resolved cases before a bankruptcy judge because the violator was not collaterally estopped from challenging the claim of fraud. 148 Cong. Rec.

S7418, S7419 (2002). In other words, one reason Congress

enacted the exception was to target those parties who are

guilty of securities violations, in order to ensure that judgments for securities violations are treated, in bankruptcy, like

judgments for fraud. This provides further support for our

reading; as we note above, we have previously held that a

debt falls into the discharge exception for fraud only when the

debtor engaged in the fraudulent conduct. See Sabban, 600

F.3d at 1222.

[6] The government offers a contrary reading of the legislative history, citing Senator Leahy’s explanation that

§ 523(a)(19) was intended to “prevent wrongdoers from using

the bankruptcy laws as a shield and to allow defrauded investors to recover as much as possible.” 148 Cong. Rec. S7418,

S7419 (2002). The government interprets this statement to

mean that Congress implemented the exception to further the

independently important goals of punishment and compensation. We disagree with this interpretation. It is unlikely that

Congress sought to divorce the two goals from each other. A

better understanding of Senator Leahy’s comments is that

Congress wanted to compensate defrauded investors by recapturing the ill-gotten gains of those who were responsible for

the fraud in the first place. Hence, Senator Leahy, like the

Senate Report on Sarbanes-Oxley, referred to “wrongdoers”

17740 IN THE MATTER OF SHERMAN
who might “discharge their obligations under court judgments

or settlements based on securities fraud and other securities

violations.” Id. (emphasis added). The emphasis on preventing “wrongdoers” from using the bankruptcy laws can only

refer to debtors who are also wrongdoers; neither statement

supports denying discharge to debtors who have been drawn

into a securities fraud but are not themselves “wrongdoers.”

D

The government encourages us to adopt the district court’s

reasoning, which characterized Sherman “as a constructive

trustee of the funds he received,” and concluded that a trustee

“cannot avoid his obligation to return funds he held in trust

for a third party by filing for bankruptcy.” At first glance, this

reasoning appears to follow naturally from the disgorgement

order against Sherman. We think, however, that this argument

confuses disgorgement of funds with discharge in bankruptcy.

In Colello—which was not a bankruptcy case—we described

so-called “nominal defendants” as parties who “hold[ ] the

subject matter of the litigation in a subordinate or possessory

capacity as to which there is no dispute.” 139 F.3d at 676

(internal quotation marks omitted). Since Sherman was in

possession of funds that he had received from his clients but

had not yet earned, the district court properly relied on a

Colello theory when issuing its disgorgement order. But

requiring Sherman to disgorge whatever he has retained is

very different from deciding that he is prevented from discharging those debts in bankruptcy. The theories and the reasons behind disgorgement and discharge are quite distinct.

Even if Sherman nominally held the funds in some kind of

fiduciary capacity as the dissent suggests, Dissenting Op. at

17751-52, the applicable exception would be § 523(a)(4), not

§ 523(a)(19). That section prohibits the discharge of debts

“for fraud or defalcation while acting in a fiduciary capacity,

embezzlement, or larceny.” For instance, if the government’s

position were that Sherman was not entitled to the funds and

IN THE MATTER OF SHERMAN 17741
had improperly appropriated that money, then it could have

sought a determination that Sherman was guilty of embezzlement. See Littleton v. Transamerica Commercial Fin. Corp.

(In re Littleton), 942 F.2d 551, 555 (9th Cir. 1991) (listing, as

the elements of embezzlement, “(1) property rightfully in the

possession of a nonowner; (2) nonowner’s appropriation of

the property to a use other than which it was entrusted; and

(3) circumstances indicating fraud” (internal quotation marks

omitted)). If, as the dissent suggests, Sherman was essentially

a trustee of Whitworth’s money and improperly spent advance

funds instead of placing them in a trust, see Dissenting Op. at

17750-51, the government could have urged that Sherman be

found responsible for “defalcation while acting in a fiduciary

capacity.” See Blyler v. Hemmeter (In re Hemmeter), 242

F.3d 1186, 1190-91 (9th Cir. 2001) (“The definition of defalcation includes both the misappropriation of trust funds or

money held in any fiduciary capacity; and the failure to properly account for such funds.” (internal quotation marks omitted)). Indeed, “[e]ven innocent acts of failure to fully account

for money received in trust will be held as non-dischargeable

defalcations; no intent to defraud is required.” Id. Had the

government sought to except Sherman’s debt from discharge

on § 523(a)(4) grounds, it might well have prevailed. Indeed,

it would be far more accurate to say that Sherman’s debt is

“for” his own breach of his fiduciary duties than it is to say

that it is owed “for” Whitworth’s securities violation. As we

noted in Sherman I, however, the SEC is time-barred from

seeking a determination that § 523(a)(4)’s exception prohibits

the discharge of Sherman’s debt. 491 F.3d at 975 n.39.

E

The district court also expressed concern that, under the

interpretation we adopt today, “persons who would otherwise

be liable to make disgorgement of funds derived from a securities law violation would be able to avoid their debts by filing

for protection under the bankruptcy laws.” In particular, the

court sought to avoid the possibility that “one party could vio17742 IN THE MATTER OF SHERMAN
late the securities laws and transfer the proceeds derived from

the violation to a third party who could insulate those funds

from disgorgement by filing for bankruptcy.”

[7] This concern is flawed in at least two respects. First, as

Sherman notes, if the third party in question has actually

aided or abetted a securities violation, that party may be prosecuted for a violation of securities laws in addition to the primary violator. Although Sherman’s retention (and subsequent

loss) of unearned fees from a contingency case in which his

client’s securities violation may appear suspect, the SEC’s

concession that Sherman had not violated any securities laws

undermines its subsequent attempts to leverage this appearance of culpability into any legal consequence.

Second, it is not clear how a third party could “insulate” a

securities violator’s ill-gotten gains by taking those gains and

filing for bankruptcy. If a creditor can show that a debtor has

concealed property or funds from the bankruptcy court, a discharge can be denied in its entirety, 11 U.S.C. § 727(a)(2), or

revoked after it is granted, 11 U.S.C. § 727(d). Otherwise, any

funds possessed by the debtor at the time the discharge has

been granted will presumably have been included in the bankruptcy estate and distributed to creditors.10 See 11 U.S.C.

§ 541. On the other hand, if Sherman is not granted a dis10The dissent argues that our decision enables Sherman to insulate funds

from the disgorgement judgment because the money subject to disgorgement is actually Whitworth’s money held in trust and therefore never

entered the estate. Dissenting Op. at 17750-52. Indeed, the dissent argues

that we should treat the money subject to disgorgement as money actually

held in trust. See, e.g., Dissenting Op. at 17746 (“[Sherman] owes the SEC

because he held the proceeds of fraud in trust.”). While this might be viable if the money were actually part of a trust (and was therefore still available for satisfying the disgorgement judgment), nothing in the record

indicates that this was the case here. While Sherman’s failure to place

these funds in a trust might, as we have noted, constitute a breach of his

fiduciary duties, the mere fact that he had a duty to place the money in a

trust (which he might have failed to fulfill) does not mean that we may act

as if the funds were actually in a trust. 

IN THE MATTER OF SHERMAN 17743
charge, he will not simply have to hand over funds in his possession — rather, the SEC will be entitled to money that

Sherman does not yet have in order to satisfy the debt, preventing Sherman from receiving the “fresh start” promised by

bankruptcy.

[8] In short, the Bankruptcy Code already includes protections against attempting to conceal assets or defraud creditors,

or otherwise failing to disgorge available assets. There is no

additional need for us to expand the scope of § 523(a)(19) to

cover innocent debtors in order to accomplish this goal.

III

[9] We hold that 11 U.S.C. § 523(a)(19) prevents the discharge of debts for securities-related wrongdoings only in

cases where the debtor is responsible for that wrongdoing.

Debtors who may have received funds derived from a securities violation remain entitled to a complete discharge of any

resulting disgorgement order.

REVERSED.

FISHER, Circuit Judge, dissenting:

I respectfully dissent because the majority disregards the

plain meaning of “for” in 11 U.S.C. § 523(a)(19) and misconstrues Sherman’s role as a so-called “honest but unfortunate”

debtor. The majority holds that a debt is only “for the violation of any of the Federal securities laws,” § 523(a)(19)(A)(i),

when the debtor committed the violation. Maj. Op. 17733.

The word “for” carries no such limitation. A debt is also “for”

a violation of the securities laws when it is an obligation to

return the proceeds of the violation being held in trust for the

wrongdoer — which describes Sherman’s debt. The word

“for” has many meanings, but as the majority concedes, one

17744 IN THE MATTER OF SHERMAN
of them is “because of,” “on account of,”

1

“as a result of,”

2

“having (the thing mentioned) as a reason or cause.”

3

 In context, that is plainly how § 523(a)(19) uses the preposition. See

Brown v. Gardner, 513 U.S. 115, 118 (1994) (“Ambiguity is

a creature not of definitional possibilities but of statutory context . . . .”). Causation is not the only possible meaning of

“for,” but it is the most ordinary and natural one and thus the

controlling one. See Engine Mfrs. Ass’n v. S. Coast Air Quality Mgmt. Dist., 541 U.S. 246, 252 (2004) (“Statutory construction must begin with the language employed by Congress

and the assumption that the ordinary meaning of that language

accurately expresses the legislative purpose.”) (quoting Park

‘N Fly, Inc. v. Dollar Park & Fly, Inc., 469 U.S. 189, 194

(1985) (internal quotation marks omitted)); United States v.

Alvarez-Sanchez, 511 U.S. 350, 357 (1994) (holding that

when a term “is not defined in the statute, we must construe

the term ‘in accordance with its ordinary or natural meaning.’ ”) (quoting FDIC v. Meyer, 510 U.S. 471, 476 (1994)).

The majority acknowledges that my plain reading is plausible, but then attempts to undermine it with various flawed theories. Principally, the majority relies on the proposition that

it would be best if “for” had a different meaning, because that

would better suit the bankruptcy policy that honest debtors

deserve a fresh start. “With a plain, nonabsurd meaning in

view, we need not proceed in this way.” Lamie v. U.S.

Trustee, 540 U.S. 526, 538 (2004). Whatever the majority’s

conception of the competing policy concerns in § 523(a)(19),

“[o]ur unwillingness to soften the import of Congress’ chosen

words even if we believe the words lead to a harsh outcome

1Webster’s Third New International Dictionary 886 (2002) (definition

8a, e.g., “shouted ~ joy,” “decorated ~ bravery”). 

2American Heritage Dictionary of the English Language 686 (4th ed.

2000) (definition 7, e.g., “jumped for joy”). 

3Oxford Dictionaries (definition 5, e.g., “[t]hree other men were also

jailed for their subordinate roles in the operation”), available at

http://english.oxforddictionaries.com (last visited Aug. 5, 2011). 

IN THE MATTER OF SHERMAN 17745
is longstanding.” Id. Nevertheless, the majority decides to

read words into the statute, resulting “ ‘not [in] a construction

of [the] statute, but, in effect, an enlargement of it by the

court, so that what was omitted, presumably by inadvertence,

may be included within its scope.’ ” Id. (alterations in original) (quoting Iselin v. United States, 270 U.S. 245, 251

(1926)). In reaching to interpret the statute to reflect the

“best” policy, the majority misconstrues the plain text, distorts

the statutory structure and actually defeats the proper objectives of bankruptcy policy and the securities laws.

The majority opinion’s first flaw is its assertion that “we

cannot say that Sherman owes the debt ‘in requittal of’ fraudulent conduct [because] Sherman’s debt results from the fact

that he never ‘earned’ the money he owes, and not because he

committed any wrongdoing.” Maj. Op. 17734. It does not

matter whether Sherman’s debt is “in requittal of” a securities

law violation because that is not what “for” means in

§ 523(a)(19); but even granting the majority its definition of

“for,” there is no dilemma. One certainly can requite a debt

for a violation he did not commit if he is a nominal defendant

holding money in trust for the violator and has been ordered

to turn over the money.4 As acknowledged by the majority

and explained below, a nominal-defendant disgorgement

judgment like that owed by Sherman is premised on the nominal defendant’s lack of legitimate claim to the money subject

to disgorgement.5 Maj. Op. 17732. Sherman does not owe the

SEC simply because he never earned the advance fees from

his client; rather, he owes the SEC because he held the proceeds of fraud in trust. The money Sherman owes was never

4Requittal is the “act of return or repayment for something.” Webster’s

Third New International Dictionary 1929 (2002) (definition 1); see also

American Heritage Dictionary of the English Language 1482 (4th ed.

2000) (definition 2: defining “requittal” as “[r]eturn, as for an injury or

friendly act”); Oxford Dictionaries (Apr. 2010) (defining “requite” as to

“make appropriate return for (a favor, service, or wrongdoing)”), available

at http://english.oxforddictionaries.com (last visited Aug. 5, 2011). 

5Nominal defendants are also known as “relief defendants.” 

17746 IN THE MATTER OF SHERMAN
his own and he must disgorge it to the SEC because the owner

would have been required to disgorge it had the money not

been held in trust by Sherman.

The majority opinion’s second flaw is to rely on precedent

to suggest that reading “by the debtor” into the statute is

advisable, when none of the precedent actually argues for that

result, interprets the word “for,” or otherwise refutes the logic

of recognizing Sherman’s debt as one “for” violations of the

securities laws. Although we have interpreted the exception

from discharge “for money . . . obtained by . . . false pretenses, a false representation, or actual fraud,” 11 U.S.C.

§ 523(a)(2)(A), to require that the “debtor made [false] representations,” In re Sabban, 600 F.3d 1219, 1222 (9th Cir.

2010) (quoting In re Hashemi, 104 F.3d 1122, 1125 (9th

Cir.1996)) (internal quotation marks omitted), there is no indication that our precedent ever considered the possibility of a

nominal-defendant disgorgement judgment. Moreover, the

“only issue” in Sabban — the majority’s chief precedent —

was whether a particular state court judgment was proximately caused by a false representation. Id. at 1223. Even less

relevant are the majority’s cases on the exception from discharge “for fraud or defalcation while acting in a fiduciary

capacity.” 11 U.S.C. § 523(a)(4). In In re Cantrell, 329 F.3d

1119 (9th Cir. 2003), there was no eligible fiduciary relationship between any two parties, so we did not consider whether

the debtor needed to be the fiduciary. See id. at 1127. Having

not confronted the problem of nominal-defendant disgorgement, this holding is simply inapposite and should not affect

our analysis.

To the extent there is any tension between the plain meaning of § 523(a)(19) and our interpretations of other subsections of § 523, the canon of statutory construction that favors

consistent interpretation of parallel language cannot trump

§ 523(a)(19)’s plain meaning. See BedRoc Ltd. v. United

States, 541 U.S. 176, 183 (2004) (“The preeminent canon of

statutory interpretation requires us to ‘presume that the legisIN THE MATTER OF SHERMAN 17747
lature says in a statute what it means and means in a statute

what it says there.’ ”) (quoting Conn. Nat’l Bank v. Germain,

503 U.S. 249, 253-54 (1992)) (alteration omitted); Garcia v.

United States, 469 U.S. 70, 74 (1984) (describing a canon of

construction as “only an instrumentality for ascertaining the

correct meaning of words”) (quoting Harrison v. PPG Indus.,

Inc., 446 U.S. 577, 588 (1980)) (internal quotation marks

omitted). If we look to the text of § 523 rather than our

glosses on it, we see that Congress knew how to explicitly

require conduct “by the debtor,” compare § 523(a)(19), with

§ 523(a)(6), and the accretion of faulty interpretations cannot

obscure that fact. See Patterson v. Shumate, 504 U.S. 753,

760 (1992) (imposing “an ‘exceptionally heavy’ burden of

persua[sion]” to overcome clear text in the Bankruptcy Code)

(quoting Union Bank v. Wolas, 502 U.S. 151, 156 (1991)); K

Mart Corp. v. Cartier, Inc., 486 U.S. 281, 291 (1988) (“In

ascertaining the plain meaning of the statute, the court must

look to the particular statutory language at issue, as well as

the language and design of the statute as a whole.” (emphasis

added)). We should not disregard the plain meaning of

§ 523(a)(19) because past interpretations of different statutes

in cases confronting dissimilar facts may implicitly suggest a

different outcome.6

The majority opinion’s third flaw is to mistake the relationship between securities and bankruptcy policy in

§ 523(a)(19). The majority’s discussion of policy concerns

fails to mention that “[d]isgorgement plays a central role in

the enforcement of the securities laws.” SEC v. Gemstar-TV

Guide Int’l, Inc., 401 F.3d 1031, 1047 (9th Cir. 2005) (en

banc) (quoting SEC v. Rind, 991 F.2d 1486, 1491 (9th Cir.

6Congress also demonstrated its awareness of the modifier “by the debtor” within § 523(a)(19) itself. To be excepted from discharge a debt must

not only be for a violation of the securities laws, but must also “result[ ]

. . . from” an obligation “owed by the debtor.” 11 U.S.C. § 523(a)(19)(B)

(emphasis added). Congress clarified that the debt must be owed by the

debtor, but omitted the majority’s desired language that the securities violation must be committed by the debtor. 

17748 IN THE MATTER OF SHERMAN
1993)) (internal quotation marks omitted). Disgorgement is an

equitable remedy for fraud, based on the truism that the violator “has no right to retain the funds illegally taken from the

victims.” SEC v. JT Wallenbrock & Assocs., 440 F.3d 1109,

1113 (9th Cir. 2006) (quoting SEC v. Colello, 139 F.3d 674,

679 (9th Cir. 1998)) (internal quotation marks omitted). The

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

making violations unprofitable.” Id. (quoting SEC v. First

Pacific Bancorp, 142 F.3d 1186, 1191 (1998)) (internal quotation marks omitted). The SEC’s efforts to deter securities

violations “would be greatly undermined if securities law violators were not required to disgorge illicit profits.” Gemstar,

401 F.3d at 1047 (quoting Rind, 991 F.2d at 1491) (internal

quotation marks omitted). Accordingly, where the ill-gotten

gains are held by a third-party “in a subordinate or possessory

capacity,” Colello, 139 F.3d at 676 (quoting SEC v. Cherif,

933 F.2d 403, 414 (7th Cir. 1991) (internal quotation marks

omitted), “the SEC may name [such] a non-party depository

as a nominal defendant to effect full relief in the marshalling

of assets that are the fruit of the underlying fraud,” id. at 677.

See also SEC v. Cavanagh, 155 F.3d 129, 136 (2d Cir. 1998)

(“Federal courts may order equitable relief against a person

who is not accused of wrongdoing in a securities enforcement

action where that person: (1) has received ill-gotten funds;

and (2) does not have a legitimate claim to those funds.”).

Critically, a nominal defendant by definition “has no legitimate claim to the disputed property,” Colello, 139 F.3d at

676, and is joined “ ‘purely as a means of facilitating collection,’ ” id. (quoting Cherif, 933 F.2d at 414) (internal quotation marks omitted). See also CFTC v. Kimberlynn Creek

Ranch, Inc., 276 F.3d 187, 191-92 (4th Cir. 2002) (quoting

Colello); Cherif, 933 F.2d at 414 (“A ‘nominal defendant’ is

a person who can be joined to aid the recovery of relief without an assertion of subject matter jurisdiction only because he

has no ownership interest in the property which is the subject

of litigation.”). “The paradigmatic nominal defendant is ‘a

IN THE MATTER OF SHERMAN 17749
trustee, agent, or depositary,’ ” Colello, 139 F.3d at 676

(quoting Cherif, 933 F.2d at 414), or “bank . . . [that] has only

a custodial claim to the property,” id. at 677.7

A nominal defendant’s lack of legitimate claim to the

money subject to disgorgement has powerful consequences in

bankruptcy. If a “debtor does not own an equitable interest in

property . . . [it] is not ‘property of the estate,’ ” Beiger v. IRS,

496 U.S. 53, 59 (1990) (quoting 11 U.S.C. § 541(a)(1)), and

therefore is not available for creditors. See 11 U.S.C. § 726(a)

(limiting liquidation to “property of the estate”); In re Cal.

Trade Technical Sch., Inc., 923 F.2d 641, 645-46 (9th Cir.

1991) (“Bankruptcy law does not view property held in trust

by the debtor as property of the estate available for general

creditors.”); In re Unicom Computer Corp., 13 F.3d 321, 324

(9th Cir. 1994) (“[S]omething held in trust by a debtor for

another is [not] property of the bankruptcy estate.”). Whit7When I refer to a “nominal defendant” in this dissent, I am referring

only to these paradigmatic examples, which all invoke the concept of an

express or resulting trust intentionally created by the transferee. See

Restatement (Third) of Trusts § 2 (2003) (defining “express trust”); id. § 7

(defining “resulting trust”). Constructive trustees can also be nominal

defendants but we need not consider whether a disgorgement judgment

against such a defendant would be dischargeable. See FTC v. Network

Servs. Depot, Inc., 617 F.3d 1127, 1137, 1141-42 (9th Cir. 2010) (holding

that an attorney was properly ordered to disgorge fees received with

knowledge the money was derived from securities fraud); SEC v. Ross,

504 F.3d 1130, 1142-44 (9th Cir. 2007) (suggesting that a “mere puppet”

or “empty vessel into which the true wrongdoers funneled their proceeds”

would be a nominal defendant); CFTC v. Walsh, 618 F.3d 218, 226 (2d

Cir. 2010) (“The receipt of property as a gift, without the payment of consideration, does not create a ‘legitimate claim’ sufficient to immunize the

property from disgorgement.”). 

Whereas a constructive trust is an equitable remedy to vindicate the

fraud victims’ superior interest in the property, see Network Servs., 617

F.3d at 1141, Sherman’s debt is the direct result of the wrongdoer’s interest, as explained more fully below — Sherman held the violator’s money

in express trust for the violator, and thus must disgorge it because the violator would have been ordered to disgorge it to the SEC absent the transfer

to Sherman. 

17750 IN THE MATTER OF SHERMAN
worth’s money, held by Sherman in trust, is therefore insulated from Sherman’s creditors. The majority thus frustrates

the SEC’s enforcement efforts based on a hollow policy argument; payment of the disgorgement judgment would not in

fact harm an honest debtor’s “fresh start.” An honest debtor

has nothing to fear from a disgorgement judgment — the

money owed is shielded from creditors; and he has nothing to

gain from a discharge — he has no right to do anything with

the money other than disgorge it.8

Sherman admits he is not an honest debtor — he spent all

of the advance payments from his client, Whitworth Energy.

According to the California Rules of Professional Conduct,

Sherman was required to keep the “funds belonging in part to

a client and in part presently or potentially to [him]” in a trust

account. Cal. Rules of Prof’l Conduct R. 4-100(A)(2). Money

held in a client trust account is held in an express trust as the

client’s fiduciary. See Banks v. Gill Dist. Ctrs., Inc., 263 F.3d

862, 871 (9th Cir. 2001). The attorney cannot claim the

advance fees until he earns them. See Brother v. Kern, 64 Cal.

Rptr. 3d. 239, 249 (Ct. App. 2007) (holding that “so long as

funds were in the client trust account, they were still [the client’s] funds”). Sherman’s debt is to disgorge only the portion

of the advance payments from Whitworth that he did not earn

8Nominal-defendant disgorgement is distinguishable from the majority’s hypothetical loan induced by fraud. Maj. Op. 17736-37. The recipient

of a loan does not owe a debt because of the fraud of a third party in the

loan approval process in the same way that a nominal defendant owes a

debt to turn over money belonging to the wrongdoer because of the

wrongdoing. Disgorgement of the proceeds of a violation is owed for the

violation, whereas repayment of a loan is owed for the loan, not a fraud

committed antecedent to the granting of the loan. This is hardly the first

time the law has presented a slippery question of causation, but there is

a common sense distinction here. The majority’s counterintuitive conclusion turns on a linguistic difference between § 523(a)(19) and § 523(a)(2),

which excepts from discharge debts “for money . . . obtained by . . .

fraud.” (Emphasis added.) The phrase “obtained by” may sweep as

broadly as the majority fears, and impair the fresh starts of honest debtors,

but the problem does not extend to § 523(a)(19). 

IN THE MATTER OF SHERMAN 17751
and thus did not own. Sherman therefore owes the SEC

$581,313.43 of Whitworth’s money.9

An accurate appraisal of the policy concerns implicated by

this case only reinforces the plain meaning of § 523(a)(19). It

is logical that if Whitworth could not have avoided disgorging

the money by filing for bankruptcy — which is undoubtedly

true — Sherman similarly cannot avoid disgorging Whitworth’s money by filing his own bankruptcy. The majority

focuses on Sherman’s lack of personal culpability for a securities law violation, and loses sight of the fact that SEC is trying to prevent discharge of a debt to repay money that never

belonged to Sherman. We have already held that Sherman’s

disgorgement judgment serves to “further the SEC’s goals of

deterring securities laws violations and compensating

defrauded investors.” In re Sherman, 491 F.3d 948, 964-65

(9th Cir. 2007). Further, the majority admits that Congress

enacted § 523(a)(19) to deter securities fraud and compensate

victims by preventing wrongdoers from using bankruptcy to

avoid disgorging their ill-gotten gains, and yet the majority’s

countertextual interpretation of § 523(a)(19) does just the

opposite. If the SEC cannot recover Whitworth’s money,

some fraction of the profit from Whitworth’s securities fraud

will remain at large and victims of the fraud will go uncompensated. 

In sum, I would adhere to the plain language of

§ 523(a)(19) and affirm Judge Snyder’s sensible decision. A

debt is “for” a violation of the securities laws when it is

caused by such a violation. Sherman’s debt is caused by a

9Sherman alleges the excess payments were agreed to be an interest free

loan, in contravention of his ethical duties, and thus he spent them but

should not be held accountable to repay the “loan” after his bankruptcy

discharge. Although there may have been such an agreement, and thus

Sherman may have had a legitimate claim to the money, Sherman did not

contest the disgorgement judgment. The district court identified Sherman’s ethical obligations as one basis for his lack of legitimate claim to

the money, so I focus on that basis for his nominal defendant status. 

17752 IN THE MATTER OF SHERMAN
securities law violation because he is legally obligated to disgorge the ill-gotten gains of such a violation that he held in

trust for the violator.

IN THE MATTER OF SHERMAN 17753