# United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 20, 2010 Decided December 28, 2010

No. 10-1034

G UY P. R IORDAN

, P ETITIONER

v.

S ECURITIES AND E XCHANGE C OMMISSION

, R ESPONDENT

On Petition for Review of an Order of the Securities and Exchange Commission

Jason Bowles argued the cause for pe titioner. With him
on the briefs was Caren I. Friedman

.

Luis de la Torre , Senior Litigation Counsel, Securities and Exchange Commission, argued the cause for appellees.
With him on the brief were David M. Becker , General Counsel, Securities and Exchange Commission, Mark D.
Cahn , Deputy General Counsel, Securities and Exchange Commission, Jacob H. Stillman , Solicitor, Securities and Exchange Commission, and Dimple Gupta , Attorney, Securities and Exchange Commission.

Before: T ATEL

, G ARLAND

, and K AVANAUGH

, Circuit Judges

.2

Opinion for the Court filed by Circuit Judge
K AVANAUGH

.

K AVANAUGH

, Circuit Judge : The New Mexico State
Treasurer’s Office invested some of the state’s revenues in securities. From 1996 to 2002, the Treasurer’s Office selected Guy Riordan’s brokera ge firms for many of those transactions. But the proces s for choosing brokerage firms was corrupt: Riordan paid kickbacks to New Mexico’s
Treasurer for the business. Th e crooked scheme ultimately
unraveled amid a series of government investigations and enforcement actions. Relevant here is an action brought by the Securities and Exchange Commission, in which the SEC
found Riordan liable for various violations of the securities laws and imposed heavy sanctions on him.

In this Court, Riordan primarily argues that the SEC’s findings of fact lacked sufficient evidentiary support and that some of the SEC’s sanctions were imposed for conduct that
occurred outside the statute of limitations. We disagree and therefore deny Riordan’s petition for review.

I

The New Mexico state govern ment regularly invested
some of its revenue in securities so as to earn a return on funds that would otherwise sit id le in the state treasury. Michael Montoya became New Mexico’s Treasurer in 1995. He prolifically abused his o ffice, steering state securities transactions to those who paid him kickbacks and bribes. Montoya was eventually nabbed, and in 2005 he pl ed guilty to
extortion under color of official right, in violation of 18 U.S.C. § 1951 and 18 U.S.C. § 2. Montoya agreed to cooperate in further investigations.3

After his arrest and as part of his post-plea cooperation, Montoya told the FBI that Guy Riordan had paid him
kickbacks in return for cha nneling state transactions to Riordan’s brokerage firms. Although the Department of Justice did not file criminal charges against Riordan, the Securities and Exchange Commission brought a civil enforcement proceeding against him for violation of § 17(a) of the Securities Act of 1933, § 10(b) of the Securities Exchange Act of 1934, and SEC Rule 10b-5. See 15 U.S.C. § 77q(a) (Securities Act); 15 U. S.C. § 78j(b) (Exchange Act); 17 C.F.R. § 240.10b-5 (Rule 10b-5). Those provisions collectively prohibit the use of “any device, scheme, or
artifice to defraud” in connection with the purchase or sale of any security.

At Riordan’s hearing before an SEC administrative law judge, Montoya testified at le ngth and explained that, from 1996 to 2002, he had directed business to Riordan through a variety of devices. For example, Riordan had been allowed to see competitors’ bids before placing his own and had been permitted to submit bids past the due date. In return for that preferential treatment, Riorda n had typically given Montoya cash, between $300 and $3000, for each transaction.

Montoya’s powerful testimony was supplemented by a plethora of additional eviden ce against Riordan. One of Montoya’s associates testified that Montoya had told him to
award state business to Riorda n and had suggested that the
business was in return for kic kbacks paid by Riordan. The
evidence also included a reco rding of a phone conversation in which Montoya and Riordan agr eed to meet at a Bennigan’s after Montoya requested mone y. Riordan also acknowledged that, in 2002, Montoya had repeatedly called Riordan demanding a kickback and that they had then met at a gas4

station. In addition, the SEC Enforcement Division’s financial expert submitted a repor t stating that Riordan often had received state business despite submitting the worst bid.

In his defense, Riordan produced his own expert’s analysis of the Treasurer’s Office records. Riordan also testified that he never paid Montoya in return for state
business.

After hearing the evidence, the administrative law judge found that Riordan had paid extensive kickbacks to Montoya
in order to land business from the State. She concluded that Riordan had thereby violated § 17(a) of the Securities Act, § 10(b) of the Exchange Ac t, and Rule 10b-5, and she imposed a variety of sanctions.

Upon review, the full SEC upheld the administrative law judge’s order in relevant part, affirming a host of sanctions on
Riordan. The sanctions incl uded: civil fines of $500,000; a
bar on future association with s ecurities brokers or dealers; an
order to cease and desist from violations of the securities laws; and disgorgement of all commissions and bonuses Riordan derived from his dealings with Montoya, amounting to $938,353.78. Including prejud gment interest on the disgorged funds, the disgorgement order rose to $1,397,870.62. Riordan was thus forced to pay the Government a total of $1,897,870.62 in fines and disgorgement.

Riordan filed a petition in this Court under 15 U.S.C. § 78y(a)(1). Riordan contends th at the SEC’s findings of fact were not supported by substantia l evidence, as required by 15 U.S.C. § 78y(a)(4), and that the administrative law judge improperly excluded some of his proffered evidence. Riordan also argues that most of the sanctions imposed on5

him were based on conduct that o ccurred outside the statute of
limitations. See 28 U.S.C. § 2462.

II

Riordan argues that the record does not contain
substantial evidence that he paid Montoya kickbacks from 1996 to 2002. We disagree. The record overwhelmingly demonstrates that Riordan paid Montoya in return for state business. To recount just some of the most damning evidence: Montoya testified a bout the kickbacks at length and in detail; another witness corroborated key aspects of Montoya’s testimony; Riordan himself admitted to having met Montoya twice in response to Montoya’s demands for kickbacks; and the SEC’s financial expert found that the Treasurer’s Office records reflected a corrupt process – a
conclusion that Riordan’s own expert was largely unable to
contradict.

The issue is closer with re gard to four of the five transactions that Montoya’s office awarded to Riordan in
October 2002. Those four Oct ober 2002 deals are significant because they represent the portion of Riordan’s conduct that supports $400,000 of the $500,000 that the SEC imposed in civil fines. (Riordan’s pre-October 2002 conduct was outside the five-year statute of limitations for civil fines.) Those four
October 2002 transactions involved sales of state securities. Riordan points out that Montoya testified that Riordan paid kickbacks only for state purchases of securities.

To begin with, Montoya’s testimony on this issue was confused and equivocal. When first asked about sales, Montoya was not certain whethe r he had taken kickbacks on them, stating, “I’m not saying I didn’t but I don’t – I guess best guess is no.” Transc ript of Hearing at 188, Guy P.6

Riordan , Securities Act Release No. 9085, Exchange Act Release No. 61153 (Dec. 11, 2009). But Montoya also appeared to have forgotten that nearly half the recorded
transactions his office awarded to Riordan were sales, instead believing (incorrectly) that Riordan received very few sales.
Id. Montoya did, moreover, state that he generally received a kickback on every transaction his office awarded to Riordan,
and that no one in his office would award a sale without his approval. Id. at 181-82, 354-55. Thus , Montoya’s confusion may show only that he forgot what types of transactions Riordan received, but remained certain that Riordan paid him
for each transaction.

Moreover, other record ev idence supports the SEC’s
conclusion that Riordan did in fact pay kickbacks on the four October 2002 sales. Montoya’s assistant testified that Montoya directed him to steer both sales and purchases to Riordan. And the SEC’s expert found that Riordan received the four October 2002 sales despite submitting the worst bids. Even Riordan’s expert could not provide any persuasive explanation why Riordan would receive the state’s business under those circumstances except for reasons of corruption.

This body of evidence regarding the October 2002 sales
suffices under our deferential standa rd of review to sustain the
SEC’s conclusion that Riordan paid kickbacks in connection
with those sales. See Siegel v. SEC , 592 F.3d 147, 155 (D.C. Cir. 2010) (“The reviewing court may not substitute its own judgment for the agency’s ‘choice between two fairly conflicting views . . . .’”) (quoting Universal Camera Corp. v.
NLRB , 340 U.S. 474, 488 (1951)).7

III

Riordan also contends th at the Commission erred in approving the administrative law ju dge’s exclusion of some of Riordan’s proffered eviden ce. In particular, the administrative law judge preven ted Riordan from introducing evidence showing that Riordan ha d helped unravel another of Montoya’s corrupt deals. Riorda n wanted to use this evidence to show that Montoya was bias ed against him and therefore
should not be believed. But Ri ordan never demonstrated that Montoya knew anything about Rior dan’s role in that separate deal. Any evidence about Riordan’s acts against Montoya’s
interest therefore was irreleva nt; those acts could not have biased Montoya against Rior dan if Montoya did not know
what Riordan had done.

Moreover, even if the exclusion of this evidence constituted error, the e rror would be harmless. See PDK
Laboratories Inc. v. DEA , 362 F.3d 786, 799 (D.C. Cir. 2004) (“In administrative law, as in federal civil and criminal litigation, there is a harmless error rule . . . .”). It was already clear that Montoya disliked Riordan, rendering further
evidence of that fact redundant. Further, the evidence against Riordan was utterly overwhelming on most issues. And on the one issue where it was not (the October 2002 sales), Montoya’s testimony actually fa vored Riordan, meaning that
the excluded evidence would not have helped Riordan with regard to the October 2002 transactions.

IV

Riordan’s most significant ar gument concerns the statuteof limitations. The key question centers on the general fiveyear civil statute of limitations for certain actions by the Government, 28 U.S.C. § 2462. See 3M Co. v. Browner , 178

F.3d 1453, 1455-57 (D.C. Cir. 1994). That statute reads: “an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pec uniary or otherwise, shall not be entertained unless commenced within five years from the
date when the claim first accrued.”

The SEC brought this action on September 25, 2007. Therefore, Riordan’s conduct before September 25, 2002, falls outside the applicab le statute of limitations.

The Commission based two of its sanctions – the bar on
association with brokers or dealers and the $500,000 in civil fines – solely on Riordan’s dea lings with Montoya in October
2002. Those sanctions therefore pose no statute of limitations problem.

In levying the disgorgeme nt order, however, the SEC relied not only on the Octobe r 2002 transactions but on the entirety of Riordan’s misconduc t, including the substantial portion of his wrongdoing that t ook place before September 25, 2002. The SEC’s reliance on the pre-September 25, 2002, conduct for the disgorgement or der is significant: Riordan was required to pay nearly $1.5 million in disgorgement and interest. But he would have to pay just a small portion of that
amount if the SEC could consider only the five October 2002 transactions when calculating disgorgement.

The five-year statute of limitations in 28 U.S.C. § 2462 applies to an action for the enfo rcement of a “fine, penalty, or
forfeiture.” Does that list in clude disgorgement? This Court has said no. We have reasoned that disgorgement orders are not penalties, at least so l ong as the disgorged amount is causally related to the wrongdoing. See

, e.g. , Zacharias v.
SEC , 569 F.3d 458, 471-72 (D.C. Cir. 2009); SEC v. Bilzerian , 29 F.3d 689, 696 (D.C. Cir. 1994); SEC v. First9

City Financial Corp. , 890 F.2d 1215, 1231 (D.C. Cir. 1989). Because we have held that disgorgement is not a “civil penalty,” the Court in Zacharias held that disgorgement was not subject to the five-year st atute of limitations. 569 F.3d at 471-72. In light of our precedents , we must reject Riordan’s similar argument here. 1

The final question is whether the cease-and-desist order poses a statute of limitations problem. We think not. That order simply requires Riordan not to violate the relevant securities laws in the future. In a related context, we have
stated that a cease-and-desist order is “purely remedial and preventative” and not a “penalty” or “forfeiture.” Drath v.
FTC , 239 F.2d 452, 454 (D.C. Cir. 1956). We see no reason
for a different result here: Th e cease-and-desist order is not a “fine, penalty, or forfeiture” covered by the five-year statute of limitations in 28 U.S.C. § 2462. Cf. Johnson v. SEC , 87 F.3d 484, 487-89 (D.C. Cir. 1996).

1 In reaching that conclusion in Zacharias , the Court focused on the meaning of “penalty” in 28 U.S.C. § 2462. The statute also applies to “forfeiture.” It could be argued that disgorgement is a kind of forfeiture covered by § 2462, at least where the sanctioned party is disgorging profits not to make the wronged party whole, but to fill the Federal Government’s coffers. Our precedents have not expressly considered that point in holding that there is no statute of limitations for SEC disgorgement actions. But
Zacharias ’s holding at least implicitly rejects that argument and is binding on us as a three-judge panel. Here, moreover, the disgorged moneys will apparently be returned to the New Mexico State Government and not retained by the U.S. Government. See Guy P. Riordan , Securities Act Release No. 9085, Exchange Act Release No. 61153 at 39 (Dec. 11, 2009).10

* * *

We have considered all of Riordan’s arguments and find them without merit. We deny the petition.

So ordered.