## United States Court of App eals

F O R T H E E I G H T H C I R C U I T

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No. 1 0- 24 79

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Secu rit ie s an d Ex ch an ge Co m m is si on , *

* App el le e, *

* App eal fro m

th e Uni te d S ta te s

v. * Dis tri ct Co ur t fo r th e
* Dis tri ct of M in ne so ta

. Sh erwi n P . Bro wn, *

* [TO BE PUBLISHED] App el la nt , *

__ __ __ __ __ _
Su bm it te d: Feb ru ary 7, 2 01 1 Fi le d: Octo be r 13 , 20 11

__ __ __ __ __ _ Befo re LOKEN, MURPHY, and COLLOTON, Cir cu it Ju dg es

.

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PER CURI AM.

Sh erwi n Bro wn is th e Pres id en t an d fif ty-perc en t own er of Ja m eri ca Fi na nc ia l,
In c. (“ Ja m eri ca”)
, a Mi nn eap ol is -b as ed reg is te red in ve st m en t ad vi se r. Bet ween May 20 04 an d Ja nu ary 20 06
, fif ty-th ree cl ie nt s in ve st ed $1 .62 M in Brawt a Ven tu res , LLC (“ Brawt a”), a p riv at e in ve st m en t fu nd or ga ni zed by Brown . In M arch 20 06 , aft er a br ie f bu t in te ns e in ve st ig at io n, th e Secu rit ie s an d Ex c h a n g e Co m m is si on (SEC)

c o mm e n ced th is ci vi l en fo rcem en t act io n ag ai ns t Bro wn, Ja m eri ca, an d Braw t a al le gi ng th a t t he ir frau du le nt m is rep res en ta ti on s an d di ve rs io n of Brawt a fu nd s vi ol at ed Sect io ns 17 (a)( 1) -(3 ) of th e Sec ur it ie s Act of 1 93 3, 1 5 U.S.C. § 77 q( a)(1 )- (3 ); Sect io n 10 (b ) of th e Secu rit ie s an d Ex c h an ge Act of 19 34
, 15 U.S.C. § 78 j(b);Sect io ns 20 4 an d 20 6( 1) -(2 ) of th e In ve st m en t A d v i s e r s A ct , 15 U.S.C. §§ 80 b- 4,

80 b- 6( 1) -(2 ); an d SEC Ru le s 10 b- 5 an d 20 4- 2, 17 C.F.R. §§ 24 0.1 0b -5
, 27 5.2 04 -2

.

In it ia ll y , th e di st ric t co ur t gr an te d a pr el im in ary in jun ct io n, fro ze de fen da nt s’ 1

as se ts , an d or de red Brawt a to un de rta ke an d su bm it a swo rn in de pe nd en t acco un ti ng

. W he n th is acco un ti ng co nf irmed SEC al le ga ti on s of fu nd di ve rs io ns , an d Bro wn
pe ti ti on ed fo r Ch ap te r 7 ba nk ru pt cy rel ie f, th e co ur t ap po in te d a rece iv er to rep res en t Brawt a an d it s in ve st or s. Th e r e c e iv er fil ed an ad ve rs ary pr oc eed in g in Bro wn’s ba nk ru pt cy

cas e se ek in g re m ed ie s fo r th e de frau de d Brawt a in ve st or s. In F eb ru ary 20 09
, th e ba nk ru pt cy co ur t gr an te d th e rece iv er su m m ary jud gm en t on th es e cl ai m s, de nyin g Bro wn cert ai n ex em pt io ns , gr an ti ng a co ns tru ct iv e tr u s t on hi s ho m es te ad

eq ui ty an d a po rti on of hi s pe rs on al ret ire m en t acco un t, an d ex cep ti ng fro m di sc ha rg e

am ou nt s m is ap pr op ria te d fr om Brawt a. That ord er i s n ot he re at is su e.

Mea nwh il e, in Sep te m

be r 20 08
, th e di st ric t co ur t gr an te d th e SEC su m m ary jud gm en t in th is ci vi l act io n, pe rm an en tl y en joi ni ng Bro wn an d Ja m eri ca fro m fu tu re vi ol at io ns of th e se cu rit ie s la ws, an d or de rin g th em , joi nt ly an d se ve ral ly, to di sg or ge

m is ap pr op ria te d in ve st or fu nd s in th e am ou nt of $8 69 ,63 3, su bs eq ue nt ly in crea se d by $2 26 ,38 0.7 7 in pr ejud gm en t in te res t. SE C v

. Br ow n , 57 9 F. Su pp

. 2d 12 28 (D. Mi nn

. 20 08 ). In res ol vi ng th e m ot i o n f o r su m m ary jud gm en t, th e di st ric t co ur t refu se d to al lo w B ro wn to rel y on in te rro ga to ry res po ns e s i n w hi ch he of fere d “ th e br oa d ex pl an at io n” th at tra ns fers fro m Brawt a fu nd s to Bro wn an d J a m eri ca were

“ rel at ed to co m

pe ns at io n (i.e

. m an ag em en t fees )
, e x p e ns e rei m bu rs em en ts an d

co ns id erat io n fo r as se ts tra ns ferr ed in to th e Brawt a fu nd s.” Id

. at 12 35

. The co ur t

ex pla ine d that aft er Bro wn su bm it te d th e in te rro ga to ry res po ns es , he in vo ke d hi s ri ght

ag ai ns t se lf- in cri m in at io n un de r th e Fi fth Am en dm en t, a n d t h e reb y pr ev en te d th e

The Hon or ab le Jo hn R. Tun he im
, Uni te d St at es Dis tri ct Ju dg e fo r th e Dis tri ct 1 of Mi nn es ot a, ad op ti ng th e rep or ts an d reco m m en da ti on s of th e Hon or ab le Fran kl in L. Noel , Uni te d S ta te s M ag is tra te Ju dg e fo r th e Dis tri ct of M in ne so ta

. -2

-SEC fro m ex pl o r i n g hi s in te rro ga to ry an swe rs in a de po si ti on

. The co ur t ob se rv ed

th at th e qu ot ed in te rro ga to ry res po ns e was “ pr eci se ly t he so rt of ge ne r a l an swe r on

a cri ti cal is su e th at wou ld ha ve be en ex pl or ed in gr eat de ta il in a de po si ti on .” Id

. The

co ur t co nc lu de d th at al lo win g Bro wn to rel y on th e in te rro ga to ry res po ns e in res is ti ng th e m ot io n fo r su mm a r y ju dg m en t “ wou ld al lo w hi m to m an ip ul at e th e di sc ov ery
pr oc es s s o th at hi s un qu es ti on ed
, co nc lu so ry as se rti on s are th e on ly ve rs io n of hi s
te st im on y in th e rec or d.” Id

.

The di st ric t co ur t, id

. at 12 38
, al so ad op te d th e reco m m en da ti on of a m ag is tra te jud ge th at di sg or ge m en t wit h pr ejud gm en t in te res t w a s “ap pr op ria te to di sc ou rag e fu tu re vi ol at io ns of se cu rit ie s la ws an d to make th e in ve st or s who le .” Id

. at 12 45

. The co ur t ex pl ai ne d th at Bro wn’s “ on ly ob jecti on s” to th e di sg or ge m en t or de r were ad dr es se d in ot he r se ct io ns of th e co ur t’s or de r, an d th at Bro wn’s co nt en ti on th at th e SEC ha d be en in co ns is te nt in it s as se ss m en t of th e to ta l da m ag es was no t su pp or te d by ci ta ti on to th e reco rd or an y al te rn at iv e pr op os al

. Id

. at 12 38 & n.6

. In Ju ly 20 09
, aft er fu rth er br ie fin g, th e co ur t as se ss ed “ Tier III” ci vi l pe na lt ie s of $8 0,0 00 ag ai ns t Bro wn an d $4 00 ,00 0 a g a i n s t Ja m eri ca. SEC v. Bro wn , 64 3 F. Su pp

. 2d 10 88 (D. Mi nn . 20 09 ).

Co un se l fo r de fen da nt s wit hd rew, an d Bro wn ap pe al ed pr o se

. He arg ue s th at he was a vi ct im of “ se le ct iv e pr o s e c ut io n,” th at th e SEC refu se d to tu rn ov er

“ ex cu lp at or y do cu m en ts ,” th at th e Brawt a ve nt ur e was “ in no way a Po nz i sc he m e,” th at th ere is “ no act ua l acco un ti ng pr oo f of th e a mo u nt of m on ey ” in vo lv ed in th e frau d al le ge d by th e SEC, an d t h a t he was in vo lv ed in no “ il le ga l act iv it ie s or de cep ti on s.” He as ks th is co ur t “ to ov ert ur n al l jud gm en ts , fin es , [an d] de ci si on s

a g ai ns t [h im ], ” an d to or de r th e SEC to rei m bu rs e hi m fo r th e co st s of m ou nt i n g a de fen se

.

Hav in g c a r e f

u ll y rev ie wed th e reco rd de no vo , we co nc lu de th at su m m ary jud gm en t was ap pr op ria te fo r th e reas on s st at ed by th e di st ric t co ur t, an d th at

-3

-Bro wn’s ot he r ch al le ng es to th e co u r t’s or de rs are wit ho ut m eri t. In li gh t of po in ts

rai se d b y th e di ss en ti ng op in io n, we al so ob se rv e th at am pl e au th or it y su pp or ts an

or de r fo r di sg or ge m en t o f fu nd s t og et he r wit h i nju nc ti ve rel ie f, e.g

. , SEC v. Ken to n Ca pi ta l, Lt d.
, 69 F. Su pp

. 2d 1, 17 (D.D.C

. 1 9 9 8 ) ( e xp la in in g th at Co ng res s ad de d ci vi l pe na lt ie s in 19 90 be cau se “ di sg or ge m en t mer e l y req ui res th e ret ur n of

wro ng fu ll y ob ta in ed pr of it s; it do es no t resu lt in an y act ua l econ om ic pe na lt y or act

as a fin an ci al di si nc en ti ve to en ga ge in se cu rit ie s frau d” ), an d th at “ th e ov erwh el m in g weig ht of a u t h o r it y ho ld [s ] th at se cu rit ie s la w vi ol at or s m ay no t of fs et th ei r di sg or ge m en t li ab il it y wit h bu si ne ss ex pe nses. ” SEC v. Uni te d Ene rg y Par tn er s, In c. , 88 F. App ’x 74 4, 74 6 (5 th Ci r. 20 04 ) (in te rn al qu ot at io n om it te d)

. Acco rd in gl y , we affi rm

.

LOKEN, Ci rcu it Ju dg e, co nc ur rin g i n p art an d d is se nt in g i n p art

.

I ag r e e wit h th e co ur t th at we sh ou ld affi rm th e di st ric t co ur t’s gr an t of

su m m ar y jud gm en t, it s or de r pe rm an en tl y en joi ni ng Bro wn an d Ja m eri ca fro m vi ol at in g th e la ws ci te d in th e SEC’s co m pl ai n t , a n d t h e award of Tier III ci vi l

pe na lt ie s. Bu t I res pe ct fu ll y di ss en t fro m th e de ci si on to affi rm th e or de r th at Bro wn di sg or ge $8 69 ,63 3, th e am ou nt frau du le nt ly m is ap pr op ria te d fro m Brawt a in ve st or s,
to ge th er wi th pre

jud gm en t i nt eres t.

1. It is well -s et tl ed th at th e gr an t of br oa d juri sd ic ti on to rem ed y vi ol at io ns of th e fed eral se cu rit ie s la ws in cl ud es th e po wer to or de r a de fen da nt gu il ty of se cu rit ie s frau d “ to di sg or ge an y il l-g ot te n pro fit s.” SEC v. Ri de no ur , 91 3 F.2 d 51 5, 51 7 (8 th Ci r. 19 90 ). Dis go rg em en t is an eq ui ta bl e rem ed y

. Its p u r p o s e s are to pr ov id e a

rem ed y fo r f

r a u d v i ct im s an d to de pr iv e th e de fen da nt of un jus t en ric hm en t, no t to
pu ni sh

. SEC v. Fi rs t Ci ty Fi n. Co rp ., 89 0 F.2 d 12 15
, 12 31 (D.C. Ci r

. 19 89 ). A de fen da nt ’s fin an ci al in ab il it y to rep ay is no de fen se to an or de r th at he di sg or ge hi s il l-g ot te n ga in

. SEC v. W arre n, 53 4 F.3 d 13 68
, 13 70 & n.2 (1 1t h Ci r. 20 08 ); SEC v.

-4

-Uni te d Ene rg y Part ne rs , In c., 88 F. App ’x 74 4, 74 6 (5 th Ci r.), cert

. de ni ed
, 54 3 U.S.

10 34 (20 04 ).

The fed eral se cu rit ie s la ws pr ot ect in ve st or s an d th e in te gr it y of th e se cu rit ie s

m ark et s. Fo r so m e vi ol at io ns , th e de fen da nt ’s il l-g ot te n ga in eq ua ls th e lo ss es of id en ti fia bl e vi ct im s. Co ur ts of eq ui ty ha ve a rem ed y fo r su ch wro ng s -- res ti tu ti on

--

an d it is co ns is te nt wit h Co ng res s’s gr an t of ci vi l en fo rcem en t po wers to th e SEC th at th e ag en cy be gr a nt ed th at rem ed y fo r th e be ne fit of de frau de d in ve st or s. Thu s, in

m an y cas es , di sg or ge m en t or de rs ha ve ex pr es sl y pr ov id ed that th e am ou nt s di sg or ge d

wou ld be pa id to de frau de d i nv es to rs . See SEC v . W al ke r, 19 89 W L 16 80 07
, at *1 (8 th Ci r. 19 89 ); SEC v. Bl a vi n, 76 0 F.2 d 70 6, 71 0 (6 th Ci r. 19 85 ); SEC v. Mac Don al d, 69 9 F.2 d 47
, 52 (1 st Ci r. 19 83 ) (en ba nc ); SEC v. Man or Nur si ng Ct rs , In c., 45 8 F .2d 10 82 , 11 03 (2d Cir . 19 72 ).

Fo r ot he r s e c ur it ie s la w vi ol at io ns , su ch as in si de r tra di ng , th ere m ay be no id en ti fia bl e in ve st or vi ct im or m eas ur ab le in ve st or lo ss es

. In th es e cas es , m ak in g th e

wro ng do er gi ve up hi s il l-g ot te n ga in pr ot ect s th e in te gr it y of th e se cu rit ie s m ark et s by he lp in g to de te r si m il ar vi ol at io ns

. Aga in
, co ur ts of eq ui ty ha ve su ch a rem ed y

--

un jus t enri ch m en t -- an d th e SEC has freq ue nt ly sou gh t an d ob ta in ed di sg or ge m en t

or de rs de sp it e th e ab se nc e of id en ti fia bl e de frau d e d i nv es to rs

. See, e.g ., SEC v. Tom e, 83 3 F.2 d 10 86
, 10 96 (2 d Ci r. 19 87 ), cert

. de ni ed
, 48 6 U.S. 10 14
, 10 15 (1 98 8) ; SEC v

. C o mm o n weal th Ch em

. Secs
., In c., 57 4 F.2 d 90
, 10 2 (2 d Ci r. 19 78 ).
Howev er, ev en whe n th e rem ed y is in te nd ed to de te r m is co nd uc t by m em be rs of th e

se cu rit ie s in du st ry in ge ne ral
, it mu s t be rem ed ia l, no t pu ni ti ve

. See Bec k v. SEC,
43 0 F .2d 67 3, 6 74 -7 5 (6 th Cir . 19 70 ).

In th is cas e, Bro wn di d no t frau du le nt ly pr of it fro m se cu rit ie s tra ns act io ns ; he si m pl y po ck et ed fu nd s th at he pr om is ed vi ct im s he wou ld in ve st . The SEC pr ov ed th at he frau du le nt ly di ve rte d $8 69 ,63 3 of th e $1 .62 M th at fif ty-th ree id en ti fia bl e vi ct im s in ve st ed in Brawt a. For th es e vi ol a t i o n s , reco ve rin g vi ct im lo ss es was th e

-5

-pr op er fo cu s of an eq ui ta bl e m on et ary rem ed y

. At th e ou ts et of th e cas e, th e di st ric t

co ur t to ok ap pr op ria te act io n to ward th at en d, free zi ng de fen da nt s’ as se ts an d, whe n Bro wn fil ed fo r ba nk ru pt cy pr ot ect io n, ap po in ti ng a rece iv er who ag gr es si ve ly -- an d wit h c o n s i d e r a bl e su cces s -- so ug ht rem ed ie s fo r th e de frau de d in ve st or s in th e ba nk ru p tc y cas e. The n, wit h th es e rem ed ie s in pl ace, th e SEC as ke d fo r

“ di sg or ge m en t” of al l wro ng fu ll y di ve rte d fu nd s. The SEC d i d no t ex pl ai n wha t

re med ia l pu rp os e w o u l d b e se rv ed by th is rem ed y

. It di d no t di sc lo se , m uc h le ss
pr op os e an or de r cl ari fy in g, whe th er an y m on ie s di sg or ge d wou ld b e p a i d to de frau de d in ve st or s. Nor di d it ad dr es s whe th er im po si ng a m as si ve m on et ary ob li ga ti on on an ob vi ou sl y in so lv en t de bt o r wou ld ad ve rs el y affe ct th e on go in g effo rts of t he rece iv er an d t he ba nk ru pt cy tru st ee t o re co ve r th e v ic ti m s’ lo ss es

.

Equ it ab le rem ed ie s sh ou ld is su e on ly up on a co nc re t e s h o w in g of ne ed an d sh ou ld im po se th e le as t dr as ti c rem ed y ne ces sa ry to ach ie ve th e de si red go al s. See Mi ll s v. Elec

. Aut o- Lit e Co
., 39 6 U.S. 37 5, 38 6 (1 97 0) ; Hech t Co

. v. Bo wles
, 32 1 U.S. 32 1, 32 9- 30 (1 94 4)

. The di st r i c t c o u r t ’s cu rs or y ex am in at io n of th is is su e si m pl y st at ed th e S EC “requ es ts th at de fen da nt s be di sg or ge d of th e $8 69 ,63 3

m is ap pr op ria te d fro m Brawt a.” 57 9 F. Su pp

. 2d at 12 38

. The co ur t di d no t co ns id er whe th er th e pe rm an en t in jun ct io n, co up le d wit h su bs ta nt ia l ci vi l pe na lt ie s, were

su ffi ci en t to de te r fu tu re vi ol at io ns

. See SEC v. Tho m as Ja m es Ass oc s., In c., 73 8 F. Su pp

. 88
, 92 -9 3 (W. D.N.Y. 19 90 ). It di d no t co ns id er whe th er am ou nt s r e co ve red by t h e r ecei ve r or ex pe ns es at tri bu ta bl e to le gi ti m at e in ve st m en t act iv it ie s sh ou ld of f s e t t h e a mou nt to be di sg or ge d, as ot he r cas es ha ve req ui red to en su re th at di sg or ge m en t is rem ed ia l an d no t pu ni ti ve

. See SEC v. Glo ba l Exp res s Cap it al Rea l
Est at e In v. F u n d
, I
, LLC, 28 9 F. App ’x 18 3, 19 0 (9 th Ci r. 20 08 ); SEC v. JT
W al le nb ro ck & Ass oc s., 44 0 F.3 d 11 09
, 1 1 1 4 (9 th Ci r. 20 06 ); Uni te d Ene rg y Part ne rs , 88 F. App ’x at 74 7. Nor di d it ad dr es s whe th er th is rem ed y wou ld in te rfer e wit h th e vi ct im s’ effo rts to reco ve r th ei r lo ss es

. On th is re c o r d
, t h e on ly ap pa ren t
rat io na le fo r th e SEC’s d is go rg em en t re qu es t was pu ni ti ve , no t re m ed ia l. It was a n ab us e of di sc ret io n to gr an t th at req ue st , se e W al ke r, 19 89 W L 16 80 07
, at *2

-6

-( st an da rd of rev ie w), pa rti cu la rly wit ho ut ho ld in g an ev id en ti ary he ari ng on th e s e

is su es , se e SEC v. Sm

y th
, 42 0 F.3 d 12 25
, 12 32 -3 3 (1 1t h Ci r. 20 05 ). I wou ld rem an d fo r fu rth er co ns id erat io n o f th e d is go rg em en t i ss ue

.

2. I wil l al so ex pl ai n m

y na rro w reas on fo r a f

f i r mi n g th e gr an t of su m

m ary jud gm en t, be cau se th e co ur t’s su mm a r y affi rm an ce fai ls to ad dr es s a po te nt ia ll y

recu rri ng pro bl em

in th e d is tri ct co ur t’s d is po si ti on of t he SEC’s m ot io n.

In Apr il 20 07
, B r own su bm it te d an swe rs to SEC in te rro ga to rie s. Ten da y s la te r, th e Uni te d St at es Att or ne y no ti fie d de fen se co un se l th at Bro wn was th e ta rg et of a cri m in al in ve st ig at io n. Aft er t he di st ric t co ur t d en ie d B ro wn a s ta y of t he civ il

pr oc eed in gs , he as se rte d hi s Fi f t h Am en dm en t pr iv il eg e ag ai ns t se lf- in cri m in at io n

an d refu se d to an swe r su bs ta nt iv e qu es ti on s whe n th e SEC to ok hi s de po si ti on in th e ci vi l cas e. In gr an ti ng su m m ary jud gm en t, th e co ur t ru le d th at it wou ld no t co ns id er Bro wn’s i n te rro ga to ry res po ns es , th e on ly ev id en ce he su bm it te d as no n- m ov in g
pa rty, “ to pr ev en t un fai rn es s to th e S EC ” be cau se hi s as se rti on of th e pr iv il eg e

“ pr ev en te d th e SEC fro m ex pl or in g an d cl ari fy in g [th e in te rro ga to ry ] res po ns es in a de po si ti on .” SEC v. Bro wn, 57 9 F. Su pp

. 2d 12 28
, 12 35 (D. Mi nn

. 20 08 ). I co nc lu de th e co ur t ab us ed it s di sc ret io n whe n it de ni ed a st ay an d ex cl ud ed al l ev id en ce of fere d in op po si ti on to th e SEC’s m ot io n fo r su m m ary jud gm en t.

The Fi fth Am en dm en t pe rm it s an ad ve rs e in fere nc e whe n th e pr iv il eg e ag ai ns t

se lf- in cri m in at io n is cl ai m ed by a pa rty in a ci vi l cas e. See Bax te r v. Pam ig ia no , 42 5 U.S. 30 8, 32 0 (19 76 ). A di st ric t cou rt m ay al so “ m on it or whe th er th e as se rti on of a
pr iv il eg e cau se s un f

ai r pr ejud ic e to th e op po si ng li ti ga nt .” FTC v. Kit co of Nev
., In c., 61 2 F. Su pp . 1 28 2, 12 91 (D. Mi nn . 1 9 8 5 )

. Bu t “ th e di st ric t co ur t’s di sc ret io n

na rro ws as th e se ve rit y of th e s a n c t i o n or rem ed y it el ect s in crea se s.” W eg en er v. J o h n s o n , 5 2 7 F.3 d 68 7, 69 2 (8 th Ci r. 20 08 ). Prec lu di ng ev id en ce is an ex tre me

sa nc ti on th at m

us t be rem ed ia l, no t pu ni ti ve

. “ Be c a u s e th e pr iv il eg e [ag ai ns t se lfin cri m in at io n] is co ns ti tu ti on al ly ba se d, th e de tri m en t to th e pa rty as se rti ng it sh ou ld

-7

-be no m or e th an is ne ces sa ry to pr ev en t un fai r an d un ne ces sa ry pr ejud ic e to th e ot he r

si de .” SEC v . Gray st on e Nas h, In c., 25 F.3d 18 7, 1 92 (3d Cir . 19 94 ).

W he n the gove rn m en t se ek s ci vil rem ed ie s un de r st at ut es who se vi ol at io ns m ay be cri m in al ly p ro se cu te d -- su ch as th e f ed eral se cu rit ie s la ws -- co ur ts sh ou ld gi ve

“ sp eci al co ns id erat io n

. . . to th e pl ig ht of th e pa rty as se rti ng th e Fi fth Am en dm en t.” Gray st on e Nas h, 25 F.3 d at 19 4. In an ap pr op ria te cas e, th is m ay warra nt , in st ead of

a pr ecl us io n or de r, an or de r pe rm it ti ng th e pa rty to te st ify at th e ci vi l tri al
, as in Kit co , 61 2 F. Su pp

. at 12 91 ; or ba rri ng us e of th e de fen da nt ’s te st im on y in th e ci vi l cas e at

an y su bs eq ue nt cri m in al pr oc eed in g, as in Uni te d St at es v. Parc el s of Lan d, 90 3 F.2 d
36
, 44 (1 st Ci r. 19 90 ); or st ay in g th e ci vi l cas e un ti l th e de fen da nt is in di ct ed or th e cri m in al st at ut e of li m it at io ns ex pi r e s , a s i n W eh li ng v. Co lu m bi a Bro ad . S y s., 60 8
F.2 d 10 84
, 10 89 (5 th Ci r. 19 79 ). The se are de li cat e an d di ffi cu lt is su es , an d di st ric t

co ur ts ha ve su bs ta nt ia l di sc ret io n to res ol ve th em

. Bu t he re, th e di st ric t co ur t di d no t

ev en co ns id er whe th er Br o wn’s as se rti on of th e pr iv il eg e warra nt ed a le ss se ve re

rem ed y th an an or de r e f

f e c t i v e l y de fau lt in g hi s op po si ti on to th e SEC’s m ot io n fo r

su m m ary jud gm en t. Bro wn’s in te rro ga to ry res po ns es were su bm it te d pr i o r to hi s

as se rti on of th e pr iv il eg e an d m on th s be fo re th e SEC m ov ed fo r su m m ary jud gm en t. The re was no un fai r su rp ris e an d l it tl e if an y pre jud ic e. Thi s was “ a far cry fro m [a

cas e] whe re in vo cat io n of th e pr iv i l e g e pr ev en te d [a pa rty] fro m ob ta in in g th e

ev id en ce i t n eed ed to pre va il in th e li ti ga ti on .” Gray st on e Nas h, 2 5 F .3d at 1 93

.

Alt ho ug h th e di st ric t co ur t ab us ed it s di sc ret io n in ex cl ud in g Bro wn’s in te rro ga to ry res po ns es , I ag r e e th e gr an t of su m m ary jud gm en t m

us t be affi rm ed be cau se th e erro r was ha rm le ss

. See Fed

. R

. C i v

. P

. 61

. In op po si ng th e SEC’s

m ot io n, Bro wn arg ue d th at su m m ary jud g men t was in ap pr op ria te on th e is su e of

sc ie nt er, an el em en t of cl ai m s un de r §§ 17 (a)( 1)
, 10 (b ), 20 6( 1)
, an d R u l e 1 0 b

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req ui rin g p ro of of in te nt to de frau d. Aaro n v. SEC, 44 6 U.S. 68 0, 69 5, 69 7 (1 98 0) ; SEC v. St ead m an , 96 7 F.2 d 6 3 6, 64 1 n.3 (D.C. Ci r. 19 92 ). Bu t Bro wn’s

un co rro bo rat ed as se rti on th at he was en ti tl ed to su bs ta nt ia l fees an d twen ty-perc en t

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-of an y as se t ap pr eci at io n, ev en if cred it ed
, di d no t co m e cl os e to reb ut ti ng th e SEC’s

ev id e n c e t h at on e-h al

f of in ve st or fu nd s were tra ns ferr ed ou t of Brawt a’s acco un t, th at la rg e p o r ti on s of th e di ve rte d fu nd s were us ed fo r Bro wn’s pe rs on al ex pe ns es ,
an d th at he at te m

pt ed to co nc eal th e di ve rs io ns

. On th is reco rd
, as in SEC v. Ly tt le
, 53 8 F.3 d 60 1, 60 4 (7 th Ci r. 20 08 ), “ no reas on ab le jury co ul d do ub t th at [Bro wn] ha d

act ed wit h s ci en te r.”

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