Opinion ID: 478562
Heading Depth: 2
Heading Rank: 2

Heading: The Disgorgement Order

Text: 17 Following the entry of its permanent injunction, the district court ruled that defendants would be required to disgorge certain sums received as a result of their unlawful transactions. A trustee was appointed, and defendants were ordered to deliver to the trustee all premiums and other proceeds received by defendants in connection with the offer and sale, by them, of commodities options during the period June 1, 1978 to July 13, 1979. The trustee was given authority to, inter alia, retain an accounting firm and other consultants to assist him, take testimony under oath, and examine into defendants' books and records. He was directed to report to the court a proposal for distribution of the recovered proceeds to customers who had purchased commodity options from defendants during the period at issue. 18 An initial report filed by the trustee in February 1984, accompanied by an analysis made by his retained accounting firm, calculated that defendants had received premiums and other proceeds totaling at least $5.1 million. An alternative calculation of $6.3 million was also reported. The different figures represented disagreements between the parties as to the proper interpretation of the court's order leading to the proceedings before the trustee. The district court held a hearing with respect to the trustee's report and raised further questions with respect to the amount of profits gained by defendants from the sale of commodity options in the period specified. 19 In January 1985, the trustee reported back to the court that, in light of certain retractions in the testimony of defendants' accountant there was no way to quickly ascertain ABT's profits from the sale of commodity options. In a hearing convened thereafter, the court stated as follows: 20 While I find that there were substantial profits realized, I am satisfied that it is almost impossible, without a further extraordinary expenditure of effort and expense, to determine the amount of such profits.... 21 .... 22 What I have done, therefore, is to determine an amount of disgorgement which, under all the circumstances of this case, I determine to be equitable. 23 The court concluded that defendants should be required to disgorge the sum of $126,706, representing the monetary losses suffered by their customers as a result of the unlawful transactions. 24 As incorporated in the final judgment, the disgorgement order provided as follows: 25 1. That defendants shall disgorge to the trustee the sum of $126,706, or such other sum as the court approves, as may be necessary to make whole those members of the public who lost money through the purchase of commodity options from defendants during the period or thereafter. 26 2. That the defendants shall pay to the trustee, and to accountants or others retained by him in connection with the performance of his duties, the reasonable fees and expenses, in the sum of $31,047.26 to Robert G. Morvillo, Esq. and $179,183 to Arthur Young and Co., and such other fees and expenses, as the court approves, as may reasonably be incurred by the trustee in connection with the distribution of disgorged funds to purchasers of commodity options, as described in Paragraph 1 above. 27 3. Defendants shall be jointly and severally liable for the payment of the disgorgement, fees and expenses set forth above. 28 CFTC moved for reconsideration of the court's ruling as to the amount defendants would be required to disgorge, arguing that they should be ordered to disgorge all of the profits they received from the unlawful transactions. It contended that, conservatively estimated, defendants had netted at least $434,961 in profits. The court denied CFTC's motion, and these appeals and the cross-appeal followed.