Opinion ID: 750081
Heading Depth: 2
Heading Rank: 2

Heading: The SEC's Enforcement Action

Text: 8 Despite the initial success of the fraudulent scheme to gain control of Fischbach, the details of the stock-parking scheme were soon exposed and its participants were haled into court. Amid much publicity, Boesky, Milken, and Drexel pleaded guilty to criminal charges arising, in part, out of their participation in the scheme. 9 In 1988, the SEC initiated the present civil action against, inter alios, Milken, Drexel, and the Posners, alleging numerous securities laws violations arising from a variety of schemes, including the stock-parking scheme circumventing the Fischbach Standstill Agreement. The SEC's nearly 200-page complaint included allegations of the events set forth above and asserted that the defendants who participated in that scheme had, either directly or as aiders and abetters, violated §§ 10(b) and 13(d) of the Securities Exchange Act of 1934 (1934 Act), 15 U.S.C. §§ 78j(b), 78m(d), and Rules 10b-5 and 13d-1 thereunder, 17 C.F.R. §§ 240.10b-5, 240.13d-1. The complaint requested, inter alia, an order requiring the defendants to account for and disgorge all profits they had gained, as well as moneys equivalent to losses they had avoided, as a result of their illegal conduct. 10 In 1993, following a four-day bench trial, the district court found that Posner, aided and abetted by Steven, had violated § 13(d) of the 1934 Act by failing to amend [Posner's] Schedule 13D to disclose [his] beneficial ownership of the Fischbach stock bought by Boesky in mid-1984. Drexel I, 837 F.Supp. at 609. The court also found that the Posners had aided and abetted Boesky's § 13(d) violation by st[anding] ready to compensate him for any losses sustained on his investment in Fischbach. Id. It concluded that the arrangement with Boesky constituted 11 a blatant scheme to defraud in violation of section 10(b) [of the 1934 Act] and Rule 10b-5. The very essence of the scheme was to defraud Fischbach by creating the false appearance that the standstill agreement had been voided.... 12 Drexel I, 837 F.Supp. at 609. 13 The district court ruled that the Posners would be required to disgorge the money they had been paid by Fischbach after gaining control of the company, on the ground that 14 [h]ad it not been for their fraudulent arrangement with Milken and Boesky, the Posners would not have been able to acquire control of Fischbach and thus would not have been able to place themselves in high-paid positions at the company. Accordingly they shall be required to disgorge the money paid to them ostensibly as compensation for their services as officers and directors of Fischbach. 15 Id. at 612. The court's Final Judgment as to Defendants Victor Posner and Steven Posner dated December 29, 1993 (1993 Judgment), required that the disgorged funds--which, with prejudgment interest, totaled nearly $4 million--be deposited in the Court Registry Investment System, to be distributed pursuant to a plan of distribution to be prepared by the SEC and approved by the Court. (1993 Judgment at 10.) The 1993 Judgment ordered the SEC to submit the distribution plan as soon as practicable. (Id. at 12.) 16 This Court affirmed the 1993 Judgment. With respect to the disgorgement order, we noted that [b]ut for their illegal conduct, the Posners would not have been in a position to plunder Fischbach. SEC v. Posner, 16 F.3d at 522. We therefore held that the order was within the district court's broad discretion to tailor the sanction to the wrongful conduct involved. Id.