Opinion ID: 754159
Heading Depth: 3
Heading Rank: 1

Heading: The Disgorgement

Text: 9 This Court reviews a district court's decision on disgorgement for abuse of discretion. SEC v. First Jersey Secs., 101 F.3d 1450, 1475 (2d Cir.1996), cert. denied, --- U.S. ----, 118 S.Ct. 57, 139 L.Ed.2d 21 (1997). Abuse of discretion is a definite and firm conviction that the trial court committed a clear error of judgment. Bowling v. Pfizer, 102 F.3d 777, 780 (6th Cir.1996) (quotation marks and citation omitted), cert. denied, --- U.S. ----, 118 S.Ct. 263, 139 L.Ed.2d 190 (1997). 10 The Commission raises several challenges to the district court's decision to grant the motion to waive disgorgement, and one argument is dispositive. According to the Commission: ERISA does not apply to any plan to the extent it benefits the sole owner of a business and his or her spouse. This argument is based on the Sixth Circuit case of Fugarino v. Hartford Life & Accident Insurance Co., 969 F.2d 178 (6th Cir.1992). According to the Fugarino court, a plan whose sole beneficiaries are the company's owners cannot qualify as a plan under ERISA. Further, an employer cannot ordinarily be an employee or participant under ERISA. Id. at 185-86 (internal citation omitted). Johnston admitted in his Answer to the Complaint that he is the owner of Fiduciary Planning, Inc., and in 1995 he listed the $110,000 in the pension plan as his asset. Johnston meets the criteria set out in the Code of Federal Regulations for an employer: An individual and his or her spouse shall not be deemed to be employees with respect to a trade or business, whether incorporated or unincorporated, which is wholly owned by the individual or by the individual and his or her spouse, ... 29 C.F.R. § 2510.3-3(c)(1) (1997). Under 29 U.S.C. § 1103(c)(1) (1986 & Supp.1997), the assets of a plan shall never inure to the benefit of any employer.... As an employer and beneficiary, Johnston cannot claim that his pension is part of an ERISA plan. 11 It is true that the plan at issue in Fugarino is a welfare plan, as opposed to the pension plan at issue in this case, but the Fugarino court referred generically to a plan in discussing ERISA qualification. 969 F.2d at 185. The Fugarino court also cited 29 C.F.R. § 2510.3-3, which applies to both welfare and pension plans. Id. We hold that the principle enunciated in Fugarino applies to pension and welfare plans. 12 Johnston contends that Fugarino and 29 C.F.R. § 2510.3-3 simply refer to whether an ERISA plan exists and not whether it is ERISA qualified. To the extent this argument is even accurate--the Fugarino court used the word qualify in reference to ERISA plans--it is a distinction without a difference. 969 F.2d at 185. If an ERISA plan does not exist, the question of ERISA qualification is moot. The pension plan at issue covers only Johnston and perhaps his wife and is therefore not an ERISA plan. Disgorgement of the assets in the pension plan is proper. 13 Disgorgement typically is not used for restitution. The purpose of disgorgement is to force 'a defendant to give up the amount by which he was unjustly enriched' rather than to compensate the victims of fraud. SEC v. Blavin, 760 F.2d 706, 713 (6th Cir.1985) (per curiam) (quoting SEC v. Commonwealth Chem. Secs., Inc., 574 F.2d 90, 102 (2d Cir.1978)). In this case, however, the Commission noted during oral argument that it did intend to return the $96,310 to the Eurobond investors. We agree with the Commission that a return of the $96,310 to the unfortunate Eurobond investors is the best use for the money.