Court Opinion

ID: 7227453
Source: CourtListenerOpinion
Date Created: 2022-07-25 04:15:31.242662+00
Date Added: 2024-06-11T13:34:58.484670
License: Public Domain

OPINION AND ORDER

SHIRA A. SCHEINDLIN, District Judge:
I. INTRODUCTION
The Securities and Exchange Commission (“SEC”) brought this civil enforcement action against Samuel Wyly and Donald R. Miller, Jr. as the Independent Executor of the Will and Estate of Charles J. Wyly Jr. (“Charles Wyly” and, together with Samuel Wyly, the ‘Wylys”). The SEC alleged ten securities violations arising from a scheme in which the Wylys established a group of offshore trusts and subsidiary entities in the Isle of Man (“IOM”), used those offshore entities to trade in shares of four public companies (the “Issuers”) on whose boards the Wylys sat, and failed to properly disclose their beneficial ownership of that stock.
The liabilities and remedies phases of the trial were bifurcated. I presided over a jury trial on nine of the ten claims from March 31 to May 7, 2014. On May 12, 2014, the jury returned a verdict against both Sam and Charles Wyly on all nine claims.1 Following the jury verdict, I set a discovery and trial schedule for the remedies phase.
The SEC now seeks an order of disgorgement against Sam and Charles Wyly in the total amount of $619,298,512.45.2 *402The SEC also seeks a civil penalty and injunctive relief against Sam Wyly. From August 4 to August 12, 2014, I held a bench trial on all remedies issues except the SEC’s alternative disgorgement calculation based on trading profits from the sale of registered securities.3 For the benefit of all parties, I will now render a partial Opinion and Order addressing the remedies issues tried in August.
Pursuant to Rule 52(a) of the Federal Rules of Civil Procedure, I make the following findings of fact and conclusions of law. In reaching these findings and conclusions, I considered the testimony admitted during the jury and remedies trials, examined the documentary evidence, and reviewed the arguments and submissions of counsel, including a statement of interest filed on behalf of the United States government on August 9, 2014.
II. APPLICABLE LAW
A. Disgorgement
“Disgorgement serves to remedy securities law violations by depriving violators of the fruits of their illegal conduct.”4 “[D]isgorgement forces a defendant to account for all profits reaped through his securities law violations and to transfer all such money to the court.”5 Because disgorgement is an equitable remedy, “[t]he district court has broad discretion not only in determining whether or not to order disgorgement but also in calculating the amount to be disgorged.”6 “In determining the amount of disgorgement to be ordered, a court must focus on the extent to which a defendant has profited from his” violation.7
Disgorgement, being an equitable remedy, is not subject to the five year statute of limitations under 28 U.S.C. § 2462. Under section 2462, “an action, suit or proceeding for the enforcement of any civil fine, penalty, or forfeiture, pecuniary or otherwise, shall not be . entertained unless commenced within five years from the date when the claim first accrued .... ” While the Second Circuit has not addressed the issue of whether disgorgement constitutes a civil forfeiture, it has specifically held that, due to its remedial nature, disgorgement does not constitute a penalty,8 and is not analogous to criminal forfeiture.9 Thus, “the great weight of the case law in this jurisdiction” *403supports the conclusion that disgorgement is “exempted from [s]ection 2462’s limitations period.”10
“Because of the difficulty of determining with certainty the extent to which a defendant’s gains resulted from his frauds ... the court n’eed not determine the amount of such gains with exactitude.” 11 Under Second Circuit law, “ ‘[t]he amount of disgorgement ordered need only be a reasonable approximation of profits causally connected to the violation.’ ”12 Disgorgement awards can include both “direct pecuniary benefit[s]” and “illicit benefits ... that are indirect or intangible.” 13 However, because “disgorgement does not serve a punitive function, the disgorgement amount may not exceed the amount obtained through the wrongdoing.” 14
The SEC does not need to establish that the securities violations were the proximate cause of gains in order to satisfy the' “causal connection” requirement. Unlike private plaintiffs, who must demonstrate that the defendants’ misstatements or omissions were a proximate cause of their injury at the liability stage,15 the SEC has no such burden.16 Thus, the Second Circuit has held that “ ‘[p]roximate cause’ is the language of private tort actions[.] [I]t derives from the need of a private plaintiff, seeking compensation, to show that his injury was proximately caused by the defendants’ actions. But, in an enforcement action ... there is no requirement that the government prove injury, because the purpose of such actions is deterrence, not compensation.”17
*404The same principles that led the Second Circuit to conclude that proximate cause is irrelevant in SEC enforcer ment actions at the liability phase apply to disgorgement. Disgorgement is “a distinctly public-regarding remedy, available only to government entities seeking to enforce explicit statutory provisions.”18 “[T]he primary purpose of disgorgement is not to compensate investors. Unlike damages, it is a method of forcing a defendant to give up the amount by which he was unjustly enriched.”19 Courts can compel defendants to disgorge all unlawful gains “even if [that figure] exceeds actual damages to victims.”20 Imposing a proximate cause requirement on the SEC at this stage of an enforcement proceeding and in light of this remedial framework would be inappropriate.
Nevertheless, because disgorgement is not punitive, the' securities violations and the allegedly unlawful gains must be causally connected.21 This does not mean that a court is required to order disgorgement of all gains causally connected to the violations. For example, the Second Circuit has rejected disgorgement of income earned on unlawful proceeds, as unduly punitive.22 But the Second Circuit has held that district courts are not required to “trace specific funds” to specific violations when ordering disgorgement.23 Rather, the appropriate inquiry is whether, and by how much, defendants “were unjustly enriched” by their securities law violations.24
A recent Second Circuit case, SEC v. DiBella, is illustrative. Paul Silvester, the Connecticut State Treasurer, agreed to invest the state pension fund’s money with an asset management firm in return for that firm agreeing to pay a “finder’s fee” to Thomas DiBella, a former State Senator, who started his own consulting practice. “Silvester thought that allowing Di-Bella to be part of the ... investment would ... solidify[ ] a future business and political relationship.”25 After Silvester pled guilty to federal racketeering charges, the SEC brought an enforcement action *405against DiBella and his consulting company for aiding and abetting Silvester’s securities fraud violations and the investment firm’s violation of the Investment Advisers Act. The theory of liability for the primary violations was that Silvester and the investment firm defrauded the pension fund by failing to disclose the finder’s fee arrangement.
A jury found DiBella and his company liable for aiding and abetting all violations, and the district court ordered disgorgement of the finder’s fees. On appeal, defendants argued that disgorgement was inappropriate because the finder’s fee did not result directly from the securities laws violations. That is, because the finder’s fee was paid by the investment firm, and did not come from the pension fund itself, it could not have been “reaped through [the] securities laws violations.”26 The Second Circuit rejected defendants’ theory, finding that DiBella.was “unjustly enriched by aiding and abetting the [securities] violations,” because “the fraud ... was the linchpin necessary to ensure that [he] w[as] compensated.”27 Absent the fraud, DiBella “would not have been paid the fee at issue.”28
In other words, DiBella endorses a “but for” standard of causation. This method is consistent with the district court’s analysis in Razmilovic, which was approved by the Second Circuit. In that case, the defendant perpetrated a massive accounting fraud in his company while-he served as Chief Operating Officer and Chief Executive Officer. The district court ordered disgorgement of the defendant’s bonuses because payment of bonuses was tied to the financial performance . of the company. The court found that disgorgement of Razmilo-vic’s bonuses was appropriate because the company’s “restated earnings would not have met the target earnings amounts for performance-related bonuses in either year that he received those bonuses.”29 That is — but for the defendant’s fraud, the company would not have paid out bonuses. The court declined to award disgorgement of Razmilovic’s entire salary based on similar reasoning. Because Razmilovic also provided legitimate services to the company, his fraud was not a “but for” cause of the receipt of his entire compensation package. In declining to order disgorgement of the entire salary, the court distinguished other cases where “the fraud committed by th[e] defendants extended the life of the employer-company and, therefore, the defendants would not have received any compensation from a company that would not have existed but for their fraud.”30
“Once the SEC has met the burden of establishing a reasonable approximation of the profits causally related to the fraud, the burden shifts to the defendant to show that his gains ‘were unaffected by his offenses.’ ”31 Defendants are “entitled to prove that the [ ] measure is inaccurate,”32 but the “ ‘risk of uncertainty *406in calculating disgorgement should fall upon the wrongdoer whose illegal conduct created that uncertainty.’ ”33 Ultimately, however, the final decision as to the amount of disgorgement rests with the district.court.34
“For purposes of calculating disgorgement, financial hardship does not preclude the imposition of an order of disgorgement.” 35 “[W]hether or not the defendant may have squandered and/or hidden ill-gotten profits should not determine the amount disgorged; similarly, the likelihood that the SEC will in fact be repaid is unrelated to the amount by which a wrongdoer was improperly enriched.”36
“Where an individual or entity has collaborated or worked closely with another individual or entity to violate the securities laws, those individuals and/or entities may be held jointly and severally liable for any disgorgement.”37 “In such situations, the joint tortfeasors bear the burden of demonstrating that their liability can be reasonably apportioned.”38
B. Prejudgment Interest
The court also has discretion to order payment of prejudgment interest on any disgorged gains. Requiring the payment of interest prevents a defendant from obtaining the benefit of “ ‘what amounts to an interest free loan procured as a result of illegal activity.’ ”39 “In deciding whether an award of prejudgment interest is warranted, a court should [take into account] ... considerations of fairness and the relative equities of the award, [ ] the remedial purpose of the statute involved, and/or [ ] such other general principles as are deemed relevant by the court.” 40
C. Civil Penalty
The Securities Act and the Exchange Act authorize three tiers of civil penalties.41 The parties agree that tier two penalties are appropriate because the violations found by the jury “involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement.” 42 “The amount of the penalty for each such violation shall not exceed the greater of [$60,000] or (ii) the gross amount of pecuniary gain to such defendant as a result of the violation.”43 “[CJourts in this [district have calculated the number of violations based upon the number of acts taken that violate the secu*407rities laws, and the Second Circuit has endorsed that analysis.”44
For purposes of calculating a defendant’s “gross pecuniary gain,” the court ' “may consider gains only from frauds occurring within the five-year statute of limitations for civil penalties.”45 Otherwise, the calculation of “gross pecuniary gain” is similar to the calculation of disgorgement. “Beyond setting maximum penalties, the statutes leave ‘the actual amount of the penalty ... up to the discretion of the district court.’ ”46.
“[T]he civil penalty framework is of a ‘discretionary nature’ and each case ‘has its own particular facts and circumstances which determine the appropriate penalty to be imposed.’ ”47
In determining whether civil penalties should be imposed, and the amount of the fine, courts look to a number of factors, including (1) the egregiousness of the defendant’s conduct; (2) the degree of the defendant’s scienter; (3) whether the defendant’s conduct created substantial losses or the risk of substantial losses to other persons; (4) whether the defendant’s conduct was isolated or recurrent; and (5) whether the penalty should be reduced due to the defendant’s demonstrated current and future financial condition.48
D. Injunction
The Securities Act and the Exchange Act authorize courts to permanently enjoin defendants from future violations of securities laws.49 “An injunction prohibiting a party from violating statutory provisions is appropriate where ‘there ,is a likelihood that, unless enjoined, the violations will continue.’ ”50 Courts consider the following factors in determining whether a permanent injunction is appropriate relief:
the fact that defendant has been found liable for illegal conduct; the degree of scienter involved; whether the infraction is an isolated occurrence; whether defendant continues to maintain that his past conduct was blameless; and whether, because of his professional occupation, the defendant might be in a position where future violations could be anticipated.51
E. Grantor Trust Rules and Common Law Doctrines
“A grantor trust is created when a person contributes cash or property to a trust but retains certain interests such that he is treated as the owner of the *408trust.”52 “In determining the settlors of a trust, [a court] look[s] beyond the named grantors to the economic realities to determine the true grantor.”53 “Assets held in a grantor trust are considered the property of the grantor .... thus making the trust assets taxable to the grantor, until those trust assets are distributed” to a beneficiary.54
Sections 671-679 of Title 26 of the United States Code (the “Tax Code”) govern the circumstances under which a grantor trust is created and taxed. “The main thrust of the grantor trust provisions is that the trust will be ignored and the grantor treated as the appropriate taxpayer whenever the grantor has substantially unfettered powers of disposition.”55 A trust does not become taxable “solely on the grounds of [the grantor’s] dominion and control over the trust ... except as specified in” these provisions.56
1. Section 674
Under section 674(a), a grantor is “treated as the owner of any portion of a trust in respect of which the beneficial enjoyment of the [trust’s] corpus or [ ] income ... is subject to a power of disposition, exercisable by the grantor or a nonadverse party, or both, without the approval or consent of any adverse party.”57 In simpler terms, “the grantor is treated as the owner in every case in which he or a nonadverse party can affect the beneficial enjoyment of a portion of a trust,” subject to certain exceptions.58
Specifically, section 674(c), titled “Exception for certain powers of independent trustees” states
[s]ubsection (a) shall not apply to a power solely exercisable (without the approval or consent of any other person) by a trustee or trustees, none of whom is the grantor, and no more than half of whom are related or subordinate parties who are subservient to the wishes of the grantor&emdash;
(1) to distribute, apportion, or accumulate income to or for a beneficiary or beneficiaries, or to, for, or within a class of beneficiaries; or
(2) to pay out corpus to or for a beneficiary or beneficiaries or to or for a class of beneficiaries (whether or not income beneficiaries).59
Thus, “a grantor is not treated as owning the trust property when his beneficial enjoyment of the trust corpus or income is subject to the control of an independent trustee.”60 However, “[a] power in the grantor to remove, substitute, or add trustees ... may prevent a trust from qualifying under section 674(c),” unless that power “is limited so that its exercise could not alter the trust in a manner that would *409disqualify it under section 674(c).”61 Further, section 674(c) does not apply “if any person has a power to add to the beneficiary or beneficiaries or to a class of beneficiaries 'designated to receive the income or corpus, except where such action is to provide for after-born or after-adopted children.”62
2. Section 679
Under section 679(a), “[a] United States person who directly or indirectly transfers property to a foreign trust ... shall be treated as the owner for his taxable year of the portion of such trust attributable to such property if for such year there is a United States beneficiary of any portion of such trust,” unless the transfer is made for fair market value.63 “In general, the term ‘fair market value’ is understood to mean ‘the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.’ ”64 “A trust shall be treated as having a United States beneficiary for the taxable year unless ... under the terms of the trust, no part of the income or corpus of the trust may be paid or accumulated during the taxable year to or for the benefit of a United States person.”65 In 2010, Congress amended the statute to clarify that “an amount shall be treated as accumulated for the benefit of a United States person even if the United States person’s interest in the trust is contingent on a future event.”66
3. Substance Over Form
The “substance over form” doctrine codifies the principle that “even if a transaction’s form matches ‘the dictionary definitions of each term used in the statutory definition’ of the tax provision, ‘it does not follow that Congress meant to cover such a transaction’ and allow it a tax benefit.”67 In the context of trusts, courts look to the following facts
to determine whether a trust had economic substance: (1) whether the taxpayer’s relationship to the transferred property differed materially before and after the trust’s creation; (2) whether the trust had an independent trustee; (3) whether an economic interest passed to other trust beneficiaries; and (4) whether the taxpayer respected restrictions imposed on the trust’s operation as set forth in the trust documents or by the law of trusts.68
*410“In applying this doctrine of substance over form, [courts] ha[ve] looked to the objective economic realities of a transaction rather than to the particular form the parties employed.... [and] ha[ve] never regarded the simple expedient of drawing up papers, as controlling for tax purposes when the objective economic realities are to the contrary.”69 Courts are not “bound by a meaningless label (or a mislabel) that the parties to an agreement give to any or all parts of the agreement, but [must] decide the true nature of the agreement by looking to its substance and to the intention of the parties.” 70
The substance over form doctrine is applicable to the entire body of federal tax law, including the grantor trust provisions.71 Thus, even when a trust is not a “sham”&emdash;that is, where it has legitimate economic substance&emdash;it may still be taxable as a grantor trust because it satisfies an exception within the grantor trust provisions only in form.72
III. FINDINGS OF FACT
A. Undisputed Facts and Jury Findings
Between 1992 and 1996, Sam and Charles Wyly created a number of IOM trusts, each of which owned several subsidiary companies.73 Michael French, the Wylys’ family attorney, Sharyl Robertson, the Chief Financial Officer (“CFO”) of the Wyly family office, and Michelle Boucher, the CFO of the Irish Trust Company, a Wyly-related entity in the Cayman Islands, served as protectors of the IOM trusts.74 French, Robertson, and Boucher conveyed the Wylys’ investment recommendations to the trust management companies administering the Wylys’ IOM trusts (the “IOM trustees”). All of the IOM trustees’ securities transactions were based on the Wylys’ recommendations and the IOM trustees never declined to follow a Wyly recommendation.75
The Wylys served as directors of Mi-chaels Stores, Sterling Software, Sterling Commerce, and Scottish Annuity and Life *411Holdings, Ltd. (“Scottish Re”).76 As part of their compensation, the Wylys received stock options and warrants. “Between 1992 and 1999, Sam and Charles Wyly sold or transferred to the [IOM] trusts and companies stock options in Michaels Stores, Sterling Software and Sterling Commerce” in exchange for private annuities while simultaneously disclaiming beneficial ownership over the securities in public filings with the SEC.77 Between 1995 and 2005, the IOM trusts and companies exercised these options and warrants, separately acquired options and stock in all four companies, and sold the shares, without filing disclosures.78
The jury found79 that the Wylys were beneficial owners of the Issuer securities transferred to, held, and sold by the IOM trusts because the Wylys, directly or indirectly, had or shared voting and/or investment power over these securities. Thus, the jury concluded that the Wylys failed to accurately disclose the extent of their beneficial ownership in the Issuer securities under sections 13(d) and 16(a) of the Securities Exchange Act (the “Exchange Act”). The jury also found that the Wylys caused the Issuers to violate section 14(a) of the Exchange Act, because the Wylys misrepresented the extent of their beneficial ownership to the Issuers in their Director and Officer (“D & O”) questionnaires, which were incorporated by the Issuers in proxy statements. In addition to these disclosure violations, the Wylys were found liable for securities fraud in violation of section 10(b) of the Exchange Act and section 17(a) of the Securities Act of 1933 (the “Securities Act”), and for aiding and abetting the Issuers’ and the IOM trusts’ securities law violations. Finally, the jury found the Wylys liable for selling unregistered securities in violation of section 5 of the Securities Act for certain sales of Mi-chaels Stores stock.
B. The Creation of the Offshore System
In early to mid-1991, Sam Wyly asked Robertson to attend a seminar held by lawyer and trust promoter David Tedder on the use of foreign trusts as a method of asset protection and tax deferral.80 Shortly thereafter, the Wylys, Robertson, and French attended another Tedder seminar in New Orleans.81 Tedder, French, and the Wylys then had a private meeting at Sam Wyly’s house in Malibu, California.82 *412At that meeting, Tedder “talked about establishing trusts that would provide tax deferral, and how the Wylys could transfer assets to those trusts and get tax deferral on the growth of those assets.”83 Specifically, Tedder recommended transferring the Wylys’ stock options in Sterling Software and Michaels Stores to a foreign trust in exchange for a private annuity “in a tax-free kind of transaction.”84 Under Tedder’s plan, it was “expressly intended that [the Wylys] ... irrevocably surrender the enjoyment, control, ownership, and all economic benefits attributable to the ownership of the [options] which are sold in exchange for the private annuity.”85
The Wylys pursued the offshore program primarily for its tax advantages.86 However, because Tedder suggested transferring stock options in publicly traded companies — Sterling Software and Mi-chaels Stores — any such transaction would implicate the securities laws. French testified that he raised concerns about whether the Wylys would continue to have filing obligations as directors of Sterling Software and Michaels Stores, even after the ■transfers.87 Tedder responded that making SEC filings could threaten the Wylys’ tax benefits, because “disclosure of the offshore trusts in SEC filings may lead the IRS to discover and investigate the tax issue, and ... the IRS might use the Wylys’ SEC filings against them if the tax issue was ever litigated.”88
Defendants argue that French’s testimony is not credible because his recollection of Tedder’s statements came only after French reached a favorable settlement with the SEC on the eve of this trial.89 Standing alone, French’s testimony might not be credible. But Sam Wyly corroborated French’s account by testifying that Tedder told him that SEC filings “could trigger tax problems if you had these things on file and [were] reporting the trust shares on [Schedule] 13Ds.”90 Further, it would be logical to draw an inference that the Wylys would have been concerned about taking inconsistent positions in their SEC and IRS filings when millions of dollars of tax savings were at stake.
The jury found that the Wylys always had beneficial ownership over the options, warrants, and securities held by the IOM trusts. Thus, the Wylys were obligated to disclose, on the filings required by sections 13 and 16, any time they or the trusts transacted in those securities. Because beneficial ownership under the securities laws turns on having voting and/or investment power, truthful SEC filings would have forced the Wylys to admit having some element of control over the securities held by the trusts. To the Wylys, this would mean conceding some element of control over the trustees. But the Wylys believed — rightly or wrongly — that it was critical to conceal their control of the trustees in order to maintain the tax-free sta*413tus of the trusts, including income from transactions in the Issuer securities.91
Because the Wylys made public filings showing the transfer of options to foreign trusts, and at other times publicized their relationship to the foreign trusts,92 the Wylys also took affirmative steps to minimize the trusts’ SEC filings to conceal the ultimate exercise and sale of those options. For example, the Wyly family office tracked the percentage of ownership each trust management company had in a particular Issuer to avoid triggering mandatory SEC reporting.93 Thus, as Sam Wyly testified, not making SEC filings was logically “something that consistently went on” throughout the duration of the offshore system.94
Even when it would have been otherwise helpful to assert beneficial ownership over the stock held by the foreign trusts, such as during Sam Wyly’s proxy battle for control of Computer Associates (the acquirer of Sterling Software) in February 2002, the Wylys chose not to do it in fear of inconsistent tax positions.95 From these facts, it is logical to draw the inference that making misleading statements in SEC filings, or not making SEC filings at all, was part of the Wylys’ plan to maintain the appearance of separation and independence from the foreign trusts.96
1. The Bulldog Trusts
The Wylys ultimately hired Tedder to help establish the first group of offshore trusts and subsidiary companies in 1992 (together with the Plaquemines Trust, the *414“Bulldog Trusts”).97 These trusts were settled by Sam or Charles Wyly and had beneficiaries including the Wylys’ wives and children and several charitable organizations. The trust deeds permitted the protectors to “add[] or substitute]” a charitable organization “by notice in writing to the trustees.”98 These trusts were explicitly set up as “non-grantor trust[s] rather than [ ] grantor trust[s] under Section 671-678 of the Code.”99 Under the terms of the trusts, no United States beneficiary could receive a distribution from the trust until two years after the settlor’s death.100
2. The Bessie Trusts
In 1993, French approached the law firm of Morgan, Lewis & Brockius (“Morgan Lewis”) to discuss whether the Bulldog Trust was a “grantor or non-grantor trust.”101 Morgan Lewis prepared a memorandum concluding 1) that there was a “significant risk that the [Bulldog] Trust will be characterized as a grantor trust under § 679 [because] income is being currently accumulated for the benefit of U.S. beneficiaries,” and 2) that “[i]t is also likely that the Trustee’s power to add or substitute other foreign charities (within the class [of beneficiaries]) causes the Trust to be characterized as a grantor trust under § 674.”102 Charles Lubar, the partner at Morgan Lewis retained to work on this matter, gave the memorandum to French and spoke with him about its conclusions.103
The following year, French asked Lubar to advise the Wylys about whether a trust settled by “a foreign person who had done business with Sam Wyly” would be treated as a grantor trust.104 Lubar advised that “as long as there wasn’t an indirect transfer of assets by the U.S. person and the foreign person put the money up, and there were certain powers in the trust, then it would be a foreign grantor trust, and the distributions then would not be taxable.”105 For the purposes of rendering his opinion, Lubar assumed that the foreign grantor would be the “sole trans-feror of property to the trust[],” unless the taxpayers transferred funds “on an ‘arm’s length’ basis.”106
*415In 1994 and 1995, two foreign citizens established several trusts for the benefit of the Wylys and their families (collectively, the “Bessie Trusts”).107 The Bessie Trust and the Tyler Trust were purportedly settled by Keith King, an individual associated with Ronald Buchanan, an IOM trustee selected by the Wylys, with initial contributions of $25;000 each.108 However, no such contribution was ever made. The trusts “were settled with a factual dollar bill ... plus an indebtedness of $24,999 each on the part of Keith King as set-tlor.” 109 That indebtedness was immediately forgiven.110
The La Fourche Trust and the Red Mountain Trusts were purportedly settled by Shaun Cairns, another individual associated with Buchanan, also with initial contributions of $25,000 each. Cairns testified that French prepared letters stating that Cairns was establishing the trusts “to show [his] gratitude for [the Wylys’] loyalty to our mutual ventures and [their] personal support and friendship,”111 and asked Cairns to sign them.112 In truth, Cairns had never met nor dealt with the Wylys before establishing the trusts, and had provided only $100 towards the trusts.113 Shortly after these trusts were settled, Cairns’s trust management company was hired to serve as trustee for some of the Wylys’ IOM trusts.114
These transactions were shams intended to circumvent the grantor trust rules. French and Buchanan, acting as the Wy-lys’ agents, recruited King and Cairns to create a falsified record of a gratuitous foreign grantor trust. The trust documents are admittedly false — King and Cairns never contributed $25,000 towards the initial settlement. Yet defendants argue that King and Cairns can still be considered grantors with contributions of $1 and $100, respectively, if those transfers were gratuitous and were never directly reimbursed by the Wylys.115
There were no gratuitous transfers here. First, I am doubtful that King provided even the factual $1 towards the trusts. In a November 26, 1995 fax to French, Buchanan writes that “Keith never produced the money.”116 Buchanan explains that the King-related trusts “were settled with a factual dollar bill” only so that “there [was] no question of the[] [trusts] being voidable by reason of the absence of assets” pending the Wylys’ transfer of op*416tions.117 Even if King had contributed the $1, the premise that an unreimbursed dollar bill is sufficient to establish a tax-free foreign grantor trust cannot be taken seriously. Second, Cairns’s transfer of $100 cannot be considered gratuitous because shortly after settling these trusts, he received lucrative work from the Wylys as trustee.118 Finally, in light of the falsified trust deeds and supporting documentation surrounding these trusts, it would be unjust to consider anyone but the Wylys to be the true grantors of these trusts.
3. The Trustees
The trusts were administered by professional asset management companies located on the Isle of Man.119 The trustees were selected by the Wylys or the protectors. The protectors, all of whom were Wyly agents, had the authority to remove and replace trustees. As mentioned earlier, the protectors also transmitted the Wylys’ investment recommendations to the trustees. Defendants have presented no evidence of an investment made by the IOM trusts that did not originate with the Wy-lys ’ recommendations. Nor have defendants presented evidence of an IOM trustee rejecting a Wyly recommendation.
The SEC, on the other hand, has identified several transactions where the Wylys bypassed the trustees altogether. In October 2001, Keeley Hennington, who replaced Robertson as the head of the Wyly family office in June 2000, called Lehman Brothers and directed it to sell 100,000 shares of Michaels Stores held by Quayle Limited, an IOM company, at Charles Wyly’s request. Neither Wyly nor Hen-nington contacted the trustees before placing the sell order.120 On another occasion in June 2002, Sam Wyly contacted a broker directly and instructed him to “hold on” to 100,000 shares of TYCO stock, overriding a previous order from the IOM trustee, based on an earlier Wyly recommendation, to sell all TYCO shares.121
The SEC also presented evidence of transactions that no independent trustee would reasonably initiate. For example, on September 26, 1998, Boucher contacted an IOM trust to recommend a ten million dollar investment in the Edinburgh Fund. On September 28, Boucher told the trustee for the first time that the Edinburgh Fund was a fund run by Sam Wyly’s son-in-law and that it did not have a prospectus or subscription documents. Despite knowing nothing about the investment beyond its connection to the Wyly family, the trustee agreed to “forward the necessary instructions to Lehman Brothers.”122 One day later, Boucher followed up with the trustee *417“to ask for an update on progress with regard to making funds available for the proposed investment in the Edinburgh Fund.... [Boucher] mentioned that the Fund had already commenced trading and that the funds would therefore be required urgently.”123
Some of the Wylys’ recommendations had nothing to do with securities at all. Among the many personal purchases, loans, and investments the Wylys directed the IOM trustees to make, were businesses for Wyly children and family members, real estate, artwork, jewelry, collectibles, and furniture.124
4. Transfer and Sale of Issuer Options
“In April 1992, Sam and Charles Wyly transferred 960,000 Michaels Stores options and 1,988,588 Sterling Software options to ten Nevada companies indirectly owned by two Isle of Man trusts in exchange for deferred private annuity agreements.” 125 In 1995 and 1996, the Wylys transferred 1,350,000 Michaels Stores options, 2,650,000 Sterling Software options, and 4,600,000 Sterling Commerce options to the IOM trusts, also in exchange for annuities.126
In June 1997, French approached Morgan Lewis to discuss the tax consequences of the private annuity transaction.127 Lubar remembers that he was “really concerned about the transaction” and “worried that the transfer of the options to a company that didn’t have any other assets in exchange for a private annuity raised a question about whether that was an arms-length transfer.”128 However, Lubar acknowledged that “other tax lawyers would look at a transfer of a private annuity in different ways.”129 After studying the issue, Lubar advised French that the transfers created potential problems under sections 674 and 679, amongst other provisions.130
C. Persuading Issuers Not to File Forms 1099 or W2
Ordinarily, a company granting stock options as compensation issues a Form 1099 or W2 reporting income to the director or officer and takes a corresponding deduction, for the compensation expense when the option is exercised. When the Wylys transferred their stock options to the IOM trusts in exchange for private annuities, the Issuers of the options — that is, Sterling Software and Michaels Stores — had to decide whether that transfer was a taxable event that required issuing a Form 1099 or W2 to report incomé to *418the Wylys.131 To address these concerns, Tedder sent an opinion letter to both companies explaining that the Wylys should not have to recognize income because the annuity did not require payment until a date certain in the future.132
Jeannette Meier, general counsel of Sterling Software, asked French’s law firm, Jackson Walker, to give a “back up” tax opinion to support Tedder’s letter. French provided a draft opinion, but never finalized the letter. Nevertheless, based on French and Tedder’s representations, Sterling Software decided not to issue a Form 1099 to the Wylys and declined to take a corresponding deduction for compensation expense. But Meier testified that the company was “concerned about ... whether, not having gotten a backup opinion from Jackson Walker, [it] was on good ground not to have to put [the compensation expense] in the [Section] 10-Q [financial statements.]”133 The value of the options was “a big number” and “would have affected the accuracy of the public filings” if Sterling Software had decided to report it as compensation.134
Michaels Stores treated the transfer of options identically. In addition, French instructed Mark Beasley, general counsel for Michaels Stores, not to issue Form 1099s for any of the foreign trust entities upon those companies’ exercise of stock options.135
In March 2000, SBC Communications Inc. (“SBC”) acquired Sterling Commerce, which had been spun off from Sterling Software in 1995. “As part of [the] acquisition ... all outstanding options to purchase shares of Sterling [Commerce] were canceled. All option holders received cash ... based on the excess of the stock purchase price over the option price.”136 On January 11, 2001, SBC notified the Wylys that it was planning “to issue a Form 1099 to [the respective Wylys]/[their] trusts showing taxable income” in the total amount of $73,912,500.137 The Wylys, through Boucher and Robertson, reached out to Rodney Owens, a partner at the Meadows Owens law firm in Dallas, to write a memo to SBC explaining why a 1099 should not be issued.138 On January 26, 2001, Owens wrote in a letter to SBC that “it is not appropriate for SBC to file a *4191099 or any other reporting papers regarding this transaction because [the IOM entity] is a foreign corporation, and the income from the purchase of the stock is not subject to U.S. taxation.” 139 After receiving the letter, SBC sought additional information about the private annuity transaction, including whether the transfer of options had been recognized as a taxable event at the time of the original transaction, and if not, what the schedule of annuity payments was.140 Although Frenchis relationship with the Wylys had broken down by this point, he agreed to write a memorandum supporting the tax treatment of the annuities.141
All in all, between 1992 and 2004, the Issuers never reported income related to the exercise of options or warrants transferred to the foreign trusts.142 Their decision not to report was a result of the Wylys’ deceptive behavior and affirmative misrepresentations. Because the Wylys disclaimed beneficial ownership of the options upon transfer, convinced the Issuers that the private annuity transactions were not taxable events, and did not disclose their beneficial ownership of the securities held by the IOM trusts in their Director and Officer questionnaires, the Issuers did not attribute taxable income to the Wylys.
D. Concerns about Taxation of Annuity Payments
The annuity payments for the original option transfers had been due to commence in the late 1990s, but that period was extended to 2004.143 In early 2003, Boucher and Hennington approached Lu-bar to discuss potential issues arising from the upcoming annuity payments.144 Lubar told Hennington and Boucher that, as he explained to French years before, he believed the trusts were grantor trusts under either sections 674 or 679 and should have been taxable to the Wylys all along. Further, Lubar believed the IRS would challenge the private annuity transactions.145 Lubar and other Morgan Lewis attorneys suggested approaching the IRS “on a no-name basis” to see “where the negotiations with the IRS might lead” in the event the Wylys wanted to pursue a voluntary disclosure.146
Boucher and Hennington summarized Lubar’s advice in a July 2, 2003 memorandum to Sam Wyly, Charles Wyly, Evan Wyly, and Donald Miller. The memorandum addressed several concerns about the “logistical problems of paying the annuities.” 147 Hennington and Boucher were *420concerned that “[i]t is almost certain given the large amount of these payments that the reporting will result in an IRS audit. [Further], [t]here is also a high likelihood that as a result of this audit the entire structure of the foreign system will be audited by the IRS.”148 Additionally, Hen-nington and Boucher reported that
[t]he annuity payments will bankrupt several of the IOM companies, which could bring the validity of the annuity transaction into question. [And] [a]fter a few years of payments, [other] companies will be left with non-liquid assets, which will result in payments being made in kind .... [which] may also call into question the validity of the transaction and the ‘arms length’ nature of the transaction.149
On August 13, 2003, several attorneys representing the Wyly family met with Internal Revenue Service (“IRS”) officials. Lubar gave the IRS some details about the trusts, and admitted that there was a “serious risk [that] they were grantor trusts from the beginning.”150 Lubar also explained the private annuity transactions, and told the IRS, after questioning, that the options were for stock in publicly traded corporations, that no income was reported upon exercise, and that the corporations claimed no deductions.
According to attorney notes memorializing the meeting, an IRS officer asked if the taxpayers were “significant enough shareholders that their holdings would be listed on SEC filings” and asked if the “SEC filings show[ed] beneficial interest in shares.”151 Lubar said that he believed they were significant enough shareholders for “at least [the] first two [companies]” but did not know if the filings showed beneficial ownership.152 Hennington and Boucher reported to the Wylys that the IRS was primarily interested in the structure of the annuity, but added that one of the IRS representatives “seemed very interested in any SEC reporting of the initial transactions [even though] [t]his seems out of their area of expertise or control.” 153
E. IRS Audit
The Wylys did not proceed with Morgan Lewis on a voluntary disclosure path. But by February 2, 2004, Charles Wyly received a notice of audit.154 Shortly thereafter, Sam Wyly asked Hennington, Boucher, and Charles Pulman, another attorney at Meadows Owens, “to explore what happens [for purposes of taxation] if he is not a U.S. citizen.”155 The firm concluded that an expatriate U.S. citizen who has a net worth of more than $622,000 “will be treated as having a principal purpose of tax avoidance” and will continue to be taxed pursuant to several special provisions.156
*421From May to August 2004, the IRS sent a number of information document requests (“IDRs”) to both Sam and Charles Wyly.157 In at least one .of the IDRs, the IRS requested additional information about a transfer of Michaels Stores options to an independent trust, such as “the identity of all original and current beneficiaries, including their nationality, place of residence, and current mailing address” as well as the identity of “the grantor(s) of the trust(s).”158 At an October 21, 2004 meeting between attorneys representing the Wyly family and the IRS, an IRS agent said that the IDRs regarding the options transfers were .based on information “pulled from SEC filings.”159 At that meeting, the IRS agents also asked questions about the trusts, including about why Keith King set up the Tyler Trust.160
The SEC has not shown that the Wylys’ or Issuers’ SEC filings launched the IRS audit of the Wylys and the offshore system,' or even that accurate filings would have been likely to trigger an earlier examination. However, it is evident from the IDRs and from the October 2004 meeting, that once the IRS investigation was under way, agents and investigators were consulting SEC filings as part of their fact finding process and identified numerous issues and misstatements.
F. Purchase and Sale of Unregistered Michaels Stores Stock
1. The Transactions
On March 29, 1996, Michaels Stores announced that it had entered into several private agreements to sell two million shares of unregistered stock, at $12.50 per share, to “independent trusts of which Wyly family members are beneficiaries.” 161 On April 5, 1996, the trusts actually purchased those shares.162
On December 26, 1996, Michaels Stores announced that it had entered into private agreements to sell two million options to' purchase shares of unregistered stock to “independent trusts of which, Wyly family members are beneficiaries.”163 On January 7, 1997, the Wall Street Journal reported on the purchase as a positive sign for Michaels Stores.164 Between the date of the options purchase and the day after the Wall Street Journal article appeared, *422share price rose from $10.50 to $13.125.165 The options were transferred on February 25, 1997, and exercised on March 10, 1997.166 On that date, Michaels Stores closed at $17.625.167
The IOM trusts sold 1.8 million shares of unregistered stock between June and December 1997, at prices ranging from approximately $21 per share in the summer to approximately $35 per share in the fall.168 The trusts sold 200,000 of these shares less than one year after the December 1996 private placement, in violation of the terms of the purchase agreement.169 In 1998, the IOM trusts sold a small number of shares at approximately $32 per share. In 2000 and 2001, the IOM trusts sold approximately 1.2 million shares at prices ranging from approximately $40 per share in September 2000 to approximately $55 per share in November 2001.170
2. The Economic Value of Registration
While the IOM trusts filed Forms 144 disclosing the sale of the shares, those forms did not disclose that the trusts were “affiliates” of Michaels Stores by virtue of being commonly controlled by the Wy-lys.171 Nor did the Wylys or the trusts demand that Michaels Stores file a Form S-3 shelf registration statement for these securities prior to the sales. However, at the time of these transactions, Michaels Stores had effective Form S-l registration statements, which disclosed the financial background of the company, and other critical information about the value of the investments, including a prospectus. The Form S-3 shelf registration statements, if completed accurately, would have revealed no additional information about Michaels Stores, but would have disclosed the Wy-lys ’ beneficial ownership of these shares.
Defendants argue that the proper measure of disgorgement for sale of unregistered securities in this context should be the economic benefit attributable to the Wylys’ failures to 1) cause Michaels Stores to register the securities and 2) file disclosures after the sales. Defendants attempted to calculate that economic benefit with expert testimony from Professor John J. McConnell, of the Purdue School of Management.
McConnell relied upon three academic studies — a 2000 study by David Aboody and Baruch Lev, a 2001 study by Joseph Lakonishok and Inmoo Lee, and a 2010 study by Francois Brochet — all of which purport to examine the economic impact of trading disclosures by officers and directors.172 These studies concluded that the adverse effect on share price associated with SEC filings disclosing insider sales ranges from .17 percent to .61 percent.173 McConnell explained this fairly low price impact by concluding that while
[t]here is a general recognition that insiders are more likely to have additional information that is not available to other *423market participants, .... [ijnsiders [also] appear to sell shares for reasons having nothing to do with adverse information that’s about to be released or will be released in the near future.174
McConnell applied these studies to the Wyly trades by first assuming that Mi-chaels Stores filed Form S-3 statements registering the shares, and that such statements were deemed effective by the SEC. McConnell then assigned hypothetical filing dates for the Wylys’ required disclosures under sections 13 and 16 based on the actual trade dates. McConnell applied each study’s adverse impact figure to the profits earned by the Wylys on each transaction to determine the dollar value of a hypothetical disclosure. Finally, McConnell calculated the total economic impact of the hypothetical disclosure by extending the price effect over a period of 90, 180, and 360 days.175 McConnell’s estimated economic valuation of the Wylys’ failure to register and disclose the sale of Michaels Stores shares ranged from $1.28 million to $6.44 million, based on the applicable study and the duration of the price effect.176
The SEC challenges McConnell’s conclusions as speculative because they are based on assumptions about the Wylys’ hypothetical compliance with the securities laws. It is true that, like all experts, McConnell makes certain assumptions of fact. However, these assumptions — that the Wylys 1) caused Michaels Stores to register the shares, and 2) made appropriate disclosures following the sales — are not offered to speculate about a counter-factual universe. Rather, McConnell makes these assumptions in order to calculate the economic benefit the Wylys received for failing to do those things.
Nevertheless, McConnell’s methodology is irredeemably flawed because the underlying studies he relies on are not applicable to the facts of this case. First, the studies evaluate the impact of disclosure by “garden variety” insiders — that is, ordinary officers and directors. However, the Wylys were anything but “garden variety” insiders. During this time period, the Wy-lys owned over forty percent of the common stock in Michaels Stores,177 and controlled five of the seven seats on the Board of Directors.178 McConnell’s statement that he had “no basis to conclude that the market reaction to the sale of the Wylys would have been significantly different than the average reaction identified in the economic literature” is indefensible in light of these facts.179
At best, McConnell may argue that there was minimal market reaction to seventeen instances where the Wylys sold Michaels Stores stock domestically between 1993 and 2004 and extrapolate that the Wylys were “garden variety” insiders.180 But I cannot draw conclusions from the small number of onshore transactions relative to the large volume of off*424shore (and undisclosed) transactions at issue here,181
Alternatively, McConnell points to the fact that there was minimal market reaction to the February 2005 disclosure that the Wylys were under investigation by the Manhattan District Attorneys’ Office, and ,the April 2005 disclosure that the Wylys intended to amend their Schedule 13D filings to claim beneficial ownership of the shares remaining in the IOM trusts.182 But by this time the Wylys’ joint holdings constituted only eight percent of the outstanding Michaels Stores common stock, so the impact of any disclosure would likely be lower.183 More importantly, these disclosures — of a criminal investigation and of an insider’s beneficial ownership over additional shares held by foreign trusts — are entirely different from the disclosures that would have been made in 1997-1998. Acknowledging beneficial ownership over common stock held by a trust is not comparable to an insider disclosing his sale of millions of shares.
Second, McConnell’s calculation of price impact does not take into account the significantly discounted price at which the Wylys bought the unregistered securities.184 The discount is evident for the April 1996 private placement, and can thus be inferred for the December 1996 option purchase. Michaels Stores closed trading on March 28,1996 at $14.25.185 The Wylys entered into an agreement to purchase two million shares on March 29, the same day as the press release announcing the cash infusion. By the time the Wylys actually purchased the shares on April 5, the price had risen to $15.35.186 Thus, the Wylys bought the shares at a 22.8% discount,187 a figure consistent with academic studies finding that “[ajverage discounts on unregistered shares are sizable, ranging from 20% to 35%.”188 For both of these reasons, I reject McConnell’s methodology and valuation.
IV, CONCLUSIONS OF LAW
A. Disgorgement Based on Unpaid Taxes
The SEC arrives at its proposed measure of disgorgement by 1) calculating the total profits earned on the sale of the Issuer securities by the IOM trusts, and 2) approximating the amount of taxes that *425would have been paid on those profits had the Wylys accurately disclosed beneficial ownership of the securities. For the following reasons, I conclude that this is an appropriate measure.
1. Using Unpaid Taxes as a Measure of Disgorgement Does Not Violate Section 7401
On June 13, 2013, I held that the SEC was not foreclosed, as a matter of law, from seeking disgorgement in an amount equivalent to the federal income taxes the Wylys would have been required to pay if they properly disclosed beneficial ownership over the Issuer securities. “There is no explicit prohibition, either in the Tax Code or in the Exchange Act, on using tax benefits as a measure of unjust enrichment in other contexts” and no “express limitation on the SEC’s authority to calculate and disgorge any “reasonable approximation of profits causally connected to the violation.” ”189 Defendants urge that I revisit this ruling and determine that ordering disgorgement measured by unpaid taxes is not permitted by the Tax Code.
Congress has granted exclusive authority to the Secretary of the Treasury to assess and “collect the taxes imposed by the internal revenue laws,” who has, in turn, delegated that authority to the IRS.190 Section 7401 of the Tax Code states that “[n]o civil action for the collection or recovery of taxes, or of any fine, penalty or forfeiture, shall be commenced unless the Secretary authorizes or sanctions the proceedings and the Attorney General [of the United States] or his delegates directs that the action be commenced.”191
As I previously held, “this is not a civil action for the collection or recovery of taxes.... Rather, this is a civil action for securities law violations, the remedy for which is measured by the amoupt of taxes avoided” as a result of the defendants’ securities violations.192 “[A] tax is an enforced contribution to provide for the support of the government.”193 Disgorgement is a discretionary and equitable remedy aimed at preventing unjust enrichment. Measuring unjust enrichment by approximating avoided taxes does not transform an order of disgorgement into an assessment of tax liability.
Citing United States v. Helmsley, defendants argue that any money judgment based on a calculation of unpaid taxes is equivalent to an assessment of tax.194 In Helmsley, the issue was whether restitution may be imposed in a criminal tax evasion case. The Second Circuit concluded that while “[i]t is true that the government may pursue a tax evader for unpaid taxes, penalties, and interest in a civil proceeding ... any amount paid as restitution for taxes owed must be deducted from any judgment entered for unpaid taxes in such a civil proceeding. Restitution is in fact and law a payment of unpaid taxes.”195
Helmsley merely stands for the proposition that the government should credit any *426amount it recovered as restitution in a criminal tax case towards any subsequent tax liability assessed in a civil proceeding. But this action is not a civil or criminal tax. case. While it would be equitable to credit the amount disgorged in this SEC enforcement action towards any tax liability assessed in the future arising out of the same conduct, treating such amount as an offset does not transform the disgorged amount; into a tax.
Defendants contend that “no court has ever before approved the use of ... any analogous indirect measure of unjust profits.”196 _ But the Second Circuit recently held that defendants can be ordered to disgorge “direct pecuniary benefits]” and “illicit benefits” that happen to be “indirect.”197 Disgorgement compels defendants to “give up the amount by which [they were] unjustly enriched.”198 The measure of unjust enrichment for any given securities violation depends on the nature of the violations and the defendants’ wrongful conduct. Thus, unlawful gains may be measured in any number of different ways. For example, courts commonly order defendants to disgorge not only the proceeds of a fraud or the profits of an unlawful trade, but also salary and bonuses earned during the period, of a fraud,199 and amounts equivalent to losses avoided as a result of the securities violations.200 Disgorgement “is a remedy that gives courts flexibility” to determine the appropriate remedy “to fit the wrongful conduct.”201
Defendants raise two other arguments to urge this Court not to apply a tax-based measure of disgorgement. First, defendants argue that the “tax issues raised by the [defendants’ offshore trusts are novel and complicated” and “even if section 7401 d[oes] not literally apply, the legislative concerns that [animated] section 7401 are magnified where someone other [than] the IRS seeks to litigate a highly complex tax issue.” 202 I disagree. This ease, like many others litigated before this Court, involves statutory interpretation and application of common law doctrines.203 To be certain, the grantor trust provisions are complicated, but the issues here are not so complex as to be unresolvable. Moreover, the remedies issues can be decided largely by the same evidence introduced to the jury during the liability phase.204
Second, defendants argue that calculating disgotgement based on unpaid taxes creates the potential for duplicative recovery or conflicting orders because the Wy-*427lys are currently under an IRS audit covering some of the years of the securities fraud. As I mentioned earlier, any amounts disgorged in this case should be credited towards any subsequent tax liability' determined in an IRS civil proceeding as a matter of equity.205
2. Trading Profits Earned by IOM Trusts were Taxable Under Section 674
a. Bessie Trusts
Defendants must concede that if I conclude that the Wylys were the real grantors of the Bessie Trusts, then the profits earned on the sale of Issuer securities by those trusts are taxable to the Wylys, not the purported foreign grantors.206 Because I conclude that the purported foreign grantors made no gratuitous contributions, “the trusts at issue [are] clearly grantor trusts taxable to the domestic grantors.”207
b. Bulldog Trusts
Section 674(a) provides that: “[t]he grantor shall be treated as the owner of any portion of a trust in respect of which the beneficial enjoyment of the corpus or the income therefrom is subject to a power of disposition, exercisable by the grantor or a nonadverse party, or both, without the approval or consent of any adverse party.” 208 Quoting a prominent tax treatise, defendants concede that the “power of disposition” includes “powers to ‘effect such major changes in the enjoyment of a trust’s income, and corpus as the addition and elimination of beneficiaries’ as well as ‘minor and customary power[s]’ over income and corpus distribution.” 209 Because a non-beneficiary trustee is considered a non-adverse party under the statute, “[s]ection 674(a) captures virtually every trust, including the [IOM] trusts.”210 Thus, defendants concede that “[u]ltimate liability under [s]ection 674[ ] ... turns on whether any of the statutory exceptions apply.”211
*428According to defendants, the Bulldog Trusts are not grantor trusts because they fall under the section 674(c) exemption. Under that exemption, section 674(a) does not apply to “certain powers that are exercisable by independent trustees.”212 According to the corresponding IRS regulation, which summarizes the statute,
[t]he powers to which section 674(c) apply are powers (a) to distribute, apportion, or accumulate income to or for a beneficiary or beneficiaries, or to, for, or within a class of beneficiaries, or (b) to pay out corpus to or for a beneficiary or beneficiaries or to or for a class of beneficiaries (whether or not income beneficiaries). In order for such a power to fall within the exception of section 674(c) it must be exercisable solely (without the approval or consent of any other person) by a trustee or trustees none of whom is the grantor and no more than half of whom are related or subordinate parties who are subservient to the wishes of the grantor.213 ■
To determine whether the Bulldog Trusts are covered by this exception, it is necessary to answer three questions: 1) Did the IOM trustees have the power to “distribute, apportion, or accumulate income” or “pay out corpus” to or for a beneficiary or beneficiaries?; 2) Were the IOM trustees a) the grantor, or b) a “related or subordinate” party as defined by the statute?; and 3) Were the trustees able to “exercis[e] [those powers] solely (without the approval or consent of any other person)”?
The first two questions are straightforward. First, the IOM trustees certainly had the power, as set out in the trust deeds, to “distribute, apportion, or accumulate income” or “pay out corpus” to or for a beneficiary. Second, the IOM trustees were neither the grantor, nor one of the individuals on the exclusive list of “related or subordinate” parties defined by the statute.214 The only remaining question is whether the IOM trustees were able to exercise those powers “solely” or “without the approval or consent of any other person.”
Defendants argue, citing a 1976 Tax Court case, that a grantor may only be taxed on “a power reserved by instrument or contract creating an ascertainable and legally enforceable right, not merely the persuasive control which he might exercise over an independent trustee who is receptive to his wishes.”215 As such, defendants contend that the Wylys did not share in the power to distribute, apportion, or allocate income, or to pay out corpus, because the trust deeds allocated those powers solely to the IOM trustees. Thus, the Bulldog Trusts fall within the shelter of 674(c)’s “independent trustees exception.”
I disagree. “Such a rigid construction is unwarranted. It cannot be squared with the black-letter principle that ‘tax law deals in economic realities, not legal abstractions.’ ”216 As Professor Robert Dari-*429forth, the defendants’ own expert, writes in his treatise, “[i]t would certainly violate the purpose of the independent trustee rule to require an independent trustee to act with the consent of the grantor or a related or subordinate person.”217 The Wylys, through the trust protectors who were all loyal Wyly agents, retained the ability to terminate and replace trustees. The Wylys expected that the trustees would execute their every order, and that is exactly what the trustees did.
The evidence amply shows that the IOM trustees followed every-Wyly recommendation, whether it pertained to transactions in the Issuer securities, making unsecured loans to Wyly enterprises, or purchases of real estate, artwork, collectibles, and other personal items for the Wylys and their children. The trustees made no meaningful decisions about the trust income or corpus other than at the behest of the Wylys. On certain occasions, such as the establishment of the Bessie Trusts, the IOM trustees actively participated in fraudulent activity along with the Wylys. The Wylys freely directed the distribution of trust assets for personal purchases and personal use. Because the Wylys and their family members were beneficiaries, the IOM trustees were thus “distributing” income for a beneficiary at the direction of the grantors — the Wylys.218
3. Unpaid Taxes Were Causally Connected to the Securities Violations
The Wylys engaged in a thirteen year fraud, creating seventeen trusts and forty subsidiary companies, employing numerous IOM trustees, a veritable “army of lawyers,” hiring an offshore accountant to hold records outside the United States, and delegating several domestic employees to handle The administration of the trusts. Reasonable and savvy businessmen do not engage in such activity unless it is profitable. Of course it was profitable — by transferring property, including valuable options and warrants, to the trusts, exercising the options and trading in secret, and using the proceed to reinvest in other ventures, the Wylys were able to accumulate tremendous tax-free wealth.
The SEC is not seeking disgorgement equivalent to the unpaid taxes for all profits earned by the IOM trusts. Rather, the SEC’s disgorgement amount pertains specifically to the taxes avoided on profits relating to the exercise of options and sale of stock in four companies in which the Wylys were influential insiders. The jury found that the Wylys were beneficial owners of all of the Issuer securities — from the time the options were transferred to the trusts to the time the trusts exercised the options or otherwise acquired stock to the time they were sold. The jury also found that the Wylys’ pervasive failure to dis*430close beneficial ownership constituted securities fraud. There is no evidence in the record that the purpose of this fraud was to manipulate, or distort the market.219 There is ample evidence, however, that the driving purpose of the securities fraud was to conceal the Wylys’ relationship to the IOM trusts and preserve the preferential tax treatment on secret offshore profits for as long as possible.
Defendants contend that such a motivation “would not establish a causal connection unless the concern had some real basis&emdash;ie., that the SEC disclosures could in fact have triggered a tax liability.” 220 As such, defendants argue that to be causally connected, the misstatements or omissions in the SEC filings would have to reveal a fact that itself triggers taxation under the grantor trust rules. For example, defendants argue that even if the establishment of foreign grantor trusts by King and Cairns was fraudulent, “that issue has nothing whatsoever to do with any information that the jury found needed to be disclosed under the securities laws.”221 Thus, any causal connection between the securities fraud and the avoided taxes is broken.
Under defendants’ theory of causation, the only amounts than can be disgorged are those linked directly to a particular misstatement in a particular filing. I disagree. “The requirement of a causal relationship between a wrongful act and the property to be disgorged does not imply that a court may order a malefactor to disgorge only the actual property obtained by means of his wrongful act. Rather, the causal connection required is between the amount by which the defendant was unjustly enriched and the amount he can be required to disgorge.”222
That causal connection exists here in at least two ways. First, defendants’ motivation to preserve tax benefits was important to their decision to misrepresent their beneficial ownership. Admitting beneficial ownership would have forced defendants to take conflicting positions with two separate government agencies. Even if admission of “beneficial ownership” on a schedule 13D would not immediately reveal a fact that would establish control of an offshore trust, it would at least be facially inconsistent with a tax reporting position that did not include the profits from trades made by that offshore trust. It would have been reasonable, and in fact, prudent, for the Wylys to be concerned about taking conflicting positions in public SEC filings and on their tax returns because that SEC filing could constitute an admission for purposes of future tax litigation. Given the Wylys’ high profile background, tremendous wealth, and history of litigation with the IRS, the possibility of an IRS audit was not remote. In fact, it was highly likely. Thus, even if the Wylys had no reason to believe that SEC filings could trigger an audit, they certainly had reason to believe and fear that the IRS would consult all public filings in the event of an audit.
Second, the securities fraud was intimately connected to protecting the tax benefits in other ways. The Wylys took *431numerous steps to prevent the Issuers from issuing Forms 1099 to report income to either the Wylys in an individual capacity or to the offshore entities. The Issuers did not report income to the Wylys after the 1992 private annuity transaction because of the Wylys’ misrepresentations about disclaiming beneficial ownership over the options, and French and Tedders’ misrepresentations about the economic substance of that transaction. In 2001, nearly ten years later, the Wylys continued the fraud by convincing SBC not to issue 1099s based on the same misrepresentations. None of the four Issuers reported income to the Wylys in connection with the options granted as compensation and transferred to the trusts, even though the Wylys certainly enjoyed the benefit of those options once they were exercised and the stock was sold.
This measure of disgorgement reflects the unique circumstances of this case. The Wylys engaged in securities fraud to conceal their relationship to and control of the IOM trusts in order to maintain the secrecy of the offshore system and preserve their tax benefits. The unlawful gains causally related to the securities violations found by the jury, is an amount equivalent to the taxes avoided on the profits the Wylys realized on the sale of Issuer securities.223
B. Disgorgement of Profits Made on Sales of Unregistered Securities
The purpose of the section 5 registration requirement is “to protect investors by promoting full disclosure of information thought necessary to informed investment decisions.” 224 Because section 5 is a strict liability offense, the typical measure of disgorgement is all profits made on the sale of unregistered securities, minus the direct transaction costs of acquiring the shares.225 In many section 5 cases, this is an appropriate disgorgement amount because the sale of unregistered securities is commonly accompanied by misrepresentations about the investment, a lack of publicly available information about the company, and valueless shares.226
The SEC is correct that the outer bounds of disgorgement for these violations is equivalent to all profits earned on the transactions because the defendants sold unregistered stock illegally and could not have received the profits made on sales of unregistered Michaels Stock but for their section 5 violations.227 However, defendants have a right to rebut that figure by arguing that the nature of their section 5 violations is different from the ordinary section 5 case.
*432As discussed above, these unregistered shares required a Form S-3 shelf registration statement that would have disclosed no additional information about the investment beyond the Wylys’ beneficial ownership of the securities. Michaels Stores was a well-known and long-established company that had filed effective Form S-l registration statements for millions of registered shares. Thus, “[t]his case involves neither (a) worthless, risky, or lightly traded shares; nor (b) failure to disclose the hundreds of pieces of information required by the regulations.” 228 The unregistered shares sold by the Wylys “were identical to all the other, registered shares that were trading in the market at the same time. The unregistered shares paid the same dividends[,] gave the same voting rights[,] and could be resold at the same price as the registered shares.”229
While I reject defendants’ valuation of the appropriate disgorgement amount, I agree that it would be inequitable, in this case, to order disgorgement of total profits. Instead, I will calculate disgorgement based on the average discount received on unregistered securities. The Wylys obtained these shares at a discounted rate but were able to resell them, in secret, at the same price as other registered shares. As a result, the Wylys should disgorge twenty five percent of their total profits, which is within the range of the average discount received on unregistered securities.230 Thus, Sam Wyly is ordered to disgorge $11,848,336 and Charles Wyly is ordered to disgorge $4,985,462 with regards to the section 5 violations.231
C. Prejudgment Interest
The SEC seeks an award of prejudgment interest in addition to disgorgement' because the Wylys had free use of the unlawful gains during the fraud, and “used their ill-gotten gains to amass even greater wealth.” 232 Defendants argue that prejudgment interest is inappropriate because of “the inherent difficulty of ascertaining a particular amount to be disgorged” and because of the Wylys “financial circumstances and ability to pay.”233
Defendants’ arguments are unavailing. Ascertaining the amount to be disgorged has indeed been difficult. But the Second Circuit has been clear that the “ ‘risk of uncertainty in calculating disgorgement should fall upon the wrongdoer whose illegal conduct created that uncertainty.’ ” 234 Furthermore, any difficulty or uncertainty does not weigh in favor of absolving the wrongdoer of his obligation to both disgorge his unlawful gains and pay prejudgment interest to reflect that he has otherwise benefitted from “what amounts to an interest free loan procured as the result of illegal activity.”235
Defendants’ inability to pay argument is similarly futile. The Wylys’ securities violations helped them establish the *433offshore system, conceal their trading profits, and use those trading profits to invest in other ventures and amass tremendous untaxed wealth. That defendants appear to have spent these gains should not preclude the court from requiring the payment of prejudgment interest.236 Disgorgement, which includes the award of prejudgment interest, would have no deterrent value if defendants could avoid it by spending their unlawful gains before the government discovers the fraud.
Because prejudgment interest is also equitable relief, it is appropriate to consider other issues of fairness. Here, depending on the date of the transaction, the SEC séeks prejudgment interest for a period as long as twenty-two years. The SEC has identified several other cases where courts have awarded prejudgment interest over extended periods of time.237 I will award prejudgment interest for the entire period of the fraud because the Wylys had use of the unlawful gains during the entire period and should not be permitted to benefit from the protracted nature of this litigation. However, I recognize, as the Supreme Court recently noted in Gabelli that the SEC is, at least in part, responsible for the delay.238 For that reason, I decline to adopt the SEC’s preferred IRS underpayment rate for the entire period.239 Rather, prejudgment interest, is to be calculated at the lower of the average LIBOR or IRS underpayment rate for each year.
D. Civil Penalty
The SEC seeks a civil penalty against Sam Wyly equivalent to the total unlawful gains he received based on conduct after February 1, 2001. The SEC argues that “[i]n light of Sam Wyly’s extensive fraud, disgorgement alone is an insufficient remedy, and would provide little deterrent because it would require only the return of ill-gotten gain.” 240 I disagree.
Courts can consider the other remedies already imposed in determining whether a penalty would be unduly harsh under the circumstances.241 By any reasonable measure, the disgorgement and prejudgment interest awarded in this proceeding will be staggering and among the largest awards ever imposed against individual defendants.242 I conclude that dis*434gorgement of this magnitude is more than sufficient to deter future • violations and, accordingly, I decline to impose additional penalties.
E. Injunction
The SEC also seeks a permanent injunction against future violations of sections 5 and 17(a) of the Securities Act and sections 13(a), 13(d), 14(a), 16(a) and 10(b) of the Exchange Act against Sam Wyly. The SEC contends that “[i]n the absence of injunctive relief, there is no assurance [Sam Wyly] will not violate the securities laws again” 243 as his “vast wealth gives him the ability to purchase large ownership positions in publicly traded companies.”244 Defendants argue that “[g]iven Sam Wyly’s age, health, and current occupation, there is no real need to enjoin him from future violations.”245
As another court in this district recently said, “the utility of this kind of ‘obey-the-law’ injunction” is limited because “everyone is required to obey the law, the law comes with its own penalties, and merely reciting statutory provisions gives an individual ‘little guidance on how to conform his conduct to the terms of the injunction.’”246 The general toothlessness of permanent injunctions is evident from the facts of this very case. Sam Wyly engaged in a large securities fraud spanning thirteen years, involving multiple trusts and entities and hundreds, if not thousands, of misstatements, all while being subject to a previous injunction entered in 1979.247 Nevertheless, the extensiveness of this scheme, the brazenness of Wyly’s conduct, and his position of wealth and importance in the community warrants the imposition of a permanent injunction in this case.
V. CONCLUSION
For the foregoing reasons, Sam Wyly must disgorge $123,836,958.76 and Charles Wyly must disgorge $63,881,743.97.248 The Wylys shall also pay prejudgment interest for the entire period of the fraud through December 1, 2014, calculated in accordance with this Opinion and Order. The SEC is directed to provide a recalculation of prejudgment interest by October 17, 2014. Any objections by defendants to the SEC’s calculations are due within five days of receiving the SEC’s submissions.
VI. ADDENDUM
Prior to the remedies trial, I granted defendants’ motion to preclude the SEC from seeking disgorgement of all trading profits on the sale of registered Issuer securities, but permitted the SEC to present a revised calculation based on those trading profits to be used as an alternative measure of disgorgement for the sale of *435registered securities.249 On August 29, 2014, the SEC submitted a proffer of its revised trading profit disgorgement theory.250 On September 12, 2014, the SEC submitted an expert report of Dr. Chyhe Becker which posits three different calculations of unlawful gains based on the Wy-lys’ profits on the sale of registered Issuer securities.251 Defendants oppose the SEC’s request to leave the record open for the purpose of addressing this alternative theory of disgorgement.252
I have reviewed the parties’ submissions and Dr. Becker’s report. The SEC’s request to leave the record open for the limited purpose of addressing this theory is granted. However, the SEC may only present Dr. Becker’s first opinion, which approximates unlawful gains by “calculating] the difference between the Wylys’ gains from their offshore transactions in the Issuers’ securities, and the gains that an ordinary buy and hold equity investor would have earned in those securities.”253 Although defendants argue that this theory lacks a causal connection to the Wylys’ securities violations, I disagree. Dr. Becker’s “buy and hold” calculation approximates the economic value of the Wylys’ securities violations — that is, their ability to trade in secret while having an informational advantage over the investing public.254
Defendants’ deadline to submit a rebuttal report is October 29, 2014. In lieu of depositions, the Court will hold a one day hearing on November 17, 2014, where the SEC and defendants may each have up to four hours to cross-examine the experts. Because the record is left open for a limited purpose and time is a significant concern, no further briefing will be accepted.
SO ORDERED.

. See Court Exhibit ("Ex.”) 3, Special Verdict Form (Dkt. No. 473). I dismissed the SEC’s insider trading claim, which was tried to the bench for purposes of liability. See SEC v. Wyly, 33 F.Supp.3d 290, No. 10 Civ. 5760, 2014 WL 3401105 (S.D.N.Y. July 10, 2014).

. The proposed order of disgorgement is based on the following calculations: 1) $193,913,017.77 in unpaid taxes for gains on the sale of registered Issuer securities, plus $289,089,876.68 in prejudgment interest, and'2) $65,395,151 in profits made on the sale of unregistered Michaels Stores stock, plus $70,900,467 in prejudgment interest. See Joint Exhibit ("JX”) 9902 ("Calculations Using the Ordinary Tax Rate for All Transactions in Registered Issuer Securities Attributable to Sam and Charles Wyly”) and Addendum to the Joint Pre-Tri*402al Order (“Add. Stip. Facts") 11 6. The SEC provides an alternative estimation of unpaid taxes using a capital gains rate. See JX 9904A and JX 9904B ("Calculations Using the Ordinary and Capital Gains Tax Rates for All Transactions in Registered Securities Attributable to Sam and Charles Wyly”) (proposing disgorgement of $170,884,904.73 in unpaid taxes and $259,439,440.99 in prejudgment interest). Because the SEC seeks disgorgement of all profits on the sale of unregistered securities, it is not also seeking unpaid taxes on those profits, except as an alternative measure of disgorgement.

. See infra Section VI.

. SEC v. Contorinis, 743 F.3d 296, 301 (2d Cir.2014).

. SEC v. Cavanagh, 445 F.3d 105, 117 (2d Cir.2006).

. SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1474-75 (2d Cir.1996).

. SEC v. Universal Exp., Inc., 646 F.Supp.2d 552, 563 (S.D.N.Y.2009).

. See SEC v. Pentagon Capital Mgmt. PLC, 725 F.3d 279, 288 n. 8 (2d Cir.2013) (rejecting appellant's argument that "that the disgorge'ment award should be considered a penalty”).

. See Contorinis, 743 F.3d at 306-07 ("[W]hile both criminal forfeiture and disgorgement serve to deprive wrongdoers of their illicit gain, the two remedies reflect different characteristics and purposes&emdash;disgorgement is an equitable remedy that prevents unjust enrichment, and criminal forfeiture a statutory legal penalty imposed as punishment. Moreover, unlike disgorgement, which is a discretionary, equitable remedy, criminal forfeiture *403is mandatory, and a creature of statute. Thus, unlike the criminal forfeiture case, the district court’s discretion in determining disgorgement is not confined by precise contours of statutory language, but rather serves the broader purposes of equity.”). In its discussion, the Second Circuit favorably cited a lower court decision in SEC v. Lorin, including that court’s conclusion that disgorgement is not " 'a fine, penalty, or forfeiture’ ” because it " ‘merely deprives one of wrongfully obtained proceeds.’ ” See id. at 307 (quoting SEC v. Lorin, 869 F.Supp. 1117, 1121 (S.D.N.Y.1994)).

. SEC v. Straub, No. 11 Civ. 9645, 2013 WL 4399042, at *5 (S.D.N.Y. Aug. 5, 2013) (citing SEC v. Kelly, 663 F.Supp.2d 276, 286-87 (S.D.N.Y.2009) (collecting cases)). Defendants nevertheless contend, citing dictionary definitions but no case law, that the SEC’s request for disgorgement constitutes "forfeiture” under section 2462. See Defendants’ Memorandum of Law on Remedies (“Def. Mem.”), at 33. Defendants raised an identical argument prior to the jury trial. I rejected it then for the same reasons I do now. See 3/24/14 Pre-Trial Conference Transcript, at 22-23 ("THE COURT: [I]t seems to me that neither disgorgement, injunctive relief, [n]or any other requested form of relief is subject to the limitations of 2462.”).

. SEC v. Razmilovic, 738 F.3d 14, 31 (2d Cir.2013).

. Contorinis, 743 F.3d at 305 (quoting First Jersey, 101 F.3d at 1474-75) (emphasis added).

. Id. at 307.

. Id. at 301.

. See Dura Pharm., Inc. v. Broudo, 544 U.S. 336, 346, 125 S.Ct. 1627, 161 L.Ed.2d 577 (2005) (holding that private plaintiffs must "prove that the defendant’s misrepresentation (or other fraudulent conduct) proximately caused the plaintiff's economic loss” in securities actions).

. See SEC v. KPMG LLP, 412 F.Supp.2d 349, 375 (S.D.N.Y.2006) ("The SEC, unlike a private plaintiff, is not required to prove reliance when it brings enforcement actions under the securities laws.”). See also SEC v. Credit Bancorp, Ltd., 195 F.Supp.2d 475, 490-91 (S.D.N.Y.2002) ("The SEC does not need to prove investor reliance, loss causation, or damages” in enforcement actions).

. SEC v. Apuzzo, 689 F.3d 204, 212 (2d Cir.2012) (emphasis added).

. FTC v. Bronson Partners, LLC, 654 F.3d 359, 372 (2d Cir.2011).

. SEC v. Commonwealth Chem. Sec., Inc., 574 F.2d 90, 102 (2d Cir.1978).

. Cavanagh, 445 F.3d at 118. Defendants’ reliance on the Supreme Court's recent decision in Paroline v. United States, - U.S. -, 134 S.Ct. 1710, 1720, 188 L.Ed.2d 714 (2014), is unavailing in light of this distinction. In that case, the Court concluded that the mandatory restitution provision of the criminal laws governing child pornography laws can only require restitution "to the extent the defendant’s offense proximately caused a victim's losses." Id. at 1722. But as explained above, the Second Circuit has already distinguished between disgorgement, a discretionary equitable remedy, and criminal restitution, which is mandatory and focuses on redressing actual losses suffered by actual victims. See Contorinis, 743 F.3d at 307.

. See SEC v. First City Fin. Corp., 890 F.2d 1215, 1231 (D.C.Cir.1989) ("Since disgorgement primarily serves to prevent unjust enrichment, the court may exercise its equitable power only over property that is causally related to the wrongdoing. The remedy may well be a key to the SEC’s efforts to deter others from violating the securities laws, but disgorgement may not be used punitively.”).

. See SEC v. Manor Nursing Centers, 458 F.2d 1082, 1104 (2d Cir.1972).

. SEC v. Rosenthal, 426 Fed.Appx. 1, 3 (2d Cir.2011) ("Imposing such a tracing requirement would allow a[ ] ... defendant to escape disgorgement by spending down illicit gains while protecting legitimately obtained assets or, as was the case here, by commingling and transferring such profits. ”).

. SEC v. DiBella, 587 F.3d 553, 572 (2d Cir.2009).

. Id. at 559 (quotations omitted).

. Id. at 572 (emphasis added).

. Id.

. Id.

. SEC v. Razmilovic, 822 F.Supp.2d 234, 257 (E.D.N.Y.2011), aff'd in relevant part by Razmilovic, 738 F.3d at 32-33.

. Id. at 255 (emphasis added).

. Razmilovic, 738 F.3d at 31 (quoting SEC v. Lorin, 76 F.3d 458, 462 (2d Cir.1996)).

. SEC v. Warde, 151 F.3d 42, 50 (2d Cir.1998) (citing SEC v. Bilzerian, 29 F.3d 689, 697 (D.C.Cir.1994) ("Bilzerian, however, bears the burden of establishing that the price increases that occurred during his ownership of the stocks were attributable to market forces rather than to his violations.”)).

. Contorinis, 743 F.3d at 305 (quoting First Jersey, 101 F.3d at 1475).

. See First Jersey, 101 F.3d at 1474-75.

. SEC v. Taber, No. 13 Misc. 282, 2013 WL 6334375, at *2 (S.D.N.Y. Dec. 4, 2013) (quotations omitted).

. Id. (quotations omitted).

. Universal Exp., 646 F.Supp.2d at 563 (citing First Jersey, 101 F.3d at 1475).

. Id.

. SEC v. Credit Bancorp, Ltd., No. 99 Civ. 11395, 2011 WL 666158, at *3 (S.D.N.Y. Feb. 14, 2011).

. First Jersey, 101 F.3d at 1476 (quotations omitted).

. See 15 U.S.C. § 77t(d); 15 U.S.C. § 78u(d)(3).

. 15 U.S.C. § 77t(d)(2)(B); 15 U.S.C. § 78u(d)(3)(B)(ii).

. 15 U.S.C. § 77t(d)(2)(B); 15 U.S.C. § 78u(d)(3)(B)(ii). Pursuant to the Debt Collection Improvement Act of 1996, the SEC has adopted rules that adjust the maximum penalty pursuant to these provisions for inflation. See 17 C.F.R. § 201.1002, Subpt. E, Tbl. II (setting but maximum penalty during 2001-2005, the time period applicable here).

. SEC v. Tourre, 4 F.Supp.3d 579, 592 (S.D.N.Y.2014) (quotations omitted) (citing Pentagon Capital, 725 F.3d at 288 n. 7 ("Although we vacate the civil penalty award, we find no error in the district court’s methodology for calculating the maximum penalty by counting each late trade as a separate violation.”)).

. SEC v. Amerindo Inv. Advisors, Inc., No. 05 Civ. 5231, 2014 WL 2112032, at *11 (S.D.N.Y. May 6, 2014) (citing Gabelli v. SEC,-U.S. -, 133 S.Ct. 1216, 1220-21, 185 L.Ed.2d 297 (2013)).

. Razmilovic, 738 F.3d at 38 (quoting SEC v. Kern, 425 F.3d 143, 153 (2d Cir.2005)).

. SEC v. Opulentica, 479 F.Supp.2d 319, 331 (S.D.N.Y.2007) (quoting SEC v. Moran, 944 F.Supp. 286, 296-97 (S.D.N.Y.1996)).

. Id.

. See 15 U.S.C. § 77t(b); 15 U.S.C. §§ 78u(d)(e), 78u-1.

. First Jersey, 101 F.3d at 1477 (quoting CFTC v. American Bd. of Trade, Inc., 803 F.2d 1242, 1250-51 (2d Cir.1986)).

. Commonwealth Chem. Sec., 574 F.2d at 100.

. Kaplan v. C.I.R., 107 T.C.M. (CCH) 1226, 2014 WL 988465, at *7 (Mar. 13, 2014).

. Gould v. C.I.R., 139 T.C. 418, 437 (2012) (quotations omitted).

. Resolution Trust Corp. v. MacKenzie, 60 F.3d 972, 976-77 (2d Cir.1995).

. Schulz v. C.I.R., 686 F.2d 490, 495 (7th Cir.1982).

. 26U.S.C. § 671.

. Id. § 674(a). Section 672(a) defines adverse parly as “any person having a substantial beneficial interest in the trust which would be adversely affected by the exercise or nonexercise of the power which he possesses respecting the trust.”

. 26 C.F.R. § 1.674(a)-1.

. 26 U.S.C. § 674(c).

. United States v. Ratfield, No. 01 Civ. 8816, 2004 WL 3174420, at *15 (S.D.Fla. Nov. 30, 2004). .

. 26 C.F.R § 1.674(d)-2.

. 26 U.S.C. § 674(c).

. 26 U.S.C § 679(a)(1)-(2).

. Gudmundsson v. United States, 634 F.3d 212, 221 (2d Cir.2011) (quoting United States v. Cartwright, 411 U.S. 546, 551, 93 S.Ct. 1713, 36 L.Ed.2d 528 (1973)). Accord 26 C.F.R. § 1.679-4(b)(1) (“For purposes of this section, a transfer is for fair market value only to the extent of the value of property received from the trust, services rendered by the trust, or the right to use property of the trust. For example, rents, royalties, interest, and compensation paid to a trust are transfers for fair market value only to the extent that the payments reflect an arm’s length price for the use of the property of, or for the services rendered by, the trust.”). Under the pertinent regulations, the transferor is taxable to the extent the exchange exceeds the fair market value of the property received. See id. at (b)(2).

. 26 U.S.C. § 679(c) (emphasis added).

. Id.

. Altria Group, Inc. v. United States, 658 F.3d 276, 284 (2d Cir.2011) (quoting Helvering v. Gregory, 69 F.2d 809, 810 (2d Cir.1934)).

. Close v. C.I.R., 107 TCM (CCH) 1124, 2014 WL 521039, at *11 (Feb. 10, 2014) (citing Markosian v. C.I.R., 73 T.C. 1235, 1243-44 (1980)).

. Id. (quotations omitted).

. Bruce v. C.I.R., T.C.M. (CCH) 2014-178, 2014 WL 4336234, at *14 (Sept. 2, 2014).

.See, e.g., United States v. Buttorff, 761 F.2d 1056, 1062 (5th Cir.1985) (concluding that trusts where the grantor has only "technically” complied with the statutory provisions have "frequently been recognized [as] mere shams, wholly lacking in any real substance and thus without any effect whatever for federal tax purposes”); Zmuda v. C.I.R., 731 F.2d 1417, 1421 (9th Cir.1984) ("[T]he economic substance formula may be used to determine whether ... a trust is a grantor trust for tax purposes”) (citing Hanson v. C.I.R., 696 F.2d 1232, 1234 (9th Cir.1983)); Schulz, 686 F.2d at 495 ("[D]espite efforts to skirt the grantor trust provisions by careful draftsmanship, these trusts in substance, if not in form, violate the statute.”); Close, 2014 WL 521039, at *12 (finding that the IRS’s theory that a grantor trust exists because the taxpayer has "unfettered access” to its assets is "indistinguishable from [a] sham trust theory”).

. See Ratfield, 2004 WL 3174420, at *15-16 ("If the trusts were not shams, they were grantor trusts.... Because the trustees of Ratfíeld's ‘pure’ trusts are not really independent, the trusts violated the grantor trust provisions in substance, if not in form.”).

. See Stipulation of Undisputed Facts ("Stip. Facts”) ¶¶ 20-46.

. See id. ¶¶ 49-51.

. See Trial Transcript (“Trial Tr.”) at 96 (opening statement of Stephen Susman, counsel for defense) (“We don’t dispute that the trustees followed the recommendations. Yes, indeed, they did, most of the time for sure, and almost always ... when it came to the four securities that were in companies that the Wylys were more familiar with than anyone in the world.”).

. Sam and Charles Wyly were co-founders of Sterling Software and served on its Board of Directors from 1981 and 1984, respectively, until its acquisition by Computer Associates in 2000. The Wylys served on the board of directors of Michaels Stores from 1984 until its acquisition by a consortium of private equity firms in 2006. The Wylys served on the board of Sterling Commerce, a spin-off of Sterling Software, from 1985 until its acquisition by SBC Communications in 2000. Sam and Charles Wyly became directors for Scottish Re in October 1998 and served through March and November 2000, respectively. See Stip. Facts ¶¶ 4-11.

. Id. ¶ 59.

. See Attachment B to Stip. Facts ("IOM Issuer Transactions”) (charts detailing the IOM trusts’ transactions in the Issuers’ stock during the relevant time period).

. See Special Verdict Form.

. See Trial Tr. at 157-167 (Robertson); Plaintiff's Exhibit ("EX”) 8 (6/12/91 memorandum from Robertson to Sam Wyly, Charles Wyly, Evan Wyly, Sam Wyly's son, French, and Ethel Ketter, in-house CPA for the Wyly family office, discussing Tedder’s seminar on "asset protection and tax deferral”).

. See Trial Tr. at 168 (Robertson) and 1717-1718 (French).

. See id. at 1718 (French).

. Id.

. Id. at 1719 (French).

. PX 13 (2/28/92 Tedder tax opinion letter), at 10.

. See, e.g., PX 9(11/11/91 memorandum from French to Sam Wyly) (discussing tax benefits of foreign trusts, grantor trusts, and non-grantor trusts).

.See Trial Tr. at 1720 (French).

. 3/13/14 Admissions of Michael French, Annex A to 3/20/14 Final Consent Judgment as to Defendant Michael French (Dkt. No. 279) ¶ 9. Accord Trial Tr. at 1720 (French).

. See Defendants' Proposed Findings of Fact ¶ 2.

. Trial Tr. at 1884 (Sam Wyly).

. See id. at 2185 (Sam Wyly) (“We took steps to avoid control, and those are steps to create the appearance of avoiding control. It’s reality and it’s appearance. You want the appearance to match the reality.”) Accord PX 890 (11/3/00 email from Robertson to Evan Wyly) ("Remember that it is critical from a U.S. tax standpoint that there is no appearance that the Wyly’s [sic] are in control of the trusts or the protectors.”).

. See, e.g., Defendants' Exhibit ("DX”) 156 (12/26/96 Michaels Stores press release announcing that Michaels “sold options to purchase two million unregistered shares to "separate entities owned by independent trusts of which Wyly family members are beneficiaries”).

. See Trial Tr. at 246-247 (Robertson) (discussing tracking ownership of stock among trust management companies, transferring stock between companies, and hiring new trust management companies to avoid any single company owning more than five percent of the Issuer which triggers mandatory reporting). Accord PX 241 (2/20/96 file note taken by David Harris, an IOM trustee, memorializing meeting between Harris, French and Robertson) ("One of the reasons they have a variety of offshore trusts is that holdings in Sterling Software or [Sterling Commerce] held by a trust company for various trusts ... are amalgamated for SEC purposes and any trust company holding an aggregate of more than 5% of any one class of shares in a company then has certain fairly onerous filing requirements with the SEC. [French and Robertson] confirmed that they were always aware of this as far as the various Wyly entities were concerned....”).

. Trial Tr. at 1884-1885 (Sam Wyly).

. See PX 1101 (2/26/02 email from Keeley Hennington, tax director and, starting in 2000, CFO of the Wyly family office, to Boucher, attaching Hennington’s note to Sam Wyly) (“The trusts are record owners of the shares on C[omputer] Associates]’ books. If it is represented [that] there are $2.9 shares [sic], I think it is likely CA may say we show the Wyly’s [sic] only own 1.5M options and again the difference would need to be explained. ... Our friendly IRS agent is still looming around and although he has verbally agreed not to look further at any foreign entities or trusts, I would not want to give him any fresh ammunition.”).

. The Wylys, of course, could have had numerous other reasons for wanting to minimize SEC filings, including transaction costs and potentially negative market reaction to insiders selling shares.

. See Trial Tr. at 169 (Robertson). The 1992 Trusts relevant to the remedies phase are: 1) the Bulldog Non-Grantor Trust; 2) Lake Providence International Trust; 3) the Delhi International Trust; 4) the Pitkin Non-Grant- or Trust; and 5) the Castle Creek International Trust. See Add. Stip. Facts ¶ 7. In 1995, the Bulldog Trust settled the Plaquemines Trust, which had a class of beneficiaries including Sam Wyly's children. These trusts are referred to as the "Bulldog Trusts” for purposes of this Opinion and Order. The terminology was coined by defendants’ expert, Professor Robert Danforth, and has been adopted by the parties in their briefing and argument.

. See, e.g., DX 257 (Trust Agreement of the Bulldog Non-Grantor Trust) ¶ l(a)(ii).

. Id. ¶ 4.2(b).

. See id. ¶ 5.2(a).

. 9/3/12 Deposition Testimony of Charles Lubar, partner at Morgan Lewis ("Lubar Dep.”), at 13.

. PX 83 (7/29/93 memorandum from Lisa Starczewski, attorney at Morgan Lewis, to file), at 2-3.

. See Lubar Dep. at 18.

. Id. at 27.

. Id. Accord PX 90 at 1 (2/15/94 memorandum from Lubar to French concluding that such a trust should maintain tax-free status, assuming that the foreign grantor establishes the trust for the Wylys’ benefit "as an entirely gratuitous act” and "has not previously and will not in the future receive any consideration, reimbursement, or other benefit for, or in respect of, this act, directly or indirectly.”).

. PX 90 at 2.

. The 1994/1995 trusts relevant to this Opinion and Order are: 1) the Bessie Trust; 2) the La Fourche Trust; 3) the Red Mountain Trust; and 4) the Tyler Trust. See Add. Stip. Facts ¶ 7. These trusts will be referred to as the "Bessie Trusts,” as per Professor Dan-forth’s grouping.

. See DX 271 (deed of settlement for the Bessie Trust); PX 9017 (deed of settlement for the Tyler Trust).

. PX 209 (11/26/95 fax from Buchanan to French).

. See PX 208 (11/21/95 fax from Robertson to Boucher).

. PX 157 and 158 (7/18/95 letters from Cairns to Sam and Charles Wyly).

. See 7/18/12 Deposition of Shaun Cairns, at 43-44.

. See id. at 46-48, 56-57.

. See Attachment A to Stip. Facts ("IOM Trustees”). Cairns’s company, Wychwood Trust Ltd. served, at various points, as the trustee of the Delhi International, La Fourche, Plaquemines, and Red Mountain Trusts.

. See Trial Tr. at 4353-4354 (closing statement of Mark Hatch-Miller, counsel for defendants).

. PX 209 (11/26/95 fax from Buchanan to French).

. Id.

. Defendants cite Kanter v. C.I.R., 590 F.3d 410, 424 (7th Cir.2009), in support of their argument that Cairns should be considered the grantor of the La Fourche and Red Mountain Trusts. In that case, the court found that the taxpayer’s mother could be considered the grantor even though she only contributed $100 to trusts established for the benefit of her son and his children that eventually grew to be worth millions of dollars due to other contributions. But the case here is plainly different. Cairns is not a friend, relative, or close business associate of the Wylys. Cairns’s transfer at the behest of Buchanan, directly preceding his appointment as trustee of several Wyly trusts, is the definition of non-gratuitous.

. See Attachment A to Stip. Facts ("Isle of Man Trustees”).

. See Trial Tr. at 1345-1347 (Hennington); PX 990 (10/3/01 email from Hennington to Boucher).

. PX 1152 (6/13/02 email chain between Hennington and Boucher). Accord Trial Tr.. at 1332 (Hennington).

. PX 544 (9/29/98 file notes of Sue Major, IOM trustee, memorializing telephone conversations with Boucher on 9/28/98 and 9/29/98).

. Id. Accord Trial Tr. at 1107-1109 (Boucher).

. See, e.g., Trial Tr. at 1360-1361 (Henning-ton) (testifying about the trustees purchasing real estate in Dallas and Aspen for use by the Wylys); PX 575 (4/21/99 fax from Robertson to Boucher) ("As in the past, the protectorate committee recommends that Tyler Trust consider the purchase of collectibles and artwork. I am attaching invoices from Marguerite Theresa Green and Associates totalling $224,287.26.... If possible, could these funds be wired AS SOON AS POSSIBLE since vendors need to be paid immediately.”).

.Stip. Facts. ¶ 60.

. See id. ¶¶ 62-64. The Wylys also sold options to the trusts. See id. ¶ 61 (one million Sterling Software options, sold in December 1992), and ¶ 65 (2,625,000 Sterling Software options and 712,500 Sterling Commerce options sold in September 1999).

. See PX 412 (6/4/97 memo from Lubar to Ellen K. Harrison and B. John Williams, lawyers at Morgan Lewis, discussing upcoming meeting with French to discuss foreign annuities).

. Lubar Dep. at 39.

. Id. at 41.

.See id. at 56.

. See-3/29/11 Deposition of Jeannette Meier, general counsel of Sterling Software ("Meier Dep.”), at 85-86.

. See PX 13 (4/9/92 letters from Tedder to Sterling Software and Michaels Stores, attaching 2/28/92 Tedder opinion letter regarding the private annuity transaction), at 5 (“Pursuant to the general federal income tax treatment of property exchanged for a private annuity the sale of property to the corporation in exchange for the receipt of a private annuity is not a taxable event in the year 1992.”).

. Meier Dep. at 87.

. Id. at 95.

. See PX 438 (7/18/97 memorandum from Beasley to Michaels Stores); 3/7/11 Deposition of Mark Beasley, at 131-132.

. PX 9022 and PX 9023 (1/11/01 letters from John J. Stephens, vice-president of taxes for SBC, to Sam and Charles Wyly).

. Id. The total amount represents the cash value of Sam Wyly's options ($46,575,000) and Charles Wyly’s options ($27,337,500).

. See PX 9001 (1/23/01 email from Robertson to Boucher) ("If it is in opinon [sic] form from an attorney, SBC is more likely to put the document in their tax file and accept the position. I’d definitely have Rodney issue a memo and I’d consider putting it in opinion-form. There’s toooooooo much money at stake here.”). See also PX 9024 (1/25/01 email from Boucher to Owens) ("I also told the people at SBC to let them know that something will be coming to explain why no 1099 is necessary. I did not want to run the risk that they go ahead and file a 1099 before the 31st.”) (marks omitted).

. PX 9025 (1/26/01 letter from Owens to Stephens).

. See PX 9026 (1/29/01 email from Hen-nington to Robertson and Boucher) ("This is getting to be a bigger project because SBC wants a schedule of the annuity payouts because they are entitled to a deduction at the time payments are made under the annuities.”).

. See PX 9031 (2/07/01 memorandum from French to file regarding Sterling option transfers); PX 9034 (memorandum from Henning-ton to SBC).

. See 7/25/14 Joint Pre-Trial Order ¶ 5(c).

. See Trial Tr. at 3403 (Hennington). .

. See PX 1224 (2/5/03 email from Boucher to Hennington, attaching draft email to Lubar for a meeting agenda to discuss the IOM trusts and private annuities). •

. See Lubar Dep. at 65-67. Accord PX 1236 (3/14/03 memorandum from Lubar and Sholom Y. Sittner, lawyer at Morgan Lewis, to File).

. PX 1239.(3/25/03 email from Joan Ingram, lawyer at Morgan Lewis, to Boucher, attaching attorney notes on a 3/17/03 meeting with Boucher, Hennington, Lubar, and Ingram).

. PX 1255 (7/2/03 memorandum from Hen-nington and Boucher).

. Id.

. Id.

. PX 1259 at 1 (8/28/03 fax from Miriam L. Fisher, attorney at Hogan & Hartson, to Hen-nington, attaching attorney notes from 8/13/03 meeting with the IRS).

. Id. at 5.

. Id. at 6.

. PX 1260 (8/29/03 memorandum from Boucher and Hennington to Sam Wyly, Charles Wyly, Evan Wyly, and Donald Miller).

. See PX 9082 (2/2/04 notice of audit sent to Charles and Caroline Wyly).

. PX 1306 (2/3/04 email from Hennington to Boucher and Pulman).

. PX 1307 (2/4/04 memorandum from Christian G. Newsom, attorney at Meadow Owens, to Pulman), at 1.

. See, e.g., PX 9085 (5/18/04 IDR # 18 to Charles Wyly), PX 9106 (8/3/04 IDR #39 to Charles Wyly); PX 9003 (8/3/04 IDR # 41 to Sam Wyly).

. PX 9003 (8/3/04 IDR # 41 to Sam Wyly) ("The Michaels Stores, Inc. 10K filed with the SEC on [May 2, 1997] contained the following statement: ‘Subsequent to year end, options to purchase 2,000,000 shares of the Company’s Common Stock were exercised ... through private transactions with entities owned by independent trusts of which Wyly family members are beneficiaries.... ’ Please provide the following [information] for the independent trust(s)....”).

. PX 1373 (1Ó/22/04 memorandum from David M. Kniffen, attorney at Meadows Owens, to File, memorializing 10/21/04 meeting with IRS).

.See id.

. DX 48 (3/29/96 Michaels Stores press release). Accord Stip. Facts ¶¶ 12-1 A.

. See IOM Issuer Transactions, Exs. 12A and 12B.

. DX 56 (12/26/96 Michaels Stores press release). Accord Stip. Facts ¶¶ 75-76. The options were purchased on December 23, 1996 for $.50 per share, and the exercise price was $10.50 per share.

. See DX 53 ("Michaels Stores Turns to Chairman Again for Infusion of Cash,” Wall Street Journal (Jan. 7, 1997)) (“Chairman Sam Wyly said his cash infusion is intended to bolster investor confidence in the company and give Michaels more financial flexibility at a troubled time!”).

. See DX 371 (historical trading data for Michaels Stores from the Center for Research in Security Prices).

. See IOM Issuer Transactions, Exs. 12A, 12B, 13A, and 13B.

. See DX 371 (historical trading data for Michaels Stores from the Center for Research in Security Prices).

. See IOM Issuer Transactions, Exs. 12A, 12B. 13A. and 13B.

. See Slip. Facts ¶ 79.

. See IOM Issuer Transactions, Exs. 12A, 12B, 13A, and 13B.

. See Stip. Facts ¶¶ 77-78.

. See Trial Tr. at 4036^4037 (McConnell).

.See id. at 4037 (McConnell).

. Id. at 4038-4039 (McConnell).

. See id. at 4044-4056 (McConnell).

. See DX 1166 ("Total Estimated Economic Benefit Related to the Sale of Unregistered Shares”).

. See PX 7002 (summary chart showing Sam and Charles Wylys' ownership of common stock in Michaels Stores). This calculation includes the shares held by the IOM trusts.

. See PX 4139 (10/23/96 Michaels Stores Schedule 14A Proxy Statement. Michaels Stores’ Board of Directors at this time consisted of Sam Wyly, Charles Wyly, Evan Wyly, French, Miller, Richard Hanlon and Jay Taylor.

. Trial Tr. at 4162 (McConnell).

. See DX 1072 (Market-Adjusted Returns Following Onshore Net Sales Disclosures).

. During pre-trial proceedings, I excluded defendants’ expert, Erik Sirri, from testifying about the purported non-impact of the Wylys’ failures to disclose based on an analysis of onshore disclosures. I excluded Sirri's testimony because "offshore sales exceeded domestic sales by a ratio of 20 to 1” and "the comparison between a handful of disclosed domestic transactions and the average of far more frequent and sizeable undisclosed offshore transactions does not take into account the potential outlier nature of the domestic transactions and blurs together the characteristics of the much more prolific offshore transactions.” Transcript of 2/3/14 Conference, at 30, 32. These identical concerns apply here.

. See Trial Tr. at 4060-4063 (McConnell).

. SeeSOi 7002.

. See Trial Tr. at 4419 (closing statement of Bridget Fitzpatrick, counsel for the SEC).

. See DX 371 (historical trading data for Michaels Stores from the Center for Research in Security Prices).

. See id.

. The discount is calculated by taking the difference between the per share price on the close of trading on April 4 ($15.35) and the per share purchase price set by the private placement agreement ($12.50) and dividing it by the purchase price (again, $12.50).

. Mukesh Bajaj et al., Firm Value and Marketability Discounts, 27 Journal of Corporate Law 89, 97 (2001) (collecting and summarizing studies).

. SEC v. Wyly, No. 10 Civ. 5760, 2013 WL 2951960, at *1 (S.D.N.Y. June 13, 2013) (quotations omitted).

. 26U.S.C. § 6301.

. Id. § 7401.

. Wyly, 2013 WL 2951960, at *1 (emphasis in original).

. United States v. Reorganized CF & I Fabricators of Utah, Inc., 518 U.S. 213, 224, 116 S.Ct. 2106, 135 L.Ed.2d 506 (1996) (quotation omitted).

. See Defendants’ Response to the Statement of Interest of the United States of America ("Def. Resp. to U.S.”), at 4-5 (citing United States v. Helmsley, 941 F.2d 71 (2d Cir.1991)).

. Helmsley, 941 F.2d at 102.

. Def. Mem. at 3.

. Contorinis, 743 F.3d at 307.

. SEC v. Tome, 833 F.2d 1086, 1096 (2d Cir.1987).

. See Razmilovic, 738 F,3d at 31.

. See SEC v. Patel, 61 F.3d 137, 140 (2d Cir.1995).

. SEC v. World Gambling Corp., 555 F.Supp. 930, 934 (S.D.N.Y.1983).

. Def. Mem. at 22-23.

. In its Statement of Interest, the United States represented its position that 1) calculating disgorgement by approximating avoided taxes "does not constitute a collection of tax liabilities that the Internal Revenue Code reserves solely to the Department of the Treasury;” and 2) that in awarding such disgorgement, this Court “should interpret the relevant [Internal Revenue] Code provisions and regulations concerning trust taxation, as well as the relevant common law tax doctrines. ...” Statement of Interest of the United States of America, at 1 (emphasis added).

.See Wyly, 2013 WL 2951960, at *4, n. 36 ("[I]f the securities fraud at issue significantly overlaps the distinction between grantor and non-grantor trusts in the Tax Code then no complex tax analysis will be required.”).

. In the event there is a judicial determination that contravenes the legal conclusions of this Opinion and Order — that is, if another court determines that the IOM Trusts are in fact, tax-exempt non-grantor trusts, defendants may pursue all available remedies in this Court, including a motion to vacate the final judgment under Rule 60(b) of the Federal Rules of Civil Procedure. But no such motion will be considered if the IRS, in exercising its discretion, chooses not to proceed with an administrative or civil action against the Wylys.

. See Def. Resp. to U.S. at 22 ("The fact that the purported foreign grantors made no [gratuitous] contributions is decisive in determining who the grantor is under 26 C.F.R. § 1.671 — 2(e)(1).”)- See also 26 C.F.R. § 1.671-2(e)(l) ("[A] person who creates a trust but makes no gratuitous transfers to the trust [or] a person who funds a trust with an amount that is directly reimbursed to such person within a reasonable period of time and who makes no other transfers to the trust that constitute gratuitous transfers is not treated as an owner of any portion of the trust under sections 671 through 677 or 679.”).

. Def. Resp. to U.S. at 21.

. 26 U.S.C. § 674(a) (emphasis added).

. Def. Mem. at 8 (quoting Boris I. Bittker & Lawrence Lokken, Federal Taxation of Income, Estates and Gifts § 80.6.1).

. Id. In his treatise, defendants’ expert confirms that the Wylys’ had a power of disposition under this statute. See Robert T. Danforth, Norman H. Lane, and Howard M. Zaritsky, Federal Income Taxation of Estates and Trusts § 9.04[1] ("A right to use trust funds without adequate compensation also affects beneficial enjoyment, because the holder can reduce the assets from which the named beneficiaries can benefit. Thus, a grantor's right to live rent-free in a house owned by the trust is a power of disposition under Section 674(a).”).

. Def. Mem. at 9.

. 26 C.F.R. § 1.674(c)-l.

. Id.

. See 26 U.S.C. § 672(c) (defining "related or subordinate party” as "the grantor’s spouse, if living with grantor,” or "the grant- or’s father, mother, issue, brother or sister; an employee of the grantor; a corporation or any employee of a corporation in which the stock holdings of the grantor and the trust are significant from the viewpoint of voting control'; [or] a subordinate employee of a corporation in which the grantor is an executive”).

. Estate of Goodwyn v. C.I.R., T.C.M. 1976-238, 1976 WL 3423 (July 29, 1976).

. PPL Corp. v. C.I.R., - U.S. -, 133 S.Ct. 1897, 1905, 185 L.Ed.2d 972 (2013) (quoting CIR v. Southwest Exploration Co., 350 U.S. 308, 315, 76 S.Ct. 395, 100 L.Ed. 347 (1956)).

. Danforth, et ah, Federal Income Taxation of Estates and Trusts § 9.04[3][a].

. Because I conclude that both the Bulldog and Bessie Trusts were grantor trusts under Section 674, I need not reach the issue of whether they were also grantor trusts under Section 679. Although the SEC contends that the trading profits on sales of Issuer securities should be taxed at the ordinary income rate, I decline to do so. Rather, I will approximate unpaid taxes by applying the rate the Wylys would have had to pay if they owned the shares personally, which requires applying the ordinary income or capital gains rate for the taxable year. Thus, the “reasonable approximation’’ of disgorgement is $111,988,622.76 for Sam Wyly and $58,896,281.97 for Charles Wyly when using the lower capital gains rate. See IX 9904A and JX 9904B ("Calculations Using the Ordinary and Capital Gains Tax Rates for All Transactions in Registered Securities Attributable to Sam and Charles Wyly”).

.That being said, it would be naive to assume that the Wylys did not, at least occasionally, take advantage of their ability to trade, in secret, on the informational advantages they had due to positions of influence in the Issuer companies, even if that trading did not rise to the level of market distortion, manipulation, or insider trading.

. Def. Mem. at 20.

. Id. at 18-19.

. SEC v. Banner Fund Intern., 211 F.3d 602, 617 (D.C.Cir.2000) (emphasis added).

. See id. ("[D]isgorgement is an equitable obligation to return a sum equal to the amount wrongfully obtained, rather than a requirement to replevy a specific asset.”).

. SEC v. Ralston Purina, 346 U.S. 119, 124, 73 S.Ct. 981, 97 L.Ed. 1494 (1953).

. See, e.g., SEC v. Universal Exp., Inc., 438 Fed.Appx. 23, 26 (2d Cir.2011); SEC v. Cavanagh, No. 98 Civ. 1818, 2004 WL 1594818, at *30 (S.D.N.Y. Jul. 16, 2004), aff'd by Cavanagh, 445 F.3d at 116-17.

. See, e.g., SEC v. Rosenfeld, No. 97 Civ." 1467, 2001 WL 118612, at *1 (S.D.N.Y. Jan. 9, 2001) (defendants engaged "in a fraudulent scheme to falsely inflate the value of common stock and to evade the registration requirements of the federal securities laws”); SEC v. East Delta Resources Corp., No. 10 Civ. 310, 2012 WL 3903478 (E.D.N.Y. Aug. 31, 2012) (defendants sold unregistered shares of a "penny stock company that purported to own and/or operate gold and other mineral mining properties in China”).

.See 8/27/14 Letter from Fitzpatrick to the Court, at 2 n. 3 [Dkt. No. 455].

. Def. Mem. at 29.

. Id.

. See supra n. 188.

.Because I do not order disgorgement of all profits from the sale of unregistered securities, I also calculate an alternative measure of disgorgement based on the taxes avoided on these gains. Using the calculations jointly provided by the parties, Sam Wyly would disgorge $10,964,918.64 and Charles Wyly would disgorge $5,158,658.11. See JX 9903A and 9903B.

. SEC Mem. at 30.

. Defendants Proposed Conclusions of Law ¶¶ 96, 98.

. Contorinis, 743 F.3d at 305 (quoting First Jersey, 101 F.3d at 1475).

. Moran, 944 F.Supp. at 295.

. See SEC v. Inorganic Recycling Corp., No. 99 Civ. 10159, 2002 WL 1968341, at *2 (S.D.N.Y. Aug. 23, 2002) ("The fact that swindlers have run through the proceeds of the fraud and are now insolvent should not prevent the imposition of a remedy, since defendants may subsequently acquire the means to satisfy the judgment.”) (quotation omitted).

. See Trial Tr. at 4292-4293 (Fitzpatrick) (identifying cases in the Second and Third Circuits upholding prejudgment interest awards for periods longer than ten years).

. See Gabelli, 133 S.Ct. at 1222 (“Unlike the private party who has no reason to suspect fraud, the SEC’s very purpose is to root it out, and it has many legal tools at hand to aid in that pursuit.”)

. While the Second Circuit has approved of using the IRS underpayment rate in SEC disgorgement cases, see First Jersey, 101 F.3d at 1476-77, this Court has the discretion to select the rate it sees fit. Because this is not an action for underpayment of taxes, I decline to adopt that rate for the entire period.

. SEC Mem. at 31.

. See, e.g., SEC v. Credit Bancorp, Ltd., 738 F.Supp.2d 376, 391 (S.D.N.Y.2010) ("[T]he Court finds that the penalties of disgorgement, criminal restitution, incarceration, and injunction against future violations imposed on Rittweger are sufficient to deter future illegal conduct. A further penalty at this time is inappropriate.”).

. Although the SEC must recalculate prejudgment interest, according to my rough estimate, the final disgorgement award, including prejudgment interest will be between $300 and $400 million dollars. This single award is equivalent to approximately ten per*434cent of the total penalties and disgorgement ordered in SEC enforcement cases nationwide last year. FY 2013 .SEC Financial Report, available at http://www.sec.gov/about/ secpar/secafr2013.pdf, at 18 (“In the fiscal year, total penalties and disgorgement ordered increased to $3.4 billion, up from $3.1 billion in the prior fiscal year.”).

. SEC Proposed Conclusions of Law V 92.

. SEC Mem. at 35.

.Def. Mem. at 25.

. Tourre, 4 F.Supp.3d at 598 (quoting SEC v. Goble, 682 F.3d 934, 949-52 (11th Cir.2012)).

. See SEC Mem. at 34-35. See PX 4 (SEC v. Samuel E. Wyly, Civ. Action No. 79-3275, Lit. Rel. No. 8943, 1979 WL 173343 (D.D.C., Dec. 6, 1979)).

. Joint and several liability is unwarranted for both measures of disgorgement because these gains are "reasonably apportioned” between the two defendants. Universal Exp., 646 F.Supp.2d at 563.

. See SEC v. Wyly, 56 F.Supp.3d 260, No. 10 Civ. 5760, 2014 WL 3739415 (S.D.N.Y. July 19, 2014).

. See Dkt. No. 456.

. See 9/12/14 Expert Report of Dr. Chyhe K. Becker.

. See 9/5/14 Defendants' Brief in Opposition to the SEC’s Request to Hold the Record Open [Dkt. No. 458]; 9/23/14 Letter from Susman to the Court [Dkt. No. 474].

. Becker Rep. ¶ 2. Dr. Becker’s other two .measures are unacceptable for the following reasons. The first measure approximates the Wylys' gains in excess of an average buy and hold investor assuming that the Wylys exercised their options before transferring the securities to the IOM trusts. This counterfactual is belied by the facts of the case and would thus be an inaccurate measure of unlawful gains. The second measure calculates disgorgement based on the economic value of the Wylys' non-disclosure. This second measure is, in sum and substance, a rebuttal to Professor McConnell's report and methodology, much of which has already been discussed and rejected here. Furthermore, this attack on Professor McConnell’s June 19, 2014 report is untimely, coming a month after the conclusion of the remedies trial at which he testified. If defendants wish to use McConnell as their rebuttal expert to Dr. Becker, the SEC may elicit its criticisms in cross-examination as it did during the August trial.

.At least one informational advantage the Wylys undisputedly possessed was knowledge of their own large volume transactions in the Issuer securities. The SEC may also argue that the Wylys' systematic failure to disclose their trading concealed the informational advantages they possessed by virtue of being controlling insiders in the Issuer companies.