Court Opinion

ID: 615335
Source: CourtListenerOpinion
Date Created: 2011-10-14 12:49:20+00
Date Added: 2024-06-11T17:50:33.132381
License: Public Domain

[DO NOT PUBLISH]

            IN THE UNITED STATES COURT OF APPEALS

                    FOR THE ELEVENTH CIRCUIT           FILED
                     ________________________ U.S. COURT OF APPEALS
                                                        ELEVENTH CIRCUIT
                            No. 11-11274                 OCTOBER 14, 2011
                        Non-Argument Calendar               JOHN LEY
                      ________________________               CLERK

               D. C. Docket No. 8:08-cv-01409-JDW-TGW

SECURITIES & EXCHANGE COMMISSION,

                                                          Plaintiff-Appellee.
                                 versus

AEROKINETIC ENERGY CORPORATION,

                                                        Defendant-Appellant,

RANDOLPH E. BRIDWELL,
                                                                  Defendant.

                      ________________________

               Appeal from the United States District Court
                  for the Middle District of Florida
                     ________________________
                           (October 14, 2011)

Before TJOFLAT, MARTIN and ANDERSON, Circuit Judges.

PER CURIAM:
        On July 23, 2008, the Securities and Exchange Commission (“SEC”),

brought this action against Aerokinetic Energy Corporation (“AEC”) and

Randolph Bridwell, its founder and president, to remedy their fraudulent and

unregistered offer and sale of AEC common stock. Over a two-year period,

between September 2006 and July 23, 2008, AEC and Bridwell, in violation of

federal securities laws1, offered and sold $550,000 of AEC securities to 24

investors by falsely claiming that AEC had successfully developed, patented and

marketed an alternative energy technology that could generate electricity from

static air without pollution and at a lower cost than conventional means.

       The next day, July 24, the district court entered a temporary restraining

order (“TRO”) enjoining future securities law violations, and on August 5, 2008,

the court, with the defendants’ consent, converted the TRO into a preliminary

injunction. After the defendants and the SEC agreed to the terms of a consent

decree, the district court approved their agreement and entered a consent decree

which enjoined future securities law violations and ordered the defendants to pay

disgorgement of ill-gotten gains together with civil penalties, the amounts of

       1
          The SEC alleged that these offers and sales violated the registration requirements of 15
U.S.C. § 77e(a) & (c), and that the defendants’ misrepresentations and omissions of material
facts violated the antifraud provisions of 15 U.S.C. §§ 77q(a) and 78j(b) and Rule 10b-5, 17
C.F.R. § 240.10b-5.

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which the court would determine on the SEC’s motion. The consent decree

provided that, when the district court entertained the SEC’s motion, the defendants

      (A) [would] be precluded from arguing that [they] did not violate the
      federal securities laws as alleged in the complaint; (b) [would] not
      challenge the validity of the [agreement with the SEC] or this
      [consent decree]; (c) solely for the purposes of such motion, the
      allegations of the complaint shall be accepted as and deemed true by
      the Court, and (d) the Court may determine the issues raised in the
      motion on the basis of affidavits, declarations, excerpts of sworn
      deposition or investigative testimony, and documentary evidence,
      without regard to the standards for summary judgment contained in
      Rule 56(c) of the Federal Rules of Civil Procedure.

      On March 17, 2010, the SEC moved the district court to fix the

disgorgement and civil penalty amounts. The SEC submitted evidence that the

defendants had received $550,000 in proceeds from the sale of the AEC securities,

and requested that a penalty of $500,000 be imposed on AEC and $130,000 on

Bridwell. The defendants then submitted evidence in response.

      The district court referred the matter to a magistrate judge, who heard

argument of counsel. He then entered a Recommendation and Report (“R & R”),

recommending that the district court hold the defendants jointly and severally

liable for $550,000 in disgorgement, with prejudgment interest, and that civil

penalties of $250,000 and $130,000 be assessed against AEC and Bridwell,

respectively. The R & R rejected the defendants’ claim that subsequent

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developments proved that their representation to investors were true and that the

SEC failed to prove the allegations of its complaint; it did so because the

defendants had acknowledged the truth of those allegations and that assessments

of the disgorgement and civil penalties were to be based on such allegations. The

R & R also rejected the defendants’ argument that $538,518 of business expenses

AEC had incurred should be offset against the disgorgement the SEC sought.

Finally, the R & R rejected as unpersuasive the declarations of eighteen AEC

shareholders importuning the court not to sink the venture by imposing monetary

sanctions.

      The defendants appealed the R & R to the district court, which, after de

novo review of the record, denied their motion to supplement the record, overruled

their objections and adopted the R & R in full. As for the defendants’ objection

that they had not received an evidentiary hearing, the court noted that they had

neither requested one nor objected at the hearing before the magistrate judge that

the magistrate judge was depriving them of due process by limiting the hearing to

oral argument of counsel. This appeal followed.

      The defendants argue that they were entitled to demonstrate at an

evidentiary hearing that AEC’s enterprise was “undeniably a legitimate one,”

Reply Br. at 6; therefore, AEC “was entitled to have the disgorgement sum offset

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by legitimate business expenses.” Id. Such offset, they contend, would have

benefitted the investors. As they state in the conclusion to their reply brief, AEC’s

“financial footing is tenuous at best and should [AEC] ultimately be forced to pay

the sums ordered by the trial court, it is likely that all investors will inevitably be

adversely affected. Id.

      The decision as to whether to hold an evidentiary hearing was committed to

the district court’s sound discretion. SEC v. Smyth, 420 F.3d 1225, 1230 (11th Cir.

2005). We find no abuse of that discretion here. The hearing that was held was

precisely the sort of hearing the parties agreed to in the consent judgment: the

court “determine[d] the issues raised in the [SEC’s] motion on the basis of

affidavits, declarations, excerpts of sworn deposition or investigative testimony,

and documentary evidence, without regard to the standards for summary judgment

contained in Rule 56(c) of the Federal Rules of Civil Procedure.” The district

court’s statement that the “Defendants’ profits from the fraud consisted of all

funds [,i.e., $550,000,] the Defendants took from investors under false pretenses,”

Order, December 15, 2010 at 6, was not a statement that the court was precluding

the defendants from contending that the profits were some lessor amount; rather,

the statement was nothing more than a rejection of the defendants’ argument that

the profits were a lesser amount.

                                            5
      The defendants argue that even if the court properly calculated their ill-

gotten gains at $550,000, it should have offset that amount by the $538,518 in

expenses they legitimately incurred. They cite nothing to support their argument.

To the contrary, as the district court correctly observed, the cases overwhelmingly

hold that “[h]ow a defendant chooses to spend his ill-gotten gains, whether it be

for business expenses, personal use, or otherwise, is immaterial to disgorgement.”

Order, December 15, 2010 at 7.

      “[T]he amount of a monetary remedy under the securities laws is reviewed

for abuse of discretion.” S.E.C. v. Warren, 534 F.3d 1368, 1369 (11th Cir. 2009).

We find no abuse of discretion here.

      AFFIRMED.

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