of the infraction, defendant's recognition of the wrongful nature of his conduct, and the likelihood, because of defendant's professional occupation, that future violations might occur.
SEC v. Universal Major Industries Corp., 546 F.2d 1044, 1048 (2d Cir. 1976), cert. denied sub nom, Homans v. SEC, 434 U.S. 834, 54 L. Ed. 2d 95, 98 S. Ct. 120 (1977). Given the serious consequences of injunctive relief, the Second Circuit has placed emphasis on the need of the SEC to prove more than the mere fact of past violations, but also a realistic likelihood of recurrence. See, e.g., SEC v. Commonwealth Chemical Securities, Inc., 574 F.2d 90, 100 (2d Cir. 1978).
In light of the defendants past violations, which occurred repeatedly over a protracted period of time, the degree of scienter involved, their lack of remorse, their young age, and current access to the marketplace, injunctions are clearly appropriate. SEC v. World Gambling Corp., 555 F. Supp. 930, 933 (S.D.N.Y. 1983), aff'd without op., 742 F.2d 1440 (2d Cir. 1983), cert. denied, 465 U.S. 1112, 104 S. Ct. 1620, 80 L. Ed. 2d 148 (1984). Defendants consistently violated their clients' trust through a myriad of omissions, misrepresentations, and other fraudulent devices. This is not a case of well intentioned and scrupulous registered representatives allowing isolated violations to occur "out of an excessive zeal for fairness and accuracy." SEC v. Bausch & Lomb, Inc., 565 F.2d 8, 19 (2d Cir. 1977). On the contrary, defendants repeatedly violated the securities laws and their clients' trust for their personal benefit. Moreover, defendants have failed to take responsibility for their securities violations. These defendants do not belong in the securities industry or in any other occupations where they are in a position to defraud the public. It is impossible for this Court to rely on defendants' representations that they will not engage in future violations of their clients' trust and the securities laws.
A federal district court's authority to order disgorgement in an SEC enforcement action is well-established. See e.g., SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1104 (2d Cir. 1972). Once this Court finds a violation of the federal securities laws, it may, pursuant to its general equitable powers, order disgorgement of monies so as to prevent a defendant from profiting from his illicit conduct: See, e.g., SEC v. Tome, 833 F.2d 1086, 1096 (2d Cir. 1987) ("The paramount purpose of enforcing the prohibition against insider trading by ordering disgorgement is to make sure that wrongdoers will not profit from their wrongdoing"). The deterrent effect of SEC enforcement actions would be diminished if securities law violators were not required to disgorge illicit profits, but disgorgement may not be used punitively. See Manor Nursing Centers, Inc., 458 F.2d at 1104. Disgorgement is an equitable remedy "uniquely suited to redress or cancel unfairness and promote investor confidence in securities transactions." SEC v. World Gambling Corp., 555 F. Supp. 930, 934 (S.D.N.Y. 1983) (citation omitted). As well as the injunctions, disgorgement is an appropriate remedy in this case.
"There cannot be any perfect measure of damages." Elkind v. Liggett & Myers, Inc., 635 F.2d 156, 172 (2d Cir. 1980). Accordingly, "disgorgement need only be a reasonable approximation of profits casually connected to the violation." SEC v. First City Financial Corp., Ltd., 281 App. D.C. 410, 890 F.2d 1215, 1231 (D.C. Cir. 1989). The SEC has the burden to put forth a disgorgement figure that reasonably approximate the amount of unjust enrichment and then the burden shifts to the defendant to "demonstrate that the disgorgement figure was not a reasonable approximation." Id. at 1232. In cases where courts have reduced or changed the disgorgement figure put forth by the SEC, "the defendant demonstrated a clear break in or considerable attenuation of the casual connection between the illegality and the ultimate profits." Id. When a defendant engages in a pervasive pattern of fraudulent conduct as opposed to isolated instances, it is unnecessary to prove a direct nexus between each instance of unlawful conduct and the disgorgement amount due. See CFTC v. British Am. Commodity Options Corp., 788 F.2d 92, 94 (2d Cir.), cert. denied, 479 U.S. 853, 107 S. Ct. 186, 93 L. Ed. 2d 120 (1986).
Due to the pervasive nature of the fraud in this case, the proper measure of disgorgement is the amount of commissions earned by each defendant in each of the customer witnesses' accounts. This has been the SEC's position throughout the course of this litigation and the defendants have failed to put forth an alternative method. See SEC v. First City Financial Corp.. Ltd., 890 F.2d at 1231. The defendants have failed to prove any break between the illegal conduct and the amount of disgorgement sought. Id. at 1232. Moreover, the disgorgement figures put forth by the SEC are understated because they do not include commissions earned by defendants Ben Hasho and Mecca at First Jersey and by Ben Hasho, Mecca, and Yule at Stuart-James.
C. Prejudgment Interest
Prejudgment interest on damages awarded pursuant to a violation of the federal securities laws is a matter of judicial discretion. See Rolf v. Blyth, Eastman Dillon & Co., 570 F.2d 38, 50 (2d Cir. 1980); Quintel Corp. v. Citibank, N.A., 606 F. Supp. 898, 914 (S.D.N.Y. 1985). In exercising its discretionary powers, a court must consider both compensation and fairness. Quintel Corp., 606 F. Supp. at 914. An award of prejudgment interest is intended to compensate an aggrieved party for the wrongful deprivation of its money. Rolf v. Blyth, Eastman Dillon & Co., 637 F.2d 77, 87 (2d Cir. 1980). In addition, "awards of prejudgment interest are governed by fundamental considerations of fairness." Id. Prejudgment interest is customarily awarded in cases involving a breach of fiduciary duty. See id.; Norte & Co. v. Huffines, 416 F.2d 1189, 1191 (2d Cir. 1969), cert. denied, 397 U.S. 989, 90 S. Ct. 1121, 25 L. Ed. 2d 396 (1970).
In this case, defendants breached their duty of fair dealing with their clients and wrongly deprived their clients of money. Accordingly, defendants' clients were both deprived of this money and the opportunity to realize a fair rate of return on the money. Under New York law, prejudgment interest is calculated 9% simple interest for all claims arising after June 25, 1981. N.Y. C.P.L.R. Law § 5004 (McKinney 1988); see Quintel Corp., 606 F. Supp. at 915.
Dated: February 13, 1992
New York, New York
David N. Edelstein