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February 25, 1997


The opinion of the court was delivered by: POLLACK

 Pollack, Senior District Judge:

 Plaintiff Securities and Exchange Commission has moved this Court for an order directing the Court Registry Investment System ("CRIS") to pay to the general fund of the United States Treasury all monies held by CRIS that were paid as disgorgement herein (the "Fund") by defendants Victor Posner and Steven Posner, plus all accrued interest thereon. The approximate amount of the Fund is $ 4,382,772.26.

 The motion requests that the Fund be paid to the Treasury as the most appropriate and equitable disposition of the Fund under the facts and circumstances presented by this case. In opposition to the motion, the Fischbach Corporation and the bankruptcy trustee of Pennsylvania Engineering Corporation ("PEC") each seek payment of the Fund. For the reasons stated below, the SEC's motion is granted, and the Fund shall be paid to the Treasury.


 The SEC brought this action against recidivist securities law violators Victor and Steven Posner for violation of the securities laws for failing to disclose a fraudulent arrangement with Michael Milken and Ivan Boesky whereby they acquired control of Fischbach Corporation. Following a bench trial of the SEC's claims, the Court found that, at the prompting of the Posners and Michael Milken, and with the understanding that he would be indemnified for any loss he sustained, Boesky took a 10 percent position in Fischbach to void a standstill agreement between the Posners and Fischbach and thereby enabled the Posners to acquire control of Fischbach. The Court held that, by failing to disclose the arrangement with Milken and Boesky, the Posners had violated sections 10(b) and 13(d) of the Securities Exchange Act of 1934 and the Rules thereunder, and had aided and abetted Boesky's violations of various margin and recordkeeping requirements of the Exchange Act. In addition to injunctive relief and ancillary remedies intended to preclude the Posners from exercising control over any public company, the Court ordered Victor and Steven Posner to disgorge $ 2,255,000 and $ 262,000 respectively, representing the compensation they were paid by Fischbach during the time the Posners controlled the company, plus interest thereon. SEC v. Drexel Burnham Lambert, Inc., 837 F. Supp. 587, 611-12 (S.D.N.Y. 1993), aff'd, 16 F.3d 520 (2d Cir. 1994), cert. denied, 513 U.S. 1077, 130 L. Ed. 2d 629, 115 S. Ct. 724 (1995).

 As both this Court and the Second Circuit observed in their opinions in this case, "once the equity jurisdiction of the district court has been properly invoked by a showing of a securities law violation, the court possesses the necessary power to fashion an appropriate remedy." 837 F. Supp. at 614, 16 F.3d at 521 (both quoting SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1103 (2d Cir. 1972)). In its findings and conclusions, the Court found that the Posners "have repeatedly abused their positions in public companies, engaged in self-dealing, enriched themselves at the expense of public shareholders, and generally conducted themselves in ways that are antithesis of what one expects of a corporate fiduciary." 837 F. Supp. at 606. In fashioning an appropriate remedy, the Court took into account not only the violations relating to the fraud by which the Posners acquired control of Fischbach, but also numerous other documented instances of their having engaged in misconduct while acting as officers and directors of public companies.

 Confronted with such chronic abuse of corporate position, and observing that the injunctions imposed against them in prior SEC enforcement actions had been "notably ineffectual in preventing them from engaging in securities law violations," id. at 613, the Court undertook to fashion a remedy that would ensure the Posners' future compliance in corporate transactions. Thus, in addition to enjoining them yet again from engaging in further violations, the Court also barred them from serving as officers or directors of any reporting company. Id. To ensure that they did not, through stock ownership, exercise de facto control of any such companies, the Court further ordered them to place in a voting trust any voting securities they owned in any reporting company they controlled. Id.

 The Court also ordered the Posners to pay disgorgement, observing that "disgorgement is an equitable remedy designed to deprive a wrongdoer of his unjust enrichment and to deter others from violating the securities laws." Id. at 611 (quoting SEC v. First City Financial Corp., 281 U.S. App. D.C. 410, 890 F.2d 1215, 1230 (D.C. Cir. 1989)). In view of the purposes served by disgorgement, the Court noted, inter alia, that 1) "the amount of disgorgement ordered 'need only be a reasonable approximation of profits causally connected to the violation,'" id. at 612 (quoting First City, 890 F.2d at 1231); 2) owing to the difficulty of distinguishing legal from illegal profits, "it is proper to assume that all profits gained while defendants were in violation of the law constituted ill-gotten gains," id. (quoting SEC v. Bilzerian, 814 F. Supp. 116, 121 (D.D.C. 1993)); and 3) it then becomes the defendant's burden to rebut the presumption and show that such profits were not causally related to the violation. Id.

 In accordance with these principles, the Court ordered the Posners to disgorge the money they were paid as compensation by Fischbach, reasoning that "had it not been for their fraudulent arrangement with Milken and Boesky, the Posners would not have been able to acquire control of Fischbach and thus would not have been able to place themselves in high-paid positions at the company." Id. The disgorgement order comprehended all compensation paid to the Posners by Fischbach during the years they controlled the company. At trial, the Posners offered no evidence to show that they had performed real services for Fischbach, or to rebut in any other way the SEC's showing that they had been unjustly enriched by their violations. *fn1" Looking to the financial results reported by Fischbach during the years the Posners controlled it, the Court stated that "any contention they might make that their services were of real value to the company is belied by the results reported in Fischbach's public filings." Id.

 The disgorgement thus represented money misappropriated from Fischbach by the Posners. The Posners used their Exchange Act violations to gain control of Fischbach, and place themselves in highly paid positions at the company. The salary paid to the Posners therefore represented illegal profits from the Exchange Act violations, and the Court ordered these profits disgorged under its broad equitable power "to deprive a wrongdoer of his unjust enrichment and to deter others from violating the securities laws."

 The Second Circuit rejected the Posners' challenges to the remedies ordered and affirmed the judgment in all respects. SEC v. Posner, 16 F.3d 520 (2d Cir. 1994). Victor Posner promptly paid the disgorgement ordered following the entry of judgment in early 1994. Steven Posner failed to satisfy the judgment against him within the time allowed under the judgment, but eventually paid in full (including all accrued interest) in June 1996. In accordance with the judgment, the Posners' disgorgement has been deposited in CRIS awaiting the Court's approval of a distribution plan to be submitted by the SEC.

 The SEC has made its motion pursuant to the following paragraphs of the Final Judgment as to defendants Victor Posner and Steven Posner entered herein on December 29, 1993:

XI. IT IS FURTHER ORDERED, ADJUDGED AND DECREED that, no later than three days following the entry of this judgment, Victor Posner shall disgorge the sum of (1) $ 3,601,761.00, representing disgorgement and prejudgment interest up to and including December 13, 1993; (2) $ 668.00 per day from December 13, 1993, up to and including the date of entry of judgment herein; and (3) $ 353.00 per day from the date of entry of judgment herein up to and including the date that the full amount of disgorgement is ...

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