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A suspended securities broker who allegedly defrauded investors in a “clean coal” scheme can’t be required to disgorge the $240,000 in commissions he earned on the trades, the Eighth Circuit said ( SEC v. Collyard , 8th Cir., No. 16-1405, 6/29/17 ).
The Securities and Exchange Commission waited too long to file its claims, the appeals court said. The ruling is one of the first to apply the U.S. Supreme Court’s recent decision in Kokeshv. SEC imposing a five-year limit on certain SEC enforcement actions.
However, Paul D. Crawford is still liable for acting as an unregistered broker, Judge William Benton of the U.S. Court of Appeals for the Eighth Circuit said. Crawford isn’t within the “finder exception” to broker registration requirements, the appeals court said.
In Kokesh v. SEC, the justices concluded that a federal five-year limitations period for suits to impose a penalty or similar sanction applied to disgorgement actions. “The SEC now concedes that [28 U.S.C.] § 2462 bars it from seeking disgorgement,” the appeals court said in vacating the disgorgement order.
In 2011, the SEC sued Crawford and his company Crawford Capital Corp. for acting as unregistered brokers in a scheme that raised over $43 million from approximately 1,800 investors through a series of purported private placement offerings and the sale of promissory notes.
The district court granted the agency summary judgment, permanently enjoined Crawford, and ordered him to pay $240,000 in disgorgement.
Crawford appealed, arguing that he qualified for a “finder exception” to unregistered broker liability and that the injunction and disgorgement orders were untimely under the five-year bar set out in §2462 for actions to enforce a penalty or forfeiture.
The appeals court affirmed in part. It found “no genuine issue of material fact” that Crawford acted as an unregistered broker, but vacated the disgorgement order as time-barred.
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