SEC Disgorgement Order Enforceable Against Exempt Assets

Jon Alper Creditor Rights, Florida Exemptions

The U.S. Securities and Exchange Commission may impose equitable remedies to recover money earned through illegal insider trading and other violations of federal seccurities laws. The SEC’s equitable remedies include “disgorgement” of all money obtained illegally. A federal court may order the defendant to pay back illegally obtained funds or to post a bond secured by the defendant’s assets.

Florida’s exemption laws will not protect an SEC defendant from disgorgement orders. One of my former clients was found guilty of insider trading and was ordered to disgorge approximately $300,000 of insider profit. The court ordered the defendant to borrow money against his Florida homestead, his annuity contracts, and other assets that are exempt from normal civil judgments in Florida. The court explained that Florida exemptions apply to money judgments, but that disgorgement is different; disgorgement is an equitable remedy which serves to recover ill-
gotten gains from the wrongdoer. Disgorgement, the court said, protects the public interest from the harms of violations of securities laws.

In my clients case, the court issued a restraining order against my client and his agents against closing on the sale of my client’s homestead to an unrelated third party. The SEC disgorgement order took precedence over Florida’s homestead protection. A court, furthermore, may incarcerate a defendant for civil contempt if the defendant refuses to use otherwise exempt assets to disgorge ill-gotten profit subject to the disgorgement order.

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