SEC v. Sanchez Diaz Monge, 88 F.4th 81

Sanchez-Diaz and Carrillo divorced in 2009; the 2009 marital termination agreement provided shared custody, child support and time-limited spousal support.
Carrillo moved to Mexico in late 2013; Sanchez-Diaz had sole legal and physical custody by early 2014.
In 2016 the parties executed a modified agreement: Sanchez-Diaz accepted sole legal/physical custody and Carrillo agreed to pay $10,000/month, cover expenses, and purchase a new vehicle for Sanchez-Diaz every three years.
In April 2017 Carrillo purchased a 2017 BMW X5 M titled to Sanchez-Diaz; she later traded it for a 2020 BMW.
In 2021 the SEC sued Carrillo for securities fraud, named Sanchez-Diaz as a relief defendant, and sought disgorgement of the BMW purchase price as illicit proceeds; the district court ordered disgorgement of $169,804.
On appeal the First Circuit reversed, holding the district court applied the wrong legal standard and that Sanchez-Diaz provided more-than-nominal value (sole custody and forbearance of claims) in exchange for the car.

Issue	Plaintiff's Argument (SEC)	Defendant's Argument (Sanchez-Diaz)	Held
Whether SEC may obtain disgorgement from a non‑wrongdoing relief defendant	SEC: Yes, if the transferee received ill‑gotten funds and lacks a legitimate claim	Sanchez‑Diaz: Court should require that she had a legitimate, non‑specious claim to the car	Court: Adopts two‑part rule (ill‑gotten funds + no legitimate claim); SEC must prove both by preponderance
Proper legal standard to evaluate a relief defendant’s claim	SEC: Apply bankruptcy-style "reasonably equivalent value"/"equivalent value" analysis to test legitimacy	Sanchez‑Diaz: Use ordinary equitable/restitution principles—did she give more than nominal value or consideration?	Court: Bankruptcy "reasonably equivalent" standard is inapt; proper test is whether transferee provided something of value more than nominal
Whether Sanchez‑Diaz provided value to establish a legitimate claim to the car	SEC: She did not provide services or substantially equivalent value; car was effectively a gift	Sanchez‑Diaz: She accepted sole custody and surrendered the right to seek modification—these are valuable consideration	Court: Sanchez‑Diaz conveyed more‑than‑nominal value (extended custody duties and forbearance); district court’s contrary factual finding was clearly erroneous; disgorgement reversed

SEC v. Cavanagh, 155 F.3d 129 (2d Cir. 1998) (articulates two‑part rule for disgorgement from relief defendants)
CFTC v. Kimberlynn Creek Ranch, Inc., 276 F.3d 187 (4th Cir. 2002) (relief defendant framework and review of factual findings)
Janvey v. Adams, 588 F.3d 831 (5th Cir. 2009) (creditor relationship can create legitimate claim to proceeds)
CFTC v. Walsh, 618 F.3d 218 (2d Cir. 2010) (value given by relinquishing claims can preclude disgorgement)
SEC v. Ross, 504 F.3d 1130 (9th Cir. 2007) (disgorgement limited to those without rightful claim)
SEC v. Contorinis, 743 F.3d 296 (2d Cir. 2014) (disgorgement measures unjust enrichment and recovers ill‑gotten gains)
Braunstein v. McCabe, 571 F.3d 108 (1st Cir. 2009) (equitable limits on disgorgement and restoring the status quo)
Steadman v. SEC, 450 U.S. 91 (1981) (preponderance standard in SEC proceedings)