Securities and Exchange Commission v. Flowers, 3:17-cv-01456

SEC sued Troy Flowers, Sean P. Nevett, and Fruition, Inc. for matched trading/manipulation of two penny stocks (Lincot and Artec), alleging control of shares via nominee accounts and sales to third parties to realize illicit gains.
Defendants settled by consent without admitting or denying allegations; judgments entered requiring disgorgement with prejudgment interest and civil penalties to be determined by the Court.
SEC’s forensic expert calculated gross proceeds of $4,035,389, pre-tax proceeds of $3,684,954, and prejudgment interest of $194,443.31; expert also estimated personal benefits to Flowers and Nevett from credit-card/lifestyle charges.
Defendants invoked the Fifth Amendment during discovery and later sought to contest the SEC’s disgorgement calculations and seek apportionment (arguing disgorgement should match individual pecuniary gain rather than joint-and-several liability).
Court found disgorgement equitable and appropriate (Defendants had consented), rejected defendants’ apportionment showing (no concrete tracing of specific gains), and held all three defendants jointly and severally liable for $3,684,954 plus $194,443.31 interest.
Court assessed civil penalties under the three-tier statutory scheme (applying Murphy factors): Flowers and Nevett each $310,000 total (separate $150k/$160k for Lincot and Artec); Fruition $1,500,000 total (separate $725k/$775k).

Issue	Plaintiff's Argument	Defendant's Argument	Held
Authority to order disgorgement post-Kokesh	Disgorgement remains equitable relief; defendants consented to disgorgement	Kokesh treats disgorgement as a penalty under §2462, so improper	Court: Kokesh did not eliminate equitable disgorgement; consent supports remedy
Proper disgorgement amount	SEC’s expert provides reasonable approximation of ill-gotten gains ($3,684,954) plus interest	Defendants dispute calculations, seek deductions for acquisition/fees; invoke Fifth to avoid producing contrary evidence	Court: adopts SEC figure; defendants forfeited ability to dispute by invoking Fifth; no additional deductions
Joint-and-several liability vs apportionment	Defendants acted collaboratively; all gains flowing from scheme should be included and shared liability appropriate	Each defendant should be liable only for their identifiable pecuniary gain (expert apportionment)	Court: defendants failed to meet burden to prove clear apportionment; held defendants jointly and severally liable
Civil penalty tier and amount	Third-tier penalties appropriate given fraud, concealment, recurrent scheme; seek penalties equal to gross pecuniary gain	Defendants point to consent injunctions, financial inability, and argue against penalizing Fifth Amendment invocation; ask for statutory maximums instead	Court: applied Murphy factors; imposed third-tier penalties but tailored amounts: Flowers $310,000, Nevett $310,000, Fruition $1,500,000

S.E.C. v. Platforms Wireless Int’l Corp., 617 F.3d 1072 (9th Cir.) (SEC need only show reasonable approximation of profits causally connected to violation)
J.T. Wallenbrock & Assocs. v. S.E.C., 440 F.3d 1109 (9th Cir.) (joint-and-several disgorgement where defendants collaborated)
Kokesh v. S.E.C., 137 S. Ct. 1635 (2017) (disgorgement characterized as a ‘‘penalty’’ for statute of limitations purposes; did not decide courts’ authority to order disgorgement)
Krull v. S.E.C., 248 F.3d 907 (9th Cir.) (distinguishing penalty determinations across legal contexts)
S.E.C. v. Whittemore, 659 F.3d 1 (D.C. Cir.) (defendant bears burden to prove apportionment when funds were commingled and moved through nominees)
S.E.C. v. First City Fin. Corp., Ltd., 890 F.2d 1215 (D.C. Cir.) (uncertainty in disgorgement should fall on wrongdoer)
S.E.C. v. Murphy, 626 F.2d 633 (9th Cir.) (factors for assessing civil penalties)
Hateley v. S.E.C., 8 F.3d 653 (9th Cir.) (discussion of limits on disgorgement and penalties)