Securities and Exchange Commission v. George G. Levin
849 F.3d 995
| 11th Cir. | 2017Background
- Scott Rothstein ran a large Ponzi scheme through his law firm, selling fake confidential settlement agreements; the scheme collapsed in 2009.
- George Levin invested and then, through his dormant entity Banyon, issued promissory notes and operated the Banyon Income Fund to raise tens of millions for purported settlement purchases; roughly $50–58 million in notes were issued and Banyon Income Fund raised about $100 million.
- The SEC sued Levin for (a) selling unregistered securities in violation of Section 5 of the Securities Act, and (b) fraud under Section 17(a)/Section 10(b)/Rule 10b-5; Levin raised Regulation D exemptions (Rule 506 and the Rule 508 safe harbor) as affirmative defenses.
- The district court granted summary judgment to the SEC on the registration claim after concluding Rule 508’s safe harbor did not apply to SEC enforcement actions; a jury later found Levin liable on fraud counts and the district court ordered $40.1 million in disgorgement.
- On appeal, the Eleventh Circuit reversed the grant of summary judgment on the registration claim (holding Rule 508’s safe harbor can apply in SEC enforcement actions), affirmed the denial of a trial continuance, affirmed the disgorgement award, and rejected the plain-error challenge to the district judge’s questioning of witnesses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| 1. Whether Rule 508 safe harbor can shield an offering in an SEC enforcement action | SEC: Rule 508(b) makes any “failure to comply” with Regulation D actionable by the Commission, so the safe harbor in Rule 508(a) cannot shield defendants in SEC enforcement suits | Levin: “Failure to comply” in 508(b) refers to violations of Rules 504–506 (not Section 5), so Rule 508(a) safe harbor can apply in SEC enforcement actions | Reversed district court: Rule 508(a) safe harbor can apply in SEC actions; genuine factual disputes remanded on whether Banyon’s offering falls within the safe harbor |
| 2. Denial of continuance when Levin was hospitalized before trial | SEC: Denial appropriate given witness availability, logistical burdens, and no guarantee a continuance would secure Levin’s return | Levin: Denial prejudiced his trial participation (jury selection, witness examination) | Affirmed: No abuse of discretion; denial not arbitrary/unreasonable nor severely prejudicial |
| 3. Disgorgement amount and offsets (trustee distributions, future repayments, family/company gains) | SEC: Disgorgement should reflect Levin’s ill-gotten gains as reasonably approximated by the SEC | Levin: Must offset amounts returned to investors by Banyon trustee and exclude gains of family/affiliated entities | Affirmed: District court properly based disgorgement on Levin’s gains; trustee settlement funds did not reduce Levin’s gains; belated objections waived on appeal |
| 4. District judge’s questioning of witnesses | SEC: Judge’s interventions were clarifying and within discretion to control testimony and pace | Levin: Questions were leading/tendentious and prejudiced the jury; failure to object should not bar review | Affirmed: No plain error or abuse of discretion; judge’s interruptions aimed to clarify testimony and maintain pace, with jury instructions to disregard when appropriate |
Key Cases Cited
- Cont'l Tobacco Co. of S.C. v. SEC, 463 F.2d 137 (5th Cir.) (elements of a Section 5 violation and narrow construction of exemptions)
- Powerex Corp. v. Reliant Energy Servs., Inc., 551 U.S. 224 (statutory-construction principle that identical words in the same text should have consistent meaning)
- SEC v. Monterosso, 756 F.3d 1326 (11th Cir.) (disgorgement: SEC need only provide a reasonable approximation of ill-gotten gains)
- Rink v. Cheminova, Inc., 400 F.3d 1286 (11th Cir.) (standard for reviewing denial of continuance)
- Romero v. Drummond Co., Inc., 552 F.3d 1303 (11th Cir.) (continuance/abuse-of-discretion review guidance)
- United States v. Wright, 392 F.3d 1269 (11th Cir.) (scope of trial court questioning of witnesses under Rule 614)
- Bonner v. City of Prichard, 661 F.2d 1206 (11th Cir. en banc) (treating pre‑1981 Fifth Circuit decisions as binding authority in the Eleventh Circuit)