Smith v. Securities & Exchange Commission
2011 U.S. App. LEXIS 16353
| 2d Cir. | 2011Background
- SEC filed a civil action alleging securities violations by Lynn Smith's husband and his business associates, targeting funds totaling over $80 million.
- An asset freeze and related relief were sought, including appointment of a receiver and accountings, with Lynn Smith's assets placed under restraint.
- Magistrate judge found Lynn Smith's checking account and Florida home were jointly owned with David Smith, despite her testimony to the contrary, and exempted the New York home from the freeze.
- The SEC later uncovered a 2004 annuity in a trust that benefited Lynn and David Smith, leading to reconsideration and re-freezing the trust; sanctions against Lynn Smith for nondisclosure were later authorized.
- After denying Lynn Smith's bid to lift the freeze, the SEC sought to lift the freeze to sell the Florida home due to declining value and ongoing mortgage costs; the district court granted this in February 2011 with a receiver to oversee the sale.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the district court abused its discretion in lifting the asset freeze to permit liquidation of the Florida home. | SEC argued liquidation preserved asset value and avoided further dissipation. | Smith contends asset freeze should remain to preserve status quo and prevent dissipation. | No abuse; lifting permissible to preserve value. |
| Whether the magistrate had authority to order the sale under securities laws and equity powers. | SEC cited broad equitable authority and Section 21(d)(5) to preserve investors' interests. | Smith argued no authority to liquidate asset without final judgment. | Authorities supported liquidation under equitable discretion to preserve value. |
Key Cases Cited
- SEC v. Unifund SAL, 910 F.2d 1028 (2d Cir. 1990) (asset freeze preserved status quo and aided disgorgement)
- SEC v. Am. Bd. of Trade, Inc., 830 F.2d 431 (2d Cir. 1987) (broad equitable power to issue ancillary relief)
- Infinity Grp. Co. v. Infinity Grp. Co., 212 F.3d 180 (3d Cir. 2000) (freeze to preserve status quo; asset protection rationale)
- SEC v. Materia, 745 F.2d 197 (2d Cir. 1984) (broad equity powers under securities laws)
- SEC v. Cavanagh, 155 F.3d 129 (2d Cir. 1998) (burden on Commission to show ill-gotten funds in relief-defendant assets)
- SEC v. Wencke, 622 F.2d 1363 (9th Cir. 1980) (inherent equitable authority to issue ancillary relief)