United States Securities & Exchange Commission v. Quan
2016 U.S. App. LEXIS 5202
| 8th Cir. | 2016Background
- Marlon Quan ran hedge funds (SCAF and its offshore twin) through Stewardship Investment Advisors and invested heavily in loans to PAC Funding, controlled by Thomas Petters, which was actually a Ponzi scheme; investors lost substantial funds when it collapsed.
- The SEC sued Quan and related entities for securities fraud under Section 17(a) of the Securities Act, Section 10(b)/Rule 10b-5 of the Exchange Act, and Section 206(4)/Rule 206(4)-8 of the Advisers Act, plus control and aiding-and-abetting theories.
- A jury found liability on nearly all counts against Quan and his entities (except Section 17(a)(1) and one aiding-and-abetting allegation).
- The district court denied Quan’s motions for judgment as a matter of law and a new trial, entered injunctions, and ordered disgorgement of roughly $81 million plus prejudgment interest.
- Quan appealed, arguing the verdicts were internally inconsistent, the jury instructions (including unanimity) were erroneous, and the court lacked authority to order disgorgement.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether jury verdicts were internally inconsistent (Rule 10b-5 liability but no Section 17(a)(1) liability or aiding-and-abetting) | SEC: jury instructions permitted distinct findings; verdicts are reconcilable. | Quan: findings contradict because Rule 10b-5 and Section 17(a)(1) cover same conduct; personal liability but not aiding-and-abetting is incoherent. | Court: Verdicts are reconcilable given instructions that Section 17(a)(1) requires conduct beyond mere misstatements/omissions; jury could find false statements without scheme-level intent; separate findings about SCAF likewise plausible. |
| Whether Quan preserved his inconsistency challenge by objecting after verdict but not moving to resubmit | SEC: forfeiture principles apply; but here no need to decide because verdicts were reconcilable. | Quan: his post-verdict objection preserved the issue. | Court: assumed without deciding preservation; resolved on the merits and rejected Quan’s inconsistency claim. |
| Whether jury must be unanimous as to which particular false statement or omission constitutes the violation (unanimity instruction) | SEC: unanimity as to a single specific misstatement is not required for civil securities claims; jurors can agree on liability even if they identify different misstatements. | Quan: jurors must unanimously agree on at least one particular false statement or omission to convict; lack of instruction denied unanimity and fairness. | Court: Rejected Quan; under Section 17(a)(2)/Rule 10b-5(b) the jury need not agree on the same particular statement—agreement that defendant made a false/material misstatement or omission suffices. |
| Whether district court could order disgorgement as equitable relief | SEC: disgorgement is a proper equitable remedy to prevent unjust enrichment and is authorized in SEC enforcement. | Quan: disgorgement is a legal remedy (restitution) and not available where statute authorizes only equitable relief; Supreme Court decisions restrict such remedies. | Court: Affirmed disgorgement as an equitable remedy well-established in SEC practice; distinguished Quan’s invocation of restitution precedents and upheld award. |
Key Cases Cited
- United States v. Petters, 663 F.3d 375 (8th Cir. 2011) (background on Petters’s Ponzi scheme)
- Parrish v. Luckie, 963 F.2d 201 (8th Cir. 1992) (objection/resubmission rule for inconsistent verdicts)
- Lockard v. Mo. Pac. R.R., 894 F.2d 299 (8th Cir. 1990) (waiver for failure to object and move for resubmission)
- Top of Iowa Coop. v. Schewe, 324 F.3d 627 (8th Cir. 2003) (standard for reconciling inconsistent jury findings)
- Anheuser-Busch, Inc. v. John Labatt Ltd., 89 F.3d 1339 (8th Cir. 1996) (jury may find one claim proven and another not when elements differ)
- FDIC v. Munn, 804 F.2d 860 (5th Cir. 1987) (discussing inconsistency/new trial in fraud context)
- United States v. Rice, 699 F.3d 1043 (8th Cir. 2012) (mail/wire fraud unanimity and element issues discussed but distinguished)
- Richardson v. United States, 526 U.S. 813 (1999) (unanimity and elements framework)
- SEC v. Ridenour, 913 F.2d 515 (8th Cir. 1990) (disgorgement is proper remedy for securities fraud)
- SEC v. Commonwealth Chem. Sec., Inc., 574 F.2d 90 (2d Cir. 1978) (historical support for equitable disgorgement in SEC enforcement)