378 F. Supp. 3d 451
E.D. Va.2019Background
- Daryl G. Bank is criminally indicted on securities, fraud, conspiracy, and money‑laundering counts arising from an alleged investor‑fraud scheme; a second superseding indictment charges multiple counts including securities and mail/wire fraud.
- The SEC obtained a civil consent judgment in a related action (Janus Spectrum) ordering Bank to disgorge $4,494,900, plus interest and a civil penalty; the consent judgment included a waiver of any Double Jeopardy claim tied to that settlement.
- Bank moved to dismiss the pending criminal indictment under the Double Jeopardy Clause after Kokesh v. SEC held that SEC disgorgement is a "penalty" for purposes of 28 U.S.C. § 2462, arguing Kokesh means disgorgement is criminal punishment and therefore bars subsequent criminal prosecution for the same conduct.
- The Government opposed, arguing delay, waiver in the consent judgment, and that Kokesh did not convert disgorgement into a criminal punishment for Double Jeopardy purposes; it also argued any bar would be partial and limited to overlapping conduct.
- The district court applied the two‑step Hudson/Ward test: (1) ask whether Congress intended a civil penalty (legislative preference), and (2) if civil, determine whether the "clearest proof" shows the remedy is punitive enough to be criminal by Hudson’s seven‑factor test.
- The court concluded Congress impliedly intended disgorgement to be civil and, synthesizing the Hudson factors and additional considerations (including Kokesh’s narrow holding and the consent waiver), found insufficient "clearest proof" to treat the SEC disgorgement as a criminal punishment that would trigger Double Jeopardy; Bank’s motion to dismiss was denied.
Issues
| Issue | Plaintiff's Argument (Gov't) | Defendant's Argument (Bank) | Held |
|---|---|---|---|
| Whether the SEC disgorgement in Janus Spectrum is a "criminal punishment" for Double Jeopardy | Disgorgement was civil; Kokesh does not convert it into a criminal punishment for Double Jeopardy; legislative scheme and equitable basis show civil intent | Kokesh held disgorgement is a "penalty" and punitive; that converts it into criminal punishment for Double Jeopardy purposes, barring prosecution for overlapping conduct | Denied — court held disgorgement remains civil for Double Jeopardy; Kokesh’s narrow holding insufficient to provide "clearest proof" of criminal punishment |
| Whether the consent‑judgment waiver bars Bank’s claim | Waiver language broadly relinquishes any Double Jeopardy claim; Bank knowingly signed the consent judgment | Waiver could not have knowingly waived a Double Jeopardy claim that did not exist pre‑Kokesh; waiver insufficient to preclude reconsideration | Waiver alone insufficient to bar review; but it weighs against Bank and was considered in the overall analysis |
| Whether the statutes authorizing SEC relief indicate civil or criminal label | Statutory text and framework (equitable jurisdiction, injunctive authority, separate criminal provisions) imply a civil remedy | — | Held civil: statutes imply a civil label, so Hudson step one favors civil designation |
| Whether Kokesh’s characterization of disgorgement as a "penalty" for §2462 purposes requires overturning longstanding precedent treating disgorgement as non‑criminal | Kokesh limited to statute‑of‑limitations context and did not address Double Jeopardy; precedent still controls | Kokesh’s finding that disgorgement is punitive means prior cases are undermined and Double Jeopardy should now apply | Court read Kokesh narrowly; did not extend it to convert disgorgement into criminal punishment for Double Jeopardy |
Key Cases Cited
- Hudson v. United States, 522 U.S. 93 (1997) (establishes two‑step test and seven factors to determine whether a civil sanction is criminal for Double Jeopardy)
- Ward v. United States, 448 U.S. 242 (1980) (framework for distinguishing civil versus criminal sanctions)
- Kokesh v. SEC, 137 S. Ct. 1635 (2017) (held SEC disgorgement is a "penalty" for purposes of §2462; limited to statute‑of‑limitations context)
- United States v. Dyer, 908 F.3d 995 (6th Cir. 2018) (post‑Kokesh analysis holding disgorgement not converted into criminal punishment for Double Jeopardy)
- SEC v. Palmisano, 135 F.3d 860 (2d Cir. 1998) (disgorgement treated as equitable/civil remedy)
- United States v. Van Waeyenberghe, 481 F.3d 951 (7th Cir. 2007) (waiver language discussion; civil disgorgement does not trigger Double Jeopardy)
- United States v. Dixon, 509 U.S. 688 (1993) (Double Jeopardy protects against multiple punishments and successive prosecutions)
- Aaron v. SEC, 446 U.S. 680 (1980) (statutes authorizing SEC equitable relief do not by their text impose independent scienter requirement)