Team P4

BRIAN BOSCO, et al.,

Petitioners,

v.

SECURITIES AND EXCHANGE COMMISSION,

Respondent.

On Writ of Certiorari To The

United States Court Of Appeals For The Fourteenth Circuit

BRIEF OF PETITIONERS

Counsel for Petitioners

Team P4

i

QUESTIONS PRESENTED

1. Whether SOX 302, promulgated as Rule 13a–14, provides the Securities and Exchange Commission with a cause of action against officers who had no knowledge of inaccuracies in the statements which they certified.

2. Whether the disgorgement remedy of SOX 304 requires personal misconduct by the chief executive officer and chief financial officer.

3. Whether the statute of limitations of 28 U.S.C. § 2642 applies to actions for disgorgement.

Team P4

ii

TABLE OF CONTENTS

QUESTIONS PRESENTED ...................................................................................................................... i

TABLE OF CONTENTS ........................................................................................................................... ii

TABLE OF AUTHORITIES .................................................................................................................... iv

INTRODUCTION ...................................................................................................................................... 1

STATEMENT OF THE CASE ................................................................................................................. 2

SUMMARY OF ARGUMENT ................................................................................................................. 8

ARGUMENT ............................................................................................................................................... 9

I. THE SEC HAS NO CAUSE OF ACTION AGAINST BOSCO AND LEE ......................... 9

A. SOX 302 Contains a Scienter Element for CEOs and CFOs ................................... 9

B. Rule 13a–14 Cannot Contradict or Exceed SOX 302’s Scienter Requirement ................................................................................................................................................. 11

1. The proper interpretation of Rule 13a–14 contains a scienter element ........................................................................................................................................ 11

2. If Rule 13a–14 does not contain a scienter requirement, then it impermissibly contradicts SOX 302 ................................................................. 14

C. Bosco and Lee Did Not Violate SOX 302 Because They Had No Knowledge of the Certifications’ Inaccuracies ............................................................................ 15

II. THE DISGORGEMENT REMEDY OF SOX 304 REQUIRES PERSONAL MISCONDUCT .......................................................................................................................... 16

A. Strict Liability Under SOX 304 Violates Congressional Intent and Due Process................................................................................................................................ 17

B. The Language of SOX Does Not Plainly Express Whose Conduct Must Cause an Accounting Restatement ....................................................................................... 18

C. Forcing Bosco and Lee to Disgorge Monies Because of Prince’s Misdeeds is Antithesis to the Very Purposes of Sarbanes-Oxley .......................................... 19

III. THE STATUTE OF LIMITATIONS UNDER 28 U.S.C. § 2462 APPLIES TO THE MONIES PRINCE WAS ORDERED TO DISGORGE ...................................................... 21

A. The “Disgorgement” in This Case Was a Forfeiture Time-Barred by § 2462

Team P4

iii

............................................................................................................................................... 21

B. The “Disgorgement” in this Case Was Punitive in Nature................................. 25

1. The IRS recognizes that disgorgement can be Punitive ........................... 26

2. The tablet bonus was not causally related .................................................... 27

3. Conrad’s bonus was not causally related ....................................................... 28

C. The Lower Court’s Ruling Permits Improper Seizures by the SEC ................ 28

D. Leaving SEC Disgorgement Actions Untethered to a Statute of Limitations Is Violative of Congress’s Purpose ........................................................................... 29

CONCLUSION ......................................................................................................................................... 30

Team P4

iv

TABLE OF AUTHORITIES

CASES

Adams v. Woods, 2 Cranch 336 (1805) ......................................................................................... 33

Cent. Laborers' Pension Fund v. Integrated Elec. Servs. Inc., 497 F.3d 546 (5th Cir. 2007). ..................................................................................................................................................... 11

Chase Bank USA, N.A. v. McCoy, 562 U.S. 195 (2011) ....................................................... 16

Chevron, USA, Inc. v. Natural Res. Def. Counsel, Inc., 467 U.S. 837 (1984) ......... 17

Clark v. Martinez, 543 U.S. 371 (2005) .......................................................................................... 19

Desert Palace, Inc. v. Costa, 539 U.S. 90 (2003) ............................................................... 11, 12

Estate of Cowart v. Nicklos Drilling Co., 505 U.S. 469 (1992) .................................. 11, 12

Fin. Planning Ass'n v. SEC, 375 U.S. App. D.C. 389 (2007) ............................................ 17

Gabelli v. SEC, 133 S. Ct. 1216 (2013) .......................................................................................... 33

Garfield v. NDC Health Corp., 466 F.3d 1255 (11th Cir. 2006) ..................................... 12

Gompers v. Buck’s Stove & Range Co, 221 U.S. 418 (1911) ............................................ 29

In re AFC Enters., 224 F.R.D. 515 (N.D. Ga. 2004)................................................................ 21

In re Diebold Derivative Litigation, 2008 U.S. Dist. LEXIS 15747 (N.D. Ohio Feb. 29, 2008) ........................................................................................................................................................ 25

Ind. Elec. Workers' Pension Tr. Fund Ibew v. Shaw Grp., Inc., 537 F.3d 527 (5th Cir. 2008) ....................................................................................................................................................... 12

Jones v. Alfred H. Mayer Co., 392 U.S. 409 (1968) ................................................................ 11

Levine v. Diamanthuset, Inc., 950 F.2d 1478 (9th Cir. 1991) ......................................... 15

Morissette v. United States, 342 U.S. 246 (1952) .................................................................... 20

Perrin v. United States, 444 U.S. 37 (1979) .......................................................................... 12, 27

Ponce v. SEC, 345 F.3d 722 (9th Cir. 2003) ............................................................................... 15

Riordan v. SEC, 627 F.3d 1230 (D.C. Cir. 2010) .............................................................. 28, 30

SEC v. Bardman, 2017 U.S. Dist. LEXIS 18108 (N.D. Cal. Feb. 8, 2017) ............. 25

Team P4

v

SEC v. Blatt, 583 F.2 1325 (5th Cir. 1978) ................................................................................. 31

SEC v. Fehn, 97 F.3d 1276 (9th Cir. 1996) ................................................................................. 15

SEC v. Graham, 823 F.3d 1357(11th Cir. 2016) .............................................................. 26, 28

SEC v. Jasper, 678 F.3d 116 (9th Cir. 2012) ............................................................................. 25

SEC v. Jensen, 835 F.3d 1100 (9th Cir. 2016) .................................................................. 11, 13

SEC v. Kokesh, 834 F.3d 1158 (10th Cir. 2016)...................................................................... 30

SEC v. Texas Gulf Sulphur Co., 446 F.2d 1301 (2d Cir. 1971) ....................................... 27

Sommers v. Lewis, 2009 U.S. Dist. LEXIS 29776 (D. Or. Apr. 8, 2009) ................. 25

United States v. Mead Corp., 533 U.S. 218 (2001) .......................................................... 16, 17

United States v. Nat’l Broiler Mktg. Ass’n, 436 U.S. 816 (1978) .................................... 26

United States v. Nat’l Broiler Mktg. Ass’n, 550 F.2d 1380 (5th Cir. 1977) ............. 26

United States v. U.S. Bypsum Co., 438 U.S. 422 (1978) ..................................................... 20

United States v. Ursery, 518 U.S. 267 (1996) ............................................................................ 26

Wilson v. Garcia, 471 U.S. 261 (1985) ............................................................................................ 33

Wood v. Carpenter, 101 U.S. 135 (1879) ....................................................................................... 33

Zacharias v. SEC, 569 F.3d 458 (D.C. Cir. 2009) ................................................................... 30

STATUTES

15 U.S.C. § 7243 ........................................................................................................................................... 26

15 U.S.C.S. § 7241(a) ................................................................................................................... 12, 16, 17

15 U.S.C. § 78r(a) .................................................................................................................................. 15, 16

15 U.S.C.S. § 78j ........................................................................................................................................... 15

15 U.S.C.S. § 78m ........................................................................................................................................ 15

15 U.S.C.S. § 78o .......................................................................................................................................... 15

28 U.S.C. § 2462 .................................................................................................................................. passim

5 U.S.C. § 706(2) ........................................................................................................................................... 16

Team P4

vi

OTHER AUTHORITIES

148 CONG REC H 5462, 5463 (2002) ................................................................................................. 11

C.C.A. 2016-19-008, 2016 IRS CCA LEXIS 38 (May 6, 2016) ................................ 27, 28

Disgorgement, BLACK’S LAW DICTIONARY (10th ed. 2014) ...................................................... 25

Forfeiture, OXFORD ENGLISH DICTIONARY (2d ed. 1989) ........................................................... 25

Forfeiture, WEBSTER’S THIRD NEW INT’L DICTIONARY (2002) ................................................... 24

I.R.C § 162(f) ..................................................................................................................................................... 32

Release No. 8124, 2002 WL 31720215, at *9 (Aug. 28, 2002 ................................. 12, 14

RESTATEMENT (THIRD) OF RESTITUTION AND UNJUST ENRICHMENT § 51(4) (Am. Law

Inst. 2010) ..................................................................................................................................................... 27

S. REP. NO. 107-146 (2002) ............................................................................................................. 19, 20

Urska Velikonja, Public Compensation for Private Harm: Evidence From the

SEC’s Fair Fund Distributions, 67 STAN. L. REV. 331 (2015) ........................................ 24

Team P4

1

INTRODUCTION

Petitioners are two officers and a former agent of Burlingham, Inc., a

publicly traded company. This action arose due to the misconduct of Petitioner

Prince, who engaged in side deals for years with Burlingham’s business

partners. When the United Kingdom’s GDP experienced a slight decline in

March 2015, the conditions of Prince’s agreements compromised the integrity

of Burlingham’s very financial state.

Petitioners do not contest the SEC’s authority to regulate securities and

exchanges; they only insist that the SEC do so properly. In this case, the SEC

has supplemented its ordinary regulatory actions with baseless strict liability,

excessive penalties, and abusive measures. If these actions go unchecked by

this Court, the SEC will have successfully monopolized the legislation,

interpretation, enforcement, and judicial review of its administrative actions.

This presents a terrifying risk for future abuse of power which goes far beyond

the damages suffered by these Petitioners.

Team P4

2

STATEMENT OF THE CASE

Burlingham, Inc., founded in 1981, is a publicly held microchip

manufacturer. (Tr. R. at 1.) The company’s Communications Division expanded

into the smartphone microchip market in 2001. (Tr. R. at 1–2.) The following

year, Petitioner Ronald Prince became Burlingham’s executive vice president

and the overseer of the Communications Division. (Tr. R. at 2.)

Under Prince’s direction, the new smartphone business quickly became

Burlingham’s most profitable. (Tr. R. at 2.) In 2007, it occupied a forty-two

percent market share and brought in fifty-two percent of the company’s net

income. (Tr. R. at 2.) Prince was largely responsible for this success. (Tr. R. at

2.) He also expanded the business into the Chinese market, where sales were

increasing to meet rising demand in the United Kingdom (“UK”). (Tr. R. at 2.)

Prince’s compensation was not significantly tied to the success of the

smartphone business. (Tr. R. at 2.) In fact, three quarters of his income were

attributable to a discretionary bonus. (Tr. R. at 2.) This bonus was determined

at the end of each fiscal year by the board’s Compensation Committee. (Tr. R.

at 2–3.) Both Prince and Henrietta Conrad, the Communications Division’s only

other executive manager, expressed dissatisfaction with this compensation

system. (Tr. R. at 2.)

Due to frustration with the “inadequate” system’s unpredictability, and

out of concern for his family’s financial stability, Prince began in 2008 to

modify certain terms in purchase agreements with select Chinese smartphone

manufacturers. (Tr. R. at 2–3.) All of Burlingham’s purchase agreements

Team P4

3

contained force majeure provisions regarding the condition of the UK’s

smartphone market, but Prince’s new “side letters” gave unilateral termination

rights to the corresponding purchasers. (Tr. R. at 3.) Specifically, the

purchasers were able to terminate their Burlingham contracts upon a projected

two-percent decline in the UK’s GDP. (Tr. R. at 3.) The termination rights

existed for two years after a side letter’s effective date. (Tr. R. at 3.) Prince

received $25,000 for each side letter and an additional $50,000 upon activation

thereof. (Tr. R. at 3.)

Chief executive officer (“CEO”) Veronica Uchekwe, Burlingham’s auditors,

and Burlingham’s attorneys had no access to or awareness of these

agreements. (Tr. R. at 3.) Between January 2008 and January 2010, Prince

signed thirty side letters. (Tr. R. at 3.) The UK’s GDP did not deteriorate, and

each of these letters expired. (Tr. R. at 3.)

In March 2010, Burlingham entered into a major contract with a

computer tablet manufacturer. (Tr. R. at 3.) As a result of the enormous deal,

at the end of 2010, each officer of Burlingham, including Prince, received a

$45,000 bonus. (Tr. R. at 3.)

In 2011, Petitioner Brian Bosco succeeded Uchekwe as CEO and

selected Petitioner Jasmine Lee as the company’s new chief financial officer

(“CFO”). (Tr. R. at 3–4.) Bosco and Lee worked in tandem as hands-on

examiners of each division’s cash flow and cost structure. (Tr. R. at 4.)

Accordingly, in compliance with the Sarbanes-Oxley Act of 2002 (“SOX”), they

certified each financial statement that Burlingham filed with the Securities and

Team P4

4

Exchange Commission (“SEC”). (Tr. R. at 4.)

Bosco’s appointment as CEO extinguished Prince’s aspirations for that

same position. (Tr. R. at 4.) As a result, Prince decided once again to form

covert side letters with more Chinese companies. (Tr. R. at 4.) Between January

2014 and January 2015, he entered into eleven new agreements which

contained the same terms as before. (Tr. R. at 4.)

In October 2014, Bosco, Lee, and Prince all attended a technology

conference. (Tr. R. at 4.) There, the CEO of a major Japanese smartphone

manufacturer separately approached both Bosco and Lee to ask about “deal

sweeteners,” including termination rights, for his company’s contract with

Burlingham.1 (Tr. R. at 4.) Both Bosco and Lee brushed off the CEO. (Tr. R. at

4.) The pair soon realized that the CEO had individually approached both of

them, and with the same peculiar request. (Tr. R. at 4.) But there was no other

evidence or indicia of foul play, and they chose not to investigate further. (Tr.

R. at 4.)

Burlingham filed its original 10-K for fiscal year 2014 on New Year’s Day,

2015. (Tr. R. at 5.)

In March 2015, the UK GDP declined by 2.5% . (Tr. R. at 4.) This

activated the termination rights contained in Prince’s second wave of side

letters. (Tr. R. at 4.) Only five of the eleven side letter holders chose to exercise

1 The recipients of Prince’s side letters were all Chinese. (Tr. R. at 3, 4.) It

is therefore unclear whether the Japanese CEO had actual knowledge of Prince’s conduct or was simply seeking better contractual terms for his company. In either case, his interactions with Bosco and Lee were nothing more than arm’s-length negotiations between corporate officers.

Team P4

5

their termination rights; the remaining six contracts continued without effect.

(Tr. R. at 4–5.)

Bosco and Lee, who until this point had been wholly unaware of the side

letters, immediately began to investigate their validity. (Tr. R. at 5.) Bosco told

the chairman of the board about the letters and their potential consequences

for Burlingham. (Tr. R. at 5.) He then placed Prince on an indefinite leave of

absence. (Tr. R. at 5.) The next week, the board appointed a committee of

outside directors (the “Special Committee”) to investigate Prince’s conduct. (Tr.

R. at 5.) This Special Committee quickly discovered the kickback schemes of

2008, 2009, and 2014. (Tr. R. at 5.) Eventually, it determined that

Burlingham’s financial statements for 2014 were substantially effected. (Tr. R.

at 5.) The company chose to prepare and file a restated 10-K for fiscal year

2014.2 (Tr. R. at 5.)

The SEC filed suit against Prince, Bosco, and Lee in the District of

Fordham on January 1, 2016. (Tr. R. at 6.) It claimed that Prince had

defrauded Burlingham’s investors and violated Section 10(b) of the Securities

Exchange Act of 1934 (the “’34 Act”) by reporting millions of dollars in

unearned revenue. (Tr. R. at 6.) It sought disgorgement of Prince’s 2008, 2009,

and 2014 gains. (Tr. R. at 6.)

The SEC also asserted that Bosco and Lee were liable under Rule 13a–14

for their certification of Burlingham’s false and misleading financial statements

2 The parties have stipulated that this is the only restated filing at issue

in this case. (Tr. R. at 5 n.1.)

Team P4

6

for fiscal year 2014. (Tr. R. at 6.) It sought disgorgement under SOX 304 of

Bosco and Lee for the original 10-K filed on January 1, 2015. (Tr. R. at 6.)

Bosco and Lee filed for summary judgment in June. (Tr. R. at 6.) In

response, the SEC filed a cross-motion for summary judgment against them

and a simultaneous motion for summary judgment against Prince. (Tr. R. at 6.)

The district court granted the SEC’s cross-motion for summary judgment

against Bosco and Lee. (Tr. R. at 6.) It held that Rule 13a–14 provides a cause

of action against CEOs and CFOs for their certification of false financial

statements, even if they had no knowledge of the falsity. (Tr. R. at 6–7.) It also

held that an accounting restatement always triggers disgorgement of the CEO

and CFO under SOX 304, even if they did not participate in the original

misconduct. (Tr. R. at 7.) The court subsequently ordered Bosco and Lee to

disgorge $600,000 and $475,000 respectively.3 (Tr. R. at 7.)

The district court also granted the SEC’s motion for summary judgment

against Prince. (Tr. R. at 7.) It found that Prince was liable under Rule 10b–5

for his fraud scheme. (Tr. R. at 7.) It then held that disgorgement does not

constitute a “penalty” or “forfeiture” under 28 U.S.C. § 2462. (Tr. R. at 7.)

Accordingly, it found that the SEC’s request for disgorgement of Prince’s 2008

and 2009 gains was not barred by that statute of limitations. (Tr. R. at 7.) The

court subsequently ordered Prince to disgorge $1,770,000.4 (Tr. R. at 7.)

3 These amounts encompassed all bonuses, incentive-based

compensation, equity-based compensation, and profits from Burlingham securities sales during 2015. (Tr. R. at 7.)

4 This sum is the total of three distinct amounts: $1,025,000 from the

Team P4

7

Bosco, Prince, and Lee filed a timely appeal with the Fourteenth Circuit

Court of Appeals. (Tr. R. at 7.) A split court affirmed all three of the district

court’s holdings in January 2017. (Tr. R. at 21.) This Court granted certiorari

for all three issues on February 1.

side letters; $495,000 from all bonuses and discretionary compensation earned in 2008, 2009, and 2014; and $250,000 for Conrad’s bonuses from the relevant periods. (Tr. R. at 7.) As the grounds for reversal vary for each, these amounts will be discussed separately and in turn.

Team P4

8

SUMMARY OF ARGUMENT

Liability for certifiers without individual knowledge under Rule 13a–14

creates a dire situation for officers: any accounting error or auditing mistake,

whether discoverable or not, could lead to serious penalties for the officers. For

this reason, Congress included a scienter requirement in SOX 302 which

requires that certifications of regular reports be made “based on the officer’s

knowledge.” Rule 13a–14’s own meaning is either consistent with this statutory

intent or impermissibly contradicts it. As they had no knowledge of Prince’s

misconduct, no cause of action under Rule 13a–14 exists against Bosco and

Lee.

Likewise, SOX 304 requires personal misconduct by the CEO and CFO

for disgorgement to be possible. Though the statute’s facial language is

unclear, this is demonstrated by congressional intent and the constitutional

right to due process.

Lastly, disgorgement actions against wrongdoers are subject to the same

statute of limitations as other claims. “Forfeiture” and “disgorgement” are

interchangeable terms. Furthermore, the disgorgement pursued by the SEC

against Prince in this case was a punitive measure.

Team P4

9

ARGUMENT

I. THE SEC HAS NO CAUSE OF ACTION AGAINST BOSCO AND LEE

Strict liability under Rule 13a–14 creates the same problem that can

exist with SOX in other contexts: “Under the [Respondent’s] interpretation of

Sarbanes-Oxley, scienter would be established in every case where there was

an accounting error or auditing mistake made by a publicly traded company.”

Cent. Laborers' Pension Fund v. Integrated Elec. Servs. Inc., 497 F.3d 546, 555

(5th Cir. 2007). Fortunately, there are compelling bases for construing Rule

13a–14 fairly and harmoniously with its surrounding statutes and regulations.

SOX 302 contains a scienter element in its express language. Rule 13a–14

therefore either reflects the same requirement or is impermissible and must be

struck.

A. SOX 302 Contains a Scienter Element for CEOs and CFOs

Rule 13a–14 is simply a promulgation of SOX 302. See United States SEC

v. Jensen, 835 F.3d 1100, 1112 (9th Cir. 2016) (“The rule was adopted in 2002,

as directed by Section 302 of the Sarbanes-Oxley Act.”). Therefore, it is

important to form an accurate understanding of SOX 302 before addressing the

purpose, meaning, or validity of Rule 13a–14.

Statutory interpretation begins with the text itself. Desert Palace, Inc. v.

Costa, 539 U.S. 90, 98 (2003); Estate of Cowart v. Nicklos Drilling Co., 505 U.S.

469, 475 (1992); Jones v. Alfred H. Mayer Co., 392 U.S. 409, 420, (1968). SOX

302 provides in pertinent part that:

Team P4

10

. . . The Commission shall, by rule, require . . . that the principal executive officer . . . and the principal financial officer . . . certify in each annual or quarterly report filed or submitted under either such section of such Act that--

(1) the signing officer has reviewed the report; (2) based on the officer's knowledge, the report does not contain

any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in light of the circumstances under which such statements were made, not misleading;

(3) based on such officer's knowledge, the financial statements, and other financial information included in the report, fairly present in all material respects the financial condition and results of operations of the issuer as of, and for, the periods presented in the report; . . .

15 U.S.C.S. § 7241(a) (emphasis added). “A fundamental canon of

statutory construction is that, unless otherwise defined, words will be

interpreted as taking their ordinary, contemporary, common meaning.” Perrin

v. United States, 444 U.S. 37, 42 (1979). The above statutory language clearly

and unambiguously explains that the officers’ certifications are to be “based on

the officer’s knowledge.” 15 U.S.C.S. § 7241(a). Accordingly, SOX 302 does not

thrust strict liability onto officers for untrue statements or omissions of which

they have no knowledge.

“[W]here, as here, the words of the statute are unambiguous, the judicial

inquiry is complete.” Desert Palace, Inc., 539 U.S. at 98 (internal quotation

omitted); Estate of Cowart, 505 U.S. at 475. But additional consideration of

relevant case law still supports the same position as the statute’s plain

meaning. See, e.g., Ind. Elec. Workers' Pension Tr. Fund Ibew v. Shaw Grp., Inc.,

537 F.3d 527, 545 (5th Cir. 2008) (citing Garfield v. NDC Health Corp., 466

F.3d 1255, 1266 (11th Cir. 2006)) (“[A] Sarbanes-Oxley certification, standing

Team P4

11

alone, is not indicative of scienter.”).

Furthermore, legislative intent obviates that the purpose of SOX 302 is to

punish bad actors who attempt to skirt liability — not dutiful officers like

Bosco and Lee:

“These requirements will ensure that executives will no longer be able to evade responsibility for the numbers that their companies put out. This requirement, combined with the tough criminal penalties established by the bill, will help to ensure that executives are held responsible if they seek to mislead and defraud investors.”

148 CONG REC H 5462, 5463 (2002). SOX 302’s scienter element is a

fundamental piece of Rule 13a–14’s foundation. The rule must be analyzed

with this understanding.

B. Rule 13a–14 Cannot Contradict or Exceed SOX 302’s Scienter Requirement

It is possible, and in fact proper, to interpret Rule 13a–14 in a way that is

consistent with SOX 302 and its scienter requirement. But if the lower court’s

characterization of Rule 13a–14 is valid, then the rule exceeds its statutory

authority and must be struck.

1. The proper interpretation of Rule 13a–14 contains a scienter element

The lower court cited Jensen’s “implicit truthfulness requirement” as

support for its conclusion that Rule 13a–14 contains no scienter element. See

SEC v. Jensen, 835 F.3d 1100, 1113 (9th Cir. 2016). But Jensen only stands

for the position that rote signature of a document is inadequate. In other

words, Rule 13a–14 establishes on its face that failure to certify at all is a

violation; Jensen merely establishes that a violation even with certification is

Team P4

12

possible. See id. at 1117 (Bea, J., concurring) (“I agree that the district court

erred to the extent it recognized a cause of action under Rule 13a-14 only for

the failure to file any certification at all.”).

The Jensen holding is not a strict liability requirement. In fact, in a

footnote to the “implicit truthfulness requirement” paragraph cited above, the

court expressly declined to reach the issue posed in the instant case — namely,

“the question of the mental state required for a violation of Rule 13a-14.” Id. at

1113 n.6 (majority opinion).

Fortunately, Judge Bea presented two compelling bases for the

resolution of this remaining issue.5 See id. at 1117–21 (Bea, J., concurring).

The first is a linguistic interpretation, and the second is a legal analysis.

There is an inherent definitional distinction between “inaccurate” and

“false.” Id. at 1117. Falsity by its plain meaning “embodies a mental element.”

Id. It is possible, therefore, for a certification to be scientifically false, even if no

human mind is present to generate falseness on its behalf. See id. (“Merriam-

Webster defines ‘false,’ as ‘intentionally untrue’ (e.g., ‘false testimony’), and as

‘intended or tending to mislead’ (e.g., ‘a false promise’)”).

Furthermore, the SEC’s official release in conjunction with Rule 13a–14

indicates that the rule contains a scienter element. See Release No. 8124, 2002

WL 31720215, at *9 (Aug. 28, 2002). The portion of the release which

addressed “liability for false certification” opined that an officer who provides a

5 The Jensen majority’s decision to reserve judgment should not be

construed as a disagreement with Judge Bea; its decision was, by declaration, only an exercise in judicial restraint. Jensen, 835 F.3d at 1113 n.6.

Team P4

13

false certification could “potentially” be subject to actions under Sections 13(a),

15(d), 10(b), and 18 of the Exchange Act. Id. As discussed below, each of these

statutory provisions contains a scienter requirement; because all of its bases

do, Rule 13a–14 itself does as well.

Exchange Act Sections 13(a) and 15(d) are reporting requirements for

issuers. See 15 U.S.C.S. § 78m; 15 U.S.C.S. § 78o. Therefore, an “aiding and

abetting” theory must be used to hold officers individually liable under these

statutes. Jensen, 835 F.3d at 1118–20. When such a theory is applied to either

statute, “actual knowledge” on the part of the officer is always a required

element. SEC v. Fehn, 97 F.3d 1276, 1288 (9th Cir. 1996); Levine v.

Diamanthuset, Inc., 950 F.2d 1478, 1483 (9th Cir. 1991). This requirement

applies to both private and SEC actions. Jensen, 835 F.3d at 1119 (citing Ponce

v. SEC, 345 F.3d 722, 734 (9th Cir. 2003)).

Exchange Act Sections 10(b) and 18 render officers directly liable for

securities fraud. See 15 U.S.C.S. § 78j; 15 U.S.C. § 78r(a). As with Sections

13(a) and 15(d), Section 10(b) requires the SEC to show that the misstatement

or omission was “made with scienter.” Fehn, 97 F.3d at 1289 (internal

quotations omitted). While mental culpability is not an overt element of a

Section 18 violation, the statute absolves an individual of liability if he can

“prove that he . . . had no knowledge that such statement was false or

misleading.” 15 U.S.C. § 78r(a). Therefore, like the other provisions, Section 18

also requires a determination by the factfinder “that the CEO or CFO had

knowledge of the falsity of a certification in order for the SEC to prevail on a

Team P4

14

claim for false certification.” Jensen, 835 F.3d at 1121.

The SEC has presented two conflicting opinions regarding Rule 13a–14.

Its stance in 2002, found in Release No. 8124, coupled the rule with four

others which contain scienter requirements. But its entirely opposite stance in

this case is that the rule contains no scienter requirement at all. The latter

position is merely a “post hoc rationalization,” generated for the Commission’s

immediate desires in this litigation; it therefore should be afforded no

deference. Chase Bank USA, N.A. v. McCoy, 562 U.S. 195, 208–09 (2011). The

former position controls and should be recognized as valid by this Court.

2. If Rule 13a–14 does not contain a scienter requirement, then it impermissibly contradicts SOX 302

“[A] reviewing court shall set aside agency action, findings, and

conclusions found to be ‘arbitrary, capricious, an abuse of discretion, or

otherwise not in accordance with law.’” United States v. Mead Corp., 533 U.S.

218, 229 (2001) (quoting 5 U.S.C. § 706(2)). If the lower court’s interpretation

of Rule 13a–14 is correct, then the rule is not in accordance with SOX 302 and

therefore must be struck.

Congress in SOX 302 instructed the SEC to require “by rule” that officers

certify reports. See 15 U.S.C.S. § 7241(a). This legislative delegation invites

what is commonly known as two-step Chevron analysis. United States v. Mead

Corp., 533 U.S. 218, 226–27 (2001); Fin. Planning Ass'n v. SEC, 375 U.S. App.

D.C. 389, 395 (2007). First, this Court must determine whether Congress has

spoken directly to the present issue, i.e. whether SOX 302 overtly basis the

certification in the officers’ knowledge. Chevron, USA, Inc. v. Natural Res. Def.

Team P4

15

Counsel, Inc., 467 U.S. 837, 842–43 (1984). Second, if the statute is “silent or

ambiguous” on the issue, the Court must determine whether the SEC’s rule “is

based on a permissible construction of the statute.” Id. at 843.

In this case, question two is not reached. As discussed above, SOX 302

clearly contains a knowledge requirement, which equates to a scienter element.

15 U.S.C.S. § 7241(a)(2)–(3). If this Court accepts the SEC’s assertion from the

course of this litigation as to the meaning of Rule 13a–14, then it is apparent

that the rule is “manifestly contrary” to the statute. Mead Corp., 533 U.S. at

227. Under such an understanding, the SEC has exceeded its authority by

promulgating the rule. Cf. Fin. Planning Ass’n, 375 U.S. App. D.C. at 395. The

rule therefore must be struck for contradicting SOX 302’s clear requirements.

C. Bosco and Lee Did Not Violate SOX 302 Because They Had No Knowledge of the Certifications’ Inaccuracies

It is hard to imagine a clearer instance of proper officer conduct than

what Bosco and Lee have exhibited at Burlingham. At no point did they

participate in, observe, or even have opportunity to become aware of Prince’s

misconduct.

Burlingham had no access to or awareness of Prince’s side letters. (Tr. R.

at 3.) The only slight indicia that something was amiss came from the Japanese

CEO’s unusual requests at the 2014 technology conference. (Tr. R. at 4.) But

even if this strange, yet benign, incident had prompted a full-blown

investigation by Bosco and Lee, there was nothing they could have done to

actually uncover the letters — only Prince and the opposite businesses

possessed them.

Team P4

16

Bosco and Lee were hands-on examiners who actively maintained

compliance with SOX. (Tr. R. at 4.) Absolute control is impossible, but this pair

of officers maintained exemplary control of internal compliance with Sarbanes-

Oxley. In fact, when the consequences of Prince’s misconduct arose, Bosco

immediately sounded the alarm and investigated. (Tr. R. at 5.) This is exactly

the response that officers should be encouraged to make when faced with a bad

acting agent.

In sum, it is apparent that Bosco and Lee had “sufficient basis to believe

that [their] certification[s were] accurate.” Jensen, 835 F.3d at 1113.

Accordingly, no cause of action against them exists under SOX 302 or Rule

13a–14.

II. THE DISGORGEMENT REMEDY OF SOX 304 REQUIRES PERSONAL MISCONDUCT

The lower court’s interpretation of SOX 304 brings into question the

statute’s constitutionality. It should instead be interpreted as requiring an

element of personal CEO and CFO misconduct. The statute’s language does not

clearly express whose conduct must trigger the disgorgement, but interpreting

the statute in a way that utilizes an employee’s misconduct to punish CEOs

and CFOs would defy the purposes which Sarbanes-Oxley was enacted to

further, and would contribute to a culture of silence whereby internal reporting

of fraudulent behavior would be discouraged.

Team P4

17

A. Strict Liability Under SOX 304 Violates Congressional Intent and Due Process

If affirmed, the lower court’s interpretation of SOX 304 would hold CEOs

and CFOs “strictly liable for any restatement filed to correct any filing in

material noncompliance with securities laws caused by any misconduct by any

officer, employee, or even outside agent of the company.” (Tr. R. at 27.) This

would render judicial oversight of the SEC’s SOX 304 actions virtually useless:

the Commission could, by showing only that anyone in the company committed

misconduct, win summary judgment and take damages from the innocent

officers.

This interpretation violates both congressional intent and due process.

When choosing between alternative interpretations of a statute, this Court

should rest “on the reasonable presumption that Congress did not intend the

alternative which raises serious constitutional doubts.” Clark v. Martinez, 543

U.S. 371, 381 (2005). For example, when interpreting Sherman Act criminal

antitrust provisions, this Court has refused to construe the Act as mandating a

regime of strict liability. “‘[Mere] omission . . . of intent [in the statute] will not

be construed as eliminating that element from the crimes denounced’; instead

Congress will be presumed to have legislated against the background of our

traditional legal concepts which render intent a critical factor.” United States v.

U.S. Bypsum Co., 438 U.S. 422, 437 (1978) (quoting Morissette v. United States,

342 U.S. 246, 263 (1952)).

We recognize Congress’s intent with SOX 304 and urge this Court to

interpret the statute in a way that furthers its purpose as a workable rule

Team P4

18

aimed at deterring officer misconduct. Liability for officers who are negligent in

their duties would serve congressional intent; strict liability does not.

B. The Language of SOX Does Not Plainly Express Whose Conduct Must Cause an Accounting Restatement

Congress easily could have included the word “issuer” before the word

“misconduct” in SOX 304, which would have clearly conveyed that no

requirement of scienter on behalf of the CEO or CFO to trigger disgorgement.

But Congress chose not to do so.

In SOX 302, Congress commanded the SEC to implement rules requiring

CEOs and CFOs to certify that the officers have read the quarterly or annual

reports and that “based on such officer's knowledge,” the reports included no

untrue statements of material fact and fairly represent the financial condition

of the company. It defies reason to conclude that Congress wanted officers to

certify “based on their knowledge” the accuracy of these reports, but then

decided that in the case of a restatement, no scienter requirement would be

necessary to require the officers to reimburse the issuer. Such an

interpretation eclipses the reason for SOX 302’s existence.

Additionally, the plain language of SOX 304 indicates that the “purpose

of the Act is to punish ‘misconduct,’ not the mere decision to restate financial

reports.” In re AFC Enters., 224 F.R.D. 515, 521 (N.D. Ga. 2004). If the Act’s

intent is punitive, “it is irrational to apply it to officers who have not engaged in

any misconduct.” (Tr. R. at 27).

Team P4

19

C. Forcing Bosco and Lee to Disgorge Monies Because of Prince’s Misdeeds is Contrary to the Very Purposes of Sarbanes-Oxley

Affirming the lower court’s holding would force CEOs and CFOs to

constantly patrol their subordinate’s actions, fearing that they could be liable

for any misconduct at any time, regardless of how hard they work to comply

with Sarbanes-Oxley’s requirements. Direct liability already exists for

wrongdoers; this satisfies Congress’ intent to create legislation “to prevent and

punish corporate and criminal fraud, protect the victims of such fraud,

preserve evidence of such fraud, and hold wrongdoers accountable for their

actions.” S. REP. NO. 107-146, at 2 (2002). Even if Bosco and Lee had

uncovered Prince’s misdeeds and attempted to rectify them, the lower court

would still hold them liable to disgorge their profits resulting from Prince’s

misconduct. This sort of rationale would nullify any incentive for officers to

self-report discovered misdeeds resulting in a restatement.

The side letters Prince entered into between January 2014 and January

2015 were not discoverable by Burlingham’s CEO and CFO; they existed only

between Prince and a new group of Chinese smartphone manufactures.

Assuming arguendo that Bosco and Lee could have put together the strange

approach of a Japanese smartphone manufacturer discussing “deal sweeteners

such as unilateral termination rights” and concluded that Prince was engaging

with side letters containing unilateral termination rights with Chinese

manufacturers, that would have occurred in October 2014 or shortly

thereafter. Thus, a restatement would have been required for the first three

quarters of 2014. Even in this scenario, Bosco and Lee would still be liable for

Team P4

20

disgorgement under the Fourteenth Circuit’s interpretation of SOX 304. When

the five Chinese manufactures did attempt to exercise their termination rights

in early 2015, Bosco and Lee immediately acted in an effort to get to the bottom

of this scheme. (Tr. R. at 5.) Nothing that Bosco and Lee did should be

construed as warranting an interpretation that holds them liable for the

misdeeds of Prince.

The Sarbanes-Oxley Act was enacted in an environment where “the

regulators, the victims of fraud, and the corporate whistleblowers were faced

with daunting challenges to punish the wrongdoers and protect the victims’

rights.” S. REP. NO. 107-146, at 6 (2002). An investigation into the aftermath of

Enron’s cover-up “expose[d] a culture, supported by law, that discourage

employees from reporting fraudulent behavior . . . . This ‘corporate code of

silence’ not only hampers investigations, but also creates a climate where

ongoing wrongdoing can occur with virtual impunity.” S. REP. NO. 107-146, at 5

(2002). The lower court’s interpretation would actually enhance the likelihood

of companies entering a “corporate code of silence” and discouraging employees

from reporting fraudulent behavior.

It is in light of the underlying reasons for enacting the Sarbanes-Oxley

Act that the provision of SOX 304 should be interpreted. It was not Congress’s

intent to punish CEOs and CFOs for the misdeeds of company employees, but

rather to encourage them to establish internal auditing systems aimed at

curbing the excesses of the Enron-era “Wild West’ attitude which valued profit

over honesty.” S. REP. NO. 107-146, at 3 (2002).

Team P4

21

III. THE STATUTE OF LIMITATIONS UNDER 28 U.S.C. § 2462 APPLIES TO THE DISGORGEMENT ACTION AGAINST PRINCE

The District Court ordered Prince to divest $1,770,000 as a result of his

wrongdoing. (Tr. R. at 7.) A substantial amount of that total was earned

between January 2008 and January 2010, more than five years prior to the

initiation of these proceedings. (Tr. R. at 7.) $45,000 of this amount was a

bonus Prince received that was not causally related to his wrongdoing.

$250,000 of this amount was profits earned by a separate individual during the

relevant periods. (Tr. R. at 7.)

Under 28 U.S.C. § 2462, “an action, suit or proceeding for the

enforcement of any civil fine, penalty, or forfeiture” must commence within five

years from the date of accrual (emphasis added). Though not by its express

language, this statute of limitations bars this aged “disgorgement” action as

well.

The lower court conducted a cursory examination of the disgorgement

remedy applied here and concluded that it did not constitute a “penalty” or

“forfeiture” under § 2462. The court failed to adequately investigate the actual

character of the remedy ordered in this case. In doing so, it erred in finding the

SECs disgorgement of Prince was not punitive or a form of forfeiture.

A. The Disgorgement in This Case Is Synonymous with Forfeiture and Time-Barred by § 2462

The SEC argues that what they have done to Prince is not barred by the

statute of limitations, because they have “disgorged” his monies, and that what

Team P4

22

they have done is distinct from “forfeiture”, which is included in the remedies

time-barred by § 2462. This semantic game is an attempt to subvert judicial

oversight, run roughshod over congressional intent, and contradict black-letter

law. The SEC should not be allowed to claim disgorgement has a distinct legal

meaning from forfeiture, and then pursue remedial actions that surpass their

own definition of disgorgement.

In reality, disgorgement and forfeiture are interchangeable words. Many

courts have construed SOX 304 as the authorization of a “disgorgement”

action. See, e.g., SEC v. Bardman, 2017 U.S. Dist. LEXIS 18108, 12 (N.D. Cal.

Feb. 8, 2017) (holding that misconduct reflected in a press release furnished to

the SEC didn’t “cause the filing of a restatement within the meaning of SOX

304, and so the 8-K does not trigger a 12-month earnings disgorgement

period”); SEC v. Jensen, 835 F.3d 1100, 1104 (9th Cir. 2016) (stating that SOX

304 authorizes a “disgorgement remedy”); SEC v. Jasper, 678 F.3d 116, 1130

(9th Cir. 2012) (calling “the reimbursement provision of SOX 304 . . . an

equitable disgorgement remedy”); Sommers v. Lewis, 2009 U.S. Dist. LEXIS

29776, at *26 (D. Or. Apr. 8, 2009) (dismissing “a claim for disgorgement under

section 304 of the Sarbanes-Oxley Act” because SOX 304 doesn’t allow for

private cause of action); In re Diebold Derivative Litigation, 2008 U.S. Dist.

LEXIS 15747, 5 (N.D. Ohio Feb. 29, 2008) (holding no private action was

allowed by “the disgorgement action under SOX § 304”). In this case, the lower

court even concluded, “[r]egarding the SEC’s SOX 304 claim, we also uphold

the District Court’s decision ordering disgorgement of Bosco’s and Lee’s

Team P4

23

bonuses and profits.” (Tr. R. at 12.) But the title itself of SOX 304 uses a

different word than “disgorgement”:

15 U.S.C. § 7243. It is apparent that Congress, judges, and practitioners

use the words “disgorgement” and “forfeiture” interchangeably. Even the

Supreme Court has done so: “Forfeitures serve a variety of purposes, but are

designed primarily to confiscate property used in violation of the law, and to

require disgorgement of the fruits of illegal conduct.” United States v. Ursery,

518 U.S. 267, 284 (1996). This lends great credence to the position that

disgorgement actions fall under the ambit of § 2462. In the words of the

Eleventh Circuit, “for the purposes of § 2462 forfeiture and disgorgement are

effectively synonyms.” SEC v. Graham, 823 F.3d 1357, 1363 (11th Cir. 2016).

The SEC would like a very paltry legal difference to be read into the

definitions of these words. This would allow it to pursue a remedy analogous to

forfeiture, but without having to be burdened by the statute of limitations. The

lower court’s decision allows the SEC to sidestep the statute of limitations by

manufacturing “distinct legal meanings” between disgorgement and forfeiture.

Forfeiture and disgorgement, like other words in statutes, “should be

given their ordinary, popular meaning unless Congress clearly meant the words

in some technical sense.” United States v. Nat’l Broiler Mktg. Ass’n, 550 F.2d

Team P4

24

1380, 1386 (5th Cir. 1977), aff’d, 436 U.S. 816 (1978). It was not until 1971

that a federal appellate court even recognized “that the SEC had equitable

power to ‘require corporate insiders who traded on material nonpublic

information to disgorge their illegal trading profits.” Urska Velikonja, Public

Compensation for Private Harm: Evidence From the SEC’s Fair Fund

Distributions, 67 STAN. L. REV. 331, 340 (2015) (citing SEC v. Texas Gulf Sulphur

Co., 446 F.2d 1301, 1307–08 (2d Cir. 1971)). Additionally, “until 1990 the SEC

had no express authority to order securities violators to pay disgorgement.”

Velikonja, supra at 340. It is not conceivable that Congress, when it codified §

2462 in 1948, “clearly” meant the word “forfeiture” to be used in a technical

sense which excluded “disgorgement” because disgorgement was not even a

remedy available in government enforcement actions at the time.

Forfeiture has been defined as “the divesting of the ownership of a

particular property of a person on account of the breach of a legal duty and

without any compensation to him” and “the fact of losing or becoming liable to

deprivation of (an estate, goods, life, an office, right, etc.) in consequence of a

crime, offence, or breach of engagement.” Forfeiture, WEBSTER’S THIRD NEW INT’L

DICTIONARY (2002); Forfeiture, OXFORD ENGLISH DICTIONARY (2d ed. 1989). These

two definitions combine to “illustrate that forfeiture occurs when a person is

forced to turn over money or property because of a crime or wrongdoing.”

Graham, 823 F.3d at 1363. There is no meaningful difference between these

definitions of “forfeiture” and the definition of “disgorgement”: “the act of giving

up something (such as profits illegally obtained) on demand or by legal

Team P4

25

compulsion.” Disgorgement, BLACK’S LAW DICTIONARY (10th ed. 2014).

Furthermore, a disgorgement is a kind of forfeiture covered by § 2462

when the disgorged funds only “fill the Federal Government’s coffers.” Riordan

v. SEC, 627 F.3d 1230, 1234 n.1 (D.C. Cir. 2010). In the case at bar, “Prince’s

disgorgement require[d] him to surrender profits to the SEC, rather than being

returned to Burlingham.” (Tr. R. at 22.)

The lower court allowed the SEC to “label its requested relief as

something other than a penalty or forfeiture, regardless of its punitive effect.”

(Tr. R. at 28). The majority handpicked its canon of constructions to support its

decision: it interpreted the statute according to meanings given to “forfeiture”

in the 1790s and the meanings given to penalties in common, contemporary

parlance.

B. The “Disgorgement” in this Case Was Punitive in Nature

This Court must not look at the label the SEC applies to its relief, “but

rather [at] its character and purpose.” (Tr. R. at 28.) If the lower court is correct

in holding that disgorgement and forfeiture have distinct legal meanings, then

under its own reasoning, the remedy ordered against Prince in the case at bar

cannot be considered disgorgement — it was a punitive forfeiture. The remedy

ordered in this case does not fit into the narrow definition the majority

attributes to disgorgement. “The majority states that disgorgement only

includes direct proceeds from wrongdoing,” but then asserts that the SEC can

order disgorgement for amounts not causally related to wrongdoing, and

amounts not attributable to the defendants wrongdoing. (Tr. R. at 30.)

Team P4

26

The lower court made the blanket statement that because disgorgement

is often considered an equitable remedy, and equitable remedies are not

punitive, that what the SEC did to Prince does not fall within the reach of §

2462. In order to buttress this holding, the court relied on the reasoning of the

Tenth Circuit’s SEC v. Kokesh, which held that disgorgements are not

penalties because they are remedial and preventative. According to Kokesh,

rather than inflicting punishment, disgorgement “eliminates profit from

wrongdoing while avoiding, so far as possible, the imposition of a penalty.” 834

F.3d 1158, 1164 (10th Cir. 2016) (citing RESTATEMENT (THIRD) OF RESTITUTION

AND UNJUST ENRICHMENT § 51(4) (Am. Law Inst. 2010)).

The court majority then used circular reasoning, while forgetting to look

into the character of the remedy sought to conclude that “[b]ecause

disgorgements are remedial and penalties are not, disgorgements are not

penalties,” and thus, the disgorgement ordered here could not possibly be

punitive. (Tr. R. at 17.) However, because the Restatement’s definition of

disgorgement includes the avoidance of the imposition of a penalty, that does

not mean what the SEC did here avoided the imposition of a penalty. In fact,

what the SEC ordered here was punitive in nature.

1. The IRS recognizes that disgorgement can be Punitive

Another government agency considers certain orders of disgorgement as

punitive in nature or a form of “fine or penalty.” In 2016, the Internal Revenue

Service prohibited a deduction for an amount paid as disgorgement to the SEC

because I.R.C § 162(f) disallows deductions for “any fine or similar penalty paid

Team P4

27

to a government for a violation of any law.” The IRS posited, “disgorgement can

be primarily punitive for tax purposes in some cases, where it serves primarily

to prevent wrongdoers from profiting from their illegal conduct and deters

subsequent illegal conduct.” C.C.A. 2016-19-008, 2016 IRS CCA LEXIS 38, 17

(May 6, 2016). The IRS also reasoned that disgorgement can serve as a direct

substitute for a civil penalty when it reduced the amount of the penalty

otherwise imposed. It concluded by determining that when the purpose of the

disgorgement is not to compensate the Government or some non-governmental

party for its specific losses, the disgorgement payment is “primarily punitive.”

C.C.A. 2016-19-008, 2016 IRS CCA LEXIS 38, 19 (May 6, 2016).

2. The tablet bonus was not causally related

In Riordan v. SEC, the D.C. Circuit Court of Appeals held that § 2462 did

not apply to an SEC disgorgement order because disgorgement orders were not

penalties, at least so long as the disgorged amount was causally related to

wrongdoing. 627 F.3d 1230, 1234 (D.C. Cir. 2010); see also Zacharias v. SEC,

569 F.3d 458, 472 (D.C. Cir. 2009) (“In theory, a disgorgement order might

amount to a penalty if it was not ‘causally related to the wrongdoing’ at issue.”).

Prince ceased his first round of signing side letters in January 2010. (Tr. R. at

3.) Subsequently, Burlingham entered into a large contract with a leading

computer tablet producer in March 2010. (Tr. R. at 3.) As a result of this

contract, Burlingham gave each executive officer, including Prince, a $45,000

bonus. The SEC disgorged this $45,000 bonus. Because Prince had signed his

final side letter in January 2010, his entrance into side agreements was not

Team P4

28

“causally related” to the $45,000 bonus he received in March 2010.

3. Conrad’s bonus was not causally related

The Fifth Circuit has held that “disgorgement extends only to the amount

with interest by which the defendant profited from his wrongdoing. Any further

sum would constitute a penalty assessment. SEC v. Blatt, 583 F.2 1325, 1335

(5th Cir. 1978). In the case at bar, Prince was ordered to disgorge $250,000

representing the total amount of bonuses that his subordinate Conrad earned

during the relevant periods. (Tr. R. at 7). The majority argues, “disgorgement

plays a significant role in preventing unjust enrichment,” (Tr. R. at 18), thus

ordering Prince to disgorge Conrad’s gains cannot be punitive. However, “[T]he

purpose of unjust enrichment is served by disgorging the ill-gotten gains by a

wrongdoer.” (Tr. R. at 22) (Lovejoy, C.J., concurring). Conrad was not a

wrongdoer. Thus, by ordering Prince to disgorge the money earned by another

individual not accused of wrongdoing, “the purpose of unjust enrichment” is

not served.

C. The Lower Court’s Ruling Permits Improper Seizures by the SEC

The amounts addressed in this argument may be only a fraction of the

funds at issue in this case, but they represent the quandary in which the SEC

finds itself. If disgorgement is distinct from penalties and forfeitures, then

under § 2462 the SEC is limited here to ordering only non-punitive

disgorgement of profits. If the SEC can include amounts not causally related to

wrongdoing, and amounts not attributable to the defendant’s wrongdoing, then

disgorgement must be considered a punitive forfeiture and falls under § 2462.

Team P4

29

The Fourteenth Circuit, by allowing this quasi-restorative activity by the

SEC sets a tragic precedent for the SEC’s future quasi-prosecution actions. The

majority has simultaneously ruled that scienter is not required for

disgorgement actions under SOX 304 actions, and that nothing done here

constitutes remedies time-barred by § 2462. If left unchecked, the SEC will be

able to seize, extract, and keep funds which are not causally connected to any

wrongdoing, regardless of the time elapsed since the wrongdoing occurred. This

is a singing example of the risks inherent in allowing the agency to define, and

enact its authority on its own terms. In the present case, the SEC has

wrongfully extracted money from Prince that is not causally connected to his

misconduct, and some that is not attributable to the wrongdoing of Prince.

These funds were taken in violation of § 2642 and must be returned.

D. Leaving SEC Disgorgement Actions Untethered to a Statute of Limitations Is Violative of Congress’s Purpose

Statutes of limitations are bedrock instruments in maintaining a well-

ordered legal system. They provide “security and stability to human affairs”

Wood v. Carpenter, 101 U.S. 135, 139 (1879), and are “vital to the welfare of

[our] society.” Id. (affirming the Fourteenth Circuit majority holding that

disgorgement does not fall within § 2462’s reach would result in no statute of

limitations).

Exposing defendants to an indefinite amount of time for which the SEC

can bring disgorgement action against them would be “utterly repugnant to the

genius of our laws.” See Gabelli v. SEC, 133 S. Ct. 1216, 1223 (2013) (quoting

Adams v. Woods, 2 Cranch 336, 442 (1805)). It is settled doctrine within our

Team P4

30

courts that “even wrongdoers are entitled to assume that their sins may be

forgotten.” Wilson v. Garcia, 471 U.S. 261, 271 (1985).

CONCLUSION

For all of the foregoing reasons, the Fourteenth Circuit’s decisions should

be reversed.

Respectfully submitted,

Team P4

Counsel for Petitioners.