The SEC Does Not Care About Its Injunctions
It won’t surprise you to learn that the U.S. Code includes this provision: “A court of the United States shall have power to punish by fine or imprisonment, or both, at its discretion, such contempt of its authority . . . as . . . [d]isobedience or resistance to its lawful writ, process, order, rule, decree, or command.” It’s right there at 18 U.S.C. § 401(3). District courts also have inherent power to enforce compliance with their orders through civil contempt. E.g., Roadway Express, Inc. v. Piper, 447 U.S. 752, 764-65 (1980). Meanwhile, the SEC’s enforcement staff works pretty hard to seek and obtain injunctions against its defendants. They’re odd injunctions. They don’t command someone to avoid particular behavior. In addition to ordering disgorgement and civil penalties, they just order defendants to do what the securities laws already require them to do – that is, obey the law. Some federal trial and appellate courts don’t love these injunctions, finding them overly vague under Rule 65.
But they are what they are, and it takes a lot of effort to get them. So . . . True or False: Having gotten those injunctions from a federal court, the SEC doesn’t really care if defendants violate them. True!¹ If you are such a defendant, and you agree or are compelled not to violate specific provisions of the federal securities laws – as the law itself already requires – the SEC will not seek to have you held in contempt of court if you go ahead and violate those provisions anyway. It might sue you again for new things it thinks you did, but contempt related to the old injunction? Bygones. The past is the past. Have a look at this case from last Thursday. Here’s the key paragraph from the SEC’s press release:
The SEC Enforcement Division alleges that a Canada-based attorney and stock promoter named John Briner orchestrated the [microcap] scheme, which entailed creating shell companies supposedly exploring mining activities. Briner had been suspended from practicing on behalf of entities regulated by the SEC, so he recruited clients and associates to become figurehead executive officers while he secretly controlled the companies from behind the scenes. The registration statements falsely stated that each CEO was solely running the company when in fact Briner was making all material decisions.
The hyperlink in that paragraph is from the press release, not me. It does acknowledge that Briner had been suspended from practice before the Commission under Rule 102(e). But the press release makes no mention of why. Do you want to know? It turns out the SEC sued Briner in 2009 for his participation in an “illegal stock offering” and accused him of violating Sections 5 and 17(a) of the Securities Act and Section 10(b) of the Exchange Act. And Briner agreed that he had! In fact, he consented to the entry of a federal court order that, among other things, enjoined him from violating the antifraud provision of the securities laws for the rest of his life. According to the SEC, here he is doing it again. And the SEC isn’t exactly letting it go, but the prior injunction has no effect on these new alleged violations of Section 17(a). He won’t be held in contempt for violating that injunction, under 18 U.S.C. § 401 or otherwise. So what is the point of the obey-the-law injunction? It seems to be a signal from the Commission that it thinks the defendant violated a specific provision of the securities laws. Can there be another reason? Anyone? Anyone?
¹ As Anthony Coronati will tell you, though, not completely true. The SEC had him arrested when he ignored a subpoena and then ignored a court order to comply with the subpoena.