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Securities and Exchange Commission v. Giordano

United States District Court, D. Maryland

January 6, 2017

JOSEPH A. GIORDANO, et al. Defendants.


          Richard D. Bennett United States District Judge.

         Plaintiff the Securities and Exchange Commission ("SEC") moves for an Order of Disgorgement, Prejudgment Interest, and Civil Penalty against Defendant Joseph A. Giordano pursuant to the Consent Judgment entered against him on February 10, 2016 ("Plaintiffs Motion") (ECF No. 27). Specifically, the SEC requests that this Court issue an Order requiring Giordano to pay disgorgement of $69, 300.00, prejudgment interest of $16, 616.49, and a civil penalty of $150, 000.00. (Id. at 1.) The parties' submissions have been reviewed, and no hearing is necessary. See Loc. R. 105.6 (D. Md. 2016). For the reasons stated herein, the SEC's Motion is GRANTED, and defendant Joseph A. Giordano shall pay $235, 916.49 to the SEC.


         The SEC initiated this case against defendant Giordano and co-defendants Wilfred T. Azar, III, and Empire Corporation ("Empire") in November 2014.[1] (ECF No. 1.) In its Complaint, the SEC alleged that Giordano violated a series of securities laws, including the Securities Act of 1933, the Exchange Act of 1934, the Investment Advisors Act of 1940, and the Investment Company Act of 1940. (ECF No. 1 at ¶ 7.) Specifically, the Complaint alleged that Giordano and the co-defendants "raised more than $7 million from dozens of investors through the unregistered offering of purported bonds issued by Empire by making materially false and misleading statements to investors concerning, among other things, Empire's financial condition, its ability to generate the promised returns, and the safety and risk of the investment." (Id. at ¶ 2.) In its Motion, the SEC asserts that, "Giordano played a critical role in the success of the Empire fraud, and alone was responsible for convincing his clients to invest over $1.5 million that they will likely never recover." (ECF No. 27-1 at 1.)

         On February 10, 2016, this Court issued a Consent Judgment against Giordano, in which he agreed to "pay disgorgement of ill-gotten gains, prejudgment interest thereon, and a civil penalty." (ECF No. 19.) The Consent Judgment further provided that "[t]he Court shall determine the amounts of the disgorgement and civil penalty upon motion of the Commission, " and that "prejudgment interest shall be calculated from December 1, 2009, based on the rate of interest used by the Internal Revenue Service for the Underpayment of federal income tax." (Id. at 7.)

         Plaintiffs Motion is fully ripe for this Court's determination. (ECF No. 27.)


         A. Disgorgement and Prejudgment Interest

         This Court explained in S.E.C. p. Resnick, 604 F.Supp.2d 773, 782 (D. Md. 2009), that:

"When securities fraud is found, courts may order disgorgement. Disgorgement is an equitable remedy designed to prevent the unjust enrichment of the wrongdoer and to deter others from violating the federal securities laws. Accordingly, disgorgement is not limited to an extraction of ill-gotten gains from the fraud. Indeed, the district court has broad discretion in determining whether to award disgorgement and in what amount. It is also recognized that the disgorgement calculation is inexact; it is impossible to say with certainly what portion of [a defendant's] profits is attributable to his securities violations. Therefore, a court's disgorgement calculation need only be a reasonable approximation of gains causally connected to the fraud."

S.E.C. p. Resnick, 604 F.Supp.2d 773, 782 (D. Md. 2009) (internal citations omitted).

         In this case, the SEC seeks disgorgement in the amount of $69, 300.00. (ECF No. 27-1 at 4.) In support of this claim, the SEC has produced a copy of the Internal Revenue Service 1099-MISC form issued by Empire to Giordano reflecting nonemployee compensation of • $69, 300.00. (ECF No. 27-4.) Plaintiff asserts that this amount reflects the value of Giordano's allegedly ill-gotten gains.

         Giordano argues in his Opposition to Plaintiffs Motion that because he incurred $24, 000.00 in expenses in order to earn the $69, 300.00, his "total compensation net of expenses was only $45, 300." (ECF No. 28 at 3.) Accordingly, Giordano argues, disgorgement should be limited to his net income related to the fraud.

         "[I]t is well established that defendants in a disgorgement action are 'not entitled to deduct costs associated with committing their illegal acts.'" F.T.C. v. Bronson Partners, LLC,654 F.3d 359, 375 (2d Or. 2011) (quoting SEC v. Cavanagh, 2004 WL 1594818, at *30 (S.D.N.Y. July 16, 2004)). See also F.T.C. v. Alban, No. CIV.A. MJG-11-1483, 2014 WL 1236690, at *3 (D. Md. Mar. 24, 2014) (following die rule stated in Bronson). Thus, even if defendant's ultimate profit from the alleged ...

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