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No. 17-1887

__________________________

IN THE SUPREME COURT OF THE UNITED STATES

__________________________

BRIAN BOSCO; JASMINE LEE; RONALD PRINCE,

PETITIONERS,

v.

SECURITIES AND EXCHANGE COMMISSION,

RESPONDENT.

__________________________

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE FOURTEENTH CIRCUIT

__________________________

BRIEF FOR PETITIONERS

__________________________

Team P9 Counsel of Record for Petitioners

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TABLE OF CONTENTS

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

QUESTIONS PRESENTED ............................................................................. viii

STATEMENT OF THE CASE ............................................................................ 1

STATEMENT OF THE FACTS .......................................................................... 2

SUMMARY OF THE ARGUMENT ..................................................................... 4

ARGUMENT .................................................................................................... 7

I. RULE 13A—14 WAS WRITTEN WITH AN EXPLICIT KNOWLEDGE REQUIREMENT AND THE SCOPE OF SOX 304 IS AMBIGUOUS, WHICH MEANS ITS PLACEMENT WITHIN THE SARBANES-OXLEY ACT MANDATES A REQUIREMENT OF WRONGFUL CONDUCT .................................................... 7

A. Knowledge is a requirement under Rule 13a—14 and certifying officers should not be held liable if they have no knowledge of falsity within financial disclosure documents .............................................................. 8

i. Section 13 regulations require scienter or reasonableness .......... 11

ii. A false certification under Rule 13a—14 is not an independent claim .......................................................................................... 12

B. Officers certifying disclosure documents do not have a duty to inquire into the falsity of the documents .......................................................... 13

C. Cases under Rule 13a—14 are only brought when defendants have participated in egregious misconduct. .................................................. 14

D. SOX 304’s legislative history indicates that the statute was intended only as a remedy for use against executives guilty of misconduct ................ 15

i. This Court should define the scope of SOX 304 to end confusion and add clarity ........................................................................... 18

ii. Even if this Court orders disgorgement, this Court should limit the required disgorgement to what would have been paid under the restated 10-K rather than all bonuses and incentive based compensation ............................................................................. 19

iii. SOX 304 creates disproportional unfairness for corporate executives .................................................................................. 21

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II. ALL DISGORGEMENT CLAIMED FOR THE PERIOD OF JANUARY 2008 THROUGH JANUARY 2010 AGAINST DEFENDANT PRINCE IS BARRED BY 28 U.S.C. § 2462 ................................................................................................ 22

A. The present disgorgement action is a penalty because it requires Prince to disgorge more than he earned from his alleged misconduct .............. 22

i. An order to disgorge more than a defendant earned through his or her misconduct is punitive in substance and effect, and operates as a civil penalty ........................................................................ 23

ii. Disgorgement of merit-based bonuses awarded to other Burlingham executives, over which Prince did not exercise control, is punitive and is barred by 28 U.S.C. § 2462 ............................. 25

B. Disgorgement is within the reach of 28 U.S.C. § 2462 because disgorgement is synonymous with forfeiture, operates in the same material manner, and freeing disgorgement from the statute’s reach would have injurious effects................................................................. 26

i. 28 U.S.C. § 2462 reaches disgorgement because disgorgement is synonymous with forfeiture and operates in the same material manner ...................................................................................... 26

ii. Freeing disgorgement from the reach of 28 U.S.C. § 2462 would allow the SEC to pursue claims without regard to how far into the past allegedly injurious conduct occurred…………………………… 28

CONCLUSION ............................................................................................... 29

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TABLE OF AUTHORITIES

Cases

Coghlan v. National Transp. Safety Bd., 470 F.3d 1300 (11th Cir. 2006) ........ 23

Cohen v. Viray, 622 F.3d 188 (2d Cir. 2010) .................................................. 18

FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120 (2000) .................... 18

Fed. Maritime Comm’n v. Seatrain Lines, Inc., 411 U.S. 726 (1973) ........... 26, 28

Gabelli v. SEC, 133 S. Ct. 1216 (2013) ...................................... 6, 24, 25, 28, 29

Gompers v. Buck’s Stove & Range Co., 221 U.S. 418 (1911) ........................... 23

Hateley v. SEC, 8 F.3d 653 (9th Cir. 1993) .................................................... 25

Howard v. Everex Sys., Inc., 228 F.3d 1057 (9th Cir. 2000) ............................. 9

In re BP p.l.c. Sec. Litig., 922 F. Supp. 2d 600 (S.D. Tex. 2013) ....................... 14

In re Brocade Communs. Sys. Derivative Litig., 615 F. Supp. 2d 1018 (N.D. Cal.

2009) ......................................................................................................... 18

In re Intelligroup Sec. Litig., 468 F. Supp. 2d 670 (D. N.J. 2006) ..................... 13

Johnson v. SEC, 87 F.3d 484 (D.C. Cir. 1996) ................................................ 23

Kokesh v. SEC, 834 F.3d 1158 (10th Cir. 2016) ................................... 5, 23, 24

Pioneer Inv. Servs. Co. v. Brunswick Assoc. Ltd. P’ship, 507 U.S. 380 (1993)……

.............................................................................................................. 6, 26

Pirelli Armstrong Tire Corp. Retiree Med. Benefits Tr. v. Raines, 534 F.3d 779

(D.C. Cir. 2008) .......................................................................................... 18

Ponce v. SEC, 345 F.3d 722 (9th Cir. 2003) ................................................... 10

SEC v. Baker, No. A-12-CA-285-SS, 2012 U.S. Dist. LEXIS 161784 (W.D. Tex.

Nov. 13, 2012) ............................................................................................ 20

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SEC v. BankAtlantic Bancorp, Inc., 2012 WL 1936112 (S.D. Fla. May 29, 2012)

.................................................................................................................. 10

SEC v. Black, No. 04-C-7377, 2008 WL 4394891 (N.D. Ill. Sept. 24, 2008) ..... 12

SEC v. Contorinis, 743 F.3d 296 (2d Cir. 2014) .................................. 26, 27, 28

SEC v. Das, 723 F.3d 943 (8th Cir. 2013) ...................................................... 12

SEC v. e-Smart Techs., Inc., 82 F. Supp. 3d 97 (D.D.C. 2015) ......................... 14

SEC v. Graham, 823 F.3d 1357 (11th Cir. 2016) ................................ 26, 27, 28

SEC v. Jasper, 678 F.3d 1116 (9th Cir. 2012) ................................................ 20

SEC v. Jenkins, 718 F. Supp. 2d 1070 (D. Ariz. 2010) .................................... 19

SEC v. Jensen, 835 F.3d 1100 (9th Cir. 2016) ..................................... 9, 14, 18

SEC v. Life Partners Holdings, Inc., 71 F. Supp. 3d 615 (W.D. Tex. 2014) . 20, 21

SEC v. Pattison, No. C-08-4238 EMC, 2011 U.S. Dist. LEXIS 23427 (N.D. Cal.

Feb. 23, 2011) ............................................................................................ 19

SEC v. Platforms Wireless Int’l Corp., 617 F.3d 1072 (9th Cir. 2010)............... 25

SEC v. Stanard, No. 06-CIV-7736-GEL, 2009 WL 196023 (S.D.N.Y. Jan. 27,

2009) ......................................................................................................... 14

SEC v. Syron, 934 F. Supp. 2d 609 (S.D.N.Y. 2013) ....................................... 14

SEC. v. Espuelas, 905 F. Supp. 2d 507 (S.D.N.Y. 2012) ................................. 12

United Sav. Ass’n of Texas v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S.

365 (1988) ................................................................................................. 18

United States v. Ursery, 518 U.S. 267 (1996) ................................................. 27

Wilson v. Garcia, 471 U.S. 261 (1985) ............................................................ 28

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Statutes

15 U.S.C. § 7241 ......................................................................................... 8, 9

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

15 U.S.C. § 78j(b) ...................................................................................... 1, 11

15 U.S.C. § 78p(b) ......................................................................................... 16

28 U.S.C. § 2462 ................................ 4, 5, 6, 22, 23, 24, 25, 26, 27, 28, 29, 30

Rule 10b–5...................................................................................................... 1

Sarbanes-Oxley Act of 2002 § 304, 15 U.S.C. § 7243 (2012) ..............................

........................................................ 1, 4, 5, 7, 8, 15, 16, 17, 18, 19, 20, 21, 30

Securities Exchange Act of 1934, § 10(b) ....................................................... 11

12 U.S.C. § 5301…………………………………………………………………………….20

Other Authorities

Certification of Disclosure in Companies’ Quarterly and Annual Reports,

Exchange Act Release No. 8124, 78 SEC Docket 875, 2002 WL 31720215

(Aug. 28, 2002) ........................................................................ 4, 8, 9, 10, 13

Cummings, 109 SEC 2614, 2014 WL 3735559 (2014) .................................... 13

Exchange Act Release No. 46079, 77 S.E.C. Docket 2629, 2002 WL 1308327 at

(June 14, 2002) .......................................................................................... 13

Floyd Norris, A Crime So Large It Changed the Law, N.Y. TIMES (July 14, 2005),

http://www.nytimes.com/2005/07/14/business/a-crime-so-large-it-

changed-the-law.html. ............................................................................... 15

Restatement (Third) of Restitution and Unjust Enrichment § 51, cmt. k (Am.

Law Inst. 2010) .......................................................................................... 24

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Regulations

17 C.F.R. § 240.10b–5 (2017) ........................................................ 9, 11, 12, 13

17 C.F.R. § 240.13a—14 (2017) .................... 1, 4, 7, 8, 9, 10, 11, 12, 13, 14, 30

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QUESTIONS PRESENTED

1. Whether the Securities and Exchange Commission Rule 13a—14

requires knowledge of falsity within the company’s financial disclosure

documents to be held liable for violating Rule 13a—14. Whether Rule 304

of the Sarbanes-Oxley Act of 2002 requires corporate officers to disgorge

profits even if they did not personally engage in misconduct.

2. Whether a five-year statute of limitations under 28 U.S.C. § 2462 applies

to disgorgement claims made by the Securities and Exchange

Commission.

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STATEMENT OF THE CASE

The Securities and Exchange Commission (“SEC”) filed a civil action

against Brian Bosco, Jasmine Lee, and Ronald Prince (“Petitioners”) in the

United States District Court for the District of Fordham on January 1, 2016.

(R. at 6). The complaint alleged that Bosco and Lee violated SEC Rule 13a—14

and Sarbanes-Oxley Act Section 304 (“SOX 304”). (R. at 6). In addition, the

complaint alleged that Prince violated Section 10(b) of the Securities Exchange

Act of 1934 (“Exchange Act”), 15 U.S.C. § 78j(b), and Rule 10b–5. (R. at 6).

Bosco and Lee filed a motion for summary judgment under Rule 56 of the

Federal Rules of Civil Procedure. (R. at 6). The SEC filed a cross-motion for

summary judgment against Bosco and Lee, and a simultaneous motion for

summary judgment against Prince. (R. at 6). The District of Fordham denied

the Petitioners’ motion and granted both of the SEC’s motions for summary

judgment against the Petitioners. (R. at 6—7).

The Petitioners filed an appeal to the United States Court of Appeals for

the Fourteenth Circuit. (R. at 7). Petitioners Bosco and Lee argued Rule 13a—

14 is not violated when certifying officers have no knowledge of falsity and they

should not be required to disgorge profits because they did not personally

engage in any misconduct. (R. at 7—8). Petitioner Prince argued that a five-year

statute of limitations applies for disgorgement claims brought by the SEC. (R.

at 8). The Fourteenth Circuit affirmed both of the district court’s holdings. (R.

at 21). The Petitioners filed for a writ of certiorari, which the United States

Supreme Court granted on February 1, 2017. (R. at 32).

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STATEMENT OF THE FACTS

Burlingham Inc. (“Burlingham”) is a microchip manufacturer, which

became successful by perfecting just-in-time shipping of inventory to computer

manufacturers in Japan. (R. at 1). The smartphone business was the largest

generator of Burlingham’s revenue and net income. (R. at 2). In 2002, Ronald

Prince was named Burlingham’s Executive Vice President and was put in

charge of the Communications Division, which oversaw Burlingham’s

smartphone business, the most profitable subset of the entire company. (R. at

2). Prince’s duties included expanding relationships and negotiating deals with

Chinese smartphone microchip manufacturers. (R. at 2).

Prince, on his own accord, began executing side letters with Chinese

manufacturers to strengthen his personal financial position. (R. at 2—3). These

side letters permitted Chinese manufacturers to unilaterally terminate

agreements with Burlingham if the United Kingdom’s gross domestic product

(“GDP”) was projected to decline by more than 2% within two years. (R. at 3).

Unbeknownst to Burlingham, Prince received a financial reward of $25,000 per

side letter, and by 2010, Prince had agreed to thirty side letters with Chinese

manufacturers. (R. at 3). Prince and the other executive officers at Burlingham

received a $45,000 bonus in 2009 based on an assessment of five factors and

Prince signed his last side letter in January 2010. (R. at 2—3).

In 2011, Brian Bosco was named the Chief Executive Officer (“CEO”) and

Jasmine Lee was named the Chief Financial Officer (“CFO”) of Burlingham. (R.

at 3—4). Bosco and Lee attended a technology conference in 2014, where an

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executive at a Japanese smartphone manufacturer approached each of them

separately about the possibility of amending their existing contract to include

unilateral termination rights. (R. at 4). However, because they were unaware of

Prince’s previous side letters, they each disregarded the request. (R. at 4). Side

letters were not mentioned at any point during this exchange, and Burlingham

management had no other indication that secret provisions had covertly been

inserted into any Burlingham contracts. (R. at 4).

In 2014, Prince surreptitiously executed a new round of similar side

letters. (R. at 4). No side letters were made available to Burlingham’s

independent counsel, independent auditors, or any individuals in management

including Bosco and Lee. (R. at 3). Five Chinese manufacturers exercised their

termination rights when the United Kingdom’s GDP declined by 2.5% in 2015.

(R. at 4—5). In accordance with the side letters, Prince was awarded $50,000

by each of these manufacturers. (R. at 3—5).

Immediately after discovering Prince’s side letters, Bosco informed

Burlingham’s Board Chair who called for a special board meeting only a few

days later. (R. at 5). The Burlingham Board of Directors, in accordance with

proper norms, protocols, and procedures, convened a special committee made

up of outside directors to investigate Prince and his side letters. (R. at 5). In

addition, Prince was immediately placed on an indefinite leave of absence. (R.

at 5). The special committee determined that the side letters had negatively

impacted Burlingham’s fiscal year 2014 financials. (R. at 5). As a result, the

company filed a restated 10-K for fiscal year 2014. (R. at 5).

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SUMMARY OF THE ARGUMENT

This Court should reverse the circuit court’s holding that SEC Rule

13a—14 does not require the certifying officers’ knowledge of the falsity within

the financial disclosure documents and that SOX 304 requires disgorgement

even when corporate officers have not engaged in misconduct. This Court

should also reverse the circuit court’s holding that disgorgement claims made

by the SEC fall outside the five-year statute of limitations under 28 U.S.C. §

2462.

I.

SEC Rule 13a—14 was written with an explicit requirement of

knowledge. The certifying officers need to have knowledge of the falsity within

the financial document to be held liable for those falsities. The SEC’s final

release on 13a—14 states, “[b]oth of the foregoing certification statements are

to be made based on the knowledge of the certifying officer.” Certification of

Disclosure in Companies’ Quarterly and Annual Reports, Exchange Act Release

No. 8124, 78 SEC Docket 875, 2002 WL 31720215, at *7 (Aug. 28, 2002).

Additionally, some courts’ application of 13a—14 have included an assessment

of defendants’ scienter or an analysis of the level of reasonableness. Rule 13a—

14 was not created to function as an independent cause of action because the

SEC instead promulgated other rules and antifraud provisions that were to be

used against defendants for certifying documents they know to be false. The

SEC’s use of 13a—14, cases have involved defendants whose actions were

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explicitly false or misleading towards the certification of documents—not

defendants who were merely unaware of the falsities present in the documents.

Congress only intended SOX 304 to be a remedy against executive level

officers who were guilty of misconduct. However, since 2009 the SEC has

begun to use SOX 304 beyond its original legislative intent. Courts have

vigorously debated whether CEOs and CFOs should be forced to disgorge

bonuses if they have not engaged in misconduct. If the Court were to institute

a standard of negligence or recklessness, neither Bosco or Lee would need to

disgorge their bonuses because they were not involved in illegal actions. If the

Court declines to institute an intent standard for SOX 304, it could have

significant unforeseeable repercussions for tens of thousands of corporations

across the country. Finally, the SEC should institute rules that make any

punishment of CEOs or CFOs proportional, not unlimited. The SEC’s new

interpretation of SOX 304 was meant to encourage CEOs and CFOs to cut

down on fraud at their corporations, but it has caused significant confusion,

which will continue unless clarification is provided.

II.

Congress enacted 28 U.S.C. § 2462 to impose a five-year statute of

limitations on “any civil fine, penalty, or forfeiture, pecuniary or otherwise”

brought by the government. 28 U.S.C. § 2462 (2012). Disgorgement is a remedy

in which wrongdoers are forced to divest funds or property obtained through

illicit activity. See Kokesh v. SEC, 834 F.3d 1158, 1164 (10th Cir. 2016).

Disgorgement is non-punitive when “[p]roperly applied.” Id. However,

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disgorgement is punitive when improperly applied to require disgorgement of

more money than a defendant obtained through his or her misconduct. In

addition, disgorgement is improperly applied when requiring disgorgement of

monies or property over which the defendant has never had control. A punitive

disgorgement operates as a civil penalty when applied in this manner. As such,

§ 2462 bars the SEC from bringing a punitive disgorgement action after more

than five years.

Even non-punitive disgorgement actions are within the scope of § 2462

because disgorgement is synonymous with forfeiture and operates in a

materially similar fashion. The “ordinary, contemporary, [and] common

meaning” of both terms are materially similar, and both forfeiture and

disgorgement force a defendant to give up “what he has wrongfully gained.”

Pioneer Inv. Servs. Co. v. Brunswick Assoc. Ltd. P’ship, 507 U.S. 380, 388

(1993). A contrary finding would allow the SEC to circumvent § 2462 altogether

by simply labeling enforcements disgorgement when founded on misconduct

beyond the five-year scope of § 2462. Such a holding would expose defendants

to the prospect of prosecution far into the distant future. Furthermore, they

would contravene the policies of “repose, elimination of stale claims, and

certainty” that statutes of limitations are intended to advance. Gabelli v. SEC,

133 S. Ct. 1216, 1223 (2013). This Court should find that § 2462 reaches

disgorgement when applied punitively because it operates as a civil penalty,

and even when not applied punitively because disgorgement is synonymous

with forfeiture.

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ARGUMENT

I. RULE 13A—14 WAS WRITTEN WITH AN EXPLICIT KNOWLEDGE REQUIREMENT AND THE SCOPE OF SOX 304 IS AMBIGUOUS, WHICH MEANS ITS PLACEMENT WITHIN THE SARBANES-OXLEY ACT MANDATES A REQUIREMENT OF WRONGFUL CONDUCT. SEC Rule 13a—14 requires a certain level of knowledge by the certifying

officers of the financial disclosure documents. 17 C.F.R. § 240.13a—14 (2017).

Officers certifying financial disclosure documents should not be held liable for

falsities when they are unaware, and do not have the ability to become aware,

of false statements in these documents. Additionally, the composition of 13a—

14 does not indicate that it should be treated as an independent cause of

action. There is no duty imposed on certifying officers beyond the scope of their

responsibilities as officers of the corporation. When Rule 13a—14 has been

considered by courts, it has only been in the context of significant misconduct

by officers who have certified false documents.

Despite its title, the legislative history of SOX 304 indicates that

Congress only intended for CEOs and CFOs to disgorge profits when they have

engaged in misconduct. Additional Compensation Prior to Noncompliance with

Commission Financial Reporting Requirements, Sarbanes-Oxley Act of 2002 §

304, 15 U.S.C. § 7243 (2012). Due to the inconsistent application of SOX 304,

it is necessary that the Court imply an intentional or recklessness standard to

SOX 304. Furthermore, the SEC should promulgate new Dodd-Frank

Regulations to become consistent with Congress’s legislative intentions. The

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Fourteenth Circuit Court of Appeals significantly misapplied SOX 304 by not

adding a culpability standard.

A. Knowledge is a requirement under Rule 13a—14 and certifying officers should not be held liable if they have no knowledge of falsity within financial disclosure documents. In 2002, the SEC released their final rules on Section 302 of the

Sarbanes-Oxley Act of 2002. (R. at 9). Embodied in Section 302 is Rule 13a—

14, which explicitly requires knowledge of falsity on behalf of the certifying

CEOs or CFOs. Rule 13a—14 was meant to prevent CEOs and CFOs from

knowingly and purposefully engaging in conduct that would result in

misleading, false, or fraudulent information being certified. 17 C.F.R. §

240.13a—14 (2017). Rule 13a—14 states that “[e]ach principal executive officer

or officers and principal financial officer or officers of the issuer . . . [b]ased on

his or her knowledge, the report does not contain any untrue statement of a

material fact.” Certification of Disclosure in Companies’ Quarterly and Annual

Reports, Exchange Act Release No. 8124, 2002 WL 31720215 at *25 (Aug. 28,

2002). The SEC’s final release regarding 13a—14 discussed knowledge

requirements twenty-eight times. See id. at 2—43. Additionally, the release

explicitly states, “[b]oth of the foregoing certification statements are to be made

based on the knowledge of the certifying officer.” Id. at 7.

Judge Khatibifar, of the dissent in this case, correctly, and persuasively,

argued that there is an express requirement of knowledge in 13a—14. (R. at

24). Rule 13a—14 is promulgated under 15 U.S.C. § 7241 and this section

explicitly states that when an officer certifies a document, it is “based on the

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officer’s knowledge.” 15 U.S.C. § 7241 (2012); (R. at 24). Additionally, he

distinguished Howard v. Everrex Systems, Inc., used as support by the

majority. See Howard v. Everex Sys., Inc., 228 F.3d 1057. (9th Cir. 2000); (R. at

24). In Howard, the court did not rely on Rule 13a—14 as it was not mentioned

in the court’s assessment of fraud. See Howard, 228 F.3d at 1061. The

defendant was found guilty because he knowingly engaged in conduct that

violated SEC Rule 10b-5, not Rule 13a—14. See id.

The level of knowledge under Rule 13a—14 should be knowledge or

recklessness. “SEC Release No. 8124 lists sections 10(b) and 13(a) of the

Exchange Act under a section entitled ‘Liability for False Certification’”. (R. at

25); Certification of Disclosure in Companies’ Quarterly and Annual Reports,

Exchange Act Release No. 8124, 2002 WL 31720215, at *9 (Aug. 28, 2002).

This placement is significant because courts have concluded that officers must

undertake false certification with knowledge or recklessness. (R. at 25). In

Jensen, Judge Bea, in a concurring opinion, correctly articulated “not every

inaccurate certification is ‘false’ within the meaning of the rule we announce.”

SEC v. Jensen, 835 F.3d 1100, 1117 (9th Cir. 2016) (Bea, J., concurring)

(noting “Merriam–Webster defines ‘false,’ as ‘intentionally untrue’ (e.g., ‘false

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

(emphasis in original). Judge Bea emphasized that the SEC must show some

level of mental culpability. Id. The dissent in this case articulates the majority’s

failure to address the requisite level of knowledge. (R. at 25).

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Additionally, Judge Bea stated, “should some imaginative person claim

‘false’ is somehow an ambiguous term, I also find support in the SEC’s official

release in connection with the final Rule of 13a—14.” Jenson, 835 F.3d at 1117

(Bea, J., concurring); see also Certification of Disclosure in Companies’

Quarterly and Annual Reports, Exchange Act Release No. 8124, 2002 WL

31720215, at *9 (noting CEOs and CFOs “already are responsible as

signatories for the issuer’s disclosures under the Exchange Act liability

provisions”). Furthermore, courts have concluded that there is a knowledge

requirement. SEC v. BankAtlantic Bancorp, Inc., 2012 WL 1936112 (S.D. Fla.

May 29, 2012) (explaining Rule 13a—14 “requires an issuer’s principal

executive to certify to the best of his or her knowledge that there are no untrue

statements of material fact or omissions of material fact” in financial

statements).

Ponce v. SEC was relied on heavily in Jensen, and by the majority in this

case. Ponce v. SEC, 345 F.3d 722 (9th Cir. 2003); Jensen, 835 F.3d at 1113; (R.

at 11). They incorrectly argued that under Ponce, there is no truthfulness

requirement. The Ninth Circuit concluded Ponce “had knowledge of the primary

violation and of his . . . own role in furthering it.” Ponce, 345 F.3d at 725—26.

The court unequivocally held that Section 13(a) “requires knowledge of the

falsity in the statement certified” under an aider and abettor theory. Id. at 742

n.3. The defendant in Ponce was an accountant that intentionally aided and

abetted fraudulent conduct. Id. at 725. In contrast, Bosco and Lee were

unaware of the side letters created by Prince. (R. at 3—4). Bosco and Lee did

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not become CEO and CFO until 2011—after Prince had already executed the

side letters. Id. Furthermore, none of the older side letters were shared with

Burlingham’s attorneys or outside independent auditors—all of whom followed

all proper protocols. Id. Given that the attorneys and accountants were

unaware of the side letters, Bosco and Lee could not have discovered Prince’s

misconduct. There can be no comparison made between conduct that is

deceitful and fraudulent, like in Ponce, with conduct that is not based on

knowledge, as in the present case.

i. Section 13 regulations require scienter or reasonableness.

In the securities fraud context, scienter requires proof that the defendant

acted knowingly or recklessly. Securities Exchange Act of 1934, § 10(b), 15

U.S.C. § 78j(b); 17 C.F.R. § 240.10b–5 (2017). The majority argued that other

rules promulgated under Section 13 create liability for false statements, even if

such rules do not expressly require truthfulness. However, there are other

rules under Section 13 that do require a scienter or that have a reasonableness

standard. For example, courts have found that Rule 13(b)(5) requires scienter

because it states “[n]o person shall knowingly circumvent or knowingly fail to

implement a system of internal accounting controls or knowingly falsify any

book, record, or account.” 15 U.S.C. § 78m(b)(5). Rule 13(b)(5) explicitly states

knowledge, similar to Rule 13a—14.

Assuming arguendo the Court does not accept the knowledge standard, it

should, at the very least, institute a reasonableness standard. Even when

courts have not explicitly found a scienter requirement, they have based their

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decisions on a reasonableness standard. Courts have rejected a scienter

requirement but leveraged the SEC’s reasonableness standard. SEC v. Das, 723

F.3d 943, 955 (8th Cir. 2013) (noting knowledge still required for criminal

charges); see also SEC. v. Espuelas, 905 F. Supp. 2d 507, 525—26 (S.D.N.Y.

2012) (stating “primary violations of Rule 13b2-1 do not require an allegation of

scienter . . . rather, ‘liability is predicated on standards of reasonableness’”).

Courts that use a scienter requirement or a reasonableness standard are

demonstrating an unwillingness to apply strict liability to Section 13 rules. The

interpretation of Section 13 requires an assessment of certifying officers’

knowledge. If a reasonableness standard is applied in the present case, holding

Bosco and Lee liable would be unreasonable because they were not aware that

the documents they were certifying contained falsities.

ii. A false certification under Rule 13a—14 is not an independent claim.

While there has been some disagreement on whether Section 13a—14 is

an independent claim, the SEC has indicated that it does not function as one.

The SEC unequivocally indicated that other securities laws, such as Rule 10b-

5, would be used as independent claims. SEC Release No. 8124, 2002 WL

3170215, at *9 (Aug. 28, 2002). A false certification under Rule 13a—14 does

not provide an independent cause of action. SEC v. Black, No. 04-C-7377, 2008

WL 4394891, at *17 (N.D. Ill. Sept. 24, 2008). Other courts have similarly

argued against an independent cause of action for Rule 13a—14. In re

Intelligroup Sec. Litig., 468 F. Supp. 2d 670, 706–07 (D. N.J. 2006) (stating no

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private right of action). Furthermore, SEC Release No. 8124 specifically lists

the rules that should be used against defendants who certify false financial

documents.

An issuer’s principal executive and financial officers already are responsible as signatories for the issuer’s disclosures under the Exchange Act liability provisions and can be liable for material misstatements or omissions under general antifraud standards and under our authority to seek redress against those who cause or aid or abet securities law violations. An officer providing a false certification potentially could be subject to Commission action for violating Section 13(a) or 15(d) of the Exchange Act and to both Commission and private actions for violating Section 10(b) of the Exchange Act and Exchange Act Rule 10b-5.

Certification of Disclosure in Companies’ Quarterly and Annual Reports,

Exchange Act Release No. 8124, 2002 WL 31720215, at *9 (Aug. 28, 2002).

This Court should hold that 13a—14 is not an independent claim because the

SEC has clearly indicated other rules to bring a cause of action for falsities.

B. Officers certifying disclosure documents do not have a duty to inquire into the falsity of the documents. Certifying officers are responsible for reviewing documents and ensuring

their accuracy. Cummings, 109 SEC 2614, 2014 WL 3735559 at *5 (2014).

However, there is no duty imposed on CEOs and CFOs to discover information

not known to them. Certification of Disclosure in Companies’ Quarterly and

Annual Reports, Exchange Act Release No. 46079, 77 S.E.C. Docket 2629,

2002 WL 1308327 at *28 (June 14, 2002). Additionally, certification is

subjective—it is based on the knowledge that the certifying officer has and

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what they believe would be important to an investor or other key stakeholder.

Id.

C. Cases under Rule 13a—14 are only brought when defendants have participated in egregious misconduct. An overview of cases throughout the country provides a clear pattern—

Rule 13a—14 cases involve defendants who participate in intentional acts of

falsity or deceit. In Jensen, the defendants were involved in a scheme to inflate

their company’s revenues and purposefully made material overstatements of

quarterly and annual filings. Jensen, 835 F.3d at 1104—05.

In e-Smart Technologies, the defendants were involved in a “sham

company with a bogus product.” See e.g., SEC v. e-Smart Techs., Inc., 82 F.

Supp. 3d 97, 101 (D.D.C. 2015); SEC v. Stanard, No. 06-CIV-7736-GEL, 2009

WL 196023, at *7 (S.D.N.Y. Jan. 27, 2009) (discussing denfendant’s elaborate

scheme); SEC v. Syron, 934 F. Supp. 2d 609, 617 (S.D.N.Y. 2013) (stating

“[d]efendants misled investors into believing that Freddie Mac had far less

exposure to subprime loans than it actually did”); In re BP p.l.c. Sec. Litig., 922

F. Supp. 2d 600, 612—13 (S.D. Tex. 2013) (highlighting misleading statements

made in connection with a devastating oil spill). In a clear contrast to these

cases, Bosco and Lee were not aware of the falsity in the documents they

certified, nor were they involved in the fraud perpetrated by Prince.

Rule 13a—14 was promulgated to ensure CEOs and CFOs do not certify

documents that they know to be false, misleading, or fraudulent. The rule was

meant to ensure that CEOs and CFOs were properly reviewing documents and

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ensuring protocols were followed. Rule 13a—14 was not meant as a strict

liability rule, and courts should require knowledge of falsity when considering

the applicability of Rule 13a—14.

D. SOX 304’s legislative history indicates that the statute was intended only as a remedy for use against executives guilty of misconduct. The legislative history of SOX 304 provides much more insight into the

intent of Congress than the title of the bill it is from. SOX 304 states that if “an

issuer is required to prepare an accounting restatement due to the material

noncompliance of the issuer, as a result of misconduct” the CEO and CFO

must reimburse the issuing company for “any bonus or other incentive-based

or equity-based compensation” or “any profits realized from the sale of

securities.” 15 U.S.C. § 7243. The Sarbanes-Oxley Act of 2002 (“Sarbanes-

Oxley Act”) was signed into law by President George W. Bush and was enacted

directly in response to the collapse of Enron and WorldCom—two large

corporations whose top executives were directly involved in complex and

systemic fraud. See Floyd Norris, A Crime So Large It Changed the Law, N.Y.

TIMES (July 14, 2005), http://www.nytimes.com/2005/07/14/business/a-

crime-so-large-it-changed-the-law.html. Congress enacted the Sarbanes-Oxley

Act in direct response to specific events and, therefore, it is critical to analyze

its legislative history. Id.

SOX 304 is the first time that a compensation-oriented disgorgement

remedy has been added into any federal securities law. See 15 U.S.C. § 7243

(2012). If Congress wished to institute such a substantial rule change, they

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would have done so explicitly. John Patrick Kelsh, Section 304 of the Sarbanes-

Oxley Act of 2002: The Case for a Personal Culpability Requirement, 59 BUS.

LAW. 1005, 1005 (2004) (explaining Congress would not have enacted

substantial rule changes in an “imprecise fashion”). Had Congress intended to

impose strict liability for any misconduct within a company, it would have used

similar language as section 16(b) of the Exchange Act, which establishes a

specific culpability standard. See 15 U.S.C. § 78p(b) (2012) (“irrespective of any

intention on the part of such beneficial owner, director, or officer . . .”). In

addition, had Congress modified the statute to merely add the word “issuer”

before the word “misconduct,” SOX 304 would have clearly conveyed that

liability would be imposed on non-culpable CEOs and CFOs. (R. at 27). The

absence of this language is instructive.

When the final version of the Sarbanes-Oxley Act was presented to

Congress for passage on July 25, 2002, several members of the House of

Representatives made statements expressing their view that SOX 304 was

meant to recover ill-gotten gains from only wrongdoers. See, e.g., 148 Cong.

Rec. H5474 (July 25, 2002) (statement of Rep. Mink) (“H.R. 3673 provides that

corporate executives must certify their financial reports and forces those found

guilty of noncompliance to forfeit profits and bonuses they may receive.”); id. at

H5477 (July 25, 2002) (statement of Rep. Shows) (“The bill also requires the

forfeiture of bonuses and other incentives in the event of an accounting

restatement and serious misconduct by an executive officer.”); id. at H5478

(July 25, 2002) (statement of Rep. Ford) (“White-collar thieves should not be

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allowed to walk off with the money they have stolen from investors and

employees . . . .”); id. at H5466 (statement of Rep. Walters) (July 25, 2002) (“I

participated in one aspect of the bill for disgorgement so that these people who

are committing fraud will not be able to realize the gains that they would have .

. . .”). The House Bill and the Report of the House Committee on Financial

Services only wanted a disgorgement obligation to be applied to “extreme

misconduct” on the part of certifying officers. H.R. Rep. No. 107-414, at 44

(2002).

This legislative history of SOX 304 provides significant insight into the

intent of its architects and is much more enlightening than its title. It is not

persuasive to argue that Congress opted for the Senate’s bill, rejecting a House

provision that explicitly called for a scienter-based requirement. The above-

quoted House members’ statements post-date Congress’ adoption of the

Senate’s language that ultimately became law. These members of Congress

believed the language of the statute, as enacted, requires a finding of executive

misconduct to trigger reimbursement. See 148 Cong. Rec. H5474, H5477,

H5478, H5466. For seven years, the SEC brought SOX 304 cases fewer than a

dozen times, and in every one of those cases, the defendant CEOs and CFOs

were all the primary actors of the alleged misconduct. Robert Khuzami,

Director, SEC Division of Enforcement, Speech to the Society of American

Business Editors and Writers (SABEW),

http://www.sec.gov/news/speech/2010/spch031910rsk.htm (Mar. 19, 2010).

Despite the Fourteenth Circuit’s erroneous holding that the title of the statute

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is influential, the legislative history is much more illuminating than the title of

the statute. (R. at 15).

i. This Court should define the scope of SOX 304 to end confusion and add clarity.

It is well established that there is no private right of action under SOX

304. See In re Brocade Communs. Sys. Derivative Litig., 615 F. Supp. 2d 1018,

1046 (N.D. Cal. 2009). In addition, courts rarely imply causes of action, leaving

their creation instead to Congress. See Pirelli Armstrong Tire Corp. Retiree Med.

Benefits Tr. v. Raines, 534 F.3d 779, 793 (D.C. Cir. 2008). Statutes must be

read holistically with deference to the overall statutory scheme. See United Sav.

Ass’n. of Texas v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365, 371

(1988); FDA v. Brown & Williamson Tobacco Corp., 529 U.S. 120, 132—33

(2000). Congress did not intend for SOX 304 to supply an independent cause of

action. The Second Circuit noted that Congress attempted to hold corporate

officers directly responsible for “their actions” that caused material

noncompliance with financial reporting requirements as opposed to any actions

by any issuer employee. Cohen v. Viray, 622 F.3d 188, 195 (2d Cir. 2010).

Assuming arguendo that SOX 304 does in fact create a cause of action,

Judge Khatibifar correctly notes that the mental culpability standard is

recklessness for SOX 304 claims. (R. at 25). The SEC has never explained the

meaning of misconduct and that further clarification is necessary to avoid

future confusion. Jensen, 835 F.3d at 1122 (Bea, J., concurring). District

courts will face extreme difficulty defining the term “misconduct” without

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clarification from this Court. Id. at 1124. This Court should clarify that if SOX

304 does create an independent cause of auction the culpability standard

should be recklessness.

Other courts have interpreted SOX 304 to mean that there must be a

“causal connection between [a] Defendant’s violations and profits made as a

result of the Defendant’s violations.” SEC v. Pattison, No. C-08-4238 EMC,

2011 U.S. Dist. LEXIS 23427, at *10 (N.D. Cal. Feb. 23, 2011). The Jenkins

court warned that SOX 304 might result “in severe and unjustified deprivation

to the Defendant, [and] constitutional issues may arise in particular cases.”

SEC v. Jenkins, 718 F. Supp. 2d 1070, 1076 (D. Ariz. 2010). As Judge

Khatibifar acknowledges, when “there are multiple interpretations of a statute,

the canon of constitutional avoidance requires courts to choose the

interpretation that does not raise questions about the statute’s

constitutionality.” (R. at 27). Confusion in statute interpretation is detrimental

because it will continue to lead to different courts applying the statute

incorrectly and against the intent of Congress.

ii. Even if this Court orders disgorgement, this Court should limit the required disgorgement to what would have been paid under the restated 10-K rather than all bonuses and incentive based compensation.

Only after the financial meltdown of 2008 did the SEC begin using SOX

304 against CEOs and CFOs who had not personally committed misconduct.

See Isaac U. Kimes, Unfettered Clawbacks-Why Section 304 of the Sarbanes-

Oxley Act Requires a Personal Misconduct Standard, 42 U. MEM. L. REV. 797,

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800—01 (explaining SOX 304 was “hastily constructed”); SEC v. Baker, No. A-

12-CA-285-SS, 2012 U.S. Dist. LEXIS 161784, at *7 (W.D. Tex. Nov. 13, 2012).

The Dodd–Frank Wall Street Reform and Consumer Protection Act (“Dodd-

Frank”) (12 U.S.C. § 5301) was signed into law in 2010 and specifically

addresses SOX 304. See Dodd-Frank Wall Street Reform and Consumer

Protection Act of 2010, 12 U.S.C. § 5301, 954 (2012) (adding section 10D to the

Securities Exchange Act of 1934, 15 U.S.C. § 78j-4). Dodd-Frank states that

executives only need to reimburse a company “in excess of what would have

been paid to the executive officer under the accounting restatement” as

opposed to all bonus or incentive or equity-based compensation. Exchange Act

Release No. 34-75342 (July 1, 2015), published at 80 Fed. Reg. 41144 (July 14,

2015), proposing Exchange Act Rule 10D-1.; SEC v. Jasper, 678 F.3d 1116,

1129 (9th Cir. 2012); SEC v. Life Partners Holdings, Inc., 71 F. Supp. 3d 615,

626 (W.D. Tex. 2014).

The SEC charged with promulgating rules under the Dodd-Frank Act, is

already considering a rule that would enforce this provision. The SEC should

have made it a priority to promulgate rules on an issue of such significant

confusion, but instead, they have waited years. The SEC is considering

proposed Exchange Act Rule 10D-1, which would make explicit Congresses

intent that SOX 304 only be used to disgorge bonuses that would have been

paid under the 10-K. Under this standard, Bosco and Lee would not be

required to disgorge their $45,000 bonus that was independent of the

smartphone business. (R. at 7). The language of 10D-1 indicates Congress’s

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intent to limit the amount that executive officers need to pay when disgorging

bonuses.

iii. SOX 304 creates disproportional unfairness for corporate executives.

Judge Khatibifar rightly points out that “the statute does not plainly

express whose misconduct must cause an accounting restatement.” (R. at 26).

In Life Partners Holdings, the court considered, but did not arrive on answer on

what would happen if executives signed financial statements on good faith

reliance of external auditors, but where there were still errors in the financials.

See Life Partners Holdings, 71 F. Supp. 3d at 625. In our present matter, the

side letters were not made available to Burlingham’s attorneys, auditors, or any

individuals in management. (R. at 3). Burlingham’s CEO and CFO were acting

in good faith by having independent outside auditors review Burlingham’s

financials, which should be the new standard for similar types of cases.

This Court should follow the intent of Congress by implying a much-

needed culpability standard for SOX 304. Furthermore, this Court should

consider the SEC’s proposed rule Exchange Act Rule 10D-1 as indicative of

Congresses intent that SOX 304 only be used to disgorge bonuses that would

have been paid under the 10-K. Finally, the Court should make it clear that

CEOs and CFOs must have been involved in the misconduct that led to

financial restatements or else the rule would force innocent bystanders to

disgorge equity based-compensation.

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II. ALL DISGORGEMENT CLAIMED FOR THE PERIOD OF JANUARY 2008 THROUGH JANUARY 2010 AGAINST DEFENDANT PRINCE IS BARRED BY 28 U.S.C. § 2462. The disgorgement action against Prince is barred by the statute of

limitations. The substance and effect of the disgorgement brought by the SEC

is punitive and operates as a civil penalty because it requires Prince to disgorge

more than he earned through his alleged misconduct, including funds which

Prince at no point controlled. Furthermore, the statute of limitations reaches

disgorgement because disgorgement is synonymous with forfeiture and

operates in the same material manner. Freeing disgorgement from the statute

of limitations would allow the SEC to bring punitive disgorgement claims

reaching into the far past, with disastrous effects.

A. The present disgorgement action is a penalty because it requires Prince to disgorge more than he earned from his alleged misconduct. 28 U.S.C. § 2462 imposes a five-year statute of limitations on “any civil

fine, penalty, or forfeiture.” 28 U.S.C. § 2462 (2012). The requested relief

operates as a civil penalty, regardless of its formal label, and is barred by 28

U.S.C. § 2462 because it would punitively require Prince to disgorge more than

he earned through his alleged misconduct. Prince at no point controlled the

disbursement of merit-based bonuses awarded to other Burlingham executives.

(R. at 2). Any requirement that Prince disgorge funds he had no control over is

punitive, and barred by 28 U.S.C. § 2462.

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i. An order to disgorge more than a defendant earned through his or her misconduct is punitive in substance and effect, and operates as a civil penalty.

The SEC’s requested relief should be barred by 28 U.S.C. § 2462 because

it would punitively require Prince to disgorge more than he earned. (R. at 28).

This Court should instead adopt the rule suggested by the dissent before the

Fourteenth Circuit that “§ 2462 restricts the SEC’s jurisdiction to seek

disgorgement or any other remedy that operates in effect, regardless of formal

title or label, as a ‘civil fine, penalty, or forfeiture, pecuniary or otherwise.’” (R.

at 28). The punitive effect of a remedy is determined by the context of the

action brought, not by the label assigned to it. See e.g., Gompers v. Buck’s

Stove & Range Co., 221 U.S. 418, 441 (1911) (“character and purpose” of relief

is dispositive when differentiating criminal and civil proceedings); Coghlan v.

National Transp. Safety Bd., 470 F.3d 1300, 1305 (11th Cir. 2006) (considering

effect of remedy to determine whether punitive or remedial); Johnson v. SEC, 87

F.3d 484, 491 (D.C. Cir. 1996) (determining whether a “putatively civil or

regulatory sanction is in actuality a back-door form of punishment”). Although

the SEC has labeled the relief sought against Prince a disgorgement, it is in fact

a civil penalty because Prince would be forced to pay more than he earned as a

result of his alleged misconduct. Johnson, 87 F.3d at 488 (a civil penalty is “a

form of punishment . . . which goes beyond remedying the damage caused to

the harmed parties by the defendant’s action”).

Courts have been careful to caution that disgorgement is generally non-

punitive only when “[p]roperly applied.” Kokesh, 834 F.3d at 1164. Where the

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disgorgement action would do more than leave the defendant “in the position

he would have occupied had there been no misconduct” the action has been

applied improperly and is punitive. Restatement (Third) of Restitution and

Unjust Enrichment § 51, cmt. k (Am. Law Inst. 2010) (“disgorgement . . .

imposes no net loss on the defendant”). Therefore, any requirement that the

defendant disgorge more than he earned, is explicitly barred by 28 U.S.C. §

2462.

In addition to his own compensation and incentive-based bonus, the

Fourteenth Circuit Court of Appeals upheld the district court’s order that

Prince disgorge an additional $250,000, representing the cumulative bonuses

earned by another Burlingham executive manager. (R. at 7). This additional

amount does more than return Prince to the status quo ante, as a properly

applied disgorgement remedy is meant to do. See Kokesh, 834 F.3d at 1164

(disgorgement returns defendant to position he would have otherwise occupied

“only by depriving the wrongdoer of the benefits of wrongdoing.”). Therefore,

this disgorgement action operates as a civil penalty, which “go[es] beyond

compensation,” and is “intended to punish, and label” the defendant as a

wrongdoer. Gabelli, 133 S. Ct. at 1223 (citing Meeker v. Lehigh Valley R.R. Co.,

236 U.S. 412, 423 (1915)). Because the effect of the disgorgement is punitive, it

is barred. See 28 U.S.C. § 2462 (2012) (precluding punitive penalties brought

more than five years after the alleged misconduct).

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ii. Disgorgement of merit-based bonuses awarded to other Burlingham executives, over which Prince did not exercise control, is punitive and is barred by 28 U.S.C. § 2462.

The Fourteenth Circuit’s reliance on SEC v. Platforms Wireless Int’l Corp.

for the proposition that defendants should be liable for monies that “trickled

down to others” is unavailing. (R. at 18). See also SEC v. Platforms Wireless Int’l

Corp., 617 F.3d 1072 (9th Cir. 2010). In Platforms Wireless Int’l Corp., the Ninth

Circuit considered a defendant who “had control over when and by whom” the

illegally gotten gains would be dispersed. Platforms Wireless Int'l, 617 F.3d at

1098 (defendant “control[ed] the distribution of illegally obtained funds”).

However, such is not the case before the Court today. Rather, the SEC is

seeking disgorgement by Prince of bonuses earned by another Burlingham

executive, which was awarded based on an assessment of Burlingham’s

“revenue, profit, market share, retention of employees, and integration of

acquired businesses.” (R. at 2). Prince had no control over these factors, and

the funds awarded were not causally related to Prince’s alleged misconduct.

Requiring Prince to disgorge bonuses earned by other executives, over whose

disbursement he had no control, is punitive. Hateley v. SEC, 8 F.3d 653, 655

(9th Cir. 1993) (holding disgorgement of amount defendant did not control

would be “a fine levied against the petitioners as punishment for their conduct”)

(emphasis in original).

Because the district court’s order forced Prince to unfairly disgorge funds

he never received and did not exercise control of, the disgorgement “go[es]

beyond compensation” is punitive, and functions like a civil penalty. Gabelli,

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133 S. Ct. at 1223; Hateley, 8 F.3d at 655. However the relief is labeled, the

substance and effect of the relief sought by the SEC against Prince is that of a

civil penalty, and any relief sought prior to January 2010 is barred by 28

U.S.C. § 2462.

B. Disgorgement is within the reach of 28 U.S.C. § 2462 because disgorgement is synonymous with forfeiture, operates in the same material manner, and freeing disgorgement from the statute’s reach would have injurious effects. Disgorgement is barred by 28 U.S.C. § 2462 because there is no

“meaningful difference” between disgorgement and forfeiture and both force

defendants to give up “what he has wrongfully gained.” SEC v. Graham, 823

F.3d 1357, 1363 (11th Cir. 2016); SEC v. Contorinis, 743 F.3d 296, 310 (2d Cir.

2014). Freeing disgorgement from the reach of the statute of limitation would

allow the SEC to avoid the statute of limitations altogether by labeling any

punitive relief as a disgorgement.

i. 28 U.S.C. § 2462 reaches disgorgement because disgorgement is synonymous with forfeiture and operates in the same material manner.

Congress did not define the terms “civil fine, penalty, or forfeiture” in 28

U.S.C. § 2462 because it intended the statute of limitations to be a “catchall,”

which was meant “to be read as bringing within a statute categories similar in

type to those specifically enumerated.” 28 U.S.C. § 2462 (2012); Fed. Maritime

Comm’n v. Seatrain Lines, Inc., 411 U.S. 726, 734 (1973). Where Congress does

not define a term, courts should assume that “Congress intends the words in

its enactments to carry their ordinary, contemporary, common meaning.”

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Pioneer Inv. Servs. Co., 507 U.S. at 388 (internal quotations omitted). Judge

Khatibifar, in his dissent in this case, correctly noted that, “‘for the purposes of

§ 2462[,] forfeiture and disgorgement are effectively synonyms’ and there is no

‘meaningful difference’ between the two words.” (R. at 29) (quoting Graham,

823 F.3d at 1363).

Forfeiture and disgorgement are synonymous when given their ordinary,

contemporary, and common meanings. Black’s Law Dictionary defines

forfeiture as a “judicial proceeding, the object of which is to effect a confiscation

or divestiture,” and defines disgorgement as “[t]he act of giving up something

(such as profits illegally obtained) on demand or by legal compulsion.” Black’s

Law Dictionary, at 568, 765 (10th ed.). These definitions are indistinguishable.

Moreover, courts routinely use the terms interchangeably when requiring a

defendant to surrender illicitly gotten funds or property. See United States v.

Ursery, 518 U.S. 267, 284 (1996); Contorinis, 743 F.3d at 310 (Chin, J.,

dissenting). 28 U.S.C. § 2462 reaches disgorgement because disgorgement is

synonymous with forfeiture, and bars the SEC from bringing a disgorgement

action more than five years after Prince’s allegedly injurious conduct. Graham,

823 F.3d at 1363 (holding § 2462 applies to disgorgement).

Furthermore, this Court has concluded that forfeiture and disgorgement

are both intended to confiscate property obtained through misconduct. See

Ursery, 518 U.S. at 283 (noting “[f]orfeitures 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”). Forfeiture and

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disgorgement operate in the same material manner by forcing a defendant to

give up “what he has wrongfully gained,” and neither remedy is more remedial

or non-punitive than the other. Contorinis, 743 F.3d at 310 (discussing

forfeiture and disgorgement and noting that “conceptually they are largely the

same”). Because there is no “meaningful difference” between forfeiture and

disgorgement, disgorgement should be treated as a forfeiture subject to the

statute of limitations in 28 U.S.C. § 2462. Graham, 823 F.3d at 1363 (“We find

no meaningful difference in the definitions of disgorgement and forfeiture.”).

ii. Freeing disgorgement from the reach of 28 U.S.C. § 2462 would allow the SEC to pursue claims without regard to how far into the past allegedly injurious conduct occurred.

Congress intended 28 U.S.C. § 2462 to be a “catchall” that imposes a

statute of limitations on “any civil fine, penalty, or forfeiture, pecuniary or

otherwise” brought by the government which is not covered by a statute of

limitation elsewhere. 28 U.S.C. § 2462; Fed. Maritime Comm’n., 411 U.S. at 734

(1973); Gabelli, 133 S. Ct. at 1220—21 (noting § 2462 governs remedies

throughout the U.S. Code). Statutes of limitation are “vital to the welfare of

society,” because “[t]hey provide ‘security and stability to human affairs’” and

advance policies of “repose, elimination of stale claims, and certainty about a

plaintiff’s opportunity for recovery and a defendant’s potential liabilities.”

Gabelli, 133 S. Ct. at 1220—21 (quoting Wood v. Carpenter, 101 U.S. 135, 139

(1879); Rotella v. Wood, 528 U.S. 549, 555 (2000)). Furthermore, “even

wrongdoers are entitled to assume that their sins may be forgotten.” Wilson v.

Garcia, 471 U.S. 261, 271 (1985).

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Freeing disgorgement from the scope of 28 U.S.C. § 2462 would allow the

SEC to bring enforcement actions without regard to how far into the past the

allegedly injurious conduct occurred. This would allow the SEC to label any

claim otherwise barred by § 2462 as something other than a “civil fine, penalty,

or forfeiture,” and pursue any enforcement that would be otherwise time-

barred, rendering the statute of limitations toothless. Far from “providing

security and stability,” such a holding would expose defendants to enforcement

actions “not only for five years after their misdeeds, but for an additional

uncertain period into the future.” Gabelli, 133 S. Ct. at 1223. As this Court has

noted, such an outcome “would be utterly repugnant to the genius of our laws.”

Gabelli, 133 S. Ct. at 1223 (quoting Adams v. Woods, 6 U.S. 336, 342 (1805)).

The present disgorgement action against Prince is punitive because it

“operates in effect, regardless of formal title or label, as a ‘civil fine, penalty, or

forfeiture’” by requiring Prince to disgorge more than he earned, including

merit-based bonuses awarded to other Burlingham executives. Moreover, there

is no material difference between disgorgement and forfeiture. Because the

present disgorgement is punitive, and because disgorgement is synonymous

with forfeiture, this Court should hold that the present action is precluded by

28 U.S.C § 2462 and bar any disgorgement actions brought against Prince

before January 2010.

CONCLUSION

For the reasons stated herein, Petitioners respectfully request that this

Court reverse the United States Court of Appeals for the Fourteenth Circuit

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findings that SEC Rule 13a—14 does not require knowledge of the falsity

within the financial disclosure documents for liability on the certifying officers

and SOX 304 requires corporate officers to disgorge profits even though they

did not personally engage in misconduct.

Additionally, Petitioners respectfully request that this Court reverse the

Fourteenth Circuit’s holding that 28 U.S.C. § 2462 does not reach

disgorgement claims brought by the SEC when applied punitively and

recognize that disgorgement is synonymous with forfeiture and operates in the

same material manner.

Respectfully submitted,

________________/s/

Team P9 Counsel of Record for Petitioners