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SEC v. Kenton Capital, Ltd. - 69 F. Supp. 2d 1 (D.D.C. 1998)

Rule:

Upon a finding of liability under the federal securities laws, permanent injunctive relief is warranted where the defendant's past conduct indicates that there is a reasonable likelihood of further violations in the future.

Disgorgement is an equitable remedy designed to deprive a wrongdoer of his unjust enrichment and to deter others from violating the securities laws.

The district court has broad discretion in deciding whether to grant prejudgment interest on the disgorgement amount and, if such interest is granted, what rate should be used to calculate the amount. The court's decision should be informed by the following factors: (i) the need to fully compensate the wronged party for actual damages suffered, (ii) considerations of fairness and the relative equities of the award, (iii) the remedial purpose of the statute involved, and/or (iv) such other general principles as are deemed relevant by the court.

Facts:

The Securities and Exchange Commission filed an amended complaint against defendants, president and corporation, alleging violations the anti-fraud, securities registration, broker registration, and investment adviser registration provisions of the federal securities laws. Plaintiff alleged that defendants misrepresented or failed to inform potential investors about the risks associated with the investment, the profitability of the investment, defendant corporation's lack of due diligence about the programs being offered and the ability to "leverage" money by leasing Treasury securities. Plaintiff filed a motion for summary judgment.

Issue:

Should the SEC’s motion for summary judgment be granted?

Answer:

Yes.

Conclusion:

The court granted the motion holding that plaintiff had demonstrated that defendants committed securities fraud because they made material misrepresentations and omissions while engaged in the offer or sale of securities, with scienter. Since defendants had not rebutted this evidence or otherwise raised any material factual issues, plaintiff was entitled to judgment as a matter of law on all claims. The court granted plaintiff permanent injunctive relief, disgorgement, prejudgment interest, and assessed civil penalties.

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