Appeal from the United States District Court for the District of New Jersey
Before: MANSMANN, NYGAARD, and ROSENN, Circuit Judges.
Submitted Under Third Circuit LAR 34.1(a)
The three appellants in the present matter were defendants in an action brought by the Securities and Exchange Commission (SEC) in the United States District Court for the District of New Jersey. The district court granted summary judgment in favor of the SEC against all the defendants on the issues of both liability and damages. *fn1 Susan Lachance and Howard Ackerman, two of the defendants, appeal from both the judgment of liability and the disgorgement order; Lionel Reifler appeals only from the order of disgorgement. Although the appellants raise a number of issues, our principal concern is with their challenge to the district court's order of disgorgement. We affirm.
Between 1968 and 1976, Lionel Reifler had six felony convictions for crimes including securities fraud, tax evasion, sale of unregistered securities and operation of an unregistered brokerage firm. His wife, Susan Lachance, is involved in a number of business ventures, independently and with her husband. She is the sole owner and president of Susan Lachance Industrial Design (SLID) and she is the president of Flat Rock Developers, Inc. (Flat Rock), a corporation formed by Lachance, Reifler, Gilbert Beall and Frederic Mascolo. Howard Ackerman, a bookkeeper, has been employed by Reifler since March, 1984; he shared a suite of offices with Reifler and Lachance and served as the bookkeeper for the Hughes Capital Corporation (Hughes) from its inception.
In 1985, Reifler and two other defendants, Beall and Mascolo, acquired Hughes, a Florida shell corporation, as a vehicle for a public stock offering. *fn2 John Knoblauch became Hughes' "nominal owner and chairman of the board of directors." Reifler and the others amended Hughes' Registration Statement, changing the stock-to-warrant ratio from 1:3 to 1:21. Hughes then announced a public offering of the stock. The defendants, including Lachance and Ackerman, purchased at least 88% of the stock sold in the public offering.
In 1986, a public relations firm hired by the Reiflers issued press releases announcing Hughes' plans to purchase four other businesses; these press releases did not mention that the acquisition candidates were all owned and controlled by affiliates of Hughes. Among the companies named as acquisition candidates were SLID and Flat Rock. In one press release, Lachance represented, as president of SLID, that SLID was in good financial shape (in fact, it had only just emerged from bankruptcy) and was being acquired by Hughes, which had sufficient capital to purchase SLID and expand its business. In a press release issued on behalf of Flat Rock, Lachance, using her married name of "Susan Reifler," similarly represented that Flat Rock was an active concern (in fact, it was dormant and had no revenue at the time of the press release) and that Hughes had sufficient capital to acquire the business and to expand its real estate holdings. In neither press release did Lachance reveal her marital connection to Reifler or her status as a principal shareholder in Hughes.
Ackerman, as the bookkeeper, admits that he executed most of the transactions necessary to perpetuate the fraudulent scheme. He transferred money among the various bank accounts held by Reifler, Lachance and the other participants in the Hughes stock sale, although he acknowledged that many of these transactions had no legitimate business purpose. He obtained cashier's checks with money from some of these accounts to purchase stock and warrants for nominee accounts in the names of various Reifler associates, including himself, Reifler, Lachance, Lachance's minor daughter, and Reifler's housekeeper.
After the price of the stock rose, warrants were sold from the accounts controlled by Reifler and his cohorts into the public market. Ackerman deposited most of the proceeds of these sales, approximately $1.15 million, into various accounts held by himself, Reifler, Lachance and others. The money was then transferred from account to account and withdrawn in small amounts by Ackerman and the other participants in the stock fraud scheme. Eventually, the scheme was uncovered. A number of the participants, including Reifler, were criminally prosecuted; all of the ...