to the frivolousness of Northern's opening procedural volley.
In substantive terms Northern attempts to ground its case primarily in Lampf, which said at 111 S. Ct. 2782 (in the limited context of the implied private right of action under 1934 Act § 10(b) and Rule 10b-5):
Litigation instituted pursuant to § 10(b) and Rule 10b-5 therefore must be commenced within one year after the discovery of the facts constituting the violation and within three years after such violation.
According to Northern, the Court's failure to begin that sentence with the words "Private litigation" rather than "Litigation" means that the time limitations extend to SEC actions as well. That is an extraordinary way to read a Supreme Court opinion in which the always-careful Justice Blackmun, writing for the Court, began the Lampf opinion with this wholly unambiguous statement of precisely what the Court was deciding in the first place (111 S. Ct. at 2776):
In this litigation we must determine which statute of limitations is applicable to a private suit brought pursuant to § 10(b) of the Securities Exchange Act of 1934, 48 Stat. 891, 15 U.S.C. § 78j(b), and to Securities and Exchange Commission Rule 10b-5, 17 CFR § 240.10b-5 (1990), promulgated thereunder.
And Northern's proposed reading is doubly extraordinary given the fact that the "1-and-3-year" limitations structure, which the Court announced for such private claims, was drawn directly from other private causes of action that are expressly set out in the 1933 and 1934 Acts (111 S. Ct. at 2777).
Northern's effort at the divination of Lampf's entrails also points to the passing reference in Justice Blackmun's opinion (111 S. Ct. at 2778 n.3) to Occidental Life Ins. Co. v. EEOC, 432 U.S. 355, 53 L. Ed. 2d 402, 97 S. Ct. 2447 (1977). As SEC points out, that reference occurs in the one segment of Justice Blackmun's opinion that did not command a majority of the Court.
But quite apart from that, Northern's attempt to draw any inference from another attenuated inference is much like the multiplication of minor fractions--the absolute value diminishes with each multiplication. In sum, Northern's principal argument is wholly without persuasive force.
What is worth a brief discussion is whether, in going after the Relief Defendants, SEC is indeed acting in its governmental capacity. It is true that when SEC has been successful in its efforts at forcing disgorgement in other cases, its regular practice has been to enable the victims of securities fraud to recover their losses from the disgorged funds. But it is also true (1) that SEC is not forced to do so (though it may be assumed for current purposes that it will follow its usual practice if it is successful here), (2) that even if it does so, all unclaimed funds are retained by the government in all events and (3) that the source of power for such SEC disgorgement actions is vested in SEC qua government agency (see, e.g., SEC v. Cherif, 933 F.2d 403, 413-14 (7th Cir. 1991)). Moreover, and perhaps most compelling, the test of whether SEC is acting in its governmental capacity and not merely as a surrogate for private litigants is whether any public policy is indeed served and any public interest is indeed advanced ( Dole v. Local 427, Int'l Union of Electrical, Radio & Machine Workers, 894 F.2d 607, 612 (3d Cir. 1990)), and that is certainly true of equitable disgorgement proceedings brought by SEC (see, e.g., SEC v. Blavin, 760 F.2d 706, 713 (6th Cir. 1985); SEC v. Commonwealth Chemical Securities, Inc., 574 F.2d 90, 102 (2d Cir. 1978)).
Only a word need be said as to Northern's remaining due process argument--and though there are a substantial number of possibilities for the choice of that word, one likely candidate is "nonsense." If Northern is to be deprived of its money (something that this Court does not now decide), that will take place only after it has had a meaningful opportunity to be heard on the merits and to present any defenses--including equitable defenses--to disgorgement. That is the "process" that is Northern's "due."
SEC is right and Northern is wrong. Northern's Sixth Affirmative Defense is stricken as insufficient in law.
Milton I. Shadur
Senior United States District Judge
Date: December 15, 1992