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April 7, 1993

THOMAS M. EGAN, et al., Defendants.

The opinion of the court was delivered by: MILTON I. SHADUR


 This Court's March 9, 1993 memorandum opinion and order separated the so-called "Relief Defendants" in this action brought by the Securities and Exchange Commission ("SEC") into two categories: "Settling Relief Defendants" and "Nonsettling Relief Defendants," a usage that will be continued here. SEC has now submitted a memorandum in support of an order of disgorgement from, and a declaration of constructive trust against, the few remaining Nonsettling Relief Defendants, despite their having paid sums in settlement of similar litigation brought against them by the Trustee in bankruptcy for Stotler & Company. One of the Nonsettling Relief Defendants, James Mulka ("Mulka"), has filed a memorandum in opposition in which he has since been joined by Robert Stotler ("R. Stotler"). *fn1" For the reasons stated in this memorandum opinion and order, the Mulka-R. Stotler motion to bar such relief against them is denied.

 That motion by the Nonsettling Relief Defendant misperceives the clearly established legal principles that control here. SEC's standing to obtain the equitable remedies that are now at issue stems from its duty to advance the public interest, something that is really separate and apart from (although it may frequently concur with) the interest of injured investors. Although it was stated in a somewhat different context, the concept expressed in Secretary of Labor v. Fitzsimmons, 805 F.2d 682, 692 (7th Cir. 1986) *fn2" applies with equal force to this case:


The government is not barred by the doctrine of res judicata from maintaining independent actions asking courts to enforce federal statutes implicating both public and private interests merely because independent private litigation has also been commenced or concluded.

 SEC and the public have a substantial interest in the deterrence of securities violations, one of the goals furthered by SEC enforcement actions ( SEC v. First City Financial Corp., 281 U.S. App. D.C. 410, 890 F.2d 1215, 1230 (D.C. Cir. 1989)):


Disgorgement is an equitable remedy designed to deprive a wrongdoer of his unjust enrichment and to deter others from violating the securities laws. *fn3"

 This Court has earlier held on more than one occasion in this action that the teaching of SEC v. Cherif, 933 F.2d 403, 414 n.11 (7th Cir. 1991) supports SEC's action against Relief Defendants here:


A court can obtain equitable relief from a non-party against whom no wrongdoing is alleged if it is established that the non-party possesses illegally obtained profits but has no legitimate claim to them.

 And of course Mulka's R. Mem. 1-2 misses the point in stating:


Mr. Mulka is not a wrongdoer, he is a victim. He is as much a victim as the beneficiaries of the pension [in Fitzsimmons] or the other investors of Stotler & Company.

 To be sure, Relief Defendants may not have been directly culpable in the securities violations, but what the SEC seeks to have them disgorge are the benefits that they derived from the violations by the culpable defendants. And those benefits--the unjust enrichment--are what trigger the application of the doctrine of constructive trust as "a device for preventing unjust enrichment" ( American Nat'l Bank & Trust Co. v. United States, 832 F.2d 1032, 1035 (7th Cir. 1987)). *fn4"

 Accordingly this Court rejects the Mulka-R. Stotler position. SEC continues to be entitled to obtain disgorgement from Nonsettling Relief Defendants as well as to have a constructive trust imposed on the benefits that they have derived from Stotler & Co. (giving the Nonsettling Relief Defendants credit in each instance, of course, for the amounts that they have paid in settlement of the private litigation brought against them by the Trustee in bankruptcy).

 Milton I. Shadur

 Senior United States District Judge

 Date: April 7, 1993

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