United States District Court, N.D. Illinois, Eastern Division
MEMORANDUM OPINION AND ORDER
M. ROWLAND, UNITED STATES MAGISTRATE JUDGE.
case arises from alleged violations of the federal and
Illinois securities laws. On September 27, 2016, this Court
granted in part and denied in part Defendants' motion for
summary judgment. The remaining claims at the time of trial
were Counts I (Violation of Section 12 of the Securities
Act), III (Violation of the Illinois Securities Law of 1953),
VII (Rescission), and VIII (Unjust Enrichment). A bench trial
between Meyer and Calhoun Asset Management was held before
this Court on April 25, 2017. During trial, Defendant moved
orally to exclude the December 29, 2011 and July 9, 2012
Orders of the U.S. Securities and Exchange Commission (SEC).
For the reasons set forth below, Defendant's oral motion
to exclude the December 29, 2011 and July 9, 2012 SEC Orders
and any evidence derived therefrom is granted in part and
denied in part.
trial, the parties filed a Joint Proposed Pre-Trial Order
which stated in relevant part: “The parties dispute the
findings of a prior SEC action involving the Defendant,
whether that action is relevant in the present action,
whether it is admissible and whether it has any impact on the
Plaintiff's investment decisions and alleged
losses.” (Dkt. 125 at 3). The SEC action refers to the SEC
administrative proceedings against Calhoun Asset Management,
LLC and Krista Ward, concerning “materially false and
misleading statements made by Calhoun, the investment adviser
to two fund of funds, and Ward, its principal.” (Pl.
Exh. 11, at 2). On December 29, 2011, the SEC, “after
an investigation, ” issued an Order Instituting
Administrative and Cease-and-Desist Proceedings against
Calhoun and Ms. Ward (hereafter, “SEC OIP” or
“Pl. Exh. 11”). On July 9, 2012, the SEC issued,
and Calhoun and Ms. Ward consented to, an “Order Making
Findings and Imposing Remedial Sanctions and a
Cease-and-Desist Order” (hereafter, “SEC Consent
Decree” or “Pl. Exh. 10”).
trial, Plaintiff, Mr. Meyer, raised the issue of the SEC
action during his testimony. Plaintiff's counsel also
asked Ms. Ward, on cross-examination, about the SEC action.
Defendant's counsel maintained a standing objection
throughout trial to any reference to the SEC action. On
cross-examination of Mr. Meyer, Defendant's counsel asked
Mr. Meyer whether Ms. Ward's ex-husband told him about
her “SEC problems” and whether that led him to
sue Ms. Ward. After trial, the Court stated that it would
issue a ruling on the admissibility of the SEC OIP and SEC
Consent Decree and any evidence derived therefrom, and the
parties would then submit post-trial briefs following that
regarding the admission and exclusion of evidence are
peculiarly within the competence of the district
court.” Aldridge v. Forest River, Inc., 635
F.3d 870, 874 (7th Cir. 2011) (internal quotations and
citations omitted). Under Federal Rule of Evidence 408,
“Evidence of the following is not admissible…to
prove or disprove the validity or amount of a disputed claim
or to impeach by a prior inconsistent statement or a
contradiction: (1) furnishing, promising, or offering-or
accepting, promising to accept, or offering to accept-a
valuable consideration in compromising or attempting to
compromise the claim; and (2) conduct or a statement made
during compromise negotiations about the claim-except when
offered in a criminal case and when the negotiations related
to a claim by a public office in the exercise of its
regulatory, investigative, or enforcement authority.”
FRE 408(a). However, “[t]he court may admit this
evidence for another purpose….” FRE 408(b).
Rule of Evidence 803(8)(A)(iii) provides an exception to the
rule against hearsay for “[a] record or statement of a
public office if it sets out…in a civil case…
factual findings from a legally authorized
investigation.” The party opposing the admission of the
evidence has the burden to show that “the source of
information or other circumstances indicate a lack of
trustworthiness.” FRE 803(8)(B). Administrative
findings may be admissible evidence and a district court
“retains significant discretion as to whether such
material ought to be admitted.” Halloway v.
Milwaukee Cty., 180 F.3d 820, 827 n.9 (7th Cir. 1999)
(internal citations omitted).
SEC Consent Decree
Consent Decree (Pl. Exh. 10) is not admissible evidence in
this case. Courts in this district have held that SEC consent
decrees are inadmissible under Federal Rule of Evidence 408.
Zivitz v. Greenburg, No. 98 C 5350, 1999 U.S. Dist.
LEXIS 19160, at *10 (N.D. Ill. Nov. 30, 1999); Beck v.
Cantor, Fitzgerald & Co., 621 F.Supp. 1547, 1566
(N.D. Ill. 1985) (“Xonics' acquiescence in the
SEC's opinion is not admissible to prove that the
original financial statements are admitted to be false or
improper.”). Other courts have reached the same
conclusion. See e.g. Paul Harris Stores, Inc. v.
Pricewaterhouse Coopers, LLP, No. 1:02-cv-1014-LJM-VSS,
2006 U.S. Dist. LEXIS 65840, at *17-18 (S.D. Ind. Sep. 14,
2006) (“A consent decree, like any settlement, is
inadmissible under Federal Rule of Evidence 408.”).
Court notes that evidence of a settlement or consent decree
may be admissible for other purposes under Rule 408(b). At
trial in this case, however, the testimony elicited based on
the SEC Consent Decree was to prove the truth of the matters
asserted in the consent decree or to impeach Ms. Ward's
credibility. Neither of these purposes is proper under Rule
408. As the Advisory Committee Notes to Rule 408 state,
allowing evidence of settlements for broad impeachment
purposes “would tend to swallow the exclusionary rule
and would impair the public policy of promoting
settlements.” Fed.R.Evid. 408 Advisory Comm. Notes
(2006 Amend.). Accordingly, the SEC Consent Decree is
excluded from evidence, and any reference to the SEC Consent
Decree at trial will be stricken and not considered by the
Court, subject to an exception described, below.
SEC Order Instituting Proceedings
OIP (Pl. Exh. 11) is admissible evidence under the exception
to hearsay in Federal Rule of Evidence 803(8)(A)(iii). The
SEC OIP is an order issued after an investigation conducted
pursuant the SEC's authority under the Securities and
Exchange Act of 1934. 15 U.S.C.S. § 78u. It also appears
relevant to some of the issues presented at trial. For
example, the findings in paragraphs 9-12 discuss the ...