     Case: 10-10029 Document: 00511319329 Page: 1 Date Filed: 12/13/2010




           IN THE UNITED STATES COURT OF APPEALS
                    FOR THE FIFTH CIRCUIT  United States Court of Appeals
                                                    Fifth Circuit

                                                 FILED
                                                                         December 13, 2010

                                       No. 10-10029                         Lyle W. Cayce
                                                                                 Clerk

SECURITIES AND EXCHANGE COMMISSION,

                                                   Plaintiff-Appellant
v.

CONRAD P. SEGHERS,

                                                   Defendant-Appellee




                    Appeal from the United States District Court
                         for the Northern District of Texas
                              USDC No. 3:04-CV-1320


Before REAVLEY, BENAVIDES, and CLEMENT, Circuit Judges.
PER CURIAM:*
       The Securities and Exchange Commission (SEC) appeals the district
court’s order denying disgorgement from Conrad P. Seghers. We affirm.
       A jury found Seghers liable for securities fraud in connection with the
operations of three hedge funds that he founded. The SEC sought disgorgement
of over $900,000, and the district court denied the request. In an earlier appeal,
we remanded for reconsideration but left to the district court’s discretion
whether to order disgorgement. See SEC v. Seghers, 298 F. App’x 319, 336–37

       *
         Pursuant to 5TH CIR . R. 47.5, the court has determined that this opinion should not
be published and is not precedent except under the limited circumstances set forth in 5TH CIR .
R. 47.5.4.
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                                  No. 10-10029

(5th Cir. 2008). On reconsideration, the district court held that the SEC failed
to meet its burden of establishing a reasonable approximation of illegally-
obtained profits. The SEC appeals, and we review the district court’s decision
to deny disgorgement for an abuse of discretion. See SEC v. AMX, Int’l, Inc., 7
F.3d 71, 73 (5th Cir. 1993).
      Disgorgement is an equitable remedy designed to wrest ill-gotten gains
from a wrongdoer. SEC v. Huffman, 996 F.2d 800, 802 (5th Cir. 1993). Because
the remedy is remedial rather than punitive, “it is limited to ‘property causally
related to the wrongdoing’ at issue.” Allstate Ins. Co. v. Receivable Fin. Co., 501
F.3d 398, 413 (5th Cir. 2007) (citation omitted). The party seeking disgorgement
must distinguish between gains that were legally and illegally obtained. Id.; see
SEC v. First City Fin. Corp., 890 F.2d 1215, 1231 (D.C. Cir. 1989).
      The SEC argues that it presented sufficient evidence to establish Seghers’
illegal profits. It also argues that because Seghers commingled funds, the
district court erroneously required it to trace the specific funds that Seghers
obtained from defrauded investors. In the district court, the SEC relied on a
declaration by one of its accountants, along with nearly 600 pages of
accompanying financial documents, that primarily concerned transactions from
a Comerica Bank account used by Seghers and his hedge funds. We agree with
the district court that the declaration is conclusory and fails to explain
adequately the source of funds in the Comerica account. The district court
explained that it was unable to replicate the disgorgement amount sought by the
SEC by examining the declaration and the supporting documents, some of which
the court noted were poorly copied and illegible. The court also noted that the
time period covered by the declaration included a period during which no fraud
was alleged to have occurred. The SEC was required to present in the first
instance a reasonable approximation of Seghers’ illegally-obtained profits. See
First City Fin. Corp., 890 F.2d at 1232. Upon our review of the record, we find

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                                 No. 10-10029

no abuse of discretion in the district court’s conclusion that the SEC failed to
meet its burden.
      AFFIRMED.




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