Securities and Exchange Commission v. Acosta

IN THE UNITED STATES COURT

FOR THE DISTRICT OF PUERTO RICO

SECURITIES AND EXCHANGE

COMMISSION,

Plaintiff,

CIV. NO. 21-1435 (SCC)

v.

ELISEO ACOSTA,

Defendant.

OPINION AND ORDER

The Securities and Exchange Commission (“SEC”) brings

this lawsuit against Eliseo Acosta, claiming that he violated

the Securities Exchange Act of 1934 by selling securities to

investors without registering as a broker dealer or associating

with a registered dealer. The SEC has moved the Court to

approve the parties’ consent decree and enter the resulting

judgment. The consent decree grants the SEC injunctive relief

and a right to request disgorgement and a civil penalty.

We review consent decrees to ensure that they are

reasonable and both procedurally and substantively fair. City

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of Bangor v. Citizens Commc’ns Co., 532 F.3d 70, 93 (1st Cir.

2008); see also SEC v. Citigroup Glob. Mkts., 752 F.3d 285, 296–

97 (2d Cir. 2014) (“[W]hen the district judge is presented with

a proposed consent judgment, [s]he is not merely a ‘rubber

stamp.’” (quoting SEC v. Levine, 881 F.2d 1165, 1181 (2d Cir.

1989))). And where, as here, the consent decree includes

injunctive relief, we must ensure that the proposed injunction

would not do a disservice to the public interest. Citigroup, 752

F.3d at 296–97. Moreover, because the SEC is an executive

agency, we defer to how it wishes to resolve this case.

Conservation Law Found. of New Eng., Inc. v. Franklin, 989 F.2d

54, 58 (1st Cir. 1993); see also United States v. Cannons Eng’g

Corp., 899 F.2d 79, 84 (1st Cir. 1990) (“[T]he district court must

refrain from second-guessing the Executive Branch.”). With

this framework in mind, we turn to our analysis.

I. REASONABLENESS

Reasonableness is a multi-faceted concept. As a general

matter, we may approve a consent decree if “(1) it ‘springs

from and serves to resolve a dispute within [our] subject-

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matter jurisdiction’; (2) it ‘comes within the general scope of

the case made by the pleadings’; and (3) furthers the

objectives upon which the complaint was based.”

Conservation Law Found., 989 F.2d at 59 (quoting Local No. 93,

Int’l Ass’n of Firefighters v. Cleveland, 478 U.S. 501, 525–26

(1986)). We look as well to the “basic legality of the decree”

and whether its terms, including its enforcement mechanism,

are clear. Citigroup, 752 F.3d at 294–95.

We begin with whether the consent decree springs from

and attempts to resolve a dispute within our subject-matter

jurisdiction. Our subject-matter jurisdiction includes actions

arising under federal law. 28 U.S.C. § 1331. The essence of the

SEC’s complaint against Acosta is that he violated federal law,

i.e., the Securities Exchange Act of 1934 (“Act”). Docket No. 1,

pg. 1. And the consent decree attempts to rectify this violation

through injunctive relief, disgorgement, and a civil penalty.

See Docket No. 6-2. The consent decree, therefore, springs

from and attempts to resolve a dispute within our subject-

matter jurisdiction.

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We turn next to whether the consent decree is within the

scope of the case that the SEC’s complaint makes against

Acosta and whether it furthers the objectives upon which the

complaint is based. As we noted earlier, the essence of the

SEC’s complaint is that Acosta has violated the Act by selling

securities to investors without registering as a broker dealer

or associating with a registered dealer. The consent decree

enjoins him from doing so again and includes disgorgement

and a civil penalty to return his ill-gotten gains and penalize

him for engaging in this conduct, respectively. Docket No. 6-

2. It, therefore, is within the scope of the case that the SEC

makes against Acosta in its complaint. Moreover, the consent

decree furthers the complaint’s objectives. The Act’s purpose

is to regulate securities, and one of the ways it does so is by

prohibiting individuals from selling securities if they are not

registered broker dealers or associated with one. 15 U.S.C.

§ 78o(a)(1). The consent decree furthers these objectives by

enjoining Acosta from violating the Act again and by holding

him financially accountable for his prior violations.

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We turn now to the basic legality of the consent decree and

whether its terms are clear. The consent decree provides for

an injunction, disgorgement, and a civil penalty. The Act

allows the SEC to seek these remedies and allows us to grant

them. See 15 U.S.C. § 78u(d). So the consent decree is legal.

Federal Rule of Civil Procedure 65 guides our analysis of

whether the proposed injunction’s terms are sufficiently clear.

When we grant an injunction, Rule 65(d)(1) requires us to: (1)

“state [our] reasons” for it, (2) “state its terms specifically,”

and (3) “describe in reasonable detail” the enjoined acts. FED.

R. CIV. P. 65(d)(1). We grant the proposed injunction because

the parties have agreed to it, the SEC made the policy choice

to include it as part of the resolution of this case, and it is

reasonable and fair. The proposed injunction, moreover,

states its terms with sufficient specificity and describes in

reasonable detail the acts restrained such that Acosta can

understand what conduct is enjoined: He is enjoined from

violating the Act by selling securities without registering as a

broker dealer or associating with a registered dealer. Docket

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No. 6-1, pgs. 1–2; see also Axia NetMedia Corp. v. Mass. Tech.

Park Corp., 889 F.3d 1, 12 (1st Cir. 2018) (“An ‘injunction must

simply be framed so that those enjoined will know what

conduct the court has prohibited.’” (quoting Meyer v. Brown

& Root Constr. Co., 661 F.2d 369, 373 (5th Cir. 1981))).

As for its other terms, the consent decree clearly states that

the SEC may later move the Court for disgorgement and a

civil penalty. Docket No. 6-2, pg. 3. It also clearly states that

any disgorgement, civil penalty, and interest are non-

dischargeable in bankruptcy. Id. at 5–6. Moreover, it provides

that we will retain enforcement jurisdiction. Id. at 6. We, thus,

conclude that the consent decree’s terms are clear.

II. PROCEDURAL FAIRNESS

Procedural fairness looks to “the negotiation process,”

attempting to “gauge its candor, openness, and bargaining

balance.” City of Bangor, 532 F.3d at 96. There is no evidence

that the SEC has not “conducted its negotiations forthrightly

and in good faith.” Cannons Eng’g Corp., 899 F.2d at 86.

Indeed, Acosta signed before a notary public a statement

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acknowledging that he “enter[ed] into this [c]onsent

[agreement] voluntarily” and that the SEC did not make any

“threats, offers, promises, or inducements” to secure his

consent. Docket No. 6-2, pgs. 3–4. We, therefore, find that the

consent decree is procedurally fair.

III. SUBSTANTIVE FAIRNESS

Substantive fairness turns on “corrective justice and

accountability: a party should bear the cost of the harm for

which it is legally responsible.” United States v. Comunidades

Unidas Contra la Contaminación, 204 F.3d 275, 281 (1st Cir.

2000). We give deference to the SEC’s decision that this

consent decree is substantively fair, and we conclude as well

that it is. For the consent decree holds Acosta accountable for

his wrongs by enjoining him from committing them again

and threatening him with disgorgement and a civil penalty.

IV. PUBLIC INTEREST

Where a consent decree includes injunctive relief, we must

ensure that it would not do a disservice to the public interest.

Citigroup, 752 F.3d at 296–97. And we must defer to the SEC’s

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policy choice that an injunction is in the public’s best interest.

Cannons Eng’g Corp., 899 F.2d at 84. We see no reason to

believe that this consent decree will harm the public. Indeed,

it protects the public from Acosta violating the Act in the

future.

V. CONCLUSION

In sum, the Court GRANTS the SEC’s motion to approve

the parties’ consent decree and enter the resulting judgment

(Docket No. 6).

IT IS SO ORDERED.

In San Juan, Puerto Rico, this 1st day of December, 2021.

S/ SILVIA CARREÑO-COLL

UNITED STATES DISTRICT COURT JUDGE