Thursday, November 7, 2013

SEC v. First Jersey Securities, Inc. case brief

SEC v. First Jersey Securities, Inc. case brief summary
101 F.3d 1450 (1996)

Defendants, securities corporation and president, sought relief from a judgment of the United States District Court for the Southern District of New York, which held defendants liable for federal securities law violations. The district court also appointed a special agent to determine whether additional violations were committed, enjoined future violations, and ordered disgorgement of unlawful gains, plus prejudgment interest.

Defendants, corporation and president, sought review of a decision by the district court holding defendants liable for violations in the sale, repurchase, and resale of six securities. Defendants violated § 17(a) of the Securities Act of 1933, 15 U.S.C.S. § 77q(a), § 10(b) of the Securities Exchange Act of 1934, 15 U.S.C.S. § 78j(b), and Securities and Exchange Commission Rule 10b-5, 17 C.F.R. § 240.10b-5 (1995). The district court ordered defendants to disgorge the profits plus interest, enjoined them from further violations, and appointed a special agent to determine whether defendants had committed other violations.

Defendants argued that the action was barred by res judicata because defendants had previously signed a settlement agreement with the Securities and Exchange Commission.

  • The court affirmed most of the judgment, finding that res judicata was not a bar because the agreement made no promise to defendants that they would not have to further defend against the violations. 
  • The court did vacate the part of the judgment appointing the special agent, as the agent's role was to be an investigatory one, and not one of enforcement, and as such was impermissible.


The court affirmed the decision of the district court on the liability for federal securities law violations, the injunction, and disgorgement, but vacated the portion appointing a special agent. The court found that the district court had improperly appointed the agent, as the agent's purpose was not to ensure that defendants, corporation and president, complied with the injunction but his role was purely retrospective and investigative.

Suggested Study Aids For Securities Regulation Law
Securities Regulation in a Nutshell, 10th (Nutshell Series)
Securities Regulation: Examples & Explanations, 5th Edition
Securities Regulations: The Essentials

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