## Facts

- Donald J. Fowler, a registered representative at J.D. Nicholas & Associates, used an “event-driven” strategy in customer accounts starting in 2011, based on financial-news “events.”
- The strategy generated extremely high trading volume, including turnover rates reported at roughly 116 times per year.
- Customers paid per-trade commissions (initially $65, later $49.95), and Fowler could add a 3.5% fee on purchases or sales, part of which compensated him.
- Several accounts used margin; the combined cost structure meant an average account needed about a 142.6% return to break even.
- Fowler made many trades without prior customer approval; more than half the challenged trades were unauthorized.
- Thirteen customers allegedly suffered combined losses of about $467,627.
- After customer complaints, the firm placed Fowler on special supervision in 2012; he continued the same approach.
- The SEC investigated in 2014. As the five-year period in 28 U.S.C. § 2462 approached, the SEC and Fowler executed tolling agreements extending the period to February 28, 2017; the SEC sued in January 2017.

## Issues

1. Whether 28 U.S.C. § 2462’s five-year limitations period for SEC civil-penalty actions is jurisdictional, making it not subject to tolling by agreement.
2. Whether the trading conduct could support both a churning theory and a suitability-based fraud theory under § 10(b), Rule 10b-5, and Securities Act § 17(a)(1)–(3).
3. Whether the district court properly imposed remedies, including per-customer civil penalties and disgorgement consistent with net-profit limits recognized in Liu.

## Decision

- The Second Circuit held § 2462 is not jurisdictional and may be tolled by agreement; the action was timely.
- The court held the SEC could proceed on a suitability theory and that excessive, high-cost trading could support both churning and suitability-based fraud findings.
- The court upheld civil penalties assessed on a per-customer basis (13 penalties) as within statutory authorization and not an abuse of discretion.
- The court declined to remand for disgorgement recalculation where Fowler failed to identify additional legitimate business expenses beyond those already deducted.
- The court modified the judgment to correct a minor disgorgement error and otherwise affirmed the injunction, disgorgement (as corrected), and penalties.

## Legal Principles

- A statutory limitations period is jurisdictional only if Congress clearly states it; absent such a clear statement, the time bar operates as a claim-processing rule that may be waived or tolled, including by written agreement.
- Excessive trading may constitute churning (excess trading to generate commissions contrary to customer objectives) and may also support a fraud-based suitability theory when the strategy’s costs and expected performance make customer harm predictable and the defendant acts knowingly or recklessly.
- Civil penalty provisions permitting penalties “for each violation” can support per-investor penalty assessment when misconduct causes distinct investor harms.
- Disgorgement in SEC actions is generally limited to net profits; a defendant seeking reduction must identify legitimate expenses not already accounted for.

## Conclusion

The Second Circuit affirmed (with a small disgorgement correction) a jury verdict and remedies against a broker for excessive, unauthorized, high-cost trading, holding that § 2462 is nonjurisdictional and tollable, that suitability and churning theories may overlap on the same conduct, and that per-customer civil penalties were permissible.


Sec. & Exch. Comm’n v. Fowler, 6 F.4th 255 (2d Cir. 2021)