## Facts

- Joseph C. Palmisano, a bankruptcy lawyer, ran a Ponzi-type investment scheme from at least December 1987 through November 1992.
- He induced about 90 people to invest approximately $7.9 million, claiming the money would be used to buy assets of bankrupt or distressed companies for profitable resale.
- He told investors funds would be held in a separate escrow account, involved “no risk” to principal, and would generate tax-free returns of 20–30% per year.
- He did not invest as promised; he used investor funds for personal purposes and paid some investors with other investors’ money to keep the scheme going.
- Investors received written instruments reflecting their “investments,” but no registration statement was in effect with the SEC.
- In July 1994, the United States brought a criminal indictment based on the scheme, and the SEC filed a civil enforcement action the same day.
- The SEC alleged violations of Securities Act §§ 5(a), 5(c), and 17(a), and Exchange Act § 10(b) and Rule 10b-5.
- In the civil action, the district court found Palmisano liable and ordered disgorgement of about $9.2 million and a $500,000 civil penalty (and also entered permanent injunctive relief).
- Palmisano appealed only the monetary relief, arguing it violated the Double Jeopardy Clause because he had been criminally punished for the same conduct.

## Issues

1. Whether disgorgement and a civil monetary penalty in an SEC enforcement action, imposed after criminal sanctions for the same scheme, constitute “punishment” barred by the Double Jeopardy Clause.
2. Whether the district court’s monetary judgment required modification as to the form or administration of the disgorgement obligation.

## Decision

- The Second Circuit modified the judgment in one respect and, as modified, affirmed.
- The court held that the disgorgement order and the civil penalty did not violate the Double Jeopardy Clause despite prior criminal sanctions for the same conduct.
- The modification concerned a technical aspect of the form or administration of the disgorgement obligation, not the finding of liability or the availability of disgorgement and civil penalties.

## Legal Principles

- Double jeopardy bars multiple criminal punishments for the same offense, but does not bar civil remedies unless they are so punitive in purpose or effect that they function as criminal punishment.
- Disgorgement in SEC enforcement actions is an equitable remedy primarily aimed at depriving wrongdoers of ill-gotten gains and preventing unjust enrichment; deterrent effect does not, by itself, convert it into criminal punishment.
- Civil monetary penalties authorized by Congress for securities-law enforcement are generally treated as civil, regulatory sanctions distinct from criminal punishment.
- A defendant may be subject to criminal sanctions (such as imprisonment and restitution) and SEC civil remedies (such as disgorgement and civil penalties) arising from the same fraudulent conduct without triggering double jeopardy, so long as the civil measures remain within the civil framework established by statute.

## Conclusion

The Second Circuit upheld substantial SEC monetary relief against Palmisano, ruling that disgorgement and a statutorily authorized civil penalty, imposed after criminal punishment for the same Ponzi-type scheme, were civil remedies and did not violate the Fifth Amendment’s Double Jeopardy Clause, while making a limited technical modification to the disgorgement order.


SEC v. Palmisano, 135 F.3d 860 (2d Cir. 1998)