## Facts

- The Securities and Exchange Commission brought a civil enforcement action against Towers Financial Corporation and individuals, including Mitchell Brater, alleging material misrepresentations connected to a large Ponzi scheme involving promissory notes.
- As trial approached, Brater’s proposed pretrial order listed multiple character witnesses to testify to favorable traits (e.g., honesty).
- The SEC moved in limine to preclude Brater from offering character evidence to suggest he did not commit the alleged misconduct.
- The motion focused on the scope of Federal Rule of Evidence 404(a)(1) in an SEC civil enforcement trial.

## Issues

1. Whether a defendant in an SEC civil enforcement action qualifies as an “accused” under Federal Rule of Evidence 404(a)(1) and therefore may introduce evidence of a pertinent character trait to prove conduct in conformity.
2. Whether describing an SEC enforcement action as “quasi-criminal” changes the application of Rule 404(a)(1)’s character-evidence exception.

## Decision

- The court granted the SEC’s motion in limine.
- Rule 404(a)(1)’s “accused” exception applies only to criminal defendants, not defendants in civil enforcement actions.
- Brater was barred from calling character witnesses to show he acted in conformity with a favorable character trait and therefore did not engage in the alleged fraud.

## Legal Principles

- Under Federal Rule of Evidence 404(a), character evidence is generally inadmissible to prove conduct in conformity with a trait on a particular occasion.
- Rule 404(a)(1)’s exception for evidence “offered by an accused” is limited to criminal cases; the rule’s use of terms such as “accused” and “prosecution” supports this reading.
- SEC enforcement actions remain civil for purposes of the Federal Rules of Evidence even if the allegations are serious or the proceeding is described as “quasi-criminal.”
- Absent a specific rule-based exception, a civil defendant may not introduce “good character” testimony to suggest nonparticipation in alleged wrongful acts.

## Conclusion

The court held that a defendant in an SEC civil enforcement action is not an “accused” within the meaning of Federal Rule of Evidence 404(a)(1), and therefore may not introduce favorable character evidence to prove he did not commit the alleged fraudulent conduct.


S.E.C. v. Towers Fin. Corp., 966 F. Supp. 203 (S.D.N.Y. 1997)