SEC v. Barton, No. 22-11132 (5th Cir. 2023)
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The Securities and Exchange Commission (“SEC”) sued Defendant as well as other individual Defendants and corporate entities for securities violations. Defendant appealed the district court’s order appointing a receiver over all corporations and entities controlled by him.
The Fifth Circuit vacated the order appointing the receiver effective 90 days after the issuance of the court’s mandate and remanded for further proceedings. The court also granted in part Defendant’s motion for a partial stay pending appeal. The court explained that Faulkner does not support the district court’s actions here. Under Faulkner, the SEC could have sought an injunction freezing asset transfers while it traced the funds and determined which entities should be placed in the receivership. But it did not. Since a receivership’s jurisdiction extends only over property subject to the underlying claims, the district court abused its discretion by including all Defendant-controlled entities in the receivership without first finding that they had received or benefited from the ill-gotten funds. Should the district court decide that a new receivership is justified on remand, it can only extend over entities that received or benefitted from assets traceable to Defendant’s alleged fraudulent activities that are the subject of this litigation.
The court issued a subsequent related opinion or order on August 31, 2023.
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