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SEC v. Custable

United States Court of Appeals, Seventh Circuit

July 28, 2015

SECURITIES AND EXCHANGE COMMISSION, Plaintiff-Appellee,
v.
FRANK J. CUSTABLE, JR., et al., Defendants. APPEAL OF BRAD HARE

Argued July 8, 2015

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 03 C 2182 -- Sharon Johnson Coleman, Judge.

For Securities And Exchange Commission, Plaintiff - Appellee: Sarah Prins, Attorney, Jeffrey Alan Berger, Attorney, Securities And Exchange Commission, Office of the General Counsel, Washington, DC.

For BRAD HARE, judgment creditor, Appellant: Roger C. Goble, Attorney, Lake Zurich, IL.

Gary Heesch, Defendant, Pro se, Springville, UT.

For Pacel Corp., Defendant: Matthew C. Luzadder, Attorney, Kelley Drye & Warren Llp, Chicago, IL.

For Gateway Distributors, Ltd., Defendant: Ted S. Helwig, Attorney, Katten Muchin Rosenman Llp, Chicago, IL.

For Robert Blagman, Defendant: Joseph P. Kincaid, Attorney, Swanson, Martin & Bell, Llp, Chicago, IL.

For Brad Nordling, Defendant: Theodore T. Poulos, Attorney, Cotsirilos, Tighe & Streicker, Poulos & Campbell, Chicago, IL.

For Frank J. Custable, Jr., Defendant: James E. Musial, Attorney, Law Office of James E. Musial, Michigan City, IN.

Before POSNER, SYKES, and HAMILTON, Circuit Judges.

OPINION

Posner, Circuit Judge.

In 2003 the SEC filed a civil suit against Frank Custable, the principal defendant in this appeal and the only one we need discuss, charging him with fraud involving " penny stocks." The term refers to very cheap stocks (no more than $5 per share). The typical penny-stock fraud involves the purchase of quantities of penny stocks and their resale to gullible investors at inflated prices. See generally " Penny Stock," Wikipedia, https://en.wiki pedia.org/wiki/Penny_stock#Regulation (visited July 24, 2015). Custable's fraud was alleged to have yielded him at least $4 million.

The civil suit was interrupted by criminal proceedings that resulted in a long prison sentence for Custable. But eventually the civil suit resumed and in 2010 he consented to the entry of a judgment against him that ordered him to pay a $120,000 penalty plus $6.4 million in disgorgement of profits. See 15 U.S.C. § 78u(d)(5); SEC v. Lipson, 278 F.3d 656, 662-63 (7th Cir. 2002). The penalty, imposed pursuant to 15 U.S.C. § 78u(d)(3), was to be paid to the U.S. Treasury " except as otherwise provided in [15 U.S.C. § ] 7246" and another section not relevant here: § 78u(d)(3)(C)(i). Section 7246(a) provides that " the amount of such civil penalty shall, on the motion or at the direction of the [Securities and Exchange] Commission, be added to and become part of a disgorgement fund or other fund established for the benefit of the victims of such violation." See Official Committee of Unsecured Creditors of WorldCom, ...


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