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.
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, ...