I've seen up to statutory 12% per day all the way to 2% per annum in government interest assessments. Wouldn't be too concerned about interest. It's the penalty, repayment, and character that lead to this all (if found guilty) that I'm concerned about.
The Dodd-Frank Act allows whistleblowers who submit information about securities violations to the Securities and Exchange Commission (SEC) to recover from between 10%-30% of any SEC recovery, including civil penalties, disgorgement, and interest. The SEC must recover over $1 million in order for a whistleblower to receive an award for securities violation information. Civil penalties can be up to $150,000 for individuals and $750,000 for entities for each violation. The SEC can also seek disgorgement—which has been defined by the courts as all the profits a defendant derives from his ill-gotten gain. In addition to disgorgement, the SEC can also seek prejudgment interest on disgorgement.
The availability of prejudgment interest is one reason why awards for securities violations can be very large. In most other areas of law only post-judgment interest is available. In other words, the plaintiff only receives interest from the time in which the jury or judge enters judgment until the time that a defendant pays the award. In SEC cases, however, prejudgment on disgorgement may be awarded on a discretionary basis.[1] According to case law, "The time frame for the imposition of prejudgment interest usually begins with the date of the unlawful gain and ends at the entry of judgment."[2] One court explained the theory behind awarding prejudgment interest in saying had the defendant “been able to borrow the millions of dollars he spent that he obtained through his violations, he would have had to have paid significant interest on the loans.”[3] Prejudgment interest can greatly add to the amount the SEC recovers, particularly since there may be years between the time that the defendant commits the fraud and the time a court enters a judgment. For instance, in SEC v. Huff the court awarded $3 million in prejudgment interest on a disgorgement of $10.017 million for one of the defendants in the case.[4] Given the ability of the SEC to recover civil penalties, disgorgement, and prejudgment interest, companies that violate securities laws can expect to face heavy financial consequences for their violations.
[1] See S.E.C. v. Huff, 758 F.Supp.2d 1288, 1363 (S.D.Fla. 2010). [2] S.E.C. v. Yun, 148 F.Supp.2d 1287 (M.D.Fla. 2001). [3] S.E.C. v. Huff, 758 at 1363. [4] Id. at 1366-67.
Case 1:12-cv-10012 Document 1 Filed 01/04/12 Page 28 of 28 D. Requiring all Defendants to disgorge their ill-gotten gains and losses avoided, plus pre-judgment interest, with said monies to be distributed in accordance with a plan of distribution to be ordered by the Court;
"Do you know what the SEC's rate is for pre-judgement interest on ill-gotten gains? "
It varies. Here's the law:
USC Title 17: Commodity and Securities Exchanges
CHAPTER II: SECURITIES AND EXCHANGE COMMISSION
PART 201: RULES OF PRACTICE
Subpart D: Rules of Practice
: Rules Regarding Disgorgement and Penalty Payments
201.600 - Interest on sums disgorged.
(a) Interest required. Prejudgment interest shall be due on any sum required to be paid pursuant to an order of disgorgement. The disgorgement order shall specify each violation that forms the basis for the disgorgement ordered; the date which, for purposes of calculating disgorgement, each such violation was deemed to have occurred; the amount to be disgorged for each such violation; and the total sum to be disgorged. Prejudgment interest shall be due from the first day of the month following each such violation through the last day of the month preceding the month in which payment of disgorgement is made. The order shall state the amount of prejudgment interest owed as of the date of the disgorgement order and that interest shall continue to accrue on all funds owed until they are paid.
(b) Rate of interest. Interest on the sum to be disgorged shall be computed at the underpayment rate of interest established under Section 6621(a)(2) of the Internal Revenue Code, 26 U.S.C. 6621(a)(2), and shall be compounded quarterly. The Commission or the hearing officer may, by order, specify a lower rate of prejudgment interest as to any funds which the respondent has placed in an escrow or otherwise guaranteed for payment of disgorgement upon a final determination of the respondent's liability. Escrow and other guarantee arrangements must be approved by the Commission or the hearing officer prior to entry of the disgorgement order.
So we must then look to 26 U.S.C. 6621(a)(2), which says: (2) Underpayment rate The underpayment rate established under this section shall be the sum of— (A) the Federal short-term rate determined under subsection (b), plus (B) 3 percentage points.
(b) Federal short-term rate For purposes of this section— (1) General rule The Secretary shall determine the Federal short-term rate for the first month in each calendar quarter. (2) Period during which rate applies (A) In general Except as provided in subparagraph (B), the Federal short-term rate determined under paragraph (1) for any month shall apply during the first calendar quarter beginning after such month. (B) Special rule for individual estimated tax In determining the addition to tax under section 6654 for failure to pay estimated tax for any taxable year, the Federal short-term rate which applies during the 3rd month following such taxable year shall also apply during the first 15 days of the 4th month following such taxable year. (3) Federal short-term rate The Federal short-term rate for any month shall be the Federal short-term rate determined during such month by the Secretary in accordance with section 1274 (d). Any such rate shall be rounded to the nearest full percent (or, if a multiple of 1/2 of 1 percent, such rate shall be increased to the next highest full percent).
I'm guessing that the "Secretary" referred to is the Secretary of the Treasury, but don't hold me to it.
Here's a link to the most recent SEC litigation release reflecting a court order that prejudgment interest be paid: http://www.sec.gov/litigation/litreleases/2012/lr22513.htm From those that I have read in the past, the Pacer reproduction of the actual order is representative as to form in that it DOESN'T show the interest rate, but rather shows the interest amount. The order tells us some general info regarding prejudgment interest...I've removed the citations for easier reading:
Courts award prejudgment interest to prevent those found liable under the securities laws from enjoying any benefit accrued from the use of the ill-gotten gain. Requiring only that a losing defendant pay back the principal amount of a wrongfully obtained sum permits him to retain the money’s time value as a windfall in the form of an interest-free loan. Prejudgment-interest awards are compensatory, not punitive, and courts should make their interest decisions through “an assessment of the equities.” District courts have wide discretion in determining whether and how much interest to assess.
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