Judge Julie Rikelman, nominated by President Biden to the First Circuit, wrote a unanimous opinion that reversed a lower court and ruled that the Securities and Exchange Commission (SEC) improperly took $170,000 from the ex-wife of a violator because she had allegedly benefited from his illegal behavior. The December 2023 decision was in SEC v Monge.
What happened in this case?
In 2021, the SEC sued Luiz Jimenez Carillo for securities law violations. Although his misconduct occurred well after his divorce from Yolanda Sanchez-Dias in 2009, the SEC sued her as a “relief defendant,” which is someone who did not commit any wrongdoing but allegedly possesses some of the proceeds of the illegal action. The SEC claimed that Carillo had given her a car in 2017, allegedly paid for with illicit funds.
Sanchez-Diaz maintained that she received the car as part of an agreement under which she would take care and receive full custody of their son and Carillo would provide child support and help with transportation and other expenses, including by providing the car. The SEC nevertheless pursued its claim, and a district court agreed. It required “disgorgement” by Sanchez-Diaz of almost $170,000, representing the value of the car plus interest. She appealed to the First Circuit.
How did Judge Rikelman and the First Circuit Rule and Why is it Important?
Judge Rikelman wrote a unanimous opinion that reversed the lower court and ruled that the SEC improperly seized the funds. Judge Rikelman explained that the lower court had applied the “wrong legal standard” by holding that the SEC could require disgorgement of the funds unless Sanchez-Diaz had provided “substantially equivalent value” for the car. Although this issue had not come up before in the First Circuit, Rikelman adopted the standard accepted in other circuits. She ruled that an innocent person like Sanchez-Diaz need only demonstrate that she provided “something of value” in exchange for the property at issue, including goods or services. In this case, Rikelman continued, the record clearly showed that Sanchez-Diaz had “provided services , by taking on sole legal and physical custody” of the couple’s son, and “surrendered a legal claim” for additional payments from Carillo. Accordingly, Rikelman concluded, there was no proper basis for the SEC to demand over $150,000 as disgorgement from Sanchez-Diaz.
Judge Rikelman’s ruling is obviously important to provide justice to Yolanda Sanchez-Diaz. It is also significant by making clear the limited circumstances under which the SEC can seize funds or property from innocent people like Sanchez-Diaz in the First Circuit, including Maine, Massachusetts, New Hampshire, Puerto Rico, and Rhode Island. In addition, , the ruling is an important reminder of the significance of promptly confirming high-quality Biden nominees like Judge Rikelman to our federal courts.