Securities and Exchange Commission v. Spartan Securities Group, Ltd., Island Capital Management, Carl Dilley, and Micah Eldred

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UNITED STATES DISTRICT COURT
MIDDLE DISTRICT OF FLORIDA
TAMPA DIVISION

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff,
v.                                 Case No. 8:19-cv-448-VMC-CPT
SPARTAN SECURITIES GROUP, LTD,
ISLAND CAPITAL MANAGEMENT,
CARL DILLEY, and MICAH ELDRED,

Defendants.
                    ____________/
ORDER
 Before the Court is the Motion for Remedies filed by Plaintiff
Securities and Exchange Commission (“SEC”) on April 13, 2022. (Doc.
# 270). Defendants Spartan Securities Group, Ltd., Island Capital
Management, Carl  E.  Dilley,  and  Micah  J.  Eldred  (collectively,
“Defendants”) filed a response in opposition on May 23, 2022. (Doc.
# 273). The SEC filed a reply on July 12, 2022. (Doc. # 284). The
Court thereafter held an evidentiary hearing and oral argument on
this  matter, and  it  solicited  supplemental  materials  from  the
parties. Following careful consideration, and for the reasons that
follow, the Motion is granted in part and denied in part.
I.   Background
     Following a 12-day trial in July 2021, a jury handed down a
verdict in Defendants’ favor on 13 of the 14 counts brought by the
SEC. (Doc. # 250). However, the jury rendered a verdict in favor

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of the SEC as to Count Six of the complaint, finding that Spartan,
Island, Dilley, and Eldred made materially misleading statements
or omissions in connection with the purchase or sale of securities,
in violation of Section 10(b) and Rule 10b-5(b) of the Exchange
Act. (Id.). Defendants filed a renewed motion for judgment as a
matter of law, which this Court denied. (Doc. # 263).
 The  SEC  now  seeks  certain  remedies  against  Defendants,
including  an  injunction,  penny  stock  bars,  and  monetary  relief
consisting  of  disgorgement and  civil  penalties.  (Doc.  #  270).
Defendants have responded, and the Motion is ripe for review.
II.  Legal Standard
 Congress has authorized the SEC to enforce the Securities Act
of  1933  and  the  Securities  Exchange  Act  of  1934  and  to  punish
securities fraud through administrative and civil proceedings. Liu
v. SEC, 140 S. Ct. 1936, 1940 (2020). Once a court determines that
a  federal  securities  law  violation  has  occurred,  it  has  broad
equitable powers to fashion appropriate remedies. SEC v. Lorin, 76
F.3d 458, 461-62 (2d Cir. 1996).
III. Discussion
A. Injunctive Relief
The  Exchange  Act  authorizes  the  SEC  to  seek  an  injunction
“[w]henever it shall appear to the Commission that any person is
engaged or is about to engage in acts or practices constituting a
violation of any provision of this chapter.” 15 U.S.C. § 78u(d)(1).

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“The SEC is entitled to injunctive relief when it establishes (1)
a prima facie case of previous violations of federal securities
laws,  and  (2)  a  reasonable  likelihood  that  the  wrong  will  be
repeated.” SEC v. Calvo, 378 F.3d 1211, 1216 (11th Cir. 2004).
The jury’s verdict against Defendants sufficiently meets the
requirement of a previous violation, leaving the issue of whether
there is a “reasonable likelihood that the wrong will be repeated.”
The SEC bears the burden of proving that a recurrent violation is
reasonably likely to occur and, in the Eleventh Circuit, the “mere
fact of past violations” is insufficient to establish the propriety
of an injunction. SEC v. Yun, 148 F. Supp. 2d 1287, 1293 (M.D.
Fla. 2001) (citing SEC v. Blatt, 583 F.2d 1325, 1334 (5th Cir.
1978)). In determining whether to grant injunctive relief, factors
to  consider  are:  “[1]  [the]  egregiousness  of  the  defendant’s
actions, [2] the isolated or recurrent nature of the infraction,
[3]  the  degree  of  scienter  involved,  [4]  the  sincerity  of  the
defendant’s  assurances  against  future  violations,  [5]  the
defendant’s recognition of the wrongful nature of the conduct, and
[6] the likelihood that the defendant’s occupation will present
opportunities for future violations.” Calvo, 378 F.3d at 1216.
The SEC seeks permanent injunctive relief against all four
Defendants.  Defendants  claim  that,  under  the  Calvo factors,  an
injunction is not warranted in this case. (Doc. # 273 at 3-8). The

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Court  must  first,  then,  determine  whether  an  injunction  is
appropriate.
First, as to the egregiousness of Defendant’s actions, the
SEC  presented  evidence  at  trial  that  Defendants  submitted  Form
211s  to  FINRA  for  multiple  issuers  containing  information  that
Defendants knew or reasonably should have known was false, made
materially false  statements  or  omissions  in  connection  with
clearance from the Depository Trust Company, and/or processed bulk
transfers  in  instances  where  shares  were  restricted  or  their
actions were otherwise improper. In short, the Court agrees with
the SEC that, taking the evidence in the light most favorable to
the  jury’s  verdict,  the  evidence  demonstrated  that  Defendants
abused their “gatekeeper” role by enabling the purchase and sale
of securities on the public market that should have been barred or
more carefully vetted by FINRA. This factor leans in favor of an
injunction.
Second,  as  to  the  isolated  or  recurrent  nature  of  the
infraction, the SEC calls the Defendants’ conduct “far-reaching,”
arguing that for more than five years, they played “critical roles
in bringing at least 19 separate blank check companies public under
false  pretenses.”  Defendants  argue that  the  SEC  only  presented
evidence of 19 problematic securities offerings, out of the over
1,200-1,500 Form 211 applications Defendants filed , or about 1%
of  the  applications  filed  during  the  relevant  time.  The  Court

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believes  both  parties  make  valid  points,  and  this  factor  is
neutral.
Third, as to the degree of scienter involved, based on the
jury’s   verdict,   Defendants   had   to   make   the   material
misrepresentations  or  omissions  at  issue  with  at  least severe
recklessness. Scienter weighs in favor of an injunction.
Fourth, as to the sincerity of Defendant’s assurances against
future  violations  and  Defendants’ recognition  of  the  wrongful
nature of their conduct, Defendants have not expressed any remorse
for their actions. But they rightly point out that their right to
defend themselves should not be held against them. While the Court
respects Defendants’ right to raise a vigorous defense, the fact
remains that neither individual Defendant has provided the Court
with  specific  assurances  against  future  violations,  has not
admitted any wrongful conduct, and has not shown any remorse. This
factor weighs in favor of an injunction.
Finally, the Court turns to the likelihood that Defendants’
occupation(s) will  present  opportunities  for  future  violations.
The parties presented evidence on this point at the hearing. Mr.
Eldred,  who  is  54  years  old,  testified  that  he  is  no  longer
registered  as  a  securities  broker  with  the  SEC  or  FINRA.  He
voluntarily withdrew his licenses with the regulators in 2019. Mr.
Eldred explained that FINRA requires brokers to have a “sponsoring
organization,” so that to reactivate his FINRA license, he would

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need to first find an organization willing to sponsor him and then
FINRA would need to re-grant his    licensure. He believes that, based
on his convictions in this case, the likelihood of this happening
is very slim.
Currently, Mr. Eldred is the CEO and on the Board of Directors
of Endurance Exploration Group, a shipwreck recovery and salvage
company. He  does  not  draw  a  salary  from  Endurance,  although  he
could receive dividends or shares of the company’s profits, should
the company do well. Mr. Eldred also works as a non-lawyer partner
in  a  small law firm, in  which  he  provides  business  development
services and “expertise,” including securities expertise, to the
firm’s clients.
Mr. Eldred also elaborated on the current status of Spartan
and  Island.  Island  went  out  of  business  in  2020  and  is  not
currently operating. He explained that it shut down due to this
litigation –  clients left, and the firm became unprofitable. Island
is no longer registered with the relevant regulators and, to resume
operations, it would have to re-register with the SEC and the DTC.
Mr. Eldred testified that, upon closing, Island sold its book of
business and Eldred has drawn continuing payments from that sale
–  he received approximately $100,000 in the past year, and there
are three years left on the sales agreement.
 Spartan is also no longer in operation. Mr. Eldred explained
that, in June 2019, Spartan lost more than $15 million in one day

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due to the actions of a rogue employee. Spartan initiated a FINRA
arbitration action against the employee and received a $5.4 million
judgment in its favor. However, under an agreement they made with
another firm who paid their legal expenses, if the employee were
to ever pay the judgment, the firm would be reimbursed first. The
employee has thus far not paid any amount of the judgment, and Mr.
Eldred does not believe he has the means to do so.
Pursuant  to  SEC  regulations,  Spartan was  required  to  wind
down and cannot operate because of its negative resources. Thus,
to restart operations, Spartan would need to recover all of its
lost capital and also receive regulatory approval from the SEC and
FINRA. Mr. Eldred stated that he does not believe FINRA would allow
Spartan  to  re-register.  Mr.  Eldred  explained  that,  although  he
personally  had  no  prior  disciplinary  history  with  securities
regulators, FINRA had filed 10 actions against Spartan over the
years, fining them close to $400,000. The Court finds Mr. Eldred’s
testimony credible with respect to Spartan and Island.
Mr. Dilley, who is 67 years old, concurred with Mr. Eldred’s
statements about what would be required for Island, Spartan, or
himself  as  an  individual  broker to  re-enter  the  securities
business.  Given  these  hurdles,  he  similarly  believes  it  highly
unlikely that Island or Spartan could resume operations. Mr. Dilley
voluntarily gave up his securities licenses in 2014. Mr. Dilley
retired from Island in January 2018 but remained a consultant for

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the  company.  Mr.  Dilley  is  also  involved  with  Endurance,  the
shipwreck salvage company, as the COO and a member of the Board of
Directors.  He  receives  de  minimus amounts  for  overseeing  that
company’s  accounting,  but,  like  Mr.  Eldred,  could  plausibly
receive profit sharing or dividends from the company. Mr. Dilley
receives  income from  Social  Security,  a  Canadian  pension,  work
from his repair shop, and “limited securities consulting.” He also
has a real estate license but testified that he has not yet earned
any money in the real estate business. He is also the owner or
part-owner of certain companies that do not generate much, if any,
income.
1. Injunction against Spartan
The  Court  is  persuaded  that  the  economic,  logistical,  and
regulatory  impediments  to  Spartan  resuming  operations  make  it
unlikely that it will ever re-enter the securities business. The
Court is mindful that “[t]he purpose of injunctive relief is, after
all, not to punish but to deter future violations.” SEC v. Advance
Growth Capital, Corp., 470 F.2d 40, 54 (7th Cir. 1972). The SEC
argues that Spartan could plausibly resurrect operations in the
securities  realm,  but  the  standard  the  SEC  must  show  is  a
“reasonable likelihood that the wrong will be repeated.” Calvo,
378 F.3d at 1216 (emphasis added). They have not met that standard
here, and the Court will not issue an injunction against Spartan
because that entity is basically defunct with little to no chance

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of ever resuming operations. See SEC v. Scott, 565 F. Supp. 1513,
1537 (S.D.N.Y. 1983) (refusing to grant injunctive relief where,
based on the record, the court was “unable to find a reasonable
likelihood that, absent an injunction, [the defendant] would be
likely to commit future violations of the securities laws”); see
also SEC v. Blockvest, LLC, No. 18CV2287-GPB(BLM), 2018 WL 6181408,
at *8 (S.D. Cal. Nov. 27, 2018), on reconsideration, No. 18CV2287-
GPB(BLM), 2019 WL 625163 (S.D. Cal. Feb. 14, 2019) (refusing to
grant preliminary injunction where defendant agreed to stop his
challenged actions and thus, SEC had not demonstrated a reasonable
likelihood that the wrong will be repeated). Finally, the Court
also notes that Spartan will be subject to a penny stock bar, as
explained further below, which is appropriate because its business
(and the misconduct at issue here) centered on penny stocks.
2. Injunction against Island
Testimony from the evidentiary hearing showed that Island,
like  Spartan,  is  no  longer  operational.  However,  there  are  two
important differences between the companies. First, while Island
may be de-registered with regulators, it does not face the same
capitalization concerns that Spartan does if it wished to resume
operations. Second, as a transfer agent, the SEC is not seeking a
penny stock bar against Island, a measure that the Court believes
to  be  adequate  with  respect  to  Spartan.  For  these  reasons,  the
Court will issue an injunction against Island. Furthermore, as a

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corporate  defendant,  the  Court  need  not  consider  impacts  upon
livelihood or credibility like it does with individual defendants.
The Court sees no reason why the injunctive relief granted here
cannot  be  permanent.  Furthermore,  the  Court  finds  the  SEC’s
proposed  injunctive  language,  as  revised,  is  sufficiently
specific, and the Court adopts it here:
IT IS ORDERED, ADJUDGED, AND DECREED that Defendant is
permanently  restrained  and  enjoined  from  violating,
directly or indirectly, Section 10(b) of the Exchange
Act [15 U.S.C. § 78j(b)] and Rule 10b-5(b) promulgated
thereunder  [17  C.F.R.  §  240.10b-5(b)],  by  using  any
means or instrumentality of interstate commerce, or of
the mails, or of any facility of any national securities
exchange, in connection with the purchase or sale of any
security:

to make any untrue statement of a material fact or to
omit to state a material fact necessary in order to make
the statements made, in the light of the circumstances
under which they were made, not misleading, regarding:

i.  whether  an  issuer  is  a  shell  or  blank  check
company; or
ii.  information  submitted  to  the  Depository  Trust
Company (“DTC”) or its participants when seeking
DTC eligibility for an issuer; or
iii. the designation of securities as free trading;
or
iv.  the   issuance   and   transfer   of   securities,
including by means of stock certificates without
restrictive legends.

(Doc. # 296-1).
3. Injunctions against Mr. Dilley and Mr. Eldred
The Court will issue injunctions against Mr. Dilley and Mr.
Eldred. Looking at the totality of the facts and circumstances,
including  the  fact  that  both  individuals  still  have  at  least

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tangential contacts with the securities industry (Mr. Dilley with
his “limited securities consulting” and Mr. Eldred in his advisory
role at the law firm), there is a reasonable likelihood that the
wrong  could  be  repeated.  Both  men  have  been  involved  with  the
securities industry for most of their lives. Both are involved or
have  been  involved  in  multiple  businesses  and  are  likely  still
well connected in the industry. Furthermore, while the Court does
not penalize them for defending this case, neither man has given
adequate assurances against future misconduct, beyond (credible)
doubts regarding their ability to re-enter the industry. See, e.g.,
SEC v. Selden, 632 F. Supp. 2d 91, 99 (D. Mass. 2009) (imposing
injunction  where  defendant  worked  at  a  non-public  company,  but
“should  it  become  [a  public  company],  Selden  would  once  again
assume the ultimate responsibility of ensuring the accuracy of the
company’s public statements. His abuse of such authority in the
past and his refusal to accept full responsibility in this case .
. . demonstrates, at the very least, a lack of adequate assurance
against future misconduct.”).
Here, both Mr. Dilley and Mr. Eldred are serial entrepreneurs
with  years  of  experience  offering  services  whereby  private
companies can access the public markets. The Court believes there
to  be  a  reasonable  likelihood  that  both  men  could  attempt  to
leverage their knowledge of the securities business and the penny
stock market and possibly repeat the wrongs for which they were

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convicted. See SEC v. Miller, 744 F. Supp. 2d 1325, 1341-42 (N.D.
Ga. 2010) (holding that defendant’s “background as an entrepreneur
and  his  proven  ability  to  start  a  private  company  and  take  it
public weighs in favor of an injunction”).
However, while the SEC seeks permanent lifetime injunctions
against Mr. Dille
y and Mr. Eldred, the Court is not persuaded that
such a drastic remedy is necessary. These violations occurred many
years ago and both men have voluntarily withdrawn their securities
licenses. They are also advancing in age, being 54 and 67 years
old. Thus, after careful consideration, the Court believes a five-
year  injunction  to  be  appropriate  against  Mr.  Dilley  and  Mr.
Eldred. See Miller, 744 F. Supp. 2d at 1348 (imposing a five-year
bar); Selden, 632 F. Supp. 2d at 99 (imposing a two-year bar)
Having determined that a five-year injunction is appropriate,
the Court must fashion relief that is fair and legal. The SEC seeks
an  injunction  against  Mr.  Dilley  and  Mr.  Eldred that  states  as
follows:
IT IS ORDERED, ADJUDGED, AND DECREED that Defendant is
permanently  restrained  and  enjoined  from  violating,
directly or indirectly, Section 10(b) of the Exchange
Act [15 U.S.C. § 78j(b)] and Rule 10b-5(b) promulgated
thereunder  [17  C.F.R.  §  240.10b-5(b)],  by  using  any
means or instrumentality of interstate commerce, or of
the mails, or of any facility of any national securities
exchange, in connection with the purchase or sale of any
security:

to make any untrue statement of a material fact or to
omit to state a material fact necessary in order to make

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the statements made, in the light of the circumstances
under which they were made, not misleading, regarding:

i.  initiating  a  quoted  market  in  an  issuer’s
security; or
ii.  the listing and trading of an issuer’s stock;
or
iii. applications   or   submissions   pursuant   to
Exchange Act Rule 15c2-11; or
iv.  whether an issuer is a shell or blank check
company; or
v.  the identity of any consultants or persons in
control of an issuer; or
vi.  the  relationships  or  affiliations  among  an
issuer’s shareholders and those in control of
the issuer; or
vii. an  issuer’s  plans  for  potential  mergers  or
acquisitions; or
viii. an issuer’s business purpose; or
ix.  the nature and conduct of due diligence of an
issuer; or
x.  the identity of the person or entity for whom
a  security’s  quotation  is  being  submitted,
when seeking to initiate or resume quotations
of an issuer’s security; or
xi.  whether   material   information,   including
adverse    material    information,    exists
regarding an issuer; or
xii. information submitted to the Depository Trust
Company  (“DTC”)  or  its  participants  when
seeking DTC eligibility for an issuer; or
xiii. information submitted to Financial Industry
Regulatory Authority (“FINRA” when seeking to
initiate or resume quotations of an issuer’s
security; or
xiv. the designation of securities as free trading;
or
xv.  the  issuance  and  transfer  of  securities,
including by means of stock certificates
without restrictive legends.

(Doc. ## 296-3, 296-4).
Defendants  argue  that  injunctive  relief  is  inappropriate
because the SEC seeks “obey the law” injunctions, which are not

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permitted  in  this  Circuit.
1
  Another court  within  the  Middle
District of Florida has explained why “obey the law” injunctions
are problematic:
Articulating  the  standard  of  specificity  that  every
injunction must satisfy, Rule 65(d), Federal Rules of
Civil Procedure, states that “[e]very order granting an
injunction . . . must: state the reasons why it issued;
state its terms specifically; and describe in reasonable
detail — and not by referring to the complaint or other
document — the act or acts sought to be restrained or
required[.]”  The  specificity  requirement  “prevent[s]
uncertainty  and  confusion  on  the  part  of  those  faced
with injunctive orders and . . . avoid[s] the possible
founding of a contempt citation on a decree too vague to
be understood.” Schmidt v. Lessard, 414 U.S. 473, 476
(1974)  (finding  that  because  “an  injunctive  order
prohibits conduct under threat of judicial punishment,
basic  fairness  requires  that  those  enjoined  receive
explicit   notice   of   precisely   what   conduct   is
outlawed.”).  Thus,  every  injunction  must  contain  “an
operative command capable of ‘enforcement.’” “A person
enjoined by court order should only be required to look
within the four corners of the injunction to determine
what  he  must  do  or  refrain  from  doing.”  Accordingly,
“appellate courts will not countenance injunctions that
merely require someone to ‘obey the law.’”

SEC v. Sky Way Glob., LLC, 710 F. Supp. 2d 1274, 1277–78 (M.D.
Fla. 2010) (citations omitted or altered); see also SEC v. Smyth,
420  F.3d  1225,  1233  (11th  Cir.  2005)  (finding  that  proposed
injunctions  that  tracked  the  provisions  of  the  statute  or
regulation was a “quintessential ‘obey-the-law’ injunction”).

1
  At oral  argument,  the  Court  indicated  that  it  agreed  with
Defendants that the SEC’s first set of proposed injunctions was
inadequate. While the Defendants have not proffered this argument
against the SEC’s revised injunctive language, the Court will still
discuss it.

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The  Court  believes  that  the  additional,  revised language
proposed by the SEC takes the proposed injunctive language outside
the  realm  of  an  “obey  the  law”  injunction  because  it  describes
specific  conduct  that  is  prohibited.  Certain  of  the  language,
however, remains too broad or vague. For example, the prohibition
on  making  any  misrepresentation  pertaining  to  “the  listing  and
trading of an issuer’s stock” is very broad and not directly linked
to the misconduct at issue in this case. For this reason, the Court
has  adopted  only  those  prohibitions  on  conduct  that  are
sufficiently specific and tied to the misconduct at issue in this
case.
Accordingly,  the  Court  will  enter  injunctions  against  Mr.
Dilley and Mr. Eldred as follows:
IT IS ORDERED, ADJUDGED, AND DECREED that Defendant is
restrained and enjoined, for a period of five years from
the date of this judgment, from violating, directly or
indirectly, Section 10(b) of the Exchange Act [15 U.S.C.
§ 78j(b)] and Rule 10b-5(b) promulgated thereunder [17
C.F.R.  §  240.10b-5(b)],  by  using  any  means  or
instrumentality of interstate commerce, or of the mails,
or of any facility of any national securities exchange,
in connection with the purchase or sale of any security:

to make any untrue statement of a material fact or to
omit to state a material fact necessary in order to make
the statements made, in the light of the circumstances
under which they were made, not misleading, regarding:

i. initiating a quoted market in an issuer’s
security; or
ii. applications  or  submissions  pursuant  to
Exchange Act Rule 15c2-11; or
iii.  whether an issuer is a shell or blank check
company; or

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iv.  the identity of any consultants or persons
in control of an issuer; or
v. an issuer’s plans for potential mergers or
acquisitions; or
vi.  the  identity  of  the  person  or  entity  for
whom  a  security’s  quotation  is  being
submitted,  when  seeking  to  initiate  or
resume quotations of an issuer’s security;
or
vii.  information  submitted  to  the  Depository
Trust  Company  (“DTC”)  or  its  participants
when seeking DTC eligibility for an issuer;
or
viii.   information submitted to Financial Industry
Regulatory Authority (“FINRA”) when seeking
to  initiate  or  resume  quotations  of  an
issuer’s security.

B. Penny Stock Bar
Courts  may  enter  a  penny  stock  bar  “against  any  person
participating in, or, at the time of the alleged misconduct, who
was participating in, an offering of penny stock[.]” 15 U.S.C. §
77t(g)(1);  15  U.S.C.  §  78u(d)(6)(A).  A  “penny  stock”  generally
includes  an  equity  security  bearing  a  price  of  less  than  five
dollars. See SEC v. E-Smart Techs., Inc., 139 F. Supp. 3d 170, 182
(D.D.C. 2015). The Court may enter a penny stock bar “permanently
or for such period of time as the court shall determine.” 15 U.S.C.
§§  77t(g)(1),  78u(d)(6).  Defendants do  not  dispute  that  the
underlying scheme involved penny stocks. Nor do they dispute that
they participated in an “offering of penny stock,” which broadly
encompasses  “engaging  in  activities  with  a  broker,  dealer,  or
issuer for purposes of issuing, trading, or inducing or attempting

17

to induce the purchase or sale of, any penny stock.” 15 U.S.C §§
77t(g), 78u(d)(6).
The only question, then, is whether such a bar is warranted.
In  deciding  whether  to  impose  a  penny  stock  bar,  “the  court
examines the nature of the defendant’s conduct and the likelihood
that  his  occupation  and  experience  will  present  further
opportunities to violate the securities laws.” SEC v. BIH Corp.,
No. 2:10-cv-577-JES-DNF, 2014 WL 7499053, * 6 (M.D. Fla. Dec. 12,
2014) (citation omitted).
     Here, a penny stock bar against Mr. Dilley and Mr. Eldred is
warranted.  The  jury  convicted  them  of  securities  fraud  in
connection with the offering of penny stocks. There was testimony
at the evidentiary hearing that the vast majority of businesses
with which Mr. Eldred and Mr. Dilley involved themselves were penny
stocks. In other words, a penny stock bar would prohibit Mr. Dilley
and Mr. Eldred from engaging in precisely the sort of misconduct
that led to their instant convictions. Both men protest that such
a bar would have ramifications on innocent investors in Endurance,
the shipwreck salvage company with which they are both involved.
But the Court finds that the need to protect the investing public
as a whole outweighs the speculative possibility that 400 investors
within one company could suffer future harm.
     The SEC requests a lifetime ban, but the statute permits the
Court to fashion a penny stock bar “for such period of time as the

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court shall determine.” 15 U.S.C. §§ 77t(g)(1), 78u(d)(6). Given
the age of Mr. Dilley and Mr. Eldred, the Court determines that a
10-year penny stock bar is appropriate in this case. In declining
to impose a lifetime bar, the Court is mindful of the guidance
offered by the Fifth Circuit: “[W]hen the [SEC] chooses to order
the most drastic remedies at its disposal, it has a greater burden
to  show  with  particularity  the  facts  and  policies  that  support
those  sanctions  and  why  less  severe  action  would  not  serve  to
protect investors.” Steadman v. SEC, 603 F.2d 1126, 1137 (5th Cir.
1979).
2
  The  SEC  has  not  explained  why  a  lifetime  bar  is  more
appropriate than a lesser sanction. Given the Commission’s failure
to do so here, the Court will not impose the most drastic remedy,
deciding  that  a  temporally  limited  bar  is  sufficient  on  these
facts.
 The  SEC  also  seeks  a  permanent  penny  stock  bar  against
Spartan. Considering that Spartan dealt in penny stocks, the Court
is persuaded that a permanent ban with respect to penny stocks is
in order for Spartan.
C. Disgorgement
The  SEC  originally  sought disgorgement  from  Island  in  the
amount of $147,508. (Doc. # 270 at 2). As the SEC explains it,

2
 Decisions of the Fifth Circuit rendered prior to October 1, 1981,
are binding upon courts in the Eleventh Circuit. Bonner v. City of
Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc).

19

Island collected fees from 14 identified issuers as part of the
scheme, and  the  Commission  seeks  to  recover  these  “ill-gotten
gains.”
Currently, federal law provides for disgorgement in this way:
(5) Equitable relief
In any action or proceeding brought or instituted by the
Commission under any provision of the securities laws,
the Commission may seek, and any Federal court may grant,
any  equitable  relief  that  may  be  appropriate  or
necessary for the benefit of investors.

. . .

(7) Disgorgement
In any action or proceeding brought by the Commission
under  any  provision  of  the  securities  laws,  the
Commission may seek, and any Federal court may order,
disgorgement.

15 U.S.C. §§ 78u(d)(5), 78u(d)(7).
The first question this Court must address is whether it may
order disgorgement at all. The key case in this area is the recent
Supreme Court case of Liu v. SEC, 140 S. Ct. 1936 (2020). In that
case, the Supreme Court held that the SEC could seek disgorgement
through its power to award “equitable relief” under 15 U.S.C. §
78u(d)(5) so long as the award did not exceed the wrongdoer’s net
profits and was “awarded for victims.” Id. at 1940. The Court wrote
that while disgorgement was at heart an equitable remedy so long
as it sought to restore ill-gotten gains from the wrongdoer to his
victims,  the  SEC  had  been  pushing  the  bounds  of  the  equitable
nature of the remedy in three ways: (1) “by ordering the proceeds

20

of fraud to be deposited in Treasury funds instead of dispersing
them  to  victims”;  (2)  “imposing  joint  and  several  disgorgement
liability”; and (3) “declining to deduct even legitimate expenses
from the receipts of fraud.” Id. at 1946.
As to the first problem, which centers on the importance of
returning ill-gotten gains to defrauded victims, the Supreme Court
stressed that “the SEC’s equitable, profits-based remedy must do
more than simply benefit the public at large by virtue of depriving
a wrongdoer of ill-gotten gains. To hold otherwise would render
meaningless”  the  statute’s  language  about  the  relief  being
“appropriate or necessary for the benefit of investors.” Id. at
1948.  This  language  “must  mean  something  more  than  depriving  a
wrongdoer of his net profits alone, else the Court would violate
the  cardinal  principle  of  interpretation  that  courts  must  give
effect, if possible, to every clause and word of a statute.” Id.
(quotation marks and citation omitted).
Importantly  for  this case,  the  Supreme  Court  specifically
declined to address the question of whether, when it is impossible
to identify defrauded victims, disgorged funds deposited into the
Treasury could comply with the requirements of the statute, writing
that:
The  Government  additionally  suggests  that  the  SEC’s
practice  of  depositing  disgorgement  funds  with  the
Treasury  may  be  justified  where  it  is  infeasible  to
distribute the collected funds to investors. It is an
open question whether, and to what extent, that practice

21

nevertheless  satisfies  the  SEC’s  obligation  to  award
relief “for the benefit of investors” and is consistent
with the limitations of § 78u(d)(5). The parties have
not  identified  authorities  revealing  what  traditional
equitable  principles  govern  when,  for  instance,  the
wrongdoer’s profits cannot practically be disbursed to
the  victims.  But  we  need  not  address  the  issue  here.
The  parties  do  not  identify  a  specific  order  in  this
case directing any proceeds to the Treasury. If one is
entered on remand, the lower courts may evaluate in the
first instance whether that order would indeed be for
the benefit of investors as required by § 78u(d)(5) and
consistent with equitable principles.

Id. at 1948-49.
After Liu, Congress amended the securities remedies statute
as part of the National Defense Authorization Act of 2021 (“NDAA”).
Specifically,  the  NDAA  added  subsection  (7)  above  to  expressly
permit  courts  to  “[i]n  any  action  or  proceeding  brought  by  the
Commission under any provision of the securities laws, [] order []
disgorgement.”  15  U.S.C.  §  78u(d)(7).  The  NDAA  also  amended
subsection (d)(3) to make it explicit that district courts have
the  power  to  impose  both  civil  penalties  and  to  “require
disgorgement under paragraph (7) of any unjust enrichment by the
person who  received  such  unjust  enrichment  as  a  result  of  such
violation.” Id. § 78u(d)(3). Thus, Sections 78u(d)(3) and (7), as
added  by  the  NDAA, do  not  contain  the  “for  the  benefit  of
investors” language that is still included in Section 78u(d)(5).
The NDAA applies to “any action or proceeding that is pending on”
January 1, 2021. NDAA, Section 6501(b). This action was pending on
that date.

22

With this background in mind, the Court turns to the parties’
arguments. The SEC concedes that “distribution of the disgorged
funds  to  harmed  investors  is  not  feasible  or  practical  in  this
case” and that while Defendants’ conduct harmed the capital markets
at large, “identifying specific investors who were harmed or the
amount  by  which  any  particular  investor  was  harmed is  not
possible.” (Doc. # 270 at 14). The SEC’s position is that “the
only alternative that is consistent with equitable principles is
to send the disgorged funds to the Treasury.” (Id.). The parties
have  stipulated  that  a distribution  to  investors  of  the
disgorgement amount requested would be infeasible. (Doc. # 287).
The  SEC  argues  that the  recent  amendments under  the  NDAA
“provide[] the courts with greater flexibility to determine where
collected  disgorged  funds  may  be  distributed,  because  the
provision omits the phrase ‘for the benefit of investors.’” (Doc.
# 270 at 14 n.29). The Court takes the SEC’s position to be that
because the newly added provisions of the NDAA are silent on the
question of whether funds must be returned to investors – i.e.,
because  subsections  (d)(3)  and  (7)  do  not  contain  the  “for  the
benefit  of  investors”  language  that  is  included  in  subsection
(d)(5)  –  the SEC  need  not  show  that  disgorgement  is  for  “the
benefit of investors” and, thus, disgorgement to the Treasury is
appropriate.

23

Again, the NDAA applies to the instant action because it was
pending on January 1, 2021. NDAA, Section 6501(b). Thus, 15 U.S.C.
§ 78u(d)(7) explicitly provides this Court the ability to order
disgorgement and does not require that such disgorgement be “for
the  benefit  of  investors.” The  Court  holds  that  it  may  order
disgorgement  and  direct  that  disgorged  funds  be  sent  to  the
Treasury under Section 78u(d)(7).
Alternatively, the  Court  holds  that,  even  if  it  is  (post-
NDAA)  still  required  to  balance  the  equities  under  Liu,  the
equities  here  weigh  in  favor  of  disgorgement  to  the  Treasury,
rather  than  allowing  Island  to  retain  the  money.  Both  parties,
acknowledging that this case squarely presents the “open question”
in  Liu,  have  attempted  to  identify  which  traditional  equitable
principles  should  govern  here.  The  SEC  identifies  two  such
principles.  First,  it  argues  that  distribution  to  the  Treasury
serves the foundational principle that no person should benefit
from his own wrongs and that, between Island and the Treasury, it
is more equitable for the money to go to Treasury. (Doc. # 270 at
14). Second, it points to the legal doctrine of cy pres, arguing
that where identifying victims is not feasible, the money should
go to the nearest possible alternative. (Id. at 15). And Defendants
also identify certain equitable principles: (1) that disgorgement
here is inherently a penalty on Island and that equity never “lends
its aid” to enforce a penalty; and (2) that the issuers who paid

24

the claimed money into Island were themselves fraudsters and the
doctrine of unclean hands bars repayment of these funds.  (Doc. #
273 at 11-12).
The Eleventh Circuit has yet to issue any guidance on this
topic. The Court’s independent research demonstrates that multiple
district courts have, post-Liu, allowed disgorgement awards to be
directed toward the Treasury. See SEC v. Bronson, No. 12-CV-6421
(KMK), 2022 WL 1287937, at *14 (S.D.N.Y. Apr. 29, 2022) (denying
petitioner’s  challenge  to  disgorgement  award  in  Rule  60  motion
where the final judgment did not identify any identifiable harmed
investors  to  whom  the  disgorged  profits  should  be  returned,
concluding that the disgorgement award was consistent with Liu);
SEC v. Almagarby, No. 17-62255-CIV-COOKE/HUNT, 2021 WL 4461831, at
*3 (S.D.N.Y. Aug. 16, 2021) (rejecting defendants’ argument that
disgorgement should be denied because the SEC had not identified
any  victims  and  there  was  no  proximate  causation  between  the
defendants’  securities  law  violation  (failing  to  register  as  a
dealer) and any losses from investors, writing that Supreme Court
precedent does not require the SEC to “identify specific victims
to  whom  a  disgorgement  award  shall  be  distributed,  or  that  all
disgorged  funds  must  be  returned  to  investors,  or  that  a
disgorgement award should be limited to those funds that could be
returned to investors”); SEC v. Laura, No. 18-CV-5075 (NGG)(VMS),
2020 WL 8772252, at *5 (E.D.N.Y. Dec. 30, 2020) (reasoning that

25

Liu “does  not  require  that  a  disgorgement  award  reflect  every
individually wronged investor’s private agreements. If it did, a
court would need to conduct a mini-trial as to each investor before
it could order disgorgement. There is no reason to believe that
Liu,  which  confirmed  the  breadth  of  the  SEC’s  power  to  seek
equitable  awards,  also  stealthily  erected  such  a  substantial
barrier to SEC recovery”).
In  sum,  a  balancing  of  the  equities  favors  ordering
disgorgement and allowing it to be sent to the Treasury. Between
the money staying with Island, a key player in a scheme to put
dubious equities on the market, or a fund at the Treasury, it is
more equitable to order disgorgement.
Having determined that disgorgement is appropriate in this
case, the Court must next calculate the amount of the disgorgement.
The parties dispute the applicable statute of limitations. Once
again,  the  NDAA  comes  into  play  here.  The  previous  statute  of
limitations  for  disgorgement  was  five  years.  But  in  the  NDAA,
Congress  mandated  that  the  SEC  may  bring  a  disgorgement  action
under  the  newly  added  subparagraph  (7)  within  10  years  of  the
latest violation of the securities laws for which scienter must be
established, including section 10(b). 15 U.S.C. § 78u(d)(8)(A).
Defendants argue that the SEC did not amend its complaint to
plead relief under the NDAA and, thus, it is more equitable for
the five-year statute of limitations (in effect when the SEC first

26

filed this action) to apply. Moreover, Defendants call the NDAA’s
retroactivity  provision  constitutionally  “dubious”  because  it
violates the ex post facto clause and violates Island’s due process
rights. These arguments are unconvincing. This case was currently
pending as of January 1, 2021, and thus the NDAA applies to it.
One court has applied the NDAA even to cases where a judgment was
entered  under  the  old  five-year  statute  of  limitations  but  was
still “pending” because the Second Circuit had not yet ruled on
the parties’ appeal. See SEC v. Ahmed, No. 3:15CV675 (JBA), 2021
WL 2471526, at *4 (D. Conn. June 16, 2021) (citing Landgraf v. USI
Film Prod., 511 U.S. 244, 273-74 (1994) (“[A] court should apply
the law in effect at the time it renders its decision, even though
that  law  was  enacted  after  the  events  that  gave  rise  to  the
suit.”)). What’s more, Defendants fail to cite any authority in
support of its due process and ex post facto arguments. Cf. SEC v.
Gallison, No. 15 CIV. 5456 (GBD), 2022 WL 604258 (S.D.N.Y. Mar. 1,
2022)  (holding  that  ex  post  facto  clause  did  not  preclude
application  of  the  NDAA’s  extended  statute  of  limitations  to
disgorgement claims). Accordingly, the Court will apply a 10-year
statute of limitations to the disgorgement award. As explained at
the  evidentiary  hearing,  taking  into  account  certain  tolling
agreements, this allows the SEC to recover fees going back to 2008.
The  SEC  is  entitled  to  disgorgement  upon  producing  “a
reasonable  approximation”  of  a  defendant’s  ill-gotten  gains.

27

Calvo, 378 F.3 at 1217. “Exactitude is not a requirement; so long
as  the  measure  of  disgorgement  is  reasonable,  any  risk  of
uncertainty  should  fall  on  the  wrongdoer  whose  illegal  conduct
created  that  uncertainty.”  Id. (citation  and  quotation  marks
omitted). Once the SEC has met its burden, the burden then shifts
to the defendants to demonstrate that the SEC’s estimate is not a
reasonable  approximation.  Id. A  defendant’s  current  financial
situation, or any hardship that disgorgement would impose, are not
factors  to  be  considered  in  determining  disgorgement.  SEC  v.
Warren, 534 F.3d 1368, 1370 (11th Cir. 2008). Both parties seem to
agree that the “reasonable approximation” standard has survived
Liu.  See SEC  v.  Tayeh,  848  F.  App’x  827,  828  (11th  Cir.  2021)
(unpublished) (“Disgorgement is an equitable remedy intended to
prevent unjust enrichment from ill-gotten gains and must not be
used punitively. The CFTC has the burden to produce a reasonable
approximation  of  a  defendant’s  ill-gotten  gains  to  sustain  a
disgorgement amount.” (citation omitted)); SEC v. Camarco, No. 19-
1486, 2021 WL 5985058, at *15-16 (10th Cir. Dec. 16, 2021) (noting
multiple courts across the country that continue to abide by the
reasonable approximation standard).
 The SEC here has compiled the amounts that Island received in
fees from each of the 14 Mirman/Rose companies from the applicable
statute of limitations date through the date of the issuer’s bulk
sale. In support, the SEC attached a declaration from Mark Dee, an

28

accountant  with  the  SEC.  He  reviewed certain  Island  statements
showing  fees  invoiced  and  paid  by  these  14  issuers.  Dee  then
calculated  a  summary  of  the  total  fees  paid  by  the  issuers  to
Island during the relevant time frames. Dee’s calculation shows
the total fees collected as follows:
(1) Topaz  Resources,  Inc.  f/k/a  Kids  Germ  Defense  Corp:
$11,800
(2) MyGo  Games  Holding  Co.  f/k/a  Obscene  Jeans  Corp.:
$18,923
(3) On the Move Systems Corp.:  $11,875
(4) Rainbow Coral Corp.: $13,975
(5) Angiosoma f/k/a First Titan:  $8,375
(6) Neutra Corp.:  $8,175
(7) Aristocrat Group Corp.:  $11,208
(8) Rebel Group Inc. f/k/a Inception Technology Group Inc.
f/k/a  Moxian  Group  Holdings  Inc.  f/k/a  First  Social
Networx:  $10,674
(9) Global Group Enterprises Corp.:  $9,779
(10) E-Waste Corp.:   $9,474
(11) Codesmart Holdings Inc. f/k/a First Independence Corp.:
$8,178
(12) Envoy Group:  $7,500
(13) Changing Technologies Inc.:  $9,400
(14) First Xeris Corp.: $8,172

TOTAL:    $147,508

See (Doc. # 270-1, Ex. 2).
 The analysis is not yet complete because, under Liu, courts
must   deduct   legitimate   business   expenses   when   fashioning
disgorgement awards. See Liu, 140 S. Ct. at 1950 (explaining that
“courts   must   deduct   legitimate   expenses   before   ordering
disgorgement under § 78u(d)(5)” because “[a] rule to the contrary
that makes no allowance for the cost and expense of conducting a
business would be inconsistent with the ordinary principles and

29

practice  of  courts  of  chancery”  (internal  alterations  and
quotation marks omitted)).
 Following  the  evidentiary  hearing,  both  parties  submitted
documents identifying legitimate expenses incurred by Island prior
to the bulk sale date for each company. The SEC tacitly agreed to
most of these expenses, and to the extent it continues to argue
that such expenses should not be deducted, that position is both
unfair and inconsistent with Liu. The expenses identified by the
parties include fees that Island paid to third parties for courier
services,  printing,  and  regulatory  fees.  The  Court  agrees  that
these expenses are appropriate to deduct, and they are supported
by the statements provided by the SEC.
 Defendants argue for further reductions, pointing out that
the fees paid into Island do not account for the business’s fixed
costs and overhead. That may well be, but the only evidence that
Island set forth in support of this argument were Island’s audited
annual  financial  statements  for  2013  and  2014,  along  with  the
testimony of Mr. Eldred that Island’s profit margins were typically
between 10 and 25%. But this is insufficient to show that the SEC’s
estimate is not a reasonable approximation and, moreover, any risk
of uncertainty necessarily falls on Island. See Calvo, 378 F.3 at
1217 (explaining that “[e]xactitude is not a requirement; so long
as  the  measure  of  disgorgement  is  reasonable,  any  risk  of

30

uncertainty  should  fall  on  the  wrongdoer  whose  illegal  conduct
created that uncertainty”).
     Accordingly, listed below are the total fees paid by each of
the 14 issuers to Island up to the stipulated bulk sale dates; the
legitimate business expenses incurred by Island prior to the bulk
sale date; and the net fees for that account (that is, fees paid
to Island less business expenses).
Issuer Fees Paid In Expenses Fees - Expenses
Angiosoma   f/k/a
First Titan
8375 75 8,300
Aristocrat  Group
Corp.
11008
3
 1136 9,872
Changing
Technologies
9400 925 8,475
E-Waste Corp. 9474 274 9,200
Global      Group
Enterprises
9579
4
 229 9,350
MYGO  Games  f/k/a
Obscene Jeans
18923 8500 10,423
On    the    Move
Systems
11675
5
 3575 8,100
Neutra Corp. 8175 75 8,100
Rainbow     Coral
Corp.
13975 5075 8,900
Topaz   Resources
f/k/a  Kids  Germ
Defense Corp.
11800 3500
6
 8,300

3
 The Court excluded one $200 payment made after the bulk sale
date.
4
 The Court excluded one $200 payment made after the bulk sale
date.
5
 The Court excluded one $200 payment made after the bulk sale
date.
6
 The SEC disputes whether this expense, marked on the statement
as a $3,500 payment to the DTC (Depository Trust Company), should
be included. While it is true that this was invoiced on April 6,
2010 (before the bulk sale date), and the next payment made was
not until June 2010 (after the bulk sale date), as SEC witness

31

Codesmart f/k/a
First
Independence
Corp.
8178 278 7,900
Rebel Group f/k/a
First      Social
Networx Corp.
10674 974 9,700
Envoy Group
7
   N/A
First       Xeris
Group
8

8172 272 7,900
TOTALS $139,408 $24,888 $114,520

     Accordingly, Island will be ordered to disgorge $114,520.00.
D. Prejudgment Interest

The  SEC  also  seeks  prejudgment  interest  on  any  disgorged
amount, specifically, it seeks the IRS underpayment rate (what it
would have cost to borrow money from the government). Courts in
this Circuit regularly apply this rate in calculating prejudgment
interest on disgorgement awards. See SEC v. Lauer, 478 F. App’x
550, 557–58 (11th Cir. 2012) (noting the widespread use of the IRS
underpayment rate and holding that the district court did not abuse

Mark Dee testified, Topaz Resources had an odd payment history. It
began with a $1,500 payment, prior to any invoice, and the issuer
then made a $10,000 payment on February 23, 2010, even though there
was only a $6,500 balance. The Court believes, on the whole, this
DTC cost was in furtherance of setting up the issuer’s account and
is appropriately deducted as a legitimate business expense.
7
 The Court agrees with Defendants that because the SEC submitted
only an invoice, not a statement, in support of the Envoy Group
issuer, there is insufficient evidence to support a fee payment
for Envoy Group.
8
 No bulk sale date.

32

its  discretion  in  applying  this  “commonly  used”  rate).  Because
awards of prejudgment interest are compensatory, not punitive, the
district  court  should  make  the  interest  decision  through  an
“assessment of the equities.” Id.
Defendants note that over $21,000 of the $51,000 requested in
interest has accrued since the complaint was filed and they argue
that  the  award  would  therefore  unfairly  penalize  Island  for
exercising its right to defend itself. Defendants do not point to
any case law in support of this proposition, and the Court does
not find Defendants’ argument persuasive.
Rather, the Court utilized the same framework employed by the
SEC  in  calculating  prejudgment  interest  – using  the  IRS
underpayment rate, with interest compounded quarterly, and running
from July 1, 2014 until February 28, 2022. But the Court utilized
the  disgorgement  value  calculated  above:  $114,520.  The  Court
calculates that $39,874.05 is due in prejudgment interest. Thus,
in  total,  Island  owes  $154,394.05. Regardless  of  the  precise
mathematical calculation, the Court believes this to be a fair and
appropriate amount of disgorgement principal and interest.
E. Civil Penalties

 Federal  securities  law authorizes  a  court  to  impose  civil
penalties for violation of the federal securities laws and provides
three “tiers” of penalties in escalating amounts.
(1)  First tier

33

For each violation, the amount of the penalty shall not
exceed the greater of (i) $5,000 for a natural person or
$50,000 for any other person, or (ii) the gross amount
of pecuniary gain to such defendant as a result of the
violation.

(2)  Second tier
The amount of penalty for each such violation shall not
exceed the greater of (i) $50,000 for a natural person
or  $250,000  for  any  other  person,  or  (ii)  the  gross
amount of pecuniary gain to such defendant as a result
of the violation.

(3)  Third tier
The amount of penalty for each such violation shall not
exceed the greater of (i) $100,000 for a natural person
or  $500,000  for  any  other  person,  or  (ii)  the  gross
amount of pecuniary gain to such defendant as a result
of the violation.

15 U.S.C. §§ 77t(d), 78u(d)(3).
     These amounts are occasionally adjusted for inflation. Thus,
for the relevant period, Tier One penalties are $7,500/$80,000,
Tier Two penalties are $80,000/$400,000, and Tier Three penalties
are $160,000/$775,000. See (Doc. # 296-8).
The Court can determine the applicability of each tier only
“upon a proper showing” by the SEC. For a Tier Two penalty, the
Court  must  find  that  the  violation  “involved  fraud,  deceit,
manipulation, or deliberate or reckless disregard of a regulatory
requirement.” 15 U.S.C. § 78u(d)(3). For a Tier Three penalty, the
Court  must  find  that  the  violation  “involved  fraud,  deceit,
manipulation, or deliberate or reckless disregard of a regulatory
requirement” and that the  violation  “directly  or  indirectly

34

resulted in substantial losses or created a significant risk of
substantial losses to other persons.” (Id.).
The amount of the civil penalty is determined by the district
court  judge  “in  light  of  the  facts  and  circumstances”  and  is
subject to the statutory maximums prescribed above.  In evaluating
the facts and circumstances of the case, the Court looks to factors
such  as:  (1)  the  egregiousness  of  the  violations  at  issue,  (2)
defendants’ scienter, (3) the repeated nature of the violations,
(4) defendants’ failure to admit to their wrongdoing, (5) whether
defendants’ conduct  created  substantial  losses  or  the  risk  of
substantial  losses  to  other  persons,  (6)  defendants’ lack  of
cooperation and honesty with authorities, if any, and (7) whether
the penalty that would otherwise be appropriate should be reduced
due  to  defendants’ demonstrated  current  and  future  financial
condition. SEC v. Aerokinetic Energy Corp., No. 08–CV–1409, 2010
WL 5174509, at *5 (M.D. Fla. Dec. 15, 2010).
The SEC here argues for Third Tier penalties, arguing that at
trial  they  presented  evidence  that (1)  Defendants’  violations
involved fraud, deceit, manipulation, or deliberate or reckless
disregard  of  a  regulatory  requirement; and  (2) the  violations
created a significant risk of substantial losses. The Court agrees
only in part.
First,  the  Court  agrees  with  the  SEC  that  Defendants’
violations   here   involved   fraud,   deceit,   manipulation,   or

35

deliberate  or  reckless  disregard  of  a  regulatory  requirement,
which is sufficient to support Tier Two penalties. The jury here
convicted Defendants of violating Section 10(b) and Rule 10b-5 of
the Exchange Act, which requires that a material misrepresentation
or  omission  be made  with  scienter.  See  FindWhat Inv.  Grp.  v.
FindWhat.com,  658  F.3d  1282,  1295  (11th  Cir.  2011)  (explaining
that the elements of a claim under Section 10(b) and Rule 10b-5
are: “(1) a material misrepresentation or omission; (2) made with
scienter; (3) a connection with the purchase or sale of a security;
(4) reliance on the misstatement or omission; (5) economic loss
[i.e., damages]; and (6) a causal connection between the material
misrepresentation or omission and the loss”).
The Supreme Court has defined the level of scienter necessary
to support a securities fraud claim as a “mental state embracing
intent  to  deceive,  manipulate,  or  defraud.”  Ernst  &  Ernst  v.
Hochfelder, 425 U.S. 185, 194 n.12 (1976). In order to adequately
plead scienter in the Eleventh Circuit, a plaintiff must allege
facts  creating  a  “strong  inference”  that  the  defendant  acted
purposefully   or   with   “severe   recklessness.”   Thompson   v.
RelationServe  Media,  Inc.,  610  F.3d  628,  634  (11th  Cir.  2010).
Because the jury necessarily found that Defendants were at least
severely  reckless, this  aligns  with  the  penalty  statute’s
requirement of “deliberate or reckless disregard of a regulatory
requirement.”

36

The trial evidence supports that Defendants acted with, at
least, a  reckless  disregard  for  regulatory  requirements  and/or
that  their  violations  involved  fraud, deceit, or  manipulation.
There were multiple instances where the FINRA Form 211s that Mr.
Eldred or Mr. Dilley signed contained misrepresentations that Mr.
Dilley  or  Mr. Eldred  (and  therefore  Spartan  and Island)  should
have known to be false. For example, some of the Forms 211s stated
that Mr. Dilley had a phone call with the issuers when there was
evidence that that was false.
The  Court  does  not  believe,  however,  that  the  SEC  has
demonstrated that the violations “directly or indirectly resulted
in substantial losses or created a significant risk of substantial
losses  to  other  persons”  sufficient  to  support  Tier  Three
penalties. The SEC has not pointed to any evidence showing that
the  violations “resulted  in  substantial  losses.”  And  while  the
Court has reviewed the trial evidence that the SEC relies on to
argue  that  the  violations “created  a  significant  risk  of
substantial losses to other persons,” the most that can be said is
that:  (1)  one  of  the  fraudsters  testified  that  the  people  who
bought the shell companies wanted unrestricted stock so they would
“be in a position” to engage in pump and dump schemes; and (2) the
fraudster was “aware” that “one or two” of those companies later
became pump and dumps, though he could not say which ones. (Doc.
# 194 at 90-91).

37

This  is  insufficient.  “Although  all  Section  10(b)  or  Rule
10b-5 frauds could be said to create some ‘risk’ of some ‘harm’ to
investors, the Remedies Act reserves third-tier civil penalties
for  those  frauds  that  create  a  significant  risk  of  substantial
losses.” SEC v. Madsen, No. 17-CV-8300 (JMF), 2018 WL 5023945, at
*4 (S.D.N.Y. Oct. 17, 2018). The SEC has not made that showing
here.
Moving on, the SEC requests that the Court assess penalties
for three “violations” against Mr. Dilley, two violations against
Mr.  Eldred,  and  a  single  violation  against  the  corporate
Defendants. (Doc.  #  270  at  20).  Defendants  do  not  dispute  this
particular point of the civil-penalties analysis.
Turning  now  to  the  factors  that  the  Court  may  look  to  in
determining civil penalties, the Court has considered Defendants’
roles in the overall scheme, the evidence admitted at trial tending
to show that Defendants acted with a certain level of scienter in
submitting Form 211s to FINRA containing false information, the
fact that this information was originally provided by third parties
(at  the  behest  of  Mirman  and  Rose),  the  fact  that  Defendants’
actions facilitated the possibility of pump and dump schemes, the
inability  of  the  SEC  to  identify  any  harmed  investors,  the
testimony given at the trial and the hearing on remedies, and all
of the other pertinent facts and circumstances. Being so advised,
the Court orders civil penalties in the amount of $150,000 each

38

against both Mr. Dilley and Mr. Eldred. The Court believes that
these Defendants have equal culpability and should face equal civil
penalties. The Court further orders that Spartan and Island each
pay  civil  penalties  in  the  amount  of  $250,000.  The  Court  has
determined that these amounts are fair and appropriate under all
the facts and circumstances.
Accordingly, it is now
 ORDERED, ADJUDGED, and DECREED:
(1) The Motion for Remedies filed by Plaintiff Securities
and Exchange Commission (Doc. # 270) is GRANTED in part and DENIED
in part as set forth herein.
(2) The  Clerk  is  directed  to  enter  judgments  against  the
Defendants in accordance with this Order and thereafter CLOSE this
case.
DONE and ORDERED in Chambers in Tampa, Florida, this 10th day
of August, 2022.

1 
 

UNITED STATES DISTRICT COURT 
MIDDLE DISTRICT OF FLORIDA 

TAMPA DIVISION 
 

SECURITIES AND EXCHANGE COMMISSION, 
 

Plaintiff, 

v.        Case No. 8:19-cv-448-VMC-CPT 

SPARTAN SECURITIES GROUP, LTD,  
ISLAND CAPITAL MANAGEMENT,  
CARL DILLEY, and MICAH ELDRED, 
 

Defendants. 

     ____________/ 

ORDER 

 Before the Court is the Motion for Remedies filed by Plaintiff 

Securities and Exchange Commission (“SEC”) on April 13, 2022. (Doc. 

# 270). Defendants Spartan Securities Group, Ltd., Island Capital 

Management, Carl E. Dilley, and Micah J. Eldred (collectively, 

“Defendants”) filed a response in opposition on May 23, 2022. (Doc. 

# 273). The SEC filed a reply on July 12, 2022. (Doc. # 284). The 

Court thereafter held an evidentiary hearing and oral argument on 

this matter, and it solicited supplemental materials from the 

parties. Following careful consideration, and for the reasons that 

follow, the Motion is granted in part and denied in part. 

I. Background  

 Following a 12-day trial in July 2021, a jury handed down a 

verdict in Defendants’ favor on 13 of the 14 counts brought by the 

SEC. (Doc. # 250). However, the jury rendered a verdict in favor 

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2 
 

of the SEC as to Count Six of the complaint, finding that Spartan, 

Island, Dilley, and Eldred made materially misleading statements 

or omissions in connection with the purchase or sale of securities, 

in violation of Section 10(b) and Rule 10b-5(b) of the Exchange 

Act. (Id.). Defendants filed a renewed motion for judgment as a 

matter of law, which this Court denied. (Doc. # 263). 

 The SEC now seeks certain remedies against Defendants, 

including an injunction, penny stock bars, and monetary relief 

consisting of disgorgement and civil penalties. (Doc. # 270). 

Defendants have responded, and the Motion is ripe for review. 

II. Legal Standard 

 Congress has authorized the SEC to enforce the Securities Act 

of 1933 and the Securities Exchange Act of 1934 and to punish 

securities fraud through administrative and civil proceedings. Liu 

v. SEC, 140 S. Ct. 1936, 1940 (2020). Once a court determines that 

a federal securities law violation has occurred, it has broad 

equitable powers to fashion appropriate remedies. SEC v. Lorin, 76 

F.3d 458, 461-62 (2d Cir. 1996). 

III. Discussion 

A. Injunctive Relief 

The Exchange Act authorizes the SEC to seek an injunction 

“[w]henever it shall appear to the Commission that any person is 

engaged or is about to engage in acts or practices constituting a 

violation of any provision of this chapter.” 15 U.S.C. § 78u(d)(1). 

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“The SEC is entitled to injunctive relief when it establishes (1) 

a prima facie case of previous violations of federal securities 

laws, and (2) a reasonable likelihood that the wrong will be 

repeated.” SEC v. Calvo, 378 F.3d 1211, 1216 (11th Cir. 2004).  

The jury’s verdict against Defendants sufficiently meets the 

requirement of a previous violation, leaving the issue of whether 

there is a “reasonable likelihood that the wrong will be repeated.” 

The SEC bears the burden of proving that a recurrent violation is 

reasonably likely to occur and, in the Eleventh Circuit, the “mere 

fact of past violations” is insufficient to establish the propriety 

of an injunction. SEC v. Yun, 148 F. Supp. 2d 1287, 1293 (M.D. 

Fla. 2001) (citing SEC v. Blatt, 583 F.2d 1325, 1334 (5th Cir. 

1978)). In determining whether to grant injunctive relief, factors 

to consider are: “[1] [the] egregiousness of the defendant’s 

actions, [2] the isolated or recurrent nature of the infraction, 

[3] the degree of scienter involved, [4] the sincerity of the 

defendant’s assurances against future violations, [5] the 

defendant’s recognition of the wrongful nature of the conduct, and 

[6] the likelihood that the defendant’s occupation will present 

opportunities for future violations.” Calvo, 378 F.3d at 1216. 

The SEC seeks permanent injunctive relief against all four 

Defendants. Defendants claim that, under the Calvo factors, an 

injunction is not warranted in this case. (Doc. # 273 at 3-8). The 

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4 
 

Court must first, then, determine whether an injunction is 

appropriate.  

First, as to the egregiousness of Defendant’s actions, the 

SEC presented evidence at trial that Defendants submitted Form 

211s to FINRA for multiple issuers containing information that 

Defendants knew or reasonably should have known was false, made 

materially false statements or omissions in connection with 

clearance from the Depository Trust Company, and/or processed bulk 

transfers in instances where shares were restricted or their 

actions were otherwise improper. In short, the Court agrees with 

the SEC that, taking the evidence in the light most favorable to 

the jury’s verdict, the evidence demonstrated that Defendants 

abused their “gatekeeper” role by enabling the purchase and sale 

of securities on the public market that should have been barred or 

more carefully vetted by FINRA. This factor leans in favor of an 

injunction. 

Second, as to the isolated or recurrent nature of the 

infraction, the SEC calls the Defendants’ conduct “far-reaching,” 

arguing that for more than five years, they played “critical roles 

in bringing at least 19 separate blank check companies public under 

false pretenses.” Defendants argue that the SEC only presented 

evidence of 19 problematic securities offerings, out of the over 

1,200-1,500 Form 211 applications Defendants filed , or about 1% 

of the applications filed during the relevant time. The Court 

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believes both parties make valid points, and this factor is 

neutral.  

Third, as to the degree of scienter involved, based on the 

jury’s verdict, Defendants had to make the material 

misrepresentations or omissions at issue with at least severe 

recklessness. Scienter weighs in favor of an injunction. 

Fourth, as to the sincerity of Defendant’s assurances against 

future violations and Defendants’ recognition of the wrongful 

nature of their conduct, Defendants have not expressed any remorse 

for their actions. But they rightly point out that their right to 

defend themselves should not be held against them. While the Court 

respects Defendants’ right to raise a vigorous defense, the fact 

remains that neither individual Defendant has provided the Court 

with specific assurances against future violations, has not 

admitted any wrongful conduct, and has not shown any remorse. This 

factor weighs in favor of an injunction. 

Finally, the Court turns to the likelihood that Defendants’ 

occupation(s) will present opportunities for future violations. 

The parties presented evidence on this point at the hearing. Mr. 

Eldred, who is 54 years old, testified that he is no longer 

registered as a securities broker with the SEC or FINRA. He 

voluntarily withdrew his licenses with the regulators in 2019. Mr. 

Eldred explained that FINRA requires brokers to have a “sponsoring 

organization,” so that to reactivate his FINRA license, he would 

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6 
 

need to first find an organization willing to sponsor him and then 

FINRA would need to re-grant his licensure. He believes that, based 

on his convictions in this case, the likelihood of this happening 

is very slim.  

Currently, Mr. Eldred is the CEO and on the Board of Directors 

of Endurance Exploration Group, a shipwreck recovery and salvage 

company. He does not draw a salary from Endurance, although he 

could receive dividends or shares of the company’s profits, should 

the company do well. Mr. Eldred also works as a non-lawyer partner 

in a small law firm, in which he provides business development 

services and “expertise,” including securities expertise, to the 

firm’s clients.   

Mr. Eldred also elaborated on the current status of Spartan 

and Island. Island went out of business in 2020 and is not 

currently operating. He explained that it shut down due to this 

litigation – clients left, and the firm became unprofitable. Island 

is no longer registered with the relevant regulators and, to resume 

operations, it would have to re-register with the SEC and the DTC. 

Mr. Eldred testified that, upon closing, Island sold its book of 

business and Eldred has drawn continuing payments from that sale 

– he received approximately $100,000 in the past year, and there 

are three years left on the sales agreement. 

 Spartan is also no longer in operation. Mr. Eldred explained 

that, in June 2019, Spartan lost more than $15 million in one day 

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7 
 

due to the actions of a rogue employee. Spartan initiated a FINRA 

arbitration action against the employee and received a $5.4 million 

judgment in its favor. However, under an agreement they made with 

another firm who paid their legal expenses, if the employee were 

to ever pay the judgment, the firm would be reimbursed first. The 

employee has thus far not paid any amount of the judgment, and Mr. 

Eldred does not believe he has the means to do so.   

Pursuant to SEC regulations, Spartan was required to wind 

down and cannot operate because of its negative resources. Thus, 

to restart operations, Spartan would need to recover all of its 

lost capital and also receive regulatory approval from the SEC and 

FINRA. Mr. Eldred stated that he does not believe FINRA would allow 

Spartan to re-register. Mr. Eldred explained that, although he 

personally had no prior disciplinary history with securities 

regulators, FINRA had filed 10 actions against Spartan over the 

years, fining them close to $400,000. The Court finds Mr. Eldred’s 

testimony credible with respect to Spartan and Island. 

Mr. Dilley, who is 67 years old, concurred with Mr. Eldred’s 

statements about what would be required for Island, Spartan, or 

himself as an individual broker to re-enter the securities 

business. Given these hurdles, he similarly believes it highly 

unlikely that Island or Spartan could resume operations. Mr. Dilley 

voluntarily gave up his securities licenses in 2014. Mr. Dilley 

retired from Island in January 2018 but remained a consultant for 

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8 
 

the company. Mr. Dilley is also involved with Endurance, the 

shipwreck salvage company, as the COO and a member of the Board of 

Directors. He receives de minimus amounts for overseeing that 

company’s accounting, but, like Mr. Eldred, could plausibly 

receive profit sharing or dividends from the company. Mr. Dilley 

receives income from Social Security, a Canadian pension, work 

from his repair shop, and “limited securities consulting.” He also 

has a real estate license but testified that he has not yet earned 

any money in the real estate business. He is also the owner or 

part-owner of certain companies that do not generate much, if any, 

income. 

1. Injunction against Spartan 

The Court is persuaded that the economic, logistical, and 

regulatory impediments to Spartan resuming operations make it 

unlikely that it will ever re-enter the securities business. The 

Court is mindful that “[t]he purpose of injunctive relief is, after 

all, not to punish but to deter future violations.” SEC v. Advance 

Growth Capital, Corp., 470 F.2d 40, 54 (7th Cir. 1972). The SEC 

argues that Spartan could plausibly resurrect operations in the 

securities realm, but the standard the SEC must show is a 

“reasonable likelihood that the wrong will be repeated.” Calvo, 

378 F.3d at 1216 (emphasis added). They have not met that standard 

here, and the Court will not issue an injunction against Spartan 

because that entity is basically defunct with little to no chance 

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9 
 

of ever resuming operations. See SEC v. Scott, 565 F. Supp. 1513, 

1537 (S.D.N.Y. 1983) (refusing to grant injunctive relief where, 

based on the record, the court was “unable to find a reasonable 

likelihood that, absent an injunction, [the defendant] would be 

likely to commit future violations of the securities laws”); see 

also SEC v. Blockvest, LLC, No. 18CV2287-GPB(BLM), 2018 WL 6181408, 

at *8 (S.D. Cal. Nov. 27, 2018), on reconsideration, No. 18CV2287-

GPB(BLM), 2019 WL 625163 (S.D. Cal. Feb. 14, 2019) (refusing to 

grant preliminary injunction where defendant agreed to stop his 

challenged actions and thus, SEC had not demonstrated a reasonable 

likelihood that the wrong will be repeated). Finally, the Court 

also notes that Spartan will be subject to a penny stock bar, as 

explained further below, which is appropriate because its business 

(and the misconduct at issue here) centered on penny stocks. 

2. Injunction against Island 

Testimony from the evidentiary hearing showed that Island, 

like Spartan, is no longer operational. However, there are two 

important differences between the companies. First, while Island 

may be de-registered with regulators, it does not face the same 

capitalization concerns that Spartan does if it wished to resume 

operations. Second, as a transfer agent, the SEC is not seeking a 

penny stock bar against Island, a measure that the Court believes 

to be adequate with respect to Spartan. For these reasons, the 

Court will issue an injunction against Island. Furthermore, as a 

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10 
 

corporate defendant, the Court need not consider impacts upon 

livelihood or credibility like it does with individual defendants. 

The Court sees no reason why the injunctive relief granted here 

cannot be permanent. Furthermore, the Court finds the SEC’s 

proposed injunctive language, as revised, is sufficiently 

specific, and the Court adopts it here: 

IT IS ORDERED, ADJUDGED, AND DECREED that Defendant is  
permanently restrained and enjoined from violating, 
directly or indirectly, Section 10(b) of the Exchange 
Act [15 U.S.C. § 78j(b)] and Rule 10b-5(b) promulgated 
thereunder [17 C.F.R. § 240.10b-5(b)], by using any 
means or instrumentality of interstate commerce, or of 
the mails, or of any facility of any national securities 
exchange, in connection with the purchase or sale of any 
security: 
 
to make any untrue statement of a material fact or to 
omit to state a material fact necessary in order to make 
the statements made, in the light of the circumstances 
under which they were made, not misleading, regarding: 
 

i.  whether an issuer is a shell or blank check 
company; or  

ii.  information submitted to the Depository Trust 
Company (“DTC”) or its participants when seeking 
DTC eligibility for an issuer; or 

iii. the designation of securities as free trading; 
or 

iv.  the issuance and transfer of securities, 
including by means of stock certificates without 
restrictive legends. 

 
(Doc. # 296-1). 

3. Injunctions against Mr. Dilley and Mr. Eldred 

The Court will issue injunctions against Mr. Dilley and Mr. 

Eldred. Looking at the totality of the facts and circumstances, 

including the fact that both individuals still have at least 

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11 
 

tangential contacts with the securities industry (Mr. Dilley with 

his “limited securities consulting” and Mr. Eldred in his advisory 

role at the law firm), there is a reasonable likelihood that the 

wrong could be repeated. Both men have been involved with the 

securities industry for most of their lives. Both are involved or 

have been involved in multiple businesses and are likely still 

well connected in the industry. Furthermore, while the Court does 

not penalize them for defending this case, neither man has given 

adequate assurances against future misconduct, beyond (credible) 

doubts regarding their ability to re-enter the industry. See, e.g., 

SEC v. Selden, 632 F. Supp. 2d 91, 99 (D. Mass. 2009) (imposing 

injunction where defendant worked at a non-public company, but 

“should it become [a public company], Selden would once again 

assume the ultimate responsibility of ensuring the accuracy of the 

company’s public statements. His abuse of such authority in the 

past and his refusal to accept full responsibility in this case . 

. . demonstrates, at the very least, a lack of adequate assurance 

against future misconduct.”). 

Here, both Mr. Dilley and Mr. Eldred are serial entrepreneurs 

with years of experience offering services whereby private 

companies can access the public markets. The Court believes there 

to be a reasonable likelihood that both men could attempt to 

leverage their knowledge of the securities business and the penny 

stock market and possibly repeat the wrongs for which they were 

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12 
 

convicted. See SEC v. Miller, 744 F. Supp. 2d 1325, 1341-42 (N.D. 

Ga. 2010) (holding that defendant’s “background as an entrepreneur 

and his proven ability to start a private company and take it 

public weighs in favor of an injunction”). 

However, while the SEC seeks permanent lifetime injunctions 

against Mr. Dilley and Mr. Eldred, the Court is not persuaded that 

such a drastic remedy is necessary. These violations occurred many 

years ago and both men have voluntarily withdrawn their securities 

licenses. They are also advancing in age, being 54 and 67 years 

old. Thus, after careful consideration, the Court believes a five-

year injunction to be appropriate against Mr. Dilley and Mr. 

Eldred. See Miller, 744 F. Supp. 2d at 1348 (imposing a five-year 

bar); Selden, 632 F. Supp. 2d at 99 (imposing a two-year bar) 

Having determined that a five-year injunction is appropriate, 

the Court must fashion relief that is fair and legal. The SEC seeks 

an injunction against Mr. Dilley and Mr. Eldred that states as 

follows: 

IT IS ORDERED, ADJUDGED, AND DECREED that Defendant is 
permanently restrained and enjoined from violating, 
directly or indirectly, Section 10(b) of the Exchange 
Act [15 U.S.C. § 78j(b)] and Rule 10b-5(b) promulgated 
thereunder [17 C.F.R. § 240.10b-5(b)], by using any 
means or instrumentality of interstate commerce, or of 
the mails, or of any facility of any national securities 
exchange, in connection with the purchase or sale of any 
security: 
 
to make any untrue statement of a material fact or to 
omit to state a material fact necessary in order to make 

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13 
 

the statements made, in the light of the circumstances 
under which they were made, not misleading, regarding: 
 

i.  initiating a quoted market in an issuer’s 
security; or  

ii.  the listing and trading of an issuer’s stock; 
or 

iii. applications or submissions pursuant to 
Exchange Act Rule 15c2-11; or 

iv.  whether an issuer is a shell or blank check 
company; or  

v.  the identity of any consultants or persons in 
control of an issuer; or  

vi.  the relationships or affiliations among an 
issuer’s shareholders and those in control of 
the issuer; or 

vii. an issuer’s plans for potential mergers or 
acquisitions; or 

viii. an issuer’s business purpose; or 
ix.  the nature and conduct of due diligence of an 

issuer; or 
x.  the identity of the person or entity for whom 

a security’s quotation is being submitted, 
when seeking to initiate or resume quotations 
of an issuer’s security; or 

xi.  whether material information, including 
adverse material information, exists 
regarding an issuer; or 

xii. information submitted to the Depository Trust 
Company (“DTC”) or its participants when 
seeking DTC eligibility for an issuer; or 

xiii. information submitted to Financial Industry 
Regulatory Authority (“FINRA” when seeking to 
initiate or resume quotations of an issuer’s 
security; or 

xiv. the designation of securities as free trading; 
or 

xv. the issuance and transfer of securities, 
including by means of stock certificates  
without restrictive legends. 

 
(Doc. ## 296-3, 296-4).  

Defendants argue that injunctive relief is inappropriate 

because the SEC seeks “obey the law” injunctions, which are not 

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14 
 

permitted in this Circuit.1 Another court within the Middle 

District of Florida has explained why “obey the law” injunctions 

are problematic: 

Articulating the standard of specificity that every 
injunction must satisfy, Rule 65(d), Federal Rules of 
Civil Procedure, states that “[e]very order granting an 
injunction . . . must: state the reasons why it issued; 
state its terms specifically; and describe in reasonable 
detail — and not by referring to the complaint or other 
document — the act or acts sought to be restrained or 
required[.]” The specificity requirement “prevent[s] 
uncertainty and confusion on the part of those faced 
with injunctive orders and . . . avoid[s] the possible 
founding of a contempt citation on a decree too vague to 
be understood.” Schmidt v. Lessard, 414 U.S. 473, 476 
(1974) (finding that because “an injunctive order 
prohibits conduct under threat of judicial punishment, 
basic fairness requires that those enjoined receive 
explicit notice of precisely what conduct is 
outlawed.”). Thus, every injunction must contain “an 
operative command capable of ‘enforcement.’” “A person 
enjoined by court order should only be required to look 
within the four corners of the injunction to determine 
what he must do or refrain from doing.” Accordingly, 
“appellate courts will not countenance injunctions that 
merely require someone to ‘obey the law.’”  
 

SEC v. Sky Way Glob., LLC, 710 F. Supp. 2d 1274, 1277–78 (M.D. 

Fla. 2010) (citations omitted or altered); see also SEC v. Smyth, 

420 F.3d 1225, 1233 (11th Cir. 2005) (finding that proposed 

injunctions that tracked the provisions of the statute or 

regulation was a “quintessential ‘obey-the-law’ injunction”). 

 
1 At oral argument, the Court indicated that it agreed with 
Defendants that the SEC’s first set of proposed injunctions was 
inadequate. While the Defendants have not proffered this argument 
against the SEC’s revised injunctive language, the Court will still 
discuss it.  

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15 
 

The Court believes that the additional, revised language 

proposed by the SEC takes the proposed injunctive language outside 

the realm of an “obey the law” injunction because it describes 

specific conduct that is prohibited. Certain of the language, 

however, remains too broad or vague. For example, the prohibition 

on making any misrepresentation pertaining to “the listing and 

trading of an issuer’s stock” is very broad and not directly linked 

to the misconduct at issue in this case. For this reason, the Court 

has adopted only those prohibitions on conduct that are 

sufficiently specific and tied to the misconduct at issue in this 

case. 

Accordingly, the Court will enter injunctions against Mr. 

Dilley and Mr. Eldred as follows: 

IT IS ORDERED, ADJUDGED, AND DECREED that Defendant is   
restrained and enjoined, for a period of five years from 
the date of this judgment, from violating, directly or 
indirectly, Section 10(b) of the Exchange Act [15 U.S.C. 
§ 78j(b)] and Rule 10b-5(b) promulgated thereunder [17 
C.F.R. § 240.10b-5(b)], by using any means or 
instrumentality of interstate commerce, or of the mails, 
or of any facility of any national securities exchange, 
in connection with the purchase or sale of any security: 
 
to make any untrue statement of a material fact or to 
omit to state a material fact necessary in order to make 
the statements made, in the light of the circumstances 
under which they were made, not misleading, regarding: 
 

i. initiating a quoted market in an issuer’s 
security; or  

ii. applications or submissions pursuant to 
Exchange Act Rule 15c2-11; or 

iii.  whether an issuer is a shell or blank check 
company; or  

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16 
 

iv.  the identity of any consultants or persons 
in control of an issuer; or  

v. an issuer’s plans for potential mergers or 
acquisitions; or 

vi.  the identity of the person or entity for 
whom a security’s quotation is being 
submitted, when seeking to initiate or 
resume quotations of an issuer’s security; 
or 

vii.  information submitted to the Depository 
Trust Company (“DTC”) or its participants 
when seeking DTC eligibility for an issuer; 
or 

viii.  information submitted to Financial Industry 
Regulatory Authority (“FINRA”) when seeking 
to initiate or resume quotations of an 
issuer’s security. 

 
B. Penny Stock Bar 

Courts may enter a penny stock bar “against any person 

participating in, or, at the time of the alleged misconduct, who 

was participating in, an offering of penny stock[.]” 15 U.S.C. § 

77t(g)(1); 15 U.S.C. § 78u(d)(6)(A). A “penny stock” generally 

includes an equity security bearing a price of less than five 

dollars. See SEC v. E-Smart Techs., Inc., 139 F. Supp. 3d 170, 182 

(D.D.C. 2015). The Court may enter a penny stock bar “permanently 

or for such period of time as the court shall determine.” 15 U.S.C. 

§§ 77t(g)(1), 78u(d)(6). Defendants do not dispute that the 

underlying scheme involved penny stocks. Nor do they dispute that 

they participated in an “offering of penny stock,” which broadly 

encompasses “engaging in activities with a broker, dealer, or 

issuer for purposes of issuing, trading, or inducing or attempting 

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to induce the purchase or sale of, any penny stock.” 15 U.S.C §§ 

77t(g), 78u(d)(6). 

The only question, then, is whether such a bar is warranted. 

In deciding whether to impose a penny stock bar, “the court 

examines the nature of the defendant’s conduct and the likelihood 

that his occupation and experience will present further 

opportunities to violate the securities laws.” SEC v. BIH Corp., 

No. 2:10-cv-577-JES-DNF, 2014 WL 7499053, * 6 (M.D. Fla. Dec. 12, 

2014) (citation omitted). 

 Here, a penny stock bar against Mr. Dilley and Mr. Eldred is 

warranted. The jury convicted them of securities fraud in 

connection with the offering of penny stocks. There was testimony 

at the evidentiary hearing that the vast majority of businesses 

with which Mr. Eldred and Mr. Dilley involved themselves were penny 

stocks. In other words, a penny stock bar would prohibit Mr. Dilley 

and Mr. Eldred from engaging in precisely the sort of misconduct 

that led to their instant convictions. Both men protest that such 

a bar would have ramifications on innocent investors in Endurance, 

the shipwreck salvage company with which they are both involved. 

But the Court finds that the need to protect the investing public 

as a whole outweighs the speculative possibility that 400 investors 

within one company could suffer future harm. 

 The SEC requests a lifetime ban, but the statute permits the 

Court to fashion a penny stock bar “for such period of time as the 

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court shall determine.” 15 U.S.C. §§ 77t(g)(1), 78u(d)(6). Given 

the age of Mr. Dilley and Mr. Eldred, the Court determines that a 

10-year penny stock bar is appropriate in this case. In declining 

to impose a lifetime bar, the Court is mindful of the guidance 

offered by the Fifth Circuit: “[W]hen the [SEC] chooses to order 

the most drastic remedies at its disposal, it has a greater burden 

to show with particularity the facts and policies that support 

those sanctions and why less severe action would not serve to 

protect investors.” Steadman v. SEC, 603 F.2d 1126, 1137 (5th Cir. 

1979).2 The SEC has not explained why a lifetime bar is more 

appropriate than a lesser sanction. Given the Commission’s failure 

to do so here, the Court will not impose the most drastic remedy, 

deciding that a temporally limited bar is sufficient on these 

facts. 

 The SEC also seeks a permanent penny stock bar against 

Spartan. Considering that Spartan dealt in penny stocks, the Court 

is persuaded that a permanent ban with respect to penny stocks is 

in order for Spartan. 

C. Disgorgement 

The SEC originally sought disgorgement from Island in the 

amount of $147,508. (Doc. # 270 at 2). As the SEC explains it, 

 
2 Decisions of the Fifth Circuit rendered prior to October 1, 1981, 
are binding upon courts in the Eleventh Circuit. Bonner v. City of 
Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc). 

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Island collected fees from 14 identified issuers as part of the 

scheme, and the Commission seeks to recover these “ill-gotten 

gains.” 

Currently, federal law provides for disgorgement in this way: 

(5) Equitable relief 
In any action or proceeding brought or instituted by the 
Commission under any provision of the securities laws, 
the Commission may seek, and any Federal court may grant, 
any equitable relief that may be appropriate or 
necessary for the benefit of investors. 
 
. . . 
 
(7) Disgorgement 
In any action or proceeding brought by the Commission 
under any provision of the securities laws, the 
Commission may seek, and any Federal court may order, 
disgorgement. 
 

15 U.S.C. §§ 78u(d)(5), 78u(d)(7). 

The first question this Court must address is whether it may 

order disgorgement at all. The key case in this area is the recent 

Supreme Court case of Liu v. SEC, 140 S. Ct. 1936 (2020). In that 

case, the Supreme Court held that the SEC could seek disgorgement 

through its power to award “equitable relief” under 15 U.S.C. § 

78u(d)(5) so long as the award did not exceed the wrongdoer’s net 

profits and was “awarded for victims.” Id. at 1940. The Court wrote 

that while disgorgement was at heart an equitable remedy so long 

as it sought to restore ill-gotten gains from the wrongdoer to his 

victims, the SEC had been pushing the bounds of the equitable 

nature of the remedy in three ways: (1) “by ordering the proceeds 

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of fraud to be deposited in Treasury funds instead of dispersing 

them to victims”; (2) “imposing joint and several disgorgement 

liability”; and (3) “declining to deduct even legitimate expenses 

from the receipts of fraud.” Id. at 1946. 

As to the first problem, which centers on the importance of 

returning ill-gotten gains to defrauded victims, the Supreme Court 

stressed that “the SEC’s equitable, profits-based remedy must do 

more than simply benefit the public at large by virtue of depriving 

a wrongdoer of ill-gotten gains. To hold otherwise would render 

meaningless” the statute’s language about the relief being 

“appropriate or necessary for the benefit of investors.” Id. at 

1948. This language “must mean something more than depriving a 

wrongdoer of his net profits alone, else the Court would violate 

the cardinal principle of interpretation that courts must give 

effect, if possible, to every clause and word of a statute.” Id. 

(quotation marks and citation omitted). 

Importantly for this case, the Supreme Court specifically 

declined to address the question of whether, when it is impossible 

to identify defrauded victims, disgorged funds deposited into the 

Treasury could comply with the requirements of the statute, writing 

that:  

The Government additionally suggests that the SEC’s 
practice of depositing disgorgement funds with the 
Treasury may be justified where it is infeasible to 
distribute the collected funds to investors. It is an 
open question whether, and to what extent, that practice 

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nevertheless satisfies the SEC’s obligation to award 
relief “for the benefit of investors” and is consistent 
with the limitations of § 78u(d)(5). The parties have 
not identified authorities revealing what traditional 
equitable principles govern when, for instance, the 
wrongdoer’s profits cannot practically be disbursed to 
the victims. But we need not address the issue here.  
The parties do not identify a specific order in this 
case directing any proceeds to the Treasury. If one is 
entered on remand, the lower courts may evaluate in the 
first instance whether that order would indeed be for 
the benefit of investors as required by § 78u(d)(5) and 
consistent with equitable principles. 
 

Id. at 1948-49. 

After Liu, Congress amended the securities remedies statute 

as part of the National Defense Authorization Act of 2021 (“NDAA”). 

Specifically, the NDAA added subsection (7) above to expressly 

permit courts to “[i]n any action or proceeding brought by the 

Commission under any provision of the securities laws, [] order [] 

disgorgement.” 15 U.S.C. § 78u(d)(7). The NDAA also amended 

subsection (d)(3) to make it explicit that district courts have 

the power to impose both civil penalties and to “require 

disgorgement under paragraph (7) of any unjust enrichment by the 

person who received such unjust enrichment as a result of such 

violation.” Id. § 78u(d)(3). Thus, Sections 78u(d)(3) and (7), as 

added by the NDAA, do not contain the “for the benefit of 

investors” language that is still included in Section 78u(d)(5). 

The NDAA applies to “any action or proceeding that is pending on” 

January 1, 2021. NDAA, Section 6501(b). This action was pending on 

that date. 

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With this background in mind, the Court turns to the parties’ 

arguments. The SEC concedes that “distribution of the disgorged 

funds to harmed investors is not feasible or practical in this 

case” and that while Defendants’ conduct harmed the capital markets 

at large, “identifying specific investors who were harmed or the 

amount by which any particular investor was harmed is not 

possible.” (Doc. # 270 at 14). The SEC’s position is that “the 

only alternative that is consistent with equitable principles is 

to send the disgorged funds to the Treasury.” (Id.). The parties 

have stipulated that a distribution to investors of the 

disgorgement amount requested would be infeasible. (Doc. # 287). 

The SEC argues that the recent amendments under the NDAA 

“provide[] the courts with greater flexibility to determine where 

collected disgorged funds may be distributed, because the 

provision omits the phrase ‘for the benefit of investors.’” (Doc. 

# 270 at 14 n.29). The Court takes the SEC’s position to be that 

because the newly added provisions of the NDAA are silent on the 

question of whether funds must be returned to investors – i.e., 

because subsections (d)(3) and (7) do not contain the “for the 

benefit of investors” language that is included in subsection 

(d)(5) – the SEC need not show that disgorgement is for “the 

benefit of investors” and, thus, disgorgement to the Treasury is 

appropriate. 

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Again, the NDAA applies to the instant action because it was 

pending on January 1, 2021. NDAA, Section 6501(b). Thus, 15 U.S.C. 

§ 78u(d)(7) explicitly provides this Court the ability to order 

disgorgement and does not require that such disgorgement be “for 

the benefit of investors.” The Court holds that it may order 

disgorgement and direct that disgorged funds be sent to the 

Treasury under Section 78u(d)(7). 

Alternatively, the Court holds that, even if it is (post-

NDAA) still required to balance the equities under Liu, the 

equities here weigh in favor of disgorgement to the Treasury, 

rather than allowing Island to retain the money. Both parties, 

acknowledging that this case squarely presents the “open question” 

in Liu, have attempted to identify which traditional equitable 

principles should govern here. The SEC identifies two such 

principles. First, it argues that distribution to the Treasury 

serves the foundational principle that no person should benefit 

from his own wrongs and that, between Island and the Treasury, it 

is more equitable for the money to go to Treasury. (Doc. # 270 at 

14). Second, it points to the legal doctrine of cy pres, arguing 

that where identifying victims is not feasible, the money should 

go to the nearest possible alternative. (Id. at 15). And Defendants 

also identify certain equitable principles: (1) that disgorgement 

here is inherently a penalty on Island and that equity never “lends 

its aid” to enforce a penalty; and (2) that the issuers who paid 

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the claimed money into Island were themselves fraudsters and the 

doctrine of unclean hands bars repayment of these funds.  (Doc. # 

273 at 11-12). 

The Eleventh Circuit has yet to issue any guidance on this 

topic. The Court’s independent research demonstrates that multiple 

district courts have, post-Liu, allowed disgorgement awards to be 

directed toward the Treasury. See SEC v. Bronson, No. 12-CV-6421 

(KMK), 2022 WL 1287937, at *14 (S.D.N.Y. Apr. 29, 2022) (denying 

petitioner’s challenge to disgorgement award in Rule 60 motion 

where the final judgment did not identify any identifiable harmed 

investors to whom the disgorged profits should be returned, 

concluding that the disgorgement award was consistent with Liu); 

SEC v. Almagarby, No. 17-62255-CIV-COOKE/HUNT, 2021 WL 4461831, at 

*3 (S.D.N.Y. Aug. 16, 2021) (rejecting defendants’ argument that 

disgorgement should be denied because the SEC had not identified 

any victims and there was no proximate causation between the 

defendants’ securities law violation (failing to register as a 

dealer) and any losses from investors, writing that Supreme Court 

precedent does not require the SEC to “identify specific victims 

to whom a disgorgement award shall be distributed, or that all 

disgorged funds must be returned to investors, or that a 

disgorgement award should be limited to those funds that could be 

returned to investors”); SEC v. Laura, No. 18-CV-5075 (NGG)(VMS), 

2020 WL 8772252, at *5 (E.D.N.Y. Dec. 30, 2020) (reasoning that 

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Liu “does not require that a disgorgement award reflect every 

individually wronged investor’s private agreements. If it did, a 

court would need to conduct a mini-trial as to each investor before 

it could order disgorgement. There is no reason to believe that 

Liu, which confirmed the breadth of the SEC’s power to seek 

equitable awards, also stealthily erected such a substantial 

barrier to SEC recovery”). 

In sum, a balancing of the equities favors ordering 

disgorgement and allowing it to be sent to the Treasury. Between 

the money staying with Island, a key player in a scheme to put 

dubious equities on the market, or a fund at the Treasury, it is 

more equitable to order disgorgement.   

Having determined that disgorgement is appropriate in this 

case, the Court must next calculate the amount of the disgorgement. 

The parties dispute the applicable statute of limitations. Once 

again, the NDAA comes into play here. The previous statute of 

limitations for disgorgement was five years. But in the NDAA, 

Congress mandated that the SEC may bring a disgorgement action 

under the newly added subparagraph (7) within 10 years of the 

latest violation of the securities laws for which scienter must be 

established, including section 10(b). 15 U.S.C. § 78u(d)(8)(A).  

Defendants argue that the SEC did not amend its complaint to 

plead relief under the NDAA and, thus, it is more equitable for 

the five-year statute of limitations (in effect when the SEC first 

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filed this action) to apply. Moreover, Defendants call the NDAA’s 

retroactivity provision constitutionally “dubious” because it 

violates the ex post facto clause and violates Island’s due process 

rights. These arguments are unconvincing. This case was currently 

pending as of January 1, 2021, and thus the NDAA applies to it. 

One court has applied the NDAA even to cases where a judgment was 

entered under the old five-year statute of limitations but was 

still “pending” because the Second Circuit had not yet ruled on 

the parties’ appeal. See SEC v. Ahmed, No. 3:15CV675 (JBA), 2021 

WL 2471526, at *4 (D. Conn. June 16, 2021) (citing Landgraf v. USI 

Film Prod., 511 U.S. 244, 273-74 (1994) (“[A] court should apply 

the law in effect at the time it renders its decision, even though 

that law was enacted after the events that gave rise to the 

suit.”)). What’s more, Defendants fail to cite any authority in 

support of its due process and ex post facto arguments. Cf. SEC v. 

Gallison, No. 15 CIV. 5456 (GBD), 2022 WL 604258 (S.D.N.Y. Mar. 1, 

2022) (holding that ex post facto clause did not preclude 

application of the NDAA’s extended statute of limitations to 

disgorgement claims). Accordingly, the Court will apply a 10-year 

statute of limitations to the disgorgement award. As explained at 

the evidentiary hearing, taking into account certain tolling 

agreements, this allows the SEC to recover fees going back to 2008. 

The SEC is entitled to disgorgement upon producing “a 

reasonable approximation” of a defendant’s ill-gotten gains. 

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Calvo, 378 F.3 at 1217. “Exactitude is not a requirement; so long 

as the measure of disgorgement is reasonable, any risk of 

uncertainty should fall on the wrongdoer whose illegal conduct 

created that uncertainty.” Id. (citation and quotation marks 

omitted). Once the SEC has met its burden, the burden then shifts 

to the defendants to demonstrate that the SEC’s estimate is not a 

reasonable approximation. Id. A defendant’s current financial 

situation, or any hardship that disgorgement would impose, are not 

factors to be considered in determining disgorgement. SEC v. 

Warren, 534 F.3d 1368, 1370 (11th Cir. 2008). Both parties seem to 

agree that the “reasonable approximation” standard has survived 

Liu. See SEC v. Tayeh, 848 F. App’x 827, 828 (11th Cir. 2021) 

(unpublished) (“Disgorgement is an equitable remedy intended to 

prevent unjust enrichment from ill-gotten gains and must not be 

used punitively. The CFTC has the burden to produce a reasonable 

approximation of a defendant’s ill-gotten gains to sustain a 

disgorgement amount.” (citation omitted)); SEC v. Camarco, No. 19-

1486, 2021 WL 5985058, at *15-16 (10th Cir. Dec. 16, 2021) (noting 

multiple courts across the country that continue to abide by the 

reasonable approximation standard).  

 The SEC here has compiled the amounts that Island received in 

fees from each of the 14 Mirman/Rose companies from the applicable 

statute of limitations date through the date of the issuer’s bulk 

sale. In support, the SEC attached a declaration from Mark Dee, an 

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accountant with the SEC. He reviewed certain Island statements 

showing fees invoiced and paid by these 14 issuers. Dee then 

calculated a summary of the total fees paid by the issuers to 

Island during the relevant time frames. Dee’s calculation shows 

the total fees collected as follows: 

(1) Topaz Resources, Inc. f/k/a Kids Germ Defense Corp: 
$11,800 

(2) MyGo Games Holding Co. f/k/a Obscene Jeans Corp.:  
$18,923 

(3) On the Move Systems Corp.:  $11,875 
(4) Rainbow Coral Corp.: $13,975 
(5) Angiosoma f/k/a First Titan:  $8,375 
(6) Neutra Corp.:  $8,175 
(7) Aristocrat Group Corp.:  $11,208 
(8) Rebel Group Inc. f/k/a Inception Technology Group Inc. 

f/k/a Moxian Group Holdings Inc. f/k/a First Social 
Networx:  $10,674 

(9) Global Group Enterprises Corp.:  $9,779 
(10) E-Waste Corp.:   $9,474 
(11) Codesmart Holdings Inc. f/k/a First Independence Corp.:  

$8,178 
(12) Envoy Group:  $7,500 
(13) Changing Technologies Inc.:  $9,400 
(14) First Xeris Corp.: $8,172 

 
TOTAL: $147,508 
 

See (Doc. # 270-1, Ex. 2). 

 The analysis is not yet complete because, under Liu, courts 

must deduct legitimate business expenses when fashioning 

disgorgement awards. See Liu, 140 S. Ct. at 1950 (explaining that 

“courts must deduct legitimate expenses before ordering 

disgorgement under § 78u(d)(5)” because “[a] rule to the contrary 

that makes no allowance for the cost and expense of conducting a 

business would be inconsistent with the ordinary principles and 

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practice of courts of chancery” (internal alterations and 

quotation marks omitted)). 

 Following the evidentiary hearing, both parties submitted 

documents identifying legitimate expenses incurred by Island prior 

to the bulk sale date for each company. The SEC tacitly agreed to 

most of these expenses, and to the extent it continues to argue 

that such expenses should not be deducted, that position is both 

unfair and inconsistent with Liu. The expenses identified by the 

parties include fees that Island paid to third parties for courier 

services, printing, and regulatory fees. The Court agrees that 

these expenses are appropriate to deduct, and they are supported 

by the statements provided by the SEC.  

 Defendants argue for further reductions, pointing out that 

the fees paid into Island do not account for the business’s fixed 

costs and overhead. That may well be, but the only evidence that 

Island set forth in support of this argument were Island’s audited 

annual financial statements for 2013 and 2014, along with the 

testimony of Mr. Eldred that Island’s profit margins were typically 

between 10 and 25%. But this is insufficient to show that the SEC’s 

estimate is not a reasonable approximation and, moreover, any risk 

of uncertainty necessarily falls on Island. See Calvo, 378 F.3 at 

1217 (explaining that “[e]xactitude is not a requirement; so long 

as the measure of disgorgement is reasonable, any risk of 

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uncertainty should fall on the wrongdoer whose illegal conduct 

created that uncertainty”).  

 Accordingly, listed below are the total fees paid by each of 

the 14 issuers to Island up to the stipulated bulk sale dates; the 

legitimate business expenses incurred by Island prior to the bulk 

sale date; and the net fees for that account (that is, fees paid 

to Island less business expenses). 

Issuer Fees Paid In Expenses Fees - Expenses 

Angiosoma f/k/a 
First Titan 8375 75 8,300 

Aristocrat Group 
Corp. 110083 1136 9,872 

Changing 
Technologies  9400 925 8,475 

E-Waste Corp. 9474 274 9,200 
Global Group 
Enterprises 95794 229 9,350 

MYGO Games f/k/a 
Obscene Jeans  18923 8500 10,423 

On the Move 
Systems 116755 3575 8,100 

Neutra Corp. 8175 75 8,100 
Rainbow Coral 
Corp. 13975 5075 8,900 

Topaz Resources 
f/k/a Kids Germ 
Defense Corp. 

11800 35006 8,300 

 
3 The Court excluded one $200 payment made after the bulk sale 
date. 
4 The Court excluded one $200 payment made after the bulk sale 
date. 
5 The Court excluded one $200 payment made after the bulk sale 
date. 
6 The SEC disputes whether this expense, marked on the statement 
as a $3,500 payment to the DTC (Depository Trust Company), should 
be included. While it is true that this was invoiced on April 6, 
2010 (before the bulk sale date), and the next payment made was 
not until June 2010 (after the bulk sale date), as SEC witness 

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Codesmart f/k/a 
First 
Independence 
Corp. 

8178 278 7,900 

Rebel Group f/k/a 
First Social 
Networx Corp. 

10674 974 9,700 

Envoy Group7   N/A 

First Xeris 

Group8 
8172 272 7,900 

TOTALS $139,408 $24,888 $114,520 

 

 Accordingly, Island will be ordered to disgorge $114,520.00. 

D. Prejudgment Interest 
 

The SEC also seeks prejudgment interest on any disgorged 

amount, specifically, it seeks the IRS underpayment rate (what it 

would have cost to borrow money from the government). Courts in 

this Circuit regularly apply this rate in calculating prejudgment 

interest on disgorgement awards. See SEC v. Lauer, 478 F. App’x 

550, 557–58 (11th Cir. 2012) (noting the widespread use of the IRS 

underpayment rate and holding that the district court did not abuse 

 
Mark Dee testified, Topaz Resources had an odd payment history. It 
began with a $1,500 payment, prior to any invoice, and the issuer 
then made a $10,000 payment on February 23, 2010, even though there 
was only a $6,500 balance. The Court believes, on the whole, this 
DTC cost was in furtherance of setting up the issuer’s account and 
is appropriately deducted as a legitimate business expense. 
7 The Court agrees with Defendants that because the SEC submitted 
only an invoice, not a statement, in support of the Envoy Group 
issuer, there is insufficient evidence to support a fee payment 
for Envoy Group. 
8 No bulk sale date. 

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its discretion in applying this “commonly used” rate). Because 

awards of prejudgment interest are compensatory, not punitive, the 

district court should make the interest decision through an 

“assessment of the equities.” Id.  

Defendants note that over $21,000 of the $51,000 requested in 

interest has accrued since the complaint was filed and they argue 

that the award would therefore unfairly penalize Island for 

exercising its right to defend itself. Defendants do not point to 

any case law in support of this proposition, and the Court does 

not find Defendants’ argument persuasive. 

Rather, the Court utilized the same framework employed by the 

SEC in calculating prejudgment interest – using the IRS 

underpayment rate, with interest compounded quarterly, and running 

from July 1, 2014 until February 28, 2022. But the Court utilized 

the disgorgement value calculated above: $114,520. The Court 

calculates that $39,874.05 is due in prejudgment interest. Thus, 

in total, Island owes $154,394.05. Regardless of the precise 

mathematical calculation, the Court believes this to be a fair and 

appropriate amount of disgorgement principal and interest. 

E. Civil Penalties 
 

 Federal securities law authorizes a court to impose civil 

penalties for violation of the federal securities laws and provides 

three “tiers” of penalties in escalating amounts.  

(1) First tier 

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For each violation, the amount of the penalty shall not 
exceed the greater of (i) $5,000 for a natural person or 
$50,000 for any other person, or (ii) the gross amount 
of pecuniary gain to such defendant as a result of the 
violation. 
 
(2) Second tier 
The amount of penalty for each such violation shall not 
exceed the greater of (i) $50,000 for a natural person 
or $250,000 for any other person, or (ii) the gross 
amount of pecuniary gain to such defendant as a result 
of the violation.  
 
(3) Third tier 
The amount of penalty for each such violation shall not 
exceed the greater of (i) $100,000 for a natural person 
or $500,000 for any other person, or (ii) the gross 
amount of pecuniary gain to such defendant as a result 
of the violation.  
 

15 U.S.C. §§ 77t(d), 78u(d)(3). 

 These amounts are occasionally adjusted for inflation. Thus, 

for the relevant period, Tier One penalties are $7,500/$80,000, 

Tier Two penalties are $80,000/$400,000, and Tier Three penalties 

are $160,000/$775,000. See (Doc. # 296-8). 

The Court can determine the applicability of each tier only 

“upon a proper showing” by the SEC. For a Tier Two penalty, the 

Court must find that the violation “involved fraud, deceit, 

manipulation, or deliberate or reckless disregard of a regulatory 

requirement.” 15 U.S.C. § 78u(d)(3). For a Tier Three penalty, the 

Court must find that the violation “involved fraud, deceit, 

manipulation, or deliberate or reckless disregard of a regulatory 

requirement” and that the violation “directly or indirectly 

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resulted in substantial losses or created a significant risk of 

substantial losses to other persons.” (Id.). 

The amount of the civil penalty is determined by the district 

court judge “in light of the facts and circumstances” and is 

subject to the statutory maximums prescribed above.  In evaluating 

the facts and circumstances of the case, the Court looks to factors 

such as: (1) the egregiousness of the violations at issue, (2) 

defendants’ scienter, (3) the repeated nature of the violations, 

(4) defendants’ failure to admit to their wrongdoing, (5) whether 

defendants’ conduct created substantial losses or the risk of 

substantial losses to other persons, (6) defendants’ lack of 

cooperation and honesty with authorities, if any, and (7) whether 

the penalty that would otherwise be appropriate should be reduced 

due to defendants’ demonstrated current and future financial 

condition. SEC v. Aerokinetic Energy Corp., No. 08–CV–1409, 2010 

WL 5174509, at *5 (M.D. Fla. Dec. 15, 2010). 

The SEC here argues for Third Tier penalties, arguing that at 

trial they presented evidence that (1) Defendants’ violations 

involved fraud, deceit, manipulation, or deliberate or reckless 

disregard of a regulatory requirement; and (2) the violations 

created a significant risk of substantial losses. The Court agrees 

only in part. 

First, the Court agrees with the SEC that Defendants’ 

violations here involved fraud, deceit, manipulation, or 

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35 
 

deliberate or reckless disregard of a regulatory requirement, 

which is sufficient to support Tier Two penalties. The jury here 

convicted Defendants of violating Section 10(b) and Rule 10b-5 of 

the Exchange Act, which requires that a material misrepresentation 

or omission be made with scienter. See FindWhat Inv. Grp. v. 

FindWhat.com, 658 F.3d 1282, 1295 (11th Cir. 2011) (explaining 

that the elements of a claim under Section 10(b) and Rule 10b-5 

are: “(1) a material misrepresentation or omission; (2) made with 

scienter; (3) a connection with the purchase or sale of a security; 

(4) reliance on the misstatement or omission; (5) economic loss 

[i.e., damages]; and (6) a causal connection between the material 

misrepresentation or omission and the loss”). 

The Supreme Court has defined the level of scienter necessary 

to support a securities fraud claim as a “mental state embracing 

intent to deceive, manipulate, or defraud.” Ernst & Ernst v. 

Hochfelder, 425 U.S. 185, 194 n.12 (1976). In order to adequately 

plead scienter in the Eleventh Circuit, a plaintiff must allege 

facts creating a “strong inference” that the defendant acted 

purposefully or with “severe recklessness.” Thompson v. 

RelationServe Media, Inc., 610 F.3d 628, 634 (11th Cir. 2010). 

Because the jury necessarily found that Defendants were at least 

severely reckless, this aligns with the penalty statute’s 

requirement of “deliberate or reckless disregard of a regulatory 

requirement.”  

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36 
 

The trial evidence supports that Defendants acted with, at 

least, a reckless disregard for regulatory requirements and/or 

that their violations involved fraud, deceit, or manipulation. 

There were multiple instances where the FINRA Form 211s that Mr. 

Eldred or Mr. Dilley signed contained misrepresentations that Mr. 

Dilley or Mr. Eldred (and therefore Spartan and Island) should 

have known to be false. For example, some of the Forms 211s stated 

that Mr. Dilley had a phone call with the issuers when there was 

evidence that that was false. 

The Court does not believe, however, that the SEC has 

demonstrated that the violations “directly or indirectly resulted 

in substantial losses or created a significant risk of substantial 

losses to other persons” sufficient to support Tier Three 

penalties. The SEC has not pointed to any evidence showing that 

the violations “resulted in substantial losses.” And while the 

Court has reviewed the trial evidence that the SEC relies on to 

argue that the violations “created a significant risk of 

substantial losses to other persons,” the most that can be said is 

that: (1) one of the fraudsters testified that the people who 

bought the shell companies wanted unrestricted stock so they would 

“be in a position” to engage in pump and dump schemes; and (2) the 

fraudster was “aware” that “one or two” of those companies later 

became pump and dumps, though he could not say which ones. (Doc. 

# 194 at 90-91). 

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This is insufficient. “Although all Section 10(b) or Rule 

10b-5 frauds could be said to create some ‘risk’ of some ‘harm’ to 

investors, the Remedies Act reserves third-tier civil penalties 

for those frauds that create a significant risk of substantial 

losses.” SEC v. Madsen, No. 17-CV-8300 (JMF), 2018 WL 5023945, at 

*4 (S.D.N.Y. Oct. 17, 2018). The SEC has not made that showing 

here. 

Moving on, the SEC requests that the Court assess penalties 

for three “violations” against Mr. Dilley, two violations against 

Mr. Eldred, and a single violation against the corporate 

Defendants. (Doc. # 270 at 20). Defendants do not dispute this 

particular point of the civil-penalties analysis. 

Turning now to the factors that the Court may look to in 

determining civil penalties, the Court has considered Defendants’ 

roles in the overall scheme, the evidence admitted at trial tending 

to show that Defendants acted with a certain level of scienter in 

submitting Form 211s to FINRA containing false information, the 

fact that this information was originally provided by third parties 

(at the behest of Mirman and Rose), the fact that Defendants’ 

actions facilitated the possibility of pump and dump schemes, the 

inability of the SEC to identify any harmed investors, the 

testimony given at the trial and the hearing on remedies, and all 

of the other pertinent facts and circumstances. Being so advised, 

the Court orders civil penalties in the amount of $150,000 each 

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against both Mr. Dilley and Mr. Eldred. The Court believes that 

these Defendants have equal culpability and should face equal civil 

penalties. The Court further orders that Spartan and Island each 

pay civil penalties in the amount of $250,000. The Court has 

determined that these amounts are fair and appropriate under all 

the facts and circumstances. 

Accordingly, it is now 

 ORDERED, ADJUDGED, and DECREED: 

(1) The Motion for Remedies filed by Plaintiff Securities 

and Exchange Commission (Doc. # 270) is GRANTED in part and DENIED 

in part as set forth herein. 

(2) The Clerk is directed to enter judgments against the 

Defendants in accordance with this Order and thereafter CLOSE this 

case. 

DONE and ORDERED in Chambers in Tampa, Florida, this 10th day 

of August, 2022. 

       

 
 

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