Co-authored by Elizabeth D. Langdale.
The Securities and Exchange Commission filed an enforcement action against defendants Robert D. Orr and Leland G. Orr alleging massive financial fraud. As a result of the enforcement action, the court signed judgments of permanent injunctions against the defendants, with the defendants’ consent. As part of this consent decree, the defendants agreed to pay disgorgement, prejudgment interest on the disgorgement amount and civil penalties, in amounts to be determined by the court upon a subsequent motion by the SEC. The SEC filed its motion seeking the above monetary penalties, and defendants opposed the motion.
In opposing the motion, the Orrs disputed the accuracy, completeness and truthfulness of allegations in the SEC’s underlying complaint. The District Court rejected the defendants’ arguments, finding that by entering into a consent decree, the defendants had waived their right to litigate the issues involved in the underlying case.
In addition, the Court found that the defendants offered no evidence demonstrating that they were entitled to a reduction in the amount of disgorgement. The Court also found that because the defendants previously consented to an award of prejudgment interest, they were barred from challenging the equities of awarding prejudgment interest on the disgorgement amount. Finally, the Court exercised its “equitable discretion to fashion appropriate civil penalties” and, giving weight to the defendants’ efforts at “stepping into the gap and risking their own money and time to address unfolding and growing financial crises,” reduced the amount of civil penalties sought by the SEC. In sum, the defendants were ordered to pay nearly $1.24 million in disgorgements and prejudgment interest, and $68,000 in civil penalties.
SEC v. Robert D. Orr, Leland G. Orr, Michael S. Lowry, Michael S. Hess, Kyle L. Garst, and Travis W. Vrbas, No. 11-2251-SAC (D. Kan. Apr. 17, 2012)