SEC v. Veldhuis

• Court: Court of Appeals for the First Circuit
• Decided: February 19, 2026
• Docket: 24-1771
• Status: Published

Opinion

United States Court of Appeals For the First Circuit

Nos. 24-1770,24-1771,24-1772,24-1773,24-1774

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff, Appellee,

v.

ZHIYING YVONNE GASARCH; MIKE K. VELDHUIS; PAUL SEXTON; COURTNEY KELLN; JACKSON T. FRIESEN,

Defendants, Appellants,

FREDERICK L. SHARP; WILLIAM T. KAITZ; AVTAR S. DHILLON; GRAHAM R. TAYLOR,

Defendants.

APPEALS FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS

[Hon. William G. Young, U.S. District Judge]

Before

Gelpí, Thompson, and Montecalvo, Circuit Judges.

Karen A. Pickett, with whom Pickett Law Offices, P.C. was on brief, for appellant Zhiying Yvonne Gasarch.

Katie Renzler, with whom Michael Tremonte and Sher Tremonte LLP were on brief, for appellant Mike K. Veldhuis.

Robert S. Silverblatt, with whom Stephen G. Topetzes, Neil T. Smith, and K&L Gates LLP were on brief, for appellant Paul Sexton. Frank Scaduto, with whom Kevin B. Muhlendorf and Wiley Rein LLP were on brief, for appellant Courtney Kelln.

Maranda Fritz, with whom Timothy J. Fazio and MG+M The Law Firm were on brief, for appellant Jackson T. Friesen.

Kerry J. Dingle, Senior Appellate Counsel, with whom Jeffrey B. Finnell, Acting General Counsel, Tracey A. Hardin, Solicitor, and Daniel Staroselsky, Assistant General Counsel, were on brief, for appellee.

February 19, 2026 THOMPSON, Circuit Judge. The prospect of buying low on

a stock just before it shoots the moon has enamored investors for

centuries. But, as commonsense suggests and history has proven,

not every start-up becomes a blue chip and not every investment

reaps retirement-worthy profits. So, rather than taking a risk in

search of the next big bonanza, some underhanded financiers elect

to rig the system in their favor and, to the unfortunate detriment

of unsuspecting investors, profit off pure speculation that they

deceitfully conjure up.

Appellants Zhiying Yvonne Gasarch, Jackson Friesen, Mike

Veldhuis, Paul Sexton, and Courtney Kelln participated in a scheme

to do just that before they ran headfirst into federal securities

laws. For nearly a decade, appellants -- led by a character named

Frederick ("Fred") Sharp -- bought up cheap stocks in bulk, paid

promoters to drum up misleading hype for their stocks, and then

sold off their shares at artificially inflated prices. All the

while, appellants went to great lengths to hide their ownership of

these stocks and their involvement in this nefarious scheme.

When the music stopped and the lights came on, all five

appellants found themselves subject to an SEC civil enforcement

action and liable to pay back millions in ill-gotten gains.

Appellants Gasarch and Friesen now appeal the results of their

respective jury trials, and the remaining appellants appeal the

remedies imposed by the district court after they waived their

- 3 - trial rights and conceded liability. For myriad reasons, each

appellant claims error occurred below and that the district court

abused its discretion in ordering the remedies it deemed fitting

of the offenses. It will take us a minute to explain all of this,

so hunker down and read on to learn why we mostly agree and affirm

across the board, but for one remedy pertaining to appellant

Sexton.

I. SCENE-SETTING

A. Statutory Background

Before explaining the sophisticated scheme devised by

appellants, we lay some foundation on the federal securities laws

and regulations at issue in this appeal. While we will attempt to

do as much table setting as we can here, we will be supplementing

our legal discussion throughout the course of this multi-faceted

opinion.

This appeal follows an SEC civil enforcement action that

targeted a specific species of securities violations related to

stock registration and sale requirements. Securities (a broad

category of financial instruments which stocks are a part of) must

be registered before offering them for public sale pursuant to

Section 5 of the Securities Act of 1933 ("Securities Act"), 15

U.S.C. § 77e, unless they (1) fall under certain exemptions, or

(2) the security is a stock sold in accordance with the terms of

SEC Rule 144, 17 C.F.R. § 240.144A. This registration requirement

- 4 - is the "linchpin" of the Securities Act and "protects investors by

ensuring that companies issuing securities (known as 'issuers')

make a 'full and fair disclosure of information' relevant to a

public offering." Omnicare, Inc. v. Laborers Dist. Council Const.

Indus. Pension Fund, 575 U.S. 175, 178 (2015) (quoting Pinter v.

Dahl, 486 U.S. 622, 646 (1988)).

A few pages over in the U.S. Code lives Section 13(d) of

the Securities Exchange Act of 1934 ("Exchange Act"). Of import

here, that provision requires beneficial owners of more than five

percent of certain classes of securities to disclose to the SEC

their ownership interest in that security and other relevant

information. 15 U.S.C. § 78m(d); 17 C.F.R. § 240.13d-1(a). A

beneficial owner includes any person who has voting power to direct

voting of a security or investment power to direct the disposition

of a security. 17 C.F.R. § 240.13d-3(a). In essence, this

disclosure requirement seeks to keep tabs on who owns a large chunk

of a registered stock, how many shares they own, where they got

the money to purchase the stock, and why they made the purchase.

See Tax-Free Fixed Income Fund for P.R. Residents, Inc. v. Ocean

Cap. LLC, 137 F.4th 6, 18-19 (1st Cir. 2025) (citing Gen. Aircraft

Corp. v. Lampert, 556 F.2d 90, 94 (1st Cir. 1977)).

We need to introduce one more genre of securities law

pertaining to fraudulent conduct that artificially inflates demand

for a certain security. First, under Section 10(b) of the Exchange

- 5 - Act, 15 U.S.C. § 78j(b), it is unlawful to use or employ "any

manipulative or deceptive device or contrivance" to circumvent the

rules and regulations the SEC promulgates to protect investors and

the public interest. Similarly, under Section 17(a)(1) and (a)(3)

of the Securities Act, 15 U.S.C. § 77q(a)(1), (3), it is "unlawful

for any person in the offer or sale of any securities" to "employ

any device, scheme, or artifice to defraud," or "to engage in any

transaction, practice, or course of business which operates or

would operate as a fraud or deceit upon the purchaser." And if

those terms sound expansive, that was the legislative idea. United

States v. Naftalin, 441 U.S. 768, 773 (1979) (explaining that

"Congress expressly intended to define" fraud "in" the "offer" and

"sale" broadly).

The relevancy of these three areas of securities law

will become clearer as we explicate appellants' path to our court.

But, for now, what we've laid out should give the reader a

sufficient understanding of conduct prohibited by our Nation's

securities laws to appreciate appellants' contravening scheme.

B. Factual Background

Because this case comes to us following a jury trial and

the entry of consent judgments, we recount the relevant facts in

the light most favorable to the verdicts, SEC v. Happ, 392 F.3d

12, 17 (1st Cir. 2004), or otherwise as found by the district

- 6 - court, consistent with record support, BioPoint, Inc. v. Dickhaut,

110 F.4th 337, 341 (1st Cir. 2024).

1. The Scheme

Between 2010 and 2019, appellants participated in an

elaborate securities fraud scheme involving a series of separate

(but functionally parallel) endeavors, colloquially referred to as

pump and dump schemes. SEC v. Sharp (Sharp I), 626 F. Supp. 3d

345, 366 (D. Mass. 2022); see also SEC v. Sharp (Sharp II), 737

F. Supp. 3d 66, 73 (D. Mass. 2024) (citing Sharp I for factual

background). Each pump and dump here (fourteen at issue in this

enforcement action) proceeded in three steps, with each appellant

playing a different role (which we will dissect in detail shortly).

First, certain appellants accumulated blocks of penny stocks in

national micro-cap companies.1 Second, the group aggressively

promoted these companies' stocks using paid promotions to garnish

1 To minimize any head spinning, we will provide definitions for any finance jargon introduced along the way. Here, a penny stock is a general term given to shares of a small company that trades at a low price, usually under $5 a share. Penny stocks are notoriously volatile and risky and are often traded directly "over the counter" as opposed to on large stock exchanges like the New York Stock Exchange or the NASDAQ. A micro-cap company is a company with a market capitalization between $50 million and $300 million. Micro-cap companies can be lucrative investments, with lots of room for growth, but also risky. For reference, the market capitalization of the behemoth Coca-Cola Corporation is over $300 billion. Yahoo! Finance, The Coca-Cola Company (KO), https://finance.yahoo.com/quote/KO/ (last visited Jan. 21, 2026), [https://perma.cc/E67X-K5ZF]. So appellants dealt in small peanuts by comparison.

- 7 - attention and the interest of unwitting investors. And third,

after hyping the stocks (deceptively pumping up their value), the

group sold them to unsuspecting investors (dumped them) using shell

or nominee companies and offshore brokerage accounts that they

specifically set up to skirt federal securities laws. Sharp II,

737 F. Supp. 3d at 73. Over the years, appellants repeated this

process to the tune of more than $1 billion in gross proceeds.

Sharp I, 626 F. Supp. 3d at 366.

2. The Players

The just-described scheme began with the ideations of an

individual named Fred Sharp (code name "BOND").2 Sharp is not a

party in this appeal,3 but his spectre looms over many of the legal

issues we must address. Sharp was a financial professional and

the criminal mastermind directing a firm known as the Sharp Group.

Sharp I, 626 F. Supp. 3d at 366. In exchange for a lucrative fee,

the Sharp Group offered a white glove securities fraud service for

wealthy individuals seeking to score big returns. The enterprise

2 The reader will soon learn that Sharp (primarily running this scheme from Canada) worked hard to conceal his operation and transactions. Part of that process included encrypted communications and the use of code names (and sometimes more than one code name per person). Sharp dubbed himself "BOND" after novelist Ian Fleming's fictional British Secret Service agent with a propensity for high-speed chases, fine suits, and shaken -- not stirred -- martinis. 3 Following Sharp's failure to appear and the SEC's motion for default, the district court entered a default judgment against Sharp. Sharp I, 626 F. Supp. 3d at 364.

- 8 - provided a bundle of services to its clients such as setting up

shell companies to conceal their stock ownership, creating nominal

beneficial shareholders,4 offering offshore accounts, facilitating

deceptive stock transfers and money transfers, offering encrypted

accounts and communication systems, and producing fabricated

documents (such as fugazi loan agreements) to aid in the pumping

and dumping of their stocks. Sharp I, 626 F. Supp. 3d at 366.

Sharp's services provided his clients with valuable anonymity and

distance from SEC regulators, all with the goal of keeping them

out of jail.5 But, importantly, he didn't work alone.

Enter stage left appellants Gasarch and Kelln. Gasarch

(code name "WIRES") was one of Sharp's employees and was described

as "the master of finance." Gasarch handled the Sharp Group's

wire transfers, making sure proceeds from fraudulent stock sales

went to the right client and ensuring clients could access their

funds when needed. Sharp II, 737 F. Supp. 3d at 73 (citing Sharp

I, 626 F. Supp. 3d at 366-67). To do so, Gasarch helped maintain

records in the Sharp Group's internal accounting system and

4 A nominal beneficial shareholder is a person or entity holding shares or assets on behalf of someone else, the latter of which typically remains anonymous -- a perk that prospective fraudsters would likely find appealing. 5 Sharp also published a book titled Footloose; Charlie Smith's Offshore Chronicles that tells of a fictional character's masterful stock manipulations while working anonymously and far away from securities regulators.

- 9 - routinely created false invoices to give the appearance of

legitimate transactions. Id. (citing Sharp I, 626 F. Supp. 3d at

366-67).

While Gasarch moved the money, Kelln (code name "CELT"),

another Sharp Group employee, played the ownership shell game.

Kelln collected, allocated, and distributed shares of penny stocks

under the Sharp Group's common control to nominee entities to keep

the ownership of record under five percent (the threshold that

triggers additional SEC disclosure and registration requirements).

Id. at 73.

Lastly, we introduce the reader to appellants Veldhuis,

Sexton, and Friesen (code names "ACCO" or "4", "HEAR" or "3", and

"GARD" or "2" respectively) -- Sharp Group clients who operated

together as a group for the purposes of acquiring, holding, and

dumping shares of at least fourteen different stocks using the

Sharp Group's services.6 Sharp I, 626 F. Supp. 3d at 367. Each

6 This trio acquired their shares in various ways including reverse mergers. See Sharp I, 626 F. Supp. 3d at 368 (describing the acquisition of shares in Stevia First/Vitality Biopharma Inc. through a reverse merger). A reverse merger is when a private company acquires a public company and its assets, and former shareholders of the private company swap their shares for shares of the newly-merged public company. So, it is effectively a way for a company to go public without having to make the disclosures about their business and ownership that typically accompany the transition to becoming a publicly-traded company. See United States v. Weed, 873 F.3d 68, 70 n.2 (1st Cir. 2017).

- 10 - time the trio dumped their jacked-up stocks into the market, they

reaped considerable profits.

C. Procedural Background

The SEC finally caught onto this scheme and brought an

enforcement action on August 5, 2021, against nine defendants

including Sharp and our current gallimaufry of appellants.7 In

its detailed complaint, the SEC alleged that Sharp, Kelln,

Veldhuis, Sexton, and Friesen had violated Sections 17(a)(1) and

(3), and Sections 5(a) and 5(c) of the Securities Act, Section

10(b) of the Exchange Act, and that Sharp and Kelln had aided and

abetted the primary violations of Veldhuis, Sexton, and Friesen.

The complaint also alleged that Gasarch had violated Section

17(a)(3) of the Securities Act and aided and abetted her

compatriots in accomplishing their own primary violations. (These

violations fall under the registration, ownership disclosure, and

anti-fraud securities laws set forth earlier.)

On the same day the complaint was filed, the SEC filed

an emergency ex parte motion for a temporary restraining order

freezing assets of the named defendants and requesting equitable

relief from them all. Sharp I, 626 F. Supp. 3d at 363. The

district court granted the TRO, along with a series of preliminary

7The other three original defendants have left the picture and, unlike Sharp, their involvement is tangential to the present appeal. Therefore, we need not prolong this already lengthy matter with their backstory.

- 11 - injunctions over the course of the following month to keep those

assets frozen. Id.

After fully entertaining a barrage of motions to dismiss

filed by each of our current appellants, id. at 364, the district

court denied them in full. Id. at 403. At this point, appellants

Veldhuis, Sexton, and Kelln abandoned ship and conceded liability,

agreeing not to "contest liability under the claims filed by the

SEC" at the remedies stage. Sharp II, 737 F. Supp. 3d at 72.

Appellants Gasarch and Friesen, on the other hand, proceeded to

trial. So, let's talk about that and we'll loop Veldhuis, Sexton,

and Kelln back into the discussion when we get to remedies.

II. ACT ONE

A ten-day jury trial culminated in a series of unanimous

jury verdicts finding both Gasarch and Friesen liable for all

securities violations charged. Both appellants say the district

court whiffed on multiple fronts, beginning with the court's

decision to admit a critical piece of evidence we alluded to

earlier: the Sharp Group's internal accounting system known as the

Q system.8 Next, Gasarch alone claims the district court erred in

instructing the jury when it came to the charges against her.

Finally, Gasarch mounts a challenge to the sufficiency of the

8 Sharp got this name from the fictional James Bond character "Q" who led the research and development division of the British Secret Service and equipped 007 with gadgets and top-secret tech.

- 12 - evidence used to hold her liable for violating multiple securities

laws.

With the trial-related claims mapped out, we embark on

our review of these appellate contentions -- starting with the

admission of the Q system evidence.

A. Admission of the Q System Evidence

Anonymity was one of the Sharp Group's primary goals,

but at the end of the day, Fred Sharp had a business to run

efficiently and a service to provide his clients. He couldn't

afford to take his eye off the ball while he orchestrated the

ownership shell game with his clients' investments. So, he asked

his IT specialist (a character we will introduce soon) to create

an encrypted internal ledger, and he dubbed it the Q system. The

Q system kept track of all Sharp Group clients' stock holdings,

the nominee companies being utilized, the purchases and sales of

Sharp Group clients' stocks through those nominee companies, and

all transactions for the business -- including payments to clients

from their trade proceeds and commissions charged by the Sharp

Group.

Gasarch and Friesen argue that evidence pulled from the

Q system was admitted without proper foundation or authentication,

or was otherwise inadmissible hearsay.9 We review these

9 To be sure, appellants Veldhuis, Sexton, and Kelln also think the Q system evidence is problematic because it served as

- 13 - evidentiary challenges for abuse of discretion, United States v.

Paulino, 13 F.3d 20, 23 (1st Cir. 1994), and "may affirm the

district court ruling on any ground apparent from the appellate

record," United States v. Alzanki, 54 F.3d 994, 1008 (1st Cir.

1995). But before getting into the details of each argument, we

mark an important distinction. The authentication of the Q system

evidence is a separate and distinct inquiry from the question of

admissibility. Paulino, 13 F.3d at 24. In other words, "[t]he

mere fact that a document is authentic does not necessarily mean

that it is admissible in evidence." Id. Since an inauthentic

document has no basis for being treated as evidence, we treat that

question as the logical starting point for our analysis.

1. Authentication

When we say evidence must be authenticated, we mean "the

proponent must produce evidence sufficient to support a finding

that the item is what its proponent claims it is." United States

v. Blanchard, 867 F.3d 1, 5 (1st Cir. 2017) (quoting Fed. R. Evid.

901(a)). Evidence of authenticity may come from "direct testimony

of either a custodian or percipient witness," or from elements of

the item itself, such as "[t]he appearance, contents, substance,

internal patterns, or other distinctive characteristics of the

the basis for the district court's disgorgement calculations. In our consideration of the Q system's admissibility, as raised by Gasarch and Friesen, we are likewise responding to the other appellants' similar arguments.

- 14 - item, taken together with all the circumstances." Id. (first

quoting Paulino, 13 F.3d at 23, and then quoting Fed. R. Evid.

901(b)(4)).

So, here, appellants claim that the SEC did not provide

enough evidentiary information for the court to find that the Q

system was indeed the Sharp Group's internal ledger that recorded

the alleged fraudulent dealings and subsequent distributions.

Specifically, Gasarch and Friesen take aim at the fact that the

SEC may have presented a witness who created the Q system but did

not present one who personally entered information into the Q

system. Additionally, appellants argue that the SEC failed to

provide evidence of the method, timing, basis for, or reliability

of the entries within the Q system. By contrast, the SEC says it

produced multiple witnesses whose testimony laid a proper

foundation for finding that the Q system was exactly what the SEC

said it was. Draw near as we walk through the testimony of those

witnesses to decide whether the district court discretionarily

erred in deeming the Q system authentic.

The SEC first names Fedir Nikolayev, the Q system's

creator, as an authenticating witness.10 Nikolayev, a Ukrainian

software engineer residing in the Dominican Republic, worked as

10 Nikolayev did not appear at trial, but his deposition -- which took place earlier in the Dominican Republic -- was recorded and played for the jury.

- 15 - Fred Sharp's IT guru. In his testimony, Nikolayev explained how

Sharp complained to him that Sharp's people struggled using

Microsoft Excel, so Nikolayev suggested that he create a unique,

web-based accounting system that Sharp could use to keep track of

all his transactions. Nikolayev was one of two people (Sharp being

the other) who had full access to the Q system. Nikolayev used

his Q system credentials to monitor the system and make alterations

at Sharp's request -- typically adding other users (like employees

and customers) to the system and giving them limited access.

Nikolayev testified that the Q system was designed, and used, to

record all of the Sharp Group's transactions and monetary proceeds.

He also mentioned that Sharp kept the Q system servers in Curaçao,

a factoid that segways us to the SEC's next foundational witness.

At trial, the SEC called FBI Supervisory Special Agent

Chris Gianakura to testify about the seizure of those Q system

servers in Curaçao. Agent Gianakura had boots on the ground in

Curaçao when he and "Dutch Police" raided a data center and seized

servers hosting the Q system, including hard drives that had

stickers on them labeled "Bond."11 Agent Gianakura also described

the legal process to get those Q system servers sent to the United

States, which Sharp and his attorneys tried to prevent.

11At trial, the parties stipulated to the fact that the SEC's exhibits containing Q data came from data stored on servers marked "Bond" obtained in Curaçao.

- 16 - The third and fourth witnesses called in the

authentication chain were two former users of the Q system. Roger

Knox, a player deeply involved in Sharp's scheme,12 testified that

he knew Sharp used the Q system to keep track of cash and securities

transactions. Knox also explained that he interacted with the Q

system personally from 2011 to 2018, including his practice of

entering information from a stock trade into the Q system less

than 24 hours after making the trade. Additionally, Knox conducted

his own monthly double-checks of the system, comparing his trade

and proceeds records with the Q system to make sure everything

added up. The other former Q-system-user-turned-SEC-witness,

Kenneth Ciapala,13 also testified to interacting with the Q system

and recording his transactions therein at Sharp's request. Ciapala

attested that Sharp told him to enter all trading and wiring

information into the Q system, or else Sharp wouldn't do business

with him.

With the SEC's foundational evidence laid out, we find

it fatal to Gasarch and Friesen's assertion that only Nikolayev's

testimony was available for the court's authentication

considerations. As we've just outlined, the SEC called three more

12 Knox pleaded guilty in a separate (but related) criminal action and has been ordered to pay restitution of $58,046,278.24 to over 8,000 defrauded investors. 13 Ciapala also pleaded guilty to similar securities laws violations.

- 17 - percipient witnesses with personal knowledge of the Q

system -- specifically knowledge of how the SEC seized the system

and how members of the scheme used and verified the data therein.

Furthermore, we add that the content of disputed evidence "may

itself furnish indicia of authenticity." See Paulino, 13 F.3d at

24. Entries in the Q system deploy code names tied to members of

the scheme and list transactions of stocks during the time frame

that the Sharp Group ran its pump and dump schemes. Cf. id.

(finding a rent receipt authentic, in part, because it bore

appellant's name, listed his apartment number, and referred to a

time frame matching the offense). All Q data came from servers

labeled "Bond" seized in Curaçao and Knox testified that when he

entered trades into the Q system, he also assigned beneficiaries

to those transactions using code names like "ACCO" (Veldhuis) and

"GARD" (Friesen). Cf. United States v. Ceballos, 789 F.3d 607,

618 (5th Cir. 2015) (joining other circuits and finding "evidence

of ledgers maintained in furtherance of conspiracies to be

adequately authenticated by their distinctive contents and the

circumstances of their discovery -- at least when the proponent

offers the testimony of a participant in the conspiracy or a

witness familiar with its operations").

Putting everything together and giving the requisite

deference to the district court's considerable discretionary

latitude, we cannot conclude the court abused its discretion in

- 18 - finding that the Q system was what the SEC purported it to be.

That is, the evidence produced by the SEC was sufficient to find

that the Q system was the internal ledger that the Sharp Group

used to keep track of its dealings and distribute the proverbial

pie between members of the scheme. See Blanchard, 867 F.3d at 8

(finding sufficient foundational testimony while leaving further

questions of fact for the jury).

2. Admissibility

As we noted earlier, authenticity and admissibility,

while close cousins in the evidentiary family, are nevertheless

separate inquiries. We now turn to whether the Q system, though

authentic, was inadmissible hearsay as Gasarch and Friesen urge.

Briefly, and undisputed by the parties, because the Q

system evidence contained out of court "statements" introduced by

the SEC for the truth of the matter asserted, they are

quintessential hearsay statements. See U.S. Bank Tr., N.A. as Tr.

for LSF9 Master Participation Tr. v. Jones, 925 F.3d 534, 537 (1st

Cir. 2019) (citing Fed. R. Evid. 801(c), 802). Accordingly, to be

admissible, the evidence must fall under one of the exceptions to

the bar against hearsay evidence. At trial, the district court

posited that the Q system fell under an exception to hearsay known

as the business records exception, see Fed. R. Evid. 803(6), and

- 19 - later admitted the Q system into evidence on this ground, see Sharp

II, 737 F. Supp. 3d at 90.14

The business records exception provides that "a record

of an act, event, condition, opinion, or diagnosis is not excluded

by the rule against hearsay" if certain criteria are met. Jones,

925 F.3d at 537 (citation modified). Those criteria are: (1) "the

record was made at or near the time by -- or from information

transmitted by -- someone with knowledge;" (2) "the record was

kept in the course of a regularly conducted activity of a business,

organization, occupation, or calling . . . ;" (3) "making the

record was a regular practice of that activity;" (4) "all these

conditions are shown by the testimony of the custodian or another

qualified witness, or by a certification . . . ;" and (5) "the

opponent does not show that the source of information or the method

or circumstance of preparation indicate a lack of

trustworthiness." Fed. R. Evid. 803(6); United States v. Doe, 23

F.4th 146, 149 (1st Cir. 2022) (listing criteria).

Gasarch and Friesen challenge the applicability of the

business records exception to the Q system evidence and attack the

district court's decision from a few different angles. Gasarch

14The court confirmed this determination when addressing the parties' remedies arguments, Sharp II, 737 F. Supp. 3d at 90, because defense counsel pointed out that it wasn't clear whether the court had applied the business records exception or an exception for co-conspirator statements.

- 20 - argues that Nikolayev's testimony did not satisfy the first three

business-records-exception criteria and, alternatively, that the

evidence "indicate[s] an utter lack of trustworthiness." Friesen

sees the problem slightly differently. He argues that the

declaration of SEC expert witness Ryan Murphy did not establish

the reliability of the Q system evidence for entries regarding the

allocation of stock holdings and profits to individuals. In

forming this argument, Friesen concedes that the SEC verified (via

Murphy's declaration) Q system evidence related to the sales of

stocks by Sharp and his entities, but urges that does not

necessarily prove the reliability of the rest of the Q system

entries recording how Sharp dished out profits from those sales.

As we walk through both appellants' qualms and the

district court's reasoning, "[t]he key question is whether the

records in question are 'reliable enough to be admissible.'"

Jones, 925 F.3d at 538 (quoting FTC v. Direct Mktg. Concepts, Inc.,

624 F.3d 1, 16 n.15 (1st Cir. 2010)). And, based on the evidence

presented by the SEC at trial, we cannot conclude that the district

court abused its discretion in admitting the Q system evidence

under the business records exception. Here's why.

The district court offered a few justifications when it

finalized this evidentiary ruling. It noted that Nikolayev's

testimony established that limited persons could make entries into

the Q system and that the SEC's comparison of data from the Q

- 21 - system with independent brokerage records "confirmed the

reliability of Q data with considerable accuracy." Sharp II, 737

F. Supp. 3d at 90. More to this point, the court rattled off the

near perfect comparisons between the Q system's transactional data

and the records of independent brokerages for each of the fourteen

stocks at issue. Id. Additionally, the court found the Q system

data "highly accurate" because evidence at trial had "demonstrated

that Q system entries were made very close in time to the illegal

trading that occurred." Id. at 91.

Gasarch's assault on Nikolayev's qualifications to

testify likewise do not persuade us that the district court abused

its discretion. Contrary to Gasarch's apparent position, a

"qualified witness" under Rule 803(6) "need not be the person who

actually prepared the record." Jones, 925 F.3d at 538 (quoting

Wallace Motor Sales, Inc. v. Am. Motor Sales Corp., 780 F.2d 1049,

1061 (1st Cir. 1985)). "Rather, a qualified witness is simply one

who can explain and be cross-examined concerning the manner in

which the records are made and kept." Id. (citation modified).

Here, Nikolayev served that exact purpose. His testimony

explained: (1) Sharp's reasoning for wanting the Q system created;

(2) the different levels of access Sharp Group personnel had to

the system; (3) how the Sharp Group used the Q system; and (4) that

Sharp used the Q system as a regular function of his business.

And throughout Nikolayev's deposition, defense counsel was present

- 22 - and afforded an opportunity for cross-examination. Therefore,

Nikolayev was "qualified" to testify within the meaning of Rule

803(6).

Friesen's separate challenge to the reliability of the

Q system evidence tied to the allocation of proceeds requires a

different approach.15 To rehash this claim, Friesen bifurcates the

data within the Q system into two camps: essentially transactional

data and allocation data. Transactional data shows purchases and

sales of stock, including how many shares and at what price.

Allocation data shows where the proceeds went post-sale and to

whom. Friesen argues that the SEC only demonstrated the Q system's

reliability as to the transactional data, and did not meet such a

burden as to the Q system's allocation data.

To resolve Friesen's challenge, we first look to the

testimony of the two former Q system users we discussed earlier.

Starting with Knox, he explained at trial that he would log onto

the Q system server, enter in the data from a trade (such as the

company and the quantity sold), and "the system worked out the

commission that Fred Sharp was going to charge." Knox also

testified that any trade documented in the Q system had a

15 We lump in Gasarch's general challenge to the trustworthiness of the Q system evidence here because she has not specified any specific reason to question the trustworthiness of the evidence. Additionally, here we are intending to consider, and reject, appellants Veldhuis, Sexton, and Kelln's claim that the Q data is untrustworthy.

- 23 - "beneficiary" with a corresponding code name for the account that

the trade would be booked to. And, as we mentioned before, Knox

said that he cross-verified his accounting ledgers with the Q

system monthly to "make sure everything was accurate." As for the

other former Q system user, Ciapala, we reiterate that Ciapala

testified that not using the Q system was a barrier to doing

business with Sharp.

Next, the SEC's expert witness Ryan Murphy testified to

his analysis of all the Q records. Murphy first explained how he

reviewed the transactional data and confirmed the sales of stocks

by Sharp Group nominee companies (again, not the evidence Friesen

claims was inadmissible hearsay). From there, Murphy bridged the

gap from transactional data to allocation data and explained the

process of internal transfers from a sale of stock to appellants'

individual Q accounts. These internal transfers involved a debit

from the transactional data and then a matching credit to the

allocation data, with each transfer receiving a unique batch

identification number and Sharp taking a commission.

In addition to this testimony, record evidence

establishes the allocation data's reliability due to the financial

interests of various parties in getting paid correctly. Sharp's

scheme ran for nearly a decade, and his clients (including Friesen)

stuck around because they were making money. Recovered text

messages involving Friesen revealed that he made $173,000 in one

- 24 - day (to which his partner recommended he go buy a boat) and

$500,000 on another occasion. Furthermore, the SEC's evidence

demonstrated contemporaneous requests from appellants (including

Friesen) to access their allocated funds that matched debits in

the same amount recorded in the Q system. For example, an exhibit

entered at trial showed Friesen ("GARD") messaging Gasarch

("WIRES") on February 24, 2014, requesting a large sum of cash.

The Q system allocation data for the "GARD" account shows a debit

under the code "CASH" for $10,500 on February 24, 2014. Similarly,

the Q system allocations measured Sharp's cut of the

action -- meaning that everyone in on the scheme had reason to

maintain the accuracy of the Q system. Cf. Jones, 925 F.3d at

538-39 (inferring the reliability of integrated business records

based, in part, on the financial interests at stake).16

Based on the totality of evidence presented to support

the reliability of all Q system records, the district court did

Were we to add suspenders on top of this evidentiary belt, 16

the Q system allocation data could have cleared the hearsay bar as statements of co-conspirators. See Nat'l Union Fire Ins. Co. of Pittsburgh, PA v. W. Lake Acad., 548 F.3d 8, 21 (1st Cir. 2008) (stating that a court may decline to reverse a decision to admit evidence under the business record exception when an alternate hearsay exception applies). Witness testimony established, and the parties concede, that Sharp or Knox entered the allocation data into the Q system following a trade. Such entries were made in the Q system under cover of code names for the purposes of continuing to conceal ownership and evade securities laws.

- 25 - not abuse its discretion in admitting this evidence under the

business records exception.17 So we soldier on.

B. Jury Instructions

Gasarch alone challenges the jury instructions given at

her trial regarding aiding and abetting liability. She reprises

here (as she did below) that jury instructions for aiding and

abetting liability under 15 U.S.C. § 78t(e) must direct the jury

to determine whether she had knowledge of the specific primary

violations that she aided -- here being Sharp and his client's

concealment of their stock ownership and their pump and dump

schemes. So, according to Gasarch, the district court went astray

by (1) lowering the scienter standard from knowledge to knowledge

or recklessness, and (2) informing the jury that the SEC "[has] to

prove that Ms. Gasarch understood that her role or conduct was

part of an overall activity that was improper" as opposed to

proving knowledge of the specific violations. The SEC submits

that Gasarch's preferred instruction is inapplicable because it

comes from out-of-circuit precedent that pre-dates important

changes to the relevant securities statute and because it contains

17 Due to our resolution, we need not address Friesen's argument that the admission of the Q system evidence was not harmless. And, for what it's worth, we agree with the SEC that Friesen's argument attempts to challenge the sufficiency of the evidence used to prove liability without having preserved this challenge below. Friesen did not address this waiver problem in his reply brief, and regardless, the point is moot.

- 26 - an inaccurate specific knowledge requirement contrary to our

caselaw.

We review preserved challenges to jury instructions de

novo, reversing a district court's refusal to give a certain

instruction only where the requested instruction was "(1) correct

as a matter of substantive law, (2) not substantially incorporated

into the charge as rendered, and (3) integral to an important point

of the case." Davignon v. Hodgson, 524 F.3d 91, 108 (1st Cir.

2008) (quoting White v. N.H. Dep't of Corr., 221 F.3d 254, 263

(1st Cir. 2000)). If an error occurred, we then must determine

whether that error was harmless. Id.

Upon our de novo review, Gasarch's challenge to the

district court's jury instructions falls short for two reasons:

her preferred instruction is incorrect as a matter of substantive

law and her concerns were adequately incorporated into the

instructions as given. Gasarch first seems to suggest that aiding

and abetting liability under the Exchange Act and the Securities

Act can only be established by proving knowledge of the primary

violation. See SEC v. Apuzzo, 689 F.3d 204, 206 (2d Cir. 2012)

(listing "'knowledge' of [the primary] violation" as the second

element of the offense (quoting, in part, SEC v. DiBella, 587 F.3d

553, 566 (2d Cir. 2009))). However, as the SEC points out, the

2010 Dodd-Frank Wall Street Reform and Consumer Protection Act

amended the relevant provision for aiding and abetting liability

- 27 - to state that "any person that knowingly or recklessly provides

substantial assistance to another person in violation of a

provision of this chapter . . . shall be deemed to be in violation

of such provision to the same extent as the person to whom such

assistance is provided." 15 U.S.C. § 78t(e) (emphasis added); see

also Apuzzo, 689 F.3d at 211 n.6 (acknowledging the addition of

"recklessly" to the relevant statute in 2010 but not applying the

amended language). Accordingly, as a preliminary matter, Gasarch

is incorrect in claiming that the district court's jury

instructions needed to include a knowledge standard as opposed to

a knowingly and recklessly one.

Additionally, after reading the jury instructions in

full, we are persuaded that the instructions as given sufficiently

incorporated Gasarch's concerns. Gasarch argues the court needed

to instruct the jury that the SEC had the burden of proving she

knew about the specific violations she aided and abetted. We read

the court's instructions as incorporating this sentiment. The

full instructions given to the jury for this offense were that the

SEC needed to prove: (1) Sharp or others "were knowingly [or]

recklessly violating [Rule 10(b)(5) and Section 17(a)(1)], and for

17(a)(3), were negligently violating the securities law";

(2) "that Ms. Gasarch understood that her role or conduct was part

of an overall activity that was improper"; and (3) "that Gasarch

knowingly or recklessly provided substantial assistance to the

- 28 - violation." (Emphasis added).18 These elements largely map onto

those we've previously identified for this offense (minus the

"recklessly" standard that hadn't been added yet). See SEC v.

Tambone, 550 F.3d 106, 144 (1st Cir. 2008), reh'g en banc granted,

opinion withdrawn, 573 F.3d 54, 55 (1st Cir. 2009), opinion

reinstated in relevant part on reh'g, 597 F.3d 436, 450 (1st Cir.

2010) (en banc).

Gasarch frames the instructions as failing to levy a

requirement that she "ha[d] knowledge of the specific securities

violation by the primary violator." But her claim overlooks the

first and third elements of the challenged jury instructions (which

probably explains why she only quoted the second element in her

brief). The jury almost certainly considered Gasarch's knowledge,

or reckless disregard, of the primary violations because the

instructions said so explicitly and listed those primary

violations. See Davignon, 524 F.3d at 109.

Before departing from this issue, we recognize that

Gasarch also raises an argument related to the district court's

use of Apuzzo in its motion to dismiss decision. See Sharp I, 626

F. Supp. 3d at 398. In one clause of her opening brief, Gasarch

says "[d]espite the trial judge adopting the Apuzzo standard in

18The court also defined "substantial assistance" as meaning that "Gasarch in some way associated herself with the venture, that she participated in it as something that she wished to bring about, and that she sought by her action to make it succeed."

- 29 - his opinion on the motions to dismiss, the judge charged the jury

on the second element as follows . . ." and proceeds to quote the

instruction we've already produced for the reader. Then, in her

reply brief, Gasarch claims that the SEC "completely ignores" her

argument that "the district court specifically adopted the holding

in Apuzzo." But, unlike her opening brief, Gasarch's reply brief

goes a half-step further and cites two cases that invoke the "law

of the case doctrine." See Arizona v. California, 460 U.S. 605,

618 (1983) (explaining that "when a court decides upon a rule of

law, that decision should continue to govern the same issues in

subsequent stages in the same case"); United States v. Matthews,

643 F.3d 9, 12 (1st Cir. 2011) (same).

Yet from our perspective, the SEC's "complete ignoring"

of Gasarch's law of the case argument should've come as no surprise

to Gasarch considering she (at most) superficially hinted at an

argument under this doctrine in her opening brief. Our court has

made clear that we do not consider arguments raised for the first

time in an appellant's reply brief as such sandbagging "deprives

the appellee of an opportunity to respond in writing on the issue."

Sparkle Hill, Inc. v. Interstate Mat Corp., 788 F.3d 25, 29 (1st

Cir. 2015); see Seafreeze Shoreside, Inc. v. U.S. Dep't of

Interior, 123 F.4th 1, 23 n.9 (1st Cir. 2024). Therefore, Gasarch

has waived this claim.

- 30 - In sum, we conclude the district court did not err in

its jury instructions related to Gasarch's aiding and abetting

liability.

C. Sufficiency of the Evidence

In the final portion of our trial-related appellate

contentions, Gasarch asserts that no reasonable jury could have

found her liable as either a primary violator or an aider and

abettor of securities laws violations based on the evidence

presented by the SEC. Because Gasarch properly moved for judgement

as a matter of law before the district court, we review her

challenge de novo. SEC v. Lemelson, 57 F.4th 17, 23 (1st Cir.

2023).

Throughout our de novo review, we "construe facts in the

light most favorable to the jury verdict, draw any inferences in

favor of the non-movant, and abstain from evaluating the

credibility of the witnesses or the weight of the evidence." Id.

(quoting Suero-Algarín v. CMT Hosp. Hima San Pablo Caguas, 957

F.3d 30, 37 (1st Cir. 2020)). And in the end, we must ask whether

a rational jury could have found in the SEC's favor and set aside

the verdict "only if the jury failed to reach the only result

permitted by the evidence." Id. (quoting Quiles-Quiles v.

Henderson, 439 F.3d 1, 4 (1st Cir. 2006)).

- 31 - 1. Primary Violator

Gasarch claims that "there is no evidence that [she] was

involved at all in trading securities or making any statements

used by the investing public. She made no representations at all."

And while Gasarch may have been the owner of a nominee company

used to perpetuate the fraudulent scheme, it was really Sharp, not

her, who controlled that nominee company. Additionally, Gasarch

claims that "[t]here is not a scintilla of evidence" that she had

the "requisite scienter" to violate any of the SEC provisions for

which she was charged, nor was there evidence that she "should

have known of the [SEC's] five percent rule and the ban against

'pump and dump' and ignored it." Putting aside her flirtation

with waiver by presenting her claims in such conclusory fashion,

we disagree with her contentions, at least as we understand them.

The jury found that Gasarch violated Section 17(a)(3) of

the Securities Act which, to repeat, makes it "unlawful for any

person in the offer or sale of any securities . . . directly or

indirectly . . . to engage in any transaction, practice, or course

of business which operates or would operate as a fraud or deceit

upon the purchaser." 15 U.S.C. § 77q(a)(3). Contrary to Gasarch's

comment on the "requisite scienter," the Supreme Court determined

nearly half a century ago that Section 17(a)(3) does not have a

scienter requirement. See Aaron v. SEC, 446 U.S. 680, 697 (1980).

Instead, the statute "quite plainly focuses upon the effect of

- 32 - particular conduct on members of the investing public, rather than

upon the culpability of the person responsible." Id. We have

also said as much, that "[p]roof of scienter is required to

establish violations of . . . [S]ection 17(a)(1), but negligence

is sufficient to establish liability under [S]ection 17(a)(2) or

[S]ection 17(a)(3)." SEC v. Johnston, 986 F.3d 63, 74 (1st Cir.

2021). So, because Gasarch's argument is incorrect off the jump

in that the SEC did not need to provide evidence that she knew

about the securities violations she committed, we need not consider

whether the evidence was sufficient to prove a non-existent

element.19

Next, Gasarch claims that the SEC failed to produce any

evidence that she was involved in any security trading or that she

made any statements used by the investing public. The latter point

is a dead letter, as Gasarch was found liable under Section

17(a)(3) for her fraudulent conduct and not for making untrue

statements -- a possible violation of the separate but related

Section 17(a)(2). See 15 U.S.C. § 77q(a)(2); see also Lorenzo v.

SEC, 587 U.S. 71, 77 (2019) (discussing the differences between

Section 17(a)'s three provisions). Having separated the wheat

from the chaff, we are left with Gasarch's claim that the SEC

19 Gasarch seemingly concedes that the SEC only needed to demonstrate negligence in her reply brief, but this peace between the parties soon crumbled as Gasarch's arguments continue to push a higher, and incorrect, knowledge scienter.

- 33 - failed to prove her involvement in any securities trading,

notwithstanding her ownership of a nominee company undeniably

involved in the fraudulent scheme.

From the SEC's perspective, Gasarch's appellate

asseveration again misses the mark because Section 17(a)(3) covers

a wide swath of fraudulent behavior beyond just making

transactions. To continue, the SEC also says that Gasarch's role

as the owner of a nominee company that was used to trade shares of

nine problematic stocks ("problematic" being our shorthand for

stocks that were pumped and dumped and whose ownership was

impermissibly concealed) and her "other deceptive conduct in

connection with the scheme" support the jury's verdict.

We first recognize that, contrary to Gasarch's sweeping

statement, the SEC did not need to submit evidence that Gasarch

traded securities for a jury to find her liable under

Section 17(a)(3). Cf. Johnston, 986 F.3d at 76 (finding sufficient

evidence of claims under Sections 17(a)(1)-(3) based on misleading

statements made to investors unrelated to trading). Rather, "[a]

defendant may be liable under [Section] 17(a)(3) if [s]he undertook

a deceptive scheme or course of conduct that went

beyond . . . misrepresentations." SEC v. Bio Def. Corp.,

No. 12-11669, 2019 WL 7578525, at *25 (D. Mass. Sept. 6, 2019)

(cleaned up), aff'd sub nom. SEC v. Morrone, 997 F.3d 52, 62 (1st

Cir. 2021).

- 34 - The SEC provided sufficient evidence from which a

reasonable jury could conclude that Gasarch was "engaged in a

transaction, practice, or course of business which

operates . . . as a fraud or deceit upon the purchaser of a

security." Morrone, 997 F.3d at 62 (citation modified). On a

general level, encrypted email correspondence revealed Gasarch's

centrality to the scheme as she was considered "the master of

finance" within the Sharp Group. And in this role, she wired money

across the globe, making sure it got where it needed to go. Digging

down a bit deeper into the scheme, SEC witness Knox explained that

Gasarch would doctor or create invoices (sometimes incorrectly,

which Knox would have to point out and correct) to cover up wire

transfers and give them the appearance of legitimacy. For example,

the SEC entered into evidence a fax sent to Knox from one of the

Sharp Group's nominee companies and an invoice from a large law

firm. The fax requested that Knox wire $129,000 to a Citibank

account with the beneficiary set as the law firm requesting

payment. The SEC presented these documents alongside their

metadata records that showed Gasarch as the author of the law firm

invoice and as the last editor of both documents just before they

were sent to Knox. Moreover, Knox testified that this invoice was

not a normal invoice from this law firm, that it appeared to him

to be a "patchwork" with the initial recipient altered (as in, the

law firm did not provide these services to this Sharp Group

- 35 - nominee), and that it "looked fake . . . like something from a

photoshop."

Then we have the SEC's evidence regarding Gasarch's

ownership of one of the Sharp Group's nominee companies that traded

in nine of the problematic issuers: Peregrine Capital (formerly

known as Peaceful Lion, the name we'll be using). The Peaceful

Lion account at Knox's firm remitted funds from stock sales to

various individuals and entities, including at one point appellant

Kelln's doctor to pay a bill. While Gasarch claims that "every

witness . . . said that Fred Sharp controlled" this nominee

company, Knox testified to the opposite. Knox said the majority

of payment directions pertaining to the Peaceful Lion account came

from Gasarch for the benefit of unnamed and hidden individuals.

Therefore, the SEC presented evidence that Gasarch actively

"engaged" in the deceptive scheme by directing the transfer of

funds from the nominee account to the true beneficial owners of

the stock. See Bio Def. Corp., 2019 WL 7578525, at *25.

Gasarch's claim that she was only an administrative

assistant who had no reason to know fraudulent conduct was afoot

doesn't fit the facts we have before us. More importantly, her

preferred verdict was not "the only result permitted by the

evidence." Lemelson, 57 F.4th at 23 (citation modified). Between

Gasarch's role as the "master of finance" for the Sharp Group, her

doctoring of documents to create an air of legitimacy, and her

- 36 - ownership of one of the nominee companies used to perpetuate the

fraudulent scheme, there was sufficient evidence before the jury

to conclude that Gasarch was engaged in a course of business to

defraud and deceive investors.

2. Aiding and Abetting

In addition to finding Gasarch a primary violator of

Section 17(a)(3), the jury also found Gasarch liable for aiding

and abetting violations of "Sections 17(a)(1), Sections 17(a)(3)

of the Securities Act of 1933, or Section 10(b) of the Securities

Exchange Act of 1934 and Rule 10b-5(a) and (c)." Gasarch again

challenges the sufficiency of the evidence presented by the SEC to

support the jury's verdict, similarly asserting (rather than

arguing through our caselaw) that the evidence did not establish

that she knew the Sharp Group engaged in securities violations or

that she provided substantial assistance to those violations.

Distilled, Gasarch claims she "was a functionary who sat in the

reception area of an office suite" and nothing more.

Much of the evidence the SEC cites to support the jury's

aiding and abetting verdict mirrors the evidence it cited to

support the primary violation verdict under Section 17(a)(3).

However, as we mentioned in our prior discussion of the jury

instructions for aiding and abetting liability, this statute

requires proof that Gasarch knowingly or recklessly provided

substantial assistance to the fraudulent scheme. See 15 U.S.C.

- 37 - § 78t(e); see also Lorenzo, 587 U.S. at 82. So, to satisfy this

higher scienter standard, the SEC highlights additional evidence

produced at trial in the form of encrypted messages which we will

now walk the reader through. See Aldridge v. A.T. Cross Corp.,

284 F.3d 72, 82 (1st Cir. 2002) ("[T]he plaintiff may combine

various facts and circumstances indicating fraudulent intent to

show a strong inference of scienter.").

As we discussed when introducing the details of this

pump and dump scheme, the Sharp Group paid promotors to pump up

the value of their clandestine holdings. In one message thread

discussing promotions and payments, Gasarch followed up from a

wire request by asking "[i]s for promotion? [sic] . . . I need to

find a safe account for wire, if this is a promotion." In another

text thread presented at trial, Gasarch received a wire request

and responded that, when paying for promotions, she couldn't send

too much at a time and that she needed to use a specific bank for

the wire. In that same conversation, when asked if she could send

promotion funding sooner, she said she needed to wait five days

because "I play safe." In her reply brief, Gasarch takes issue

with the SEC's reliance on this evidence without "even attempt[ing]

to decipher what [Gasarch] meant in 2014 by the word 'safe.'"

Taken in the light most favorable to the SEC, see, e.g., United

States v. Condron, 98 F.4th 1, 18 (1st Cir. 2024), the jury could

have reasonably concluded "safe" accounts and conduct implicitly

- 38 - acknowledged the existence of "unsafe" accounts and conduct. As

in, Gasarch knew that she couldn't use certain accounts or act too

quickly when paying stock promoters -- a critical step for the

pump and dump schemes' success. See id. at 19 (holding a jury

could reasonably infer the defendant's intent to defraud based on

circumstantial evidence).

The SEC also presented an encrypted email chain between

Gasarch and Sharp (using the code names "WIRES" and "BOND") where

the two discussed Sharp's concern over apparent money laundering.

In that conversation, Sharp asked Gasarch to explain how a

disbursement of cash to a client was "a legitimate payment" and

wanted Gasarch to prepare a response in case the police ever came

snooping around. Gasarch responded with the suggestion that they

call the payment a loan, and that they could have the client sign

a loan agreement to bolster appearances.

This evidence, in addition to what we've already

recounted regarding Gasarch's near-decade long role as the "master

of finance" who handled the Sharp Group's wire transfers, is

sufficient for a reasonable jury to conclude that she knowingly or

recklessly provided substantial assistance to the commission of

securities law violations at the Sharp Group.

III. INTERMISSION

To recap, we affirm the district court's evidentiary

rulings regarding the Q system, find no error in the district

- 39 - court's jury instructions as given, and ultimately leave Gasarch

and Friesen's jury verdicts untouched. With the trial matters in

the rear view, we may loop back in appellants Veldhuis, Sexton,

and Kelln and proceed to the second half of this collective appeal

focusing on the remedial measures ordered by the district court.

IV. ACT TWO

The SEC sought three classes of remedies before the

district court: (1) disgorgement and prejudgment interest against

all appellants in varying amounts tailored to the profits they

received; (2) civil penalties in varying amounts likewise tailored

to each appellant's participation in the scheme; and

(3) injunctive relief against Sexton, Friesen, and Gasarch. See

Sharp II, 737 F. Supp. 3d at 73. After a thorough review of the

case and the evidence submitted, the district court found

appellants jointly and severally liable with Sharp for

disgorgement awards capped at the following amounts:

• Gasarch - $2,522,367

• Kelln - $1,582,785

• Sexton - $17,367,474

• Veldhuis - $13,289,897

• Friesen - $11,846,176

- 40 - Id. at 95. The court did not impose prejudgment interest on the

disgorgement awards. Id. In addition to disgorgement, appellants

were also ordered to pay civil penalties in the following amounts:

• Gasarch - $296,651

• Kelln - $904,078

• Sexton - $1,562,603

• Veldhuis - $1,562,603

• Friesen - $1,562,603

Id. And beyond monetary remedies, the district court also issued

several injunctions against appellants. At a general level (we'll

get to the nitty-gritty level later), the court issued:

(1) permanent injunctions barring appellants from violating

securities laws in the future; (2) specific, conduct-based

injunctions preventing appellants from professionally engaging in

the national securities market; and (3) injunctions barring

appellants from participating in future penny stock offerings.

Id. at 77-79.

We will discuss each of these remedies levied on

appellants, as well as their arguments as to why they cannot remain

in place, starting with disgorgement.

A. Disgorgement

Appellants collectively challenge the district court's

disgorgement award in practically every conceivable manner. We

- 41 - will address each claim in turn, while scrutinizing the district

court's decision and reasoning throughout that process. But first,

a bit more on what we mean by disgorgement.

Disgorgement is an equitable remedy designed "to strip

wrongdoers of their ill-gotten gains" and compensate their

victims. Liu v. SEC, 591 U.S. 71, 79 (2020). Congress has

authorized the SEC to seek, and district courts to grant,

"disgorgement . . . of any unjust enrichment by the person who

received such unjust enrichment as a result of such violation."

15 U.S.C. § 78u(d)(3)(A)(ii); see also id. § 78u(d)(7).

"Disgorgement may only be ordered in an amount that is a reasonable

approximation of profits causally connected to the underlying

violation." SEC v. Commonwealth Equity Servs., LLC, 133 F.4th

152, 171 (1st Cir. 2025) (citation modified). And, in seeking

this remedy, the SEC bears the burden of showing that its request

is a reasonable approximation of the defendant's unjust

enrichment. Id. Once the SEC has established a reasonable

approximation, "the burden shifts to the defendant to demonstrate

that the amount of disgorgement is not a reasonable approximation."

SEC v. Navellier & Assocs., Inc., 108 F.4th 19, 42 (1st Cir. 2024)

(citation modified).

As we mentioned, between our five appellants, we've got

a lot of ground to cover starting with the availability of the

award, a determination we review de novo. Id. at 41; see also In

- 42 - re PHC, Inc. S'holder Litig., 894 F.3d 419, 435 (1st Cir. 2018)

("The availability of an equitable remedy presents a question of

law engendering de novo review.").

1. Availability of Disgorgement

Disgorgement is a "profit-based measure of unjust

enrichment which reflects the foundational principle that it would

be inequitable that a wrongdoer should make a profit out of their

own wrong." Navellier & Assocs., Inc., 108 F.4th at 41 (citation

modified). Thus, the award of disgorgement is "tethered to a

wrongdoer's net unlawful profits." Id. (quoting Liu, 591 U.S. at

80).

Appellants seek an early victory in arguing that once

the district court decided that it couldn't determine the amount

of ill-gotten gains each appellant received, disgorgement was off

the table. In other words, sans proof of profits there cannot be

a court order to return any profits.

We disagree with appellants' view of (1) the evidence

here of ill-gotten profits and (2) the district court's role in

ordering disgorgement. Starting with argument one, we note that

in a declaration to the district court, the SEC's expert witness

Ryan Murphy explained how he combed through the Q system and other

available evidence to calculate each appellant's proceeds derived

from sales of the fourteen problematic stocks at issue in this

case. Furthermore, as we mentioned earlier, Murphy verified the

- 43 - transactional data within the Q system by comparing it to

independent brokerage records, thereby confirming the existence of

profits. So, with that evidence of ill-gotten gains on the table,

like the district court and in our de novo review, we agree that

"disgorgement was available in principle." Navellier & Assocs.,

Inc., 108 F.4th at 41 (quoting In re PHC, Inc., 894 F.3d at 437).

That said, in raising this disgorgement-error argument,

we recognize appellants' deeper concern to be the district court's

decision to order appellants jointly and severally liable with

ringleader Sharp for their disgorgement awards. However, unlike

the legal question of whether disgorgement is available, see id.

at 41, we review challenges to the substance of the district

court's disgorgement order, including the decision to impose joint

and several liability, for abuse of discretion, id. at 42. And

that decision is where we shift our focus to next.

2. Joint and Several Liability

When it came time to award disgorgement, the district

court faced a dilemma. Q system data, verified by external

brokerage records and expert testimony, established that

ill-gotten gains were, in fact, generated by the appellants' pump

and dump schemes. Sharp II, 737 F. Supp. 3d at 93-94. However,

the precise moment of receipt for those ill-gotten gains was not

always as clear. Id. at 91 (considering "the lack of bank records

showing actual receipt of funds"). The evidence showed illicit

- 44 - proceeds allocated to appellants' individual Q accounts and

appellants spending some of those proceeds, but not all.

Therefore, from the district court's point of view, it was entirely

possible that "at least a portion of the ill-gotten gains may have

never reached the pockets of individual [appellants]." Id. at 94.

After considering the evidence, the district court

decided that the balance of equities favored awarding disgorgement

awards in the amounts sought by the SEC. Id. at 91. But the court

added a caveat to the SEC's initial request and held each appellant

jointly and severally liable with Fred Sharp (who handled all

profits until distributed) for their disgorgement amounts. Id. at

92. The court justified its decision by explaining that joint and

several liability was appropriate in this case because appellants'

ill-gotten gains were the product of "concerted wrongdoing." Id.

More specifically, the court found appellants were co-conspirators

in a hub-and-spoke model with Sharp operating at the hub.20 Id.

But, despite finding appellants jointly and severally liable with

Sharp, the court nevertheless capped the amount that could be

disgorged from each appellant at the amount initially requested by

20The hub-and-spoke model of conspiracy (named after the familiar design of a wheel) involves "a central mastermind, or 'hub,' [who] controls numerous 'spokes,' or secondary co-conspirators. These co-conspirators participate in independent transactions with the individual or group of individuals at the 'hub' that collectively further a single, illegal enterprise." United States v. Newton, 326 F.3d 253, 255 n.2 (1st Cir. 2003) (citing Kotteakos v. United States, 328 U.S. 750, 754-55 (1946)).

- 45 - the SEC, based on the Q system data. Id. at 92-93. The

designations, therefore, did not expand any appellant's liability

beyond the SEC's request.

Appellants now band together and argue the district

court abused its discretion by holding them jointly and severally

liable with Sharp. To appellants, the district court's decision

to impose joint and several liability inexplicably belies the

"default rule" of individual liability for disgorgement awards.

The SEC, for its part, concedes that it never asked the district

court to find appellants jointly and severally liable and that it

would not object to striking these designations while keeping

appellants individually liable for the same amounts.

Alternatively, the SEC defends the district court's determination

by arguing appellants' "long-running conspiracy to defraud

investors" amounts to concerted wrongdoing suitable of joint and

several disgorgement awards.

At this juncture, we must digress briefly to explain why

we cannot accept the SEC's attempted olive branch. The SEC says

that the joint and several liability designations are unnecessary,

and that we could strike them while leaving the disgorgement awards

otherwise intact. Appellants disagree and argue that the

disgorgement awards could not have been imposed without the court's

joint and several designations. When issuing its decision, the

court first described joint and several liability as the "[t]hird

- 46 - and most important[]" factor "favor[ing] the awarding of the

disgorgement amounts requested by the SEC." Sharp II, 737

F. Supp. 3d at 92 (first quote); id. at 91 (second quote). It

then decided that the imposition of prejudgment interest was not

equitable because it had already awarded disgorgement and "actual

accrual to each of the Defendants [could not] be shown." Id. at

94. The court repeated this sentiment, professing that there was

an "absence of a precise determination as to the amount of

ill-gotten gains actually obtained by the individual

co-conspirators in the various conspiracies." Id. at 95. After

careful review of the court's decision, we take the court to mean

that the evidence produced by the SEC was insufficient to award

disgorgement on a purely individualized basis beyond what the SEC

had proven was actually distributed to each appellant and,

therefore, it would not have awarded disgorgement but for the joint

and several liability designations.

Regardless, we may decline the SEC's suggestion and

refrain from deciding whether the designations can be struck (or,

put differently, their necessity) because the district court did

not abuse its discretion in fashioning these equitable remedies.

See SEC v. Sargent, 329 F.3d 34, 41 (1st Cir. 2003) (deferring to

a district court's equitable remedy). Here's why.

The default rule referenced by appellants (and

recognized by the district court, Sharp II, 737 F. Supp. 3d at 92

- 47 - n.16) comes from the Supreme Court's pronouncement in Liu v. SEC,

591 U.S. 71 (2020). There, the Court elucidated that joint and

several liability is disfavored when awarding equitable remedies

because it risks transforming such remedies into penalties by

holding defendants liable for profits "accrued to another, and in

which they have no participation." Liu, 591 U.S. at 90 (citation

modified). However, when making this pronouncement, the Court

also unequivocally left open the possibility of joint liability

for "partners engaged in concerted wrongdoing." Id. at 90-91

(citing Ambler v. Whipple, 87 U.S. 546, 559 (1874)). Furthermore,

our court has previously examined, and upheld, the application of

joint and several liability for a disgorgement award where

appellants engaged in concerted wrongdoing. See Navellier &

Assocs., Inc., 108 F.4th at 43 (citing Liu, 591 U.S. at 90). And

here, we cannot conclude that the district court abused its

discretion in applying this limited and recognized exception.

In its disgorgement order, the district court found that

each appellant had conspired with Sharp to commit securities fraud

and had received illicit gains as a result. Sharp II, 737

F. Supp. 3d at 92. For all the ink spilled over joint and several

liability in appellants' briefing, no one broaches the question of

how or why involvement in a conspiracy to commit securities fraud

does not constitute "concerted wrongdoing" between

co-conspirators. We struggle to think of a clearer example. See

- 48 - SEC v. Johnson, 43 F.4th 382, 392-93 (4th Cir. 2022) (applying

Liu's "concerted wrongdoing" exception to an entity and control

person who shared "coordinated roles in perpetrating the scheme");

see also United States v. Ochoa, 58 F.4th 556, 561 (1st Cir. 2023)

(explaining the rationale behind joint and several restitution

orders for co-conspirators who defrauded investors).

Accordingly, we reject appellants' position that the

district court abused its discretion by deviating from the default

rule for disgorgement awards in this case. As all parties

recognize, instances of concerted wrongdoing can rebut the general

rule disfavoring joint and several disgorgement awards, see Liu

591 U.S. at 90, and no one has suggested that the district court

erred in finding the existence of a hub-and-spoke conspiracy which,

in turn, supports its application of the concerted wrongdoing

exception.

Appellants' remaining arguments are unavailing. Each

appellant compares their circumstances to those presented in a

similar matter before our court. In BioPoint, Inc. v. Dickhaut,

110 F.4th 337, 353 (1st Cir. 2024), we concluded the district court

abused its discretion in holding Dickhaut, "an individual,

non-owner, non-director employee," jointly and severally liable

with his profiting corporate employer. There, we observed

"[m]ultiple red flags identified in Liu" disfavoring joint and

several liability. Id. at 352. It was undisputed that the profits

- 49 - attributable to the illicit scheme were not commingled and accrued

solely to Catapult (Dickhaut's employer) rather than to Dickhaut.

Id. We concluded that Dickhaut's high-ranking position and mere

collaboration with the corporate entity, without a determination

of how much he benefitted from the scheme, made the joint and

several disgorgement award inconsistent with equitable principles

because it ordered Dickhaut to repay profits reaped by another.

Id. at 353.

Returning to the issue at hand, we are in a far better

position to determine appellants' receipt of ill-gotten gains than

we were in BioPoint. Here, the district court did the appropriate

leg work to determine that each appellant enjoyed the fruits of

the scheme based on the amounts allocated to their individual Q

accounts. The evidence established that the funds credited to

appellants' Q accounts were held by the Sharp Group until requested

in cash or wired to their desired destinations. Moreover, the

caps imposed by the district court ensure that each appellant only

pays up to the amount allocated in their individual Q account and,

thus, "not [profits] which have accrued to another, and in which

they have no participation." Liu, 591 U.S. at 90 (citation

modified); cf. BioPoint, 110 F.4th at 353 (reversing a

determination that ran afoul of Liu). Therefore, appellants' state

of affairs presents meaningful differences from those red flags

identified in BioPoint, and the imposition of joint and several

- 50 - liability did not transform this "equitable profits-focused remedy

into a penalty." See Liu, 591 U.S. at 90.

Before departing from this issue, we must address one

more appellate contention raised only in Veldhuis, Sexton, and

Kelln's opening brief.21 These appellants assert that it was legal

error for the court to impose joint and several liability sua

sponte.22 We disagree.

Appellants inform us that "[s]ua sponte remedies are

generally disfavored," and that the SEC never requested this

designation at any stage of litigation. The SEC does not claim to

21 Appellants Veldhuis, Sexton, and Kelln also argue that joint and several liability was improper because a default judgment and disgorgement order had already been imposed against Sharp, and the district court lacked the authority to expand that judgment (by holding him jointly and severally liable) without request from the SEC and without notice to Sharp. The problem for appellants is that this is a claim for Sharp and Sharp only, considering that only his default judgment is being amended and the joint and several liability designations do not prejudice appellants in any way (keep this in mind). Thus, appellants have no basis for raising this argument. And, we hasten to add that the default judgment and disgorgement order against Sharp remained amendable by the district court because that judgment resolved "fewer than all the claims or the rights and liabilities of fewer than all the parties" involved and "d[id] not end the action." Fed. R. Civ. P. 54(b); see also Fed. R. Civ. P. 55(c), Advisory Committee Notes Amendment 2015 ("Until final judgment is entered, Rule 54(b) allows revision of the default judgment at any time."). 22Sua sponte "is Latin for 'of one's one accord' and legalese for actions taken by a court without prompting by a party." Calderón-Amézquita v. Rivera-Cruz, 158 F.4th 54, 65 (1st Cir. 2025).

- 51 - have raised the issue to the district court, but it "does not

believe the designation prejudices the appellants in any way."

Moreover, the SEC describes the district court's sua sponte

determination as an exercise in caution, that the court was merely

"dotting [its] i's and crossing [its] t's."

This precise question has escaped our review thus far.

We'll begin our analysis with a general observation borrowed from

a different sua sponte-related question: the authority to act sua

sponte "should be exercised sparingly and with great

circumspection." McCoy v. Town of Pittsfield, 59 F.4th 497, 504

(1st Cir. 2023) (citation modified). Sticking with generalities

involving sua sponte decisions (which are all appellants have given

us to work with), our chief concern is whether the parties were

afforded adequate notice that the district court might act and

whether any lack of notice was prejudicial. Cf. Calderón-Amézquita

v. Rivera-Cruz, 158 F.4th 54, 67 (1st Cir. 2025) (reviewing a

district court's sua sponte decision to convert a motion to dismiss

into a motion for summary judgment).

As things played out here, even if appellants lacked

adequate notice that joint and several liability was on the table,

the district court's sua sponte designations did not prejudice

appellants. The SEC's motion for remedies laid out its reasoning

and the amounts it sought in disgorgement. The district court

then ordered disgorgement awards capped at those requested

- 52 - amounts. Sharp II, 737 F. Supp. 3d at 93. Its sua sponte decision

could only benefit appellants to the extent Sharp picks up any

balance left on the remedial tab. Moreover, appellants have not

argued that they would have done anything differently had they

been provided notice that joint and several liability was an

option. Cf. Calderón-Amézquita, 158 F.4th at 70 (finding

prejudice, in part, because appellant presented the district court

with a newly-material piece of evidence one day after a sua sponte

ruling). Therefore, for the limited purposes of these

designations, as it pertains to these appellants, the district

court did not abuse its discretion in imposing joint and several

liability sua sponte.23

*

Considering the district court's prudent analysis and

our reasoning just offered, we conclude, based on the totality of

the circumstances here, that the court did not abuse its discretion

in holding appellants jointly and severally liable for their

disgorgement awards. See Navellier & Assocs., Inc., 108 F.4th at

43-44.

23To remove any residual doubt, we expressly decline to wade through the meandering possibilities where a district court might abuse its discretion in ordering joint and several liability for a disgorgement award sua sponte, to the extent such an order could prejudice future litigants.

- 53 - 3. Disgorgement Amounts

With the matter of joint and several liability put to

rest, the question of whether the district court abused its

discretion in calculating the amounts to be disgorged requires our

immediate attention. To remind the reader, "disgorgement may only

be ordered in an amount that is a reasonable approximation of

profits causally connected to the underlying violation."

Commonwealth Equity Servs., LLC, 133 F.4th at 171 (citation

modified). And it is the SEC's burden to prove its request is a

reasonable approximation of the defendant's ill-gotten gains. Id.

(citing SEC v. Happ, 392 F.3d 12, 31 (1st Cir. 2004)). But, once

the SEC has established its reasonable approximation, "the burden

shifts to the defendant to demonstrate that the amount of

disgorgement is not a reasonable approximation." Navellier &

Assocs., Inc., 108 F.4th at 42 (quoting Happ, 392 F.3d at 31).

Lastly -- and critical to our forthcoming discourse -- "[t]he risk

of uncertainty in calculating disgorgement should fall on the

wrongdoer whose illegal conduct created that uncertainty." Id.

(quoting Happ, 392 F.3d at 31).

For the most part, appellants' arguments on this front

resemble one another sufficiently to be collectively considered.

But to the extent they differ, we address those individualized

concerns next. Appellants call in unison the refrain that the SEC

failed to provide any evidence that they "actually received" the

- 54 - funds at issue. To support their position on disgorgement, they

recite the district court's seemingly contradictory reasoning for

denying prejudgment interest: that the Q system evidence "does not

show that ill-gotten gains have been obtained and retained by the

individual [appellants], much less in the amounts requested by the

SEC." Sharp II, 737 F. Supp. 3d at 94. Likewise, each appellant

disparages the district court's order because the SEC failed to

produce any bank records confirming the funds were disbursed from

the Q system and reached appellants.24

When the district court faced the issue of actual

receipt, it acknowledged the missing links of evidence that would

have fortified the SEC's requests. See id. at 91. However, the

district court concluded "that the balance of equities favor[ed]

the awarding of the disgorgement amounts requested by the SEC."

Id. The court reasoned that the SEC had demonstrated the "Q data's

high degree of internal accuracy as to the proceeds generated"

which "counsel[ed] a similar finding of accuracy as to its figures

regarding the money going into the [appellants'] personal Q

accounts." Id. In addition, the court applied the requisite

burden-shifting framework, first holding the SEC to its required

24 We note here that Veldhuis, Sexton, and Kelln also challenged the district court's order from the angle that it relied on inadmissible hearsay -- the Q system evidence. For the reasons given above, we reiterate the district court did not err in admitting and relying on this evidence.

- 55 - showing before concluding appellants had failed to mount a

satisfactory rebuttal. Id. From our review, the district court

did not abuse its discretion in weighing the equities and applying

our burden-shifting framework to the SEC's disgorgement requests.

We'll break down our conclusion step-by-step.

The SEC first needed to produce "a reasonable

approximation of profits causally connected to the underlying

violation." Commonwealth Equity Servs., 133 F.4th at 171 (citation

modified). To do so, it synthesized the Sharp Group's internal

ledger: the Q system. To remind the reader, the Q system data

contained two important metrics: transactional data and allocation

data. The transactional data (verified by external brokerage

records) recorded transactions in the fourteen problematic stocks

and how much money was generated. The allocation data then showed

where the generated money went and, more importantly, to whom.

In its motion for remedies, the SEC reported the amounts

allocated to each appellant's individual Q account (designated by

code names). It also took the crucial step of recounting the

evidence of actual disbursements made at different appellants'

requests and denoting where those requests later appeared as

charges in the Q system. We see this evidence as the district

court did, verifying that the individual Q accounts functioned

"just like a bank account would." Sharp II, 737 F. Supp. 3d at

91. Proceeds from illicit trades were credited to appellants' Q

- 56 - accounts from which they could request cash, wire transfers, and

even monthly account statements. Accordingly, the SEC met its

burden to provide a "reasonable approximation of profits causally

connected to the violation." Navellier & Assocs., Inc., 108 F.4th

at 43.

Once the SEC met its burden, the duty to produce evidence

to the contrary thus shifted to appellants, id., but they declined

the opportunity to do so. See Sharp II, 737 F. Supp. 3d at 91.

Instead, below and on appeal, appellants stake their claim on the

SEC's failure to meet its initial burden by relying on the Q system

evidence. Appellants did not, for example, produce evidence that

the amounts allocated to their Q accounts went to someone besides

them or otherwise prove that they did not have access to the funds

as the evidence suggests. The failure to do so left the

disgorgement ball in their court, and allowed for the district

court to permissibly order disgorgement in the amounts reasonably

approximated by the SEC.

To tie a bow on this burden-shifting exercise, we remind

the reader that "[t]he risk of uncertainty in calculating

disgorgement should fall on the wrongdoer whose illegal conduct

created that uncertainty." Navellier & Assocs., Inc., 108 F.4th

at 42 (quoting Happ, 392 F.3d at 31). Sharp built his enterprise

from the shadows of anonymity. He charged a lucrative price for

his services and could do so because he reaped exorbitant returns

- 57 - and kept his clients out of jail. Knox testified that the scheme

was designed to get clients cash or wire payments "without any

records." Our precedent and burden-shifting framework does not

reward wrongdoers for successfully evading a paper trail. See

Happ, 392 F.3d at 31 ("[D]oubts are to be resolved against the

defrauding party." (quoting SEC v. MacDonald, 699 F.2d 47, 55 (1st

Cir. 1983))). Once the SEC presented the district court with a

reasonable approximation, even though it came from a unique source

in the Q system, any lingering uncertainty fell on appellants as

it was their scheme that built the uncertainty.

In making this determination, we also disagree with

appellants' complaint that the SEC failed to produce bank records

showing receipt of the ill-gotten gains. Undeniably, a concrete

stack of bank records would have made the district court's work

(and ours) simpler, but the district court correctly noted that

the production of bank records "has never been declared a sine qua

non"25 to finding an SEC disgorgement calculation reasonable.

Sharp II, 737 F. Supp. 3d at 91 (citing SEC v. Lazare Indus., 294

F. App'x. 711, 715 (3d Cir. 2008)). Indeed, speaking generally,

the SEC has the authority to seek disgorgement of profits resulting

from securities violations where individual bank records would not

25 The phase "sine qua non" is Latin for something that is absolutely essential. For example, rebutting the SEC's reasonable approximation for disgorgement is a sine qua non to avoiding repayment.

- 58 - necessarily assist their approximation. See Happ, 392 F.3d at

31-32 (calculating disgorgement for insider trading based on the

difference in value of a stock from when it was sold to when the

public became privy to the inside information). And for the

calculation here, the SEC provided (1) records of the appellants'

Q accounts along with (2) testimony from Knox about how

disbursements occurred and (3) expert analysis from Murphy

explaining the Q system and how the Q data allowed him to

reasonably approximate the amounts to be disgorged. Cf. Lazare

Indus., 294 F. App'x. at 715. Sometimes you've got to work with

what you got, so long as what you've got amounts to a reasonable

approximation. See Commonwealth Equity Servs., 133 F.4th at 172

(commenting that "'a reasonable approximation' obviously need not

be exact").

i. Gasarch

Moving on from appellants' concerted arguments, Gasarch

offers a few more particularized claims tailored to her

disgorgement award. These claims are a bit of a grab bag,

sprinkled throughout her brief in collaboration with claims we've

already discussed. But we recognize from her brief she asserts

that the SEC failed to prove that any payments made to her were

causally connected to the profits of the fraudulent scheme. Also

problematic, from Gasarach's vantage, is that the individual Q

account assigned to her by the SEC and the district court used the

- 59 - code name "PEAC" or "PERE" while "every witness testified that

[Gasarch] was referred to as 'WIRES.'"

To begin from that last point on code names, Gasarch's

report of the record does not match reality. In an email thread

produced by the SEC at trial, an unknown individual (code name

"LION") sent a wire request to "WIRES" at 11:49 a.m. A prompt

response (sent to code name "77") arrived from "PEACE" at 11:52

a.m. recommending caution when wiring too much money for

promotions. The unknown individual (now back under code name

"LION") carried on the conversation with "WIRES" at 11:56 a.m.

And "PEACE" responded a minute later in a message sent to "77."

Additionally, the SEC's expert Murphy stated that Gasarch was the

initial recipient of this wire request from "LION."

Several individuals involved in the Sharp Group had more

than one code name, and this exchange shows Gasarch coordinating

wire transfers (her known role in the scheme) under both the code

names "WIRES" and "PEACE." The conversation progressed seamlessly

between four different code names (representing only two different

people) in less than ten minutes.

Furthermore, in 2014, the Q account "PEAC" stopped

receiving funds, but "PERE" readily took its place. Much like

with "PEAC," Gasarch argues that the SEC failed to produce evidence

of her connection to the "PERE" Q account. Again, the evidence

tells a different story. First, in response to this claim before

- 60 - the district court, the SEC presented a message from Sharp

regarding the beneficiary of an amount of money (referenced as

"9k" without clarifying the denomination as U.S. or Canadian

dollars). In that February 2014 exchange (around when the "PEAC"

account ceased receiving funds), an unknown party messaged Sharp

"Beneficiary: yvonne gasarch, vancouver." Sharp replied, "Ok.

Yvonne is account pere. I have amended mt for u." The SEC also

provided a similar February 2014 exchange in which Sharp told an

apparent broker "Wires to yvonne r charged to pere; have changed."

On this front, the SEC had even more ammo in its clip in

the form of a message exchange between Sharp and Gasarch. Here's

how that back and forth played out. Sharp reached out to Gasarch

(in a "BOND" to "WIRES" communication, subject line "Q") asking

"What is $55k tt to andrew kaplan from pere?" Gasarch replied,

"It is mine." Perhaps unsatisfied by this answer, Sharp followed

up, "Who is kaplan? What is wire for?" Gasarch responded, "This

wire is he borrowed my money [sic], I will make $5k for 2 months."

If the reader remains unconvinced, the SEC also provided a list of

outgoing transfers from the "PEAC"/"PERE" Q account to businesses

operated by Gasarch and/or her family members. In light of these

evidentiary ties, we are not convinced that the district court

"committed a meaningful error in judgment" by finding that

Gasarch's disgorgement amount could be tethered to the profits

- 61 - allocated in the "PEAC"/"PERE" Q account. See Navellier & Assocs.,

Inc., 108 F.4th at 42 (citation modified).

With her connection to the "PEAC"/"PERE" Q account

established, we must next determine whether the SEC met its burden

of proving that the funds allocated to the account were causally

connected to securities fraud. See Commonwealth Equity Servs.,

133 F.4th at 171. To reiterate Gasarch's position in her words,

"[o]bviously, Mrs. Gasarch was a long-term employee and would be

entitled to salary and whatever bonuses determined by Mr. Sharp"

and "[c]learly, given the length of time and the number of accounts

and activities, Mrs. Gasarch was compensated for supporting Mr.

Sharp in his legitimate business activities." The SEC, meanwhile,

says it proved that Gasarch was more than "an unwitting secretary

performing legitimate services," and that she worked at the hub of

the fraudulent scheme where she committed her own securities

violations while aiding and abetting others. Furthermore, the SEC

emphasizes the fact that Gasarch did not present any evidence that

the money allocated to the "PEAC"/"PERE" Q account came from

legitimate services, and, therefore, she failed to rebut the SEC's

reasonable approximation.

Unlike her co-appellants, Gasarch's share of the pie

came from Sharp each month as a cut of the commission fees paid to

Sharp's Q account. In other words, Sharp received a commission

from each transaction and then paid Gasarch from his commissions.

- 62 - As we discussed in Act I, Gasarch committed securities violations

and aided and abetted other violations, particularly Sharp's.

Likewise, as the district court explained, the jury heard and

rejected Gasarch's defense that she was merely an innocent

secretary providing legitimate services to a fraudster. Sharp II,

737 F. Supp. 3d at 85. The fact that Sharp allocated profits

derived from his commissions earned on fraudulent dealings to

Gasarch's personal Q account satisfies the SEC's initial burden.

Cf. Commonwealth Equity Servs., 133 F.4th at 172 (explaining why

the SEC failed to meet its "reasonable approximation" burden due

to an improper inference).

The glaring problem for Gasarch then becomes that she

hasn't provided any evidence that the payments she received were

not causally connected to her securities violations. See Navellier

& Assocs., Inc., 108 F.4th at 43 ("Appellants failed to demonstrate

that any of the advisory fees paid to them were unconnected to

[the scheme]."). And while this dissociation might appear clear

or obvious to Gasarch, we cannot agree. True, an employee can

reasonably be expected to be paid for their work and even receive

bonuses that their employer sees fitting. But here, the SEC has

shown that her role with the Sharp Group perpetuated a complex

securities fraud scheme, making it reasonable to conclude the

payments she received (derived from commissions of the fraudulent

transactions) amounted to ill-gotten gains. Gasarch had the

- 63 - opportunity to present evidence to the contrary -- that at least

some portion of her payments came from legitimate activity rather

than wrongdoing -- but she did not. Cf. Commonwealth Equity

Servs., 133 F.4th at 172 (outlining the defendant's countervailing

arguments to the SEC's causation evidence).

ii. Veldhuis, Sexton, and Kelln

Much like Gasarch, appellants Veldhuis, Sexton, and

Kelln assert that the SEC never produced evidence that the stock

transactions supporting the disgorgement awards "arose from any

violation of the federal securities laws." And because this trio

raises this argument divorced from any guiding legal precedent, we

read their claim as challenging whether the evidence has

established the requisite causal connection between the

disgorgement awards and the underlying securities law violations.

See Navellier & Assocs., Inc., 108 F.4th at 43. The SEC responds

that the terms of Veldhuis and Sexton's consent judgments preclude

this claim. And for Kelln, her consent judgment and the evidence

produced at her co-appellants' trials readily supports the

disgorgement award.

"It is uncontested that a party to a consent judgment is

thereby deemed to waive any objections it has to matters within

the scope of the judgment." Coughlin v. Regan, 768 F.2d 468,

469-70 (1st Cir. 1985); see also SEC v. Hallam, 42 F.4th 316, 325

(5th Cir. 2022) ("Ordinarily, a party may not appeal an issue

- 64 - decided by a consent judgment."). After reviewing the scope of

appellants' consent judgments entered by the district court, we

find the arguments raised here waived via the terms of those

judgments. Cf. Hallam, 42 F.4th at 326 (finding an argument

against the SEC's ability to seek disgorgement foreclosed by the

terms of a consent judgment).

In the consent judgments entered against Veldhuis,

Sexton, and Kelln, each appellant agreed they would not contest

liability under the claims filed by the SEC. The claims filed by

the SEC explicitly set forth grounds for appellants' liability

under Sections 17(a)(1) and (3) of the Securities Act, Sections

5(a) and 5(c) of the Securities Act, and Section 10(b) of the

Exchange Act.26 For Veldhuis and Sexton, those grounds were that

they used the Sharp Group's services to obfuscate their ownership

of shares in the fourteen problematic stocks later used to

calculate their disgorgement awards. For Kelln, they were that

she fraudulently concealed the identity of Sharp Group clients

(who were selling large quantities of stock) by routinely splitting

up shareholdings into less than five percent blocks to be held by

various nominee entities. Accordingly, we see appellants'

challenge that the SEC failed to prove that the disgorgement awards

were causally connected to any violation of federal securities

The amended complaint also claimed Veldhuis and Sexton were 26

liable for violating Section 13(d) of the Exchange Act.

- 65 - laws as an impermissible attempt to contravene the agreements of

their consent judgments. See Hallam, 42 F.4th at 326.

Appellants' counters do not persuade us differently.

They assert that they "simply agreed to not contest liability" and

that they did not "agree to accept the SEC's allegations or

otherwise bind themselves to the SEC's position." But we cannot

read the consent judgments so narrowly as to effectively entertain

a backdoor trial on the merits. See Swift & Co. v. United States,

276 U.S. 311, 324 (1928) (explaining that a decree "rendered by

consent is always affirmed, without considering the merits of the

cause" (citation modified)). Once appellants agreed not to contest

liability for the purposes of determining disgorgement, the

district court acted within its discretion in accepting the grounds

offered by the SEC in its complaint for establishing that

liability, notwithstanding appellants' objection that the

judgments lack certain language. See SEC v. Engler,

No. 1:20-cv-1625, 2022 WL 4596745, at *6 (E.D.N.Y. Sept. 30, 2022)

("When a defendant agrees to entry of a consent judgment with the

SEC and agrees not to challenge the details of the SEC's complaint,

courts accept the allegations in the complaint to be true when

deciding the SEC's subsequent motion for monetary relief."

(citation modified)); SEC v. Rooney, No. 11 C 8264, 2014 WL

3500301, at *2 (N.D. Ill. July 14, 2014) ("Pursuant to the consent

judgment, the [c]ourt will accept the allegations in the complaint

- 66 - as true for the purpose of determining appropriate relief."); see

also Coughlin, 768 F.2d at 470 (holding that the right to appeal

a consent judgment must be unequivocally reserved and "will not be

presumed").

Likewise, we do not read the consent judgments'

unequivocal preservation of the right to challenge any requested

remedies as taking appellants' appellate claims beyond the scope

of the consent judgments. The consent judgments' terms preserved

appellants' ability to challenge the SEC's calculation of how much

money arose from the sales in the fourteen stocks, or even better,

permitted appellants to provide evidence rebutting the SEC's

approximations. Appellants may not (despite their best efforts)

argue that they were not "involved in the underlying

transaction[s]" or that the transactions were legal. They've

already agreed to those determinations and cannot fit that square

liability peg into the round remedies hole. See Hallam, 42 F.4th

at 325-26.

Thus, for all appellants, we conclude the district court

did not err in calculating the disgorgement awards. The court

aptly applied our burden-shifting framework and placed the risk of

uncertainty on those responsible for any uncertainties that may

remain. See Navellier & Assocs., Inc., 108 F.4th at 42.

- 67 - 4. Statute of Limitations

Next, all appellants argue that the applicable statute

of limitations forecloses the SEC's disgorgement requests.27 This

argument comes down to whether five or ten years is the right

window for calculating ill-gotten gains, which will be determined

by the retroactive effect given to the National Defense

Authorization Act ("NDAA") of 2021. See William M. (Mac)

Thornberry National Defense Authorization Act for Fiscal Year

2021, Pub. L. No. 116-283, § 6501, 134 Stat. 3388, 4626 (codified

in part at 15 U.S.C. § 78u(d)(8)(A)). The district court discussed

this matter at length, recognizing that it was one our court had

yet to weigh in on. Sharp I, 626 F. Supp. 3d at 372. We review

the district court's interpretation de novo. Lattab v. Ashcroft,

384 F.3d 8, 14 (1st Cir. 2004). Like our previous discussion,

Gasarch offers a personal twist on this argument based on the

unique results of her jury trial -- a claim we will address after

explaining why we view the NDAA as applying retroactively to

appellants' disgorgement awards.

To address appellants' arguments, we need to lay a bit

more foundation. Appellants claim that "[a]t the time of all the

27Friesen states in a footnote of his brief that he joins his fellow appellants in this argument. Due to important distinctions between the circumstances of his appeal compared to Gasarch's, we assume he has joined Veldhuis, Sexton, and Kelln's position on the relevant statute of limitations.

- 68 - conduct alleged in this case," the SEC had five years from the

time its claim accrued to file actions seeking disgorgement.

Appellants pull their preferred statute of limitations from 28

U.S.C. § 2462 and the Supreme Court's holding in Kokesh v. SEC,

581 U.S. 455, 467 (2017). But, in the interim between the Court's

holding in Kokesh and when the SEC brought this enforcement action

on August 5, 2021, Congress renewed the NDAA on January 1, 2021.

Sharp I, 626 F. Supp. 3d at 371.

The amended statutory language states that the SEC may

bring a claim for disgorgement "not later than 10 years after the

latest date of the violation that gives rise to the action or

proceeding in which the [SEC] seeks the claim if the violation

involves conduct that violates" certain scienter-based offenses.

15 U.S.C. § 78u(d)(8)(A)(ii)(IV). And the NDAA amendments provide

that this provision "shall apply with respect to any action or

proceeding that is pending on, or commenced on or after," January

1, 2021. National Defense Authorization Act § 6501(b), 134 Stat.

at 4626.

All parties agree that the NDAA established a new statute

of limitations for the specific remedy of disgorgement for

scienter-based securities violations; however, appellants resist

a retroactive application of this statute for ill-gotten gains

procured between five and ten years before the SEC initiated its

claim. In support of this position, appellants emphasize the two

- 69 - distinct ways Congress may alter a statute of limitations window

retroactively. One method is for Congress to extend an existing

statute of limitations pertaining to conduct still ripe for an

enforcement action. But, appellants continue, the enforcement

action here pertains to conduct that had gone stale by the time

the SEC brought its case -- that is, conduct occurring more than

five years before August 5, 2021, which they say would have been

forgiven and forgotten if not for the retroactive extension of the

statute of limitations. And appellants believe this latter

category of retroactivity cannot be applied to the facts of this

case given the relevant statutory language and our binding caselaw.

The SEC reads the NDAA differently and informs us that every court

to have considered this question has rejected appellants'

position.

We need not conduct this inquiry in the dark, as our

caselaw, our sister circuits, and the district court installed

floodlights on our path forward. We first note that "[t]here is

no doubt that Congress has the raw power to enact statutes that

operate retroactively." Lattab, 384 F.3d at 14. However, we

employ a presumption against giving retroactive effect to

"statutes burdening private rights unless Congress ha[s] made

clear its intent." Landgraf v. USI Film Prods., 511 U.S. 244, 270

(1994). To rebut this presumption, "a 'court must ask whether the

new provision attaches new legal consequences to events completed

- 70 - before its enactment,' thereby suggesting 'clear congressional

intent authorizing retroactivity.'" SEC v. Ahmed, 72 F.4th 379,

400 (2d Cir. 2023) (quoting Landgraf, 511 U.S. at 269-70, 272).

If Congress has made its retroactivity intentions clear, our

inquiry ends, and we enforce the statute as written. Lattab, 384

F.3d at 14. But if the statute lacks a clear directive, we then

ask "whether the application in question would have an

impermissibly retroactive effect." Id. If it does, the

presumption against retroactivity holds. Id. at 14-15.

The NDAA's disgorgement amendment contains an explicit

retroactivity mandate that the ten-year statute of limitations

"shall apply . . . to any action or proceeding that is pending on,

or commenced on or after, the date of enactment of this Act."

National Defense Authorization Act § 6501(b), 134 Stat. at 4626.

As the SEC points out, and appellants do not dispute, courts have

uniformly applied the ten-year window retroactively to actions

that were pending on January 1, 2021. See Ahmed, 72 F.4th at 400;

Hallam, 42 F.4th at 335. While appellants say the "pending on"

language is irrelevant to our analysis, because the SEC undeniably

commenced this action "after" January 1, 2021, this contention

jumbles the question posed. Our task is to decide whether Congress

clearly indicated its intent to give the NDAA a retroactive effect.

Lattab, 384 F.3d at 14. And here, Congress did just that by

extending the ten-year statute of limitations to all actions and

- 71 - proceedings "pending on, or commenced on or after," January 1,

2021. National Defense Authorization Act § 6501(b), 134 Stat. at

4626; see Landgraf, 511 U.S. at 259-60 (using "shall apply to all

proceedings pending on or commenced after the date of enactment"

as an example of text carrying a retroactive effect); Ahmed, 72

F.4th at 400 (presuming Congress ascribed a particular meaning to

this specific language as previously defined by the Supreme Court).

Furthermore, we agree with the district court's

commonsense approach to this question. If we were to agree with

appellants that the ten-year statute of limitations window only

applied retroactively to actions pending on January 1, 2021, but

not actions commenced on or after that date, we'd sign off on some

less than logical outcomes. For instance, an SEC action under the

same statutory scheme filed on December 31, 2020, could seek

disgorgement for conduct occurring before January 1, 2016, but an

identical action filed on January 2, 2021, targeting the same

conduct would be untimely. Thus, if we were to adopt appellants'

approach, the SEC could have sought disgorgement for pre-January

2016 conduct only if it filed the present action before the NDAA

gave it authority to do so. We decline to read the statute as

producing this absurd result. See Bostock v. Clayton Cnty., Ga.,

590 U.S. 644, 789 n.4 (2020) (Kavanaugh, J., dissenting)

(explaining that the absurdity canon "tells courts to avoid

- 72 - construing a statute in a way that would lead to absurd

consequences").

Appellants' remaining sub-arguments to the contrary do

not sway us, either. Appellants compare the Sarbanes-Oxley Act

with the NDAA to suggest that because other courts have found the

former does not apply retroactively, neither should the latter.

While appellants refer to the statutory text as "virtually

identical," they overlook two crucial differences that operate

against their claim. As we've already mentioned, the NDAA's

retroactivity command references actions "pending on, or commenced

on or after" the enactment date. National Defense Authorization

Act § 6501(b), 134 Stat. at 4626. Meanwhile, the Sarbanes-Oxley

Act provides that it "shall apply to all proceedings addressed by

this section that are commenced on or after the date of enactment."

Public Company Accounting Reform and Investor Protection Act of

2002, Pub. L. No. 107-204 § 804(b), 116 Stat. 745, 801 (codified

in part at 28 U.S.C. § 1658(b)).28 To perhaps state the obvious,

the Sarbanes-Oxley Act provision does not explicitly cover actions

pending on the date of enactment.

We do not point out this difference with our noses in

the air. The use of "pending on, or commenced on or after" is the

28 For the purposes of today's argument, we assume without deciding that appellants are correct, and this Sarbanes-Oxley Act provision does not apply retroactively -- a question not before our court.

- 73 - type of "unambiguous language that the Supreme Court has asserted

would amount to an express retroactivity command." In re Enter.

Mortg. Acceptance Co., Sec. Litig., 391 F.3d 401, 406-07 (2d Cir.

2004) (citing Landgraf, 511 U.S. at 255-56 & n.8, and Martin v.

Hadix, 527 U.S. 343, 354 (1999)). In one case cited by appellants,

the Second Circuit determined the Sarbanes-Oxley Act did not apply

retroactively partially because it did not contain the "pending

on" language that the NDAA has. See id. Furthermore, the

Sarbanes-Oxley Act includes a provision which states: "Nothing in

this section shall create a new, private right of action." Public

Company Accounting Reform and Investor Protection Act of 2002,

Pub. L. No. 107-204 § 804(c), 116 Stat. at 801. The Second Circuit

in Enterprise Mortgage found this language clouded an

interpretation that the Sarbanes-Oxley Act applied retroactively.

391 F.3d at 407. The NDAA lacks a similar muddying counterpart

which could prevent us from finding that Congress clearly intended

to give the NDAA a retroactive effect. See Landgraf, 511 U.S. at

268 (requiring that Congress "make its intention clear").

Because we disagree with appellants that the NDAA lacks

a clear retroactivity command, our inquiry ends, and we need not

reach their contention that the statute would have an impermissibly

retroactive effect. See Lattab, 384 F.3d at 14 ("If this

perscrutation leads to a firm conviction that Congress intended

the statute to have a specific temporal reach, the retroactivity

- 74 - analysis ends and we will apply the statute in accordance with

Congress's prescription."); Ahmed, 72 F.4th at 400 (finding an

explicit retroactivity command for pending actions and ending the

inquiry); see also Lieberman v. Cambridge Partners, L.L.C., 432

F.3d 482, 491-92 (3d Cir. 2005) (proceeding to review whether the

Sarbanes-Oxley Act had an impermissible retroactive effect after

concluding it lacked a clear directive from Congress).29

Before departing from our statute of limitations

conversation, we must turn to Gasarch's stand-alone claim. Unlike

her fellow appellants, Gasarch does not claim that the NDAA lacks

retroactive effect. Rather, Gasarch seeks to benefit from the

NDAA's implementation of a five-year statute of limitations for

non-scienter-based securities violations.

The SEC has a shorter, five-year window to bring a

disgorgement claim for securities violations that do not require

scienter to be established. 15 U.S.C. § 78u(d)(8)(A)(i). That

much is not up for debate. Gasarch's claim comes from the

disjunctive use of the word "or" on her jury verdict form -- which

to her means "there can be no confidence that the jury found Mrs.

Gasarch as an aider and abettor to another's scienter-based

29 Given our holding, we need not address appellants' claim that tolling is unavailable, nor the SEC's contention that due to appellants' fraudulent scheme taking place within a five-year window, the NDAA could have applied non-retroactively.

- 75 - violation." Therefore, she says the SEC cannot order disgorgement

from any securities violations committed before August 5, 2016.

Here's a bit more about this controversial verdict form.

the Securities Act and that she aided and abetted the violation of

securities laws. The fine print under the aiding and abetting

finding reads:

Did Zhiying Yvonne Gasarch aid and abet violations of Sections 17(a)(1), Sections 17(a)(3) of the Securities Act of 1933, or Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5(a) and (c) thereunder by others?30

While the jury's answer to this question is unambiguous ("YES"),

Gasarch laments that it is possible she was only found liable for

aiding and abetting violations of Section 17(a)(3) -- a

non-scienter-based security violation. See SEC v. Ficken, 546

F.3d 45, 47 (1st Cir. 2008) (stating that negligence is sufficient

to establish liability under Section 17(a)(3)). And because an

individual who aids and abets a securities violation "shall be

30The critical word here, "or," was written in ink after the verdict form was printed. The SEC also makes a one-off comment that Gasarch should have requested a special verdict form if she wanted to reap the benefits of a particular reading of the jury verdict. Gasarch adamantly refutes this attempt to place the blame on her. Neither party has made any attempt at developed argument on this point, and because it will be immaterial to our conclusion, we decline to weigh in on this issue.

- 76 - deemed to be in violation of such provision to the same extent as

the person to whom such assistance is provided," Gasarch believes

her disgorgement statute of limitations must be limited to five

years. 15 U.S.C. § 78t(e).

The district court dealt with this quandary by

supplementing the jury's verdict with its own factual findings.

Sharp II, 737 F. Supp. 3d at 80. First, when imposing injunctive

relief, the district court found that Gasarch acted intentionally,

and thus with scienter. Id. On a related note, the court

determined that Gasarch's argument lacked merit because scienter

is required to prove aiding and abetting liability, regardless of

the underlying primary violation. Id. And later, when imposing

civil penalties, the court found that Gasarch worked as Sharp's

assistant at the hub of the fraudulent enterprise, which meant

that "she aided and abetted the Sharp scheme clients in their

violation of both the Securities Act and the Exchange Act." Id.

at 85. These findings arose during the court's analyses of

different remedies; however, when discussing disgorgement, the

court made clear it was applying the ten-year statute of

limitations to all appellants because all "acted with varying

degrees of scienter." Id. at 93.

Gasarch declined to address the district court's

analysis or additional fact findings on which it relied when

entering the judgment that she now appeals. The result of this

- 77 - decision is that her claim is waived, and we will not venture off

into complex, greenfield legal questions without the benefit of

developed argumentation from either party. Sparkle Hill, 788 F.3d

at 30 (finding waiver where "the opening brief presents no argument

at all challenging express grounds upon which the district court

prominently relied in entering judgment").

There's nothing more to say on this matter, other than

the ten-year statute of limitations period as applied to Gasarch's

disgorgement calculation remains in place.

5. Identifying Victims

Still operating within the realm of the district court's

disgorgement awards, appellants next present arguments related to

the disbursement of disgorged funds to victims. On this front,

appellants' claims rhyme, but raise slightly different issues for

us to address. Veldhuis, Sexton, and Kelln (thinking big picture)

say the district court erred because the SEC failed to identify

any victims who suffered pecuniary harm, something they consider

an essential prerequisite for ordering disgorgement. On the other

hand, Friesen (thinking about his case) says the district court

should have made the SEC produce the identities of the victims who

would receive any disgorged funds before it ordered him to pay up.

We'll start with the big picture and work our way into the

specifics.

- 78 - Resolving this dispute requires us to return briefly to

the Supreme Court's guidance in Liu along with our binding

precedent established in Navellier. The disgorgement remedy lies

atop two bedrock principles: it "strip[s] wrongdoers of their

ill-gotten gains"; and it is "restricted . . . to an individual

wrongdoer's net profits to be awarded for victims." Liu, 591 U.S.

at 79 (emphasis added). A simple conclusion follows: disgorgement

requires a victim.

Appellants supplement this simple conclusion by defining

a victim as one "who suffered pecuniary harm" and claim that "none

of the evidence marshalled demonstrates investors suffered

pecuniary harm." While we have previously decided that there is

no requirement for "investors to suffer pecuniary harm as a

precondition to a disgorgement award," Navellier & Assocs., Inc.,

108 F.4th at 41 n.14, we need not rely on that principle because,

as the district court noted, appellants' scheme certainly harmed

investors. See Sharp II, 737 F. Supp. 3d at 93 (referencing "plans

to return the disgorged funds to the harmed investors").

For a fraudster to profit from a pump and dump scheme,

they must sell their inflated shares to someone else, who

ultimately gets stuck with an empty bag of goods. See United

States v. Weed, 873 F.3d 68, 70 n.1 (1st Cir. 2017) (explaining

the components of a pump and dump scheme); see also Hemi Grp., LLC

v. City of New York, 559 U.S. 1, 28-29 (2010) (Breyer, J.,

- 79 - dissenting) (listing the last step of a pump and dump scheme as

"[w]hen the fraud is revealed, the price crashes, to the investors'

detriment"). The evidence shows appellants paying for various

stock promotions, dumping their shares into the market, and reaping

substantial profits -- all of which gives rise to the inescapable

inference that some cohort of unwitting investors suffered

pecuniary harm as a result.

Friesen's take on this issue (as we mentioned) is

slightly different, but nevertheless leads to a similar result.

Friesen argues that the district court erred in awarding

disgorgement before it considered the SEC's plan for allocating

the disgorged funds to victims. According to Friesen, the court

could have reviewed the SEC's plan and realized that the

disgorgement figures requested based on the Q system were too high.

The district court called this argument "premature" and accepted

the SEC's assurances that "a plan can and will be submitted to the

[c]ourt, to its satisfaction, detailing plans to return the

disgorged funds to the harmed investors." Sharp II, 737

F. Supp. 3d at 93.

Following the entry of judgment against appellants, the

SEC filed a motion to establish a fund and framework to distribute

disgorged funds to harmed investors. We have previously affirmed

a disgorgement award where "the SEC intend[ed] to distribute to

the [victims] any disgorgement awarded" without requiring the SEC

- 80 - to have already identified those victims. Navellier & Assocs.,

Inc., 108 F.4th at 41 n.14. With the presence of a plan to disburse

disgorged funds in place, awaiting those funds, we cannot conclude

the district court abused its discretion in finding the request to

provide a list of victims premature.

6. Double Counting

To continue, appellants Veldhuis, Sexton, and Kelln also

claim that the district court abused its discretion in failing to

protect against impermissible double counting. That is,

appellants claim the SEC's disgorgement requests in this case

overlap with funds that Knox (the same Knox who testified for the

SEC at trial) agreed to return from his own enforcement action.

The SEC calls their bluff, and recharacterizes the one snippet of

trial testimony cited by appellants as discussing a different

matter entirely.

The district court acknowledged appellants' concerns

over double counting, Sharp II, 737 F. Supp. 3d at 89 (considering

this as appellants' seventh argument before the district court),

but it did not specifically address this argument beyond a

catch-all conclusion that it found "the remaining objections

raised by the [appellants] unavailing," id. at 93. After reviewing

appellants' scant evidentiary support for this claim, we lack a

firm conviction that the district court made a meaningful error in

- 81 - its judgment; that means the disgorgement award must stay put.

Allow us to explain why we lack that necessary conviction.

Appellants say that Knox testified to returning millions

of dollars in funds that "he believed belonged to 'Sharp Group'

clients." At trial, Knox testified that he agreed to return $7

million that "belong[ed] to clients of Silverton" which was his

firm. He also stated that those millions of dollars had something

to do with Sharp's clients, an individual named Luis Carrillo, and

Fred Sharp himself, but could not say exactly how much belonged to

who. That is the extent of evidentiary support appellants cite

and meager fare for claiming the district court abused its

discretion. Cf. SEC v. First City Fin. Corp., 890 F.2d 1215, 1232

(D.C. Cir. 1989) (rejecting appellants' efforts to rebut the SEC's

reasonable disgorgement approximation with "impossibly

speculative" claims).

So, while appellants allege double counting occurred,

they have not shown how (if at all) the funds that Knox returned

overlap with any of the proceeds allocated to their individual Q

accounts which they've been ordered to repay. As such, appellants

failed to rebut the SEC's reasonable approximation. See Navellier

& Assocs., Inc., 108 F.4th at 42.

7. Knox Restitution Fund

In our final conversation on disgorgement (before

addressing two other remedies), Kelln claims the district court's

- 82 - indicative approval of the SEC's proposed distribution plan for

her disgorged funds was "reversible error."31 The SEC's plan

proposed contributing money collected from Kelln (and Gasarch) to

the "Knox Restitution Fund." 32 That fund arose from the SEC's

plan to pay back victim-investors with profits disgorged from Knox

after he pleaded guilty in a separate proceeding. The SEC calls

this claim premature because (1) Kelln's money hasn't been

collected yet; and (2) Kelln's contribution to the Knox

Restitution Fund is only a possibility at this stage.

This argument pulls on a few different threads. It is

undisputed that a disgorgement award is an unlawfully retained

sum, "rather than a requirement to replevy a specific asset."

Navellier & Assocs., Inc., 108 F.4th at 43 (quoting SEC v. Banner

Fund Int'l, 211 F.3d 602, 617 (D.C. Cir. 2000)). And, as we

addressed earlier, the district court acted within its discretion

by ordering disgorgement prior to reviewing and approving the SEC's

On September 18, 2024, while this appeal was pending, the 31

district court issued an "indicative ruling" that it "intends to allow the Fair Plan motion in its entirely [sic], save only that, if the funds presently ordered disgorged exceed the sum of the identified claimants claims, such funds shall be retained by the SEC subject to further order of the [c]ourt." The SEC's plan for distributing funds to the Knox 32

Restitution Fund includes proceeds disgorged from Gasarch. Gasarch does not challenge this plan on appeal, and her blanket intention to adopt and incorporate all other arguments made by her co-appellants lacks any independent argumentation on this point whatsoever. Accordingly, she has waived this issue. See United States v. Maldonado-Peña, 4 F.4th 1, 41 n.29 (1st Cir. 2021).

- 83 - plan to distribute the funds to victims. See SEC v. Blackburn, 15

F.4th 676, 682 (5th Cir. 2021). But also, disgorgement must be

limited to a wrongdoer's "'net profits' and must 'be awarded to

victims.'" Id. (quoting Liu, 591 U.S. at 75). The question then

becomes whether disgorged funds wrongly procured must be awarded

to victims of the same wrongful conduct. As Kelln succinctly

notes, her victims are not necessarily Knox's victims. And while

the SEC claimed in its proposal that Kelln's misconduct (via her

role with the Sharp Group) related to sixteen out of seventeen

securities manipulated and selected in the case against Knox, only

one (Vitality Biopharma Inc.) is mentioned in the complaint against

Kelln.

This kind of cross-pollination seems at odds with the

"equitable nature of the profits remedy [that] generally requires

the SEC to return a defendant's gains to wronged investors for

their benefit." Navellier & Assocs., Inc., 108 F.4th at 42

(quoting Liu, 591 U.S. at 88). That said, we still think, given

the posture of this challenge, our input is premature and Kelln is

wrong to call the district court's indicative ruling reversible

error. In accordance with Federal Rule of Civil Procedure

62.1(a)(3), the district court acknowledged the pendency of this

appeal in its order and provisionally stated that it intended to

grant the SEC's motion. See United States v. Maldonado-Rios, 790

F.3d 62, 64-65 (1st Cir. 2015) (citing Fed. R. App. P. 12.1). The

- 84 - district court remains duty bound to review and approve the SEC's

plan for distribution in the normal course, and the SEC retains

its discretion in allocating Kelln's disgorged assets, which may

ultimately end up catering to the concerns she raises here. See

In re Drexel Burnham Lambert Grp. Inc., 995 F.2d 1138, 1146 (2d

Cir. 1993) (declining to consider the issue of mixed distribution

funds prior to a court order approving the SEC's distribution

plan).

To conclude, after considering all appellants'

disgorgement related claims, the disgorgement awards as imposed by

the district court remain in place.

B. Civil Penalties

To briefly reorient the reader, the SEC requested two

additional remedies from the district court on top of disgorgement.

Those additional requested remedies (which the district court

granted) were the imposition of civil penalties and injunctions

barring conduct related to securities trading. Appellants Gasarch

and Sexton appeal the district court's decision to impose civil

penalties, and that is where we turn our attention to next.33 We

33Friesen has not appealed the district court's injunctions or civil penalty of $1,562,603 against him. Sharp II, 737 F. Supp. 3d at 77-84. Accordingly, his appeal has concluded, and any reference to "appellants" from here on will not include Friesen. Likewise, all argument pertaining to civil penalties in

- 85 - will first set out the relevant legal landscape controlling the

contours of our discussion before addressing the individualized

concerns of Gasarch and Sexton -- specifically the evidence

brought against them that gave rise to their respective civil

penalties.

Our federal securities laws authorize the SEC to seek,

and district courts to impose, civil penalties from any person who

has violated securities laws. 15 U.S.C. § 77t(d)(1). District

courts pull the amount in civil penalties from a hierarchical

three-tiered schedule in light of the facts and circumstances

surrounding the violation. Id. § 77t(d)(2). First-tier penalties

apply generally, id. § 77t(d)(2)(A), second-tier penalties apply

to violations that "involved fraud, deceit, manipulation, or

deliberate or reckless disregard of a regulatory requirement," id.

§ 77t(d)(2)(B), and third-tier penalties apply to violations

involving the second-tier requirements plus "substantial losses

or . . . a significant risk of substantial losses to other

persons," id. § 77t(d)(2)(C). The applicable tier sets the maximum

penalty, but the actual penal amount falls under the discretion of

the district court. SEC v. Kern, 425 F.3d 143, 153 (2d Cir. 2005)

Veldhuis, Sexton, and Kelln's collective brief solely references Sexton and the SEC's evidence against him. Per our Circuit's rule, we respond only to Sexton's claims and deem any similar arguments from Veldhuis or Kelln waived. See Maldonado-Peña, 4 F.4th at 41 n.29.

- 86 - (citing 15 U.S.C. § 77t(d)). We have previously identified several

factors a district court may take into account when evaluating

whether to assess civil penalties: "(1) the egregiousness of the

violations; (2) the isolated or repeated nature of the violations;

(3) the defendant's financial worth; (4) whether the defendant

concealed his trading; (5) what other penalties arise as the result

of the defendant's conduct; and (6) whether the defendant is

employed in the securities industry." SEC v. Sargent, 329 F.3d

34, 42 (1st Cir. 2003). We review the penalties assessed for abuse

of discretion. See id.

The SEC's requests for civil penalties are subject to a

five-year statute of limitations. Gabelli v. SEC, 568 U.S. 442,

445 (2013) (citing 28 U.S.C. § 2462). According to this undisputed

five-year window, the district court established August 5, 2016,

to August 5, 2021, as the relevant period for reviewing securities

law violations that could give rise to civil penalties. Sharp II,

737 F. Supp. 3d at 81. Gasarch and Sexton both claim the SEC

failed to produce sufficient evidence of violations occurring

within that timeframe to support the district court's

determination.

1. Gasarch

After considering the SEC's request and weighing the

relevant factors, the district court imposed a civil penalty of

$296,651 against Gasarch. Id. at 86. In reaching that figure,

- 87 - the court agreed with the SEC that Gasarch's aiding and abetting

violations of the Securities Act and the Exchange Act warranted

two third-tier penalties, and her primary violation of Section

17(a)(3) of the Securities Act warranted an additional second-tier

penalty. Id. at 86 nn.11-12. However, the court granted a

downward variance from the amount initially requested by the SEC,

in part due to Gasarch's aider and abettor status. Id. at 86.

Now, Gasarch summarily claims that "[w]ithout proof of a violation

post-dating August 5, 2016, the SEC's request for penalties should

have been denied."

Turning to the record once again, Gasarch's claim fails

to hold water. The SEC's evidence showed Gasarch altering

information on wire requests in May 2017 and setting up a fictious

loan agreement for a Sharp Group nominee company in May 2018.

Furthermore, the district court found that Gasarch operated

alongside Sharp at the hub of the Sharp Group's fraudulent scheme,

Sharp II, 737 F. Supp. 3d at 85, and Q system data revealed that

the scheme continued to operate after August 5, 2016, a fact that

Gasarch has not meaningfully contested.

Based on the evidence of Gasarch's conduct that occurred

within the statute of limitations, the court did not abuse its

discretion in assessing its downwardly varying penalty against

her.

- 88 - 2. Sexton

As for Sexton, the district court calculated a

$1,562,603 civil penalty against him for seven separate third-tier

violations that occurred during the appropriate five-year window.

Id. at 84. The seven violations correspond to Sexton's trading in

seven out of the fourteen problematic stocks relevant to the Sharp

Group's scheme between August 2016 and August 2021 -- the idea

being that Sexton could not have traded those securities without

having disguised his ownership through the Sharp Group's services

and that substantial losses to other persons occurred because of

the pump and dump schemes. Id. at 82 (finding seven to be "the

number of entities [Sexton] utilized to defraud unwitting

investors during the five years preceding August 2021"). On

appeal, Sexton claims the court erred because any trades were not

connected to violations of securities laws and the SEC's limited

evidence shows that he profited from only three of the problematic

stocks during the relevant time frame, rather than seven.

As before with Sexton's disgorgement award, the terms of

Sexton's consent judgment foreclose his claim that he did not

violate the securities laws as alleged by the SEC. Cf. Hallam, 42

F.4th at 326 (finding the terms of a consent judgment foreclosed

appellant's challenge to the SEC's ability to seek a disgorgement

award). Furthermore, to the extent Sexton's consent judgment

authorized the court to "resolve any material factual disputes" at

- 89 - the remedies phase, the court did not abuse its discretion in

relying on the declaration submitted by the SEC's expert witness

Ryan Murphy. See Sharp II, 737 F. Supp. 3d at 83 (discussing

Murphy's declaration). Murphy provided competent testimony at

Gasarch and Friesen's trial and spent "several hundred hours"

preparing the Q system summaries referenced in his declaration.

And Murphy's declaration (based on the Q system and other available

evidence) concludes that "Veldhuis, Sexton, and Friesen, working

together . . . traded the securities of seven of the Fourteen

Issuers" between August 2016 and August 2021. As was the district

court's prerogative, it settled the relevant facts based on the

evidence presented and it did not err in assessing seven third-tier

penalties on Sexton.34

Based on the above, we affirm the civil penalties imposed

against Sexton and Gasarch and continue on.

C. Injunctive Relief

The final scene of this collective appeal involves only

Sexton and his challenge to four permanent injunctions imposed

against him by the district court. "In an SEC enforcement action,

34 We acknowledge Sexton's claim that the Q data shows he received profits from trades in only three of the seven problematic stocks during the relevant period -- and profits can be evidence of trading. The district court, too, recognized as much when entering its judgment and appropriately levied penalties based on Sexton's misconduct as opposed to his receipt of profits. Sharp II, 737 F. Supp. 3d at 83.

- 90 - we review the district court's decision to enter an injunction for

abuse of discretion." SEC v. Lemelson, 57 F.4th 17, 30 (1st Cir.

Pursuant to federal law, the SEC may seek injunctive

relief to prevent the violation of securities laws. 15 U.S.C.

§ 78u(d)(1); see also Lemelson, 57 F.4th at 30. A district court

may grant injunctive relief "where there is, at a minimum, proof

that a person is engaged in or is about to engage in a substantive

violation of either the Securities Act of 1933 or the Securities

Exchange Act of 1934 or of the regulations promulgated thereunder."

Lemelson, 57 F.4th at 30 (citation modified). Typically, when

considering whether a district court abused its discretion in

entering an injunction, we view the decision in light of several

non-determinative factors such as the nature of the violation, the

individual's capacity to commit future violations, and whether the

individual has recognized the wrongfulness of their conduct. See

id.

Sexton's appeal, however, does not challenge the

district court's consideration of those factors. Instead, Sexton

claims the district court issued impermissible "obey-the-law"

injunctions that enhance the penalties he could face for potential

violations down the road and deprive him of adequate notice of the

barred conduct as required by Federal Rule of Civil Procedure

- 91 - 65(d).35 The SEC states that injunctions like the ones entered by

the district court are run of the mill in enforcement actions with

sufficient guardrails in place to alleviate Sexton's concerns.

"[T]he district court has 'broad power to restrain acts

which are of the same type or class as unlawful acts which the

court has found to have been committed or whose commission in the

future, unless enjoined, may fairly be anticipated from the

defendant's conduct in the past.'" Brown v. Trs. of Bos. Univ.,

891 F.2d 337, 361 n.23 (1st Cir. 1989) (quoting NLRB v. Express

Publ'g Co., 312 U.S. 426, 435 (1941)). Yet every order granting

an injunction must "state its terms specifically" and "describe in

reasonable detail -- and not by referring to the complaint or other

document -- the act or acts restrained or required." Fed. R. Civ.

P. 65(d)(1); see SEC v. Keener, 102 F.4th 1328, 1336 (11th Cir.

2024). In exercising its discretion, a district court may enter

a broad injunction, largely adopting language from a statute or

regulation, so long as the enjoined individual knows exactly what

she's been ordered to do or not to do. See Keener, 102 F.4th at

1336; cf. Brown, 891 F.2d at 361 n.23 (affirming an injunction as

not overbroad for prohibiting various forms of sex

Courts in our circuit have adopted the term "obey-the-law" 35

injunctions in similar contexts. See SEC v. McLellan, 737 F. Supp. 3d 95, 106 (D. Mass. 2024); SEC v. Sargent, 790 F. Supp. 3d 37, 40 (D. Mass. 2025); see also League of Women Voters of N.H., et al. v. Kramer, et al., No. 24-cv-73-SM-TSM, 2025 WL 3260024, at *5 (D.N.H. Oct. 17, 2025).

- 92 - discrimination). Lastly, obey-the-law injunctions may be

"necessary to prevent further violations where a proclivity for

unlawful conduct has been shown." McComb v. Jack. Paper Co., 336

U.S. 187, 192 (1949); see also SEC v. Sargent, 790 F. Supp. 3d 37,

40 (D. Mass. 2025).

In its judgment against Sexton, the district court

"permanently restrained and enjoined" him from violating:

(1) Section 10(b) of the Exchange Act and Rule 10b-5 promulgated

thereunder; (2) Section 17(a) of the Securities Act; (3) Section

5 of the Securities Act; and (4) Section 13(d) of the Exchange Act

and Rule 13d-1 promulgated thereunder.36 We have previously

affirmed broad obey-the-law injunctions related to securities

laws, see Lemelson, 57 F.4th at 30, 32 (affirming an injunction

prohibiting violations of Section 10(b) and Rule 10b-5 for five

years), without expressing our view on whether such an injunction

properly places an individual on notice of what they are barred

from doing.

As a general matter, we disagree with Sexton's premise

that obey-the-law injunctions are per se impermissible. See

McComb, 336 U.S. at 191-92; Brown, 891 F.2d at 361 n.23. Nor do

36The court also enjoined Sexton from participating in any offering of a penny stock and from participating in any securities transactions beyond purchasing and selling securities for his own personal accounts. He has not appealed for relief from those injunctions.

- 93 - we believe the district court abused its discretion in issuing

these permanent injunctions against Sexton (save one which we will

address at the end). As with any injunction sought by the SEC in

an enforcement action, "the legal standard for issuance . . . is

a reasonable likelihood of recidivism." SEC v. Sargent, 129 F.4th

1, 15 (1st Cir. 2025) (citation modified). Thus where (as here)

the district court finds a particularly high proclivity for

unlawful conduct of a sophisticated nature, a sweeping

obey-the-law injunction can be appropriate recourse due to the

broad scope of potential future violations. See McComb, 336 U.S.

at 191-92; see also Keener, 102 F.4th at 1336. Sexton engaged in

a decade-long, international securities fraud scheme involving at

least fourteen separate stock issuers, dozens of players, and

clandestine operations fitting of a James Bond spin-off. See Sharp

II, 737 F. Supp. 3d at 75-76. The district court did not abuse

its discretion in issuing injunctions that map onto the language

of federal securities laws because Sexton has demonstrated a

willingness and capacity to engage in conduct stretching the

contours of those laws. See SEC v. McLellan, 737 F. Supp. 3d 95,

110 (D. Mass. 2024).

Furthermore, while the language of the injunctions

issued against Sexton may be broad, "they are not complicated."

Id. The injunctions state that Sexton may not engage in fraud in

the offering or sale of securities and cannot engage in the sale

- 94 - of securities without adhering to the relevant registration

requirements. Directions to comply with these foundational

concepts provide reasonable detail to Sexton and therefore do not

contravene the requirements of Federal Rule of Civil Procedure

65(d).

One injunction, however, does impermissibly run afoul of

Rule 65(d)(1)(C)'s requirement that an injunction may not

incorporate a separate document by reference. The fourth permanent

injunction -- which permanently restrains and enjoins Sexton from

violating Section 13(d) of the Exchange Act and Rule 13d-1

promulgated thereunder -- references "information required by

Schedule 13D" and "any equity security of a class which is

specified in Exchange Act Rule 13d-1(I)." The other three

permanent injunctions first cite the relevant securities law

before listing specific conduct thereby prohibited (such as

engaging in fraud). By contrast, the fourth permanent injunction

only cross-references the Code of Federal Regulations without any

guidance for Sexton as to what his court-ordered obligations are.

See SEC v. Goble, 682 F.3d 934, 952 (11th Cir. 2012) ("Plainly,

Goble would need to look beyond the four corners of the district

court's injunction in order to comply with its strictures."). This

is a bridge too far, and, accordingly, we vacate this portion of

the injunction and remand for the district court to describe the

- 95 - requirements and proscribed conduct within its injunction. See

V. CURTAIN CALL

For the foregoing reasons, the verdicts entered against

Gasarch and Friesen, the district court's disgorgement awards

against all appellants, and the civil penalties imposed against

all appellants are affirmed. Likewise, we affirm the permanent

injunctions issued against Sexton barring violations of

(1) Section 10(b) of the Exchange Act and Rule 10b-5 promulgated

thereunder; (2) Section 17(a) of the Securities Act; and

(3) Section 5 of the Securities Act, but vacate the permanent

injunction barring violations of Section 13(d) of the Exchange Act

and Rule 13d-1 promulgated thereunder, and remand for proceedings

consistent with this opinion.

No costs are awarded.

- 96 -