What does it mean if you have been named a relief defendant in an SEC proceeding? An individual’s first thought may be, “I’ve done nothing wrong!” A relief defendant is joined to a proceeding in order to aid the recovery of relief. The SEC may move for an emergency order to freeze the relief defendant’s assets and/or bank accounts in order to preserve the assets the SEC is trying to recover. The property or assets are alleged to be the profits of securities fraud – even though the relief defendant himself did not commit the fraud, he may have no ownership interest in the property. Simply, the relief defendant may have profited from the wrongdoer’s actions, but did not facilitate his actions. The court obtains jurisdiction over the relief defendants by obtaining subject matter jurisdiction over the litigation itself.
The court may seize the assets of a relief defendant if he:
(1) has received ill-gotten funds; and
(2) does not have a legitimate claim to those funds.
As an example, if a wrongdoer profits from insider trading and then uses those profits to purchase his girlfriend a diamond ring to give to her as a gift, she has received ill-gotten funds and has no legitimate claim to those funds.
Relief defendants are not completely helpless. If a relief defendant can establish an ownership interest or a legitimate claim to the property at issue, that precludes him from being a relief defendant. Further, the resources of federal court remain available to a relief defendant – from the federal rules of procedure to the ability to challenge the SEC’s position, through a motion to dismiss, as an example. The relief defendant may even try to negotiate a settlement with the SEC and offer to aid the SEC in its recovery of ill-begotten funds. With the advice of a competent attorney, a relief defendant may still be able to find some relief.