In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 20-1689
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff-Appellee,
v.
RANDALL S. GOULDING,
Defendant-Appellant.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 09-cv-1775 — Jeffrey T. Gilbert, Magistrate Judge.
____________________
ARGUED JANUARY 20, 2021 — DECIDED JULY 7, 2022
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Before EASTERBROOK, WOOD, and BRENNAN, Circuit Judges.
EASTERBROOK, Circuit Judge. Randall Goulding has served
time in prison for mail fraud and tax fraud. See United States
v. Goulding, 26 F.3d 656 (7th Cir. 1994). Both state and federal
judges have found that he engaged in other shady dealings.
See, e.g., Goulding v. United States,
957 F.2d 1420 (7th Cir.
1992). But these convictions and findings did not deter people
from continuing to trust him with their money, which he
managed under the name Nutmeg Group. The Securities and
2 No. 20-1689
Exchange Commission charged in this suit under the Investment Advisers Act of 1940, 15 U.S.C. §§ 80b–1 to 80b–21, that
Goulding ran Nutmeg through a pa\ern of fraud—including
touting his supposed financial expertise while failing to tell
investors about his crimes—in addition to violating many of
the Act’s technical rules.
Soon after the suit was filed, the district court issued an
injunction removing Goulding from the business and appointing a receiver. The parties consented to a bench trial before a magistrate judge, who agreed with the SEC, enjoined
Goulding from violating the securities laws, required him to
disgorge $642,422 in ill-go\en gains (plus interest), and imposed a civil penalty of an additional $642,422, for a total
award of $1,868,074. The findings of fact and conclusions of
law are extensive; the magistrate judge summarizes them at
2020 U.S. Dist. LEXIS 52157 *13–19 (N.D. Ill. Mar. 25, 2020). See
also SEC v. Nutmeg Group, LLC,
162 F. Supp. 3d 754 (N.D. Ill.
2016) (summary judgment in the SEC’s favor on some issues);
Alonso v. Weiss,
932 F.3d 995 (7th Cir. 2019) (resolving some of
the litigation about Nutmeg Group in the wake of the receiver’s appointment).
We recount a few of the court’s findings to give the flavor
of what happened. Goulding, an accountant and lawyer,
formed Nutmeg to be an investment adviser. He also formed
15 funds that hired Nutmeg’s advisory services. Nutmeg
(which Goulding controlled) served as general partner of 13
funds. After investors put up money, the funds invested in
illiquid securities, such as warrants and convertible bonds
that had been issued by small firms that were close to insolvent or had been given going-concern warnings by their accountants. Goulding wrote all of the disclosure documents
No. 20-1689 3
that the funds used to raise money and made all of the investment decisions. Because the funds’ investments were illiquid,
they had to be valued by means other than market prices, and
a considerable discount should have been applied under normal accounting standards. Goulding told investors that this
would be done—but it wasn’t. The funds were accordingly
overvalued, and Goulding often announced increases in value
without market evidence to support his pronouncements.
A complex structure such as Nutmeg, with illiquid investments and advisory fees tied to the value of the assets under
management, needed independent legal counsel and independent accounting. But Goulding never hired an accountant
for the funds (despite telling investors and the SEC that he
had done so), and his own law firm provided Nutmeg and the
funds with all of their legal advice. It gave bad advice. When
the SEC began an audit in 2008, Goulding told the agency that
he had never heard of the Investment Advisers Act, even
though Nutmeg had been registered under that statute.
Another bit of advice that either an accountant or an independent lawyer would have provided was to maintain strict
separation of accounts. That didn’t happen. Having decided
which fund should buy what assets, Nutmeg often held the
securities in its own name—not on deposit with a broker (less
than 10% was held that way) but in drawers at Goulding’s law
office or in the hands of third parties that lacked experience
managing or safeguarding investments. As for cash: well, that
was commingled in one account that held Goulding’s personal money, the funds’ money, and Nutmeg’s money. The
magistrate judge found that Goulding used this account as his
“personal piggy bank” and paid all sorts of expenses from it,
without regard to his legal entitlements. By the time the SEC
4 No. 20-1689
finished its audit in 2009, this account was empty and the relative entitlements of the funds to the illiquid securities was
difficult to determine. The magistrate judge found that
Goulding had drawn out at least $1.3 million more than his
entitlement, though the restitution award was smaller (representing a conservative estimate of the excess in the five years
before the SEC filed suit).
Nutmeg was entitled to fees based on the value of each investor’s initial stake (a 4% load charge) plus monthly and
yearly fees based in part on asset value and in part on any
profits. Because Goulding valued the assets as he pleased,
without an illiquidity discount, both the asset-based fees and
the profit-based fees were overstated.
The conflict of interest was staggering: a single person was
investment adviser (through Nutmeg), investment manager,
controller of the funds under management, disclosure-writer,
lawyer reviewing those disclosure documents, lawyer for all
other purposes at both Nutmeg and each fund, accountant (to
the extent that there was any accounting), and chief financial
officer. The documents furnished to investors did not reveal
the extent of this self-dealing, and as we’ve already mentioned the documents contained both fraudulent statements
(such as a promise to discount illiquid assets) and fraudulent
material omissions (such as a neglect to mention Goulding’s
convictions for fraud and the commingling that gave him access to as much of the money as he pleased). By the time a
receiver took over in 2009, investors had lost millions of dollars (just how many millions is hard to know) out of the
roughly $32 million entrusted to Nutmeg’s 15 funds.
Many of the magistrate judge’s findings rest on Goulding’s concessions. In this court he principally disputes the
No. 20-1689 5
findings that particular assets were overvalued, which meant
that Nutmeg’s fees were excessive. Yet the judge’s findings,
far from being clearly erroneous, see Fed. R. Civ. P. 52(a)(6);
Anderson v. Bessemer City, 470 U.S. 564 (1985); are supported
by extensive evidence. Goulding asks us to make findings independent of the district court’s—that is, to engage in what is
often called de novo review—but that request is preposterous. We do not have authority to depart from Rule 52(a)(6).
That some of the findings might be called mixed questions of
law and fact does not ma\er. As the Supreme Court explained
in U.S. Bank N.A. v. Village at Lakeridge, LLC,
138 S. Ct. 960
(2018), case-specific mixed findings are reviewed deferentially. That description fits the findings after this bench trial.
More: even if we were to review the record without deference,
we would reach the same conclusions as the magistrate judge.
Goulding invokes Liu v. SEC, 140 S. Ct. 1936 (2020), in support of an argument that the maximum award of restitution is
zero. Liu holds that restitution is a permissible remedy in litigation filed by the SEC but that the amount must be limited
to the wrongdoer’s net take, rather than his gross proceeds,
unless the source of the funds was a scam from top to bo\om.
(Nutmeg does not fit that proviso; its funds had real assets, if
risky and hard-to-value ones.) The magistrate judge made his
restitution award before Liu, but it is not necessary to remand
for a do-over. The judge found that the restitution award is a
conservative estimate of the amount by which Goulding’s
withdrawals exceeded his contractual entitlements during the
five years before the SEC sued. That is the definition of net
unjustified proceeds.
Trying to a\ack this award, Goulding insists that the magistrate judge underestimated his contractual entitlement to
6 No. 20-1689
cash by finding that the funds’ assets, and thus Nutmeg’s recurring fees, had been overvalued. (Goulding was Nutmeg, so
its fees were his property, or close enough to this for current
purposes.) We have already explained why the magistrate
judge’s findings on this score are not clearly erroneous.
The commingling of assets is another obstacle to the success of Goulding’s argument. If there was a problem in determining the restitution award, it comes from the combination
of two things: uncertainty about how much Nutmeg should
have received in fees, and determining the ownership of the
money in the commingled account. Goulding asserts that
more than $400,000 came from his own assets and was his to
withdraw, but the magistrate judge found that his total capital contribution was only $70,000. That finding, too, is not
clearly erroneous. (It is also not clear to us how Goulding
could have withdrawn his capital contribution, whether
$70,000 or $400,000, while investors in the funds were unable
to do so, given the assets’ illiquidity.)
The extent of Goulding’s wrongdoing makes it hard to determine his net unjustified withdrawals, and as the wrongdoer he bears the consequence of uncertainty. We do not see
any legal error in the magistrate judge’s conclusion that the
restitution reflects a conservative estimate of Goulding’s illgot gains. Nor did the judge err by declining to trace funds
from their source to Goulding’s pocket. One Justice argued
for such a requirement in Liu, but he wrote in dissent. 140 S.
Ct. at 1953–54 (Thomas, J., dissenting).
The magistrate judge adjusted for his conservative award
of restitution by imposing a penalty. The Act provides authority for him to proceed as he did. The judge selected what the
Act calls a third-tier penalty, 15 U.S.C. §80b–9(e)(2)(C), which
No. 20-1689 7
may be the greater of $130,000 or the gross amount of the
wrongdoer’s pecuniary gain. The magistrate judge used this
clause to double what had been calculated as Goulding’s net
wrongful withdrawal. Basing the penalty on the net extraction was favorable to Goulding—and this also means that, if
the restitution award was off in some manner, the judge still
had substantial discretion under §80b–9(e)(2)(C) to make up
for any difference by basing the penalty on Goulding’s gross
withdrawals. Neither the penalty, nor the restitution and penalty in combination, can be upset on this appeal as an abuse
of discretion—which is the standard of appellate review. See
SEC v. Williky, 942 F.3d 389, 393 (7th Cir. 2019).
One more subject and we are done. The magistrate judge
entered an injunction that requires Goulding to obey the law.
The injunction has several sections, implementing different
sections of the Act. We set out one provision as an illustration:
IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that Defendant Goulding is permanently restrained and enjoined from
violating, directly or indirectly, Sections 206(1) and (2) of the Advisers Act [15 U.S.C. §§ 80b-6(1) and 80b-6(2)] by, while acting as
an investment adviser and by the use of the means and instrumentalities of interstate commerce and of the mails, employing devices, schemes, and artifices to defraud his clients and prospective
clients, or engaging in transactions, practices, and courses of business which operate as a fraud or deceit upon his clients or prospective clients.
Goulding contends that federal judges should not issue injunctions that simply repeat a statute, for injunctions of this
kind mean that any further dispute between Goulding and
the SEC will be resolved by a judge using the contempt
power, or perhaps by the agency in administrative proceedings, rather than by a jury under the norms of ordinary
8 No. 20-1689
litigation. Even a scoundrel is entitled to a jury trial when
there are disputed issues of material fact.
We held in Power v. Summers,
226 F.3d 815 (7th Cir. 2000),
that obey-the-law injunctions are not forbidden. But they still
may amount to an abuse of discretion, and this one does so.
Instead of repeating the statutory language, the judge could
and should have forbidden with greater specificity what
Goulding must not do. We remand for this purpose.
Goulding may not like the upshot of his request for that
relief. One common remedy in securities-fraud cases is a fencing-out injunction—for example, telling the offender that he
must never again have anything to do with investment management on behalf of persons other than his immediate relatives. See, e.g., SEC v. Cherif, 933 F.2d 403 (7th Cir. 1991) (prohibition on future trading); SEC v. Koenig,
557 F.3d 736 (7th
Cir. 2009) (bar on serving as director or top manager of a public company); SEC v. Patel,
61 F.3d 137 (2d Cir. 1995) (same).
Given Goulding’s history of securities and tax fraud, such an
injunction would have distinct benefits. The choice belongs to
the magistrate judge. We mention the fencing-out possibility
only to make clear to Goulding that he cannot complain if, on
remand, things go from bad to worse.
The finding of liability and all of the financial awards are
affirmed. The injunction is vacated, and the case is remanded
for further proceedings consistent with this opinion.
