United States Securities and Exchange Commission v. Carebourn Capital, L.P.

                UNITED STATES DISTRICT COURT                             
                    DISTRICT OF MINNESOTA                                


United States Securities and Exchange     No. 21-cv-2114 (KMM/JFD)       
Commission,                                                              

          Plaintiff,                                                     

v.                                          ORDER                        

Carebourn Capital, L.P.; Carebourn                                       
Partners, LLC, Relief Defendant; and Chip                                
Alvin Rice;                                                              

          Defendants.                                                    


    The  Securities  and  Exchange  Commission  brought  this  action  alleging  that 
Defendants Carebourn Capital, L.P. (“Carebourn Capital”) and Chip Alvin Rice violated 
Section 15(a) of the Securities Exchange Act of 1934 by acting as unregistered securities 
dealers.  Between  2017  and  2021,  through  the  use  of  convertible  promissory  notes, 
Carebourn  Capital  and  Mr. Rice  bought  and  sold  billions  of  newly  issued  shares  of 
microcap securities, also known as penny stocks, resulting in several million dollars in 
revenue. The SEC also alleged that Carebourn Capital and Rice charged penny stock 
issuers transactional fees that were paid directly to Relief Defendant Carebourn Partners, 
LLC (“Carebourn Partners”). On September 27, 2023, the Court denied the Defendants’ 
motion for summary judgment and granted summary judgment in favor of the SEC as to 
all three Defendants’ liability.                                          
    This matter is now before the Court on the SEC’s Motion for Remedies. ECF 186. 
The  SEC  seeks  the  following  remedies  against  Carebourn  Capital  and  Mr. Rice: 
(1) permanent injunctions prohibiting them from further violating the federal securities 
laws as alleged in the SEC’s complaint; (2) permanent penny-stock bars; (3) an order 
requiring them to pay, jointly and severally, disgorgement of net profits of $10,135,738.71, 

and prejudgment interest of $950,173.40, totaling $11,085,912.11; and (4) a civil penalty 
of $642,500 against each. Further, the SEC asks the Court to Order Relief Defendant 
Carebourn Partners to pay disgorgement of $1,109,306.50, and prejudgment interest of 
$103,924.66, totaling $1,213,231.16. Finally, the SEC seeks an order requiring Defendants 
to surrender for cancellation shares of stock from, and conversion rights under, convertible 

notes that issuers sold to them.                                          
    Defendants have agreed to surrender their remaining shares of stock and conversion 
rights. Based on that agreement, the Court will Order that relief below without further 
discussion. However, Defendants otherwise oppose the relief the SEC seeks. Defendants 
maintain that: the SEC has failed to make the required showing for entry of a permanent 

injunction or a penny-stock bar; the SEC has not demonstrated that disgorgement of any 
profits is appropriate, and even if it were, the amount of disgorgement requested is 
excessive; the Court should not impose any civil penalty, but even if it does, the amount 
should be far less than the SEC demands; and the SEC’s calculation of prejudgment interest 
is excessive.                                                             

    The Court held a hearing on the SEC’s motion by videoconference on July 22, 2024. 
Having considered the entire record and the parties’ arguments, the SEC’s motion is 
granted in part and denied in part as explained in this Order.            
I.   Post-Hearing Letter Briefing                                         
    An “interested party,” Darkpulse, Inc. observed the hearing through its counsel. 
Before the SEC commenced this action, Carebourn Capital sued Darkpulse in Minnesota 

state court. Eventually, Darkpulse obtained a judgment in its favor in the state court action. 
Like this Court, the state court found that Carebourn engaged in unregistered dealer activity 
in violation of the federal securities laws. With permission of the Court, Darkpulse filed a 
letter  concerning  the  remedies  phase  of  this  litigation.  Darkpulse  asserts  that  if  the 
Defendants had registered as dealers, they would not have been able to engage in the 

lending activity that forms the basis of the SEC’s claims in this case. Darkpulse also 
suggested that Mr. Rice made certain false statements in his declaration. ECF 218. The 
SEC and Defendants filed responsive letters, and Mr. Rice filed a corrected declaration 
clarifying an earlier error. ECF 221, 222, 223. The Court has reviewed these submissions 
and considered them to the extent they contain information the Court considers relevant to 

the remedies questions before it.                                         
    Of note, the Court is not persuaded by Darkpulse’s suggestion in its letter that 
Mr. Rice made an intentionally false statement in his declaration provided in opposition to 
the  motion  for  remedies  when  he  stated  that  neither  he  nor  Carebourn  Capital  had 
previously  been  found  to  have  engaged  in  any  violation  of  the  dealer-registration 

requirement though the state court had previously reached the same conclusion that this 
Court did in its summary judgment order. This is an unreasonable reading of his declaration 
because, in a paragraph found later in the declaration, Mr. Rice specifically discusses the 
judgment the state court entered against Carebourn Capital. ECF 205 ¶ 18. If he had 
engaged in a misrepresentation with the intent to mislead the Court it would have been a 
curious way to do so by identifying the very case in which another court had made an 
adverse finding against him. Beyond that, the Court finds that nothing in the parties’ post-

hearing letters is outcome determinative, and it would have reached the same conclusions 
set forth in this Order had they not been submitted.                      
    Only one aspect of the parties’ letters requires additional comment—namely, the 
second letter filed by Defendants. ECF 225. In their second letter, Defendants argue that 
Darkpulse’s submission should be stricken from the record because its counsel violated the 

Local Rules of the District of Minnesota and engaged in unauthorized practice of law by 
filing  the  submission  without  having  been  admitted  pro  hac  vice  in  this  litigation. 
Defendants  also  asked  the  Court  to  issue  sanctions  against  Darkpulse’s  counsel  for 
requiring  Defendants  to  engage  in  extra  work  responding  to  the  letter  brief.  Next, 
Defendants argue that the state court’s judgment in the Darkpulse litigation is based upon 

flawed rulings by Hennepin County District Judge Patrick Robben. Finally, Defendants 
contend that the averments in Darkpulse’s letter require the Court to hold an evidentiary 
hearing concerning remedies and “stay the issue of liability.”            
    Defendants’ second letter reflects little more than the acrimony between it and 
Darkpulse and varyingly includes or hints at remarkably unreasonable requests for relief 

from this Court. In requesting that the Court sanction Darkpulse’s counsel, Defendants 
ignore the fact that the undersigned expressly permitted them to file their letter brief. It 
would be difficult to imagine a decision more unreasonable than allowing an attorney to 
take an action in a case and then sanctioning them for doing that very thing. These requests 
for sanctions are rejected.                                               
    The Court also rejects Defendants’ suggestion that statements in Darkpulse’s letter 

require an evidentiary hearing and some alteration of the Court’s liability ruling. If it 
doesn’t  ask  for  it  explicitly,  Defendants’  request  for  an  evidentiary  hearing  comes 
perilously close to arguing an appeal of the state court judgment, which this Court, of 
course, would not entertain. In any event, nothing in Darkpulse’s letter requires the Court 
to resolve disputed factual issues in this case through an evidentiary hearing. Nor will the 

Court “stay the issue of liability.” The Court has already concluded the SEC is entitled to 
summary judgment on liability, so there is nothing to stay, and Defendants have neither 
received permission to file a motion for reconsideration, nor shown that the Court’s 
summary judgment decision ought to be revisited.                          
II.  Permanent Injunction and Penny Stock Bar                             

    Because the law governing whether the Court should issue a permanent injunction 
and impose a penny-stock bar involves consideration of very similar, if not identical, 
factors, the Court discusses these issues together.                       
 A. Legal Standards for Injunctive Relief and Industry Bar               
         1.  Permanent Injunction                                        
    “The SEC is entitled to injunctive relief when it establishes (1) a prima facie case 

of previous violations of federal securities laws, and (2) a reasonable likelihood that the 
wrong will be repeated.” SEC v. Keener, 

, 1298-99 (S.D. Fla. 2022) 
(quoting SEC v. Calvo, 

 (11th Cir. 2004)). Courts consider several 
factors when assessing the likelihood the defendant will engage in future wrongdoing: 
         (1)  the  egregiousness  of  the  defendant’s  actions,  (2)  the 
         isolated or recurrent nature of the infraction, (3) the degree of 
         scienter  involved,  (4)  the  sincerity  of  the  defendant’s  
         assurances  against  future  violations,  (5)  the  defendant’s 
         recognition of the wrongful nature of his conduct, and (6) the  
         likelihood  that  the  defendant’s  occupation  will  present   
         opportunities for future violations.                            

; SEC v. Shanahan, No. 07-cv-2879 (JNE/JJG), 

, at *9 (D. 
Minn. Jan. 13, 2010) (substantially same); see also SEC v. Cap. Solutions Monthly Income 
Fund, LP, 

 (D. Minn. 2014) (considering “(1) the degree of scienter 
involved;  (2)  the  isolated  or  repeated  nature  of  the  violations;  (3)  the  defendant’s 
recognition  of  the  wrongful  nature  of  her  conduct;  and  (4)  whether,  because  of  the 
defendant’s professional occupation, future violations could be anticipated”).  
         2.  Penny Stock Bar                                             
    “Under the Exchange Act, a court may prohibit any person who, at the time of the 
alleged misconduct, was participating in any offering of penny stock from participating in 
any future offering of penny stock.” Keener, 644 F. Supp. 3d at 1302 (quoting SEC v. 
Almagarby, 17-cv-62225, 

, at * 4 (S.D. Fla. Aug. 16, 2021)). “Before a 
court may enter a penny stock bar, the SEC must demonstrate that the stock at issue in the 
violations under review is, in fact, a penny stock.” 

 (quoting SEC v. Huff, 

 (S.D. Fla. 2010)).                                          
    In  deciding  whether  to  impose  a  penny  stock  bar,  courts  consider:  “(1)  the 
egregiousness of the underlying securities law violation; (2) the defendant’s repeat offender 
status; (3) the defendant’s role or position when he engaged in the [misconduct]; (4) the 
defendant’s degree of scienter; (5) the defendant’s economic stake in the violation; and (6) 
the likelihood that misconduct will recur.” SEC v. Becker, No. 09 CIV. 5707 (SAS), 

, at *1 (S.D.N.Y. July 8, 2010) (internal quotation marks omitted); see also 
Shanahan, 

, at *16 (considering same factors in deciding whether to enter 
an officer/director bar based on a violation of section 10(b) of the Exchange Act); SEC v. 
Universal Exp., Inc., 

 (S.D.N.Y. 2007) (“The standard for 
imposing such a bar essentially mirrors that for imposing an officer-or-director bar.”). 

 B. Discussion                                                           
    Several factors support imposition of both an injunction and a penny-stock bar. 
First, the Court finds that the recurrent nature of the Defendants’ misconduct weighs in 
favor of the requested injunctive relief and the bar on future penny-stock activity. Although 
Defendants  argue  that  they  engaged  in  a  single  violation  of  the  dealer-registration 

requirement because they only failed to register once,1 this characterization ignores the 
reality of their conduct. Each time the Defendants purchased convertible promissory notes, 
converted them into newly issued shares of stock at steep discounts from market prices, 
and then promptly sold as many converted shares into the market as they could, they 
engaged in unregistered-dealer activity. They did this hundreds of times during the relevant 

period, and it is a mischaracterization for Defendants to suggest that their conduct in this 

1 Defs.’ Opp’n 19 (“While it is true that Defendants engaged in many debt conversions and stock 
sales over the course of several years, at bottom the Defendants committed a one-time violation 
by failing to register as a securities dealer when they first started the investment activities years 
ago.”).                                                                   
case involved a single violation of the securities laws. See Keener, 644 F. Supp. 3d at 1299 
(“[T]he  R&R  accurately  concludes  that  Keener’s  conduct  was  recurrent  because  he 
disregarded the dealer registration requirement during a period of over three years as he 

acted as an unlicensed dealer. . . . That conduct was not an isolated incident, but a systemic 
practice of noncompliance with the Exchange Act.”).                       
    Second, Mr. Rice’s occupation as a longtime participant in the financial markets 
presents opportunities for future violations of the registration requirement. Mr. Rice has 
extensive  experience  acting  as  an  unregistered  dealer,  and  the  Court  finds  that  it  is 

reasonably likely that he will engage in future violations if injunctive relief is not imposed. 
    Third, there is no question that Mr. Rice and Carebourn Capital have a significant 
economic stake in the violation of the securities laws at issue in this case. As the Court has 
already found, their unregistered-dealer activity generated millions of dollars in revenue 
over several years. And fourth, the Court finds that Mr. Rice was the central decision-

maker who had the ultimate responsibility to decide which issuers Carebourn Capital 
would contract with to purchase convertible promissory notes. These factors provide 
additional support for imposition of injunctive relief and a penny-stock bar. 
    Other factors are neutral, weigh against imposition of injunctive relief or a penny-
stock bar, or do not plainly point in one direction or the other. For example, the parties 

agree that Carebourn Capital and Mr. Rice did not act with scienter in violating the 
Exchange Act’s dealer-registration requirement. This is consistent with the position taken 
by the SEC in summary-judgment briefing, with which the Court agreed, that a failure to 
register is a strict-liability offense that requires no showing of scienter. Nevertheless, the 
absence of a showing that Defendants acted with scienter does not necessarily preclude 
imposition of an injunction or a penny-stock bar. See SEC v. Almagarby, 

 (11th Cir. 2024) (explaining that although “scienter is an important factor in this 

analysis, it is not a prerequisite to injunctive relief”) (quotations omitted); see also Keener, 
644 F. Supp. 3d at 1299–30 (imposing permanent injunction against future unregistered-
dealer activity despite no showing of scienter). Although it is not dispositive, this factor 
weighs in favor of the Defendants.                                        
    The Court also finds that the SEC has failed to show that Mr. Rice’s and Carebourn 

Capital’s  actions  in  failing  to  register  were  “egregious.”  The  SEC  suggests  that  the 
recurrent or “systematic” violation of the registration requirement supports this factor. Pls.’ 
Mem. 7–8. While the Court has found that the recurrent nature of the violation here weighs 
in favor of injunctive relief and a penny-stock bar, these are listed as separate factors in the 
case law. Finding a defendant’s conduct to be egregious merely because it is recurrent 

renders one of these factors superfluous. Almagarby, 

 (rejecting the district 
court’s acceptance of the SEC’s position that defendant’s conduct was egregious because 
it “spanned over three years and thousands of transactions” because that analysis “collapses 
the egregiousness determination into the recurrence factor”). The SEC has not presented 
evidence  either  to  suggest  that  Defendants’  violations  of  the  dealer-registration 

requirement were “blatant” or that they involved fraud or scienter. 

 (explaining 
that  “several  facts  indicat[e]  egregiousness:  (1) ‘blatant’  securities-law  violations, 
(2) knowingly or recklessly making material misrepresentations or omissions (fraud), and 
(3) scienter”).                                                           
    The Court also finds that consideration of the Defendants’ attitude regarding their 
conduct does not clearly support a permanent injunction and permanent penny-stock bar. 
The SEC takes the position that Mr. Rice and Carebourn Capital are recalcitrant and that 

they continue to insist they did nothing wrong. However, Defendants have had every right 
to disagree with the SEC’s allegations and put up a vigorous defense. Moreover, they still 
retain their appeal rights. SEC v. Johnson, 

 (D.D.C. 2009) (“Needless 
to say, [defendant] has a right to vigorously contest the SEC’s allegations and was not 
required to ‘behave like Uriah Heep in order to avoid an injunction.’”) (citing SEC v. First 

City Financial Corp., 

 (D.C. Cir. 1989)); see also Shanahan, 

 at *15  (same). Like the Keener court, this Court gives little weight to this factor. 
See Keener, 644 F. Supp. 3d at 1300.                                      
    Next, the Court considers Mr. Rice’s assurances against future violations. Mr. Rice 
offered a declaration, submitted under penalty of perjury, in which he states that he 

“acknowledge[s] and respect[]s the Court’s summary judgment ruling in favor of the SEC.” 
Rice Decl. ¶ 3, ECF 205. Further, he conveys his understanding of the Court’s decision and 
declares that he “fully intend[s] to comply with and abide by the Court’s ruling in this 
case.” Id. And he testifies “I have no intention nor desire to engage in the same investment 
activities in the future and I certainly have no intention to do so again without registration 

as a dealer under the federal securities laws. The same is true for Carebourn Capital.” Id. 
¶ 8.  Based  on  these  statements,  the  Defendants  contend  that  Mr. Rice  has  provided 
adequate assurances against future violations, and they argue that the SEC’s enforcement 
of  the  dealer-registration  requirement  through  lawsuits  like  this  one  has  effectively 
eliminated any market for Defendants to engage in similar future violations. The SEC 
argues that the Court should be unmoved by Mr. Rice’s declaration. Specifically, the SEC 
points  out  that  these  statements  are  undermined  because  (1) Defendants  purchased  a 

convertible note and sold penny-stock after the SEC initiated this suit; (2) they were 
uncooperative in the underlying investigation; and (3) Mr. Rice “repeatedly lied during his 
deposition.” Pls.’ Reply 22, ECF 207; Pls.’ Mem. 19.                      
    Having  considered  the  parties’  competing  arguments  about  the  sincerity  of 
Mr. Rice’s assurances, the Court finds that this factor does not ultimately tip the balance in 

any particular direction. The Court is not particularly persuaded by the SEC’s reliance on 
the fact that Defendants purchased a convertible note and sold penny-stock after the SEC 
initiated this lawsuit. To place significant emphasis on that fact would suggest that merely 
because they had been sued, Defendants were required to agree with the SEC, or at a 
minimum,  to  take  the  most  cautious  approach  possible.  While  a  more  conservative 

approach may have been the prudent course of action here, the Court cannot say that this 
renders Mr. Rice’s current assurances insincere. Nor does Defendants’ lack of cooperation 
during the underlying investigation weigh heavily in this analysis, though the Court does 
note that it is an important consideration when determining whether to impose civil 
penalties. However, the Court is very troubled by Mr. Rice’s deposition testimony in this 

case and the way in which it flatly contradicted earlier testimony he had given during the 
SEC’s investigation. Summary Judgment Order 17–18, 27–28 (discussing inconsistencies 
between deposition testimony and prior testimony in effort to create issues of fact for trial). 
Although  the  Court  does  not  fully  adopt  the  SEC’s  characterization  that  Mr. Rice 
“repeatedly lied under oath,” this does not mean the Court ignores the importance of this 
issue.  Mr. Rice  demonstrated  a  willingness  to,  at  best,  significantly  shape  testimony 
provided under oath to suit his purposes depending on the stage of the proceedings. As a 

result, the Court does not have unreserved faith in the sincerity of the assurances he has 
provided now in his effort avoid the consequences of his unregistered dealer activity. 
    Ultimately, whether to impose a permanent injunction or even a more limited 
injunction, and whether to impose a penny-stock bar require a consideration of the totality 
of the circumstances and the foregoing factors inform whether the SEC has shown a 

reasonable likelihood that Defendants will engage in future violations absent injunctive 
relief. Carebourn Capital continues to operate as an investment business, and Mr. Rice, as 
its controlling officer, has had a lengthy career focused on the financial markets. Such a 
“firm position in the financial industry,” combined with years of noncompliance with the 
Exchange Act’s dealer-registration requirement support a finding that Defendants will 

engage in future violations if no injunctive relief is imposed. Keener, 644 F. Supp. 3d at 
1301  (finding  that  the  defendant’s  “decade-long  history  of  noncompliance  and 
nondisclosure, when combined with his firm position in the financial industry,” supported 
imposition of a permanent injunction). The Court also finds support for this decision in the 
fact that during the investigation and this  litigation,  Mr. Rice provided contradictory 

testimony, which undermines the weight given to his assurances that he will not engage in 
future unregistered dealer activity.                                      
    The SEC asks the Court to enter the following permanent injunction against future 
violations of the dealer-registration requirement:                        
              IT IS FURTHER ORDERED, ADJUDGED, AND                       
         DECREED   that  Carebourn  Capital,  L.P.  and  Chip  Rice      
         (“Defendants”) are permanently restrained and enjoined from     
         violating,  directly  or  indirectly,  Section  15(a)(1)  of  the 
         Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C.     
         § 78o(a)(1)], as a dealer [15 U.S.C. § 78c(a)(5)], by making    
         use of the mails or any means or instrumentality of interstate  
         commerce to effect any transactions in, or to induce or attempt 
         to induce the purchase or sale of, any security (other than an  
         exempted  security  pursuant  to  

.15a-2  or  
         commercial paper, bankers’ acceptances, or commercial bills),   
         unless the Defendants are registered with the Commission as a   
         dealer, or associated with a registered dealer, in accordance   
         with Exchange Act Section 15(b).                                

              IT IS FURTHER ORDERED, ADJUDGED, AND                       
         DECREED   that  as  provided  in  Federal  Rule  of  Civil      
         Procedure 65(d)(2), the foregoing paragraph also binds the      
         following who receive actual notice of this Final Judgment by   
         personal  service  or  otherwise:  (a)  Defendants’  general    
         partners,  limited  partners,  members,  managing  members,     
         officers, agents, servants, employees, and attorneys; and (b)   
         other  persons  in  active  concert  or  participation  with    
         Defendants or with anyone described in (a).                     

ECF 192 at 1–2.                                                           
    Defendants argue that if the Court concludes that injunctive relief is appropriate, it 
should only “impose time-limited relief instead of life-time injunctive relief.” Defs.’ Opp’n 
at 32. However, the cases Defendants cite in support of this request for, at most, time-
limited injunctive relief do not persuade the Court that the permanent injunction requested 
here is inappropriate. Indeed, in two of the cited cases, even though courts limited the 
duration of the industry bars to a term of years, they imposed permanent injunctions. SEC 
v. Findley, No. 3:20-cv-0397 (SRU), 

, at *11–12 (D. Conn. Feb. 21, 2024) 
(providing a time-limited industry bar prohibiting the defendant from serving as an officer 
or director of a publicly-traded company, but imposing a permanent injunction against 

future violations of fraud provisions in the Exchange Act and Securities Act); SEC v. 
Gallison, 

, at *2–3 (S.D.N.Y. Feb. 4, 2023) (imposing permanent 
injunction and a time-limited officer-and-director bar). Because the permanent injunction 
here does not limit future participation in the financial services industry, but only future 
illegality, this authority is less persuasive.                            

    Defendants do not otherwise argue that  the form of  the permanent injunction 
requested by the SEC is improper. Accordingly, the SEC’s motion is granted to the extent 
it seeks a permanent injunction against Defendants prohibiting future violations of the 
dealer-registration requirement.                                          
    The Court will also grant, in part, the SEC’s request for imposition of a penny-stock 

bar, though it will not impose this industry bar permanently on Carebourn Capital and 
Mr. Rice. There is no dispute that Defendants’ conduct in this case involved penny stocks, 
nor  that  the  Court  has  the  authority  to  bar  Carebourn  Capital  and  Mr. Rice  from 
participating in the offering of any penny stock. See 15 U.S.C. § 78u(d)(6) (“In any 
proceeding . . . against any person participating in, or, at the time of the alleged misconduct 

who was participating in, and offering of penny stock, the court may prohibit that person 
from  participating  in  an  offering  of  penny  stock. . . .”).  Nevertheless,  in  determining 
whether to impose such a prohibition, the Court is mindful that the bar requested by the 
SEC would “prohibit[] unlawful and lawful penny-stock transactions,” Almagarby, 

, for the remainder of Mr. Rice’s life and for as long as Carebourn Capital 
exists. The record in this case does not support a permanent injunction against future lawful 
penny-stock transactions, though Defendants’ conduct does support a more limited penny-

stock bar.                                                                
    Defendants suggest that the Court should follow Almagarby and find that this record 
does not support any industry bar at all. Like Almagarby, 92 F.4th at 1323–26, where the 
Eleventh Circuit reversed the district court’s imposition of a penny-stock bar, this case does 
not involve scienter or egregious conduct, and Defendants should not be punished for 

defending themselves in this litigation. However, unlike the defendant in Almagarby, as 
explained above, this case does provide “reason to question the sincerity” of Mr. Rice’s 
“assurances against future securities-law violations.” 

. Indeed, the Court has 
explained above why it is not inclined to unreservedly accept Mr. Rice’s assurances. And 
unlike Mr. Almgarby, Mr. Rice has not moved on to employment in an entirely different 

field. 

 (indicating that Almagarby was employed in a home-repair business). In 
short, this case is different enough from Almagarby that the Eleventh Circuit’s decision 
does not persuade the Court that no penny-stock bar would be appropriate here. 
    The SEC highlights that Mr. Rice engaged in at least one penny-stock transaction 
after the SEC filed suit, failed to comply with the SEC’s administrative subpoenas until the 

SEC asked a federal court to hold Defendants in contempt, and provided testimony during 
his deposition in this case that directly conflicted with his prior testimony during the SEC’s 
investigation. According to the SEC, these circumstances more closely align with the 
situation addressed by Keener court than that involved in Almagarby, and consequently, 
the  SEC  argues  that  this  Court  should  impose  a  permanent  penny  stock  bar  upon 
Defendants. Pl.’s Mem. 8; Pl.’s Reply 21–22. However, the Keener court did not impose a 
permanent penny-stock bar; rather, it limited the duration of the bar to a specific term of 

years. 644 F. Supp. 3d at 1303 (adopting the defendant’s “proposal to temporarily limit the 
penny stock bar to five years”). The Court similarly finds that, in this case, the SEC has 
failed to show “a reasonable likelihood that [Carebourn Capital and Mr. Rice] cannot ever 
engage in lawful penny stock offerings.” Id. The Court also notes that while Defendants 
engaged in unregistered-dealer transactions on a recurrent basis over many years, the 

conduct at issue in this case did not occur after Defendants had already been found to have 
violated the dealer-registration rules. See SEC v. Patel, 

 (2d Cir. 1995) 
(indicating that a “before imposing a permanent bar,” a court should consider whether there 
has been a “prior history of unfitness”).                                 
    Accordingly, the Court will not permanently bar Defendants from engaging in any 

penny stock offering, trading, etc., as requested by the SEC. However, the Court will limit 
the scope of the penny-stock bar to a period of three years from the date of this Order. 
 III.  Disgorgement                                                      
    The SEC requests an Order requiring Carebourn Capital and Mr. Rice to pay, on a 
joint-and-several basis, disgorgement of net profits of $10,135,738.71. In addition, the SEC 

asks the Court to require Relief Defendant Carebourn Partners to pay disgorgement of 
$1,109,306.50, based on its receipt of ill-gotten gains from the conduct of Carebourn 
Capital and Rice.                                                         
 A. Legal Standards for Disgorgement                                     
    Disgorgement  is  an  equitable  remedy  that  serves  the  purpose  of  depriving  a 
wrongdoer  of  ill-gotten  gains.  SEC  v.  Keener,  No.  20-cv-21254-BLOOM,  

, at *7 (S.D. Fla. Aug. 8, 2022), R&R adopted in part, rejected in part, 

 (S.D. Fla. 2022).                                           
    There  are  two  potential  sources  of  a  court’s  authority  to  issue  an  award  of 
disgorgement under the Exchange Act. First, under 15 U.S.C. § 78u(d)(5), when the SEC 
brings an action under the securities laws, a court “may grant, any equitable relief that may 

be appropriate or necessary for the benefit of investors.” Although the statute does not 
define “equitable relief,” in Liu v. SEC, 

 (2020), the Supreme Court held that 
“a disgorgement award that does not exceed a wrongdoer’s net profits and is awarded for 
victims is [permissible] equitable relief. . . .” 

 at 74–75. The Supreme Court explained 
that disgorgement is a traditional equitable remedy focused on depriving wrongdoers of 

net profits attributable to their wrongdoing. 

 at 79–81. Therefore, courts are required to 
“deduct legitimate expenses before ordering disgorgement under § 78u(d)(5).” Id. at 91–
92. In addition, the Court interpreted § 78u(d)(5)’s requirement that equitable relief be 
“appropriate or necessary for the benefit of investors” to mean that a disgorgement remedy 
“must do more than simply benefit the public at large by virtue of depriving a wrongdoer 

of ill-gotten gains.” Id. at 89.                                          
    After Liu, courts have generally held that the SEC can satisfy the so-called “victim-
benefit  requirement”  by  demonstrating  that  it  plans  to  distribute  disgorged  funds  to 
investors if it is able to collect. Almagarby, 

 (finding that the SEC 
adequately  satisfied  the  victim-benefit  requirement  by  explaining  “that  it  planned  to 
distribute awards to counterparties who had purchased shares from Almagarby and were 
negatively affected by the price impact of his selling activity); SEC v. Arias, No. 12-cv-

2937 (RPK) (SIL), 

, at *4 (E.D.N.Y. Feb. 9, 2023) (finding it sufficient 
that “the SEC has stated that it will return disgorged funds to investors if it can collect 
them. . . . At this stage of the litigation, such a representation is enough.”); SEC v. Penn, 
No. 14-CV-581 (VEC), 

, at *14 (S.D.N.Y. Mar. 31, 2021) (collecting 
cases); SEC v. NIR Grp., LLC, No. 11-CV-4723 (JMA) (AYS), 

, at *4 

(E.D.N.Y. Mar. 28, 2022). Other courts have required a more substantial showing. SEC v. 
Govil, 

 (2d Cir. 2023) (finding an abuse of discretion where the district court 
determined that investors were victims without finding that they suffered pecuniary harm); 
SEC v. Lemelson, 

, 238 (D. Mass. 2022) (“[T]he SEC has not provided 
any evidence that it could identify victims and has left open whether it is feasible to create 

a Fair Fund.”).                                                           
    The second source is also found in Section 78u, and it is more direct. After the 
Supreme  Court decided  Liu,  Congress amended section 78u. See  William  M. (Mac) 
Thornberry National Defense Authorization Act for Fiscal Year 2021, Pub. L. No. 116-
283, 

, 4626. The statute now provides that “[i]n any action or proceeding 

brought by the [SEC] under any provision of the securities laws, the [SEC] may seek, and 
any Federal court may order, disgorgement.” 15 U.S.C. § 78u(d)(7). Notably, the 2021 
amendment to the statute no longer requires that the equitable remedy of “disgorgement” 
be “for the benefit of investors.” See Keener, 644 F. Supp. 3d at 1305; SEC v. O’Brien, 

, 103 (S.D.N.Y. 2023) (“[A]fter Liu, Congress enacted amendments to the 
relevant portion of the Exchange Act, suggesting that courts have greater discretion to order 
disgorged funds to be deposited with the Treasury.”).                     

    With respect to the amount of any disgorgement remedy, courts have found that the 
SEC need only provide a “reasonable approximation of the profits causally related to the 
fraud.” Lemelson, 596 F. Supp. 3d at 238 (quotation omitted); see also SEC v. Capital 
Solutions Monthly Income Fund, LP, 

 (D. Minn. 2014) (“As long 
as the measure of disgorgement is reasonable, the wrongdoer should bear the risk of any 

uncertainty.”). And the SEC also must show that the profits are “causally connected to the 
violation” of the securities laws. SEC v. Drake, No. 2:20-cv-00405 MCS (PLAx),  

, at *2 (C.D. Cal. Oct. 7, 2021).                              
         The  amount  of  disgorgement  need  only  be  a  reasonable    
         approximation  of  profits  causally  connected  to  the        
         violation. . . . The SEC carries the burden of persuasion as to 
         whether the disgorgement figure reasonably approximates the     
         amount of unjust enrichment. . . . After the SEC meets this     
         burden,  a  defendant  must  then  demonstrate  that  the       
         disgorgement figure was not a reasonable approximation. . . .   
         Additionally, the ill-gotten gains include prejudgment interest 
         to ensure that the wrongdoer does not profit from the illegal   
         activity.                                                       

 (internal citations and quotations omitted).                          
 B. Discussion                                                           
    1.  Reasonable Approximation                                         
    As discussed below, the Court finds that the SEC has met its burden to show that 
during the relevant period of January 1, 2017 through September 24, 2021, a reasonable 
approximation of Carebourn Capital’s and Mr. Rice’s net profits from their unregistered 
dealer business is $10,135,738.71. Further, the SEC has shown that during that same 
period, Relief Defendant Carebourn Partners received $1,109,306.50 in transactional fees 

charged by Defendants to issuers of the convertible notes as a result of Defendants’ 
unregistered-dealer activity. And Defendants have failed to demonstrate that the SEC’s 
calculation of disgorgement amounts is not a reasonable approximation of net profits. 
    The SEC establishes a reasonable approximation of Defendants’ net profits through 
the declarations of Craig McShane. First McShane Decl., ECF 129; Second McShane 

Decl., ECF 190. For the period of January 1, 2017 through September 24, 2021, McShane 
reviewed general ledgers and “master files” containing securities purchase agreements, 
conversion  notices,  convertible  notes,  and  disbursement  authorizations,  as  well  as 
documents from brokers, transfer agents, issuers of notes and stocks, traditional banks, 
accountants, and other service providers hired by Defendants. First McShane Decl. ¶¶ 3–

4. Over that time, Carebourn Capital purchased 93 convertible notes from 27 different 
issuers, purchased 18 convertible notes from third parties, and converted shares of 37 
convertible notes across 23 different issuers. It spent $17,499,051.84 to purchase the notes 
in the form of cash to issuers, purchases from third parties, and fees paid to service 
providers such as attorneys and auditors. Id. ¶ 15. Over that same time, Carebourn Capital’s 

gross revenue from stock sales across 32 issuers was $26,170,463.29; $4,940,834.83 in 
repayments of principal on convertible notes from 23 issuers; $527,343.70 from the sale of 
12 convertible notes from six issuers to third parties, and $22,500 from fees charged to two 
issuers. Id. ¶¶ 16–17. This resulted in total cash receipts of $31,661,141.82, and subtracting 
the $17,711,181.85 in expenditures Carebourn Capital laid out to acquire the convertible 
notes, McShane determined that Carebourn Capital’s net income was $13,949,959.97. Id. 
¶¶ 18–19.                                                                 

    McShane further reviewed financial statements from Carebourn Capital for the 
years 2017–2021 in an effort to identify additional business expenses to be deducted from 
Carebourn Capital’s net income. Second McShane Decl. ¶ 7. He did not include certain 
expenses among those deductions, such as $98,501.88 in rent that Carebourn Capital paid 
to Linrick Industries; $1,820,788.79 in commission payments that Carebourn Capital paid 

to Linrick; $17,633,098.58 in “bad debt” expenses identified in the financial statements as 
principal note balances deemed no longer collectible; expenses for advertising ($25,208), 
travel ($6,806), meals and entertainment ($1,277); and fees (“200,068), office ($12), 
management ($2,000), and reimbursements ($2,433) for which McShane could not confirm 
the specific business purpose.2 Id. ¶ 8. Setting aside those expenses, McShane identified 

$3,814,221.26 in business expenses to be excluded, and he determined that a reasonable 
approximation of $10,135,738.71. Id. ¶¶ 7, 9.3                            



2 Defendants’ own calculations include write-offs for the so-called “bad debt” expenses that the 
SEC did not deduct. The Court addresses this issue in more detail below. Defendants also take 
issue, generally, with the methodology the SEC used to reach its approximation of Defendants’ 
profits, and the Court discusses this issue below as well. However, Defendants do not specifically 
argue that the SEC should have allowed deductions for rent, marketing, advertising, and other 
categories that Mr. McShane decided not to deduct.                        
3  The  disgorgement  amount  does  not  include  Defendants’  investments  in  two  ventures—
Sustainable Metal Solutions and Acres Gaming—that Defendants argue should be excluded from 
any monetary judgment the Court finds appropriate. Pl.’s Reply 9 n.2; Def.’s Opp’n 25; ECF 205 
¶ 19.                                                                     
    Further, McShane explained that during the review period, documentation showed 
that Carebourn Partners received $1,109,306.50 in “transactional expense” fees charged to 
penny stock issuers that entered the convertible note agreements with Carebourn Capital. 

Id. The transactional expense fees were included in the principal amount of the notes that 
the issuer was required to repay and were  paid directly to Carebourn Partners from 
Carebourn Capital. First McShane Decl. ¶ 20 & Ex. E.                      
    Defendants challenge the sufficiency of the SEC’s showing in three ways: (1) the 
SEC has failed to meet its burden because Mr. McShane’s calculations are based on an 

insufficient review of relevant documents that should have included Defendants’ financial 
statements and tax returns; (2) Mr. McShane’s approximation should have written off 
millions in so-called “bad debt” expenses rather than including them in the Defendants’ 
income; and (3) if the Court grants the SEC’s request for disgorgement, Defendants suggest 
a reasonable approximation of net profits should be no more than $1,176,087. The Court 

finds these arguments unpersuasive.                                       
    First, Defendants argue that it is unclear what documents McShane reviewed and 
that his calculations are unreliable because he should have based them on Carebourn 
Capital’s financial statements and tax returns. But McShane plainly stated the types of 
documentation that he relied upon in conducting his assessment of Defendants’ net revenue 

obtained from the relevant transactions, and he used financial statements to identify proper 
business expenses. First McShane Decl. ¶ 3; Second McShane Decl. ¶¶ 3, 7. Defendants 
have not persuaded the Court that McShane’s calculations fail to provide a reasonable 
approximation  of  profits  because  of  any  lack  of  clarity  regarding  the  documents  he 
reviewed.                                                                 
    Second, Defendants’ base their own calculations in large part on writing off certain 

“bad debt” expenses that the Court finds should not be excluded  from a reasonable 
approximation. Defendants removed the costs of loans that they deemed worthless from 
Carebourn Capital’s balance sheet as a bad debt expense. Third McShane Decl. ¶ 5, ECF 
208.4 Between January 1, 2017 and September 24, 2021, Carebourn Capital’s balance 
sheets reflect $18,211,414.00 in such bad debt expenses. Id. ¶ 6. However, in the SEC’s 

assessment, Mr. McShane already accounted for bad debt expenses during the relevant 
period  as  “cash  to  issuers,”  so  these  amounts  have  already  been  factored  into  the 
approximation of net profits. First McShane Decl. ¶ 8(c). In addition, McShane explains 
that a total of 30 percent of these expenses—totaling $5,508,968.27—were based on 
convertible notes and other assets purchased by Carebourn Capital prior to January 1, 2017, 

but written off as expenses in subsequent years. Third McShane Decl. ¶ 7. However, 
Defendants’  own  calculations  do  not  include  any  income  generated  from  the  notes 
purchased prior to the relevant period, whether in the form of principal payments or through 
stock conversions. Including the losses for these transactions, but not the gains undervalues 
the profits actually obtained in the relevant period. Further, some of the bad debt expenses 


4 This document is captioned as the “Second Declaration of Craig L. McShane in support of SEC’s 
Motion for Remedies.” Because the SEC relies on two declarations from McShane that were filed 
directly in connection with the remedies motion as well as his declaration submitted in support of 
the SEC’s motion for summary judgment, the Court refers to them in as the First, Second, and 
Third declarations in the order they were filed.                          
reflected in Defendants’ calculations include transactional fees that were paid to Carebourn 
Partners as opposed to any issuers. See Third McShane Decl. ¶ 10. The Court finds that 
deducting such bad debt expenses from the calculation of Defendants’ profits would not be 

appropriate.5                                                             
    2.  Defendants’ Remaining Arguments                                  
    The Court also finds unpersuasive Defendants’ remaining arguments that the SEC 
failed to show that disgorgement was for the benefit of investors, that the SEC has proved 
no causal connection between the statutory violation at issue in this case and any profits 

Defendants obtained, and that the SEC has not met its burden with regard to Relief 
Defendant Carebourn Partners.                                             
    For the Benefit of Investors                                         
    First, Defendants contend that under Liu, to show that a disgorgement award is for 
the benefit of investors, the SEC is required to demonstrate specific instances where 

investors suffered pecuniary harm as a result of Defendants’ conversions of the notes and 
subsequent stock sales. Although this presents an interesting question that the Eighth 
Circuit has not squarely addressed, the Court does not adopt Defendants’ position. The 
Court agrees with the Eleventh Circuit’s analysis in Almagarby. 94 F.4th at 1320. As 

5 The court is also not persuaded that the substantial losses identified in Carebourn Capital’s 
financial  statements  and  tax  returns  for  2019  and  2020  show  that  the  SEC’s  reasonable 
approximation of Defendants’ profits is improperly inflated. As the Court previously observed, 
Mr. Rice testified that Carebourn Capital was consistently profitable and never failed to pay 
dividends to its investors. Summ. J. Order 29–30, ECF 177. In Sec. & Exch. Comm'n v. Sripetch, 
No. 20-cv-01864-H-BGS, 

, at *6 (S.D. Cal. Apr. 8, 2024), the court did not 
have before it any comparable evidence undermining the persuasiveness of the defendant’s tax 
returns. But here, this Court is not persuaded by Defendants’ argument that it should similarly 
accept their calculations of profits.                                     
explained in Almagarby, the principal holding in Liu is that an award of “disgorgement 
must  not  exceed  a  wrongdoer’s  net  profits  and  must  be  awarded  for  victims  to  be 
permissible under section 78u(d)(5).” 

 (internal quotations omitted). However, the SEC 

is not required to “link loss amounts to specific instances of investor harm to satisfy the 
requirements of section 78u(d)(5).” 

 (citing SEC v. GenAudio Inc., 

, 952–
53 (10th Cir. 2022)). Instead, the SEC need only “identify investors who have suffered 
pecuniary harm” to show that a disgorgement award is “for the benefit of investors” under 
§ 78u(d)(5) and demonstrate that it intends to distribute the award to investors. Id.; accord 

SEC v. Keener, 

 (11th Cir. 2024) (following Almagarby and finding 
that Liu’s victim-benefit requirement was satisfied where the SEC provided evidence that 
investors had stock price declines and the agency “promised to distribute the disgorged 
profits to investor-victims who suffered from [the defendant’s] activity”); but see SEC v. 
Govill, 

 (2d Cir. 2023) (finding that the district court abused its discretion 

by awarding disgorgement without showing that particular investors suffered “pecuniary 
harm”).                                                                   
    In addition, the Court notes that the post-Liu amendment to the statute, adding 
§ 78u(d)(7), explicitly provides that disgorgement may be awarded, but it does not include 
the “for the benefits of investors” language found in § 78u(d)(5). Under this provision, the 

Court has even greater flexibility, and  may prevent unjust enrichment by disbursing 
collected funds that cannot be returned to investors to the Treasury. Keener, 644 F. Supp. 
3d at 1305; SEC v. Spartan Secs. Gr., Ltd., 

, 1225 (M.D. Fla. 2022) 
(“Between the money staying with [the defendant] or a fund at the Treasury, it is more 
equitable to order disgorgement.”).                                       
    The  SEC  has  made  the  required  showing  here.  An  SEC  financial  economist 

identified the dates of Carebourn Capital’s sales of stocks from penny-stock issuers through 
various broker-dealers. Gullapalli Decl. ¶ 6, ECF 191. He obtained data for the issuers’ 
market prices from a subscription-based database that provides comprehensive financial 
market data and compared it to the Defendants’ trading records to identify the price 
movement that coincided with Defendants’ trades. Id. ¶ 7. Based on that comparison, he 

found  that  the  share  prices  of  issuers  whose  stock  was  sold  by  Carebourn  Capital 
experienced large declines over the trading periods, and 28 out of 29 issuers’ share prices 
dropped during the period in which Defendants made their trades. Id. ¶ 8; id., Exs. 1–5. 
Moreover, the SEC avers that it intends to establish a fair fund for distribution of disgorged 
funds to Carebourn Capital’s investors and issuers, and “[a]ssuming there are adequate 

funds to distribute to harmed victims, the SEC will file a proposed distribution plan with 
the Court. Defendants and Relief Defendant then may raise any objections they have. The 
SEC will only proceed with the distribution plan once it has this Court’s approval.” SEC 
Mem. 14. The SEC further states that any funds it is unable to disburse to harmed investors 
or issuers can be disbursed to the Treasury to prevent Defendants’ unjust enrichment. 

    Causation                                                            
    Next, Defendants argue that the SEC has failed to show that any of their profits from 
converting the promissory notes into shares of stock and reselling them to the market are 
causally linked to their violation of the dealer-registration requirement. They contend that 
the SEC has failed to demonstrate that, but for their failure to register, they would not have 
been able to engage in the same transactions and obtained the same revenues. 
    The Court disagrees with Defendants’ framing of causality here. In other cases like 

this one, other courts have found a causal connection to engaging in unlawful, unregistered 
dealer activity without requiring a separate showing that, had the Defendants registered, 
the  transaction  would  not  have  occurred.  The  Eleventh  Circuit  rejected  an  identical 
argument to that raised by Defendants in Almagarby:                       
              Finally, Almagarby’s profits were causally linked to his   
         failure to register. Section 15(a) prohibits unregistered dealers 
         from using interstate commerce “to effect any transactions in   
         . . .  any  security.”  Id.  §  78o(a)(1)  (emphasis  added).   
         Almagarby  was  altogether  prohibited  from  making            
         transactions as an unregistered dealer, so any profits generated 
         from his prohibited transactions were causally linked to his    
         failure to register. See SEC v. Teo, 

 (3d Cir.  
         2014)  (providing  that  the  Commission's  civil  enforcement  
         actions need not show “proximate causation”); see also SEC v.   
         Apuzzo, 

, 212–13 (2d Cir. 2012).                    

              The district court did not have to speculate about the     
         profits of any lawful transactions that Almagarby might have    
         made had he chosen to register as a dealer. . . . Indeed, had   
         Almagarby registered, he likely would have faced significant    
         restraints on his toxic lending activity. For example, dealers  
         must comply with self-regulatory organizations’ rules, and the  
         Commission asserts that Almagarby likely would have been        
         limited  by  regulations  such  as  the  industry  prohibition  on 
         “unfair or unreasonable” underwriting activity. See FINRA       
         Rule 5110(c)(2)(A).  So the district court did not abuse its    
         discretion  by  ordering  Almagarby  to  disgorge  the  profits 
         causally linked to his failure to register.                     
92 F.4th at 1320–21. Other courts have rejected Defendants’ argument for similar reasons. 
See Keener, 

 (same, following Almagarby); SEC v. Fierro, No. 20-02104 
(GC) (JBD), 

, at *6 (D.N.J. May 21, 2024) (same).          

    The Court agrees with the analysis of the causation issue in these cases and rejects 
Defendants’ argument to the contrary. Moreover, the Court notes that in its post-hearing 
letter, the SEC explains in detail the type of “oversight, standards, and heightened scrutiny 
that comes with dealer registration.” ECF 221 at 4. These include statutory and regulatory 
provisions requiring registered dealers to provide regular reports with information about 

their assets, cash flow, and internal compliance measures. 

 at 3 (citing 15 U.S.C. 
§ 78q(e)(1)(A); 

.15c3-1, 240.15c3-3(e), 240.17a-5(a), (d)(1), (2), (3)). 
And the SEC represents that because of the heightened oversight for penny stock trading, 
the agency suspended trading for several of the issuers from whom Defendants purchased 
promissory  notes  during  the  four-year  period  relevant  to  this  case.  

  at  3–4.  This 

information supports the SEC’s contention that if Carebourn Capital and Mr. Rice had 
registered,  increased  oversight  would  likely  have  presented  obstacles  to  Defendants’ 
lending and conversion activities.                                        
    Relief Defendant Carebourn Partners                                  
    Defendants argue that the SEC’s request for disgorgement of $1,109,306 from 

Relief  Defendant  Carebourn  Partners  should  be  denied  because  the  “transactional 
expenses”  that  this  figure  represents  were  not  derived  from  Carebourn  Capital’s 
unregistered dealer activity. Rather, Defendants argue, the transactional expense fees were 
derived from Carebourn Capital’s activity of providing cash loans to issuers, and the fees 
paid to Relief Defendant came out of Carebourn Capital’s cash accounts. Accordingly, 
Defendants contend that there is no causal connection between the expense fees and any 
unregistered-dealer activity.                                             

    The  Court  rejects  Carebourn  Partners’  efforts  to  characterize  the  transactional 
expense fees that it obtained directly from Carebourn Capital as a result of the convertible 
note  transactions  as  unrelated  to  Defendants’  unregistered-dealer  activity.  Carebourn 
Capital was prohibited from engaging in these transactions because they did so without 
registering as a dealer, and the fees that were passed through to Carebourn Partners were 

the direct result of those transactions. Therefore, the Court finds that the fees paid to 
Carebourn Partners were causally related to the unregistered dealer activity at issue in this 
case. Carebourn Partners raises no other argument to suggest that an award of disgorgement 
as to it would be improper, and the Court concludes that it is not.       
    3.  Prejudgment Interest                                             

    The SEC also seeks to recover prejudgment interest on the disgorgement sums that 
the  Court  ultimately  awards.  Defendants  argue  that  if  the  Court  decides  to  award 
disgorgement, it should exercise its discretion to deny the SEC’s claim for prejudgment 
interest because neither Carebourn Capital nor Mr. Rice has the financial means to pay 
prejudgment interest on top of a disgorgement award.                      

    “Courts  ordering  disgorgement  may  also  order  prejudgment  interest  on  the 
disgorged amount.” SEC v. Quan, No. 11-cv-723 (ADM/JSM), 

, at *14 
(D. Minn. Sept. 19, 2014), amended, No. 11-cv-723 ADM/JSM, 

 (D. 
Minn. Dec. 10, 2014), aff’d, 

 (8th Cir. 2016). The purpose of awarding 
prejudgment interest is to prevent a defendant from profiting from a violation of the 
securities laws and depriving “a defendant from obtaining the benefit of an interest-free 
loan due to his unlawful conduct.” 

 “The rate of interest commonly used by courts when 

ordering prejudgment interest in connection with disgorgement is the rate applied by the 
Internal Revenue Service (“IRS”) for the underpayment of federal income tax.” 

 
    District courts have discretion when determining whether to award prejudgment 
interest. SEC v. Markusen, 

 (D. Minn. 2015). In exercising that 
discretion, courts consider the following criteria:                       

         (i) the need to fully compensate the wronged party for          
         actual damages suffered, (ii) considerations of fairness        
         and the relative equities of the award, (iii) the remedial      
         purpose of the statute involved, and/or (iv) such other         
         general principles as are deemed relevant by the court.         
         In  an  enforcement  action  brought  by  a  regulatory         
         agency, the remedial purpose of the statute takes on            
         special importance.                                             

 (quoting SEC v. First Jersey Sec., Inc., 

 (2d Cir. 1996)). 
    In arguing that the Court should decline to award prejudgment interest, Defendants 
focus on the fairness and relative equities of such an award by reference to the financial 
conditions of Mr. Rice and Carebourn Capital to the exclusion of the other relevant factors. 
Even if Defendants have financial challenges to payment of an award, they ignore the 
special importance of the remedial purpose of the statutory provisions that allow the SEC 
to recover disgorgement. Defendants have had the benefit of receiving millions of dollars 
of profits as a result of their unregistered dealer activity, and disgorging those amounts 
without a payment of prejudgment interest will allow them to retain the benefit of keeping 
those revenues for several years without any recognition of the time value of those funds. 
This would essentially allow Defendants to have obtained the very no-interest loan that an 
award of prejudgment interest is designed to prevent. Awarding prejudgment interest here 

in the amounts requested by the SEC will serve the purpose of preventing Defendants from 
being unjustly enriched as a result of their unregistered-dealer activity and will allow the 
SEC, through the establishment of a fair fund, to distribute funds to investors and issuers 
in an amount that provides full compensation for their losses.            
    Defendants do not contest Mr. McShane’s calculation of an appropriate amount of 

prejudgment interest on the disgorgement amounts the Court has found appropriate above. 
For Defendants Carebourn Capital and Mr. Rice, McShane calculates those amounts as 
$950,173.40, and for Relief Defendant Carebourn Partners, he concludes that $103,924.66 
is owed. Second McShane Decl. ¶¶ 10, 12.                                  
    4.  Conclusion                                                       

    In sum, the Court concludes that the SEC has met its burden to provide a reasonable 
approximation of the Defendants’ net profits, and the SEC’s calculation of legitimate 
business  expenses  is  more  persuasive  than  Defendants’  alternative  calculations. 
Accordingly, the Court finds that Defendants Carebourn Capital and Chip Rice are jointly 
and severally liable for disgorgement in the amount of $10,135,738.71, and prejudgment 

interest in the amount of $950,173.40. Relief Defendant Carebourn Partners is liable for 
disgorgement in the amount of $1,109,306.50, and prejudgment interest in the amount of 
$103,924.66.                                                              
IV.  Civil Penalties                                                      
    The SEC requests civil penalties against Carebourn Capital and Chip Rice in the 
amount  of  $642,500  each,  which  amounts  to  12.7  percent  of  the  SEC’s  proposed 

disgorgement figure.                                                      
 A. Legal Standards for Civil Penalties                                  
    The Exchange Act authorizes courts to impose civil penalties for violations of 
federal securities laws according to a three-tier system of increasing amounts. 15 U.S.C. 
§ 78u(d)(3)(A)-(B). Only the first-tier penalty is at issue.6 The Exchange Act sets forth the 

following regarding the first-tier civil penalty:                         
         The amount of a civil penalty imposed under subparagraph        
         (A)(i) shall be determined by the court in light of the facts and 
         circumstances. For each violation, the amount of the penalty    
         shall not exceed the greater of (I) $5,000 for a natural person 
         or $50,000 for any other person, or (II) the gross amount of    
         pecuniary gain to such defendant as a result of the violation.  
Id. § 78u(d)(3)(B)(i); see also Keener, 644 F. Supp. 3d at 1308 (“Regardless of the tier, the 
Court may impose a penalty up to the amount of a defendant’s gross pecuniary gain.”). The 
amounts of the first-tier civil penalties, adjusted for inflation, are now $11,524 for a natural 
person and $115,231 for an entity. See U.S. Securities and Exchange Commission, Inflation 
Adjustments to the Civil Monetary Penalties Administered by the Securities and Exchange 


6 Courts can order the second and third tiers of civil penalties only where the violation at issue 
“involved  fraud,  deceit,  manipulation,  or  deliberate  or  reckless  disregard  of  a  regulatory 
requirement.”  15  U.S.C.  § 78u(d)(3)(B)(ii)–(iii).  The  SEC  does  not  argue  any  of  these 
circumstances are at issue here.                                          
Commission  (Jan.  15,   2024),  https://www.sec.gov/enforce/civil-penalties-
inflationadjustments.                                                     
    Civil penalties serve both a punitive and deterrent purpose. Keener, 644 F. Supp. 3d 

at 1308; see also SEC v. Jarkesy, 

, 2130 (2024) (“In sum, the civil penalties 
in this case are designed to punish and deter, not to compensate.”). Courts have discretion 
to determine “whether to impose a civil penalty and in what amount.” Keener, 644 F. Supp. 
3d at 1308; Quan, 

, at *16 (D. Minn. Sept. 19, 2014).      
    Courts consider several factors that are similar to those taken into account when 

considering whether to impose an injunction or an industry bar. E.g., SEC v. Spartan Sec. 
Gr., Ltd., 

, 1229 (M.D. Fla. 2022). Among the relevant factors are: 
(1) egregiousness;  (2) scienter;  (3) repeated  violations;  (4) admissions  of  wrongdoing; 
(5) losses  resulting  from  defendant’s  violations;  (6) defendant’s  cooperation  with 
enforcement authorities; and (7) defendant’s financial condition. Id.; see also Markusen, 

143 F. Supp. 3d at 894–95 (same).                                         
 B. Discussion                                                           
    Although similar factors relevant to imposition of civil penalties lead the Court to 
impose a permanent injunction and a three-year industry bar, the Court finds that no civil 
penalty should be imposed under the circumstances of this case for several reasons. First, 

the SEC made no showing that Defendants acted with scienter and have not demonstrated 
that their unregistered-dealer activity was particularly egregious. Nor does the record 
indicate that before the Defendants engaged in their convertible-note business in this case 
they had previously been found to have violated the dealer-registration requirement or any 
other regulations.                                                        
    Also, the Defendants’ financial condition weighs against such penalties, particularly 

in  light  of  the  substantial  disgorgement  order.  The  parties  disagree  over  the  effect 
Defendants’ financial condition should have on the propriety of civil penalties. Defendants 
argue that they do not have the financial means to pay the civil penalties sought by the 
SEC. Mr. Rice states that his only income at the moment is a monthly Social Security check 
and he does not have significant assets that can be liquidated to pay a civil penalty. He 

explains that his car and home are owned by his wife, that he has modest balances in his 
checking and savings account that are held jointly with his wife, and that has a half interest 
in approximately $15,000 of household furniture and goods. Mr. Rice avers that his current 
net  worth  is  negative  $3,309.  Rice  Decl.  ¶¶ 14–15.  Further,  Mr. Rice  indicates  that 
Carebourn Capital does not have the assets to pay a large civil penalty. He states that 

Carebourn Capital holds $475,095 in assets at several brokerage firms that are untradeable 
securities and $3,126,510 in investments in two private companies. Rice Decl. ¶ 17. 
Finally, Mr. Rice testifies that Carebourn Capital is subject to a nearly $400,000 judgment 
against it in the Minnesota state court action in favor of Darkpulse. 

 
    The SEC argues that Defendants have failed to meet their burden to show that they 

are unable to pay a civil penalty, and even if they are, that alone does not mean that a civil 
penalty cannot be awarded. The SEC criticizes Mr. Rice’s declaration concerning his 
financial condition as a “self-prepared” and “self-serving,” lacking any explanation for 
how Mr. Rice made his calculations.                                       
    Under the circumstances of this case, the Court gives some weight to Defendants’ 
financial condition. If the SEC is correct that Mr. Rice and Carebourn Capital have at least 
$3 million in assets that could potentially be collected by the agency, that will go toward 

the disgorgement award of over $10 million, along with prejudgment interest. The Court 
is mindful that disgorgement and civil penalties serve different purposes, which have led 
some  courts  to  determine  that  a  civil  penalty  is  warranted  even  when  they  order 
disgorgement of profits. Sec. & Exch. Comm’n v. Bajic, No. 20 CIV. 7 (LGS), 

, at *5 (S.D.N.Y. Sept. 27, 2023) (“Congress provided for civil penalties because 

disgorgement merely requires the return of wrongfully obtained profits; it does not result 
in any actual economic penalty or act as a financial disincentive to engage in securities 
fraud.”) (internal quotations omitted). But the SEC has not demonstrated that a civil penalty 
is necessary to punish the Defendants for violating the dealer-registration requirement or 
to deter future violations. Moreover, the SEC has indicated that its plan is to establish a 

“fair fund” from which to distribute disgorged funds to investors who were harmed by 
Defendants’ unregistered dealer activity. Declining to impose a civil penalty will help 
ensure that any funds Defendants do have are available for distribution to such investors. 
    For these reasons, the SEC’s request for imposition of civil penalties is denied. 

    For the reasons set forth above, IT IS HEREBY ORDERED THAT           
    1.   Plaintiff’s Motion for Remedies is GRANTED IN PART and DENIED IN 
PART as set forth herein.                                                 
    2.   The  motion  is  denied  to  the  extent  that  it  seeks  civil  penalties  against 
Carebourn Capital, L.P. and Chip Rice.                                    
    3.   Carebourn  Capital,  L.P.  and  Chip  Rice  (“Defendants”)  are  permanently 

restrained and enjoined from violating, directly or indirectly, Section 15(a)(1) of the 
Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78o(a)(1)], as a dealer [15 
U.S.C. § 78c(a)(5)], by making use of the mails or any means or instrumentality of 
interstate commerce to effect any transactions in, or to induce or attempt to induce the 
purchase or sale of, any security (other than an exempted security pursuant to 

.15a-2 or commercial paper, bankers’ acceptances, or commercial bills), unless the 
Defendants are registered with the Commission as a dealer, or associated with a registered 
dealer, in accordance with Exchange Act Section 15(b);                    
    4.   Pursuant  to  Federal  Rule  of  Civil  Procedure  65(d)(2),  the  permanent 
injunction set forth in Paragraph 2 of this Order also binds the following who receive actual 

notice of the Final Judgment by personal service or otherwise: (a) Defendants’ general 
partners,  limited  partners,  members,  managing  members,  officers,  agents,  servants, 
employees, and attorneys; and (b) other persons in active concert or participation with 
Defendants or with anyone described in (a).                               
    5.   Defendants are barred, for a period of three years from the date of this Order, 

from participating in an offering of penny stock, including engaging in activities with a 
broker, dealer, or issuer for purposes of issuing, trading, or inducing or attempting to induce 
the purchase or sale of any penny stock.                                  
    6.   (a)  Defendants  are  jointly  and  severally  liable  for  disgorgement  of 
$10,135,738.71, representing net profits gained as a result of the conduct alleged in the 
Complaint, together with prejudgment interest thereon in the amount of $950,173.40, for a 

total of $11,085,912.11; and (b) Relief Defendant Carebourn Partners, LLC (“Relief 
Defendant”) is liable for disgorgement of $1,109,306.50, representing the receipt of ill-
gotten gains from Defendants’ illegal conduct, together with prejudgment interest thereon 
in the amount of $103,924.66, for a total of $1,213,231.16.               
    7.   Within  ten  days  of  entry  of  Judgment,  Defendants  must  surrender  for 

cancellation their remaining shares of stock of the issuers listed in Exhibit 1 of the SEC’s 
motion for remedies in this case and surrender their remaining conversion rights under the 
convertible securities issued by the Issuers. Further, Defendants shall send copies of 
correspondence evidencing the surrender for cancellation of Defendants’ remaining shares 
of the Issuers and their remaining conversion rights under the convertible securities issued 

by the Issuers to the SEC addressed to Charles J. Kerstetter, U.S. Securities and Exchange 
Commission, 175 W. Jackson Blvd., Suite 1400, Chicago, IL 60604.          
    Let Judgment be entered accordingly.                                 

Date: September 20, 2024        s/Katherine Menendez                     
                                Katherine Menendez                       
                                United States District Judge             

                UNITED STATES DISTRICT COURT                             
                    DISTRICT OF MINNESOTA                                


United States Securities and Exchange     No. 21-cv-2114 (KMM/JFD)       
Commission,                                                              

          Plaintiff,                                                     

v.                                          ORDER                        

Carebourn Capital, L.P.; Carebourn                                       
Partners, LLC, Relief Defendant; and Chip                                
Alvin Rice;                                                              

          Defendants.                                                    


    The  Securities  and  Exchange  Commission  brought  this  action  alleging  that 
Defendants Carebourn Capital, L.P. (“Carebourn Capital”) and Chip Alvin Rice violated 
Section 15(a) of the Securities Exchange Act of 1934 by acting as unregistered securities 
dealers.  Between  2017  and  2021,  through  the  use  of  convertible  promissory  notes, 
Carebourn  Capital  and  Mr. Rice  bought  and  sold  billions  of  newly  issued  shares  of 
microcap securities, also known as penny stocks, resulting in several million dollars in 
revenue. The SEC also alleged that Carebourn Capital and Rice charged penny stock 
issuers transactional fees that were paid directly to Relief Defendant Carebourn Partners, 
LLC (“Carebourn Partners”). On September 27, 2023, the Court denied the Defendants’ 
motion for summary judgment and granted summary judgment in favor of the SEC as to 
all three Defendants’ liability.                                          
    This matter is now before the Court on the SEC’s Motion for Remedies. ECF 186. 
The  SEC  seeks  the  following  remedies  against  Carebourn  Capital  and  Mr. Rice: 
(1) permanent injunctions prohibiting them from further violating the federal securities 
laws as alleged in the SEC’s complaint; (2) permanent penny-stock bars; (3) an order 
requiring them to pay, jointly and severally, disgorgement of net profits of $10,135,738.71, 

and prejudgment interest of $950,173.40, totaling $11,085,912.11; and (4) a civil penalty 
of $642,500 against each. Further, the SEC asks the Court to Order Relief Defendant 
Carebourn Partners to pay disgorgement of $1,109,306.50, and prejudgment interest of 
$103,924.66, totaling $1,213,231.16. Finally, the SEC seeks an order requiring Defendants 
to surrender for cancellation shares of stock from, and conversion rights under, convertible 

notes that issuers sold to them.                                          
    Defendants have agreed to surrender their remaining shares of stock and conversion 
rights. Based on that agreement, the Court will Order that relief below without further 
discussion. However, Defendants otherwise oppose the relief the SEC seeks. Defendants 
maintain that: the SEC has failed to make the required showing for entry of a permanent 

injunction or a penny-stock bar; the SEC has not demonstrated that disgorgement of any 
profits is appropriate, and even if it were, the amount of disgorgement requested is 
excessive; the Court should not impose any civil penalty, but even if it does, the amount 
should be far less than the SEC demands; and the SEC’s calculation of prejudgment interest 
is excessive.                                                             

    The Court held a hearing on the SEC’s motion by videoconference on July 22, 2024. 
Having considered the entire record and the parties’ arguments, the SEC’s motion is 
granted in part and denied in part as explained in this Order.            
I.   Post-Hearing Letter Briefing                                         
    An “interested party,” Darkpulse, Inc. observed the hearing through its counsel. 
Before the SEC commenced this action, Carebourn Capital sued Darkpulse in Minnesota 

state court. Eventually, Darkpulse obtained a judgment in its favor in the state court action. 
Like this Court, the state court found that Carebourn engaged in unregistered dealer activity 
in violation of the federal securities laws. With permission of the Court, Darkpulse filed a 
letter  concerning  the  remedies  phase  of  this  litigation.  Darkpulse  asserts  that  if  the 
Defendants had registered as dealers, they would not have been able to engage in the 

lending activity that forms the basis of the SEC’s claims in this case. Darkpulse also 
suggested that Mr. Rice made certain false statements in his declaration. ECF 218. The 
SEC and Defendants filed responsive letters, and Mr. Rice filed a corrected declaration 
clarifying an earlier error. ECF 221, 222, 223. The Court has reviewed these submissions 
and considered them to the extent they contain information the Court considers relevant to 

the remedies questions before it.                                         
    Of note, the Court is not persuaded by Darkpulse’s suggestion in its letter that 
Mr. Rice made an intentionally false statement in his declaration provided in opposition to 
the  motion  for  remedies  when  he  stated  that  neither  he  nor  Carebourn  Capital  had 
previously  been  found  to  have  engaged  in  any  violation  of  the  dealer-registration 

requirement though the state court had previously reached the same conclusion that this 
Court did in its summary judgment order. This is an unreasonable reading of his declaration 
because, in a paragraph found later in the declaration, Mr. Rice specifically discusses the 
judgment the state court entered against Carebourn Capital. ECF 205 ¶ 18. If he had 
engaged in a misrepresentation with the intent to mislead the Court it would have been a 
curious way to do so by identifying the very case in which another court had made an 
adverse finding against him. Beyond that, the Court finds that nothing in the parties’ post-

hearing letters is outcome determinative, and it would have reached the same conclusions 
set forth in this Order had they not been submitted.                      
    Only one aspect of the parties’ letters requires additional comment—namely, the 
second letter filed by Defendants. ECF 225. In their second letter, Defendants argue that 
Darkpulse’s submission should be stricken from the record because its counsel violated the 

Local Rules of the District of Minnesota and engaged in unauthorized practice of law by 
filing  the  submission  without  having  been  admitted  pro  hac  vice  in  this  litigation. 
Defendants  also  asked  the  Court  to  issue  sanctions  against  Darkpulse’s  counsel  for 
requiring  Defendants  to  engage  in  extra  work  responding  to  the  letter  brief.  Next, 
Defendants argue that the state court’s judgment in the Darkpulse litigation is based upon 

flawed rulings by Hennepin County District Judge Patrick Robben. Finally, Defendants 
contend that the averments in Darkpulse’s letter require the Court to hold an evidentiary 
hearing concerning remedies and “stay the issue of liability.”            
    Defendants’ second letter reflects little more than the acrimony between it and 
Darkpulse and varyingly includes or hints at remarkably unreasonable requests for relief 

from this Court. In requesting that the Court sanction Darkpulse’s counsel, Defendants 
ignore the fact that the undersigned expressly permitted them to file their letter brief. It 
would be difficult to imagine a decision more unreasonable than allowing an attorney to 
take an action in a case and then sanctioning them for doing that very thing. These requests 
for sanctions are rejected.                                               
    The Court also rejects Defendants’ suggestion that statements in Darkpulse’s letter 

require an evidentiary hearing and some alteration of the Court’s liability ruling. If it 
doesn’t  ask  for  it  explicitly,  Defendants’  request  for  an  evidentiary  hearing  comes 
perilously close to arguing an appeal of the state court judgment, which this Court, of 
course, would not entertain. In any event, nothing in Darkpulse’s letter requires the Court 
to resolve disputed factual issues in this case through an evidentiary hearing. Nor will the 

Court “stay the issue of liability.” The Court has already concluded the SEC is entitled to 
summary judgment on liability, so there is nothing to stay, and Defendants have neither 
received permission to file a motion for reconsideration, nor shown that the Court’s 
summary judgment decision ought to be revisited.                          
II.  Permanent Injunction and Penny Stock Bar                             

    Because the law governing whether the Court should issue a permanent injunction 
and impose a penny-stock bar involves consideration of very similar, if not identical, 
factors, the Court discusses these issues together.                       
 A. Legal Standards for Injunctive Relief and Industry Bar               
         1.  Permanent Injunction                                        
    “The SEC is entitled to injunctive relief when it establishes (1) a prima facie case 

of previous violations of federal securities laws, and (2) a reasonable likelihood that the 
wrong will be repeated.” SEC v. Keener, 

, 1298-99 (S.D. Fla. 2022) 
(quoting SEC v. Calvo, 

 (11th Cir. 2004)). Courts consider several 
factors when assessing the likelihood the defendant will engage in future wrongdoing: 
         (1)  the  egregiousness  of  the  defendant’s  actions,  (2)  the 
         isolated or recurrent nature of the infraction, (3) the degree of 
         scienter  involved,  (4)  the  sincerity  of  the  defendant’s  
         assurances  against  future  violations,  (5)  the  defendant’s 
         recognition of the wrongful nature of his conduct, and (6) the  
         likelihood  that  the  defendant’s  occupation  will  present   
         opportunities for future violations.                            

; SEC v. Shanahan, No. 07-cv-2879 (JNE/JJG), 

, at *9 (D. 
Minn. Jan. 13, 2010) (substantially same); see also SEC v. Cap. Solutions Monthly Income 
Fund, LP, 

 (D. Minn. 2014) (considering “(1) the degree of scienter 
involved;  (2)  the  isolated  or  repeated  nature  of  the  violations;  (3)  the  defendant’s 
recognition  of  the  wrongful  nature  of  her  conduct;  and  (4)  whether,  because  of  the 
defendant’s professional occupation, future violations could be anticipated”).  
         2.  Penny Stock Bar                                             
    “Under the Exchange Act, a court may prohibit any person who, at the time of the 
alleged misconduct, was participating in any offering of penny stock from participating in 
any future offering of penny stock.” Keener, 644 F. Supp. 3d at 1302 (quoting SEC v. 
Almagarby, 17-cv-62225, 

, at * 4 (S.D. Fla. Aug. 16, 2021)). “Before a 
court may enter a penny stock bar, the SEC must demonstrate that the stock at issue in the 
violations under review is, in fact, a penny stock.” 

 (quoting SEC v. Huff, 

 (S.D. Fla. 2010)).                                          
    In  deciding  whether  to  impose  a  penny  stock  bar,  courts  consider:  “(1)  the 
egregiousness of the underlying securities law violation; (2) the defendant’s repeat offender 
status; (3) the defendant’s role or position when he engaged in the [misconduct]; (4) the 
defendant’s degree of scienter; (5) the defendant’s economic stake in the violation; and (6) 
the likelihood that misconduct will recur.” SEC v. Becker, No. 09 CIV. 5707 (SAS), 

, at *1 (S.D.N.Y. July 8, 2010) (internal quotation marks omitted); see also 
Shanahan, 

, at *16 (considering same factors in deciding whether to enter 
an officer/director bar based on a violation of section 10(b) of the Exchange Act); SEC v. 
Universal Exp., Inc., 

 (S.D.N.Y. 2007) (“The standard for 
imposing such a bar essentially mirrors that for imposing an officer-or-director bar.”). 

 B. Discussion                                                           
    Several factors support imposition of both an injunction and a penny-stock bar. 
First, the Court finds that the recurrent nature of the Defendants’ misconduct weighs in 
favor of the requested injunctive relief and the bar on future penny-stock activity. Although 
Defendants  argue  that  they  engaged  in  a  single  violation  of  the  dealer-registration 

requirement because they only failed to register once,1 this characterization ignores the 
reality of their conduct. Each time the Defendants purchased convertible promissory notes, 
converted them into newly issued shares of stock at steep discounts from market prices, 
and then promptly sold as many converted shares into the market as they could, they 
engaged in unregistered-dealer activity. They did this hundreds of times during the relevant 

period, and it is a mischaracterization for Defendants to suggest that their conduct in this 

1 Defs.’ Opp’n 19 (“While it is true that Defendants engaged in many debt conversions and stock 
sales over the course of several years, at bottom the Defendants committed a one-time violation 
by failing to register as a securities dealer when they first started the investment activities years 
ago.”).                                                                   
case involved a single violation of the securities laws. See Keener, 644 F. Supp. 3d at 1299 
(“[T]he  R&R  accurately  concludes  that  Keener’s  conduct  was  recurrent  because  he 
disregarded the dealer registration requirement during a period of over three years as he 

acted as an unlicensed dealer. . . . That conduct was not an isolated incident, but a systemic 
practice of noncompliance with the Exchange Act.”).                       
    Second, Mr. Rice’s occupation as a longtime participant in the financial markets 
presents opportunities for future violations of the registration requirement. Mr. Rice has 
extensive  experience  acting  as  an  unregistered  dealer,  and  the  Court  finds  that  it  is 

reasonably likely that he will engage in future violations if injunctive relief is not imposed. 
    Third, there is no question that Mr. Rice and Carebourn Capital have a significant 
economic stake in the violation of the securities laws at issue in this case. As the Court has 
already found, their unregistered-dealer activity generated millions of dollars in revenue 
over several years. And fourth, the Court finds that Mr. Rice was the central decision-

maker who had the ultimate responsibility to decide which issuers Carebourn Capital 
would contract with to purchase convertible promissory notes. These factors provide 
additional support for imposition of injunctive relief and a penny-stock bar. 
    Other factors are neutral, weigh against imposition of injunctive relief or a penny-
stock bar, or do not plainly point in one direction or the other. For example, the parties 

agree that Carebourn Capital and Mr. Rice did not act with scienter in violating the 
Exchange Act’s dealer-registration requirement. This is consistent with the position taken 
by the SEC in summary-judgment briefing, with which the Court agreed, that a failure to 
register is a strict-liability offense that requires no showing of scienter. Nevertheless, the 
absence of a showing that Defendants acted with scienter does not necessarily preclude 
imposition of an injunction or a penny-stock bar. See SEC v. Almagarby, 

 (11th Cir. 2024) (explaining that although “scienter is an important factor in this 

analysis, it is not a prerequisite to injunctive relief”) (quotations omitted); see also Keener, 
644 F. Supp. 3d at 1299–30 (imposing permanent injunction against future unregistered-
dealer activity despite no showing of scienter). Although it is not dispositive, this factor 
weighs in favor of the Defendants.                                        
    The Court also finds that the SEC has failed to show that Mr. Rice’s and Carebourn 

Capital’s  actions  in  failing  to  register  were  “egregious.”  The  SEC  suggests  that  the 
recurrent or “systematic” violation of the registration requirement supports this factor. Pls.’ 
Mem. 7–8. While the Court has found that the recurrent nature of the violation here weighs 
in favor of injunctive relief and a penny-stock bar, these are listed as separate factors in the 
case law. Finding a defendant’s conduct to be egregious merely because it is recurrent 

renders one of these factors superfluous. Almagarby, 

 (rejecting the district 
court’s acceptance of the SEC’s position that defendant’s conduct was egregious because 
it “spanned over three years and thousands of transactions” because that analysis “collapses 
the egregiousness determination into the recurrence factor”). The SEC has not presented 
evidence  either  to  suggest  that  Defendants’  violations  of  the  dealer-registration 

requirement were “blatant” or that they involved fraud or scienter. 

 (explaining 
that  “several  facts  indicat[e]  egregiousness:  (1) ‘blatant’  securities-law  violations, 
(2) knowingly or recklessly making material misrepresentations or omissions (fraud), and 
(3) scienter”).                                                           
    The Court also finds that consideration of the Defendants’ attitude regarding their 
conduct does not clearly support a permanent injunction and permanent penny-stock bar. 
The SEC takes the position that Mr. Rice and Carebourn Capital are recalcitrant and that 

they continue to insist they did nothing wrong. However, Defendants have had every right 
to disagree with the SEC’s allegations and put up a vigorous defense. Moreover, they still 
retain their appeal rights. SEC v. Johnson, 

 (D.D.C. 2009) (“Needless 
to say, [defendant] has a right to vigorously contest the SEC’s allegations and was not 
required to ‘behave like Uriah Heep in order to avoid an injunction.’”) (citing SEC v. First 

City Financial Corp., 

 (D.C. Cir. 1989)); see also Shanahan, 

 at *15  (same). Like the Keener court, this Court gives little weight to this factor. 
See Keener, 644 F. Supp. 3d at 1300.                                      
    Next, the Court considers Mr. Rice’s assurances against future violations. Mr. Rice 
offered a declaration, submitted under penalty of perjury, in which he states that he 

“acknowledge[s] and respect[]s the Court’s summary judgment ruling in favor of the SEC.” 
Rice Decl. ¶ 3, ECF 205. Further, he conveys his understanding of the Court’s decision and 
declares that he “fully intend[s] to comply with and abide by the Court’s ruling in this 
case.” Id. And he testifies “I have no intention nor desire to engage in the same investment 
activities in the future and I certainly have no intention to do so again without registration 

as a dealer under the federal securities laws. The same is true for Carebourn Capital.” Id. 
¶ 8.  Based  on  these  statements,  the  Defendants  contend  that  Mr. Rice  has  provided 
adequate assurances against future violations, and they argue that the SEC’s enforcement 
of  the  dealer-registration  requirement  through  lawsuits  like  this  one  has  effectively 
eliminated any market for Defendants to engage in similar future violations. The SEC 
argues that the Court should be unmoved by Mr. Rice’s declaration. Specifically, the SEC 
points  out  that  these  statements  are  undermined  because  (1) Defendants  purchased  a 

convertible note and sold penny-stock after the SEC initiated this suit; (2) they were 
uncooperative in the underlying investigation; and (3) Mr. Rice “repeatedly lied during his 
deposition.” Pls.’ Reply 22, ECF 207; Pls.’ Mem. 19.                      
    Having  considered  the  parties’  competing  arguments  about  the  sincerity  of 
Mr. Rice’s assurances, the Court finds that this factor does not ultimately tip the balance in 

any particular direction. The Court is not particularly persuaded by the SEC’s reliance on 
the fact that Defendants purchased a convertible note and sold penny-stock after the SEC 
initiated this lawsuit. To place significant emphasis on that fact would suggest that merely 
because they had been sued, Defendants were required to agree with the SEC, or at a 
minimum,  to  take  the  most  cautious  approach  possible.  While  a  more  conservative 

approach may have been the prudent course of action here, the Court cannot say that this 
renders Mr. Rice’s current assurances insincere. Nor does Defendants’ lack of cooperation 
during the underlying investigation weigh heavily in this analysis, though the Court does 
note that it is an important consideration when determining whether to impose civil 
penalties. However, the Court is very troubled by Mr. Rice’s deposition testimony in this 

case and the way in which it flatly contradicted earlier testimony he had given during the 
SEC’s investigation. Summary Judgment Order 17–18, 27–28 (discussing inconsistencies 
between deposition testimony and prior testimony in effort to create issues of fact for trial). 
Although  the  Court  does  not  fully  adopt  the  SEC’s  characterization  that  Mr. Rice 
“repeatedly lied under oath,” this does not mean the Court ignores the importance of this 
issue.  Mr. Rice  demonstrated  a  willingness  to,  at  best,  significantly  shape  testimony 
provided under oath to suit his purposes depending on the stage of the proceedings. As a 

result, the Court does not have unreserved faith in the sincerity of the assurances he has 
provided now in his effort avoid the consequences of his unregistered dealer activity. 
    Ultimately, whether to impose a permanent injunction or even a more limited 
injunction, and whether to impose a penny-stock bar require a consideration of the totality 
of the circumstances and the foregoing factors inform whether the SEC has shown a 

reasonable likelihood that Defendants will engage in future violations absent injunctive 
relief. Carebourn Capital continues to operate as an investment business, and Mr. Rice, as 
its controlling officer, has had a lengthy career focused on the financial markets. Such a 
“firm position in the financial industry,” combined with years of noncompliance with the 
Exchange Act’s dealer-registration requirement support a finding that Defendants will 

engage in future violations if no injunctive relief is imposed. Keener, 644 F. Supp. 3d at 
1301  (finding  that  the  defendant’s  “decade-long  history  of  noncompliance  and 
nondisclosure, when combined with his firm position in the financial industry,” supported 
imposition of a permanent injunction). The Court also finds support for this decision in the 
fact that during the investigation and this  litigation,  Mr. Rice provided contradictory 

testimony, which undermines the weight given to his assurances that he will not engage in 
future unregistered dealer activity.                                      
    The SEC asks the Court to enter the following permanent injunction against future 
violations of the dealer-registration requirement:                        
              IT IS FURTHER ORDERED, ADJUDGED, AND                       
         DECREED   that  Carebourn  Capital,  L.P.  and  Chip  Rice      
         (“Defendants”) are permanently restrained and enjoined from     
         violating,  directly  or  indirectly,  Section  15(a)(1)  of  the 
         Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C.     
         § 78o(a)(1)], as a dealer [15 U.S.C. § 78c(a)(5)], by making    
         use of the mails or any means or instrumentality of interstate  
         commerce to effect any transactions in, or to induce or attempt 
         to induce the purchase or sale of, any security (other than an  
         exempted  security  pursuant  to  

.15a-2  or  
         commercial paper, bankers’ acceptances, or commercial bills),   
         unless the Defendants are registered with the Commission as a   
         dealer, or associated with a registered dealer, in accordance   
         with Exchange Act Section 15(b).                                

              IT IS FURTHER ORDERED, ADJUDGED, AND                       
         DECREED   that  as  provided  in  Federal  Rule  of  Civil      
         Procedure 65(d)(2), the foregoing paragraph also binds the      
         following who receive actual notice of this Final Judgment by   
         personal  service  or  otherwise:  (a)  Defendants’  general    
         partners,  limited  partners,  members,  managing  members,     
         officers, agents, servants, employees, and attorneys; and (b)   
         other  persons  in  active  concert  or  participation  with    
         Defendants or with anyone described in (a).                     

ECF 192 at 1–2.                                                           
    Defendants argue that if the Court concludes that injunctive relief is appropriate, it 
should only “impose time-limited relief instead of life-time injunctive relief.” Defs.’ Opp’n 
at 32. However, the cases Defendants cite in support of this request for, at most, time-
limited injunctive relief do not persuade the Court that the permanent injunction requested 
here is inappropriate. Indeed, in two of the cited cases, even though courts limited the 
duration of the industry bars to a term of years, they imposed permanent injunctions. SEC 
v. Findley, No. 3:20-cv-0397 (SRU), 

, at *11–12 (D. Conn. Feb. 21, 2024) 
(providing a time-limited industry bar prohibiting the defendant from serving as an officer 
or director of a publicly-traded company, but imposing a permanent injunction against 

future violations of fraud provisions in the Exchange Act and Securities Act); SEC v. 
Gallison, 

, at *2–3 (S.D.N.Y. Feb. 4, 2023) (imposing permanent 
injunction and a time-limited officer-and-director bar). Because the permanent injunction 
here does not limit future participation in the financial services industry, but only future 
illegality, this authority is less persuasive.                            

    Defendants do not otherwise argue that  the form of  the permanent injunction 
requested by the SEC is improper. Accordingly, the SEC’s motion is granted to the extent 
it seeks a permanent injunction against Defendants prohibiting future violations of the 
dealer-registration requirement.                                          
    The Court will also grant, in part, the SEC’s request for imposition of a penny-stock 

bar, though it will not impose this industry bar permanently on Carebourn Capital and 
Mr. Rice. There is no dispute that Defendants’ conduct in this case involved penny stocks, 
nor  that  the  Court  has  the  authority  to  bar  Carebourn  Capital  and  Mr. Rice  from 
participating in the offering of any penny stock. See 15 U.S.C. § 78u(d)(6) (“In any 
proceeding . . . against any person participating in, or, at the time of the alleged misconduct 

who was participating in, and offering of penny stock, the court may prohibit that person 
from  participating  in  an  offering  of  penny  stock. . . .”).  Nevertheless,  in  determining 
whether to impose such a prohibition, the Court is mindful that the bar requested by the 
SEC would “prohibit[] unlawful and lawful penny-stock transactions,” Almagarby, 

, for the remainder of Mr. Rice’s life and for as long as Carebourn Capital 
exists. The record in this case does not support a permanent injunction against future lawful 
penny-stock transactions, though Defendants’ conduct does support a more limited penny-

stock bar.                                                                
    Defendants suggest that the Court should follow Almagarby and find that this record 
does not support any industry bar at all. Like Almagarby, 92 F.4th at 1323–26, where the 
Eleventh Circuit reversed the district court’s imposition of a penny-stock bar, this case does 
not involve scienter or egregious conduct, and Defendants should not be punished for 

defending themselves in this litigation. However, unlike the defendant in Almagarby, as 
explained above, this case does provide “reason to question the sincerity” of Mr. Rice’s 
“assurances against future securities-law violations.” 

. Indeed, the Court has 
explained above why it is not inclined to unreservedly accept Mr. Rice’s assurances. And 
unlike Mr. Almgarby, Mr. Rice has not moved on to employment in an entirely different 

field. 

 (indicating that Almagarby was employed in a home-repair business). In 
short, this case is different enough from Almagarby that the Eleventh Circuit’s decision 
does not persuade the Court that no penny-stock bar would be appropriate here. 
    The SEC highlights that Mr. Rice engaged in at least one penny-stock transaction 
after the SEC filed suit, failed to comply with the SEC’s administrative subpoenas until the 

SEC asked a federal court to hold Defendants in contempt, and provided testimony during 
his deposition in this case that directly conflicted with his prior testimony during the SEC’s 
investigation. According to the SEC, these circumstances more closely align with the 
situation addressed by Keener court than that involved in Almagarby, and consequently, 
the  SEC  argues  that  this  Court  should  impose  a  permanent  penny  stock  bar  upon 
Defendants. Pl.’s Mem. 8; Pl.’s Reply 21–22. However, the Keener court did not impose a 
permanent penny-stock bar; rather, it limited the duration of the bar to a specific term of 

years. 644 F. Supp. 3d at 1303 (adopting the defendant’s “proposal to temporarily limit the 
penny stock bar to five years”). The Court similarly finds that, in this case, the SEC has 
failed to show “a reasonable likelihood that [Carebourn Capital and Mr. Rice] cannot ever 
engage in lawful penny stock offerings.” Id. The Court also notes that while Defendants 
engaged in unregistered-dealer transactions on a recurrent basis over many years, the 

conduct at issue in this case did not occur after Defendants had already been found to have 
violated the dealer-registration rules. See SEC v. Patel, 

 (2d Cir. 1995) 
(indicating that a “before imposing a permanent bar,” a court should consider whether there 
has been a “prior history of unfitness”).                                 
    Accordingly, the Court will not permanently bar Defendants from engaging in any 

penny stock offering, trading, etc., as requested by the SEC. However, the Court will limit 
the scope of the penny-stock bar to a period of three years from the date of this Order. 
 III.  Disgorgement                                                      
    The SEC requests an Order requiring Carebourn Capital and Mr. Rice to pay, on a 
joint-and-several basis, disgorgement of net profits of $10,135,738.71. In addition, the SEC 

asks the Court to require Relief Defendant Carebourn Partners to pay disgorgement of 
$1,109,306.50, based on its receipt of ill-gotten gains from the conduct of Carebourn 
Capital and Rice.                                                         
 A. Legal Standards for Disgorgement                                     
    Disgorgement  is  an  equitable  remedy  that  serves  the  purpose  of  depriving  a 
wrongdoer  of  ill-gotten  gains.  SEC  v.  Keener,  No.  20-cv-21254-BLOOM,  

, at *7 (S.D. Fla. Aug. 8, 2022), R&R adopted in part, rejected in part, 

 (S.D. Fla. 2022).                                           
    There  are  two  potential  sources  of  a  court’s  authority  to  issue  an  award  of 
disgorgement under the Exchange Act. First, under 15 U.S.C. § 78u(d)(5), when the SEC 
brings an action under the securities laws, a court “may grant, any equitable relief that may 

be appropriate or necessary for the benefit of investors.” Although the statute does not 
define “equitable relief,” in Liu v. SEC, 

 (2020), the Supreme Court held that 
“a disgorgement award that does not exceed a wrongdoer’s net profits and is awarded for 
victims is [permissible] equitable relief. . . .” 

 at 74–75. The Supreme Court explained 
that disgorgement is a traditional equitable remedy focused on depriving wrongdoers of 

net profits attributable to their wrongdoing. 

 at 79–81. Therefore, courts are required to 
“deduct legitimate expenses before ordering disgorgement under § 78u(d)(5).” Id. at 91–
92. In addition, the Court interpreted § 78u(d)(5)’s requirement that equitable relief be 
“appropriate or necessary for the benefit of investors” to mean that a disgorgement remedy 
“must do more than simply benefit the public at large by virtue of depriving a wrongdoer 

of ill-gotten gains.” Id. at 89.                                          
    After Liu, courts have generally held that the SEC can satisfy the so-called “victim-
benefit  requirement”  by  demonstrating  that  it  plans  to  distribute  disgorged  funds  to 
investors if it is able to collect. Almagarby, 

 (finding that the SEC 
adequately  satisfied  the  victim-benefit  requirement  by  explaining  “that  it  planned  to 
distribute awards to counterparties who had purchased shares from Almagarby and were 
negatively affected by the price impact of his selling activity); SEC v. Arias, No. 12-cv-

2937 (RPK) (SIL), 

, at *4 (E.D.N.Y. Feb. 9, 2023) (finding it sufficient 
that “the SEC has stated that it will return disgorged funds to investors if it can collect 
them. . . . At this stage of the litigation, such a representation is enough.”); SEC v. Penn, 
No. 14-CV-581 (VEC), 

, at *14 (S.D.N.Y. Mar. 31, 2021) (collecting 
cases); SEC v. NIR Grp., LLC, No. 11-CV-4723 (JMA) (AYS), 

, at *4 

(E.D.N.Y. Mar. 28, 2022). Other courts have required a more substantial showing. SEC v. 
Govil, 

 (2d Cir. 2023) (finding an abuse of discretion where the district court 
determined that investors were victims without finding that they suffered pecuniary harm); 
SEC v. Lemelson, 

, 238 (D. Mass. 2022) (“[T]he SEC has not provided 
any evidence that it could identify victims and has left open whether it is feasible to create 

a Fair Fund.”).                                                           
    The second source is also found in Section 78u, and it is more direct. After the 
Supreme  Court decided  Liu,  Congress amended section 78u. See  William  M. (Mac) 
Thornberry National Defense Authorization Act for Fiscal Year 2021, Pub. L. No. 116-
283, 

, 4626. The statute now provides that “[i]n any action or proceeding 

brought by the [SEC] under any provision of the securities laws, the [SEC] may seek, and 
any Federal court may order, disgorgement.” 15 U.S.C. § 78u(d)(7). Notably, the 2021 
amendment to the statute no longer requires that the equitable remedy of “disgorgement” 
be “for the benefit of investors.” See Keener, 644 F. Supp. 3d at 1305; SEC v. O’Brien, 

, 103 (S.D.N.Y. 2023) (“[A]fter Liu, Congress enacted amendments to the 
relevant portion of the Exchange Act, suggesting that courts have greater discretion to order 
disgorged funds to be deposited with the Treasury.”).                     

    With respect to the amount of any disgorgement remedy, courts have found that the 
SEC need only provide a “reasonable approximation of the profits causally related to the 
fraud.” Lemelson, 596 F. Supp. 3d at 238 (quotation omitted); see also SEC v. Capital 
Solutions Monthly Income Fund, LP, 

 (D. Minn. 2014) (“As long 
as the measure of disgorgement is reasonable, the wrongdoer should bear the risk of any 

uncertainty.”). And the SEC also must show that the profits are “causally connected to the 
violation” of the securities laws. SEC v. Drake, No. 2:20-cv-00405 MCS (PLAx),  

, at *2 (C.D. Cal. Oct. 7, 2021).                              
         The  amount  of  disgorgement  need  only  be  a  reasonable    
         approximation  of  profits  causally  connected  to  the        
         violation. . . . The SEC carries the burden of persuasion as to 
         whether the disgorgement figure reasonably approximates the     
         amount of unjust enrichment. . . . After the SEC meets this     
         burden,  a  defendant  must  then  demonstrate  that  the       
         disgorgement figure was not a reasonable approximation. . . .   
         Additionally, the ill-gotten gains include prejudgment interest 
         to ensure that the wrongdoer does not profit from the illegal   
         activity.                                                       

 (internal citations and quotations omitted).                          
 B. Discussion                                                           
    1.  Reasonable Approximation                                         
    As discussed below, the Court finds that the SEC has met its burden to show that 
during the relevant period of January 1, 2017 through September 24, 2021, a reasonable 
approximation of Carebourn Capital’s and Mr. Rice’s net profits from their unregistered 
dealer business is $10,135,738.71. Further, the SEC has shown that during that same 
period, Relief Defendant Carebourn Partners received $1,109,306.50 in transactional fees 

charged by Defendants to issuers of the convertible notes as a result of Defendants’ 
unregistered-dealer activity. And Defendants have failed to demonstrate that the SEC’s 
calculation of disgorgement amounts is not a reasonable approximation of net profits. 
    The SEC establishes a reasonable approximation of Defendants’ net profits through 
the declarations of Craig McShane. First McShane Decl., ECF 129; Second McShane 

Decl., ECF 190. For the period of January 1, 2017 through September 24, 2021, McShane 
reviewed general ledgers and “master files” containing securities purchase agreements, 
conversion  notices,  convertible  notes,  and  disbursement  authorizations,  as  well  as 
documents from brokers, transfer agents, issuers of notes and stocks, traditional banks, 
accountants, and other service providers hired by Defendants. First McShane Decl. ¶¶ 3–

4. Over that time, Carebourn Capital purchased 93 convertible notes from 27 different 
issuers, purchased 18 convertible notes from third parties, and converted shares of 37 
convertible notes across 23 different issuers. It spent $17,499,051.84 to purchase the notes 
in the form of cash to issuers, purchases from third parties, and fees paid to service 
providers such as attorneys and auditors. Id. ¶ 15. Over that same time, Carebourn Capital’s 

gross revenue from stock sales across 32 issuers was $26,170,463.29; $4,940,834.83 in 
repayments of principal on convertible notes from 23 issuers; $527,343.70 from the sale of 
12 convertible notes from six issuers to third parties, and $22,500 from fees charged to two 
issuers. Id. ¶¶ 16–17. This resulted in total cash receipts of $31,661,141.82, and subtracting 
the $17,711,181.85 in expenditures Carebourn Capital laid out to acquire the convertible 
notes, McShane determined that Carebourn Capital’s net income was $13,949,959.97. Id. 
¶¶ 18–19.                                                                 

    McShane further reviewed financial statements from Carebourn Capital for the 
years 2017–2021 in an effort to identify additional business expenses to be deducted from 
Carebourn Capital’s net income. Second McShane Decl. ¶ 7. He did not include certain 
expenses among those deductions, such as $98,501.88 in rent that Carebourn Capital paid 
to Linrick Industries; $1,820,788.79 in commission payments that Carebourn Capital paid 

to Linrick; $17,633,098.58 in “bad debt” expenses identified in the financial statements as 
principal note balances deemed no longer collectible; expenses for advertising ($25,208), 
travel ($6,806), meals and entertainment ($1,277); and fees (“200,068), office ($12), 
management ($2,000), and reimbursements ($2,433) for which McShane could not confirm 
the specific business purpose.2 Id. ¶ 8. Setting aside those expenses, McShane identified 

$3,814,221.26 in business expenses to be excluded, and he determined that a reasonable 
approximation of $10,135,738.71. Id. ¶¶ 7, 9.3                            



2 Defendants’ own calculations include write-offs for the so-called “bad debt” expenses that the 
SEC did not deduct. The Court addresses this issue in more detail below. Defendants also take 
issue, generally, with the methodology the SEC used to reach its approximation of Defendants’ 
profits, and the Court discusses this issue below as well. However, Defendants do not specifically 
argue that the SEC should have allowed deductions for rent, marketing, advertising, and other 
categories that Mr. McShane decided not to deduct.                        
3  The  disgorgement  amount  does  not  include  Defendants’  investments  in  two  ventures—
Sustainable Metal Solutions and Acres Gaming—that Defendants argue should be excluded from 
any monetary judgment the Court finds appropriate. Pl.’s Reply 9 n.2; Def.’s Opp’n 25; ECF 205 
¶ 19.                                                                     
    Further, McShane explained that during the review period, documentation showed 
that Carebourn Partners received $1,109,306.50 in “transactional expense” fees charged to 
penny stock issuers that entered the convertible note agreements with Carebourn Capital. 

Id. The transactional expense fees were included in the principal amount of the notes that 
the issuer was required to repay and were  paid directly to Carebourn Partners from 
Carebourn Capital. First McShane Decl. ¶ 20 & Ex. E.                      
    Defendants challenge the sufficiency of the SEC’s showing in three ways: (1) the 
SEC has failed to meet its burden because Mr. McShane’s calculations are based on an 

insufficient review of relevant documents that should have included Defendants’ financial 
statements and tax returns; (2) Mr. McShane’s approximation should have written off 
millions in so-called “bad debt” expenses rather than including them in the Defendants’ 
income; and (3) if the Court grants the SEC’s request for disgorgement, Defendants suggest 
a reasonable approximation of net profits should be no more than $1,176,087. The Court 

finds these arguments unpersuasive.                                       
    First, Defendants argue that it is unclear what documents McShane reviewed and 
that his calculations are unreliable because he should have based them on Carebourn 
Capital’s financial statements and tax returns. But McShane plainly stated the types of 
documentation that he relied upon in conducting his assessment of Defendants’ net revenue 

obtained from the relevant transactions, and he used financial statements to identify proper 
business expenses. First McShane Decl. ¶ 3; Second McShane Decl. ¶¶ 3, 7. Defendants 
have not persuaded the Court that McShane’s calculations fail to provide a reasonable 
approximation  of  profits  because  of  any  lack  of  clarity  regarding  the  documents  he 
reviewed.                                                                 
    Second, Defendants’ base their own calculations in large part on writing off certain 

“bad debt” expenses that the Court finds should not be excluded  from a reasonable 
approximation. Defendants removed the costs of loans that they deemed worthless from 
Carebourn Capital’s balance sheet as a bad debt expense. Third McShane Decl. ¶ 5, ECF 
208.4 Between January 1, 2017 and September 24, 2021, Carebourn Capital’s balance 
sheets reflect $18,211,414.00 in such bad debt expenses. Id. ¶ 6. However, in the SEC’s 

assessment, Mr. McShane already accounted for bad debt expenses during the relevant 
period  as  “cash  to  issuers,”  so  these  amounts  have  already  been  factored  into  the 
approximation of net profits. First McShane Decl. ¶ 8(c). In addition, McShane explains 
that a total of 30 percent of these expenses—totaling $5,508,968.27—were based on 
convertible notes and other assets purchased by Carebourn Capital prior to January 1, 2017, 

but written off as expenses in subsequent years. Third McShane Decl. ¶ 7. However, 
Defendants’  own  calculations  do  not  include  any  income  generated  from  the  notes 
purchased prior to the relevant period, whether in the form of principal payments or through 
stock conversions. Including the losses for these transactions, but not the gains undervalues 
the profits actually obtained in the relevant period. Further, some of the bad debt expenses 


4 This document is captioned as the “Second Declaration of Craig L. McShane in support of SEC’s 
Motion for Remedies.” Because the SEC relies on two declarations from McShane that were filed 
directly in connection with the remedies motion as well as his declaration submitted in support of 
the SEC’s motion for summary judgment, the Court refers to them in as the First, Second, and 
Third declarations in the order they were filed.                          
reflected in Defendants’ calculations include transactional fees that were paid to Carebourn 
Partners as opposed to any issuers. See Third McShane Decl. ¶ 10. The Court finds that 
deducting such bad debt expenses from the calculation of Defendants’ profits would not be 

appropriate.5                                                             
    2.  Defendants’ Remaining Arguments                                  
    The Court also finds unpersuasive Defendants’ remaining arguments that the SEC 
failed to show that disgorgement was for the benefit of investors, that the SEC has proved 
no causal connection between the statutory violation at issue in this case and any profits 

Defendants obtained, and that the SEC has not met its burden with regard to Relief 
Defendant Carebourn Partners.                                             
    For the Benefit of Investors                                         
    First, Defendants contend that under Liu, to show that a disgorgement award is for 
the benefit of investors, the SEC is required to demonstrate specific instances where 

investors suffered pecuniary harm as a result of Defendants’ conversions of the notes and 
subsequent stock sales. Although this presents an interesting question that the Eighth 
Circuit has not squarely addressed, the Court does not adopt Defendants’ position. The 
Court agrees with the Eleventh Circuit’s analysis in Almagarby. 94 F.4th at 1320. As 

5 The court is also not persuaded that the substantial losses identified in Carebourn Capital’s 
financial  statements  and  tax  returns  for  2019  and  2020  show  that  the  SEC’s  reasonable 
approximation of Defendants’ profits is improperly inflated. As the Court previously observed, 
Mr. Rice testified that Carebourn Capital was consistently profitable and never failed to pay 
dividends to its investors. Summ. J. Order 29–30, ECF 177. In Sec. & Exch. Comm'n v. Sripetch, 
No. 20-cv-01864-H-BGS, 

, at *6 (S.D. Cal. Apr. 8, 2024), the court did not 
have before it any comparable evidence undermining the persuasiveness of the defendant’s tax 
returns. But here, this Court is not persuaded by Defendants’ argument that it should similarly 
accept their calculations of profits.                                     
explained in Almagarby, the principal holding in Liu is that an award of “disgorgement 
must  not  exceed  a  wrongdoer’s  net  profits  and  must  be  awarded  for  victims  to  be 
permissible under section 78u(d)(5).” 

 (internal quotations omitted). However, the SEC 

is not required to “link loss amounts to specific instances of investor harm to satisfy the 
requirements of section 78u(d)(5).” 

 (citing SEC v. GenAudio Inc., 

, 952–
53 (10th Cir. 2022)). Instead, the SEC need only “identify investors who have suffered 
pecuniary harm” to show that a disgorgement award is “for the benefit of investors” under 
§ 78u(d)(5) and demonstrate that it intends to distribute the award to investors. Id.; accord 

SEC v. Keener, 

 (11th Cir. 2024) (following Almagarby and finding 
that Liu’s victim-benefit requirement was satisfied where the SEC provided evidence that 
investors had stock price declines and the agency “promised to distribute the disgorged 
profits to investor-victims who suffered from [the defendant’s] activity”); but see SEC v. 
Govill, 

 (2d Cir. 2023) (finding that the district court abused its discretion 

by awarding disgorgement without showing that particular investors suffered “pecuniary 
harm”).                                                                   
    In addition, the Court notes that the post-Liu amendment to the statute, adding 
§ 78u(d)(7), explicitly provides that disgorgement may be awarded, but it does not include 
the “for the benefits of investors” language found in § 78u(d)(5). Under this provision, the 

Court has even greater flexibility, and  may prevent unjust enrichment by disbursing 
collected funds that cannot be returned to investors to the Treasury. Keener, 644 F. Supp. 
3d at 1305; SEC v. Spartan Secs. Gr., Ltd., 

, 1225 (M.D. Fla. 2022) 
(“Between the money staying with [the defendant] or a fund at the Treasury, it is more 
equitable to order disgorgement.”).                                       
    The  SEC  has  made  the  required  showing  here.  An  SEC  financial  economist 

identified the dates of Carebourn Capital’s sales of stocks from penny-stock issuers through 
various broker-dealers. Gullapalli Decl. ¶ 6, ECF 191. He obtained data for the issuers’ 
market prices from a subscription-based database that provides comprehensive financial 
market data and compared it to the Defendants’ trading records to identify the price 
movement that coincided with Defendants’ trades. Id. ¶ 7. Based on that comparison, he 

found  that  the  share  prices  of  issuers  whose  stock  was  sold  by  Carebourn  Capital 
experienced large declines over the trading periods, and 28 out of 29 issuers’ share prices 
dropped during the period in which Defendants made their trades. Id. ¶ 8; id., Exs. 1–5. 
Moreover, the SEC avers that it intends to establish a fair fund for distribution of disgorged 
funds to Carebourn Capital’s investors and issuers, and “[a]ssuming there are adequate 

funds to distribute to harmed victims, the SEC will file a proposed distribution plan with 
the Court. Defendants and Relief Defendant then may raise any objections they have. The 
SEC will only proceed with the distribution plan once it has this Court’s approval.” SEC 
Mem. 14. The SEC further states that any funds it is unable to disburse to harmed investors 
or issuers can be disbursed to the Treasury to prevent Defendants’ unjust enrichment. 

    Causation                                                            
    Next, Defendants argue that the SEC has failed to show that any of their profits from 
converting the promissory notes into shares of stock and reselling them to the market are 
causally linked to their violation of the dealer-registration requirement. They contend that 
the SEC has failed to demonstrate that, but for their failure to register, they would not have 
been able to engage in the same transactions and obtained the same revenues. 
    The Court disagrees with Defendants’ framing of causality here. In other cases like 

this one, other courts have found a causal connection to engaging in unlawful, unregistered 
dealer activity without requiring a separate showing that, had the Defendants registered, 
the  transaction  would  not  have  occurred.  The  Eleventh  Circuit  rejected  an  identical 
argument to that raised by Defendants in Almagarby:                       
              Finally, Almagarby’s profits were causally linked to his   
         failure to register. Section 15(a) prohibits unregistered dealers 
         from using interstate commerce “to effect any transactions in   
         . . .  any  security.”  Id.  §  78o(a)(1)  (emphasis  added).   
         Almagarby  was  altogether  prohibited  from  making            
         transactions as an unregistered dealer, so any profits generated 
         from his prohibited transactions were causally linked to his    
         failure to register. See SEC v. Teo, 

 (3d Cir.  
         2014)  (providing  that  the  Commission's  civil  enforcement  
         actions need not show “proximate causation”); see also SEC v.   
         Apuzzo, 

, 212–13 (2d Cir. 2012).                    

              The district court did not have to speculate about the     
         profits of any lawful transactions that Almagarby might have    
         made had he chosen to register as a dealer. . . . Indeed, had   
         Almagarby registered, he likely would have faced significant    
         restraints on his toxic lending activity. For example, dealers  
         must comply with self-regulatory organizations’ rules, and the  
         Commission asserts that Almagarby likely would have been        
         limited  by  regulations  such  as  the  industry  prohibition  on 
         “unfair or unreasonable” underwriting activity. See FINRA       
         Rule 5110(c)(2)(A).  So the district court did not abuse its    
         discretion  by  ordering  Almagarby  to  disgorge  the  profits 
         causally linked to his failure to register.                     
92 F.4th at 1320–21. Other courts have rejected Defendants’ argument for similar reasons. 
See Keener, 

 (same, following Almagarby); SEC v. Fierro, No. 20-02104 
(GC) (JBD), 

, at *6 (D.N.J. May 21, 2024) (same).          

    The Court agrees with the analysis of the causation issue in these cases and rejects 
Defendants’ argument to the contrary. Moreover, the Court notes that in its post-hearing 
letter, the SEC explains in detail the type of “oversight, standards, and heightened scrutiny 
that comes with dealer registration.” ECF 221 at 4. These include statutory and regulatory 
provisions requiring registered dealers to provide regular reports with information about 

their assets, cash flow, and internal compliance measures. 

 at 3 (citing 15 U.S.C. 
§ 78q(e)(1)(A); 

.15c3-1, 240.15c3-3(e), 240.17a-5(a), (d)(1), (2), (3)). 
And the SEC represents that because of the heightened oversight for penny stock trading, 
the agency suspended trading for several of the issuers from whom Defendants purchased 
promissory  notes  during  the  four-year  period  relevant  to  this  case.  

  at  3–4.  This 

information supports the SEC’s contention that if Carebourn Capital and Mr. Rice had 
registered,  increased  oversight  would  likely  have  presented  obstacles  to  Defendants’ 
lending and conversion activities.                                        
    Relief Defendant Carebourn Partners                                  
    Defendants argue that the SEC’s request for disgorgement of $1,109,306 from 

Relief  Defendant  Carebourn  Partners  should  be  denied  because  the  “transactional 
expenses”  that  this  figure  represents  were  not  derived  from  Carebourn  Capital’s 
unregistered dealer activity. Rather, Defendants argue, the transactional expense fees were 
derived from Carebourn Capital’s activity of providing cash loans to issuers, and the fees 
paid to Relief Defendant came out of Carebourn Capital’s cash accounts. Accordingly, 
Defendants contend that there is no causal connection between the expense fees and any 
unregistered-dealer activity.                                             

    The  Court  rejects  Carebourn  Partners’  efforts  to  characterize  the  transactional 
expense fees that it obtained directly from Carebourn Capital as a result of the convertible 
note  transactions  as  unrelated  to  Defendants’  unregistered-dealer  activity.  Carebourn 
Capital was prohibited from engaging in these transactions because they did so without 
registering as a dealer, and the fees that were passed through to Carebourn Partners were 

the direct result of those transactions. Therefore, the Court finds that the fees paid to 
Carebourn Partners were causally related to the unregistered dealer activity at issue in this 
case. Carebourn Partners raises no other argument to suggest that an award of disgorgement 
as to it would be improper, and the Court concludes that it is not.       
    3.  Prejudgment Interest                                             

    The SEC also seeks to recover prejudgment interest on the disgorgement sums that 
the  Court  ultimately  awards.  Defendants  argue  that  if  the  Court  decides  to  award 
disgorgement, it should exercise its discretion to deny the SEC’s claim for prejudgment 
interest because neither Carebourn Capital nor Mr. Rice has the financial means to pay 
prejudgment interest on top of a disgorgement award.                      

    “Courts  ordering  disgorgement  may  also  order  prejudgment  interest  on  the 
disgorged amount.” SEC v. Quan, No. 11-cv-723 (ADM/JSM), 

, at *14 
(D. Minn. Sept. 19, 2014), amended, No. 11-cv-723 ADM/JSM, 

 (D. 
Minn. Dec. 10, 2014), aff’d, 

 (8th Cir. 2016). The purpose of awarding 
prejudgment interest is to prevent a defendant from profiting from a violation of the 
securities laws and depriving “a defendant from obtaining the benefit of an interest-free 
loan due to his unlawful conduct.” 

 “The rate of interest commonly used by courts when 

ordering prejudgment interest in connection with disgorgement is the rate applied by the 
Internal Revenue Service (“IRS”) for the underpayment of federal income tax.” 

 
    District courts have discretion when determining whether to award prejudgment 
interest. SEC v. Markusen, 

 (D. Minn. 2015). In exercising that 
discretion, courts consider the following criteria:                       

         (i) the need to fully compensate the wronged party for          
         actual damages suffered, (ii) considerations of fairness        
         and the relative equities of the award, (iii) the remedial      
         purpose of the statute involved, and/or (iv) such other         
         general principles as are deemed relevant by the court.         
         In  an  enforcement  action  brought  by  a  regulatory         
         agency, the remedial purpose of the statute takes on            
         special importance.                                             

 (quoting SEC v. First Jersey Sec., Inc., 

 (2d Cir. 1996)). 
    In arguing that the Court should decline to award prejudgment interest, Defendants 
focus on the fairness and relative equities of such an award by reference to the financial 
conditions of Mr. Rice and Carebourn Capital to the exclusion of the other relevant factors. 
Even if Defendants have financial challenges to payment of an award, they ignore the 
special importance of the remedial purpose of the statutory provisions that allow the SEC 
to recover disgorgement. Defendants have had the benefit of receiving millions of dollars 
of profits as a result of their unregistered dealer activity, and disgorging those amounts 
without a payment of prejudgment interest will allow them to retain the benefit of keeping 
those revenues for several years without any recognition of the time value of those funds. 
This would essentially allow Defendants to have obtained the very no-interest loan that an 
award of prejudgment interest is designed to prevent. Awarding prejudgment interest here 

in the amounts requested by the SEC will serve the purpose of preventing Defendants from 
being unjustly enriched as a result of their unregistered-dealer activity and will allow the 
SEC, through the establishment of a fair fund, to distribute funds to investors and issuers 
in an amount that provides full compensation for their losses.            
    Defendants do not contest Mr. McShane’s calculation of an appropriate amount of 

prejudgment interest on the disgorgement amounts the Court has found appropriate above. 
For Defendants Carebourn Capital and Mr. Rice, McShane calculates those amounts as 
$950,173.40, and for Relief Defendant Carebourn Partners, he concludes that $103,924.66 
is owed. Second McShane Decl. ¶¶ 10, 12.                                  
    4.  Conclusion                                                       

    In sum, the Court concludes that the SEC has met its burden to provide a reasonable 
approximation of the Defendants’ net profits, and the SEC’s calculation of legitimate 
business  expenses  is  more  persuasive  than  Defendants’  alternative  calculations. 
Accordingly, the Court finds that Defendants Carebourn Capital and Chip Rice are jointly 
and severally liable for disgorgement in the amount of $10,135,738.71, and prejudgment 

interest in the amount of $950,173.40. Relief Defendant Carebourn Partners is liable for 
disgorgement in the amount of $1,109,306.50, and prejudgment interest in the amount of 
$103,924.66.                                                              
IV.  Civil Penalties                                                      
    The SEC requests civil penalties against Carebourn Capital and Chip Rice in the 
amount  of  $642,500  each,  which  amounts  to  12.7  percent  of  the  SEC’s  proposed 

disgorgement figure.                                                      
 A. Legal Standards for Civil Penalties                                  
    The Exchange Act authorizes courts to impose civil penalties for violations of 
federal securities laws according to a three-tier system of increasing amounts. 15 U.S.C. 
§ 78u(d)(3)(A)-(B). Only the first-tier penalty is at issue.6 The Exchange Act sets forth the 

following regarding the first-tier civil penalty:                         
         The amount of a civil penalty imposed under subparagraph        
         (A)(i) shall be determined by the court in light of the facts and 
         circumstances. For each violation, the amount of the penalty    
         shall not exceed the greater of (I) $5,000 for a natural person 
         or $50,000 for any other person, or (II) the gross amount of    
         pecuniary gain to such defendant as a result of the violation.  
Id. § 78u(d)(3)(B)(i); see also Keener, 644 F. Supp. 3d at 1308 (“Regardless of the tier, the 
Court may impose a penalty up to the amount of a defendant’s gross pecuniary gain.”). The 
amounts of the first-tier civil penalties, adjusted for inflation, are now $11,524 for a natural 
person and $115,231 for an entity. See U.S. Securities and Exchange Commission, Inflation 
Adjustments to the Civil Monetary Penalties Administered by the Securities and Exchange 


6 Courts can order the second and third tiers of civil penalties only where the violation at issue 
“involved  fraud,  deceit,  manipulation,  or  deliberate  or  reckless  disregard  of  a  regulatory 
requirement.”  15  U.S.C.  § 78u(d)(3)(B)(ii)–(iii).  The  SEC  does  not  argue  any  of  these 
circumstances are at issue here.                                          
Commission  (Jan.  15,   2024),  https://www.sec.gov/enforce/civil-penalties-
inflationadjustments.                                                     
    Civil penalties serve both a punitive and deterrent purpose. Keener, 644 F. Supp. 3d 

at 1308; see also SEC v. Jarkesy, 

, 2130 (2024) (“In sum, the civil penalties 
in this case are designed to punish and deter, not to compensate.”). Courts have discretion 
to determine “whether to impose a civil penalty and in what amount.” Keener, 644 F. Supp. 
3d at 1308; Quan, 

, at *16 (D. Minn. Sept. 19, 2014).      
    Courts consider several factors that are similar to those taken into account when 

considering whether to impose an injunction or an industry bar. E.g., SEC v. Spartan Sec. 
Gr., Ltd., 

, 1229 (M.D. Fla. 2022). Among the relevant factors are: 
(1) egregiousness;  (2) scienter;  (3) repeated  violations;  (4) admissions  of  wrongdoing; 
(5) losses  resulting  from  defendant’s  violations;  (6) defendant’s  cooperation  with 
enforcement authorities; and (7) defendant’s financial condition. Id.; see also Markusen, 

143 F. Supp. 3d at 894–95 (same).                                         
 B. Discussion                                                           
    Although similar factors relevant to imposition of civil penalties lead the Court to 
impose a permanent injunction and a three-year industry bar, the Court finds that no civil 
penalty should be imposed under the circumstances of this case for several reasons. First, 

the SEC made no showing that Defendants acted with scienter and have not demonstrated 
that their unregistered-dealer activity was particularly egregious. Nor does the record 
indicate that before the Defendants engaged in their convertible-note business in this case 
they had previously been found to have violated the dealer-registration requirement or any 
other regulations.                                                        
    Also, the Defendants’ financial condition weighs against such penalties, particularly 

in  light  of  the  substantial  disgorgement  order.  The  parties  disagree  over  the  effect 
Defendants’ financial condition should have on the propriety of civil penalties. Defendants 
argue that they do not have the financial means to pay the civil penalties sought by the 
SEC. Mr. Rice states that his only income at the moment is a monthly Social Security check 
and he does not have significant assets that can be liquidated to pay a civil penalty. He 

explains that his car and home are owned by his wife, that he has modest balances in his 
checking and savings account that are held jointly with his wife, and that has a half interest 
in approximately $15,000 of household furniture and goods. Mr. Rice avers that his current 
net  worth  is  negative  $3,309.  Rice  Decl.  ¶¶ 14–15.  Further,  Mr. Rice  indicates  that 
Carebourn Capital does not have the assets to pay a large civil penalty. He states that 

Carebourn Capital holds $475,095 in assets at several brokerage firms that are untradeable 
securities and $3,126,510 in investments in two private companies. Rice Decl. ¶ 17. 
Finally, Mr. Rice testifies that Carebourn Capital is subject to a nearly $400,000 judgment 
against it in the Minnesota state court action in favor of Darkpulse. 

 
    The SEC argues that Defendants have failed to meet their burden to show that they 

are unable to pay a civil penalty, and even if they are, that alone does not mean that a civil 
penalty cannot be awarded. The SEC criticizes Mr. Rice’s declaration concerning his 
financial condition as a “self-prepared” and “self-serving,” lacking any explanation for 
how Mr. Rice made his calculations.                                       
    Under the circumstances of this case, the Court gives some weight to Defendants’ 
financial condition. If the SEC is correct that Mr. Rice and Carebourn Capital have at least 
$3 million in assets that could potentially be collected by the agency, that will go toward 

the disgorgement award of over $10 million, along with prejudgment interest. The Court 
is mindful that disgorgement and civil penalties serve different purposes, which have led 
some  courts  to  determine  that  a  civil  penalty  is  warranted  even  when  they  order 
disgorgement of profits. Sec. & Exch. Comm’n v. Bajic, No. 20 CIV. 7 (LGS), 

, at *5 (S.D.N.Y. Sept. 27, 2023) (“Congress provided for civil penalties because 

disgorgement merely requires the return of wrongfully obtained profits; it does not result 
in any actual economic penalty or act as a financial disincentive to engage in securities 
fraud.”) (internal quotations omitted). But the SEC has not demonstrated that a civil penalty 
is necessary to punish the Defendants for violating the dealer-registration requirement or 
to deter future violations. Moreover, the SEC has indicated that its plan is to establish a 

“fair fund” from which to distribute disgorged funds to investors who were harmed by 
Defendants’ unregistered dealer activity. Declining to impose a civil penalty will help 
ensure that any funds Defendants do have are available for distribution to such investors. 
    For these reasons, the SEC’s request for imposition of civil penalties is denied. 

    For the reasons set forth above, IT IS HEREBY ORDERED THAT           
    1.   Plaintiff’s Motion for Remedies is GRANTED IN PART and DENIED IN 
PART as set forth herein.                                                 
    2.   The  motion  is  denied  to  the  extent  that  it  seeks  civil  penalties  against 
Carebourn Capital, L.P. and Chip Rice.                                    
    3.   Carebourn  Capital,  L.P.  and  Chip  Rice  (“Defendants”)  are  permanently 

restrained and enjoined from violating, directly or indirectly, Section 15(a)(1) of the 
Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78o(a)(1)], as a dealer [15 
U.S.C. § 78c(a)(5)], by making use of the mails or any means or instrumentality of 
interstate commerce to effect any transactions in, or to induce or attempt to induce the 
purchase or sale of, any security (other than an exempted security pursuant to 

.15a-2 or commercial paper, bankers’ acceptances, or commercial bills), unless the 
Defendants are registered with the Commission as a dealer, or associated with a registered 
dealer, in accordance with Exchange Act Section 15(b);                    
    4.   Pursuant  to  Federal  Rule  of  Civil  Procedure  65(d)(2),  the  permanent 
injunction set forth in Paragraph 2 of this Order also binds the following who receive actual 

notice of the Final Judgment by personal service or otherwise: (a) Defendants’ general 
partners,  limited  partners,  members,  managing  members,  officers,  agents,  servants, 
employees, and attorneys; and (b) other persons in active concert or participation with 
Defendants or with anyone described in (a).                               
    5.   Defendants are barred, for a period of three years from the date of this Order, 

from participating in an offering of penny stock, including engaging in activities with a 
broker, dealer, or issuer for purposes of issuing, trading, or inducing or attempting to induce 
the purchase or sale of any penny stock.                                  
    6.   (a)  Defendants  are  jointly  and  severally  liable  for  disgorgement  of 
$10,135,738.71, representing net profits gained as a result of the conduct alleged in the 
Complaint, together with prejudgment interest thereon in the amount of $950,173.40, for a 

total of $11,085,912.11; and (b) Relief Defendant Carebourn Partners, LLC (“Relief 
Defendant”) is liable for disgorgement of $1,109,306.50, representing the receipt of ill-
gotten gains from Defendants’ illegal conduct, together with prejudgment interest thereon 
in the amount of $103,924.66, for a total of $1,213,231.16.               
    7.   Within  ten  days  of  entry  of  Judgment,  Defendants  must  surrender  for 

cancellation their remaining shares of stock of the issuers listed in Exhibit 1 of the SEC’s 
motion for remedies in this case and surrender their remaining conversion rights under the 
convertible securities issued by the Issuers. Further, Defendants shall send copies of 
correspondence evidencing the surrender for cancellation of Defendants’ remaining shares 
of the Issuers and their remaining conversion rights under the convertible securities issued 

by the Issuers to the SEC addressed to Charles J. Kerstetter, U.S. Securities and Exchange 
Commission, 175 W. Jackson Blvd., Suite 1400, Chicago, IL 60604.          
    Let Judgment be entered accordingly.                                 

Date: September 20, 2024        s/Katherine Menendez                     
                                Katherine Menendez                       
                                United States District Judge