Federal Court Concludes Much of SEC Claims Against Nicor Gas Executives Are Full of Gas

A federal judge in Illinois hollowed out much of the SEC’s case against two former executives of Nicor Gas. SEC v. Fisher, et al., No. 07-4483 (N.D. Ill.) (Zagel, J.) (Order). Although the court allowed the SEC’s substantive Section 10(b) and 17(a) fraud claims to proceed, the court granted summary judgment to the executives with respect to all claims for civil penalties and injunctive relief. The Order makes clear that to survive summary judgment on injunctive relief, like any other claim, the SEC must put forth concrete evidence, not just “rank speculation.” Accordingly, the SEC’s claims will proceed to trial only for the equitable remedy of disgorgement of profits.


In 2008, the SEC brought fraud charges against three former executives of Nicor Gas, a utility company providing Northern Illinois with natural gas. The SEC alleges that from 1999 to 2002, these executives manipulated Nicor’s earnings through accounting gimmicks and transactions that took advantage of Nicor’s low cost of inventories in a rising gas price environment without disclosing the practice or its effect on earnings.

Order on Fraud Claims

Two of the defendants – Nicor’s then-CFO and Treasurer – moved for summary judgment, arguing principally that the SEC lacked sufficient evidence to establish that they acted with scienter. The court denied the motion as to the fraud claims, and stated that “there are just too many so-called honest mistakes for Defendants to receive the kind of benefit of the doubt that would allow them summary judgment. This is not to say that the Commission’s evidence establishes liability, just that there is sufficient evidence to require the consideration of a jury.” Order at 29.

In particular, the court rejected the former-Treasurer’s argument that the relevant accounting guidance was “so arcane and technical as to show that he could not possibly have acted with the requisite scienter.” The court noted that the Treasurer had admitted never seeking advice from Nicor’s auditors on the accounting guidance and that “the obviousness of the improper accounting is vigorously disputed.” Order at 27.

As to the CFO, the court held that the evidence also showed that she failed to address the relevant accounting practices with the auditors. In the court’s eyes, this “may or may not amount to negligence, recklessness, or deliberateness,” but it was sufficient evidence to survive a motion for summary judgment. Order at 28.

Order on Penalties and Injunctive Relief

The court was not, however, willing to give the SEC the same benefit of the doubt with respect to remedies. As to civil penalties, the court concluded that all but a handful of the statements at issue were time-barred under 28 U.S.C. §2462, and those still otherwise actionable were not misleading. While the CFO had “ratified the prior financial disclosures” in one of those filings, it was “accompanied by clearly curative statements warning of the problems from 1999 through early 2002” and any prior misleading statements were “immaterial as a matter of law.” Order at 31. Accordingly, all claims for civil penalties were dismissed.

The court also did not take kindly to the SEC’s arguments in favor of injunctive relief or a director and officer bar, noting for example that the SEC put forth nothing but “rank speculation” that defendants – one of whom was retired – might return to a public company and no evidence that either defendant was recidivist. Order at 33. The SEC also did not offer any evidence on the gravity of the harm or defendants’ economic stake in the scheme. “Such evidence may or may not exist,” the court said, “but it is not the court’s job to go looking for it when the Commission fails to address it in their briefs.” Order at 34.