SECURITIES AND EXCHANGE COMMISSION Washington, D.C. Litigation Release No. 15681 / March 25, 1998 SEC v. Brennan, Adv. Pro. No. 97-3612 (KCF), In re Robert E. Brennan, Case No. 95-35502(KCF) (U.S. Bankr. Ct. D.N.J.) The Securities and Exchange Commission announced today that on March 24, 1998, The Honorable Kathryn C. Ferguson, United States Bankruptcy Judge for the District of New Jersey, granted its motion for summary judgment against Robert E. Brennan and held that the Commission's $75 million securities fraud judgment cannot be discharged in Brennan's bankruptcy. The Court ruled that, as the principal of First Jersey Securities, Inc., Brennan owed a fiduciary duty to First Jersey's customers, which he willfully violated by presiding over a fraudulent scheme to extract massive overcharges from them. Therefore, the Court agreed with the Commission that its judgment was excepted from discharge in bankruptcy under the exception for debts resulting from a defalcation by a fiduciary. Because of this ruling, the Court deemed it unnecessary to rule on the other ground asserted by the Commission to except its judgment from discharge -- that the judgment is a debt for money obtained by fraud, but indicated that she would rule on this issue if Brennan successfully appealed her ruling on the fiduciary defalcation claim. The Court also denied Brennan's cross-motion for summary judgment, which had contended that the Commission lacked standing even to bring an action to except its judgment from discharge because the Commission was not the party to whom the disgorgement was to be paid. The Court rejected this argument as contrary to the language of the Bankruptcy Code as well as to the public policy goals served by Commission actions for disgorgement to enforce the federal securities laws and protect public investors. Brennan filed bankruptcy in August 1995, in response to the entry of judgment against him by the United States District Court for the Southern District of New York, which found him liable for orchestrating a massive and continuing fraud against the customers of First Jersey Securities, and held him jointly and severally liable with First Jersey for disgorgement of $75 million. In December 1996, the Second Circuit Court of Appeals upheld the disgorgement judgment, and in October 1997, the Supreme Court denied Brennan's petition for certiorari. In June 1997, the Bankruptcy Court, on the Commission's motion, ousted Brennan from his status as debtor-in-possession and ordered the appointment of a Chapter 11 trustee, finding such action to be in the best interests of the creditors of his estate. The Trustee is charged with liquidating claims and assets, managing the various Brennan interests, and investigating possibly fraudulent transfers. For further information, see Litigation Release No. 14536 .