In the United States Court of Appeals For the Second Circuit ________

AUGUST TERM 2021

ARGUED: JANUARY 19, 2022 DECIDED: MARCH 13, 2024

No. 20-4080-cv

SECURITIES AND EXCHANGE COMMISSION,

Plaintiff-Appellee,

v.

MOHAMMED ALI RASHID,

Defendant-Appellant. ________

Appeal from the United States District Court for the Southern District of New York. ________ Before: KEARSE, WALKER, AND SULLIVAN, Circuit Judges. ________

This appeal arises from a Securities & Exchange Commission enforcement action brought against Defendant-Appellant Mohammed Ali Rashid, a former employee of private equity firm Apollo Management L.P. Rashid was accused of breaching his fiduciary duties to the Apollo-affiliated private equity funds he No. 20-4080-cv

advised by submitting expense reports for phony business expenses that were ultimately paid by the funds. The district court, following a bench trial, determined that Rashid was not liable under § 206(1) of the Investment Advisers Act because he was not aware that the funds, rather than Apollo, would pay for his expenses. The district court concluded, however, that Rashid was liable under § 206(2) of the Act because Rashid was “indifferent,” and therefore negligent, as to which entity would pay for his expenses.

Because it was not reasonably foreseeable to Rashid that the funds would pay for his expenses, we conclude that Rashid did not breach his duty of care to the funds or proximately cause their harm. Accordingly, we REVERSE the judgment of the district court.

Judge Kearse dissents in a separate opinion. ________

WILLIAM K. SHIREY, Counsel to the Solicitor, (Michael A. Conley, Acting General Counsel, on the brief), Securities and Exchange Commission, Washington, DC, for Plaintiff-Appellee.

CAITLIN J. HALLIGAN, Selendy & Gay PLLC, New York, NY (Faith E. Gay, Ryan W. Allison, Selendy & Gay PLLC, New York, NY; Theresa Van Vliet, Genovese Joblove & Battista, P.A., Fort Lauderdale, FL, on the brief), for Defendant- Appellant. ________ JOHN M. WALKER, JR., Circuit Judge:

This appeal arises from a Securities & Exchange Commission (“SEC”) enforcement action brought against Defendant-Appellant Mohammed Ali Rashid, a former employee of private equity firm

2 No. 20-4080-cv

Apollo Management L.P. Rashid was accused of breaching his fiduciary duties to the Apollo-affiliated private equity funds he advised by submitting expense reports for phony business expenses that were ultimately paid by the funds. The district court, following a bench trial, determined that Rashid was not liable under § 206(1) of the Investment Advisers Act because he was not aware that the funds, rather than Apollo, would pay for his expenses. The district court concluded, however, that Rashid was liable under § 206(2) of the Act because Rashid was “recklessly indifferent,” and therefore negligent, as to which entity would pay for his expenses. Sec. & Exch. Comm'n v. Rashid, No. 17-cv-8223 (PKC), 2020 WL 5658665, at *1 (S.D.N.Y. Sept. 23, 2020).

Because it was not reasonably foreseeable to Rashid that the funds would pay for his expenses, we conclude that Rashi