The opinion of the court was delivered by: William J. Martini, U.S.D.J.
This matter comes before the Court on the Securities and Exchange Commission's (the "SEC") motion for summary judgment under Federal Rule of Civil Procedure 56 as to Relief Defendant Micol Chiaese. Micol Chiaese has not filed any opposition or response. For the reasons discussed below, the Court will grant summary judgment against her.
I.Factual and Procedural Background*fn1
From 2008 until 2010, defendant Carlo Chiaese ("Chiaese"), a
registered investment advisor, defrauded numerous clients by falsely
representing to them
that he was investing their money in various securities, including
bonds and mutual funds, while he was, in fact, misappropriating those
funds for his own benefit. On October 4, 2010, the FBI filed a
criminal complaint against Chiaese, resulting in the commencement of
criminal proceedings against him (the "parallel criminal action.").
Chiaese was charged with violating Section 17(a) of the Securities Act
of 1933, Section 10(b) of the Securities Exchange Act of 1934 and Rule
10b-5, and Section 206(1) and 206(2) of the Investment Advisers Act of
1940. October 5, 2010, the SEC filed the present action -- a civil
complaint against Chiaese, Defendant C.G.C. Advisors, LLC
("CGC"),*fn2 of which Chiaese is the principal member,
and Relief Defendant Micol Chiaese, Chiaese's wife.*fn3
On October 11, 2010, Micol Chiaese signed a declaration
asserting her Fifth Amendment right and refusing to participate in a
deposition. And on October 12, 2010, in her Answer, Micol Chiaese
continued to assert her Fifth Amendment right against
self-incrimination with respect to the specific allegations contained
in the Complaint that apply to her. On December 17,
2010, this Court stayed this action until resolution of the parallel
On January 14, 2011, in the parallel criminal action, Chiaese signed a plea agreement with the United States Attorney for the District of New Jersey in which he agreed to plead guilty to violating 15 U.S.C. §§ 78j(b) and 78ff and 17 C.F.R. Rule 240.10b-5. Chiaese entered a guilty plea before this Court on March 31, 2011. And on August 18, 2011, this Court entered a criminal judgment against Chiaese ordering fifty-eight months imprisonment and payment of $2,464,518 in restitution.
After resolution of the parallel criminal action, counsel for Micol Chiaese informed the SEC that Micol Chiaese continues to stand by her assertion of the Fifth Amendment and refuses to appear for a deposition in this action.*fn4 The SEC now moves for summary judgment against her and for an order disgorging $289,300, plus prejudgment interest.
This Court has jurisdiction over this action pursuant to Section 22(a) of the Securities Act, 15 U.S.C. § 77v(a), Sections 21(e) and 27 of the Exchange Act, 15 U.S.C. §§ 78u(e) and 78aa, and Section 214 of the Advisers Act, 15 U.S.C. § 80b-14.
B. History of Chiaese's Fraud
Between June 1994 and February 2008, Chiaese worked as a registered representative for numerous broker-dealers, and between February 2008 and June 28, 2010, Chiaese was associated with Investors Capital Corp. ("ICC"). While associated with ICC, Chiaese continued to conduct securities business in the name of CGC.
In approximately November 2008, a union pension trust fund for Local 333 United Marine Division (the "Union Fund") became an advisory client of Chiaese. At this time, Chiaese told the Union Fund trustees that he would invest the Union Fund's money conservatively in bonds and mutual funds. On November 25, 2008, the Union Fund caused $1,715,241.30 to be wire transferred to the HSBC bank account. Instead of purchasing bonds and mutual funds for the Union Fund, Chiaese and CGC misappropriated the funds and used the funds for their own benefit. The judgment in the criminal action demonstrates that the Union Fund was a victim of the securities fraud committed by Chiaese in the amount of approximately $1.5 million.
Antonio and Deborah Pavan were clients of Chiaese since approximately 2002. Between February 2008 and March 2010, the Pavans provided Chiaese with a total of $471,390.96 in checks payable to CGC. Based on Chiaese's representations to them, they believed these funds were invested in CDs and mutual funds held in their joint account at ICC. But according to ICC, the Pavans never had a joint account with ICC. Instead, the evidence shows that Chiaese and CGC misappropriated these funds and used them for their own benefit. The Pavans were unable to reclaim any money from the defendants despite repeated efforts.
In 2005, Antonio Pavan introduced Chiaese to Ennio Ranaboldo, a friend of his. Shortly thereafter, Ranaboldo became an advisory client of Chiaese. Between February 1, 2008 and April 2010, Ranaboldo issued approximately $135,000 worth of checks payable to CGC for investments in certain bonds that Chiaese represented he would purchase through ICC. Thereafter, Chiaese assured Ranaboldo that the bonds had been purchased and were safe and provided him with fabricated account statements and confirmations showing that the bonds had been purchased. According to ICC, Ranaboldo was not a customer, and it never held any investments for him. Instead, Chiaese and CGC misappropriated these funds and used them for their own benefit.
Around or before 2007, Anthony Del Gaizo, MD, became an advisory client of Chiaese. From the summer of 2009 until approximately May 2010, Chiaese convinced Dr. Del Gaizo to invest approximately $270,000. Dr. Del Gaizo furnished these funds via checks and wire transfers, and the funds were deposited into the HSBC bank account. When Dr. Del Gaizo later called ICC to confirm his investments, he was told that he did not have an account with ICC. Dr. Del Gaizo then called Chiaese to request that all his accounts be liquidated and the funds returned to him. On June 22, 2010, Chiaese met with Dr. Del Gaizo at his office in Belleville, New Jersey, and handed him an HSBC check for $284,000 payable from CGC. On June 28, 2010, Dr. Del Gaizo deposited the $284,000 check. He later received notice ...