United States District Court, D. New Jersey
U.S. Securities and Exchange Commission, Plaintiff,
Secure Capital Funding, et al., Defendants.
ANNE E. THOMPSON, District Judge.
The matter before the Court concerns Plaintiff U.S. Securities and Exchange Commission's, ("Plaintiff's"), First Amended Complaint, (Doc. No. 29), against Defendants Secure Capital Funding Corporation, ("SCF"), ST Underwriters Corporation, ("STUC"), Alan Smith, ("Smith"), and Kiavanni Pringle, ("Pringle"). A default judgment as to liability and injunctive relief has previously been entered against these defendants, (collectively, "Defendants"). (Doc. Nos. 94 and 95). For the reasons set forth below, the Court supplements its June 28, 2013 Order and Opinion, (Doc. Nos. 94 and 95).
Background for this matter, including the facts and law relating to the liability of SCF, STUC, Smith and Pringle, is set forth in its entirety in this Court's Opinion dated June 28, 2013 (Doc. 94).
The Court will address the following issues: (1) Smith's obligation to disgorge ill-gotten gains; (2) Smith's obligation to pay prejudgment interest; (3) Smith's obligation to pay a civil penalty; and (4) Pringle's obligation to pay a civil penalty.
1. Smith's Obligation to Disgorge Ill-Gotten Gains
"Disgorgement is an equitable remedy designed to deprive a wrongdoer of his unjust enrichment and to deter others from violating securities laws." S.E.C. v. Hughes Capital Corp., 124 F.3d 449, 455 (3d Cir. 1997). "Disgorgement of illegally derived funds is a remedy within the equitable powers conferred on this Court [...]." S.E.C. v. Hughes Capital Corp., 917 F.Supp. 1080, 1085 (D.N.J. 1996) aff'd, 124 F.3d 449 (3d Cir. 1997). "The district court has broad discretion in fashioning the equitable remedy of a disgorgement order." Id. (citations omitted).
The SEC has the initial burden of establishing that "its disgorgement figure reasonably approximates the amount of unjust enrichment." Id. ; S.E.C. v. Lazare Indus., Inc., 294 F.Appx. 711, 714 (3d Cir. 2008) (amount of disgorgement reviewed under "abuse of discretion" standard); see SEC v. Graystone Nash, Inc., 820 F.Supp. 863, 875 (D.N.J. 1993). In meeting its burden, the "plaintiff is not required to trace every dollar of proceeds misappropriated by the defendants [...] nor is plaintiff required to identify monies which have been commingled by them." Hughes Capital Corp., 917 F.Supp. at 1085; see also SEC v. Huff, 2012 WL 10862, at *1 (11th Cir. Jan. 3, 2012) ("The SEC's burden for showing the amount of assets subject to disgorgement [...] is light: a reasonable approximation of a defendant's ill-gotten gains.").
Once the plaintiff has established that the disgorgement figure is a reasonable approximation of unlawful profits, the burden of proof shifts to the defendants, who must "demonstrate that the disgorgement figure is not a reasonable approximation." Hughes Capital Corp., 917 F.Supp. at 1085. "[A]ll doubts concerning the determination of disgorgements are to be resolved against the defrauding party." Id. ; S.E.C. v. Calvo, 378 F.3d 1211, 1217 (11th Cir. 2004) ("Exactitude is not a requirement; [s]o long as the measurement of disgorgement is reasonable, any risk of uncertainty should fall on the wrongdoer whose illegal conduct created that uncertainty.").
[W]here a defendant's record-keeping or lack thereof has so obscured matters that calculating the exact amount of illicit gains cannot be accomplished without incurring inordinate expense, it is well within the district court's discretion to rule that the amount of disgorgement will be the more readily measurable proceeds received from the unlawful transactions.
SEC v. Calvo, 378 F.3d at 1217-18.
Smith's ill-gotten gains were at least $3.4 million. Smith received most of his ill-gotten gains from investors who were directed to send money to a New Jersey bank account in SCF's name. Smith used SCF, and co-defendant Bertram A. Hill, in his fraudulent securities offerings. A small portion of Smith's ill-gotten gains came from investors who were told to send their money to a bank account in California in the name of Secure Capital Corporation ("SCC"), another company that Smith used to facilitate his fraudulent activities. In both cases, Smith's share of the fraud proceeds was wired from bank accounts in the U.S. to a bank account in the Republic of Latvia. These facts are established by the testimony and documentary evidence adduced at the December 18, 2013 hearing, including the testimony of Donna K. Norman concerning Plaintiff's investigation of the fraud; the testimony of Bertram A. Hill concerning the division of fraud proceeds as between Smith and SCF; the Declaration of Benjamin Johnson, Jr., (Plaintiff's Hearing Ex. 3), concerning the division of fraud proceeds between Smith and SCC; banking records and other transaction records, (Plaintiff's Hearing Ex. 1, 2, 4, 11-14); and Smith's email instructions to Hill to wire fraud proceeds, (Plaintiff's Hearing Ex. 15).
Approximately $2.95 million of Smith's total $3.4 million of ill-gotten gains was routed through SCF's bank accounts in New Jersey and then wired to the account in Latvia. A large percentage of this money came from Smith's 80% share of the $3.8 million that was routed through SCF. Pursuant to instructions from Smith and/or Hill, investors sent their money to a bank account in SCF's name in New Jersey. Evidence shows that Hill was the sole signatory authorized to make withdrawals from the bank account and the sole officer of SCF. The account at issue is identified as Account No. xxxxx6052 at JP Morgan Chase. Smith and Hill had agreed to split the proceeds, with 80% going to Smith and 20% going to SCF. Pursuant to that agreement, and on Smith's instructions, Hill wired $2.84 million of the $3.7 million from SCF's bank account in New Jersey to a bank account in the Republic of Latvia without investors' knowledge or consent. The account is in the name of a Latvian corporation that purports to invest in real ...