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Gentile v. Securities and Exchange Commission

United States District Court, D. New Jersey

May 14, 2019

GUY GENTILE, Plaintiff,



         This matter comes before the Court by way of Plaintiff Guy Gentile's motion for a preliminary injunction against Defendant Securities and Exchange Commission ("SEC"), (ECF No. 5), and the SEC's motion to dismiss, (ECF No. 11). The Court decides this matter without oral argument pursuant to Rule 78 of the Federal Rules of Civil Procedure. For the reasons set forth below, the Court grants the SEC's motion to dismiss and denies Plaintiffs motion for a preliminary injunction as moot.

         I. BACKGROUND[1]

         The Court has previously summarized the facts underlying this dispute in its March 8, 2019 Opinion denying Plaintiffs ex parte application for a temporary restraining order ("TRO"). (ECF No. 6). The Court therefore includes an abbreviated statement of the factual and procedural history to the extent such background is relevant to the instant motions.

         On February 8, 2019, Plaintiff filed this action for declaratory and injunctive relief to prevent an ongoing investigation into his activities conducted by the Miami Regional Office of the SEC. (Compl. ¶ 1). Since around August of 2015, Plaintiff has been aware of an SEC investigation out of the Miami Regional Office into whether Plaintiff and his Bahamas-based broker-dealer, SureTrader, improperly solicited United States customers. (Compl. ¶¶ 27, 36-37, 88). According to Plaintiff, the Florida SEC investigation relies on a formal order of investigation ("FOI") dated November 5, 2013 entitled "In the matter of Traders Cafe, LLC," which authorizes an investigation into individuals related to an entity called Traders Cafe. (Compl. ¶ 2). The Traders Cafe FOI "makes no reference to [Plaintiff] or anyone or anything related to him." (Compl. ¶ 2). Indeed, Plaintiff alleges that there is no connection whatsoever between Traders Cafe and Plaintiffs Bahamian broker-dealer, other than the fact that Traders Cafe maintains or maintained an account at Plaintiffs broker-dealer. (Compl. ¶¶ 2, 27, 30). Plaintiff therefore argues that the Traders Cafe FOI is an improper basis for an investigation into Plaintiff and his broker-dealer, and that the SEC Miami Regional Office lacks the necessary authority to proceed or to enforce existing subpoenas absent a proper FOI. (Compl. ¶¶ 1-3, 33). Accordingly, Plaintiffs action seeks "to quash several subpoenas and any evidence obtained through them that [were] served ... pursuant to the Traders Cafe FOI." (Compl. ¶ 5). He also seeks "a declaration ordering the SEC to cease its unauthorized 'investigation.'" (Compl. ¶ 5).

         Plaintiff further alleges that the Florida investigation is an attempt by the SEC to revive claims against Plaintiff that were dismissed by this Court in 2017. (Compl. ¶¶ 60-61). The Court assumes the parties' familiarity with the facts underlying the prior SEC civil enforcement proceedings against Plaintiff before this Court, but a brief summary is provided to the extent the facts are relevant to the instant motions. In March of 2016, the SEC Northeast Regional Office filed a complaint against Plaintiff seeking equitable relief in connection with two penny stock manipulation schemes. SEC v. Gentile, No. 16-1619, 2017 WL 6371301, at *1 (D.N.J. Dec. 13, 2017). On December 13, 2017, this Court dismissed the SEC's complaint, concluding that the action was barred by a five-year statute of limitations under 28 U.S.C. § 2462. Id. at *4. The SEC appealed that decision, which remains under review by the Third Circuit. See SEC v. Gentile, No. 18-1242 (3d Cir., filed Feb. 2, 2018). Plaintiff alleges that the SEC is using the Florida investigation as a pretext to gather additional information to further its case in New Jersey and to overcome the statute of limitations. (Compl. ¶¶ 60-61). He also argues that, to the extent the Florida investigation was ongoing during periods when the New Jersey enforcement proceedings were stayed, any subpoenas issued during that time violated the stay. (Compl. ¶ 62).

         On February 6, 2019, the SEC Miami Regional Office filed two actions in the United States District Court for the Southern District of Florida to enforce subpoenas issued to Carla Marin, Plaintiffs personal attorney, (Compl. ¶ 78), and MinTrade Technologies, LLC, seeking testimony and documents related to Plaintiff and his Bahamian broker-dealer. (Compl. ¶ 94); see also SEC v. Marin, No. 19-20493 (S.D. Fla., filed Feb. 6, 2019); SEC v. MinTrade Techs., LLC, No. 19-20496 (S.D. Fla., filed Feb. 6, 2019). These Florida enforcement proceedings prompted Plaintiffs initiation of this action two days later. (Compl. ¶ 94). On March 4, 2019, the SEC issued Litigation Release No. 24415, publicly announcing the enforcement actions against Marin and MinTrade Technologies. (ECF No. 5-28). The Litigation Release describes the subpoenas as seeking documents and testimony "related to activities conducted by a foreign-based broker-dealer and its principal concerning potential violations of the federal securities laws involving solicitation of U.S.-based customers and the movement of customer funds." (ECF No. 5-28).

         Plaintiff filed an ex parte application for a TRO and preliminary injunction motion one day after the SEC issued the Litigation Release. (ECF No. 5). Plaintiff argues that the language in the Litigation Release "explicitly refer[s] to [Plaintiff] and his Bahamas-based broker-dealer." (ECF No. 5-40 ("PI Br.") at 5). Plaintiff claims that the release "was intended to tar [Plaintiff] as a wrongdoer" and to "inflict maximum harm to [Plaintiff] before this Court had an opportunity to rule on his cause of action." (PI Br. at 5). Plaintiff argues that the ongoing Florida investigation is intended only to harass him, to blacklist him in his business community, and to circumvent this Court's 2017 dismissal of the SEC's claims of penny stock manipulation. (PI Br. at 6, 28). Plaintiff therefore asked this Court for immediate intervention to stem the ongoing stigmatization and loss of business that has resulted from the Florida investigation. (PI Br. at 9 10).

         On March 8, 2019, this Court denied Plaintiffs application for a TRO, concluding that Plaintiff had "failed to demonstrate a 'clear showing of immediate irreparable injury' in the absence of a TRO" pending a decision on the preliminary injunction motion. (ECF No. 6 at 5 (quoting ECRI v. McGraw-Hill, Inc., 809 F.2d 223, 226 (3d Cir. 1987)). The Court ordered the SEC to reply to Plaintiffs preliminary injunction motion and directed the parties "to address any issues concerning the proper jurisdiction and/or venue for this matter in their briefing." (ECF No. 7 at 2). On March 29, 2019, the SEC filed a combined opposition to Plaintiffs preliminary injunction motion and a motion to dismiss. (ECF No. 11). The SEC moves to dismiss under Rule 12(b)(1) of the Federal Rules of Civil Procedure, arguing that this Court lacks subject matter jurisdiction over this action because the SEC has not waived sovereign immunity. (ECF No. 11-1 ("MTD Br.") at 21-27). The SEC also argues that the Southern District of Florida retains exclusive jurisdiction under the first-to-file rule, (MTD Br. at 27-32), that venue is improper in this District, (MTD Br. at 32-33), and that the Complaint fails to state a claim for relief under Rule 12(b)(6) of the Federal Rules of Civil Procedure, (MTD Br. at 33-37).


         Under Federal Rule of Civil Procedure 12(b)(1), a court must grant a motion to dismiss if it lacks subject matter jurisdiction to hear a claim. When a defendant challenges subject matter jurisdiction under Rule 12(b)(1), the plaintiff bears the burden of persuasion. Hedges v. United States, 404 F.3d 744, 750 (3d Cir. 2005). A motion under Rule 12(b)(1) "may be treated as either a facial or factual challenge to the court's subject matter jurisdiction." Gould Elecs. Inc. v. United States, 220 F.3d 169, 176 (3d Cir. 2000). Under a facial attack, the movant challenges the legal sufficiency of the claim and the court considers only "the allegations of the complaint and documents referenced therein and attached thereto, in the light most favorable to the plaintiff." Id. The SEC's motion presents a facial challenge to the Court's jurisdiction as it is based on the defense of sovereign immunity. Dempsey v. United States, No. 15-2847, 2015 WL 6561217, at *1 (D.N.J. Oct. 29, 2015).

         III. ANALYSIS

         "[T]he United States, as sovereign, is immune from suit save as it consents to be sued." United States v. Mitchell, 445 U.S. 535, 538 (1980) (quoting Untied States v. Sherwood, 312 U.S. 584, 586 (1941)). It is well-settled that "[w]ithout a waiver of sovereign immunity, a court is without subject matter jurisdiction over claims against federal agencies or officials in their official capacities." Treasurer of N.J. v. U.S. Dep't of the Treasury, 684 F.3d 382, 395 (3d Cir. 2012). Such a waiver "must be express and unambiguous to confer subject matter jurisdiction on a court." Id. at 396. A waiver "must be strictly construed in favor of the sovereign, and the terms of the waiver define the extent of the court's jurisdiction." Id. (internal citations omitted).

         Plaintiff argues that Section 702 of the Administrative Procedure Act ("APA"), 5 U.S.C.§ 702, provides the necessary waiver of sovereign immunity in this case. (ECF No. 16 at 20-23). The Third Circuit has recognized that "[S]ection 702, when it applies, waives sovereign immunity in 'nonstatutory' review of agency action under [23 U.S.C. §] 1331." Jaffee v. United ...

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