Securities/Exchange v. Asset Recovery, et al

Filing 238

ORDER granting the Commission's 225 Motion for Default Judgment as further set out in the order. An appropriate judgment shall be entered. Signed by Honorable William Keith Watkins on 10/6/2008. (dmn)

IN THE UNITED STATES DISTRICT COURT F O R THE MIDDLE DISTRICT OF ALABAMA N O R T H E R N DIVISION S E C U R IT IE S AND EXCHANGE COMMISSION, P l a in tif f , v. A S S E R T RECOVERY AND M A N A G E M E N T TRUST, S.A., et al., D e f e n d a n ts . ) ) ) ) ) ) ) ) ) ) )

C A S E NO. 2:02-CV-1372-WKW (WO)

ORDER B e f o re the court is a Notice of Application for Default Judgment against Defendant A s s e t Recovery and Management Trust, S.A. ("Armtrust"), filed by Plaintiff Securities and E x c h a n g e Commission ("Commission"). (Doc. # 225.) The court construes the Notice as a Motion for Default Judgment, made pursuant to Rule 55(b)(2) of the Federal Rules of Civil P r o c e d u re . The motion is accompanied by a Memorandum of Law (Doc. # 226) and a D e c la ra tio n of Martin F. Healey (Doc. # 227). For the reasons to follow, the motion is due to be granted. In this securities fraud action, Armtrust, although properly served, has not responded to the complaint or otherwise made an appearance in this action. Having obtained an entry o f default from the clerk, see Fed. R. Civ. P. 55(a); (Doc. # 223), the Commission seeks a d e f au lt judgment against Armtrust for a permanent injunction, a disgorgement award in the a m o u n t of $900,000, plus prejudgment interest calculated in accordance with the rate used

b y the Internal Revenue Service for tax underpayments compounded quarterly, 17 C.F.R. § 201.600(a), and, if the court deems it appropriate, a civil monetary penalty. (Doc. # 226 at 9-13.) Having carefully reviewed the record in light of the Commission's motion for default ju d g m e n t, the court finds that the "well pleaded" allegations in the complaint demonstrate a "sufficient basis" to support a finding of liability as to each claim asserted by the C o m m is s io n against Armtrust. Nishimatsu Constr. Co. v. Houston Nat'l Bank, 515 F.2d 1 2 0 0 , 1206 (5th Cir. 1975). 1 The court further finds that "all essential evidence is already o f record," Sec. Exch. Comm'n v. Smyth, 420 F.3d 1225, 1231-32 & n.13 (11th Cir. 2005), a n d that, therefore, a hearing is not required. On the question of appropriate relief, § 20(b) of the Securities Act of 1933 [15 U.S.C. § 77t(b)], and § 21(d) of the Securities Exchange Act of 1934 [15 U.S.C. § 78u(d)] empower th e Commission to seek permanent injunctive relief upon a showing of "(1) a prima facie c a se of previous violations of federal securities laws, and (2) a reasonable likelihood that the w ro n g will be repeated." Sec. Exch. Comm'n v. Unique Fin. Concepts, Inc., 196 F.3d 1195, 1 1 9 9 n.2 (11th Cir. 1999). To determine whether there is a reasonable likelihood that a d e f en d a n t will commit future violations, courts generally consider "`the egregiousness of the d e f en d a n t's actions, the isolated or recurrent nature of the infraction, the degree of scienter

In Bonner v. City of Prichard, the Eleventh Circuit adopted as binding precedent all decisions of the former Fifth Circuit issued prior to October 1, 1981. See 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc).

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in v o lv e d , the sincerity of the defendant's recognition of the wrongful nature of his conduct, an d the likelihood that the defendant's occupation will present opportunities for future v io la tio n s .'" Sec. Exch. Comm'n v. Zale Corp., 650 F.2d 718, 720 (5th Cir. Unit A July 1 9 8 1 ) (citation omitted). Permanent injunctions also may be ordered as part of a judgment o f default upon a finding by the court that a factual basis for such relief exists. Sec. Exch. C o m m 'n v. McNulty, 137 F.3d 732, 736-37 (2d Cir. 1998). Applying the foregoing principles, the court finds that a permanent injunction clearly is appropriate. As accurately detailed by the Commission, the infractions were not isolated. F o r a period of several years, Armtrust violated federal securities laws by engaging in a c o m p le x scheme involving multiple individuals and activities in a foreign jurisdiction. The co u rt finds that Armtrust's intentional conduct establishes a reasonable likelihood of future v io latio n s. Moreover, Armtrust's violative conduct was egregious; it involved an elaborate sc h e m e with multiple participants and sophisticated financial maneuvering. The court, there fo re, will grant the Commission's request for a permanent injunction against future v i o la tio n s . T h e court also may order disgorgement upon a finding of a violation of securities la w s . Sec. Exch. Comm'n v. First City Fin. Corp., 890 F.2d 1215, 1230 (D.C. Cir. 1989); S e c . Exch. Comm'n v. Commonwealth Chem. Sec., Inc., 574 F.2d 90, 95-96 (2d Cir. 1978). " T h e purpose of disgorgement is to force the defendant into giving up unjust enrichment he re c eiv e d as a result of his illegal activities." Sec. Exch. Comm'n v. Lawbaugh, 359 F. Supp.

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2 d 418, 425 (D. Md. 2005). Liability having been established, the court finds that the C o m m is s io n has demonstrated through the declaration of Mr. Healey (Doc. # 227) and other e v id e n c e in the record that disgorgement of $900,000 ­ which equals the minimum amount o f ill-gotten gain Armtrust received as a result of the scheme plus prejudgment interest ­ is ap p rop riate and supported by the record. (Doc. # 226-2); (Healey Decl. ¶ 2.) Pursuant to § 20(d) of the Securities Act [15 U.S.C. § 77t(d)] and § 21(d)(3) of the E x c h a n g e Act [15 U.S.C. § 78u(d)(3)], the court may impose civil penalties for violations o f the federal securities laws. Having considered the facts and circumstances of this case ­ in c lu d in g , but not limited to, the egregiousness of the violations, the gravity of the harm to in n o c e n t third parties, and the degree of scienter ­ the court finds that a third tier civil m o n e ta ry penalty in the total amount of $300,000 is appropriate. See 15 U.S.C.

§ 77t(d)(2)(C); 15 U.S.C. § 78u(d)(3)(B)(iii); 17 C.F.R. §§ 201.1001, 201.1002 (adjusting p e n a lty amounts for inflation). Accordingly, it is ORDERED that the Commission's Motion for Default Judgment (D o c . # 225) is GRANTED. A n appropriate final judgment shall be entered. D O N E this 6th day of October, 2008. /s/ W. Keith Watkins UNITED STATES DISTRICT JUDGE

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