Securities And Exchange Commission v. JSW Financial Inc. et al

Filing 58

JUDGMENT AS TO DEFENDANT LEE. Signed by Judge Alsup on 1/20/2016. (whalc2, COURT STAFF) (Filed on 1/20/2016)

1

JINA L. CHOI(N.Y. Bar No. 2699718)
ROBERT L. TASHJIAN (Cal. Bar No. 191007)
2
tashjianr(a~sec.~
STEVEN D. BUCHHOLZ(Cal. Bar No. 202638)
3
buchholzs~sec.~ov
4 Attorneys for Plaintiff
SECURITIES AND EXCHANGE COMMISSION
5 44 Montgomery Street, Suite 2800
San Francisco, California 94104
6 Telephone; 415-705-2500
Facsimile: 415-705-2501
7
8
9

UNITED STATES DISTRICT COURT'

10

NOR'I'HEKN DISTRICT Ol~' CALIFORNIA

11

SAN FRANCISCO DIVISION

12
13 SECURITIES AND EXCHANGE COMMISSION,
14
15

Plaintiff,
vs.

16 JSW FINANCIAL INC., JAMES S. WARD,DAVID
S. LEE,EDWARD G. LOCKER, RICHARD F.
17 TIPTON, and DAVID C. LIN,
18
19

No. CV-11-1356(SC) WHA

CONSENT OF DEFENDANT
DAVID S. LEE

Defendants,
and

20 BLUE CHIP REALTY FUND LLC and
SHORELINE INVESTMENT FUND,LLC,
21
Relief Defendants.
22
23
24
25
26
27
28
CONSENT OF DAVID S. LEE

CASE NU. C'V- I I - 1 356(SC) WHA

1

1.

Defendant David S. Lee(
"Defendant")acknowledges having been served with

Z the complaint in this action, enters a general appearance, and admits the Court's jurisdiction over
3 Defendant and over the subject matter of this action.
4

2.

Without admitting or denying the allegations of the complaint (except as provided

5 herein in paragraph 10 and except as to personal and subject matter jurisdiction, which I)efendani
6 admits), Defendant hereby consents to the entry of the final Judgment in the form attached hereto (the
7 "Final Judgment and incorporated by reference herein, which, among other things:
")
g

(a)

permanently restrains and enjoins Defendant from violation of Section 17(a) of

9

the Securities Act of 1933 [15 U.S,C. § 77q(a)], Section 10(b) of the Securities

10

Exchange Act of 1934 [15 U.S.C. § 78j(b)J and Rule lOb-5 thereunder [17 C.F.R.

11

§ 240.l Ob-5], and from aiding and abetting violations of Sections 206(1) and 206(2) of~

12

the Investment Advisers Act of 1940[15 i1.S.C. §§ 80b-6(1) and 80b-6(2}x; and

13

{b)

14

prejudgment interest thereon in the amount of $102,057.09.

15

3.

orders Defendant to pay disgorgement in the amount of $500,000 plus

Defendant waives the entry of findings of fact and conclusions of]aw pursuant to Rule

16 52 of the Federal Rules of Civil Procedure.
17

4.

Defendant waives the right, if any, to a jury trial and to appeal from the entry of'the

18 Final Judgment.
19

5.

Defendant enters into this Consent voluntari]y and represents that no threats, offers,

20 promises, or inducements of any kind have been made by the Securities and Exchange Commission
21 (
"Commission")or any member, officer, employee, agent, or representative of the Commission to
22 induce Defendant to enter into this Consent.
23

6.

Defendant agrees that this Consent shall be incorporated into the Final Judgment with

24 the same force and effect as if fully set forth therein.
25

7.

Defendant will not oppose the enforcement of the Final Judgment on the ground, if

26 any exists, that it fails to comply with Rule 65(d) of the Federal Rules of Civil Procedure, and hereby
27 waives any objection based thereon.
28
CONSENT OF DAVID S. LEE

j

CASF. NO. C'V- I I- 1356(SC)

l

8.

Defendant waives service of the Final Judgment and agrees that entry of the F'irial

2 Judgment by the Court and filing with the Clerk of the Court will constitute notice to Defendant of its
3 terms and conditions. Defendant further agrees to provide counsel for the Commission, within thirty
4 days after the Final Judgment is filed with the Clerk of'the Court, with an affidavit or declaration
5 stating that Defendant has received and read a copy of the Final Judgment.
6

9.

Consistent with 17 C.F.R. § 202.50, this Consent resolves only the claims asserted

7 against Defendant in this civil proceeding. Defendant acknowledges that no promise or
8 representation has been made by the Commission or any member, officer, employee, agent, or
9 representative of the Commission with regard to any criminal liability that may have arisen or may
l0 arise from the facts underlying this action or immunity from any such criminal liability. [7eiendant
11

waives any claim of Double Jeopardy based upon the settlement of'this proceeding, including, the

12 imposition of any remedy or civil penalty herein. Defendant further acknowledges that the Court's
13 entry of a permanent injunction may have collateral consequences under federal or state law and the
14 rules and regulations of self-regulatory organizations, licensing boards, and other regulatory
15 organizations. Such collateral consequences include, but are not limited to, a statutory
16 disqualification with respect to membership or participation in, or association with a member of; a
17 self-regulatory organization. This statutory disqualification has consequences that are separate from
18 any sanction imposed in an administrative proceeding. In addition, in any disciplinary proceeding
19 before the Commission based on the entry of the injunction in this action, Defendant understands that
20 he shall not be permitted to contest the factual allegations of the Complaint in this action. Nothing in
21

this paragraph affects Defendant's:(i) testimonial obligations; or (ii) right to take legal or factual

22 positions in litigation or other legal proceedings in which the Commission is not a party.
23
24

10.

Defendant understands and agrees to comply with the terms of~ 1 r C.F.R. § 202.5(e),

which provides in part that it is the Commission's policy "not to permit a defendant or respondent to

25 consent to a judgment or order that imposes a sanction while denying the allegations in the corriplaint
26 or order for proceedings," and "a refusal to admit the allegations is equivalent to a denial, unless the
27 defendant or respondent states that he neither admits nor denies the allegations." As part oi~

28
CONSENT Off' DAVID S. LGE

2

CASE NO. CV- I I -1 _i56(SC)

1

Defendant's agreement to comply with the terms of Section 202.5(e), Defendant:(i) will not take any

2 action or make or permit to be made any public statement(which does not include legal or factual
3 positions taken in litigation or other legal proceedings in which the Commission is not a party)
4 denying, directly or indirectly, any allegation in the Complaint or creating the impression that the
5 Complaint is without factual basis;(ii) will not make or permit to be made any public statement
6 (which does not include legal or factual positions taken in litigation or other legal proceedings in
7 which the Commission is not a party) to the effect that Defendant does nat admit the allegations of
8 the Complaint, or that this Consent contains no admission ofthe allegations, without also stating that
9 Defendant does not deny the allegations; (iii) upon the filing of this Consent, Defendant hereby
10 withdraws any papers filed in this action to the extent that they deny any allegation in the Complaint;
and (iv) stipulates solely for purposes of exceptions to discharge set forth in Section 523(a)(19)(A)(i),
12 (B)of the Bankruptcy Code, 11 U.S.C. § 523(a)(l9)(A)(i),(B), that the allegations in the Complaint
13 are true, and further, that any debt for disgorgement, prejudgment interest, civil penalty or other
14 amounts due by Defendant under the Final Judgment or any other judgment, order, consent order,
15 decree or settlement agreement entered in connection with this proceeding, is a debt for the violation
16 by Defendant of the federal securities laws or any regulation or order issued under such laws, as set
17 forth in Section 523(a)(19)(A)(i) ofthe Bankruptcy Code, 11 U.S.C. § 523(a)(19)(A)(i). IfDetendant
18 breaches this agreement, the Commission may petition the Court to vacate the Final Judgment and
19 restore this action to its active docket. Nothing in this paragraph affects Def'endant's:(i) testimonial
20 obligations; or (ii) right to take legal or factual positions in litigation or other legal proceedings in
21
22

which the Commission is not a party.
11.

Defendant hereby waives any rights under the Equal Access to Justice Act, the Small

23 Business Regulatory Enforcement Fairness Act of 1996, or any other provision of law to seek from
24 the United States, or any agency, or any official of the United States acting in his or her official
25 capacity, directly or indirectly, reimbursement of attorney's fees or other fees. expenses, or costs
26 expended by Defendant to defend against this action. For these purposes, Defendant agrees that
27
28
CONSENT OF DAVID S. LEE

3

CASF; NO. CV-1 I -1 X56(SC)

1

Defendant is not the prevailing party in this action since the parties have reached agood -faith

2 settlement.
12.

31

Tn connection with this action and any related judicial or administrative proceeding or

4 investigation commenced by the Commission or to which the Commission is a party, Defendant (i)
5 agrees to appear and be interviewed by Commission staff at such times and places as the staff
6 requests upon reasonable notice; (ii) will accept service by mail or email of notices or subpoenas
7 issued by the Commission for documents or testimony at depositions, hearings, or trials, or in
8 connection with any related investigation by Commission staff; (iii) appoints Defendant's
9 undersigned attorney as agent to receive service of such notices and subpoenas;(iv) with respect to
10 such notices and subpoenas, waives the territorial limits on service contained in Rule 45 of the
11

Federal Rules of Civil Procedure and any applicable local rules, provided that the party requesting the

I2 testimony reimburses Defendant's travel, lodging, and subsistence expenses at the then-prevailing
l3

U.S. Government per diem rates; and (v) consents to personal jurisdiction over Defendant in any

14 United States District Court for purposes of enforcing any such subpoena.
15

13.

Defendant agrees that the Commission may present the Final Judgment to the Court

16 for signature and entry without further notice.
14.

17
]8

Defendant agrees that this Court shall retain jurisdiction over this matter for the

purpose of enforcing the terms of the Final Judgment.

19
I
20 Dated:

D/— /3

, 2016

21

David S. Lee

22
23
24
25
26
27
28
CONSENT OF DAVID S. LEE

4

cns~: No.cv-> > -~~sb ~sc>

1

On

,2016, David S. Lee, a person known to me, personally appeared before

2 me and acknowledged executing the foregoing Consent.
3
4
S Notary Public
6 Commission Expiration:
7
8

Anolary pubUca other officer completing this coAificaW vaifas only the idomity of the
individual who aignod the doau~x~t to which this corUificato is attached. and rwt the
Uuthh~lnas~.axuracy.a validity oftha!docurtwnl

9
10
11

12

who Pro~'ed b mo on the basis d satisq~cbry eviMx~ca to bo tho porson(s) whose
narra(a) is/are 6ubaaibed to Iho witldn InslnxrarN and acknowlodged to mo that
helshd~oy exewfed the same in hisAiedtf~r autliorized capaaty(ies), and that by .
nismerrtneir aignawre~s) m ma inswment are persor~(s), «uie entity upon ner,ax d
which the persons) acted. exacted tho ir~strumenl I ceAily ~~ PENALTY OF
PERJURY undar the laws of tha Stato d California that tho(orogoiny paragraph p true
andcarect. WITNESSmyhandandofficialscal.

I

13
14

K, L. QUBAL

1S

'
16

COMM. ~Y 2066993
NOTARY PUBLIC~CAUfORNIA

p

s~NUCUw►couNry

My Comm.Exp. May 31, 201i

17
18
19
20
21
22
23
24
25

26
27
28
CONSENT OF DAVID S. LEE

5

CASE NO, CV-I 1 -1356(SC'?

1

Approved as to form.
<-~'

3
~ Robert E. Carey
Carey &Carey
5 I',O, Box LOGO
Palo Alto, CA 94302
~ Telephone; 650-328-5510
7 Attorney for Defendant
DAVID S. LEE
S
9

JO

Submitted by:

~}
12
j3
14
15
~~

< C~
Steven D. Buchholz
buchhalzs~sec.~ov
44 Montgomery Street, Suite 2800
San Francisco, California 94104
T~~ephone; 415-705-2500
facsimile: X15-705-250

~ ~ flttorney for Plaintiff
SECURIT[ES AND EXCHANGE COMMISSION
18
19
20
21
22
23
24
2S
26
27
28
~ONS~N"F OF DAVID S. LEE

~

CASE NO.CV-t 1 -1;56(SC}

1
2
3
4
5
6
7
8
9

UNITED STATES DISTRICT COURT

10

NORTHERN DISTRICT OF CALIFORNIA

11

SAN FRANCISCO DIVISION

12
13 SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,

14
15

No. CV-11-1356(SC) WHA

vs.

16 JSW FINANCIAL INC., JAMES S. WARD,DAVID'
S. LEE,EDWARD G. LOCKER,RICHARD F.
17 TIPTON,and DAVID C. LIN,
18
19

Defendants,
and

20 BLUE CHIP REALTY FUND LLC and
SHORELINE INVESTMENT FUND,LLC,
21
Relief Defendants.
22
23
24
25
26
27
28
FINAL NDGMENT AS TO DAVID S. LEE

CASE NO.CV-11-1356(SC) WHA

1
2

FINAL JUDGMENT AS TO DEFENDANT DAVID S. LEE
The Securities and Exchange Commission having filed a Complaint and Defendant David S.

3 Lee having entered a general appearance; consented to the Court's jurisdiction over Defendant and
4 the subject matter of this action; consented to entry of this Final Judgment without admitting or
5 denying the allegations of the Complaint(except as to jurisdiction and except as otherwise provided
6 herein in Paragraph VII); waived findings of fact and conclusions of law; and waived any right to
7 appeal from this Final Judgment:
8
9

I.
IT IS HEREBY ORDERED, ADJUDGED,AND DECREED that Defendant is permanently

10 restrained and enjoined from violating, directly or indirectly, Section 10(b) ofthe Securities
11 Exchange Act of 1934 (the "Exchange Act [15 U.S.C. § 78j(b)] and Rule lOb-5 promulgated
")
12 thereunder [17 C.F.R. § 240.1Ob-5], by using any means or instrumentality of interstate commerce, or
13 of the mails, or of any facility of any national securities exchange, in connection with the purchase or
14 sale of any security:
15

(a)

to employ any device, scheme, or artifice to defraud;

16

(b)

to make any untrue statement of a material fact or to omit to state a material fact

17

necessary in order to make the statements made, in the light of the circumstances

18

under which they were made, not misleading; or

19
20
21

(c)

to engage in any act, practice, or course of business which operates or would
operate as a fraud or deceit upon any person.

IT IS FURTHER ORDERED,ADJUDGED, AND DECREED that, as provided in Federal

22 Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who receive
23 actual notice ofthis Final Judgment by personal service or otherwise: (a) Defendant's officers,
24 agents, servants, employees, and attorneys; and (b) other persons in active concert or participation
25 with Defendant or with anyone described in (a).
26
27

II.
IT IS HEREBY FURTHER ORDERED,ADJUDGED,AND DECREED that Defendant is

28 permanently restrained and enjoined from violating Section 17(a) of the Securities Act of 1933 (the
FINAL JUDGMENT AS TO DAVID S. LEE

j

CASE NO.CV-11-1356(SC)

1 "Securities Act")[15 U.S.C. § 77q(a)] in the offer or sale of any security by the use of any means or
2 instruments of transportation or communication in interstate commerce or by use of the mails,
3 directly or indirectly:
4

(a)

to employ any device, scheme, or artifice to defraud;

5

(b)

to obtain money or property by means of any untrue statement of a material fact or any

6

omission of a material fact necessary in order to make the statements made, in light of

7

the circumstances under which they were made, not misleading; or

8

(c)

would operate as a fraud or deceit upon the purchaser.

9
10
11

to engage in any transaction, practice, or course of business which operates or

IT IS FURTHER ORDERED, ADJUDGED,AND DECREED that, as provided in Federal
Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who receive

12 actual notice of this Final Judgment by personal service or otherwise: (a) Defendant's officers,
13 agents, servants, employees, and attorneys; and (b) other persons in active concert or participation
14 with Defendant or with anyone described in (a).
III.

15
16

IT IS HEREBY FURTHER ORDERED,ADJUDGED, AND DECREED that Defendant is

17 permanently restrained and enjoined from violating Sections 206(1) and (2)of the Investment
")
18 Advisers Act of 1940 (the "Advisers Act [15 U.S.C. §§ 80b-6(1) and (2)], as an investment adviser,
19 by use of the mails or any means or instrumentality of interstate commerce, directly or indirectly:
20

(a)

to employ any device, scheme, or artifice to defraud any client or prospective client; or

21

(b)

to engage in any transaction, practice, or course of business which operates as a fraud

22
23

or deceit upon any client or prospective client.
IT IS FURTHER ORDERED,ADJUDGED,AND DECREED that, as provided in Federal

24 Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who receive
25 actual notice ofthis Final Judgment by personal service or otherwise: (a) Defendant's officers,
26 agents, servants, employees, and attorneys; and (b) other persons in active concert or participation
27 with Defendant or with anyone described in (a).
28
FINAL JUDGMENT AS TO DAVID S. LEE

2

CASE NO.CV-11-1356(SC)

IV.

1
2

IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant is liable for

3 disgorgement of $500,000, representing profits gained as a result of the conduct alleged in the
4 Complaint, together with prejudgment interest thereon in the amount of $102,057.09. Defendant
5 shall satisfy this obligation by paying $602,057.09 to the Securities and Exchange Commission
6 pursuant to the terms ofthe payment schedule set forth in Section V below after entry of this Final
7 Judgment.
Defendant may transmit payment electronically to the Commission, which will provide
detailed ACH transfer/Fedwire instructions upon request. Payment may also be made directly from
/w~~~.sec.gov/about/offices/ofm.htm.
101 a bank account via Pay.gov through the SEC website at http:/
11

Defendant may also pay by certified check, bank cashier's~check, or United States postal money

12 order payable to the Securities and Exchange Commission, which shall be delivered or mailed to
13
14
15

Enterprise Services Center
Accounts Receivable Branch
6500 South MacArthur Boulevard
Oklahoma City, OK 73169

16 ~ and shall be accompanied by a letter identifying the case title, civil action number, and name of this
17 Court; David S. Lee as a defendant in this action; and specifying that payment is made pursuant to
18 this Final Judgment.
19

Defendant shall simultaneously transmit photocopies of evidence of payment and case

20 identifying information to the Commission's counsel in this action. By making the payment,
21

Defendant relinquishes all legal and equitable right, title, and interest in such funds and no part of the

22 funds shall be returned to Defendant. The Commission shall send the funds paid pursuant to this
23 Final Judgment to the United States Treasury.
24

The Commission may enforce the Court's judgment for disgorgement and prejudgment

25 interest by moving for civil contempt(and/or through other collection procedures authorized by law)
26 at any time after 14 days following entry ofthis Final Judgment if Defendant fails to comply with the
27
28
FINAL JUDGMENT AS TO DAVID S. I~EE

3

CASE NO.CV-1 I-1356(SC)

1 terms of the payment schedule set forth in Section V below. Defendant shall pay postjudgment
2 interest on any delinquent amounts pursuant to 28 U.S.C. § 1961.
3
4

V.
Defendant shall pay the total of disgorgement and prejudgment interest due of $602,057.09

5 according to the following schedule: (1) pursuant to the terms of the Order Confirming Plan of
6 Reorganization of Debtor David S. Lee "Confirmation Order")in bankruptcy case number 5:13-bk(
7 54056 AJ(N.D. Cal. Bankr.), payment of $352,610.16 in 84 installments of $4,197.74 per month
8 during the 90-month period covered by the Confirmation Order, beginning the 1St day ofthe 7tn
9 month after the Effective Date ofthe Confirmation Order until the 1St day of the 90t" month after the
10 Effective Date ofthe Confirmation Order;(2)payment of $247,666.66 in 59 installments of
11 $4,197.74 per month beginning the 1St day of the 91St month after the Effective Date ofthe

13 Order; and (3)the final payment of $1,780.27 on the

ls`

12 Confirmation Order until the 1St day of the 149th month after the Effective Date ofthe Confirmation
day ofthe 150`h month after the Effective

14 Date ofthe Confirmation Order.
15

If Defendant fails to make any payment by the date agreed and/or in the amount agreed

16 according to the schedule set forth above, all outstanding payments under this Final Judgment,
17 including postjudgment interest, minus any payments made, shall become due and payable
18 immediately at the discretion ofthe staff of the Commission without further application to the Court.
19

VI.

20

IT IS FURTHER ORDERED,ADJUDGED,AND DECREED that the Consent of Defendant

21

David S. Lee is incorporated herein with the same force and effect as if fully set forth herein, and that

22 Defendant shall comply with all of the undertakings and agreements set forth therein.
VII.

23
24

IT IS FURTHER ORDERED,ADJUDGED, AND DECREED that, for purposes of

25 exceptions to discharge set forth in Section 523 of the Bankruptcy Code, 11 U.S.C. § 523,the
26 allegations in the Complaint are true and admitted by Defendant, and further, any debt for
27 disgorgement, prejudgment interest, civil penalty or other amounts due by Defendant under this Final
28
FINAL JUDGMENT AS TO DAVID S. LEE

4

CASE NO.CV-11-1356(SC)

1

Judgment or any other judgment, order, consent order, decree or settlement agreement entered in

2 connection with this proceeding, is a debt for the violation by Defendant of the federal securities laws
3 or any regulation or order issued under such laws, as set forth in Section 523(a)(19) ofthe
4 Bankruptcy Code, 11 U.S.C. § 523(a)(19).
VIII.

5
6

IT IS FURTHER ORDERED,ADJUDGED, AND DECREED that this Court shall retain

7 'urisdiction of this matter for the Pu~oses of enforcing the terms of this Final Judgment for one year.
J
IX.

8
9

There being no just reason for delay, pursuant to Rule 54(b) of the Federal Rules of Civil

10 Procedure, the Clerk is ordered to enter this Final Judgment forthwith and without further notice.
11
12
13 Dated: January 20

2016
UNITED STATES DISTRICT JUDGE

14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
FINAL JUDGMENT AS TO DAVID S. LEE

$

CASE NO.CV-11-1356(SC) WHA