Securities and Exchange Commission v. Dalton et al

Filing 90

ORDER GRANTING MOTION FOR DEFAULT JUDGMENT AGAINST RICHARD dALTON AND PERMANENT INJUNCTION. By Judge Robert E. Blackburn on 12/1/2011.(sah, )

IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLORADO
Judge Robert E. Blackburn
10-cv-02794-REB-KLM
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
v.
UNIVERSAL CONSULTING RESOURCES LLC, and
RICHARD DALTON,
Defendants,
and
MARIE DALTON,
Relief Defendant.

ORDER GRANTING MOTION FOR DEFAULT JUDGMENT
AGAINST RICHARD DALTON AND
PERMANENT INJUNCTION
Blackburn, J.
This matter is before the court on the Plaintiff’s Motion for Default Judgments
Against Defendants Richard Dalton and Universal Consulting Resources LLC
[#78]1 filed October 24, 2011. The defendant, Richard Dalton, has not filed a response
to the motion. This order addresses only the relief sought against Mr. Dalton.
The plaintiff, the Securities and Exchange Commission (SEC), has moved the
court for entry of judgment by default against the defendant, Richard Dalton, requesting

1

“[#78]” is an example of the convention I use to identify the docket number assigned to a
specific paper by the court’s case management and electronic case filing system (CM/ECF). I use this
convention throughout this order.

a judicial finding that he has violated the securities registration, anti-fraud and
broker-dealer registration provisions of the federal securities laws, enjoining him from
future violations of these provisions, ordering him to disgorge his ill-gotten gains as a
result of the conduct alleged in the complaint along with prejudgment interest, and
ordering him to pay a third tier civil penalty and post judgment interest. In support of its
motion, the SEC has submitted an affidavit calculating the amount of disgorgement and
prejudgment interest due. The court has determined that a hearing on this matter is not
necessary. The court has reviewed all the adjudicative facts and considered the
evidence presented in all forms in the SEC’s motion for a default judgment against
Richard Dalton, including all declarations, affidavits, exhibits and sworn testimony
submitted with the SEC’s motion for a temporary restraining order, the accompanying
memorandum of law, the testimony of the witnesses and exhibits presented at the
hearing on the motion for a temporary restraining order, and the reasons and arguments
presented by counsel at the hearing.
Having considered the record as a whole, the court enters the following findings
of fact and conclusions of law.
1. This court has subject matter jurisdiction over this case under 15 U.S.C. §§
77t(b), 77v(a), 78u(d),(e), 78aa, and 28 U.S.C. § 1331. This court has personal
jurisdiction over the defendants and the relief defendant.
2. The SEC commenced this action on November 16, 2010, by filing its
complaint [#1].
3. Mr. Dalton was personally served with the summons and complaint
on November 16, 2010, and his answer or other responsive pleading was due on or
before December 7, 2010. Mr. Dalton has not filed an answer or other pleading in this
2

case.
4. The Clerk of the Court entered default of Mr. Dalton on July 21, 2011
[#65].
5. Mr. Dalton was represented by counsel at the hearing on the
SEC’s motion for a temporary restraining order held on November 22, 2010 [#15].
However, Mr. Dalton has not filed an answer or otherwise defended the case.
6. Mr. Dalton is currently in default. Fed.R.Civ.P. 12(a)(1)(A)(i).
On entry of default, the well-pleaded allegations of the complaint related to liability are
taken as true. Beck v. Atlantic Contracting Co., 157 F.R.D. 61, 64 (D. Kan. 1994),
(citing 10 Wright, Miller & Kane, Federal Practice and Procedure § 2688, at 444 (2d ed.
1983)); Dundee Cement Co. v. Howard Pipe & Concrete Products, Inc., 722 F.2d
1319, 1323 (7th Cir. 1983). Entry of default judgment under FED. R. CIV. P. 55(b) is
proper.
7. Mr. Dalton offered and sold securities in the form of investment contracts
known as the “Trading Program” and the “Diamond Program.” He used the mails or the
means or instruments of transportation or communication in interstate commerce to sell
or to offer to sell such securities when no registration statement was in effect or on file
with the SEC, and no exemption from registration applied.
8. Mr. Dalton knowingly engaged in acts, transactions, practices and
courses of business that operated as a fraud and deceit on purchasers of interests in
the investment contracts. Mr. Dalton personally solicited investors and routinely
provided false and materially misleading information about the Trading Program and the
Diamond Program. Mr. Dalton did not disclose that the Trading Program and the
Diamond Program were a Ponzi scheme. Mr. Dalton told investors that he would pay
3

annual profits ranging from 48% to 120% when he knew that the sole source of funds
for profit payments was funds received from other investors. Mr. Dalton misrepresented
to investors that their funds would be safe and held in an escrow account. Dalton
misappropriated investors’ funds, and used at least $2.5 million in investors’ funds for
his personal benefit or for the benefit of family members. He used at least an additional
$969,350 in investors’ funds to pay commissions to so-called finders.
9. Mr. Dalton used the mails or means or instrumentalities of interstate
commerce to effect transactions in, or to induce or attempt to induce the purchase or
sale of, securities when he was not registered with the SEC as a broker or dealer.
10. In total, Mr. Dalton received at least $7,549,458 in ill-gotten gains from his
fraudulent and unregistered sales of investment contracts.
11. The court concludes that Mr. Dalton violated the securities registration,
antifraud, and broker-dealer registration provisions of 15 U.S.C. §§ 77e(a) and (c),
77q(a), 78j(b) and 78o(a)(1), and 17 C.F.R. § 240.10b-5.
12. Based on Mr. Dalton’s conduct as alleged in the complaint and his further
conduct in violation of the temporary restraining order, the court concludes that
there is a likelihood of future violations unless a permanent injunction is entered
prohibiting him from future violations of 15 U.S.C. §§ 77e(a) and (c), 77q(a), 78j(b) and
78o(a)(1), and 17 C.F.R. § 240.10b-5.
13. The court concludes that it is appropriate to require Mr. Dalton to disgorge
the sum of $7,549,458, which is a reasonable approximation of the ill-gotten gains that
he received as a result of the conduct alleged in the complaint, plus prejudgment
interest on that amount of $744,032, calculated using the Internal Revenue Service’s
rate for underpayment of taxes.
4

14. The court finds that the violations described in the complaint and at the
hearing on the motion for a temporary restraining order involved fraud, deceit,
manipulation, or deliberate or reckless disregard of a regulatory requirement and
directly resulted in substantial losses to investors. Pursuant to 15 U.S.C. § 77t(d)(2)(C)
and 15 U.S.C. § 78u(d)(3)(B)(iii), the court finds that it is just and fair to order Mr. Dalton
to pay a third tier civil penalty equal to his gross pecuniary gains from the fraudulent
scheme described in the complaint. The court further finds that the amount of
$7,549,458 is a reasonable approximation of gross pecuniary gains.
THEREFORE, IT IS ORDERED as follows:
1. That the Plaintiff’s Motion for Default Judgments Against Defendants
Richard Dalton and Universal Consulting Resources LLC [#78] filed October 24,
2011, is GRANTED as to the relief requested against the defendant, Richard Dalton;
2. That the defendant, Richard Dalton, and his agents, servants, employees,
attorneys, and all persons in active concert or participation with them who receive actual
notice of this Order Granting Motion for Default Judgment Against Richard Dalton
and Permanent Injunction by personal service or otherwise are PERMANENTLY
RESTRAINED AND ENJOINED from violating, directly or indirectly, Section 10(b) of the
Securities Exchange Act of 1934 (the "Exchange Act") [15 U.S.C. § 78j(b)] and Rule
10b-5 promulgated thereunder [17 C.F.R. § 240.10b-5], by using any means or
instrumentality of interstate commerce, or of the mails, or of any facility of any national
securities exchange, in connection with the purchase or sale of any security:
(a) to employ any device, scheme, or artifice to defraud;
(b) to make any untrue statement of a material fact or to omit to state a
material fact necessary in order to make the statements made, in the light
5

of the circumstances under which they were made, not misleading; or
(c) to engage in any act, practice, or course of business which operates or
would operate as a fraud or deceit upon any person;
3. That the defendant, Richard Dalton, and his agents, servants, employees,
attorneys, and all persons in active concert or participation with them who receive actual
notice of this Order Granting Motion for Default Judgment Against Richard Dalton
and Permanent Injunction by personal service or otherwise are PERMANENTLY
RESTRAINED AND ENJOINED from violating Section 17(a) of the Securities Act of
1933 (the “Securities Act”) [15 U.S.C. § 77q(a)] in the offer or sale of any security by the
use of any means or instruments of transportation or communication in interstate
commerce or by use of the mails, directly or indirectly:
(a) to employ any device, scheme, or artifice to defraud;
(b) to obtain money or property by means of any untrue statement of a
material fact or any omission of a material fact necessary in order to make
the statements made, in light of the circumstances under which they were
made, not misleading; or
(c) to engage in any transaction, practice, or course of business which
operates or would operate as a fraud or deceit upon the purchaser;
4. That the defendant, Richard Dalton, and his agents, servants, employees,
attorneys, and all persons in active concert or participation with them who receive actual
notice of this Order Granting Motion for Default Judgment Against Richard Dalton
and Permanent Injunction by personal service or otherwise are PERMANENTLY
RESTRAINED AND ENJOINED from violating Section 5 of the Securities Act [15
U.S.C. § 77e] by, directly or indirectly, in the absence of any applicable exemption:
6

(a) Unless a registration statement is in effect as to a security, making use
of any means or instruments of transportation or communication in
interstate commerce or of the mails to sell such security through the use
or medium of any prospectus or otherwise;
(b) Unless a registration statement is in effect as to a security, carrying or
causing to be carried through the mails or in interstate commerce, by any
means or instruments of transportation, any such security for the purpose
of sale or for delivery after sale; or
(c) Making use of any means or instruments of transportation or
communication in interstate commerce or of the mails to offer to sell or
offer to buy through the use or medium of any prospectus or otherwise
any security, unless a registration statement has been filed with the
Commission as to such security, or while the registration statement is the
subject of a refusal order or stop order or (prior to the effective date of the
registration statement) any public proceeding or examination under
Section 8 of the Securities Act [15 U.S.C. § 77h];
5. That the defendant, Richard Dalton, and his agents, servants, employees,
attorneys, and all persons in active concert or participation with them who receive actual
notice of this Order Granting Motion for Default Judgment Against Richard Dalton
and Permanent Injunction by personal service or otherwise are PERMANENTLY
RESTRAINED AND ENJOINED from violating, directly or indirectly, Section 15(a) of the
Exchange Act [15 U.S.C. § 78o(a)], by using any means or instrumentality of interstate
commerce, or of the mails, or of any facility of any national securities exchange to effect
any transactions in, or to induce or attempt to induce the purchase or sale of, any
7

security (other than an exempted security or commercial paper, bankers’ acceptances,
or commercial bills) unless such person is registered with the Commission as a broker
or dealer in accordance with Section 15(b) of the Exchange Act.
6. That it is ADJUDGED AND DECREED that the defendant, Richard Dalton, is
jointly and severally liable with the defendant, Universal Consulting Resources, LLC, for
payment of a total of fifteen million, eight hundred forty two thousand, nine hundred forty
eight dollars ($15,842,948), representing disgorgement of ill-gotten gains of seven
million, five hundred forty nine thousand, four hundred fifty eight dollars ($7,549,458),
prejudgment interest thereon of seven hundred forty four thousand, thirty two dollars
($744,032), and third tier civil penalties of seven million, five hundred forty nine
thousand, four hundred fifty eight dollars ($7,549,458);
7. That the defendant, Richard Dalton, SHALL PAY post-judgment interest on
any delinquent amounts pursuant to 28 U.S.C. § 1961;
8. That this court SHALL RETAIN jurisdiction over this matter for the purposes
of enforcing the terms of this Order Granting Motion for Default Judgment Against
Richard Dalton and Permanent Injunction and the judgment that will enter as a result
of this order, and for the purpose of resolving the contempt proceedings currently
pending against the defendant, Richard Dalton;
9. That under FED. R. CIV. P. 55(b), JUDGMENT SHALL ENTER in favor of the
plaintiff, the Securities and Exchange Commission, against the defendants, Richard
Dalton and Universal Consulting Resources, LLC, and the relief defendant, Marie
Dalton, consistent with the terms of this order and the concurrent orders directing entry
of judgment against Universal Consulting Resources, LLC, and Marie Dalton;
10. That the plaintiff is AWARDED its costs, to be taxed by the Clerk of the
8

Court under Fed.R.Civ.P. 54(d)(1) and D.C.COLO.LCivR 54.1; and
11. That the Trial Preparation Conference set for January 20, 2012, at 3:00 p.m.,
and the bench trial set for January 23, 2012, at 9:00, a.m. are VACATED.
Dated December 1, 2011, at Denver, Colorado.
BY THE COURT:

9