United States Securities and Exchange Commission v. Cohn et al

Filing 60

MOTION by Plaintiff United States Securities and Exchange Commission for judgment and Relief (Attachments: # 1 Exhibit Criminal Information, # 2 Exhibit Plea Agreement, # 3 Exhibit Criminal Judgment, # 4 Exhibit Cohn's Consent in Court Action and Offer of Settlement in Follow-On Administrative Proceeding, # 5 Exhibit Proposed Order)(Polish, Jonathan)

EXHIBIT 4

IN THE UNITED STATES DISTRICT COURT
FOR THE NORTHERN DISTRICT OF ILLINOIS
EASTERN DIVISION

UNITED STA TES SECURITIES
AND EXCHANGE COMMISSION,
Plaintiff,

v.
CLAYTON A. COHN and MARKET ACTION
ADVISORS, LLC,
Defendants.

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No. 1:13-cv-05586

CONSENT OF DEFENDANT CLAYTON A. COHN
1.

Defendant Clayton A. Cohn ("Defendant") acknowledges having been served with the

complaint in this action, enters a general appearance, and admits the Court's jurisdiction over
Defendant and over the subject matter of this action.
2.

Defendant pleaded guilty to criminal conduct relating to certain matters alleged in the

complaint in this action. Specifically, in United States v. Clayton Andrew Cohn, Case No. 1: 16cr-00325 (N.D. Ill.), Defendant pleaded guilty to violating Title 18, United States Code, Section
1343. In connection with that plea, Defendant admitted that:
(a)

he devised, intended to devise, and participated in a scheme and artifice to
defraud;

(b)

he devised, intended to devise, and participated in a scheme and artifice to
obtain money and property by means of materially false and fraudulent

pretenses, representations, and promises, and by concealment of material
facts;
(c)

he caused to be prepared and filed with the United States Securities and
Exchange Commission reports that he knew contained false and
misleading information; and

(d)

he knowingly caused to be transmitted in interstate commerce by means of
wire communications, certain writings, signs, signals, specifically, an
interstate wire transfer.

This Consent shall remain in full force and effect regardless of the existence or outcome of any
further proceedings in United States v. Clayton Andrew Cohn.
3.

Defendant agrees that the Court shall order disgorgement of ill-gotten gains,

prejudgment interest thereon, and a civil penalty pursuant to Section 20(d) of the Securities Act
[15 U.S.C. § 77t(d)] and Section 21(d)(3) of the Exchange Act [15 U.S.C. § 78u(d)(3)].
Defendant further agrees that the amounts of the disgorgement and civil penalty shall be
determined by the Court upon motion of the Commission, and that prejudgment interest shall be
calculated from September 2, 2011, based on the rate of interest used by the Internal Revenue
Service for the underpayment of federal income tax as set forth in 26 U.S.C. § 6621(a)(2).
Defendant further agrees that in connection with the Commission's motion for disgorgement
and/or civil penalties, and at any hearing held on such a motion: (a) Defendant will be precluded
from arguing that he did not violate the federal securities laws as alleged in the Complaint; (b)
Defendant may not challenge the validity of this Consent or the Final Judgment; (c) solely for the
purposes of such motion, the allegations of the Complaint shall be accepted as and deemed true
by the Court; and (d) the Court may determine the issues raised in the motion on the basis of

affidavits, declarations, excerpts of sworn deposition or investigative testimony, and
documentary evidence, without regard to the standards for summary judgment contained in Rule
56(c) of the Federal Rules of Civil Procedure. In connection with the Commission's motion for
disgorgement and/or civil penalties, the paiiies may take discovery, including discovery from
appropriate non-parties.
4.

Defendant understands and agrees to comply with the terms of 17 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 consent to a judgment or order that imposes a sanction while denying the
allegations in the complaint or order for proceedings." As part of Defendant's agreement to
comply with the terms of Section 202.5(e), Defendant acknowledges the guilty plea for related
conduct described in paragraph 2, above, and: (i) will not take any action or make or permit to be
made any public statement denying, directly or indirectly, any allegation in the complaint or
creating the impression that the complaint is without factual basis; (ii) will not make or permit to
be made any public statement to the effect that Defendant does not admit the allegations of the
complaint, or that this Consent contains no admission of the allegations; (iii) upon the filing of
this Consent, Defendant hereby 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 of the Bankruptcy Code, 11 U.S.C. §523, that the allegations
in the complaint are true, and further, that any debt for disgorgement, prejudgment interest, civil
penalty or other amounts due by Defendant under the Final Judgment or any other judgment,
order, consent order, decree or settlement agreement entered in connection with this proceeding,
is a debt for the violation by Defendant of the federal securities laws or any regulation or order
issued under such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C.

§523(a)(l 9). If Defendant breaches this agreement, the Commission may petition the Court to
vacate the Final Judgment and restore this action to its active docket. Nothing in this paragraph
affects Defendant's: (i) testimonial obligations; or (ii) right to take legal or factual positions in
litigation or other legal proceedings in which the Commission is not a party.
5.

Defendant acknowledges that the civil penalty paid pursuant to the Final Judgment may

be distributed pursuant to the Fair Fund provisions of Section 308(a) of the Sarbanes-Oxley Act
of 2002. Regardless of whether any such Fair Fund distribution is made, the civil penalty shall be
treated as a penalty paid to the government for all purposes, including all tax purposes. To
preserve the deterrent effect of the civil penalty, Defendant agrees that he shall not, after offset or
reduction of any award of compensatory damages in any Related Investor Action based on
Defendant's payment of disgorgement in this action, argue that he is entitled to, nor shall he
further benefit by, offset or reduction of such compensatory damages award by the amount of
any part of Defendant's payment of a civil penalty in this action ("Penalty Offset"). If the court
in any Related Investor Action grants such a Penalty Offset, Defendant agrees that he shall,
within 30 days after entry of a final order granting the Penalty Offset, notify the Commission's
counsel in this action and pay the amount of the Penalty Offset to the United States Treasury or
to a Fair Fund, as the Commission directs. Such a payment shall not be deemed an additional
civil penalty and shall not be deemed to change the amount of the civil penalty imposed in this
action. For purposes of this paragraph, a "Related Investor Action" means a private damages
action brought against Defendant by or on behalf of one or more investors based on substantially
the same facts as alleged in the Complaint in this action.
6. Defendant agrees that he shall not seek or accept, directly or indirectly, reimbursement or
indemnification from any source, including but not limited to payment made pursuant to any

insurance policy, with regard to any civil penalty amounts that Defendant pays pursuant to the
Final Judgment, regardless of whether such penalty amounts or any part thereof are added to a
distribution fund or otherwise used for the benefit of investors. Defendant fmiher agrees that he
shall not claim, assert, or apply for a tax deduction or tax credit with regard to any federal, state,
or local tax for any penalty amounts that Defendant pays pursuant to the Final Judgment,
regardless of whether such penalty amounts or any part thereof are added to a distribution fund
or otherwise used for the benefit of investors.
7.

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

52 of the Federal Rules of Civil Procedure.
8.

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

Final Judgment.
9.

Defendant enters into this Consent voluntarily and represents that no threats, offers,

promises, or inducements of any kind have been made by the Commission or any member,
officer, employee, agent, or representative of the Commission to induce Defendant to enter into
this Consent.
10.

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

the same force and effect as if fully set forth therein.
11.

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

exists, that it fails to comply with Rule 65( d) of the Federal Rules of Civil Procedure, and hereby
waives any objection based thereon.
12.

Defendant waives service of the Final Judgment and agrees that entry of the Final

Judgment by the Court and filing with the Clerk of the Court will constitute notice to Defendant
of its terms and conditions. Defendant further agrees to provide counsel for the Commission,

within thirty days after the Final Judgment is filed with the Clerk of the Court, with an affidavit
or declaration stating that Defendant has received and read a copy of the Final Judgment.
13.

Consistent with 17 C.F.R. 202.S(f), this Consent resolves only the claims asserted

against Defendant in this civil proceeding. Defendant acknowledges that no promise or

representation has been made by the Commission or any member, officer, employee, agent,
or representative of the Commission with regard to any criminal liability that may have

arisen or may arise from the facts underlying this action or immunity from any such
criminal liability. Defendant waives any claim of Double Jeopardy based upon the settlement
of this proceeding, including the imposition of any remedy or civil penalty herein. Defendant
further acknowledges that the Court's entry of a permanent injunction may have collateral
consequences under federal or state law and the rules and regulations of self-regulatory
organizations, licensing boards, and other regulatory organizations. Such collateral
consequences include, but are not limited to, a statutory disqualification with respect to
membership or participation in, or association with a member of, a self-regulatory organization.
This statutory disqualification has consequences that are separate from any sanction imposed in
an administrative proceeding. In addition, in any disciplinary proceeding before the Commission
based on the entry of the injunction in this action, Defendant understands that [he, she, it] shall
not be permitted to contest the factual allegations of the complaint in this action.
14.

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

Business Regulatory Enforcement Fairness Act of 1996, or any other provision of law to seek
from the United States, or any agency, or any official of the United States acting in his or her
official capacity, directly or indirectly, reimbursement of attorney's fees or other fees, expenses,
or costs expended by Defendant to defend against this action. For these purposes, Defendant

. agrees that Defendant is not the prevailing party in this action since the parties have reached a
good faith settlement.
15.

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

investigation commenced by the Commission or to which the Commission is a party, Defendant
(i) agrees to appear and be interviewed by Commission staff at such times and places as the staff
requests upon reasonable notice; (ii) will accept service by mail or facsimile transmission of
notices or subpoenas issued by the Commission for documents or testimony at depositions,
hearings, or trials, or in connection with any related investigation by Commission staff; (iii)
appoints Defendant's undersigned attorney as agent to receive service of such notices and
subpoenas; (iv) with respect to such notices and subpoenas, waives the territorial limits on
service contained in Rule 45 of the Federal Rules of Civil Procedure and any applicable local
rules, provided that the party requesting the testimony reimburses Defendant's travel, lodging, and
subsistence expenses at the then-prevailing U.S . Government per diem rates; and (v) consents to
personal jurisdiction over Defendant in any United States District Court for purposes of
enforcing any such subpoena.
16.

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

signature and entry without further notice.
17.

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

of enforcing the terms of the Final Judgment.

Dated:

O~j '13 j \:i

Clayton A. Cohn

c~WD P. &An

,

On D;;L 1 2,
·J..
' 2017,
a pernon known to me,
personally appearea before me and ackno ledged executmg the fotegomg Consent.

No~.Jclc~
Commission expires: Oto ( \D {:2-0 \ -:g

Approved as to form:

Drinker Biddle & Reath LLP
191 North Wacker Drive, Suite 3700
Chicago, Illinois 60606-1698
[phone]
Attorney for Defendant

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
ADMINISTRATIVE PROCEEDING
File No.
In the Matter of

OFFER OF SETTLEMENT
OF CLAYTON A. COHN

Clayton A. Cohn,
Respondent.

I.
Clayton A. Cohn ("Cohn" or "Respondent"), pursuant to Rule 240(a) of the Rules of
Practice of the Securities and Exchange Commission ("Commission") [17 C.F.R. § 201.240(a)]
submits this Offer of Settlement ("Offer") in anticipation of public administrative proceedings to be
instituted against him by the Commission, pursuant to Section 203(±) of the Investment Advisers
Act of 1940 ("Advisers Act").
·

II.
This Offer is submitted solely for the purpose of settling these proceedings, with the express
understanding that it will not be used in any way in these or any other proceedings, unless the Offer
is accepted by the Commission. If the Offer is not accepted by the Commission, the Offer is
withdrawn without prejudice to Respondent and shall not become a part of the record in these or
any other proceedings, except that rejection of the Offer does not affect the continued validity of the
waivers pursuant to Rule 240(c)(5) of the Commission's Rules of Practice [17 C.F.R. §
201.240(c)(5)] with respect to any discussions concerning the rejection of the Offer.

III.
On the basis of the foregoing, the Respondent hereby:

A. Admits the jurisdiction of the Commission over him and over the matters set forth in the
Order Instituting Administrative Proceedings Pursuant to Section 203(±) of the Investment Advisers
Act of 1940, Making Findings, and Imposing Remedial Sanctions, and the findings contained in
paragraph IIl.B.2 below.

B: Solely for the purpose of these proceedings and any other proceedings brought by or on
behalf of the Commission or in which the Commission is a party, consents to the entry of an Order
by the Commission containing the following findings and remedial sanctions set forth below:
1. From March 2011 through April 2014, Cohn was the Managing Member of
Marketaction Advisors, LLC, an investment adviser registered with the Commission that operated
a hedge fund named Marketaction Capital Management, LLC ("the Fund"). Cohn, 29 years old, is
a resident of Winnetka, Illinois.
2. On
, a final judgment was entered by consent against
Cohn and Marketaction Advisors, permanently enjoining each from ·future violations of Sections
5(a), 5(c), and 17(a) of the Securities Act of 1933 ("Securities Act"), Section IO(b) of the
Securities Exchange Act of 1934 (''Exchange Act") and Rule 1Ob-5 thereunder, and Sections
206(1), 206(2), and 206(4) of the Advisers Act and Rule 206(4)-8 thereunder, in the civil action
entitled Securities and Exchange Commission v. Clayton A. Cohn and Marketaction Advisors,
LLC, Civil Action Number 1: 13-cv-05586, in the United States District Court for the Northern
District of Illinois.
3. The Commission's complaint alleged that Cohn, through Marketaction Advisors,
raised nearly $1. 8 million from investors who purchased Limited Liability Company interests in
the Fund. The Commission alleged, inter alia, that Cohn made several false and misleading
statements to investors when soliciting investments, misappropriated investor proceeds, and
covered up trading losses by providing investors with false account statements, and otherwise
engaged in a variety of conduct which operated as a fraud and deceit on investors. The complaint
also alleged that Cohn sold unregistered securities.
4. On July 5, 2016, Cohn pied guilty to one count of wire fraud in violation of Title
18, United States Code, Section 1343 before the United States District Court forthe Northern
District of Illinois, in United States v. Clayton Andrew Cohn, Case No. 1:16-cr-00325. On
January 25, 2017, a judgment in the criminal case was entered against Cohn. He was sentenced to
a prison term of 52 months followed by two years of supervised release and ordered to make
restitution in the amount of $1,556,488.11.
5. The criminal information to which Cohn pled guilty alleged, inter alia, that Cohn
devised, intended to devise, and participated in a scheme and artifice to defraud, and to obtain
money and property by means of materially false and fraudulent pretenses, representations, and
promises, and by concealment of material facts, that he caused to be prepared and filed with the
Commission reports about the Fund that he knew contained false and misleading information, and
that he knowingly caused to be transmitted in interstate commerce by means of wire
communications, certain writings, signs, signals, specifically, an interstate wire transfer.

IV.
On the basis of the foregoing, Respondent hereby consents to the entry of an Order by the
Commission imposing the following remedial sanctions:

2

Pursuant to Section 203(±) of the Advisers Act, Respondent Cohn be, and hereby is barred
from association with any broker, dealer, investment adviser, municipal securities dealer,
municipal advisor, transfer agent, or nationally recognized statistical rating organization.
Any reapplication for association by the Respondent will be subject to the applicable laws
and regulations governing the reentry process, and reentry may be conditioned upon a number of
factors, including, but not limited to, the satisfaction of any or all of the following: (a) any
disgorgement ordered against the Respondent, whether or not the Commission has fully or partially
waived payment of such disgorgement; (b) any arbitration award related to the conduct that served
as the basis for the Commission order; (c) any self-regulatory organization arbitration award to a
customer, whether or not related to the conduct that served as the basis for the Commission order;
and (d) any restitution order by a self-regulatory organization, whether or not related to the conduct
that served as the basis for the Commission order.

v.
By submitting this Offer, Respondent hereby waives, subject to the acceptance of the offer,
the rights specified in Rule 240(c)(4) [17 C.F.R. §201.240(c)(4)] of the Commission's Rules of
Practice. Specifically, Respondent waives:
(1) All hearings pursuant to the statutory provisions under which the proceeding is
to be or has been instituted;
(2) The filing of proposed findings of fact and conclusions of law;
(3) Proceedings before, and an initial decision by, a hearing officer;
(4) All post-hearing procedures; and
(5) Judicial Review by any court.
In addition, by submitting this offer, Respondent waives the rights specified in Rule
240(c)(5) [17 C.F.R. § 201.240(c)(5)] of the Commission's Rules of Practice. Specifically,
Respondent waives:
(1) Any and all provisions of the Commission's Rules of Practice or other
requirements of law that may be construed to prevent or disqualify any member
of the Commission's staff from participating in the preparation of, or advising
the Commission as to, any order, opinion, finding of fact, or conclusion of law
that may be entered pursuant to this Offer; and
{2) Any right to claim bias or prejudgment by the Commission based on the
consideration of or discussions concerning settlement of all or any part of this
proceeding.
Respondent also hereby waives service of the Order.

VI.
Respondent understands and agrees to comply with the terms of 17 C.F.R § 202.S(e),
which provides in part that it is the Commission's policy "not to permit a defendant or

3

respondent to consent to a judgment or order that imposes a sanction while denying the
allegations in the complaint or order for proceedings." As part of Respondent's agreement to
comply with the terms of Section 202.5(e ), Respondent: (i) will not take any action or make or
permit to be made any public statement denying, directly or indirectly, any finding in the Order
or creating the impression that the Order is without factual basis; (ii) will not make or permit to
be made any public statement to the effect that Respondent does not admit the findings of the
Order, or that the Offer contains no admission of the findings; and (iii) upon the filing of this
Offer of Settlement, Respondent hereby withdraws any papers previously filed in this proceeding
to the extent that they deny, directly or indirectly, any finding in the Order. If Respondent
breaches this agreement, the Division of Enforcement may petition the Commission to vacate the
Order and restore this proceeding to its active docket. Nothing in this provision affects
Respondent's: (i) testimonial obligations; or (ii) right to take legal or factual positions in
litigation or other legal proceedings in which the Commission is not a party.

VII.
Consistent with the provisions of 17 C.F.R. § 202.S(f), Respondent waives any claim of
Double Jeopardy based upon the settlement of this proceeding, including the imposition of any
remedy or civil penalty herein.

VIII.
Respondent hereby waives any rights under the Equal Access to Justice Act, the Small
Business Regulatory Enforcement Fairness Act of 1996, or any other provision of law to seek
from the United States, or any agency, or any official .o f the United States acting in his or her
official capacity, directly or indirectly, reimbursement of attorney's fees or other fees, expenses,
or costs expended by Respondent to defend against this action. For these purposes, Respondent
agrees that Respondent is not the prevailing party in this action since the parties have reached a
good faith settlement.

IX.
Respondent states that he has read and understands the foregoing Offer, that this Offer is
made voluntarily, and that no promises, offers, threats, or inducements of any kind or nature
whatsoever have been made by the Commission or any member, officer, employee, agent, or
representative of the Commission in consideration of this Offer or otherwise to induce him to
submit to this Offer.

).',)_ Day of

PJ~

JD\/
Clayton A. Cohn

4

STATE OF ILLINOIS

}
} SS:

COUNTY OF COOK

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of~<-"'

The foregoing instrmpent was acknowledged before me this'))\ay
, 2017, by
CLAYTON COHN, who _./ 11~s personally known to me or _ who has produ~Illinois
_
driver's ·cense as identification and who did take an oath.

Commission Number
Commission Expiration

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