Securities and Exchange Commission v. Tropikgadget FZE et al

Filing 256

Judge Allison D. Burroughs: MEMORANDUM AND ORDER entered For the reasons set forth in the accompanying Memorandum and Order, the Commissions Motion for a Default Judgment against Sergio Henrique Tanaka, Carlos Luis da Silveira Barbosa, and Claudio de Oliveira Pereira Campos [ECF No. 213], and the Commissions Supplemental Motion for Default Judgment [ECF No. 254] are hereby ALLOWED as to Defendants Tanaka, Campos, and Barbosa. A copy of this Order has been e-mailed to the Defendants, Tanaka, Campos, and Barbosa. (Montes, Mariliz)

UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
v.
TROPIKGADGET FZE., et al.,
Defendants.
and
UNIVEST FINANCIAL SERVICES
CORP., et al.,
Relief Defendants

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Civil Action No. 15-cv-10543-ADB

MEMORANDUM AND ORDER ON MOTIONS FOR DEFAULT JUDGMENT AGAINST
DEFENDANTS SERGIO TANAKA, CARLOS LUIS DA SILVEIRA BARBOSA, AND
CLAUDIO DE OLIVEIRA PEREIRA CAMPOS
I.

INTRODUCTION
In February 2015, Plaintiff Securities and Exchange Commission (the “SEC” or the

“Commission”) filed this civil enforcement action against three companies, fifteen individual
defendants, and several relief defendants. This case arises out of an alleged pyramid scheme
operated by defendants Tropikgadget FZE and Tropikgadget Unipessoal LDA (collectively,
“Tropikgadget”), through their principals, Defendants Sergio Henrique Tanaka (“Tanaka”),
Carlos Luis da Silveira Barbosa (“Barbosa”), and Claudio de Oliveira Pereira Campos
(“Campos”) (collectively, the “Principal Defendants”). The Commission alleges that between
November 2013 and April 2014, Tropikgadget, through the actions of its Principals and
promoters, raised at least $23.5 million from thousands of investors through a fraudulent and
unregistered offering of securities. The securities took the form of membership packs that

promised guaranteed monthly returns in exchange for becoming “promoters” of the business.
The Commission filed its Complaint in this action on February 25, 2015, alleging that
Tropikgadget and the Principal Defendants violated Section 10(b) of the Securities Exchange Act
of 1934, 15 U.S.C. § 78j(b) (the “Exchange Act”), as well as Sections 17(a)(1), (2), and (3) of
the Securities Act of 1933, 15 U.S.C. § 77q(a)(1), (2), & (3) (the “Securities Act”). The
Complaint also alleges that the Principal Defendants sold and offered for sale unregistered
securities in violation of Section 5 of the Securities Act, 15 U.S.C. §§ 77e(a) & (c).
At the time the Complaint was filed, the Principal Defendants were believed to be located
in Brazil, and the Commission failed in its attempts to serve the Defendants with process at their
previous addresses. The Commission then filed a Motion for alternative service, seeking the
Court’s permission to serve Tanaka, Barbosa, and Campos by email. [ECF Nos. 102, 103]. The
Court allowed the Motion 1 [ECF No. 118], and on June 15, 2015, the Commission served all
three Principal Defendants by email. [ECF Nos. 121-123, 125]. None of the Principal Defendants
responded to the Complaint. On July 28, 2015, the Court ordered the Clerk to enter Defaults
against the Principal Defendants, but asked the Commission to postpone filing any motions for
default judgment. [ECF Nos. 144, 174]. On December 1, 2015, the Court allowed the SEC to
move forward with motions for default judgments against the Principal Defendants. [ECF No.
188].
Currently before the Court is the Commission’s Motion for a Default Judgment against
Sergio Henrique Tanaka, Carlos Luis da Silveira Barbosa, and Claudio de Oliveira Pereira

1

Although the Court permitted the Commission to serve the Principal Defendants by email, it
declined to issue a final ruling on whether service by email would constitute proper and effective
service. The Court further noted that the Defendants were free to challenge the adequacy of
service of process at a later time. None of the Principal Defendants, however, has appeared in
this action to challenge the sufficiency of service. [ECF No. 118].
2

Campos [ECF No. 213], which is supported by a Memorandum of Law [ECF No. 214], and the
Fifth Declaration of John McCann [ECF No. 213-1]. After an August 8, 2016 hearing, the Court
requested further information from the Commission regarding the calculation of disgorgement
amounts requested from Defendants Tanaka and Barbosa. Subsequently, the Commission
submitted a Supplemental Motion for Default Judgment [ECF No. 254], which was supported by
the Ninth Declaration of John McCann [ECF No. 254-1], an Affidavit of Deena Bernstein [ECF
No. 254-2], and an Affidavit of Paolo Koga [ECF No. 254-3].
For the reasons set forth in this Memorandum and Order, the Commission’s Motions for
Default Judgment are ALLOWED as to Defendants Tanaka, Barbosa, and Campos.
II.

LEGAL STANDARD
As set forth in Fed. R. Civ. P. 55(b), “a plaintiff ‘must apply to the court for a default

judgment’ where the amount of damages claimed is not a sum certain.” Vazquez-Baldonado v.
Domenech, 792 F. Supp. 2d 218, 221 (D.P.R. 2011) (quoting Fed. R. Civ. P. 55(b)). As to the
issue of liability, the entry of default “constitutes an admission of all facts well-pleaded in the
complaint . . . .” Id. (internal quotations and citations omitted). Because the Principal Defendants
have been defaulted in this case, they are “taken to have conceded the truth of the factual
allegations in the complaint as establishing the grounds for liability.” In re The Home
Restaurants, Inc., 285 F.3d 111, 114 (1st Cir. 2002). On a motion for a default judgment,
however, it is appropriate to independently “examine a plaintiff’s complaint, taking all wellpleaded factual allegations as true, to determine whether it alleges a cause of action.” RamosFalcon v. Autoridad de Energia Electrica, 301 F.3d 1, 2 (1st Cir. 2002). Assuming that the facts
alleged state a viable cause of action, the defendant’s liability will be established.
With regard to damages, Fed. R. Civ. P. 55(b)(2) provides that the court “may conduct

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hearings or make referrals . . . when, to enter or effectuate judgment, it needs to: (A) conduct an
accounting; (B) determine the amount of damages; (C) establish the truth of any allegation by
evidence; or (D) investigate any other matter.” A hearing, however, is not necessarily required,
particularly where the facts alleged in the pleadings, together with affidavits submitted by the
moving party, establish the amount of the default judgment. See In re The Home Restaurants,
Inc., 285 F.3d at 114 (holding that district court did not abuse its discretion by entering default
judgment without first holding evidentiary hearing, where there was “no uncertainty about the
amounts at issue,” the pleadings contained “specific dollar figures,” and the court requested and
received affidavits in support of the default judgment).
The Commission argues that the facts alleged in the Complaint establish that the
defaulting Principal Defendants violated the federal securities laws by selling and offering to sell
unregistered securities in interstate commerce, by making material misrepresentations to
investors to obtain money and property, and employing a scheme or artifice to defraud. The SEC
further argues that these facts entitle the Commission to a permanent injunction against the
Principal Defendants, as well as disgorgement of their ill-gotten gains, together with
prejudgment interest. In addition, the SEC seeks civil monetary penalties against each of the
Principal Defendants.
In this Memorandum and Order, the Court will address the adequacy of the Complaint for
the purpose of establishing liability, as well as the remedies requested by the SEC.
III.

SUMMARY OF RELEVANT FACTS
The salient facts alleged in the SEC’s Complaint, [ECF No. 1] (“Compl.”)), are

summarized below. The Court accepts these facts as true for purposes of this Motion. See
Conetta v. Nat’l Hair Care Centers, Inc., 236 F.3d 67, 76 (1st Cir. 2001) (noting that under the

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“prevailing view,” the “entry of default prevents the defendant from disputing the truth of wellpleaded facts in the complaint pertaining to liability”).
A. Relevant Defendants
Tropikgadget FZE is a foreign entity incorporated in the United Arab Emirates, with a
principal place of business in Lisbon, Portugal. Compl. ¶ 13. Tropikgadget FZE holds the rights
to “Wings Network” marketing and brand services, which includes but is not limited to, the
names Wings Network, Wingsnetwork, and WingsNetwork.Com (collectively “Wings
Network”). Id. Tropikgadget Unipessoal LDA is a foreign entity incorporated in the Madeira
Free Trade Zone, with a principal place of business in Lisbon, Portugal. Id. ¶ 12. Neither
Tropikgadget entity has ever been registered with the Securities and Exchange Commission, nor
has either entity ever registered any offering of securities under the Securities Act or any class of
securities under the Exchange Act. Id. ¶ 13.
Tanaka, age 40, of Sao Paulo, Brazil and Davie, Florida, was the founder of the Wings
Network and served as president of the Wings Network Board of Directors. Id. ¶¶ 14, 35.
Barbosa, of Lisbon, Portugal, was the chief executive officer of the Wings Network. Id. ¶ 15.
Campos, also of Lisbon, Portugal, was the Director of Operations of the Wings Network. Id. ¶
16.
B. Wings Network operations
The Complaint alleges that Tropikgadget, acting primarily through Defendants Tanaka,
Barbosa, and Campos, operated a fraudulent pyramid scheme under the “Wings Network” name.
The Wings Network began operating in the United States on or about November 7, 2013,
and quickly built a distribution network of associates or “members.” Id. ¶ 35. Defendants
presented the Wings Network as a “multi-level marketing” company in the business of providing
digital and mobile solutions, such as games, apps, cloud storage, and marketing tools. Id. ¶ 36.
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On April 10, 2014, Wings Network launched a Wings Cloud app, which provided access to
internet data storage. Id. On May 8, 2014, Wings Network launched a Wings Communicator
Voice-over IP communications services app. Id. Both apps were available for free download. Id.
Wings Network and Campos described Wings Communicator as a combination of existing apps
such as Skype, WeChat, WhatsApp, and Waze. Id.
In actuality, however, the Wings Communicator product was not competitively priced,
and Tropikgadget generated little to no revenue from the sale of these products or services. Id. ¶¶
37, 47. Instead, Tropikgadget’s revenues were generated through sales of its “membership
packs,” which promised members guaranteed monthly returns in exchange for becoming
promoters of the Wings Network. Id. ¶¶ 57-60.
As the scheme evolved, Campos also made vague promises that revolutionary new
products were in development. Id. ¶¶ 43-45. For example, in a February 27, 2014 online webinar,
Campos claimed that Wings Network was developing new products such as “Wings Fly,” which
he described as an online flight booking service, and “Wings Resort,” which he described as a
time-share vacation properties company. Id. ¶ 44. Wings Network, however, never launched
Wings Fly or Wings Resort. Id. ¶ 45.
The Wings Network originally recruited members through its website and online
presentations conducted by Barbosa and Campos. Id. ¶ 48. The first official Wings Network
online conference (or webinar) was held on January 30, 2014, and the second on February 13,
2014. Id. ¶ 48. Both presentations were posted on YouTube. After establishing a network of
promoters from amongst its initial members, the Wings Network grew rapidly by recruiting new
members through face-to-fact contact, and through social media such as Facebook, YouTube,
and online conferences. Id. ¶ 49.

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Tanaka also appeared in Wings Network promotional videos on the internet. Id. ¶ 14. In
February 2014, he traveled to Boston, Massachusetts to appear at a Wings Network “Mega
Business Event” and receive an appreciation plaque from Grupo Internacional, a group of
leading Wings Network Promoters based in the United States. Id. In addition, at least one
promoter told investors to wire payments to Tanaka’s personal bank account. Id.
In early April 2014, Wings Network held a USA Launch Party in the Boston,
Massachusetts area. Id. ¶ 53. Barbosa and Campos spoke at the event. Campos discussed the
Wings Network compensation plan, and the company’s various “products,” making exaggerated
claims about the novelty and security of Wings Cloud. Id. ¶ 53. Similarly, Barbosa
mischaracterized the novelty of Wings Network’s products and made lulling statements
regarding bonus payments. Id.
The Wings Network charged a $49 membership fee to its members. Id. ¶ 54. The
company’s promotional materials represented that paying this membership fee qualified the
member to receive a “sales bonus” equal to 25% of future Wings Network total sales. Id. The
initial $49 fee, however, did not entitle the member to participate in the Wings Network
compensation plan. Id. Rather, to participate in the compensation plan, the member had to invest
in one of three “membership packs,” ranging in price from $299 to $1,499. Id. ¶ 55. Each pack
came with an increasing number of “points,” that could purportedly be exchanged for
compensation, as well as a number of tools that the member could use for further promotion of
the Wings Network, such as “landing pages,” “banners,” Facebook ads, and cloud storage. Id.
None of the membership packs, however, provided any mechanism for the member to sell the
digital and mobile products and services allegedly offered by Wings Network. Id. ¶ 56.
The Wings Network’s marketing materials promised that those who purchased

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“membership packs” would receive monetary returns for their investments and for their
successful recruitment of additional members. Id. ¶ 57. The Wings Network had eight bonus
plans for members who recruited new investors. Id. ¶ 58. Only one of those eight plans – the
“sales bonus” plan – had any relationship to the sale of an actual product or service. Id. Wings
Network, however, never made any payments to any member based upon the “sales bonus” plan.
Id. Rather, members were paid according to a system of “points,” based on (1) the number of
additional members the member recruited; (2) the number of additional members recruited by
those members that the member recruited; (3) the number of total membership products sold
throughout the Wings Network; and (4) the price level of the membership packs purchased. Id.
Wings Network’s revenues derived solely from selling membership packs, and Wings Network’s
records reflect no revenue from sales of actual products or services. Id. ¶ 64. Further, Wings
Network promoters represented to investors that no product sales were required to receive
compensation from the company. Id. ¶ 60.
The Complaint further alleges that Barbosa and Campos made a number of fraudulent
and misleading statements in connection with their recruitment of new investors. For example,
during presentations to potential investors, Barbosa showed potential investors copies of what he
claimed was Wings Network’s application to join the “Direct Selling Association” (“DSA”). Id.
¶ 66. The DSA is a national trade association of approximately 200 multilevel marketing
companies, which promotes the interests of its members and maintains a Code of Ethics as a
condition of membership. Id. Companies are admitted to the DSA only after a vetting period. Id.
¶ 67. The Wings Network’s principals falsely claimed that the company had successfully passed
a “pre-analysis” or “pre-screening” process for the DSA, including a preliminary review of the
sustainability and legality of the company. Id. ¶ 68. In actuality, however, the DSA does not

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have a pre-analysis or pre-screening process, and the DSA’s records do not reflect any
application for membership or membership in the name of Wings Network. Id. ¶ 70. In fact, the
DSA sent Wings Network a cease and desist letter in April 2014, requesting that Wings Network
cease its claims of affiliation with DSA. Id. ¶ 72.
Campos also falsely represented to prospective investors that their initial investments in
the “Member Packs” would be 100% guaranteed through an insurance policy. Id. ¶ 73. In
addition, Barbosa and Campos further represented that investors could receive full refunds if
they cancelled their investment within fourteen days of signing up as members. Id. ¶ 74.
Investors, however, reported that Wings Network failed to provide such refunds, even after
multiple requests. Id.
The Complaint further alleges that the Principal Defendants received Wings Network
investors’ funds, and made limited payouts to investors, through Tropikgadget Unipessoal
LDA’s bank accounts. Id. ¶ 12. But while Barbosa, Campos, and several other Wings Network
promoters promised payments to investors in exchange for their recruitment of new members,
many investors never received any such payments. Id. ¶ 75. According to the Wings Network
compensation plan, Wings Network members earned “points” that could be redeemed for cash
commissions. Id. But many investors who attempted to redeem their points were unable to
withdraw any money. Id. Barbosa and Campos also promised members that they would be able
to withdraw their money utilizing a “Wings Card,” which would enable transfers from the
member’s Wings Network account to a debit card. Many investors, however, never received a
Wings Card, and most of those who did receive cards found that the cards did not work as
promised. Id. ¶ 77.
Tropikgadget voluntarily suspended its U.S. operations in May 2014, after the

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Massachusetts Securities Division filed an Administrative Complaint alleging that the Wings
Network was operating a fraudulent pyramid scheme. Id. ¶ 13.
IV.

DISCUSSION
The SEC’s Complaint asserts six claims for relief against the Principal Defendants.

Counts I and II allege that the Principal Defendants violated Section 10(b) of the Exchange Act,
15 U.S.C. § 78j(b), and Rules 10b-5(a), (b), and (c) thereunder. See 17 C.F.R. § 240.10b-5(a),
(b), & (c). These provisions prohibit any person, in connection with the purchase or sale of any
security, from, directly or indirectly: 1) employing any device, scheme or artifice to defraud; (2)
making any untrue statement of material fact or omitting to state a material fact necessary in
order to make the statements made, in light of the circumstances under which they were made,
not misleading; or (3) engaging in any transaction, practice or course of business that operates or
would operate as a fraud or deceit upon any person. See 15 U.S.C. § 78j(b); 17 C.F.R. § 240.10b5.
Counts III, IV, and V allege that the Principal Defendants violated Sections 17(a)(1), (2),
and (3) of the Securities Act, 15 U.S.C. § 77q(a)(1), (2), & (3). Section 17(a) prohibits, in the
offer or sale of securities: (1) employing devices, schemes or artifices to defraud; (2) obtaining
money or property by means of materially false or misleading statements; and (3) engaging in
transactions, practices or courses of business that operate as a fraud or deceit. See 15 U.S.C. §
77q(a).
Finally, Count VI alleges that the Principal Defendants violated Section 5(a) and 5(c) of
the Securities Act, 15 U.S.C. § 77e(a) & (c). Section 5(a) provides that, unless a registration
statement is in effect, it is unlawful for any person, directly or indirectly, to sell securities
through the use of any means or instruments of interstate commerce. 15 U.S.C. § 77e(a). Section

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5(c) provides for a similar prohibition against offers to sell, or offers to buy, unless a registration
statement has been filed. 15 U.S.C. § 77e(c).
Assuming that all facts alleged in the Complaint are true, the Court finds that they
sufficiently support the claims alleged against the Principal Defendants.
A. Sale and Offering of Unregistered Securities
Count VI of the Commission’s Complaint alleges that the Principal Defendants violated
Section 5(a) and 5(c) of the Securities Act, 15 U.S.C. § 77e(a) & (c). A prima facie case for a
violation of Sections 5(a) and 5(c) requires a showing that: (1) no registration statement was in
effect as to the securities; (2) the defendant directly or indirectly offered to sell the securities; and
(3) the offer or sales were made in connection with the use of interstate transportation,
communication, or the mails. See SEC v. Spence & Green Chem. Co., 612 F.2d 896, 901-02 (5th
Cir. 1980).
Here, the facts alleged in the Complaint establish that all of the Principal Defendants
violated Section 5. First, the Complaint alleges that the Principal Defendants were engaged in the
sale or offering for sale of “securities,” as that term is defined in the Securities Act and the
Exchange Act. Both statutes define “security” to include “investment contracts.” 15 U.S.C. §
77b(a)(1); 15 U.S.C. § 78c(a)(10). Under the three-part test established by the Supreme Court in
SEC v. W.J. Howey Co., 328 U.S. 293 (1946), an investment contract comprises “(1) the
investment of money (2) in a common enterprise (3) with an expectation of profits to be derived
solely from the efforts of the promoter or a third party.” S.E.C. v. SG Ltd., 265 F.3d 42, 46 (1st
Cir. 2001) (citing Howey, 328 U.S. at 298-99). “This formulation,” however, “must be applied in
light of the economic realities of the transaction,” id., and the courts have adopted a “broad
construction” of what may constitute an investment contract, “aspiring ‘to afford the investing

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public a full measure of protection.’” Id. at 47 (quoting Howey, 328 U.S. at 298).
As the Court has already ruled, the Wings Network’s sale of “membership packs” to
prospective members constitutes an investment contract. The marketing materials for Wings
Network promised that those who purchased “membership packs” would receive monetary
returns on their investments, contingent on the successful recruitment of additional members.
Compl. ¶ 57. The First Circuit has held that such promises satisfy the “commonality” element of
the Howey test. See SG Ltd., 265 F.3d at 51 (noting that Ponzi schemes “typically satisfy the
horizontal commonality standard”).
The Complaint also adequately alleges that the Principal Defendants personally engaged
in these unregistered sales and offerings of securities, in violation of Section 5(a) and 5(c) of the
Securities Act. Tanaka, Campos, and Barbosa actively promoted the Wings Network and its
membership packs by speaking at promotional conferences, appearing in promotional videos and
online conferences, and posting promotional material on social media. See Compl. ¶¶ 14-16, 48,
52, 53.
Finally, the Complaint adequately alleges that these sales and offerings were made in
connection with the use of interstate transportation, communication, or the mails. (Id. ¶¶ 10, 21,
25). Thus, the Commission has established that Tanaka, Campos, and Barbosa violated Section
5(a) and 5(c) of the Securities Act, as alleged in Count VI.
B. Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act
The SEC has also alleged sufficient facts to make out a prima facie case that the Principal
Defendants violated Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and
Rule 10b-5 thereunder.
First, the Complaint adequately alleges that Barbosa and Campos made false and

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misleading statements in connection with the offering and sale of Wings Network membership
packs, in violation of Section 10(b) of the Exchange Act, and Section 17(a)(2) of the Securities
Act. Both Barbosa and Campos made false and misleading statements about Wings Network’s
purported products, services, and technology (1) on the Wings Network website; (2) during live
presentations; (3) through YouTube videos and other online presentations; and (4) in marketing
materials and other documents. Campos also made misleading statements to investors about
purported new products such as Wings Fly and Wings Resort, which never actually launched.
Barbosa made further misstatements to investors about Wings Network’s membership in DSA,
and Campos falsely represented to prospective investors that their investments would be
guaranteed through an insurance policy. In addition, both Barbosa and Campos falsely
represented that investors could receive full refunds if they cancelled their investment within
fourteen days. The Commission has also adequately alleged that these misrepresentations were
material, i.e., that there was a “substantial likelihood that the disclosure of the omitted fact would
have been viewed by the reasonable investor as having significantly altered the ‘total mix’ of
information made available.” Matrixx Initiatives, Inc. v. Siracusano, 563 U.S. 27, 38 (2011)
(quoting Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988)). 2 Additionally, and for the
purposes of Section 17(a)(2) of the Securities Act, the Commission has alleged that Barbosa and
Campos made these false and misleading statements for the purpose of obtaining money or
property from potential investors.
Further, the Commission has plead sufficient facts to establish that all three Principal
Defendants – Tanaka, Barbosa, and Campos – were engaged in a fraudulent scheme to defraud

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The Commission need not prove that any investors actually relied on the misrepresentations, or
that any investors were harmed. See S.E.C. v. Tambone, 597 F.3d 436, 447 n.9 (1st Cir. 2010).
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investors, in violation of Section 17(a)(1) & (3) of the Securities Act, and Section 10(b) of the
Exchange Act and Rule 10b-5(a) & (c) thereunder. The Complaint alleges that the Principal
Defendants created, operated, and promoted an extensive pyramid scheme, in which they
deceived investors into believing that (1) the Wings Network generated revenues from the sale of
legitimate products and services; and (2) that investors would earn returns on their investments
through the sales of additional membership packs.
The SEC has also adequately alleged that the Principal Defendants acted with scienter, as
required to state a claim under Section 17(a)(1) of the Securities Act, and Section 10(b) of the
Exchange Act and Rule 10b-5 thereunder. See S.E.C. v. Ficken, 546 F.3d 45, 47 (1st Cir. 2008)
(“Proof of scienter is required to establish violations of § 17(a)(1), § 10(b), or Rule 10b–5 . . .
.”). 3 Scienter may be established by indirect evidence, and “may extend to a form of extreme
recklessness . . . .” In re Cabletron Sys., Inc., 311 F.3d 11, 38 (1st Cir. 2002). The nature of the
Principal Defendants’ scheme or artifice was to present the Wings Network as a legitimate multilevel marketing company offering actual products and services, and to conceal the fact that the
company had no legitimate revenue stream and was operating as a classic pyramid scheme. The
nature of the Defendants’ scheme adequately supports the requisite inference of scienter.
C. Disgorgement
The Commission requests that the Court enter an Order of Disgorgement and
Prejudgment Interest against two of the Principal Defendants – i.e., Barbosa and Tanaka. 4 In a
case involving violation of the federal securities laws, the Court has “‘broad discretion not only

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Scienter is not required to state a claim under Sections 17(a)(2) and 17(a)(3) of the Securities
Act; mere negligence is sufficient to establish liability. See Ficken, 546 F.3d at 47.
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Because the Commission was not able to identify any ill-gotten gains by Defendant Campos,
the Commission is not seeking disgorgement from him.
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in determining whether or not to order disgorgement but also in calculating the amount to be
disgorged.’” S.E.C. v. Druffner, 802 F. Supp. 2d 293, 297 (D. Mass. 2011) (quoting SEC v. First
Jersey Sec., Inc., 101 F.3d 1450, 1474-75 (2d Cir. 1996)). The amount of disgorgement “need
only be a reasonable approximation of profits causally connected to the violation,” S.E.C. v.
Happ, 392 F.3d 12, 31 (1st Cir. 2004) (internal quotations and citation omitted), and the “risk of
uncertainty in calculating disgorgement should fall on the wrongdoer whose illegal conduct
created that uncertainty.” Id.
With respect to Defendant Tanaka, the Commission requests an order of disgorgement in
the amount of $1,711,059, plus pre-judgment interest in the amount of $83,088, for a total
judgment of $1,794,147. Against Defendant Barbosa, the Commission requests an order of
disgorgement in the amount of $143,324, plus pre-judgment interest in the amount of $6,960, for
a total judgment of $150,284.
After reviewing the Fifth and Ninth Declarations of John McCann (the SEC’s forensic
accountant) [ECF Nos. 213-1, 254-1], as well as the Affidavits of Deena Bernstein and Paolo
Koga [ECF Nos. 254-2, 254-3], the Court finds that the disgorgement amounts requested by the
SEC represent a reasonable approximation of the profits that Defendants Tanaka and Barbosa
obtained through the illegal conduct alleged in the Complaint. Accordingly, the Court will order
the disgorgement amounts requested by the Commission.
D. Civil Penalties
The SEC further argues that the Court should impose civil penalties upon the defaulting
Principal Defendants pursuant to Section 20(d)(2) of the Securities Act, 15 U.S.C. § 77t(d)(2),
and Section 21(d)(3) of the Exchange Act, 15 U.S.C. § 78u(d)(3)(i). These statutes provide in
relevant part that:

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[w]henever it shall appear to the Commission that any person has
violated any provision of this chapter . . . the Commission may bring
an action in a United States district court to seek, and the court shall
have jurisdiction to impose, upon a proper showing, a civil penalty
to be paid by the person who committed such violation.
15 U.S.C. § 78u(d)(3)(A); see also 15 U.S.C. § 77t(d)(1) (same language).
“Both statutes provide three tiers of penalties, the amount increasing with the severity of
the violation.” S.E.C. v. Manterfield, No. CIV A 07-10712-RGS, 2009 WL 935953, at *1 (D.
Mass. Apr. 8, 2009). “Tier I penalties are generally applicable . . . Tier II penalties require ‘fraud,
deceit, manipulation, or a deliberate or reckless disregard of a regulatory requirement,’ . . . and
Tier III penalties require the Tier II elements plus ‘substantial losses or ... significant risk of
substantial losses to other persons.’” S.E.C. v. Kern, 425 F.3d 143, 153 (2d Cir. 2005) (quoting
15 U.S.C. § 77t(d)(2)) (internal citations omitted).
Here, the Commission seeks a $150,000 civil monetary penalty against each of the
Principal Defendants, which is the maximum Tier III penalty for a natural person. See 17 C.F.R.
§ 201.1005 & Tbl I. The Court finds such penalties to be necessary and appropriate under the
circumstances. The allegations in the Complaint establish that Tanaka, Campos, and Barbosa
conducted a large-scale pyramid scheme that defrauded thousands of investors, and generated
more than $20 million in ill-gotten proceeds over a seven-month period. Furthermore, the facts
alleged are sufficient to establish that the Principal Defendants committed fraudulent acts with
knowledge and intent. The Court has also considered that the Principal Defendants have not
appeared in this action to defend against these allegations, or to take responsibility for their
actions. Accordingly, third-tier penalties are warranted, and the Court will impose $150,000 civil
monetary penalties against Defendants Tanaka, Campos, and Barbosa.
E. Permanent Injunction
The SEC has also requested that the Court enter a permanent injunction enjoining the
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Principal Defendants from committing further violations of the federal securities laws. See 15
U.S.C. § 77t(b); 15 U.S.C. § 78u(d)(1). “An injunction is appropriate if the Court determines
there is a reasonable likelihood that the defendant will violate the laws again in the future.”
Druffner, 517 F. Supp. 2d at 513 (citation omitted). To determine whether the defendant is
reasonably likely to violate the laws again in the future, the Court looks to “whether a
defendant’s violation was isolated or part of a pattern, whether the violation was flagrant and
deliberate or merely technical in nature, and whether the defendant’s business will present
opportunities to violate the law in the future.” Id. (quoting SEC v. Bilzerian, 29 F.3d 689, 695
(D.C. Cir. 1994)). In light of the allegations in the Complaint, which describe the Principal
Defendants’ formation and execution of a scheme to defraud investors over a seven-month
period, the Court finds that a permanent injunction is warranted.
V.

CONCLUSION
For the foregoing reasons, the Commission’s Motion for a Default Judgment against

Sergio Henrique Tanaka, Carlos Luis da Silveira Barbosa, and Claudio de Oliveira Pereira
Campos [ECF No. 213], and the Commission’s Supplemental Motion for Default Judgment
[ECF No. 254] are hereby ALLOWED as to Defendants Tanaka, Campos, and Barbosa.
SO ORDERED.
Dated: August 30, 2016

/s/ Allison D. Burroughs
ALLISON D. BURROUGHS
U.S. DISTRICT JUDGE

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