United States Securities and Exchange Commission et al v. Platinum Management (NY) LLC et al

Filing 217

ORDER granting 42 Motion to Intervene; granting 42 Motion to Stay -- For the reasons set forth in the ATTACHED WRITTEN MEMORANDUM AND ORDER, the Government's (represented by the Office of the U.S. Attorney for the Eastern District of New York) motion to intervene and to stay civil proceedings is granted. The SEC action is stayed pending the resolution of the criminal proceeding against the Individual Defendants. Nothing contained in this Electronic Order or the Attached Memorandum and Order is to be construed as affecting the responsibilities and actions of the Receiver in disposing of the receivership assets. SO ORDERED by Chief Judge Dora Lizette Irizarry on 7/7/2017. (Irizarry, Dora)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
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SECURITIES AND EXCHANGE COMMISSION,
:
:
Plaintiff,
:
:
-against:
:
PLATINUM MANAGEMENT (NY) LLC;
:
PLATINUM CREDIT MANAGEMENT, L.P.;
:
MARK NORDLICHT;
:
DAVID LEVY;
:
DANIEL SMALL;
:
URI LANDESMAN;
:
JOSEPH MANN;
:
JOSEPH SANFILIPPO; and
:
JEFFREY SCHULSE,
:
:
Defendants.
:
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DORA L. IRIZARRY, Chief U.S. District Judge:

MEMORANDUM & ORDER
16-CV-6848 (DLI) (VMS)

In this civil action, commenced on December 19, 2016, the Securities and Exchange
Commission (“SEC”) alleges that defendants Platinum Management (NY) LLC (“PMNY”) and
Platinum Credit Management, L.P. (“PCM”), as well as individual defendants Mark Nordlicht,
David Levy, Daniel Small, Uri Landesman, Joseph Mann, Joseph SanFilippo, and Jeffrey Schulse
(the “Individual Defendants”) (collectively, the “Civil Defendants”), participated in multiple
fraudulent schemes in violation of various securities laws. See SEC Compl., Dkt. Entry. No. 1 at
¶¶ 2-4, 38-43, 50-75.
Just prior to the filing of this action, on December 14, 2016, an indictment was filed in this
district charging each of the defendants with various counts of conspiracy to commit securities
fraud and wire fraud, securities fraud, and investment advisor fraud.
On January 23, 2017, the United States, through the United States Attorney for the Eastern
District of New York (the “Government”), moved to intervene and stay discovery pending the

outcome of the associated criminal proceeding. See generally, Gov’t’s Mem. of Law in Supp. of
Appl. to Intervene and to Stay Civil Proceedings, Dkt. Entry No. 42 (“Gov’t Mem.”). For the
reasons stated herein, the Government’s motion is granted.
BACKGROUND
On December 14, 2016, the Government filed an indictment charging all seven of the
Individual Defendants with conspiracy to commit securities and wire fraud, securities fraud, and
investment advisor fraud. (See Dkt. Entry No. 1, No. 16-cr-640) Specifically, the indictment
charges defendants Nordlicht, Levy, Landesman, SanFilippo, and Mann together, with one count
of conspiracy to commit securities fraud and investment advisor fraud, one count of conspiracy to
commit wire fraud, two counts of securities fraud, and one count of investment adviser fraud. Id.
at ¶¶ 88-90, 91-92, 93-94, 95-96, 97-98. Defendants Nordlicht, Levy, Small, and Schulse also
were charged together with one count of conspiracy to commit securities fraud, one count of
conspiracy to commit wire fraud, and one count of securities fraud. Id. at ¶¶ 99-101, 102-03, 10405. Five days later, the SEC filed a civil complaint (“Complaint”) in this action alleging violations
of the securities laws by the Civil Defendants.
The civil and criminal actions address essentially the same two allegedly fraudulent
schemes. First, the indictment and civil complaint allege that, between November 2012 and
December 2016, the Civil Defendants concealed a growing liquidity crisis at Platinum Partners’
flagship hedge fund, Platinum Partners Value Arbitrage Fund L.P. (“PPVA”), overvalued the
performance of PPVA’s assets, liquidity, and investments, and concealed the purpose of various
transactions in violation of PPVA’s governing documents. See SEC Compl. at ¶¶ 2-4, 38-43, 5075; Indictment ¶ 42. The indictment and complaint also allege that select investors were paid

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requested redemptions of their investments in PPVA ahead of and/or in lieu of other investors,
contrary to PPVA’s governing documents. SEC Compl. at ¶¶ 9, 127-37; Indictment at ¶ 42.
Second, the indictment and complaint allege that, between November 2011 and December
2016, certain of the Individual Defendants defrauded third-party holders of Black Elk bonds and
deprived these bondholders of the proceeds of a Black Elk asset sale through misrepresentations
regarding PMNY’s ownership and control over the bonds. SEC Compl. at ¶¶ 5, 77-102; Indictment
at ¶ 73.
After the SEC action was filed and the criminal indictment was unsealed, on January 23,
2017, the Government moved to intervene in the SEC’s civil action and sought a stay of the civil
proceedings pending the resolution of the parallel criminal action and an ongoing grand jury
investigation. See generally, Gov’t Mem. Defendants Small, Levy, SanFilippo, and Schulse
opposed the motion, arguing that certain discovery should proceed in this action. See Defs.
Small’s, Levy’s, SanFilippo’s, and Schulse’s Partial Opp. to App. of the U.S. to Intervene and to
Stay Civil Proceedings, (“Small Opp. Br.”) Dkt. Entry No. 79; Letter from Jeffrey Schulse,
(“Schulse Opp. Letter”) Dkt. Entry No. 80. Defendants Nordlicht, PMNY, and PCM joined. See
Ltr. from Government, Dkt. Entry No. 81, at 1; Gov’t Reply Mem. of Law in Supp. of Application
to Intervene and to Stay Civil Proceedings, Dkt. Entry No. 84, at 1 fn 2. Defendants Landesman
and Mann did not oppose the motion. See Gov’t Mem. at 1; Ltr. from Joseph Mann, Dkt. Entry
No. 78. The Government replied to Small, Levy, SanFilippo, Schulse, Nordlicht, PMNY, and
PCM on February 13, 2017. Id.
DISCUSSION
I.

Intervention
The Government moved to intervene in this action, arguing that it may do so as a matter of

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right or alternatively on a permissive basis. (See Gov’t Mem. at 4-8.) This request is unopposed
by the Civil Defendants. (See Small Opp. Br. at 2.).
Under Rule 24 of the Federal Rules of Civil Procedure, a party may intervene in a civil
action either as a matter of right or on a permissive basis. Rule 24 provides that intervention as of
right is appropriate when, upon a timely motion, a party seeking to intervene:
claims an interest relating to the property or transaction that is the
subject of the action, and is so situated that disposing of the action
may as a practical matter impair or impede the movant’s ability to
protect its interest, unless existing parties adequately represent that
interest.
Fed. R. Civ. P. 24(a)(2); See also MasterCard Int’l, Inc. v. Visa Int’l Serv. Ass’n, 471 F.3d 377,
389 (2d Cir. 2006) (“Intervention as of right . . . is granted when . . . : (1) the motion is timely; (2)
the applicant asserts an interest relating to the property or transaction that is the subject of the
action; (3) the applicant is so situated that without intervention, disposition of the action may, as a
practical matter, impair or impede the applicant's ability to protect its interest; and (4) the
applicant's interest is not adequately represented by the other parties.”) (citations omitted);
Mortgage Lenders Network, Inc. v. Rosenblum, 218 F.R.D. 381, 383 (E.D.N.Y. 2003).
Intervention as of right is appropriate in this case under Rule 24(a)(2). First, this action
was filed on December 19, 2016 and the Government moved to intervene on January 23, 2017,
just over one month later. See Gov’t Mem. p. 6; see Sec. & Exch. Comm'n v. Shkreli, 2016 WL
1122029, at *2 (E.D.N.Y. Mar. 22, 2016) (finding movants’ motion to intervene as timely when
filed “just over a month” after the SEC complaint was filed); Gulino v. Bd. of Educ., 2009 WL
2972997, at *3 (S.D.N.Y. Sept. 17, 2009) (“Movants filed their motion just one month after the
case was reassigned within the District Court, so it is timely.”). Moreover, the motion to intervene
was filed before any discovery had taken place in the civil case, and, therefore, no party has

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suffered prejudice. Second, the Government has “a discernible interest in intervening in order to
prevent discovery in the civil case from being used to circumvent the more limited scope of
discovery in the criminal matter.” S.E.C. v. Chestman, 861 F.2d 49, 50 (2d Cir. 1988). Third,
further proceedings in this action could impair the Government’s interest in limiting the defendants
to the discovery available under the Federal Rules of Criminal Procedure. Finally, although the
interests of the SEC and the Government certainly converge to some extent, the Government is
uniquely focused on the enforcement of criminal statutes. See S.E.C. v. Downe, 1993 WL 22126,
at *12 (S.D.N.Y. Jan. 26, 1993) (“[E]ven though the SEC is involved in this action, the United
States Attorney may have an interest in this litigation which is qualitatively different from the
SEC’s interest.”). Accordingly, intervention as of right is appropriate in this action.
Alternatively, permissive intervention per Rule 24(b)(1) equally is appropriate. Rule
24(b)(1) provides that, upon a timely motion, a court “may” permit anyone to intervene who “has
a claim or defense that shares with the main action a common question of law or fact.” Fed. R.
Civ. P. 24(b)(1)(B). “Permissive intervention is wholly discretionary with the trial court.” Shkreli,
2016 WL 1122029, at *3 (quoting Dorchester Fin. Holdings Corp. v. Banco BRJ, S.A., 2016 WL
845333, at *2 (S.D.N.Y. Mar. 2, 2016)); see also St. John’s Univ., New York v. Bolton, 450 F.
App’x 81, 84 (2d Cir. 2011) (“A district court has broad discretion under Rule 24(b) to determine
whether to permit intervention . . ..”).
Here, there is significant overlap between this proceeding and the criminal case. In both
cases, the Individual Defendants are alleged to have perpetrated two schemes to: (1) defraud
investors in Platinum’s funds through misrepresentations and omissions about, among other
things, PPVA’s liquidity, the value of some of PPVA’s largest investments, and the preferential
and selective payment of investor redemptions, and (2) defraud third-party holders of Black Elk

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bonds. (Compare Indictment at ¶¶ 42, 73, with Complaint at ¶¶ 3-5.) Both actions share common
legal and factual questions, militating strongly in favor of permissive intervention. See Shkreli,
2016 WL 1122029, at *3 (granting permissive intervention where criminal and SEC actions shared
“a great number of common legal and factual questions”); Downe, 1993 WL 22126, at *11
(granting permissive intervention where criminal investigation and corresponding SEC action
arose “out of common questions of law and fact”); See also Chestman, 861 F.2d at 50. Permissive
intervention, therefore, is appropriate.
Accordingly, the Government’s motion to intervene in this action is granted.
II.

Stay
The Court turns to the Government’s request for a complete stay of the civil proceedings.

See Gov’t Mem. at 8-17. “‘[T]he power to stay proceedings is incidental to the power inherent in
every court to control the disposition of the causes on its docket with economy of time and effort
for itself, for counsel, and for litigants.’” Louis Vuitton Malletier S.A. v. LY USA, Inc., 676 F.3d
83, 96 (2d Cir. 2012) (quoting Landis v. N. Am. Co., 299 U.S. 248, 254 (1936)); see also Chestman,
861 F.2d at 50 (noting in dicta that “[t]he only result of the intervention has been the staying of
discovery, an order the district court could have entered sua sponte.”). Exercising that inherent
power, federal courts “have deferred civil proceedings pending the completion of parallel criminal
prosecutions when the interests of justice seemed to require such action, sometimes at the request
of the prosecution, sometimes at the request of the defense.” United States v. Kordel, 397 U.S. 1,
12 n.27 (1970) (citations omitted) (collecting cases). Generally, the party “seeking a stay bears
the burden of establishing its need.” S.E.C. v. McGinnis, 2016 WL 591764, at *3 (D. Vt. Feb. 12,
2016) (internal quotation marks and citation omitted).
Courts in this Circuit have employed a six-factor test to determine whether a stay of civil

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proceedings, pending the outcome of a party’s criminal case, serves the interests of justice. In
making determinations about stays, courts consider: 1) the extent to which the issues in the criminal
case overlap with those presented in the civil case; 2) the status of the case, including whether the
defendants have been indicted; 3) the private interests of the plaintiffs in proceeding expeditiously
weighed against the prejudice to plaintiffs caused by the delay; 4) the private interests of and
burden on the defendants; 5) the interests of the courts; and 6) the public interest. Louis Vuitton,
676 F.3d at 99; Plaintiffs # 1-21 v. Cnty. of Suffolk, 138 F. Supp.3d 264, 279 (E.D.N.Y. 2015).
The Second Circuit has cautioned that these tests “can do no more than act as a rough guide
for the district court as it exercises its discretion,” and the tests are not “mechanical devices for
churning out correct results in overlapping civil and federal proceedings.” Louis Vuitton, 676 F.3d
at 99. The appropriateness of a stay ultimately rests within the judgment of the district court “based
on the particular facts before it and the extent to which such a stay would work a hardship, inequity,
or injustice to a party, the public or the court.” Id.; See also McGinnis, 2016 WL 591764, at *3.
The Court turns to a holistic consideration of these factors, mindful that none is dispositive.
First, the Court examines the overlap of the issues in the criminal and civil cases. Courts
have recognized this as a particularly significant factor. See Harris v. Nassau Cnty., 2014 WL
3491286, at *3 (E.D.N.Y. July 11, 2014) (“The most important factor at the threshold is the degree
to which the civil issues overlap with the criminal issues.”); In re 650 Fifth Ave., 2011 WL
3586169, at *3 (S.D.N.Y. Aug. 12, 2011) (same); Stamile v. Cnty. of Nassau, 2011 WL 1754125,
at *4 (E.D.N.Y. Jan. 31, 2011) (same). Where there is overlap, there is a greater concern about
self-incrimination. By contrast, if “there is no overlap, there would be no danger of selfincrimination and accordingly no need for a stay.” Trustees of Plumbers & Pipefitters Nat.
Pension Fund v. Transworld Mech., Inc., 886 F. Supp. 1134, 1139 (S.D.N.Y. 1995).

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A comparison of the indictment and the complaint reveals that the alleged schemes are
nearly identical. Compare, e.g., Indictment at ¶ 42 (allegation that certain of the defendants
participated in a scheme to defraud investors and prospective investors in funds managed by
Platinum), with SEC Compl. at ¶ 188 (allegation that certain of the defendants engaged in a scheme
to defraud investors and potential investors by making material misrepresentations and omissions
about, inter alia, the liquidity constraints of PPVA, the value of Platinum’s investments, and the
diversion of funds); Compare also, e.g., Indictment ¶ 73 (allegation that certain of the defendants
participated in a scheme to defraud third party bond holders of Black Elk bonds), with SEC Compl.
at ¶ 5. The substantial commonality of the allegations in both the criminal and civil proceedings
weigh strongly in favor of granting a stay.
Second, the Court considers the status of the parallel criminal proceeding. The filing of a
criminal indictment weighs in favor of a stay of the parallel civil case. See, e.g., Hicks v. City of
N.Y., 268 F. Supp.2d 238, 242 (E.D.N.Y. 2003) (“[T]he strongest argument for granting a stay is
where a party is under criminal indictment.”); See also Louis Vuitton, 676 F.3d at 101 (recognizing
that indictment in parallel criminal proceeding “supported the entry of a stay”); Trustees of
Plumbers, 886 F. Supp. at 1139 (“A stay of a civil case is most appropriate where a party to the
civil case has already been indicted for the same conduct . . . .”); SEC v. One or More Unknown
Purchasers of Secs. of Global Inds., Ltd., 2012 WL 5505738, at *3 (S.D.N.Y. Nov. 9, 2012) (“[A]
civil stay is most appropriate when the defendant has already been indicted, as the likelihood that
a defendant may make incriminating statements is greatest after an indictment has issued.”)
(internal quotation marks and citation omitted).
In this case, all Individual Defendants have been indicted. See Indictment. Because the
instant action and the criminal matter arise from the same underlying events and involve the same

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actors, evidence from the civil action, where the Individual Defendants likely would be deposed,
could incriminate them in the criminal action. Accordingly, the Court finds that this factor leans
in the Government’s favor. See Harris, 2014 WL 3491286, at *4 (“The weight of authority in this
Circuit indicates that courts will stay a civil proceeding when the criminal investigation has ripened
into an indictment.” (internal quotation marks and citation omitted)).
Third, the Court weighs the private interests of the plaintiff in proceeding expeditiously
against the prejudice caused by a delay.

While the SEC has not affirmatively joined the

Government’s motion to intervene and stay the civil case, the SEC has represented that it does not
oppose the requested stay. See Def. Mem. at 1. Accordingly, this third factor has no bearing on
the analysis. See S.E.C. v. Treadway, 2005 WL 713826, at *2-3 (S.D.N.Y. Mar. 30, 2005) (noting,
where the SEC took no position on a stay until the end of criminal proceedings, the SEC did “not
articulate[] an interest that requires consideration”); One or More Unknown Purchasers of Secs. of
Glob. Indus., Ltd., 2012 WL 5505738, at *3 (“The SEC, the Plaintiff in the Civil Case, does not oppose
the U.S. Attorney’s Motion. This position perhaps indicates support for a stay, but at the very least
makes clear that the SEC does not believe it will be prejudiced by one.”). Accordingly, this factor
weighs in favor of granting a stay.

Fourth, the Court must consider the private interests and burden on the Individual
Defendants should a stay be imposed. The opposing defendants contend that they will be
prejudiced by a stay because it would allow the SEC to continue investigating its case while barring
them from obtaining exculpatory evidence.

Therefore, the opposing defendants propose a

narrowly tailored stay that would bar depositions, interrogatories, or any “testimonial-type
activities,” including the filing of responsive pleadings, as to any party or witness, including
Government cooperators, with a legitimate basis for the invocation of self-incrimination under the
Fifth Amendment. Small Opp. at 2-3. Opposing defendants further argue that the Government
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has not met its burden of showing either undue prejudice or actual harm that would result if the
civil action were to proceed without the stay. Id. at 4. These arguments have no merit, given the
potential impact on the Individual Defendants’ Fifth Amendment rights. Even a narrowly tailored
discovery protocol, that includes testimonial types of evidence, could include potentially
incriminating documents or emails.
Defendants further contend that they face “significant prejudice if they are not permitted
to take any discovery in this action for an indefinite, likely prolonged, period until resolution of
the Criminal Action.” Id. at 8. But these concerns are highly overstated as the Government
represents that it will produce to defendants all materials it has received from the SEC allowing
defendants to prepare for the civil case during the pendency of the criminal case. See Govt. Reply
Br. at 9. Indeed, extensive discovery obtained not only from seizures, subpoenas, and witness
interviews from the criminal investigation as well as from the SEC and its investigation, has been
provided, and continues to be provided, to the Individual Defendants on a rolling basis in the
criminal case.1 Much of the same evidence is likely to be used in both cases. Notably, at the
status conference held on both cases on the date of the issuance of this decision, the Government
state that it had turned over to the Individual Defendants many documents received from the SEC.
The Government further represented that it expects to receive additional discovery from the SEC
in the near future that also will be turned over to the Individual Defendants. In effect, the only
discovery that will not be had in this civil matter is “testimonial” type discovery, such as
depositions, as proposed by the opposing defendants. Significantly, the discovery of exculpatory
evidence was extensively discussed at the conference and a motion schedule has been set to address
the Individual Defendant’s request for such evidence as well as a bill of particulars in the criminal

1

The Government represented at the conference (See infra), without opposition from the Individual Defendants, that,
to date, it has turned over to defendants over 13.5 million documents, with more to come.

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case. Opposing defendants can hardly be heard to complain that they will be deprived of discovery
in this civil matter.
Defendants’ additional claim that a complete stay will cause harm to their reputation is
unconvincing and disingenuous at best. Small Br. at 13; Shulse Br. 2. The criminal case will
proceed regardless of whether or not a complete stay of the civil proceedings is granted and it is
implausible that the opposing defendants will suffer greater reputational harm from civil charges
than from a criminal indictment. Therefore, this factor does not alter the Court’s determination
that a stay is justified.
Fifth, the Court considers its own interests. Courts often look to the “convenience of the
court in the management of its cases” as well as the “efficient use of judicial resources.” Sterling
Nat. Bank v. A-1 Hotels Int’l, Inc., 175 F. Supp.2d 573, 576 (S.D.N.Y. 2001) (internal quotation
marks and citations omitted); See also Fendi Adele S.R.L. v. Ashley Reed Trading, Inc., 2006 WL
2585612, at *2 (S.D.N.Y. Sept. 8, 2006) (same). Here, the Court has a strong interest in the
efficient resolution of both the criminal and civil cases. The civil case is “likely to benefit to some
extent from the [c]riminal [c]ase no matter its outcome.” Glob. Indus., Ltd., 2012 WL 5505738, at
*4. For example, evidence gathered and presented during the criminal prosecution can be used in
the civil action. Shkreli, 2016 WL 1122029, at *6. In proposing a partial stay that would bar any
“testimonial-type activities” that broadly might implicate the Government’s or defendants’
legitimate interests, it is certain that judicial resources would be required to resolve civil discovery
disputes in determining what types of discovery would implicate the Government’s or defendants’
interests. A stay of the civil action “would avoid a duplication of efforts and a waste of judicial
time and resources.” Id. (citing S.E.C. v. Gordon, 2009 WL 2252119, at *5 (N.D. Okla. July 28,
2009)); See also Javier H. v. Garcia-Botello, 218 F.R.D. 72, 75 (W.D.N.Y. 2003) (“By proceeding
first with the criminal prosecution, the Court makes efficient use of judicial time and resources by

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insuring that common issues of fact will be resolved and subsequent civil discovery will proceed
unobstructed by concerns regarding self-incrimination.”); Volmar, 152 F.R.D. at 42. Accordingly, this
factor also favors a stay.

Finally, the Court considers the public interest. While “it can be difficult to discern whether
the public has a stronger interest in the criminal or the civil litigation,” often, as courts in this circuit
have held, “the public’s interest in the effective enforcement of the criminal law is the paramount
public concern.” Shkreli, 2016 WL 1122029, at *7; See also McGinnis, 2016 WL 591764, at *5

(granting stay of SEC action in part because the “public's interest in the integrity of the [parallel]
criminal case is entitled to precedence over the civil litigant” (internal quotation marks and citation
omitted)); Treadway, 2005 WL 713826, at *4 (“It is in the public interest . . . to prevent
circumvention of the limitations on discovery in the criminal proceedings.”) Here, Defendants
Small, Levy, SanFilippo, Schulse, Nordlicht, PMNY, and PCM properly outline a string of district
court decisions, in this Circuit and others, rejecting a complete stay of civil proceedings in an SECinitiated civil action, pending the outcome of a parallel criminal action. See Small Opp. Br. at 56; See also S.E.C. v. Gupta, No. 11-CV-7566, 2011 WL 5977579, at *2 (S.D.N.Y. Nov. 30, 2011);
S.E.C. v. Cioffi, No. 08-CV-2457, 2008 WL 4693320, at *2 (E.D.N.Y. Oct. 23, 2008); Saad, 229
F.R.D. at 92. Other the other hand, numerous courts in this Circuit have granted complete stays
of SEC actions during the pendency of a parallel criminal case, even over a defendant’s objections.
See, e.g., Shkreli, 2016 WL 1122029, at *7; Glob. Indus., Ltd., 2012 WL 5505738, at *6; Gordon,
2009 WL 2252119, at *5. Ultimately, the decision to stay the civil matter rests within the sound
discretion of the Court.
Given the analysis above, the circumstances of the two cases before the Court heavily favor
a stay of all civil proceedings. The substantial overlap of the issues and events in both cases, the
post-indictment status of the criminal case, the SEC’s lack of opposition to the Government’s
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proposed stay, the extensive discovery provided to the Individual Defendants in the criminal
matter, the Court’s interest in the effective resolution of both proceedings, and the strong public
interest in criminal justice all favor a complete stay of the civil action.

CONCLUSION
For the foregoing reasons, the Government’s motion to intervene and to stay civil
proceedings is granted. The SEC action is stayed pending the resolution of the criminal proceeding
against the Individual Defendants. Nothing contained in this Memorandum and Order is to be
construed as affecting the responsibilities and actions of the Receiver in disposing of the
receivership assets.

SO ORDERED.
Dated: Brooklyn, New York
July 7, 2017
/s/
DORA L. IRIZARRY
Chief United States District Judge

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