Securities And Exchange Commission v. Pirrello et al

Filing 36

ORDER granting 25 Motion to Intervene; granting 25 Motion to Stay. For the reasons articulated in the attached Memorandum & Order, the Government's 25 motion to intervene and the Government's 25 request for a stay of the instant C ivil Case are GRANTED. All deadlines will be held in abeyance until the resolution of the Criminal Case. Within thirty (30) days of the resolution of United States v. Raymond John Pirrello, Jr., 23-cr-499 (KAM) (JMC), the parties are respectfully requested to file a joint status letter regarding how they intend to proceed in the instant Civil Case via ECF. Ordered by Judge Kiyo A. Matsumoto on 2/5/2024. (HM)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF NEW YORK
--------------------------------------X
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,

MEMORANDUM AND ORDER
23-CV-8953 (KAM)(MMH)

-againstRAYMOND J. PIRELLO, JR.,
MARCELLO FOLLANO,
ROBERT CASSINO,
ANTHONY DITUCCI,
JOSEPH RIVERA,
PRIOR 2 IPO INC,
LATE STAGE ASSET MANAGEMENT, LLC,
PRE IPO MARKETING INC., and
JL RIVERA ENTERPRISES LTD.
Defendants.
--------------------------------------X

MATSUMOTO, United States District Judge:
On December 6, 2023, the Securities and Exchange Commission
(the “SEC”) commenced the instant civil action against
Defendants Raymond J. Pirrello, Jr. (“Pirrello”), Marcello
Follano (“Follano”), Robert Cassino (“Cassino”), Anthony DiTucci
(“DiTucci”), Joseph Rivera (“Rivera”), Prior 2 IPO Inc. (“Prior
2 IPO”), Late Stage Asset Management, LLC doing business as Late
Stage Management (“Late Stage”), Pre IPO Marketing Inc. (“Pre
IPO Marketing”), and JL Rivera Enterprises Ltd. (“JL Rivera
Enterprises”) (collectively, “Defendants”), alleging that
Defendants engaged in unregistered securities offerings whereby
1

Defendants fraudulently solicited investor funds for the purpose
of acquiring stakes in certain investment vehicles purportedly
designed to purchase shares of private companies in advance of
those companies’ potential initial public offerings (“IPO”).
See generally Sec. & Exch. Comm’n v. Pirello, et al., No. 23-cv8953 (KAM) (MMH) (“Civil Case”), (Civil Case, ECF No. 1, “SEC
Compl.”)

In connection with this allegedly fraudulent scheme,

Defendants are alleged to have disseminated investor materials
containing material misrepresentations and omissions relating to
the fee structure for the advertised investments.
1.)

(SEC Compl. ¶

According to the SEC Complaint, Defendants raised

approximately $528 million from more than 4,000 investors
between March 2019 and July 2022 within the Eastern District of
New York and elsewhere.

(SEC Compl. ¶ 2.)

On the same day that the Civil Case was initiated, the
Honorary Magistrate Judge James R. Cho issued an order unsealing
a three-count Indictment returned by a grand jury sitting in the
Eastern District of New York, which charged Pirrello with
virtually identical conduct.

See United States v. Raymond J.

Pirello, Jr., No. 23-cr-499 (KAM) (JRC) (“Criminal Case”),
(Criminal Case, ECF No. 1, “Indictment”).
Before this Court is the January 19, 2024 motion by the
United States, through the United States Attorney in the Eastern
District of New York (the “Government”), to intervene in the
2

instant Civil Case in order to seek a stay of civil proceedings
pending the outcome of the Criminal Case.
Mot.”)

(ECF No. 25, “Govt.

Neither the SEC nor Defendants have opposed the

Government’s motion.
For the reasons set forth below, the Government’s motion to
intervene and for a stay of this action is GRANTED.
BACKGROUND
On December 5, 2023, the Government filed a sealed threecount Indictment charging Pirrello with one count of Conspiracy
to Commit Securities Fraud in violation of 18 U.S.C. §§ 371 and
3551, one count of Conspiracy to Commit Wire Fraud in violation
of 18 U.S.C. §§ 1349 and 3551, and one count of Securities Fraud
in violation of 15 U.S.C. §§ 78j(b) and 78ff.

The Indictment

refers to several of the entities named as Defendants in the SEC
Complaint, as well as Pirrello, who is listed both as a
Defendant in the SEC Complaint and as the sole Defendant in the
Indictment.

(Indictment ¶¶ 1-7.)

Upon application by the

Government, the Indictment was unsealed on December 6, 2023.
The Indictment describes a fraudulent scheme wherein
“Pirrello, together with others . . . defraud[ed] investors and
prospective investors in [connection with] securities offered by
Late Stage through material misrepresentations and omissions
relating to, among other things the existence and amount of fees
paid by investors in stock offered by Late Stage and the
3

methodology of setting prices for shares of stock offered by
Late Stage.”

(Indictment ¶ 12.)

The Indictment describes Late

Stage as “a series of investment funds . . . [that] invested in
stock issued by privately held companies that, at the time of
investment, purportedly anticipated either making an [IPO] or
being sold to a larger business in the relatively near term.”
(Indictment ¶ 1.)

Among the ”material misrepresentation and

omissions” described, Pirrello is alleged to have “directed []
employees to depict the fund as having ‘no up front fees’” such
that “[i]nvestors were [] led to believe that all their invested
capital was used to purchase stock” when “[i]n reality, a fee
ranging from 10-50% of each investment was extracted up front in
the form of a markup to the price of the stock[.]”
¶¶ 12, 15.)

(Indictment

The Indictment further alleges that “between

approximately March 2019 and July 2022, [Pirello and others]
raised approximately $528 million from investors.”

(Indictment

¶ 12.)
The SEC Complaint alleges that Defendants’ participation in
the same conduct alleged within the Indictment also constitutes
a violation of federal securities laws and asks this Court to
permanently enjoin Defendants from violating federal securities
laws and rules, order Defendants to disgorge all ill-gotten
gains originating from the alleged violations and pay civil
monetary penalties, and permanently prohibit Pirello, Follano,
4

Cassino, DiTucci, and Rivera from serving as officers or
directors of any registered company.

(SEC Compl. ¶ 12.)

Specifically, the SEC Complaint alleges that “Defendants used a
network of unregistered sales agents to engage in unregistered
offerings of securities in investment vehicles that provided
access to shares of private companies that may hold an [IPO]”
and that “Defendants procured investor funds by fraud, falsely
telling investors that . . . [they] would pay no upfront fees or
commissions” when, in fact, “investors were charged exorbitant
upfront markups on all investments, allowing Defendants to
pocket millions of dollars[.]”

(SEC Compl. ¶ 1.)

The

investment vehicles purportedly used by Defendants are a
collection of “at least fifty private investment funds” referred
to as “Late Stage[.]”

(SEC Compl. ¶ 2.)

The allegations in the Indictment and in the SEC Complaint
relate to the same underlying set of facts, namely the
purportedly fraudulent scheme to defraud investors and potential
investors in pre-IPO companies through material
misrepresentations and omissions.

Both the Indictment and the

SEC Complaint allege that Pirello, together with others,
solicited investor funds through material misrepresentations and
omissions.

(Indictment ¶ 12); (SEC Compl. ¶ 1.)

Both the

Indictment and the SEC Complaint elaborate that one such alleged
misrepresentation and omission relates to the fee structure
5

associated with the advertised investment opportunity, whereby
investors were informed that they would not be charged any fees
or commissions, notwithstanding the fact that Defendants are
alleged to have surreptitiously applied exorbitant markups on
each initial investment.
82-83, 86.)

(Indictment ¶ 17-20); (SEC Compl. ¶¶

Both the Indictment and the SEC Complaint refer to

Late Stage as an investment vehicle comprised of various
investment funds, through which Pirello and others invested in
companies believed to be on the brink of either going public or
effectuating a private acquisition.
Compl. ¶¶ 2-3.)

(Indictment ¶ 1); (SEC

Finally, the Indictment and SEC Complaint refer

to the same time period of the alleged conduct, approximately
equivalent markup rates, identical amounts of fraudulently
solicited investor funds, and many of the same actors, including
most saliently, Pirello.

(Indictment ¶¶ 1, 2, 5, 20-21); (SEC

Compl. at 1, ¶¶ 2, 102.)
Approximately six weeks after the date on which the SEC
initiated this matter and the Indictment in the Criminal Case
was unsealed, the Government moved to intervene in the instant
civil case in order to seek a stay of all civil proceedings
pending the outcome of the parallel Criminal Case.
at 1.)

(Govt. Mot.

The Government has represented in its motion (Got. Mot.

at 3), and by subsequent letter updates to the Court, dated
January 22, 2024 (ECF No. 26), and January 23, 2024 (ECF No. 34)
6

that Defendants Pirello, Follano, Cassino, Ditucci, and Rivera
(the “Individual Defendants”) do not object to the Government’s
motion.

The remaining Defendants have not opposed the

Government’s motion.1

The Government has further represented

that the SEC does not object to the Government’s motion.

(Got.

Mot. at 3.)
LEGAL STANDARD
I.

Intervention as of Right
Pursuant to Federal Rule of Civil Procedure 24, a party may

intervene in a civil action either as of right or with the
permission of the Court.

Intervention as of right pursuant to Fed.

R. Civ. P. 24 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).
An applicant seeking to intervene as of right must “(1)
timely file an application, (2) show an interest in the action,

The Government filed and served the instant motion on January 19, 2024.
Pursuant to E.D.N.Y. Local Civil Rule 6.1(b)(2), Defendants were permitted
the opportunity to file “any opposing affidavits or answering memoranda . . .
within fourteen days after service of the moving papers[.]” Defendants Late
Stage, Prior 2 IPO, Pre IPO Marketing, and JL Rivera Enterprises have not
filed any opposition within the allotted 14 days and the time to oppose the
Government’s motion has now lapsed.
1

7

(3) demonstrate that the interest may be impaired by the
disposition of the action, and (4) show that the interest is not
protected adequately by the parties to the action.”

Griffin v.

Sheeran, 767 F. App’x 129, 132 (2d Cir. 2019) (quoting Catanzano
v. Wing, 103 F.3d 223, 232 (2d Cir. 1996)).

The applicant’s

“failure to satisfy any one of these four requirements is a
sufficient ground to deny the application.”

Floyd v. City of

New York, 770 F.3d 1051, 1057 (2d Cir. 2014) (citing “R” Best
Produced, Inc. v. Shulman-Rabin Mktg. Corp., 467 F.3d 238, 240
(2d Cir. 2006)) (emphasis in original).
A. Timeliness
Although there is no bright line rule regarding the
timeliness requirement, the Second Circuit has specified
considerations that may guide the District Court’s
determination.

Those considerations include “(a) the length of

time the applicant knew or should have known of its interest
before making the motion; (b) prejudice to existing parties
resulting from [any] delay; (c) prejudice to the applicant if
the motion is denied; and (d) the presence of unusual
circumstances militating for or against a finding of
timeliness.”

MasterCard Int’l Inc. v. Visa Int’l Serv Ass’n,

Inc., 471 F.3d 377, 390 (2d Cir. 2006).

Ultimately, “[t]he

timeliness requirement is flexible, and the decision is []
entrusted to the district judge’s sound discretion.”
8

United

States v. Yonkers Bd. of Educ., 801 F.2d 593, 594-95 (2d Cir.
1986).
B. Cognizable Interest
In order to demonstrate a cognizable interest in the action
under Fed. R. Civ. P. 24(a)(2), an applicant must point to a
“direct, substantial, and legally protectable” interest.
Bridgeport Guardians, Inc v. Delmonte, 602 F.3d 469, 473 (2d
Cir. 2010) (internal citation omitted).

One such interest,

which has consistently been recognized by district courts within
this Circuit, is the Government’s “discernable interest in . . .
prevent[ing] discovery in [a] civil case from being used to
circumvent the more limited scope of discovery in [a parallel]
criminal matter.”

Sec. & Exch. Comm’n v. Chestman, 861 F.2d 49,

50 (2d Cir. 1988); see also Sec. & Exch. Comm’n v. Milton, No.
21-cv-6445 (AKH), 2022 WL 3156180, at *3 (S.D.N.Y. Aug. 8,
2022), Sec. & Exch. Comm’n v. Shkreli, No. 15-cv-7175 (KAM),
2016 WL 1122029, at *2 (E.D.N.Y. Mar. 22, 2016).

Moreover, the

Supreme Court has recognized the strong interest of the public
and the Government in the enforcement of criminal laws.

Cascade

Natural Gas Co. v. El Paso Natural Gas Co., 386 U.S. 129, 132-36
(1967).
C. Impairment of Cognizable Interest
With respect to impairment, courts in this Circuit are
consistently mindful of the risk that discovery proceedings in a
9

civil case can impair both the Government’s and defendants’
interests in a parallel criminal case.

See Milton, 2022 WL

3156180, at *4 (“courts have recognized that refusing to grant a
stay might also expand the rights of criminal discovery beyond
the limits of Rule 16(b) of the Federal Rules of Criminal
Procedure, expose the basis of the defense to the prosecution in
advance of trial, or otherwise prejudice the case[]”)(internal
quotation marks and citation omitted).

Indeed “the strongest

case for deferring civil proceedings until after completion of
criminal proceedings is where a party under indictment for a
serious offense is required to defend a civil or administrative
action involving the same matter.”

Sec. & Exch. Comm’n v.

Dresser Industries, Inc., 628 F.2d 1368, 1375-76 (D.C. Cir.
1980).

In such cases, the discovery permitted under Fed. R.

Civ. P. 26 threatens to “undermine the party’s Fifth Amendment
privilege against self-incrimination, expand the rights of
criminal discovery beyond the limits of [Fed. R. Crim. P.] 16(b)
[and 18 U.S.C. § 3500], expose the basis of the defense to the
prosecution in advance of criminal trial, [and] otherwise
prejudice the [criminal] case.”

In re Par Pharmaceutical, Inc.

Sec. Litig., 133 F.R.D. 12, 13 (S.D.N.Y. 1990) (quoting Dresser,
628 F.2d at 1376.)

Moreover, because the restrictions in the

scope of discovery permitted in a criminal case are “designed to
. . . deter[] efforts to tailor testimony, suborn perjury,
10

fabricate evidence, and intimidate witnesses[,]” expansion of
the scope of discovery in a criminal case by virtue of the
discovery process in a parallel civil proceeding can prejudice
both parties and impair the overall “integrity of the criminal
justice process.”

Sec. & Exch. Comm’n v. Garelick, No. 23-cv -

5567 (PGG), 2023 WL 8602840, at *6 (S.D.N.Y. Dec. 12, 2023).
D. Adequate Protection
Finally, an applicant must demonstrate that the “existing
parties” cannot “adequately represent th[e] interest[s]” at risk.
Fed. R. Civ. P. 24(a)(2).

Where the United States Attorney seeks

to intervene in a civil case that involves another [sector] of the
United States government, the “Court must recognize that various
branches within the United States Government often have diverging
interests.”

Sec. & Exch. Comm’n v. Downe, No. 92-cv-4092 (PKL),

1993 WL 22126, at *12 (S.D.N.Y. Jan. 26, 1993).

In such

circumstances, the SEC does not necessarily serve as an adequate
representation of the United States Attorney’s “qualitatively
different” interest in protecting the integrity of its criminal
investigations and enforcing criminal laws.

Downe, 1993 WL 22126,

at *12.

II.

Permissive Intervention

A party may also seek permissive intervention, pursuant to
Fed. R. Civ. P. 24(b), which dictates, in relevant part, that
upon a timely motion, a Court “may permit anyone to intervene

11

who . . . has a claim or defense that shares with the main
action a common question of law or fact.”
24(b)(1)(B).

Fed. R. Civ. P.

“Permissive intervention pursuant to Rule 24(b)

‘is discretionary with the trial court.’”

Citizens Against

Casino Gambling in Erie Cty. v. Hogen, 417 F. App’x 49, 50 (2d
Cir. 2011) (summary order) (quoting H.L. Hayden Co. of N.Y. v.
Siemens Med. Sys., Inc., 797 F.2d 85, 89 (2d Cir. 1986)); see
also St. John’s Univ., N.Y. 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”).
III. Stay of Proceedings
A district court is well within its discretion to “stay []
civil proceedings when the interests of justice . . . require
such action.”

Kashi v. Gratsos, 790 F.2d 1050, 1057 (2d Cir.

1986) (internal quotation marks omitted); see also U.S.
Commodity Futures Trading Comm’n v. Lamarco, No. 17-cv-4087
(ADS), 2018 WL 2103208, at *4 (E.D.N.Y. May 7, 2018) (“It is
well established that district courts have discretionary
authority to stay a case when the interests of justice so
require.”)

This discretion stems from “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.”

Landis v. North American Co., 299 U.S. 248,

254 (1936).
12

In Louis Vuitton Malletier S.A. v. LY USA, Inc., 676 F.3d
83, 99 (2d Cir. 2012) (internal citation omitted), the Second
Circuit established a six-factor test to determine whether a
stay of civil proceedings, pending the outcome of a parallel
criminal case, serves the interests of justice.

In accordance

with the six-factor test, this Court will 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.
The Second Circuit has cautioned, however, that although the
six-factor test serves as a “guide for the district court,” the
district court must ultimately exercise discretion based on its
“studied judgment, . . . the particular facts before [the Court,]
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 Sec & Exch. Comm’n v. McGinnis, No. 14-cv-6 (CR), 2016 WL
591764, at *3 (D. Vt. Feb. 12, 2016).
Although “[a] total stay of civil discovery . . . is an
extraordinary remedy[,]” Sec. & Exch. Comm’n v. Javice, No. 23cv-2795 (LJL), 2023 WL 4073797, at *3 (S.D.N.Y. June 20, 2023)
13

(internal citation omitted), “[a] court will generally stay a civil
proceeding when a criminal investigation has ripened into an
indictment[.]”

Hicks v. City of New York, 268 F. Supp. 2d 238,

242 (E.D.N.Y. 2003) (“the strongest argument for granting a stay
is where a party is under criminal indictment”).

Even where no

objections are asserted however, the party “‘seeking a stay bears
the burden of establishing its need.’”

Shkreli, 2016 WL 1122029,

at *3 (quoting McGinnis, 2016 WL 591764, at *3).
DISCUSSION
I.

Intervention
“It is well established that the United States Attorney may

intervene in a federal civil action to seek a stay of discovery
when there is a parallel criminal proceeding, which is
anticipated or already underway, that involves common questions
of law or fact.”

Milton, 2022 WL 3156180, at *3 (internal

citations omitted).

“Whether couching the decision in terms of

mandatory or permissive intervention or simply referring to Rule
24 without specifying the subsection . . . courts in this
Circuit have routinely allowed [] prosecutors to intervene in
civil litigation in order to seek a stay of discovery.”

Sec. &

Exch. Comm’n v. Treadway, No. 04-cv-3464 (VM)(JCF), 2005 WL
713826, at *2 (S.D.N.Y. Mar. 30, 2005).

The facts before this

Court in the instant case do not warrant a departure from this

14

well-established principle.

The Court therefore finds that the

Government may intervene in the instant Civil Case.
A.

Intervention as of Right
First, the Government’s motion is timely.

Complaint was filed on December 6, 2023.

The SEC

(SEC Compl.)

The

Government moved to intervene approximately a month and a half
later, on January 19, 2024.

See Gulino v. Bd. of Educ., No. 96-

cv-8414 (KMW), 2009 WL 2972997, at *3 (S.D.N.Y. Sep. 17, 2009)
(“Movants filed their motion just [one] month after the case was
reassigned . . . so it is timely”); Shkreli, 2016 WL 1122029, at
*2 (the Government’s motion was filed “in a timely manner”
because it was filed “just over one month” after “the SEC
complaint was filed[.]”).

Moreover, discovery has not yet

commenced in the instant Civil Case and no party has alleged
that they have been prejudiced by the timing of the Government’s
motion.

Nor has any Defendant opposed the motion to intervene.

See Sec. & Exch. Comm’n v. Berman, No. 20-cv-10658 (LAP), 2021
WL 2895148, at *2 (June 8, 2021) (pointing to the fact that the
“Defendants’ time to respond to the complaint has been adjourned
sine dine, and [that] discovery has not yet commenced” as an
indication that the Government’s motion to intervene was
timely).
Second, the Government asserts that it seeks to intervene
in the instant case to protect the “strong interest . . . [of]
15

the public in the enforcement of criminal laws” (Govt. Mot. at
8-9), and “to prevent Pirrello from obtaining discovery in the
Civil Case outside the restrictions that would otherwise pertain to
him in the Criminal Case.”

(Govt. Mot. at 14.)

Courts in this

Circuit have routinely recognized such interests as “direct,

substantial, and legally protectable.”

Delmonte, 602 F.3d at

473; see also Chestman, 86 F.2d at 50 (“[t]he government has a
discernible interest in . . . prevent[ing] discovery in the
civil case from being used to circumvent the more limited scope
of discovery in the criminal matter”); Sec. & Exch. Comm’n v ElKhouri, No. 19-cv-9744 (LAP), 2021 WL 601652, at *2 (S.D.N.Y.
Jan. 26, 2021) (“absent a stay, the civil case could impair or
impede the Government’s ability to . . . limit[] the defendants
to the discovery available under the Federal Rules of Criminal
Procedure.”)
Third, the Government contends that, in the absence of its
intervention and the requested stay, the scope of discovery
permitted under Fed. R. Civ. P. 26 in the instant case would
impede the Government’s ability to limit Pirello to the
discovery available under the Fed. R. Crim. P. 16 and 18 U.S.C.
§ 3500 in the Criminal Case, which could impair the integrity
and progress of the Government’s ongoing criminal investigation.
(Govt. Mot. at 14.)

This Court, as well as many others, have

recognized the practical risks and incompatible nature of
16

simultaneous discovery proceedings in a civil case and parallel
criminal case.

See Shkreli, 2016 WL 1122029, at *2 (“further

proceedings in this [civil] action could impair the government’s
interest in limiting the defendants to the discovery available
under the Federal Rules of Criminal Procedure”); Bd. of
Governors of the Fed. Reserve Sys. v. Pharaon, 140 F.R.D. 634,
639 (S.D.N.Y. 1991) (“A litigant should not be allowed to make
use of the liberal discovery procedures applicable to a civil
suit as a dodge to avoid the restrictions on criminal
discovery”) (internal citation omitted).
Finally, although the interests of the SEC and the
Government overlap to some extent, the Government is uniquely
focused on the enforcement of criminal statutes and is better
equipped to protect that interest itself, “rather than using the
SEC as a conduit for such arguments.”

See Downe, 1993 WL 22126,

at *12 (“even 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 warranted in the Civil
Case.
B.

Permissive Intervention

Alternatively, permissive intervention under Fed. R. Civ.
P. 24(b)(1) is also appropriate.
17

As discussed above, there are

overlapping facts and legal issues between the SEC Complaint and
the Indictment in the Criminal Case.

Indeed, the core factual

allegations underlying both cases are virtually identical.
Compare (SEC Compl. ¶ 1) (“Defendants used a network of
unregistered sales agents to engage in unregistered offerings of
securities in investment vehicles that provided access to shares
of private companies that may hold an [IPO] . . . [and]
Defendants procured investor funds by fraud, falsely telling
investors that . . . [they] would pay no upfront fees or
commissions”) with (Indictment ¶ 12) ([Pirello] together with
others, engaged in a scheme to defraud investors and prospective
investors in securities offered by Late Stage through material
misrepresentations and omissions relating to, among other
things, the existence and amount of fees paid by investors[.]”)
Because both the Criminal Case and the instant Civil Case “arise
out of common questions of law and fact,” permissive
intervention is also justified.

Downe, 1993 WL 22126, at *11.

Accordingly, the Government’s motion to intervene in this
action is GRANTED.
II. Stay of Proceedings
Having granted the Government’s motion to intervene, the
Court next turns to the Government’s request for a stay of all
proceedings in the instant Civil Case.

(Gov. Mot. at 10-19.)

The Court finds that the totality of circumstances, taking into
18

account the six-factor test adopted in Louis Vuitton, weigh
heavily in favor of the requested stay.
A.

Overlap of the Issues

The first factor that the Court considers in determining
whether the requested stay serves the interests of justice is
“the extent to which the issues in the criminal case overlap
with those presented in the civil case[.]”
F.3d at 99.

Louis Vuitton, 676

As previously noted, the facts and allegations

underlying the Indictment and SEC Complaint are essentially the
same and both proceedings involve overlapping legal issues.
Even where “the alleged wrongful conduct in the criminal and
civil actions are not identical,” if the “findings and outcome
of the criminal trial may affect the outcome of the civil case,”
the first factor in the six-factor test “tips [] in [] favor” of
granting a stay.

Hicks, 268 F. Supp. 2d at 241-42.

Here, the

wrongful conduct alleged in the Indictment and the SEC Complaint
relates to the exact same alleged scheme to defraud investors in
Late Stage through various misrepresentations and omissions that
were included in investor materials and communications.
Compl. ¶ 1); (Indictment ¶ 12.)

(SEC

The shared facts underlying the

SEC Complaint and the Indictment, and the overlapping legal
issues raised by both cases strongly weigh in favor of a stay.
B.

The Status of the Case

19

The

second

factor

in

the

Court’s

consideration

of

the

requested stay is “the status of the case, including whether the
defendants have been indicted[.]”

Louis Vuitton, 676 F.3d at 99.

Here, Defendant Pirrello has been indicted.

Although none of the

other Defendants in the instant Civil Case have been indicted, the
Government alleges in the Criminal Case that Pirrello engaged in
a securities fraud scheme with some of the entities named as
Defendants in the Civil Case.

See (Indictment ¶¶ 1-2.)

Moreover,

“[a] stay of a civil case is most appropriate where a party to the
civil case has already been indicted for the same conduct[.]”
Trustees

of

Plumbers

and

Pipefitters

Nat.

Pension

Fund.

V.

Transworld Mechanical, Inc., 886 F. Supp. 1134, 1139 (S.D.N.Y.
1995) (finding that “the status of the criminal case . . . weighs
in favor of granting a stay” because some of the defendants in the
civil case had been indicted in a parallel criminal proceeding,
even

though

not

all

defendants

in

the

civil

case

had

been

indicted).
Importantly, neither Pirrello, nor any other Defendant in the
instant case has objected to the Government’s motion or otherwise
indicated that a stay would adversely impact the status of the
case.

Accordingly, the current status of the Civil Case warrants

the requested stay.
C.

The SEC’s Interests

20

The third factor in the Court’s analysis looks to whether
“the private interests of the [SEC] in proceeding expeditiously”
outweigh “the prejudice to [the SEC] caused by the delay[.]” Louis
Vuitton, 676 F.3d at 99.
affirmatively

joined

the

As in Shkreli, “[t]he SEC has not
government’s

stay

application,

instead” indicated that it “does not oppose the motion.”
2016 WL 1122029, at *5; see (Govt. Mot. at 3.)
“has

not

articulated

an

interest

that

but

Shkreli,

Because the SEC

requires

consideration

here,” the Court finds that this factor weighs in favor of the
requested stay.
D.

Id.

Defendants’ Interests

The fourth consideration in the Court’s assessment of the
requested stay is “the private interests of and burden on the
defendants” if a stay is imposed.
99.

Louis Vuitton, 676 F.3d at

Like the SEC, Defendants have not articulated an interest

that weighs against the requested stay.

See Downe, 1993 WL

22126, at *13 (citing Defendants’ “fail[ure] to demonstrate that
they will suffer any prejudice if all discovery is stayed in the
civil action” as weighing in favor of a stay).

“Defendants in

civil actions who are also the subjects of criminal charges
often cite” the important interest of preserving their rights in
a parallel criminal prosecution as a factor weighing in favor of
a stay.

Treadway, 2005 WL 713826, at *4.

Such interests

include preventing any potentially incriminating statements in
21

the context of the Criminal Case; preserving Defendants’ Fifth
Amendment rights, on the basis of which a civil jury can draw an
adverse inference, and avoiding premature exposure of the basis
for a defense theory to the prosecution in advance of trial.
Am. Express Bus. Fin. Corp. v. RW Pro. Leasing Servs. Corp., 225
F. Supp. 2d 263, 265 (E.D.N.Y. 2002).

In these circumstances,

where the Civil Case was commenced recently, any potential
prejudice to Defendants “in the civil case is [also] reduced
since the criminal case will likely be quickly resolved due to
Speedy Trial Act considerations,”

Transworld, 886 F. Supp. at

1139, and because the outcome of the Criminal Case may help to
“narrow the issues” and “prevent . . . unnecessarily duplicative
work” in the Civil Case.

Harris v. Nassau Cnty., No. 13-CV-4728

(NGG), 2014 WL 3491286, at *4 (E.D.N.Y. July 11, 2014).

Indeed,

“when a defendant faces a criminal prosecution that is likely to
accomplish as much if not more than can be achieved through
civil litigation, there is little reason to deplete his
resources through payment of attorney's fees to defend or
participate in civil litigation that, while important, is
essentially duplicative.”

In re Worldcom, Inc. Sec. Litig., No.

02-cv-3288 (DLC), 2002 WL 31729501, at *9 (S.D.N.Y. Dec. 5,
2002).
E.

The Court’s Interest

22

Fifth, the Court weighs its own interest in judicial economy
and in the efficient resolution of its cases, which are interests
that “[t]he Court shares with all parties[.]”

Treadway, 2005 WL

713826, at *4. The requested stay serves both of these interests.
“[T]he Civil Case is likely to benefit . . . from the Criminal
Case no matter its outcome.”

Sec. & Exch. Comm’n v. One or More

Unknown Purchasers of Securities of Global Industries, Ltd., No.
11-cv-6500 (RA), 2012 WL 5505738, at *4 (S.D.N.Y. Nov. 9, 2012).
This is because “evidence gathered during the criminal prosecution
can later be used in the civil action” such that “the resolution
of the Criminal Case may reduce the scope of discovery [necessary]
in the civil case[.]”

Transworld, 886 F. Supp. at 1140 (also

noting that the “resolution of the criminal case may increase the
possibility of settlement of the civil case due to the high
standard of proof required in a criminal prosecution.”).

As such,

the Court is satisfied that its interests are best served by the
requested stay.
F.

The Public Interest

Finally,

the

Court

assesses

whether

weighs in favor of the requested stay.

the

public

interest

The public interest, in

circumstances where a party faces allegations of unlawful conduct
in both civil and criminal proceedings, is multifaceted.

The

effective

the

enforcement

preservation

of

the

of

our

nation’s

integrity
23

of

the

criminal
process

laws
of

and

criminal

prosecution is of paramount importance.

In re Ivan F. Boesky Sec.

Litig., 128 F.R.D. 47, 49 (S.D.N.Y. 1989) (“a trial judge should
give substantial weight to the public interest in law enforcement”
because “the public interest in the criminal case is entitled to
precedence”) (internal citation omitted).
interest

in

maintaining

financial markets.

effective

So too is the public

regulation

of

our

nation’s

See Arden Way Associates v. Boesky, 660 F.

Supp. 1494, 1499 (S.D.N.Y. 1987) (“the public interest in the
integrity of securities markets militates in favor of the efficient
and

expeditious

prosecution

of

these

civil

litigations”).

However, these interests are not mutually exclusive.

In fact, in

the instant Civil Case, these interests are best served by a stay,
pending resolution of the Criminal Case.

See Volmar Distributors,

Inc. v. New York Post Co., Inc., 152 F.R.D. 36, 40 (S.D.N.Y. 1993)
(“The

public

[]

has

an

interest

integrity of competitive markets.

in

the

preservation

of

the

However, the pending criminal

prosecution [also] serves to advance those same interests”); see
also Transworld, 886 F. Supp. at 1140 (“Because of the overlapping
issues in the criminal and civil cases, the criminal prosecution
will serve to advance the public interests at stake here.”)
Accordingly, the Court’s assessment of the public interest also
weighs in favor of the requested stay.
Having

conducted

a

holistic

assessment

of

the

relevant

interests at stake, the Court finds that the resolution of the
24

Criminal Case prior to the continuation of the Civil Case will
enhance the ability of all stakeholders to properly advance their
respective interests in the most effective and expeditious manner.
In striking the appropriate balance between competing interests,
the requested stay serves the interests of justice.

No party has

suggested otherwise or identified any interest that would be
impaired by the requested stay.

Accordingly, the Government’s

motion for a stay of all proceedings in the instant Civil Case is
GRANTED, pending resolution of the criminal case.
CONCLUSION
For the reasons articulated in this Memorandum & Order, the
Government’s
GRANTED.

motion

to

intervene

and

the

requested

stay

are

All deadlines in the instant Civil Case will be held in

abeyance until the resolution of the Criminal Case.

Within thirty

(30) days of the resolution of United States v. Raymond John
Pirrello, Jr., 23-cr-499 (KAM) (JMC), the parties are respectfully
requested to file a joint status letter regarding how they intend
to proceed in the instant Civil Case via ECF.

SO ORDERED.
Dated: February 5, 2024
Brooklyn, New York
KIYO A. MATSUMOTO
United States District Judge
Eastern District of New York
25