Securities and Exchange Commission v. McGinn, Smith & Co, Inc. et al

Filing 1066

SUMMARY ORDER - That David Smith's motion to modify asset freeze to allow the release of certain property (Dkt. No. 1039) is DENIED. That Lynn Smith's letter motion dated May 9, 2019 presenting the same arguments as David Smith's motion (Dkt. No. 1054) is DENIED. Signed by Senior Judge Gary L. Sharpe on 9/4/2019. (Copy served via regular mail)(jel, )

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
________________________________
SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,

1:10-cv-457
(GLS/CFH)

v.
MCGINN, SMITH & CO., INC.
et al.,
Defendants.
________________________________
SUMMARY ORDER
Pending is pro se defendant David L. Smith’s motion “to modify asset
freeze to allow the release of certain property,” which he filed February 19,
2019. (Dkt. No. 1039 at 1 (CM/ECF-generated page number).)1
Specifically, the motion seeks to unfreeze his interest in the McGinn Smith
Incentive Savings Plan, his Individual Retirement Account (IRA), and the
IRA of defendant Lynn A. Smith, his wife (collectively “the Retirement
Assets”). (Id. at 2, 4 (CM/ECF-generated page numbers).) For the
reasons argued in plaintiff Securities and Exchange Commission’s (SEC)
1

As a pro se litigant, the court must read David Smith’s papers
“liberally and interpret them to raise the strongest arguments that they
suggest.” McPherson v. Coombe, 174 F.3d 276, 280 (2d Cir. 1999)
(internal quotation marks and citation omitted).

brief in opposition, (Dkt. No. 1049 at 1-6), as well as Receiver William J.
Brown’s (hereinafter “the Receiver”) joinder, (Dkt. No. 1050 at 1-8), David
Smith’s motion is denied.
Namely, the motion relies heavily on Kokesh v. S.E.C., 137 S. Ct.
1635 (2017) to argue that the Retirement Assets are exempt from
disgorgement. (See, e.g., Dkt. No. 1039 at 3-4, 11-12, 28-29.) But, as
explained by the SEC, this argument is without merit. (Dkt. No. 1049 at 34.) The Kokesh court explicitly stated that “[n]othing in [it]s opinion should
be interpreted as an opinion on whether courts possess authority to order
disgorgement in SEC enforcement proceedings or on whether courts have
properly applied disgorgement principles in this context,” as “[t]he sole
question presented in th[e] case [wa]s whether disgorgement, as applied in
SEC enforcement actions, is subject to [a particular statute of] limitations
period.” 137 S. Ct. at 1642 n.3. To the extent that David Smith tries to rely
on state law exemptions, (see, e.g., Dkt. No. 1039 at 18-23), he ignores
that such exemptions may be disregarded in the enforcement of a
disgorgement judgment. See Sec. & Exch. Comm’n v. McGinn, No.
10-CV-457, 2010 WL 11469814, at *2 (N.D.N.Y. Dec. 15, 2010) (explaining
that “a [c]ourt has broad equitable powers to reach assets otherwise
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protected by state law to satisfy disgorgement”) (internal quotation marks
and citations omitted); see also (Dkt. No. 1049 at 2-3).
In David Smith’s reply,2 he argues, regarding Lynn Smith’s IRA, that
“only the order of disgorgement . . . allows the court to use its discretion to
penetrate the exemption for retirement accounts,” and “[a] judgment as a
result of [an] alleged fraudulent conveyance is a civil judgment that is not
permitted to penetrate an IRA as in the case of a court ordered
disgorgement.” (Dkt. No. 1055 at 5.) This argument is rejected because it
was raised for the first time in a reply, and the SEC and the Receiver have
not had an opportunity to respond. See Carpenter v. Mohawk Valley Cmty.
Coll., 6:18-cv-1268, 2019 WL 3338845, at *1 (N.D.N.Y. July 25, 2019).3
2

The court previously granted David Smith’s request for leave to file
a reply. (Dkt. No. 1053.)
3

Without expressing any opinion as to this argument, the court
notes the following. In David Smith’s motion, contrary to his reply, he
discusses Lynn Smith being subject to disgorgement. (Dkt. No. 1039 at 7
(referring to “[Lynn Smith]’s disgorgement order”), 16 (referring to “the
amount of disgorgement that the Smiths have already made”), 24
(referring to “the disgorgement of Lynn Smith’s assets”).) The SEC cites a
“[f]inal [j]udgment” as to Lynn Smith, (Dkt. No. 1049 at 4 (citing Dkt. No.
837 at 2-3)), but that judgment seemingly makes no mention of
disgorgement, (Dkt. No. 837 at 1-5). Thus, it is unclear whether the SEC
is correct that the judgment “ordered [Lynn Smith] to disgorge the funds
that were transferred,” (Dkt. No. 1049 at 5), especially because the
citation given is to page numbers that do not exist, (id. (citing Dkt. No. 837
3

The denial is with leave to renew; the proper party—that is, Lynn
Smith—may bring a motion regarding her IRA.
In making his motion, David Smith purports to act “as [an] appointed
legal representative” for Lynn Smith. (Dkt. No. 1039 at 1 (CM/ECFgenerated page number).) As the court noted in its Text Only Order of May
2, 2019, David Smith cannot, as a non-attorney, represent Lynn Smith.
(Dkt. No. 1053.) Subsequently, she filed a letter stating that she “wish[ed]
for [David Smith’s] filings to be accepted directly on [her] behalf” and
“wish[ed] the arguments presented to be accepted as pro se for [her]self.”
(Dkt. No. 1054.) As explained above, David Smith’s motion is denied.
Thus, to the extent that Lynn Smith brings the same motion on her own
behalf, it is denied as well. As noted above, Lynn Smith is free to move for
relief regarding her IRA on her own behalf.
Accordingly, it is hereby
ORDERED that David Smith’s motion to modify asset freeze to allow
at 6-8)). However, the SEC also cites an earlier disgorgement order as to
Lynn Smith. (Dkt. No. 1049 at 5 n.2 (citing Dkt. No. 398).) The Receiver’s
joinder does not clarify the issue. (Dkt. No. 1050 at 6 (noting “the L[ynn]
Smith [j]udgment . . . ordered [her] to return certain fraudulently
transferred assets or their equivalent value” but not explicitly mentioning
relation, if any, to disgorgement).) Clearly, the court would benefit from
full briefing on this issue, if and when it is properly raised.
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the release of certain property (Dkt. No. 1039) is DENIED; and it is further
ORDERED that Lynn Smith’s letter motion dated May 9, 2019
presenting the same arguments as David Smith’s motion (Dkt. No. 1054) is
DENIED; and it is further
ORDERED that the Clerk provide a copy of this Summary Order to
the parties in accordance with the Local Rules.
IT IS SO ORDERED.
September 4, 2019
Albany, New York

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