Securities and Exchange Commission v. Riel, III et al
MEMORANDUM-DECISION AND ORDER granting 29 Motion for Default Judgment; granting in part and denying in part 24 Motion for Summary Judgment. Signed by U.S. District Judge Mae A. D'Agostino on 9/27/2017. (Copy served via regular and certified mail)(ban)
UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF NEW YORK
SECURITIES AND EXCHANGE COMMISSION,
CHARLES RIEL, III and REINVEST, LLC,
U.S. SECURITIES & EXCHANGE
Brookfield Place, 4th Floor
200 Vesey Street
New York, New York 10281
Attorneys for Plaintiff
CHRISTOPHER M. CASTANO, ESQ.
GEORGE STEPANIUK, ESQ.
PREETHI KRISHNAMURTHY, ESQ.
CHARLES RIEL, III
8723 Gaskin Road
Clay, New York 13041
Defendant pro se
Mae A. D'Agostino, U.S. District Judge:
MEMORANDUM-DECISION AND ORDER
On September 29, 2015, Plaintiff Securities and Exchange Commission ("SEC")
commenced this action alleging that Defendants Charles Riel, III and Reinvest LLC, singly or in
concert, directly or indirectly, violated Section 17(a) of the Securities Act of 1933 (the
"Securities Act"), 15 U.S.C. § 77q(a); Section 10(b) of the Securities Exchange Act of 1934 (the
"Exchange Act"), 15 U.S.C. § 78j(b); and Rule 10b-5 thereunder, 17 C.F.R. § 240.10b-5. The
complaint further alleges that Defendant Riel is also liable (i) under Exchange Act Section 20(a),
15 U.S.C. § 78t(a), as a controlling person for Defendant REinvest's violations of Exchange Act
Section 10(b) and Rule l0b-5; and (ii) under Securities Act Section 15(b), 15 U.S.C. § 77o(b),
and Exchange Act Section 20(e), 15 U.S.C. § 78t(e), for aiding and abetting Defendant Reinvest's
violations of Securities Act Section 17(a), Exchange Act Section 10(b) , and Rule 10b-5. See
Dkt. No. 1 at ¶ 8.
Currently before the Court are the SEC's motion for summary judgment against Defendant
Riel and motion for default judgment against Defendant REinvest. See Dkt. Nos. 24 & 29.
Defendant Riel's creation and operation of REinvest
In March of 2008, Defendant Riel formed REinvest as a limited liability company with
only one member, himself. See Dkt. No. 24-2 at ¶ 1.1 REinvest's phone number rang at
Defendant Riel's home. See id. at ¶ 2. Other than Defendant Riel, REinvest had no employees,
control persons, salespeople, or marketers. See id. at ¶ 3.
By at least 2010, Defendant Riel served as the registrant, administrative, technical, and
billing contact for www.150percentreturn.com (the "150% Return Website"). See id. at ¶¶ 4-5.
From at least September 2013 through February 2014, Defendant Riel operated both
www.REinvestonline.com (the "REinvest Website") and the 150% Return Website. See id. at ¶
6. From 2012 through 2014, Defendant Riel had sole authority to take down the 150% Return
Website. See id. at ¶ 7. From at least September 2013 through February 2014, the 150% Return
Website stated that it was "owned and brought to you by REinvest LLC" and linked to Reinvest's
Better Business Bureau webpage. See id. at ¶ 8. The 150% Return Website also represented that
Unless otherwise noted, the facts set forth in the background section of this
Memorandum-Decision and Order are undisputed.
"150PercentReturn.com and associated . . . domain names are trademarks of REinvest LLC®."
Id. at ¶ 9.
In 2010, Defendant Riel opened two bank accounts in REinvest's name – REinvest's only
bank accounts – at Fulton Savings Bank (the "REinvest Bank Accounts"). See Dkt. No. 24-2 at ¶
11. On one account, Defendant Riel designated himself as the sole authorized signatory, while
on the other account he designated himself and his sister as the authorized signatories. See id. at
¶¶ 12-13. In practice, Defendant Riel served as the sole signatory on both bank accounts, and his
sister merely signed checks when he could not. See id. at ¶ 14.
In September of 2010, Defendant Riel opened a futures trading account in Reinvest's
name at Rosenthal Collins Group LLC (the "Futures Account").2 See id. at ¶ 15. Defendant Riel
had sole authority over the Futures Account. See id. at ¶ 16. To open the Futures Account,
Defendant Riel claimed on account opening forms that REinvest was a "Commercial . . . Real
Estate Developer, Investor and Consultant." Id. at ¶ 18. Defendant Riel further claimed that
REinvest had annual income of $750,000 to $1,000,000 and a net worth between $1,000,000 and
$5,000,000. See id. at ¶ 19. Defendant Riel further represented on the Futures Account opening
forms that REinvest's liquid net worth consisted of real estate, private investments, and $500,000
of "Cash in Bank." Id. at ¶ 20. In reality, the REinvest Bank Accounts, REinvest's only bank
accounts, never collectively held more than $54,000. See id. at ¶ 21. When opening the Futures
Account, Defendant Riel acknowledged his understanding of "[t]he risk of loss in commodity
futures trading" and his receipt of a "risk disclosure statement for futures." Id. at ¶ 17.
Offers of a Safe Investment with High Rate of Return
A "futures contract," roughly speaking, "is an agreement for the purchase or sale of a
particular commodity for delivery on a fixed date in a future month." Harry v. Total Gas &
Power N.A., Inc., ___ F. Supp. 3d ___, 2017 WL 1134851, *2 (S.D.N.Y. Mar. 27, 2017).
1. The 150% Return Website
From at least September 2013 through February 2014, the 150% Return Website claimed
to offer a "high yield investment" that used a "proprietary method" to provide returns of 50% to
150% over a five-year term "within inherently low risk" and a "built-in safety net process." Dkt.
No. 24-2 at ¶ 23. The website further claimed to offer a "highly diversified . . . financial growth
vehicle that can bring a consistent double-digit return with a solid, dependable efficiency." Id. at
¶ 24. Specifically, the 150% Return Website provided as follows:
If you're fed up with insultingly low Bank Certificate of Deposit(s),
Savings account rates, poorly performing Mutual Funds or any
other 'conventional' financial vehicle, you can now do something
about it. Maybe you just don't have 20 – 40 years to 'wait and see'
if those 'buy and hold' stock picks ever come to fruition…. This
may very well be the perfect opportunity for you to move
underperforming liquid assets to a highly diversified, proprietary,
privatized alternative financial growth vehicle that can bring a
consistent double-digit return with a solid, dependable efficiency.
You really can do much better for your loved ones, right here, right
Id. (emphasis in original). The website also represented that it had a "proven" investment
A proven vehicle that delivers not only diversity, but also a
consistently high yield return on your money…. Our Proprietary
method utilizes a series of specific and deliberate actions that are
implemented on a very systematic and methodical basis, 'Process
verses [sic] out-come'. Typically this privatized method is
producing substantially higher yields with an inherently lower risk,
than conventional H.P. financial investment vehicles.
Id. at ¶ 25 (emphasis in original). The 150% Return Website neither explained REinvest's
"proprietary" investment method nor mentioned futures trading. See id. at ¶¶ 26-27.
The 150% Return Website presented seven investor "testimonials," purportedly from
satisfied investors identified by their first names and last initials. See id. at ¶ 34. The first
testimonial – dated March 3, 2012, and purportedly from "John and Heather D." in Provo, Utah –
claimed as follows: "Together it has taken Heather and me nearly 20 years to realize our first
Million. With you, 36 months – painlessly! Need we say more!!" Id. at ¶ 35; see also Dkt. No.
27-7 at 1. Another testimonial – dated February 5, 2011, and purportedly from "Bethany B." in
Sugarland, Texas – claimed as follows: "[T]ime has now shown that you are in fact, the only
source that has been producing triple digit results for me." Id. at ¶ 36 (emphasis in original); Dkt.
No. 27-7 at 1-2. The website included five other purported testimonials from individuals in New
York and Pennsylvania. See id. at ¶¶ 37-38.
To direct traffic to the 150% Return Website, REinvest advertised on the search engine
Google. See id. at ¶ 39. The 150% Return Website included a form that viewers could use to
email REinvest questions. See id. at ¶ 40. REinvest received "numerous brief inquiries . . . from
prospective private investors." Id. at ¶ 41; see also Dkt. No. 27-18 at 1. Defendant Riel then
followed up on the inquiries and sent the prospective investors more information. See id. at ¶ 42;
see also Dkt. No. 27-15 at 3.
2. The REinvest Website
Defendant Riel's other website, the REinvest Website, implied that REinvest invested in
commercial real estate. See Dkt. No. 24-2 at ¶ 28. The website claimed that "we are not Real
Estate agents or brokers. We are a private business entity . . . [and] have 25+ years of experience
and we are looking to buy and or [sic] develop additional Commercial properties." Id. at ¶ 29.
The REinvest Website invited commercial real estate owners to send REinvest "full details on
your property" and claimed that REinvest was interested in "Transactional Funding," "Property
Development," "Joint Venture facilitation," and "Selling your property outright." Id.; see also
Dkt. No. 27-9 at 1.
Money Obtained from Investors
From 2010 through 2014, the timeframe when REinvest was active, five investors
invested $285,000 with REinvest in return for promissory notes from REinvest. See Dkt. No. 242 at ¶¶ 43, 115-16. Defendant Riel did not tell investors that he would use their investment
proceeds for personal purposes. See id. at ¶ 44. The SEC, however, contends that Defendant
Riel spent most of the funds for his benefit (mainly through checks made out to himself and cash
withdrawals), used some of a later investor's funds to repay an earlier investor, and lost almost
$30,000 of his investor's funds in trading undisclosed futures contracts. See id. at ¶¶ 26-27, 58.,
66, 73, 80, 102, 145, 152-55.
1. Investment by Clara J. Cossey
On June 30, 2010, Clara Cossey invested her first $50,000 with REinvest, which
Defendant Riel deposited into the REinvest Bank Accounts. See Dkt. No. 24-2 at ¶¶ 46-47.
Before Cossey invested, the REinvest Bank Accounts held no funds. See id. at ¶ 48. Over
approximately the eight months after Cossey invested, Defendant Riel deposited less than $700
into the REinvest Bank Accounts but drew down the accounts' balance to less than $5,000. See
id. at ¶ 49. The SEC contends that Defendant Riel used most of Cossey's funds for his own
benefit, including writing checks worth $25,000 to himself, making cash withdrawals, and
making purchases at retail stores. See id. at ¶ 50. Defendant Riel, however, contends that "[t]he
majority of the funds drawn out were in fact utilized on legitimate business expenditures." Dkt.
No. 36-1 at ¶ 50.
On September 29, 2010, Defendant Riel transferred $15,000 of Cossey's $50,000
investment from the REinvest Bank Accounts to the Futures Account. See Dkt. No. 24-2 at ¶ 51.
Over the next five months, Defendant Riel lost over 86% of the money in the Futures Account –
$12,932.98 of the $15,000 – through trading losses and fees. See id. at ¶ 52.
On March 10, 2011, Cossey invested another $50,000 with REinvest, which Defendant
Riel deposited into the REinvest Bank Accounts. See id. at ¶¶ 43, 53-54. After this deposit, the
REinvest Bank Accounts held $53,737.17. See id. at ¶ 55. Over the next three months,
Defendant Riel deposited an additional $2,000 into the REinvest Bank Accounts. See id. at ¶ 56.
By May 31, 2011, Defendant Riel had drawn down the REinvest Bank Accounts to $2,321.11.
See id. at ¶ 57; Dkt. No. 26-1 at 4. During that time, Defendant Riel wrote checks worth $5,724
to himself, wrote a check for $4,786.34 to his town's tax receiver, wrote a $13,000 check to two
non-investor individuals, made cash withdrawals, and made purchases at BJ's Wholesale Club,
Overstock.com, and Advance Auto, among other retailers. See id. at ¶ 58; Dkt. No. 26-1 at 2-4.
On March 30, 2011, Defendant Riel transferred $10,000 from the REinvest Bank
Accounts to the Futures Account. See id. at ¶ 59. Within two months, Defendant Riel lost nearly
the entire $10,000. See id. at ¶¶ 60-61.
On June 1, 2011, Cossey made her third and final investment of $25,000 with REinvest.
See Dkt. No. 24-2 at ¶¶ 43, 62. The day before Cossey's investment, the REinvest Bank
Accounts held less than $2,325. Over roughly the next sixty days, Defendant Riel deposited less
than $16.00 into the REinvest Bank Accounts. See id. at ¶ 64; Dkt. No. 26-1 at 4-5. During the
same period, Defendant Riel drew down the accounts' balance to less than $2,240. See id. at ¶
65. During that time, Defendant Riel made cash withdrawals totaling $18,000, paid the New
York State Department of Motor Vehicles, and made purchases at, among other places, Morphy
Auctions, Lowes, Overstock.com, Ebay, Inc., and Amazon Market Place. See id. at ¶ 66; Dkt.
No. 26-1 at 4-5.
On June 14, 2011, Defendant Riel transferred $5,000 from the REinvest Bank Accounts
to the Futures Account. See id. at ¶ 67. By the end of June 2011, $3,113.98 remained in the
Futures Account. See id. at ¶¶ 68-70. After June 2011, Defendant Riel stopped trading in and
transferring funds to the Futures Account. See id. at ¶ 71. Eventually, Defendant Riel transferred
the approximately $3,000 then remaining in the Futures Account to the REinvest Bank Accounts.
See id. at ¶ 72. In total, Defendant Riel lost nearly 90% of the $30,000 he transferred to the
Futures Account from Cossey's investments. See id. at ¶ 73.
2. Investment by William Villatore
In October of 2012, William Villatore invested $75,000 with REinvest through a $50,000
check and $25,000 wire transfer. See Dkt. No. 24-2 at ¶¶ 43, 74-75; Dkt. No. 26-1 at 12-13.
Before Villatore's first investment reached the REinvest Bank Accounts, the accounts held less
than $750.00. See id. at ¶ 76. In the month preceding Villatore's investments, the accounts had
incurred several "insufficient funds charges" while carrying a negative balance. See id. at ¶ 77.
Over the next three months, Defendant Riel deposited only $60.00 into the REinvest Bank
Accounts. See id. at ¶ 78. Also during that time, Defendant Riel made cash withdrawals (mostly
through checks made out to cash) totaling $46,600.00, wrote two checks to himself totaling
$18,100.00, and made purchases at, among other places, Staples, JC Penney.com, and Ebay, Inc.
See id. at ¶ 80; Dkt. No. 26-1 at 12-14.
3. Investment by Ted Tutor
In February of 2013, Ted Tutor, a Tennessee retiree who had previously worked as a state
probation officer and social worker, found one of REinvest's websites when he searched for
"high-yield investments" on the Internet. See Dkt. No. 24-2 at ¶ 81. Tutor became interested in
investing with REinvest "based on the website's representations of a 150% return on investment
over a fixed time period." Dkt. No. 28 at ¶ 3. After reviewing the REinvest website, Tutor
contacted Defendant Riel for more information. See id. at ¶ 4. According to Tutor, Defendant
Riel told him, among other things, that "REinvest was in the business of marketing short-term
loans to the real estate industry in exchange for a high-interest rate of return, which he claimed
his family had successfully done for many years." Id. at ¶ 5. Tutor also claims that Defendant
Riel told him that his investment proceeds would be used for Reinvest's business and that
Defendant Riel "promised me a 150% return on my REinvest investment – or 37.5% per year,
over a 48-month (four-year) term." Id.
After several discussions with Defendant Riel, Tutor invested $25,000.00 with REinvest
at the end of February 2013. See Dkt. No. 24-2 at ¶ 87. Tutor signed and had notarized
REinvest's Performance Contract and Agreement (the "Original Tutor Agreement") and returned
it to Defendant Riel, who then signed it himself in a notary's presence. See id. at ¶ 89. The
Original Tutor Agreement referred to Tutor as a "Private Investment Lender" and referred to
Tutor's investment as "Investment Loan Funds." Id. at ¶ 90. This agreement, accompanied by a
promissory note, represented that REinvest would provide a "Return on Investment" of 150%
over 48 months, or "37.5% annualized." Id. at ¶ 91. Under the terms of the agreement, REinvest
"guaranteed" the return of Tutor's principal but not the interest. See id. at ¶ 92. Defendant Riel
also signed and had notarized a $25,000.00 promissory note reflecting that REinvest would owe
Tutor the projected total of $62,500.00, which represented the entire principal amount plus
interest after four years. See id. at ¶ 93; Dkt. No. 28-3 at 4.
Immediately prior to Tutor's $25,000.00 investment, the REinvest Bank Accounts held a
balance of $1,121.51. See id. at ¶ 99; Dkt. No. 26-1 at 16. During the four months following
Tutor's investment, Defendant Riel deposited less than $1,500.00 into the accounts but drew
down the REinvest Bank Accounts' balance to $561.88. See id. at ¶¶ 100-101; Dkt. No. 26-1 at
16-19. During this time, Defendant Riel wrote two checks out to cash totaling $20,027.00, wrote
one check to himself totaling $3,000.00, and, among other things, wrote several small checks to
various charities. See id. at ¶ 102; Dkt. No. 26-1 at 16-19.
On April 1, 2014, about a year after Tutor invested with REinvest, Defendant Riel
emailed Tutor an "Activity Statement." Dkt. No. 24-2 at ¶ 103; Dkt. No. 28-1 at 1-2. Reinvest's
logo and a thirteen-digit alphanumeric "CLIENT ACCT NO." appeared at the top of the
statement. See id. at ¶ 104; Dkt. No. 28-1 at 2. The statement showed a $25,000.00 principal
amount, a term of 48 months, and claimed a "Term R.O.I. Rate" of 150%. See id. at ¶ 105; Dkt.
No. 28-1 at 2. The activity statement purported to show a monthly "activity earnings addition" of
$616.50 as of March 31, 2013, and then amounts ranging from $744.92 to $796.27 at the end of
each month from April 2013 through February 2014. See id. at ¶ 106; Dkt. No. 28-1 at 2. At the
bottom, the activity statement purported to show a "PRELIMINERY [sic] YTD P/L" of
$9,245.29." Id. Tutor understood this to be his "investment return" for the year. See id. at ¶ 107;
Dkt. No. 28 at ¶ 11. However, by March 21, 2014, the REinvest Bank Accounts held only
$436.53. See Dkt. No. 26-1 at 26.
4. Investments by James Singleton
On May 15, 2013, Defendant Riel emailed James Singleton, a resident of Jacksonville,
Florida, and thanked him for visiting the 150% Return Website. See Dkt. No. 24-2 at ¶ 109. In
his email to Singleton, Defendant Riel attached a "Non Disclosure – Confidentiality Agreement."
Id. at ¶ 110. The agreement contained the following language:
No potential private investor(s), or their representative shall
conduct any site visits or initiate any contact with any of the
following that may apply to any particular transaction and[/]or
targeted asset which may be disclosed; network member, owner,
tenants, property manager, liquidator, broker, attorney, and/or
assigned representative(s) without obtaining the prior written
consent directly from REinvest LLC®, and[/]or Chuck Riel.
Dkt. No. 24-2 at ¶ 110; Dkt. No. 27-10 at 5 (emphasis in original).
On June 4, 2013, Defendant Riel emailed Singleton "commitment documentation,"
including a Performance Contract and Agreement (the "Original Singleton Agreement"), and
asked Singleton to return the signed documents. See id. at ¶ 112. Like the Original Tutor
Agreement, the Original Singleton Agreement referred to Singleton as a "Private Investment
Lender," to his investment as "Investment Loan Funds," and to the 150% rate of return as "Return
on Investment." Id. at ¶¶ 90-91, 113; Dkt. No. 27-12 at 4. Singleton's agreement had a longer
investment period than Tutor's: the agreement represented that REinvest's "projected rate of
return" was 150% over a 60-month term, or "30% annualized," rather than Tutor's 48-month
term. See id. at ¶¶ 91, 114.
On June 12, 2013, Singleton invested $25,000.00 with REinvest. See Dkt. No. 24-2 at ¶
115. Before the funds reached the REinvest Bank Accounts, the accounts held $561.88. See
id. at ¶ 117; Dkt. No. 26-1 at 19.
On June 17, 2013, Defendant Riel emailed Singleton an "Opening Statement" that
contained REinvest's logo and a thirteen-digit client account number. See id. at ¶¶ 118-19; Dkt.
No. 27-14 at 2. The "Opening Statement" also provided the following information about
Due to our Record breaking business in 2012, we now have most of
our 2013 projected openings filled! This was accomplished by
accepting Pre-commitment (LOI) agreements from existing clientpartners, their relatives, friends and associates.
It is for this reason, that we now have an EXTREMELY Limited
number of available openings. . . . Please be well advised that we
anticipate having all of our 2013 projected openings filled very
Any of you that would like to get in on our very limited remaining
offerings for the 2013 Calendar year, please do not delay in
communicating your interest now, as any available openings are
strictly on a first-come, first-served basis only.
Dkt. No. 27-14 at 2 (emphasis in original).
Between the date when Singleton invested on June 12, 2013 to July 23, 2013, the
REinvest Bank Accounts balance fell to $1,047.62. See Dkt. No. 26-1 at 20. During this time,
Defendant Riel, among other things, wrote a check to himself for $5,500.00 and withdrew
$18,750.00 in cash. See id. at 19-20.
On August 1, 2013, Defendant Riel emailed Singleton a "monthly activity statement."
Dkt. No. 24-2 at ¶ 125. The monthly statement bore REinvest's logo and a client account number
at the top. See id. at ¶ 126. The statement purported to show that in July 2013, Singleton had
earned $616.46 on his $25,000.00 investment; a monthly rate of return of 2.5%, or 30% annually.
See id. at ¶ 127. The statement also purported to show that Singleton had earned a
"PRELIMINERY [sic] YTD P/L" of $862.95. See id. at ¶ 128. The statement also contained
language identical to the opening confirmation statement's language encouraging Singleton to
invest again. See id. at ¶ 129.
On August 5, 2013, Defendant Riel emailed Singleton in response to a query about
investing more with REinvest. See Dkt. No. 24-2 at ¶ 130. In his email, Defendant Riel stated as
Per your request, I have checked on the $25,000 – with monthly
payout availability. We very seldom have anything under $100k in
our network these days, so as I suspected, that particular amount is
not available. However, as of today, we do a [sic] $40,000 @ 5%
with Monthly payout of $166.67, and a $50,000 @ 6% with a
monthly payout of $250.00. These are 5 year terms. * We also do
have available a $50,000 @ 30% / 5 year Term – no monthly
Id. at ¶ 130; Dkt. No. 27-21 at 1. On August 28, 2013, Defendant Riel emailed Singleton again,
informing him that "[w]e now have ONE opening available as follows: US $45,000.00 @ 160%
Return on a 60 Month Term. As I'm sure you'll agree, this specific opening offers a very healthy
return. And I'm sure it will not be available for long." Id. at ¶ 131; Dkt. No. 27-22 at 1. Two
days later, Defendant Riel sent Singleton another email about two additional investment
opportunities. See id. at ¶ 132; Dkt. No. 27-23 at 1. From August 5, 2013 through August 30,
2013, the REinvest Bank Accounts never held more than $1,300.00. See id. at ¶ 133; Dkt. No.
26-1 at 21.
On October 8, 2013, Defendant Riel emailed Singleton a REinvest non-disclosure
agreement covering information provided to Singleton about "specific High Yield private
financial growth vehicles" and referring to Singleton as a "potential private investor." Id. at ¶¶
135, 139. On October 11, 2013, Singleton wrote a check for $25,000.00 to REinvest, which was
deposited on October 15, 2013. See id. at ¶¶ 140-41; Dkt. No. 26-1 at 22. Immediately prior to
receiving Singleton's check, the REinvest Bank Accounts held less than $2,650.00. See id. at ¶
142. By January 30, 2014, the REinvest Bank Accounts' balance had turned negative. See id. at
¶ 143; Dkt. No. 26-1 at 25. During this time, Defendant Riel made a repayment of $18,750.00 to
Cossey, REinvest's first investor, wrote three checks to himself totaling $7,060.40, and made
withdrawals from an ATM totaling $1,000.00. See id. at ¶¶ 43, 45-46, 53, 62, 145; Dkt. No. 26-1
From December 2013 through February 2014, Defendant Riel continued to solicit
additional investments from Singleton by email, including for a "[t]ax shelter." Id. at ¶¶ 146-47.
On March 1, 2014, Defendant Riel emailed Singleton two more account statements, one for each
of Singleton's two REinvest investments. See id. at ¶ 148. The statement for Singleton's first
investment purported to show that Singleton had earned monthly returns that, when annualized,
equaled a 30% rate of return. See id. at ¶ 149. The statement for Singleton's second investment
purported to show monthly returns that, when annualized, ranged from 18.4% to 30.5%. See
id. at ¶ 150.
5. Investment by Robert Weinberg
In September 2013 – between Singleton's first and second investments – Robert Weinberg
invested $10,000.00 with REinvest. See Dkt. No. 24-2 at ¶ 151. Immediately prior to receiving
Weinberg's funds on September 26, 2013, the REinvest Bank Accounts held less than $65.00 and
received an "insufficient funds charge" from the bank. See id. at ¶ 152; Dkt. No. 26-1 at 22. On
September 27, 2013, Defendant Riel withdrew $800.00 in cash from the accounts. See id. at ¶
154. On September 30, 2013, Defendant Riel wrote himself a check for $6,000.00 from the
REinvest Bank Accounts. See id. at ¶ 154; Dkt. No. 26-1 at 22. Between the time Weinberg's
investment reached the REinvest Bank Accounts and Singleton's second investment, Defendant
Riel deposited no funds into the accounts. See id. at ¶ 155.
The SEC's Investigation
In January 2014, the SEC served REinvest, through Defendant Riel, with an investigative
subpoena for documents. See Dkt. No. 24-2 at ¶ 164. Approximately two weeks later, the SEC
served Riel with an investigative subpoena for documents and testimony. See id. at ¶ 165. Both
Riel and REinvest failed to comply with the subpoenas. See id. at ¶ 166.
On March 13, 2014, the SEC filed an application in the United States District Court for
the Southern District of New York for an order requiring Riel and REinvest to comply with the
subpoenas. See id. at ¶ 167. On March 28, 2014, Riel appeared in court for a show-cause
hearing. See id. at ¶ 168. At the hearing, Riel claimed that "[t]his whole thing is a concern over
five – five – private loan arrangements" and that REinvest "never had anything to do with any
kind of a financial security." Id. at ¶ 169. On march 31, 2014, the court ordered Riel and
REinvest to produce responsive documents and ordered Riel to appear before the SEC for sworn
testimony on May 1, 2014. See id. at ¶ 170.
On April 7, 2014 – one week after the court's subpoena enforcement order – Defendant
Riel sent Tutor a letter on REinvest letterhead. See Dkt. No. 24-2 at ¶ 171; Dkt. No. 28-2 at 1.
Defendant Riel's letter instructed Tutor to "[p]lease discard/delete any documents received prior
to today's date, as previous documents contained errors. The documents you received today,
have been CORRECTED." Dkt. No. 28-2 at 1 (emphasis in original). The letter enclosed
documents ti characterized as "complete REVISIONS" and stated as follows: "In an effort to
safe-guard your financial interest in this time of turbulence, the revisions are being done so that
these document[s] more clearly define our relationship and transaction(s) as a private-loan
arrangement, rather than having anything to do with the 'financial securities' industry." Id.
(emphasis in original); see also Dkt. No. 24-2 at ¶ 174. The revised Performance Contract and
Agreement attached to the letter (the "Revised Tutor Agreement") was nearly identical to the
Original Tutor Agreement. See Dkt. No. 24-2 at ¶ 175. The two agreements differed in one
respect: the Original Tutor Agreement referred to Tutor as a "Private Investment Lender" and to
Tutor's funds as an "investment," while the Revised Tutor Agreement referred to Tutor as a
"Private Lender" and to the funds as a "private loan." Id. at ¶ 176.3
Defendant Riel insists that these changes "had absolutely NO effect on terms or
conditions of loan agreement." Dkt. No. 36-1 at ¶ 176.
Defendant Riel's letter also provided the following instructions to Tutor "if/when anyone
from the SEC contacts you:"
I would not recommend that you disclose any information,
but that you simply confirm what I/we will have already
given them. They will receive no more information from
me other than the following documents; "Performance
Contract and Agreement(s)," "PROMISSORY NOTE(S)"
and the "CONTRACT/AGREEMENT
I would not recommend that you disclose your monthly
statements, as I can see them very easily making a
comparison to a typical "financial Security" procedure,
which obviously we do NOT want to happen.
Obviously it is critical that you have the exact same
documentation in your possession that I will be showing the
SEC as per their demand. So we need to be absolutely clear
and in agreement on these revisions.
Dkt. No. 28-2 at 1 (emphasis in original); Dkt. No. 24-2 at ¶ 177.
On April 15, 2014, after he had sent his April 7 letter to Tutor instructing him to
"discard/delete" documents and at least five monthly statements to Tutor and Singleton,
Defendant Riel responded by letter to the SEC's investigative letter. See Dkt. No. 24-2 at ¶¶ 179180. Defendant Riel's letter claimed that "there is no correspondence anywhere pertaining to past
or present participants [in the '150Percent Return project'] other than the actual written
contract(s)/Agreement(s) which copies are enclosed." Id. at ¶ 180; Dkt. No. 27-19 at 1.
On May 1, 2014, Defendant Riel testified under oath before the SEC. See id. at ¶ 181.
During his testimony, Defendant Riel selectively asserted his Fifth Amendment privilege. See
id. at ¶ 182. When asked whether he had communicated with any of the investors, or "note
holders," by email or regular mail since January 2014, Defendant Riel twice denied having done
so. See id. at ¶ 183; Dkt. No. 27-15 at 4, 9. However, Defendant Riel did admit that he spoke
with some of the investors by phone. See Dkt. No. 27-15 at 9.
In approximately April or May 2014, Defendant Riel asked Tutor to sign a "clarification
statement." Dkt. No. 24-2 at ¶ 184. Riel claimed that the other REinvest investors had signed the
statement and that it would be "helpful" for Tutor to sign it. See id. at ¶ 185. Defendant Riel
claimed that he had "carte blanche" to use Tutor's investment funds as Riel saw fit. See id. at ¶
186. Tutor claims that, upon Defendant Riel claiming that he had "carte blanche," he became
concerned and "informed Mr. Riel that that was not the case and that I had made an investment in
REinvest, not a personal investment or loan to him." Dkt. No. 28 at ¶ 14. Despite his concerns
about the "clarification statement," on May 7, 2014, Tutor signed the document in hopes of
salvaging his investment and getting his money back. See id. The clarification also provided that
REinvest or Riel could use Tutor's funds for "any personal and or private use" and that the 150%
Return Website had no effect on Tutor's decision to provide funds to REinvest. See Dkt. No. 242 at ¶ 189; Dkt. No. 28-4 at 1.
On May 5, 2014, Defendant Riel emailed Singleton and asked him to sign a clarification
statement with the same language as he provided to Tutor. See Dkt. No. 24-2 at ¶ 190.
Defendant Riel accompanied his email with a five-page letter. See id. at ¶ 191. Defendant Riel's
letter referred to Singleton's funds as "the private-loan (which you're utilizing as an alternative
investment vehicle for yourself)." Id. at ¶ 192; Dkt. No. 27-30 at 1. The letter admitted that the
SEC staff had shown Riel photocopies of checks from "the business account" made out to himself
"to take care of expenses," to "different charities," and to "the person/company who had done
some property repair/maintenance." Id. at ¶ 193; Dkt. No. 27-30 at 3. Defendant Riel further
claimed as follows: "I am a small privately held company, sometimes it is just simpler to take
money at times from one area, or another and make any adjustment elsewhere. It all evens out in
the end. . . . Obviously it would be helpful if you would be willing to sign a statement for me that
simply confirms that you as the private-lender are not concerned with the utilization of the
funds." Id. at ¶ 194; Dkt. No. 27-30 at 3. Riel's letter instructed Singleton that "[o]ur private
business by and between you and me, is just that — PRIVATE. This regulatory agency cannot
legally make you disclose anything. In a worst case scenario, they can legally compel you to
respond to them. THEY CANNOT MAKE YOU TALK TO THEM ON THE PHONE." Dkt.
No. 27-30 at 4.
Two days later, on May 7, 2014, Defendant Riel again emailed Singleton and asked him
to sign the clarification statement. See Dkt. No. 24-2 at ¶ 196; Dkt. No. 27-31. In that email,
Defendant Riel stated as follows: "[I]n order for me to do everything in my power to protect your
interest, I do need to count on your cooperation." Id. at ¶ 197.
On May 9, 2014, Defendant Riel sent Singleton a letter following their telephone
conversation. See id. at ¶ 198. In that letter, Riel conceded that Singleton had made "a Private
With respect to our brief phone conversation yesterday, with the
current SEC issue, it is understandable that you may have become
uncertain about your position and your decision to trust in me as
you have. . . . We are not (nor do we purport to be) a registered
broker-dealer, transfer agent, investment adviser, investment
company, or offer, buying or selling of any typical financial
securities. What we offer is an "alternative" to all of the above
stated. In fact, our alternative financial opportunity is a Private
Investment Loan. It is very simply a private-loan arrangement
being utilized as an alternative private investment vehicle.
Dkt. No. 27-32 at 1 (emphasis in original). Again, Defendant Riel indicated he needed to "count
on [Singleton's] cooperation" to protect his interests. See id.
Defendant Riel's Deposition
On September 29, 2015, the SEC filed its complaint against Riel and REinvest. See Dkt.
No. 1. On June 8, 2016, Defendant Riel appeared for his deposition and asserted his Fifth
Amendment privilege in response to all substantive questions. See Dkt. No. 24-2 at ¶¶ 202-03;
Dkt. No. 27-16.
Summary Judgment Motion Against Defendant Riel
The SEC's first and third causes of action assert securities fraud claims against Defendant
Riel under Section 17(a) of the Securities Act based on two liability theories: primary violations
of Section 17(a) and aiding and abetting Reinvest's violations of Section 17(a). See Dkt. No. 1 at
¶¶ 105-07, 111-14. Similarly, the SEC's second, fourth and fifth causes of action allege securities
fraud claims against Defendant Riel under Exchange Act Section 10(b) and Rule 10b-5 based on
three liability theories: (1) primary violations, (2) aiding and abetting Reinvest's violations, and
(3) control person liability for Reinvest's violations of Section 10(b) and Rule 10b-5. See id. at
¶¶ 108-10, 115-22.
1. Summary Judgment Standard
A court may grant a motion for summary judgment only if it determines that there is no
genuine issue of material fact to be tried and that the facts as to which there is no such issue
warrant judgment for the movant as a matter of law. See Chambers v. TRM Copy Ctrs. Corp., 43
F.3d 29, 36 (2d Cir. 1994) (citations omitted). When analyzing a summary judgment motion, the
court "cannot try issues of fact; it can only determine whether there are issues to be tried." Id. at
36-37 (quotation and other citation omitted). Moreover, it is well-settled that a party opposing a
motion for summary judgment may not simply rely on the assertions in its pleading. See Celotex
Corp. v. Catrett, 477 U.S. 317, 324 (1986) (quoting Fed. R. Civ. P. 56(c), (e)).
In assessing the record to determine whether any such issues of material fact exist, the
court is required to resolve all ambiguities and draw all reasonable inferences in favor of the
nonmoving party. See Chambers, 43 F.3d at 36 (citing Anderson v. Liberty Lobby, Inc., 477 U.S.
242, 255 (1986)) (other citations omitted). Where the non-movant either does not respond to the
motion or fails to dispute the movant's statement of material facts, the court must be satisfied that
the citations to evidence in the record support the movant's assertions. See Giannullo v. City of
New York, 322 F.3d 139, 143 n.5 (2d Cir. 2003) (holding that not verifying in the record the
assertions in the motion for summary judgment "would derogate the truth-finding functions of the
judicial process by substituting convenience for facts").
2. Fifth Amendment Privilege
In total, Defendant Riel disputed fourteen statements set forth in the SEC's statement of
material facts. See Dkt. No. 24-2 at ¶¶ 58, 66, 80, 84-86, 102, 124, 156-158, 187, 197, 200.
Since these statements all involve facts within Defendant Riel's personal knowledge, generally he
would be permitted to rely on assertions in a self-serving declaration to support the denial.
Having chosen to assert his Fifth Amendment privilege in this proceeding, Defendant Riel cannot
now rely on such statements to oppose the SEC's motion for summary judgment. See S.E.C. v.
Nadel, 97 F. Supp. 3d 117, 124-25 (E.D.N.Y. 2015) (striking the defendant's declaration where
he had invoked his Fifth Amendment privilege in discovery and granting the SEC's motion for
In his response to Plaintiff's motion, Defendant Riel repeatedly claims that he did not
know the consequences of asserting his Fifth Amendment privilege because he has been
proceeding pro se. See Dkt. No. 36 at 5, 6, 9 ("I was NEVER advised that by asserting my Fifth
Amendment privilege that I would be giving up my God given Rights through the Constitution of
the United States of America"). In his deposition in this matter, however, Defendant Riel
acknowledges that he had retained criminal defense counsel for the SEC's criminal investigation.
See Dkt. No. 27-16 at 3. Further, he acknowledges that he had the opportunity to speak with
criminal defense counsel about his deposition in this matter. See id. Additionally, during his
deposition, counsel for the SEC warned Defendant Riel as follows: "Sir, are you aware that if you
assert your Fifth Amendment privilege today, an adverse inference could be drawn against you
by a judge or a jury in this civil litigation?" See id.; see also Dkt. No. 27-15 at 6 ("You should be
aware that if you refuse to answer a question based on your Fifth Amendment privilege, a judge
or a jury may, may, Mr. Riel, take an adverse inference against you in a civil action that the SEC
may determine to bring against you. That means that the judge or jury would be permitted to
infer that your answer to the question would have tended to incriminate you").
"[A] party who asserts the privilege against self-incrimination must bear the consequences
of lack of evidence, . . . and the claim of privilege will not prevent an adverse finding or even
summary judgment if the litigant does not present sufficient evidence to satisfy the usual
evidentiary burdens in the litigation." United States v. Certain Real Property & Premises Known
as 4003-4005 5th Ave., Brooklyn, N.Y., 55 F.3d 78, 83 (2d Cir. 1995) (internal quotation marks
and citations omitted). Defendant Riel was warned of the consequences of invoking his Fifth
Amendment privilege and knowingly chose to do so. Having knowingly made that decision,
Defendant Riel cannot now rely on unverified, self-serving statements "as a sword to resist
summary judgment, especially where [he] claimed the Fifth Amendment's protections as a shield
to avoid submitting [himself] to questioning on the substantive issues addressed by the
pleadings." In re Livent, Inc., Noteholders Sec. Litig., 355 F. Supp. 2d 722, 734-35 (S.D.N.Y.
In any event, even when the Court considers Defendant Riel's conclusory denials, as
discussed below, the Court finds that Defendant Riel has failed to raise an issue of material fact
and that the SEC is entitled to summary judgment.
3. Primary Violations of Securities Act Section 17(a), Exchange Act Section 10(b), and
"Section 10(b) of the Exchange Act and Rule 10b-5, which prohibit fraud in the purchase
or sale of a security, are violated if a person has '(1) made a material misrepresentation or a
material omission as to which he had a duty to speak, or used a fraudulent device; (2) with
scienter; (3) in connection with the purchase or sale of securities.'" S.E.C. v. Frohling, 851 F.3d
132, 136 (2d Cir. 2016) (quoting S.E.C. v. Pentagon Capital Management PLC, 725 F.3d 279,
285 (2d Cir. 2013)) (other quotation omitted). "A false statement was made with the requisite
scienter if it was made with the 'intent to deceive, manipulate, or defraud.'" Id. (quoting S.E.C. v.
Obus, 693 F.3d 276, 286 (2d Cir. 2012)). "'[S]cienter may be established through a showing of
reckless disregard for the truth, that is, conduct which is highly unreasonable and which
represents an extreme departure from the standards of ordinary care.'" Id. (quotation omitted).
The elements of a claim under § 17(a) of the Securities Act, which prohibits fraud in the "offer or
sale" of a security, 15 U.S.C. § 77q(a), are "[e]ssentially the same" as the elements of claims
under § 10(b) and Rule 10b-5. See id. (citation omitted); see also S.E.C. v. Monarch Funding
Corp., 192 F.3d 295, 308 (2d Cir. 1999) (noting that "[e]ssentially the same elements are required
under Section 17(a)(1)-(3) in connection with the offer or sale of a security, though no showing
of scienter is required for the SEC to obtain an injunction under subsections (a)(2) or (a)(3)").
Additionally, the SEC must also establish that the fraud was committed "by the use of any
means" or instrumentality of "interstate commerce." 15 U.S.C. §§ 77q & 78j(b). This element
may be established by demonstrating that the fraud was committed through the use of a telephone
or emails, or that he simply used them during some phase of his fraud. See S.E.C. v. Stanard, No.
06 Civ. 7736, 2009 WL 196023, *25 (S.D.N.Y. Jan. 27, 2009) (citations omitted).
a. "Instrumentality of Interstate Commerce"
"A fraud has been committed 'by the use of any means or instrumentality of interstate
commerce' if the defendant used some means of interstate communication (such as a telephone
call), in some phase of the transaction." Stanard, 2009 WL 196023, at *25 (quoting Richter v.
Achs, 962 F. Supp. 31, 33 (S.D.N.Y. 1997)).
In the present matter, the Court finds that Defendant Riel's telephone calls and emails with
Singleton and Tutor satisfy this element. See Dkt. No. 24-2 at ¶¶ 83-85, 103-14, 118-21, 125-32,
134-39, 146-50, 190-200.
b. Misrepresentations to Investors
The undisputed facts establish that Defendant Riel made false and misleading statements
to investors in several ways: (1) on the 150% Return and REinvest websites, (2) in direct
conversations with Tutor, and (3) in emails to Singleton. For example, on the 150% Return
Website, Defendant Riel claimed that REinvest offered a "high yield investment" in a "highly
diversified . . . financial growth vehicle" that used a "proprietary method" to provide returns of
50% to 150% over a five-year term "with inherently low risk" and a "built-in safety net process."
Dkt. No. 24-2 at ¶¶ 5-9, 23-25. On the REinvest Website, Defendant Riel implied that REinvest
could provide investors with high return rates through its investments in commercial real estate.
See id. at ¶¶ 6, 10, 28-30.4 Similarly, Defendant Riel orally represented to Tutor that REinvest
earned high rates of return through real estate loans. See id. at ¶¶ 84-85. Additionally, on the
150% Return Website, Defendant Riel further claimed through purported investor testimonials
that REinvest had many satisfied investors, including a couple who had earned $1,000,000 and an
investor who had earned "triple digit" returns from REinvest. See id. at ¶¶ 34-38. Finally, after
Singleton's first investment and before his second, Defendant Riel emailed him an account
statement showing that Singleton had earned a monthly return that, when annualized, equaled
almost 30%. See id. at ¶¶ 125-28.
These statements, among others as detailed above, were false and misleading. See S.E.C.
v. StratoComm Corp., 652 Fed. Appx. 35, 37 (2d Cir. 2016) (finding that the district court
"properly concluded that the statements, taken together, created a misleading and false
impression"). Contrary to Defendant Riel's assertions, the undisputed facts demonstrate that
REinvest had no "low risk," highly diversified," and "proprietary" investment method. Rather,
Defendant Riel used most of the money on personal expenses, unrelated to any investments. See
Dkt. No. 24-2 at ¶¶ 23-25, 50, 58, 66, 80, 102, 124, 145, 151-58. Further, of the small portion of
the investment funds that were "invested," Defendant Riel lost almost 90% of that money within
eighteen months. See id. at ¶¶ 51-52, 59-61, 67-73, 156-57. Contrary to Defendant Riel's
conclusory assertions, REinvest never produced any investment returns and the investor
testimonials were entirely fictitious. Although Defendant Riel returned $87,500 of Cossey's
$125,000 investment, he used a later investor's funds to repay her in Ponzi-scheme fashion. See
id. at ¶¶ 159-60. During all of this, Defendant Riel neither disclosed REinvest's risky futures
"For purposes of Rule 10b-5, the maker of a statement is the person or entity with
ultimate authority over the statement, including its content and whether and how to communicate
it." Janus Capital Group, Inc. v. First Derivative Traders, 564 U.S. 135, 142 (2011).
trading nor his intention to use investors' funds for his personal expenses. See id. at ¶¶ 26-27, 44,
c. The Misrepresentations Were Material
A misrepresentation or omission is "material" if "a reasonable investor would have
considered [it] significant in making investment decisions." Ganino v. Citizens Utils. Co., 228
F.3d 154, 161 (2d Cir. 2000). "'[T]here must be 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.'" Basic Inc. v. Levinson, 485 U.S. 224, 231-32
(1988) (quoting TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976)). "An omitted fact
may be immaterial if the information is trivial, . . . or is so basic that any investor could be
expected to know it." Ganino, 228 F.3d at 162 (internal citations omitted). "Therefore, whether
an alleged misrepresentation or omission is material necessarily depends on all relevant
circumstances of the particular case." Id. As such, materiality is a mixed question of law and
fact. See id.
As the SEC correctly contends, Defendant Riel's misrepresentations were "so obviously
important to the investor that reasonable minds cannot differ on the question of materiality."
S.E.C. v. Research Automation Corp., 585 F.2d 31, 35 (2d Cir. 1978) (citation omitted). No
reasonable investor would have invested with REinvest had he or she known that REinvest did
not invest in real estate or any other business, that Defendant Riel and REinvest did not intend to
invest most of the funds for a return, or that Defendant Riel would use most of the investment
funds for personal expenses. See Research Automation, 585 F.2d at 35. Additionally, Defendant
Riel's misrepresentations about REinvest's "low risk," "highly diversified" investment was also
material, considering that the only investment made was in highly risky futures trading. See
C.F.T.C. v. Rolando, 589 F. Supp. 2d 159, 170 (D. Conn. 2008) ("Trading in futures and options
is inherently risky. . . . [A] reasonable investor would want to know that his funds were being
invested in futures and options and the risks associated with that investment"). Similarly,
Defendant Riel's phony account statement to Singleton to convince him to invest more money
with REinvest was material as a matter of law. See id. at 170 (holding that "a reasonable investor
would want to know that his account statements were false"); Yadav v. Punj, No. 11 Civ. 1500,
2013 WL 3975943, *6 (S.D.N.Y. Aug. 5, 2013) (holding that the defendant made a material
misrepresentation when he provided the plaintiff with "a false account statement claiming that an
initial investment of $250,000 had grown to $950,000").
d. The Misrepresentations Were Made With Scienter
In a securities fraud case, the plaintiff may establish scienter by either "(1) showing the
defendants' motive and opportunity to perpetrate fraud, or (2) alleging 'strong circumstantial
evidence of conscious misbehavior or recklessness.'" Iowa Public Employee's Retirement System
v. Deloitte & Touche LLP, 919 F. Supp. 2d 321, 331 (S.D.N.Y. 2013) (quotation and other
citation omitted). When a plaintiff seeks to establish scienter through conscious misbehavior or
recklessness, the alleged reckless conduct must be behavior that is "'at the least, conduct which is
highly unreasonable and which represents an extreme departure from the standards of ordinary
care to the extent that the danger was either known to the defendant or so obvious that the
defendant must have been aware of it.'" Id. (quoting Kalnit, 264 F.3d at 142) (other quotations
omitted). "In the case of securities fraud, the Second Circuit has noted on multiple occasions that
plaintiffs' allegations 'suffice[ ] to state a claim based on recklessness when they . . . specifically
allege[ ] defendants' knowledge of facts or access to information contradicting their public
statements.'" Id. (quotation and other citation omitted); see also S.E.C. v. Universal Express, Inc.,
475 F. Supp. 2d 412, 424 (S.D.N.Y. 2007) ("Representing information as true while knowing it is
not, recklessly misstating information or asserting an opinion on grounds so flimsy as to belie any
genuine belief in its truth, are all circumstances sufficient to support a conclusion of scienter").
In the present matter, the SEC has offered both circumstantial evidence of Defendant
Riel's scienter, as well as his own admissions that he knew that certain of his representations to
investors were false or misleading. The undisputed facts establish that Defendant Riel was the
only person who operated REinvest, its websites, and its accounts, and that he did not invest the
majority of investors' funds in anything other than brief futures trading. Additionally, as
discussed above, Defendant Riel withdrew significant portions of the "investments" from the
REinvest Bank Accounts through cash withdrawals, writing checks to cash, and writing checks to
himself. Further, the evidence demonstrated that Defendant Riel made personal purchases and
paid bills unrelated to any investments from the REinvest Bank Accounts. These facts
demonstrate that Defendant Riel "benefitted in a concrete and personal way from the purported
fraud," which satisfies the scienter element. See Novak v. Kasaks, 216 F.3d 300, 311 (2d Cir.
2000); see also Yadav, 2013 WL 3975943, at *6 (holding that, where the defendant received
funds and deposited them directly into his personal banking account, the defendant personally
benefitted in a concrete way from the purported fraud, which fulfills the element of scienter);
S.E.C. v. Constantin, 939 F. Supp. 2d 288, 309 (S.D.N.Y. 2013) (holding that the SEC had
satisfied the scienter requirement where the record established that the defendant lied to clients
about his investment experience, his company's size and involvement in international markets,
and the amount of return that clients could expect from their investments). Defendant Riel's
scienter is further demonstrated by the phony account statements he prepared that reflected
information that he knew to be untrue at the time they were prepared. See id.; see also United
States v. Kelley, 551 F.3d 171, 175-76 (2d Cir. 2009) (finding that "bogus account statements"
created by the defendant to conceal his theft of clients' funds "tended to demonstrate [the
defendant's] intent to defraud"). Defendant Riel's state of mind is also evidence from his
instruction Tutor to "discard/delete" documents sought by the SEC and by seeking "clarification
statements" from Tutor and Singleton.
Based on the foregoing, the Court finds that the undisputed facts demonstrate that
Defendant Riel acted with the requisite scienter to find him liable for the violations alleged.5
e. In Connection With the Sale of Securities
i. The Promissory Notes Were Securities
In response to the SEC's motion for summary judgment, Defendant Riel argues that the
"REinvest promissory notes were not securities." Dkt. No. 36 at 7. Rather, Defendant Riel
claims that the REinvest "promissory notes were to serve as an alternative-private investment in
the form of a loan[.]" Id. While acknowledging that the word "security" was used, Defendant
Riel argues that the use of the word "security" is only one factor to consider. See id. Further,
Defendant Riel contends that "the documents governing Tutor's and Singleton's REinvest
documents referred to Tutor and Singleton as 'private investment lender[s].' The written
agreements clearly stated them as 'Lender[s]' because that is what they were. These were privateloan agreements and each was clearly stated as such." Id.
"The fundamental purpose undergirding the Securities Acts is 'to eliminate serious abuses
in a largely unregulated securities market.'" Reves v. Ernst & Young, 494 U.S. 56, 60 (1990)
Additionally, the Court notes that district courts in the Second Circuit routinely grant the
SEC summary judgment where the defendant asserts his Fifth Amendment privilege, instead of
testifying about his mental state, and therefore cannot rebut the SEC's circumstantial scienter
evidence. See Constantin, 939 F. Supp. 2d at 309-10 & n.14; Global Telecom Servs., 325 F.
Supp. 2d at 110, 115-19; Cavanagh, 2004 WL 1594818, at *26-*27.
(quoting United Housing Foundation, Inc. v. Forman, 421 U.S. 837, 849, 95 S. Ct. 2051, 2059,
44 L. Ed. 2d 621 (1975)). "In defining the scope of the market that it wished to regulate,
Congress painted with a broad brush." Id. "It recognized the virtually limitless scope of human
ingenuity, especially in the creation of 'countless and variable schemes devised by those who
seek the use of the money of others on the promise of profits,' . . . and determined that the best
way to achieve its goal of protecting investors was 'to define the term 'security' in sufficiently
broad and general terms so as to include within that definition the many types of instruments that
in our commercial world fall within the ordinary concept of a security.'" Id. at 60-61 (internal
and other quotations omitted). "Congress therefore did not attempt precisely to cabin the scope
of the Securities Acts. Rather, it enacted a definition of 'security' sufficiently broad to encompass
virtually any instrument that might be sold as an investment." Id. at 61.
The Supreme Court has described a modified version of the Second Circuit's "family
resemblance" test for determining whether a note constitutes a security. See Reves, 494 U.S. at
63-65 (citing Exchange Nat. Bank of Chicago v. Touche Ross & Co., 544 F.2d 1126, 1137 (2d
Cir. 1976); Chemical Bank v. Arthur Andersen & Co., 726 F.2d 930, 939 (2d Cir. 1984)). All
notes are presumed to be securities unless they "bear[ ] a strong resemblance" to instruments
widely held to be non-security notes. See id. Such non-security notes include:
the note delivered in consumer financing, the note secured by a
mortgage on a home, the short-term note secured by a lien on a
small business or some of its assets, the note evidencing a
"character" loan to a bank customer, short-term notes secured by an
assignment of accounts receivable, or a note which simply
formalizes an open-account debt incurred in the ordinary course of
business . . . [and] notes evidencing loans by commercial banks for
Reves, 494 U.S. at 65 (internal quotations and citations omitted).
If the note at issue is not sufficiently similar to one of the enumerated non-security
categories, the Court next applies the four factors identified in Reves: "'(1) the motivations that
would prompt a reasonable buyer and seller to enter into the transaction; (2) the plan of
distribution of the instrument; (3) the reasonable expectations of the investing public; and (4)
whether some factor, such as the existence of another regulatory scheme, significantly reduces
the risk of the instrument, thereby rendering application of the securities laws unnecessary.'"
Pollack, 27 F.3d at 812 (quotations omitted). The factors are not elements, each of which must
be met, but are instead points of comparison for the ultimate determination of "family
First, Defendant Riel's and the investors' motivations demonstrate that they intended
REinvest's promissory notes to serve as investments, a factor indicative of a security. See
Pollack, 27 F.3d at 812 ("The inquiry is whether the motivations are investment (suggesting a
security) or commercial or consumer (suggesting a non-security)"); Reves, 494 U.S. at 67-68
("The Co-Op sold the notes in an effort to raise capital for its general business operations, and
purchasers bought them in order to earn a profit in the form of interest"). According to Tutor,
Defendant Riel told him that his investment proceeds "would be used for REinvest's business,"
which involved "marketing short-term loans to the real estate industry in exchange for a highinterest rate of return," and promised Tutor a 150% return on his REinvest investment – 37.5%
per year over four years. See Dkt. No. 28 at ¶ 5. Tutor claimed that he provided the funds to
REinvest because he was looking for a significant return on investment. See id. at ¶ 3.
Additionally, the agreements governing Tutor's and Singleton's REinvest notes referred to Tutor
and Singleton as "private investment lender[s]" and to the promised rate of return as a "return on
investment." Dkt. No. 24-2 at ¶¶ 90-91, 113-14. Additionally, when Singleton expressed
concern after Defendant Riel sought a "clarification statement" from him, Defendant Riel twice
reiterated that the transaction was an "investment vehicle." Id. at ¶¶ 190-92, 199. The
undisputed facts clearly demonstrate that both sides understood that the purpose of the
"promissory notes" was to serve as investments.
Second, the fact that REinvest's "plan of distribution" was to market the notes "over an
extended period" to a broad segment of the public," which is another factor indicative of a
security. See Reves, 494 U.S. at 68 ("To be sure, the notes were not traded on an exchange.
They were, however, offered and sold to a broad segment of the public"); Nussbaum v. Mezei,
No. 09 Civ. 10287, 2012 WL 3613813, *11 (S.D.N.Y. Aug. 22, 2012) (noting that "the Repotex
notes were not sold to a broad segment of the public — they were offered only to friends and
business associates of Mr. Mezei . . . However, while the offering certainly is not comparable to
publicly traded stocks, it also is not the equivalent of an isolated transaction with a single
investor. Rather, the Repotex notes were offered to individuals and institutions alike and were
issued to over eleven such investors"). Defendant Riel advertised on Google to direct viewers to
the 150% Return Website and then used the website to market the REinvest notes. See Dkt. No.
24-2 at ¶¶ 23-42. As such, the Court finds that this second factor supports the conclusion that the
notes were securities.
Third, the Court must assess the expectations of the investing public. As the Supreme
Court stated in Reves, "[w]e have consistently identified the fundamental essence of a 'security' to
be its character as an investment." Reves, 494 U.S. at 68-69. Thus, this factor is an objective test
that turns on whether a reasonable purchaser would have perceived the notes to be an investment.
See id. Here, the Court finds that it would be reasonable for a prospective purchaser to view the
REinvest notes as an investment because the 150% Return Website advertised the notes as a
"high yield investment," as a "financial growth vehicle," and as one of the "best high return
investment opportunities." Dkt. No. 24-2 at ¶¶ 23-25; Reves, 494 U.S. at 69 ("The
advertisements for the notes here characterized them as 'investments,' . . . and there were no
countervailing factors that would have led a reasonable person to question this characterization").
Finally, as the SEC correctly contends, the fourth factor also favors finding that the notes
are securities because the REinvest notes "would escape federal regulation entirely if the
[Securities and Exchange] Acts were held not to apply." Reves, 494 U.S. at 69. The notes appear
to have been "uncollateralized and uninsured," and, therefore, presumably not subject to federal
banking or pension laws. See id.
ii. The Misrepresentations Were in Connection With the Notes' Sales
Courts interpret the "in connection with" requirement broadly. See S.E.C. v. Zandford,
535 U.S. 813, 819-20 (2002). Misrepresentations that "somehow induced the purchaser to
purchase the security at issue" satisfy the "in connection with" requirement. See Press v. Chem.
Inv. Servs. Corp., 166 F.3d 529, 537 (2d Cir. 1999).
In the present matter, the undisputed facts clearly establish that Defendant Riel made
misrepresentations to investors in order to sell them the REinvest promissory notes. As such, the
Court finds that Defendant Riel's misrepresentations occurred "in connection with" the sale of
While Section 10(b) prohibits fraud "in connection with the purchase or sale of any
security," Section 17(a) prohibits fraud "in the offer or sale of any securities." 15 U.S.C. §§
77q(a) & 78j(b). No meaningful difference exists between these formulations, at least where the
fraud induced the securities' purchase. See United States v. Naftalin, 441 U.S. 768, 773 n.4
(1979) (noting, without deciding the issue, that "we are not necessarily persuaded that 'in' is
narrower than 'in connection with'" and that "[b]oth Congress . . . and this Court . . . have on
Based on the foregoing, the Court grants the SEC's motion for summary judgment against
Defendant Riel as to the claims regarding the primary violations.
4. Aiding and Abetting REinvest's Primary Violations of Section 17(a), Section 10(b),
and Rule 10b-5
Securities Section 15(b) and Exchange Act Section 20(e) each provide that "any person
that knowingly or recklessly provides substantial assistance to another person in violation of" the
Securities or Exchange Act or rules or regulations thereunder "shall be deemed to be in violation
of such provision." 15 U.S.C. §§ 77o(b) & 78t. "In order for a defendant to be liable as an aider
and abettor in a civil enforcement action, the SEC must prove: '(1) the existence of a securities
law violation by the primary (as opposed to the aiding and abetting) party; (2) "knowledge" of
this violation on the part of the aider and abettor; and (3) "substantial assistance" by the aider and
abettor in the achievement of the primary violation.'" S.E.C. v. Apuzzo, 689 F.3d 204, 206 (2d
Cir. 2012) (quotations omitted).
First, as discussed above, Defendant Riel was the owner and only employee of REinvest.
Defendant Riel's actions on REinvest's behalf are imputed to REinvest. See In re Vivendi
Universal, S.A. Sec. Litig., 765 F. Supp. 2d 512, 543 (S.D.N.Y. 2011) ("When the defendant is a
corporate entity, the law imputes the state of mind of the employees or agents who made the
statement(s) to the corporation") (citing Teamsters Local 445 Freight Div. Pension Fund v.
Dynex Capital Inc., 531 F.3d 190, 195 (2d Cir. 2008)); In re Parmalat Sec. Litig., 474 F. Supp.
2d 547, 550 (S.D.N.Y. 2007) ("[P]rincipals typically are liable for torts and crimes committed by
occasion used the terms interchangeably"); S.E.C. v. Norton, No. 95 Civ. 4451, 1997 WL 611556,
*3 n.1 (S.D.N.Y. Oct. 3, 1997) ("Although Section 17 of the Securities Act refers to 'in the offer
or sale of any securities' and Section 10(b) of the Exchange Act requires misstatements made 'in
connection with the purchase or sale of any security,' the Court will treat the two phrases
interchangeably") (citing Naftalin, 441 U.S. at 773).
their agents acting within the scope of their authority. This . . . has [long] been applied to impose
respondeat superior liability in federal securities and criminal cases even where the principal
itself has committed no primary violation") (citations omitted). Second, as discussed above,
Defendant Riel acted knowingly in aiding and abetting the violation. Third, Defendant Riel
substantially assisted REinvest's violations. To satisfy the "substantial assistance" component of
aiding and abetting, "the SEC must show that the defendant 'in some sort associate[d] himself
with the venture, that he participate[d] in it as in something that he wishe[d] to bring about, [and]
that he [sought] by his action to make it succeed.'" Apuzzo, 689 F.3d at 206 (quotation omitted).
Defendant Riel took each of these steps with respect to his and REinvest's fraud. Defendant Riel
personally made misrepresentations on REinvest's websites, in oral statements to Tutor, and in
emails to Singleton. Thereafter, instead of investing the funds, they were misappropriated for his
Based on the foregoing, the Court grants the SEC's motion for summary judgment as to
the aiding and abetting claims against Defendant Riel.
5. Control Person Liability for REinvest's Section 10(b) and Rule 10b-5 Violations
Exchange Act Section 20(a) renders control persons liable for the fraud of entities they
Every person who, directly or indirectly, controls any person liable
under any provision of this chapter or of any rule or regulation
thereunder shall also be liable jointly and severally with and to the
same extent as such controlled person to any person to whom such
controlled person is liable (including to the Commission in any
action brought under paragraph (1) or (3) of section 78u(d) of this
title), unless the controlling person acted in good faith and did not
directly or indirectly induce the act or acts constituting the violation
or cause of action.
15 U.S.C. § 78t(a). To prove a claim for control person liability, the SEC must establish the
following: "'(1) a primary violation by the controlled person, (2) control of the primary violator
by the defendant, and (3) that the defendant was, in some meaningful sense, a culpable
participant in the controlled person's fraud.'" Carpenters Pension Trust Fund of St. Louis v.
Barclays PLC, 750 F.3d 227, 236 (2d Cir. 2014) (quotation omitted).
It is well settled that parties may plead alternative theories of liability. However, the law
is clear that "a party may not ultimately be held liable under both Section 10(b) and Section 20(a)
for the same underlying conduct[.]" In re Alstrom SA, 454 F. Supp. 2d 187, 210-11 (S.D.N.Y.
2006) (citations omitted); In re Van der Moolen Holding N.V. Sec. Litig., 405 F. Supp. 2d 388,
412 (S.D.N.Y. 2005) (citation omitted); Kalnit v. Eichler, 85 F. Supp. 2d 232, 246 (S.D.N.Y.
1999). Since the SEC relies on the same underlying conduct for the "control person" and the
"primary violator" claims, the SEC's motion for summary judgment as to this claim must be
6. The SEC's Requested Injunction, Disgorgement, and Civil Penalties
In its motion, the SEC argues that the Court "should permanently enjoin Riel from
violating Section 17(a), Section 10(b), and Rule 10b-5, order him to disgorge his ill-gotten gains
with prejudgment interest, and pay the maximum amount of civil penalties." Dkt. No. 24-1 at 40.
a. Permanent Injunction
Section 20(b) of the Securities Act and Section 21(d)(1) of the Exchange Act entitle the
SEC to obtain permanent injunctive relief upon a showing that: (1) violations of securities laws
occurred, and (2) there is a reasonable likelihood that violations will occur in the future. See
S.E.C. v. Commonwealth Chem. Sec., Inc., 574 F.2d 90, 99-100 (2d Cir. 1978). There are several
factors to consider with regard to issuing an injunction for future violations, including the
The likelihood of future violations, the degree of scienter involved,
the sincerity of defendant's assurances against future violations, the
isolated or recurrent nature of the infraction, defendant's
recognition of the wrongful nature of his conduct, and the
likelihood, because of defendant's professional occupation, that
future violations might occur.
S.E.C. v. Universal Major Industries Corp., 546 F.2d 1044, 1048 (2d Cir. 1976) (citations
omitted); see also S.E.C. v. Wheeler, 56 F. Supp. 3d 241, 247-48 (W.D.N.Y. 2014) (quotation
In the present matter, the Court finds that the SEC has established that Defendant Riel
should be permanently enjoined from committing future violations. First, the nature of
Defendant Riel's violations, in which he solicited "investments" through repeated lies and
misrepresentations, make it likely that he would engage in similar conduct in the future. The
undisputed facts make clear that Defendant Riel continued to solicit additional investments up
until the time that the SEC began its investigation. Even after the investigation began, Defendant
Riel contacted "investors" and instructed them to not comply with the SEC's investigators and
further asked them to sign amended documents that were intended to conceal the true nature of
his scheme. See Dkt. No. 27-30 at 2-6. Such conduct indicates that Defendant Riel could engage
in this conduct in the future and belies the sincerity of his assurances against future violations.
Additionally, as discussed, Defendant Riel did not commit an isolated violation. Rather,
over a period of thirty-six months, Defendant Riel continuously solicited investments through his
repeated lies. Finally, Defendant Riel has repeatedly denied the wrongful nature of his conduct
and continues to do so in his response to the pending motion. See Dkt. No. 36 at 9-10; Dkt. No.
27-30 at 2-6.
Moreover, as discussed above, Defendant Riel acted with a high degree of scienter.
Defendant Riel made substantial and numerous material misrepresentations regarding REinvest,
his experience, and the money he allegedly made for past investors. Then, to induce additional
investments after losing or misappropriating previously invested amounts, Defendant Riel sent
fake account statements representing that the initial investment was generating substantial
amounts of interest.
Based on the foregoing, the Court finds that the relevant factors amply support a
permanent injunction. See S.E.C. v. Tavella, 77 F. Supp. 3d 353, 359 (S.D.N.Y. 2015). As such,
the Court grants the SEC's request to permanently enjoin Defendant Riel from future violations of
the securities laws.
b. Disgorgement of Profits
"'Once the district court has found federal securities law violations, it has broad equitable
power to fashion appropriate remedies, including ordering that culpable defendants disgorge their
profits.'" S.E.C. v. Razmilovic, 738 F.3d 14, 31 (2d Cir. 2013) (quoting S.E.C. v. First Jersey
Securities, Inc., 101 F.3d 1450, 1474 (2d Cir. 1996)). "Disgorgement 'is a method of forcing a
defendant to give up the amount by which he was unjustly enriched.'" Id. (quotation omitted).
"Thus, in order to establish a proper disgorgement amount, 'the party seeking disgorgement must
distinguish between the legally and illegally derived profits,' . . . so that disgorgement is ordered
only with respect to those that were illegally derived." Id. (internal quotation omitted).
The amount of disgorgement ordered need only be "a reasonable approximation of profits
causally connected to the violation" and "any 'risk of uncertainty [in calculating disgorgement]
should fall on the wrongdoer whose illegal conduct created that uncertainty.'" S.E.C. v. Patel, 61
F.3d 137, 140 (2d Cir. 1995) (quotation omitted). Moreover, the court should not withhold the
remedy of disgorgement even if the defendant offers evidence that he cannot presently pay a
disgorgement award based on his current income and assets. See S.E.C. v. Inorganic Recycling
Corp., No. 99 Civ. 10159, 2002 WL 1968341, *4 (S.D.N.Y. Aug. 23, 2002).
In the present matter, the Court finds that a disgorgement award in the amount of
$197,500.00, plus prejudgment interest. This amount constitutes the total amount Defendant Riel
obtained from his five investors based on his fraudulent misrepresentations ($285,000) minus the
funds that Defendant Riel repaid to Cossey ($87,500). See Dkt. No. 24-2 at ¶¶ 43, 115-16, 140,
145, 159-60; Dkt. No. 38 at 6 n.2. "Requiring payment of [prejudgment] interest prevents a
defendant from obtaining the benefit of what amounts to an interest free loan procured as a result
of illegal activity." S.E.C. v. Morgan, 944 F. Supp. 286, 295 (S.D.N.Y. 1996). To calculate
prejudgment interest, courts use the interest rate imposed by the Internal Revenue Service
("IRS") for underpayment. See S.E.C. v. First Jersey Sec., Inc., 101 F.3d 1450, 1476 (2d Cir.
In determining the appropriate amount of prejudgment interest, the SEC applied the IRS
rate to the total amount of Defendant Riel's ill-gotten proceeds from the first day of the month
following the last date on which Defendant Riel received an investment, i.e., November 1, 2013.
The Court finds this method appropriate and notes that it favors Defendant Riel by not charging
him with interest from the first date he received an investment. Using this method, the Court
finds that the total interest accrued from November 1, 2013 through September 27, 2017 is
As of December 31, 2016, based on the IRS underpayment rate, the amount of
prejudgment interest was $21,233.10. See Dkt. No. 38 at 6 n.2.
To determine this amount, the Court used the IRS interest calculator available at
Based on the foregoing, the Court grants the SEC's requested disgorgement of
$197,500.00 plus prejudgment interest of $27,875.20.
c. Civil Penalties
"Both the 1933 and 1934 Acts authorize three tiers of monetary penalties for statutory
violations." S.E.C. v. Razmilovic, 738 F.3d 14, 38 (2d Cir. 2013) (citing 15 U.S.C. § 77t(d); 15
U.S.C. § 78u(d)(3)). "Under each statute, a first-tier penalty may be imposed for any violation; a
second-tier penalty may be imposed if the violation 'involved fraud, deceit, manipulation, or
deliberate or reckless disregard of a regulatory requirement'; a third-tier penalty may be imposed
when, in addition to meeting the requirements of the second tier, the 'violation directly or
indirectly resulted in substantial losses or created a significant risk of substantial losses to other
persons,'" Razmilovic, 738 F.3d at 38 (quoting 15 U.S.C. §§ 77t(d)(2)(A)-(C); 15 U.S.C. §§
"Each tier provides that, for each violation, the amount of penalty 'shall not exceed the
greater of ' a specified monetary amount or the defendant's 'gross amount of pecuniary gain[.]'"
Id. (quoting 15 U.S.C. § 77t(d)(2); 15 U.S.C. § 78u(d)(3)(B)). For violations occurring after
March 3, 2009 and before March 5, 2013, the third-tier penalty for natural persons is the greater
of $150,000 per violation or the gross pecuniary gain to the violator from each violation. See 15
U.S.C. § 77t(d)(2)(C); 15 U.S.C. § 78u(d)(3)(B)(ii); 17 C.F.R. § 201.1004. For violations
occurring after March 5, 2013, the third-tier penalty for natural persons is the greater of $160,000
per violation or the gross amount of pecuniary gain to the violator from each violation. See 15
U.S.C. § 77t(d)(2)(C); 15 U.S.C. § 78u(d)(3)(B)(ii); 17 C.F.R. § 201.1005.
"Though the maximum penalty is set by statute on the basis of tier, the actual amount of
the penalty is left up to the discretion of the district court." S.E.C. v. Tourre, 4 F. Supp. 3d 579,
593 (S.D.N.Y. 2014) (citing S.E.C. v. Kern, 425 F.3d 143, 153 (2d Cir. 2005)). "In exercising
this discretion, courts weigh '(1) the egregiousness of the defendant's conduct; (2) the degree of
the defendant's scienter; (3) whether the defendant's conduct created substantial losses or the risk
of substantial losses to other persons; (4) whether the defendant's conduct was isolated or
recurrent; and (5) whether the penalty should be reduced due to the defendant's demonstrated
current and future financial condition.'" Id. (quoting S.E.C. v. Haligiannis, 470 F. Supp. 2d 373,
386 (S.D.N.Y. 2007)) (other citation omitted). Additionally, in determining an appropriate civil
monetary penalty, the court must consider that these provisions are intended to punish the
violator and deter future violations. S.E.C. v. Garfield Taylor, Inc., 134 F. Supp. 3d 107, 110
(D.D.C. 2015) (citation omitted).
In the present matter, the Court finds that third-tier penalties are warranted. Defendant
Riel's violations involved fraud, deceit and manipulation and the violations directly resulted in
substantial losses. As the SEC correctly contends, Defendant Riel's violations relating to his
fraud on Cossey, Villatore, and Tutor occurred after March 3, 2009 and before March 5, 2013,
thereby making the $150,000 maximum applicable to these violations. The violations involving
Singleton and Weinberg occurred after March 5, 2013, thereby rendering the $160,000 maximum
Defendant Riel's egregious conduct was knowingly undertaken and the record makes
clear that, had the SEC not commenced its investigation, it would have continued. Further,
Defendant Riel engaged in this conduct for more than three years and the violations were not
isolated incidents. Although the first four factors favor increasing the amount of the penalty
imposed, Defendant Riel's current and future financial condition warrants the imposition of a
reduced penalty. See Dkt. No. 36 at 12.
As to the number of violations, the SEC argues that the Court should find that Defendant
Riel committed five separate violations by concluding that each victim of Defendant Riel's
scheme should be considered a separate violation. While there is support for this position, "other
courts have assessed only a single penalty where the violations arose from a single scheme or
plan." Garfield Taylor, Inc., 134 F. Supp. 3d at 110 (citations omitted); see also S.E.C. v.
Rabinovich & Assocs., LP, No. 07 Civ 10547, 2008 WL 4937360, *6 (S.D.N.Y. Nov. 18, 2008)
(concluding, following fraudulent scheme that raised $2,250,000 from more than 150 investors
that, "[a]lthough [the defendant] engaged in repeated violations of the securities laws, they all
arose from a single scheme or plan," and assessing a penalty of $130,000); S.E.C. v. Kenton
Capital Ltd., 69 F. Supp. 2d 1, 17 n.15 (D.D.C. 1998) (counting each of the twelve investors who
sent money to the defendant as an individual violation, and assessing $100,000 per violation, for
a total penalty of $1.2 million); S.E.C. v. GTF Enters., Inc., No. 10–CV–4258, 2015 WL 728159,
*4 (S.D.N.Y. Feb. 19, 2015) (describing various methods of determining the number of
"violations"). Since the violations here arose out of a single scheme or plan, for purposes of this
case the Court will apply a single monetary penalty. See Garfield Taylor, Inc., 134 F. Supp. 3d at
In light of all of the factors set forth above, the Court finds that a monetary penalty of
$125,000.00 is appropriate in the present matter. Although Defendant Riel's financial situation
warrants a slight reduction in the amount of the civil penalty, "in light of the goal of deterrence, a
defendant's claims of poverty cannot defeat the imposition of a civil penalty by a court." S.E.C.
v. Kane, No. 97 Civ. 2931, 2003 WL 1741293, *4 (S.D.N.Y. Apr. 1, 2003) (citing cases).
Motion for Default Judgment Against REinvest
1. Default Judgment Standard
"Generally, 'Federal Rule of Civil Procedure 55 provides a two-step process that the Court
must follow before it may enter a default judgment against a defendant.'" United States v.
Carpineta, No. 3:14-CV-0517, 2015 WL 500815, *1 (N.D.N.Y. Feb. 5, 2015) (quotation
omitted). "'First, under Rule 55(a), when a party fails to "plead or otherwise defend . . . the clerk
must enter the party's default."'" Id. (quotation omitted); Fed. R. Civ. P. 55(a). "Second, under
Fed. R. Civ. P. 55(b)(1), '[u]pon request of the plaintiff, a default judgment may be entered by the
clerk when (1) the plaintiff's claim against the defendant is for a sum certain, (2) the plaintiff has
submitted an affidavit of the amount due, and (3) the defendant has been defaulted for failure to
When entry by the clerk is inappropriate, "'pursuant to Rule 55(b)(2), the party seeking
default is required to present its application for entry of judgment to the court.'" United States v.
Simmons, No. 5:10-CV-1272, 2008 WL 685498, *2 (N.D.N.Y. Mar. 2, 2012) (quotation
omitted). "'Notice of the application must be sent to the defaulting party so that it has an
opportunity to show cause why the court should not enter a default judgment.'" Id. (quotation
omitted); see also Fed. R. Civ. P. 55(b)(2).
When seeking a default judgment, the Local Rules require the party to submit an affidavit
attesting to the following:
1. The party against whom it seeks judgment is not an infant or an
2. The party against whom it seeks judgment is not in the military
service, or if unable to set forth this fact, the affidavit shall state
that the party against whom the moving party seeks judgment by
default is in the military service or that the party seeking a default
judgment is not able to determine whether or not the party against
whom it seeks judgment by default is in the military service;
3. The party has defaulted in appearance in the action;
4. Service was properly effected under Fed. R. Civ. P. 4;
5. The amount shown in the statement is justly due and owing and
that no part has been paid except as set forth in the statement this
Rule requires; and
6. The disbursements sought to be taxed have been made in the
action or will necessarily be made or incurred.
N.D.N.Y. L.R. 55.2(a).
"When a default is entered, the defendant is deemed to have admitted all of the wellpleaded factual allegations in the complaint pertaining to liability." Bravado Int'l Group Merch.
Servs. v. Ninna, Inc., 655 F. Supp. 2d 177, 188 (E.D.N.Y. 2009) (citing Greyhound Exhibitgroup,
Inc. v. E.L.U.L. Realty Corp., 973 F.2d 155, 158 (2d Cir. 1992)). "While a default judgment
constitutes an admission of liability, the quantum of damages remains to be established by proof
unless the amount is liquidated or susceptible of mathematical computation." Flaks v. Koegel,
504 F.2d 702, 707 (2d Cir. 1974) (citations omitted); see also Bravado Int'l, 655 F. Supp. 2d at
189-90 (citation omitted). "[E]ven upon default, a court may not rubber-stamp the non-defaulting
party's damages calculation, but rather must ensure that there is a basis for the damages that are
sought." Overcash v. United Abstract Group, Inc., 549 F. Supp. 2d 193, 196 (N.D.N.Y. 2008)
(citing Credit Lyonnais Sec. (USA), Inc. v. Alcantara, 183 F.3d 151, 155 (2d Cir. 1999)). "The
burden is on the plaintiff to establish its entitlement to recovery." Bravado Int'l, 655 F. Supp. 2d
at 189 (citing Greyhound Exhibitgroup, Inc., 973 F.2d at 158). "While 'the court must ensure that
there is a basis for the damages specified in a default judgment, it may, but need not, make the
determination through a hearing.'" Id. at 190 (quotation omitted).
In the present matter, the Court finds that the SEC has established through its complaint
and moving papers that it is entitled to judgment in its favor against Defendant REinvest. As
REinvest's manager, Defendant Riel waived service of the summons on REinvest's behalf and the
SEC promptly filed REinvest's waiver. See Dkt. No. 8. As such, proof of service was not
required. See Fed. R. Civ. P. 4(d)(4). Thereafter, Magistrate Judge Peebles ordered REInvest to
answer or otherwise respond to the complaint by January 21, 2016. See Dkt. No. 13. REinvest
has since defaulted by failing to appear, answer, or otherwise defend itself. See Dkt. No. 21.
On December 2, 2016, the SEC requested the Clerk of the Court to enter default against
REinvest, which was entered on December 5, 2016. See Dkt. Nos. 20 & 21. Further, the SEC
has provided that the party in default is not an infant or an incompetent person, and is not in
military service. See Dkt. No. 20.
As to the substantive allegations against Defendant REinvest, since REinvest was a oneperson operation, the facts set forth above as to Defendant Riel are equally applicable to
REinvest. Having reviewed the complaint, the Court finds that the well-pleaded allegations
establish REinvest's liability. "'To prove liability against a corporation, of course, a plaintiff must
prove that an agent of the corporation committed a culpable act with the requisite scienter, and
that the act (and accompanying mental state) are attributable to the corporation.'" Marini v.
Adamo, 995 F. Supp. 2d 155, 197 (E.D.N.Y. 2014) (quoting Teamsters Local 445 Freight Div.
Pension Fund v. Dynex Capital Inc., 531 F.3d 190, 195 (2d Cir. 2008)). Since Defendant Riel
was the owner and sole employee of REinvest, his actions are indisputably attributable to
REinvest. See id. (citations omitted); see also S.E.C. v. Constantin, 939 F. Supp. 2d 288, 309
(S.D.N.Y. 2013) (holding that, because the two individual defendants were essential the
corporate defendant's only two employees, "their knowing and intentional misconduct is clearly
attributable to . . . the corporate defendant").
3. Requested Relief
As to the relief request, the Court first finds that the SEC is entitled to the requested
permanent injunction against REinvest. See S.E.C. v. Syndicated Food Services Intern., Inc., No.
04-cv-1303, 2010 WL 4668777, *1-*2 (E.D.N.Y. Nov. 9, 2010) (issuing default judgment
permanently enjoining the defendant from future violations of the federal securities laws, in
reliance on the complaint's allegations). As set forth in the complaint, Defendants Riel and
REinvest misled investors about the very nature of their investment, and Defendant Riel used
investor proceeds for his personal purposes. See Dkt. No. 1 at ¶¶ 26-97. An injunction is
warranted to ensure that REinvest does not resume its fraud or state a new fraud, and the relevant
factors weigh heavily in favor of an injunction. REinvest, through Defendant Riel, had a high
degree of scienter as the complaint alleges that Defendant Riel knowingly committed the
fraudulent activity. See id. at ¶¶ 32-33, 36, 41, 45, 50, 57, 62, 65, 78-79, 82, 98-104.
Additionally, REinvest's conduct was recurrent as the complaint alleges that the conduct spanned
more than three years and involved repeated misrepresentations to investors. See id. at ¶¶ 1-3,
26-97. Moreover, REinvest has defaulted in this action and, therefore, has not recognized the
wrongful nature of its conduct and has made no assurances against future violations. Finally,
given REinvest's use of two separate websites, there is a chance that it could use these or other
websites to conduct future securities fraud if the Court declines to enjoin REinvest. Accordingly,
the Court grants the SEC's motion insofar as it seeks to permanently enjoin REInvest from future
violations of Section 17(a), Section 10(b), and Rule 10b-5.
Next, the Court finds that disgorgement of $197,500.00 is appropriate. In addition to the
reasons set forth above as to Defendant Riel, the Court notes that "where two or more individuals
or entities collaborate or have a close relationship in engaging in the violations of the securities
laws, they have been held jointly and severally liable for the disgorgement of illegally obtained
proceeds." S.E.C. v. First Pacific Bancorp, 142 F.3d 1186, 1191-92 (9th Cir. 1998) (citations
omitted); see also S.E.C. v. First Jersey Securities, Inc., 101 F.3d 1450, 1475 (2d Cir. 1996)
(finding that the individual defendant could be made jointly and severally liable for the
disgorgement of the total amount of the corporate defendant's profits). Additionally, the Court
finds that, from November 1, 2013 through September 27, 2017, prejudgment interest of
$27,875.20 has accrued.
Finally, as to the civil penalty, the Court declines to impose the maximum penalty
requested by the SEC. REinvest, which is an entity as opposed to a natural person, is subject to
higher potential third-tier penalties. For violations occurring after March 3, 2009 and before
March 5, 2013, the third-tier penalty for entities is the greater of $750,000.00 per violation or the
gross amount of the pecuniary gain to that entity from each violation. See 15 U.S.C. §
77t(d)(2)(C); 15 U.S.C. § 78u(d)(3)(B)(ii); 17 C.F.R. § 201.1004. For the violations occurring
after March 5, 2013, the third-tier penalty for entities is the greater of $775,000.00 per violation
or the gross amount of the pecuniary gain to that entity from each violation. See 15 U.S.C. §
77t(d)(2)(C); 15 U.S.C. § 78u(d)(3)(B)(ii); 17 C.F.R. § 201.1005. If the Court were to find the
number of violations requested by the SEC (five) and apply the statutory maximum civil
penalties, this would result in a civil penalty of $3,725,000.00. The Court finds that such an
amount, given the facts of this case, would be grossly disproportionate to the fraud perpetrated.
Initially, the Court was inclined to hold Defendants Riel and REinvest jointly and
severally liable for the same civil monetary penalty, since Defendant Riel is the owner and only
employee of REinvest. The Second Circuit has made clear, however, that a finding of joint and
several liability for civil penalties is contrary to the securities statutes providing for a civil
penalty. See S.E.C. v. Pentagon Capital Management PLC, 725 F.3d 279, 287 (2d Cir. 2013).9
Considering that REinvest and Defendant Riel are one and the same, the Court declines to grant
the SEC's request for a civil penalty against Defendant REinvest. Such a penalty would penalize
Defendant Riel for the same conduct that the Court found warranted the imposition of the civil
monetary penalty discussed above. See S.E.C. v. Nadel, 206 F. Supp. 3d 782, 785 n.1 (E.D.N.Y.
2016); S.E.C. v. Wheeler, 56 F. Supp. 3d 241, 248 (W.D.N.Y. 2014) (declining to award a civil
penalty against the corporate defendant website where the individual defendant was the sole
owner, employee and operator of the website and, having imposed a civil penalty against the
individual defendant, the court found that any additional penalty against the website would not
serve the interests of justice and would double the monetary punishment against the individual
defendant). Based on the foregoing, the Court declines to order a civil monetary penalty against
In its ruling, the Second Circuit held that the "statutory language allowing a court to
impose a civil penalty plainly requires that such awards be based on the 'gross amount of
pecuniary gain to such defendant.'" Pentagon Capital, 725 F.3d at 288 (quoting 15 U.S.C. §
77t(d)(2)) (emphasis added). According to the Second Circuit, "[t]his language does not provide
room for the district court's interpretation that the civil penalty be imposed jointly and severally."
Id. While the Court generally agrees with this interpretation, the present matter presents a unique
situation in that Defendant Riel was REinvest's owner and only employee. REinvest was based
out of Defendant Riel's home and he clearly used the REinvest Bank Accounts as his own
personal accounts. Since REinvest was nothing more than Defendant Riel's alter ego, Defendant
Riel's pecuniary gain is necessarily the same as the pecuniary gain to REinvest.
After carefully reviewing the entire record in this matter, the parties' submissions and the
applicable law, and for the above-stated reasons, the Court hereby
ORDERS that the SEC's motion for summary judgment against Defendant Riel (Dkt. No.
24) is GRANTED in part and DENIED in part;10 and the Court further
ORDERS that the SEC's motion for default judgment against Defendant REinvest (Dkt.
No. 29) is GRANTED; and the Court further
ORDERS that Defendants Riel and REinvest are hereby jointly and severally liable to
disgorge $197,500.00, plus prejudgment interest of $27,875.20; and the Court further
ORDERS that Defendant Riel shall pay a civil monetary penalty of $125,000.00; and the
ORDERS that Defendants Riel and REinvest are hereby permanently restrained and
enjoined from violating, directly or indirectly, Section 10(b) of the Exchange Act and Rule 10b–5
promulgated thereunder, by using any means or instrumentality of interstate commerce, or of the
mails, or of any facility of any national securities exchange, in connection with the purchase or
sale of any security: (a) to employ any device, scheme, or artifice to defraud; (b) to make any
untrue statement of a material fact or to omit 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 (c) to engage in any act, practice, or course of business which operates or would operate as a
fraud or deceit upon any person; and the Court further
ORDERS that Defendants Riel and REinvest are hereby permanently restrained and
enjoined from violating Section 17(a) of the Securities Act in the offer or sale of any security by
The SEC's motion for summary judgment against Defendant Riel is denied only insofar
as it was seeking judgment as to its control person liability claims.
use of any means or instruments of transportation or communication in interstate commerce or by
use of the mails, directly or indirectly: (a) to employ any device, scheme, or artifice to defraud;
(b) to obtain money or property by means of any untrue statement of a material fact or any
omission of a material fact necessary in order to make the statements made, in light of the
circumstances under which they were made, not misleading; or (c) to engage in any act, practice,
or course of business which operates or would operate as a fraud or deceit upon the purchaser;
and the Court further
ORDERS that the Clerk of the Court shall enter judgment in the SEC's favor and close
this case; and the Court further
ORDERS that the Clerk of the Court shall serve a copy of this Memorandum-Decision
and Order on the parties in accordance with the Local Rules.
IT IS SO ORDERED.
Dated: September 27, 2017
Albany, New York
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