Securities and Exchange Commission v. Boock et al

Filing 217

OPINION AND ORDER ACCEPTING REPORT AND RECOMMENDATION: The injunction, penny stock bar, and disgorgement award portions of the October 27, 2014 Report as well as the November 24, 2014 Supplemental Report are adopted. Shoss is hereby permanently en joined from violating Sections 5 and 17(a) of the Securities Act, Section 10(b) of the Exchange Act, and Rule 10b-5; he is also permanently barred from any future participation in the offer or sale of penny stocks. The Clerk of Court is instructed to enter a judgment against Boock and Shoss for $2,750,000, jointly and severally, plus prejudgment interest calculated from March 20, 2006 at the IRS rate. The Clerk of Court is further instructed to enter judgments against Boock and Shoss in the amount of $2,860,000 each. Because defendants failed to file timely objections to Magistrate Judge Freeman's Reports, they have waived the right to appeal this decision. See Wagner & Wagner, LLP v. Atkinson, Haskins, Nellis, Brittingham, Gladd & Carwile, P.C., 596 F.3d 84, 92 (2d Cir. 2010). (Signed by Judge Denise L. Cote on 1/16/2015) Copies Mailed By Chambers. (tn)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
---------------------------------------- X
:
SECURITIES AND EXCHANGE COMMISSION,
:
Plaintiff,
:
:
-v:
:
:
IRWIN BOOCK, STANTON B.J. DEFREITAS,
NICOLETTE D. LOISEL, ROGER L. SHOSS and :
JASON C. WONG,
:
Defendants,
:
:
and
:
:
BIRTE BOOCK, 1621533 ONTARIO, INC., and :
:
ALENA DUBINSKY,
:
Relief Defendants.
:
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09cv8261 (DLC)
OPINION AND ORDER
ACCEPTING REPORT
AND RECOMMENDATION

DENISE COTE, District Judge:
On October 27, 2014, Magistrate Judge Debra Freeman issued
a report (“Report”) recommending that defendant Roger L. Shoss
(“Shoss”) be permanently enjoined from future violations of
Sections 5 and 17(a) of the Securities Act, Section 10(b) of the
Exchange Act, and Rule 10b-5, and that he be barred from
participating in the offering of penny stocks.

The Report

further recommended that plaintiff Securities and Exchange
Commission (“SEC”) be awarded $2,750,000 disgorgement, plus
prejudgement interest, against Shoss and defendant Irwin Boock
(“Boock”), jointly and severally.

At that time, however, Judge

Freeman declined to recommend imposing civil monetary penalties
against Shoss and Boock.

In light of a subsequent submission by

the SEC, Magistrate Judge Freeman issued a Supplemental Report
and Recommendation (“Supplemental Report”) on November 24, 2014,
recommending that civil penalties be imposed separately against
Shoss and Boock in the amount of $2,860,000 each.

For the

following reasons, the Court sees no error in the injunction,
penny stock bar, and disgorgement award portions of the Report
and no error in the Supplemental Report, and they are
accordingly adopted.

BACKGROUND
This case has been before the Court since 2009; previous
opinions provide the facts in more detail, 1 as do the Reports
adopted here.
suffice.

For present purposes, a brief overview will

Boock, the SEC alleges, crafted a plan to “hijack”

defunct or moribund publicly-traded corporations by fraudulent
means and to offer and sell shares of these reanimated
corporations in violation of securities law.

Boock, assisted by

defendants Shoss and Nicolette D. Loisel (“Loisel”), hijacked 22
companies in the “Texas Phase” of the case; with defendants
Stanton B.J. DeFreitas (“DeFreitas”) and Jason C. Wong (“Wong”),
he hijacked 23 more in the “Toronto Phase.”

E.g., SEC v. Boock, No. 09cv8261 (DLC), 2012 WL 3133638
(S.D.N.Y. Aug. 2, 2012); SEC v. Boock, No. 09cv8261 (DLC), 2011
WL 3792819 (S.D.N.Y. Aug. 25, 2011).
1

2

The SEC commenced this action on September 29, 2009.

Boock

and DeFreitas failed to respond to the complaint, and default
judgments -- injunctions against violations of securities law;
penny-stock bars; and, for Boock, an officer-or-director bar -were imposed against them on March 26, 2010.

Their motions to

set aside the defaults were denied on June 2, 2011.

This Court

subsequently entered summary judgment against Wong on most of
the SEC’s claims, Boock, 2011 WL 3792819 at *19, *21-23, denied
his motion for reconsideration, SEC v. Boock, No. 09cv8261
(DLC), 2011 WL 5417106 (S.D.N.Y. Nov. 9, 2011), and, on August
2, 2012, entered judgment against the three “Toronto Phase”
defendants: Boock, DeFreitas, and Wong.

Like Boock and

DeFreitas, Wong was enjoined from future securities law
violations and barred from participating in penny stock sales;
like Boock, he was also barred from serving as a corporate
officer or director.

All three were ordered to disgorge jointly

and severally the amount of $6,140,172, plus $2,144,462 in
prejudgment interest; individual civil penalties -- $2,990,000
against Boock, $1,560,000 against Wong, and $130,000 against
DeFreitas -- were imposed as well.

Boock, 2012 WL 3133638 at

*2-7.
This Opinion concerns judgment in the Texas Phase of the
case -- involving Boock, Shoss, and Loisel -- which was
initially subject to a stay pending resolution of a criminal
3

case against Shoss and Loisel in the Middle District of Florida.
On May 22, 2012, Shoss and Loisel were convicted of conspiracy
to commit wire fraud; they were sentenced in August and
September of that year.

Loisel opted to settle with the SEC in

this case, with final judgment -- permanent injunctions, a penny
stock bar, and $91,192 disgorgement plus $52,563 prejudgment
interest -- being entered September 24, 2013.

Shoss exhausted

his appeals and this Court lifted its stay on November 21, 2013,
giving him until January 10, 2014 to answer the SEC’s 2009
complaint.

He failed to do so, and default judgment was

consequently entered against him on January 17, 2014.

The case

was referred to Magistrate Judge Freeman for an inquest into
appropriate relief against Shoss and Boock.
On October 27, 2014, Magistrate Judge Freeman issued her
Report recommending that Shoss be permanently enjoined from
future violations of Sections 5 and 17(a) of the Securities Act,
Section 10(b) of the Exchange Act, and Rule 10b-5, and that he
be barred from any participation in the offering of penny
stocks.

The Report further recommended that the SEC be awarded

$2,750,000 disgorgement, plus prejudgement interest, against
Shoss and Boock jointly and severally.

Magistrate Judge Freeman

declined, however, to recommend imposing civil monetary
penalties against Shoss and Boock, citing a lack of specificity

4

in the SEC’s request.

Neither Shoss nor Boock responded in the

allotted fourteen days.
In response, on November 6, 2014, the SEC submitted
supplemental Proposed Findings of Fact and Conclusions of Law,
which provided details substantiating its request for civil
penalties.

Neither Shoss nor Boock submitted opposition.

Magistrate Judge Freeman issued her Supplemental Report on
November 24, 2014, recommending that civil penalties of
$2,860,000 be separately imposed against both Shoss and Boock.
Neither Shoss nor Boock responded within the allotted fourteen
days.

DISCUSSION
When considering a report and recommendation, a district
court “may accept, reject, or modify, in whole or in part, the
findings or recommendations made by the magistrate judge.”
U.S.C. § 636(b)(1)(C); Fed. R. Civ. P. 72(b)(3).

28

If timely

objection is made to any of the magistrate judge’s findings or
recommendations, district courts must make those determinations
de novo.

Id.

“To accept . . . a report to which no timely

objection has been made, a district court need only satisfy
itself that there is no clear error on the face of the record.”
Alexis v. Griffin, No. 11cv5010 (DLC), 2014 WL 5324320, at *3
(S.D.N.Y. Oct. 20, 2014).

Because no objections were made to
5

the Report or the Supplemental Report, they are reviewed for
“clear error.”

No error is evident in either.

The initial Report cites ample evidence on the record that
a permanent injunction and a penny stock bar are both warranted
against Shoss.

During the Florida criminal action, Shoss

admitted his extensive involvement in the logistics and legal
evasions of the hijacking scheme; the experience and skill he
exhibited in perpetrating this fraud suggest a likelihood of
future securities violations.

See SEC v. First Jersey Sec.,

Inc., 101 F.3d 1450, 1477 (2d Cir. 1996) (injunctive relief is
appropriate where “there is a likelihood that, unless enjoined,
the violations will continue”) (quoting CFTC v. Am. Bd. of
Trade, Inc., 803 F.2d 1242, 1250-51 (2d Cir. 1986)).

Moreover,

Shoss’s conduct over the scheme’s lifespan constituted
“systematic wrongdoing” and was unmistakably willful, factors
that make injunctive relief particularly appropriate in his
case.

See id.

For much the same reasons, the Report is right to recommend
that Shoss be permanently barred from participating in penny
stock trading.

The Report correctly concludes that Shoss’s key

role in the Texas Phase of the “hijacking” scheme, the
willfulness of his conduct, and his personal gain from the
scheme warrant imposing a penny stock bar under the factors
enumerated in SEC v. Patel, 61 F.3d 137, 141 (2d Cir. 1995).
6

And there is no clear error in the Report’s analysis and
recommendation with respect to disgorgement.

Shoss and Boock

were both involved in the Texas Phase of the scheme, and they
collaborated closely on details and execution.

Joint and

several liability is therefore appropriate; as was the case with
the Toronto Phase, here “apportionment . . . is difficult or
even practically impossible because [the] defendants have
engaged in complex and heavily disguised transactions” in an
effort to conceal their fraud.
F.3d 449, 455 (3d Cir. 1997).

SEC v. Hughes Capital Corp., 124
The Report also recommends a

proper disgorgement award -- using the same calculations
previously used by this Court in respect of the Toronto Phase -and rightly recommends an award of prejudgement interest, as was
done there, “to vindicate fully the remedial purposes of the
securities laws.”

Boock, 2012 WL 3133638 at *6.

Finally, there is no clear error in the Supplemental
Report’s recommendation that civil penalties be separately
imposed on Shoss and Boock pursuant to 15 U.S.C. §§ 77t(d)(2)(C)
& 78u(d)(3)(B)(iii).

As the Supplemental Report documents, both

Shoss and Boock individually engaged in conduct that manifestly
justifies imposing the maximum available penalty.

Shoss, as

noted above, was a crucial figure in the Texas Phase,
maintaining and profiting from the scheme through a pattern of
illegal and deceptive behavior.

As to Boock, this Court
7

previously determined that his conduct in connection with the
Toronto Phase warranted the maximum civil penalty, see Boock,
2012 WL 3133638 at *6, and the evidence summarized in the
Supplemental Report clearly demonstrates that Boock’s conduct in
the Texas Phase was equally egregious.

On the basis of the

SEC’s supplemental findings of fact, the Supplemental Report
also properly calculates the amount of civil penalties
consistent with prior such calculations in this case.

See id.

CONCLUSION
The injunction, penny stock bar, and disgorgement award
portions of the October 27, 2014 Report as well as the November
24, 2014 Supplemental Report are adopted.

Shoss is hereby

permanently enjoined from violating Sections 5 and 17(a) of the
Securities Act, Section 10(b) of the Exchange Act, and Rule 10b5; he is also permanently barred from any future participation
in the offer or sale of penny stocks.

The Clerk of Court is

instructed to enter a judgment against Boock and Shoss for
$2,750,000, jointly and severally, plus prejudgment interest
calculated from March 20, 2006 at the IRS rate.

The Clerk of

Court is further instructed to enter judgments against Boock and
Shoss in the amount of $2,860,000 each.

Because defendants

failed to file timely objections to Magistrate Judge Freeman’s
Reports, they have waived the right to appeal this decision.
8

See Wagner & Wagner, LLP v. Atkinson, Haskins, Nellis,
Brittingham, Gladd & Carwile, P.C., 596 F.3d 84, 92 (2d Cir.
2010).

SO ORDERED:
Dated:

New York, New York
January 16, 2015
____________________________
DENISE COTE
United States District Judge

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Copies mailed to:
Alena Dubinsky
65 Hunt Ave.
Richmond Hill, Ontario
L4C 4H1 CANADA
Irwin Boock
500 Hidden Trail
Toronto, Ontario
M2R 3R5 CANADA
Nicolette D. Loisel
2100 Tanglewilde St.
Unit 711
Houston, TX 77063
Roger Shoss
139 Haversham Drive
Houston, TX 77024-6240

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