Securities and Exchange Commission v. Penn et al

Filing 335

MEMORANDUM OPINION & ORDER: re: 326 FIRST LETTER MOTION to Substitute Attorney. Old Attorney: Ian D. Orr, New Attorney: UNKNOWN addressed to Judge Valerie E. Caproni from Ian D. Orr dated 07/17/2019. filed by Camelot Acquisitions Secondary Opp ortunities Management, L.L.C., 313 MOTION for Summary Judgment Against Camelot Group International and Camelot Secondary Opportunities Management filed by Securities and Exchange Commission. The SEC's motion for summary judgment, a permanent injunction, disgorgement, and civil penalties against CASO Management and CGI is GRANTED as set forth above. CGI must disgorge $8,627,004 and pay a civil penalty of the same amount; CASO Management must disgorge $440,000 and pay a civil pen alty of the same amount. Prejudgment interest on the disgorgement is GRANTED, with the amount to be fixed upon receipt of a revised calculation from the SEC that is consistent with this Order. No later than April 15, 2020, the SEC must submit a propo sed final judgment as to the Camelot Entities, along with a declaration containing revised prejudgment interest amounts. The SEC must also indicate whether it intends to turn over the Camelot Entities' frozen assets to satisfy their disgorgement obligations. The existing order freezing Defendants' assets, Dkt. 300, shall remain in effect pending a decision on the SEC's anticipated turnover motion. No later than April 15, 2020, the SEC must either file the anticipated turnover moti on or propose a briefing schedule for the motion. The Clerk of Court is respectfully directed to terminate docket entries 313 and 326 and remove Mr. Ian Orr as counsel for the Camelot Entities. SO ORDERED., ( Motions due by 4/15/2020.), Attorney Ian Douglas Orr terminated. (Signed by Judge Valerie E. Caproni on 3/17/2020) (ama)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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SECURITIES AND EXCHANGE
:
COMMISSION,
:
:
Plaintiff,
:
:
-against:
:
LAWRENCE E. PENN, III, ET AL.,
:
:
Defendants, :
:
-and:
:
A BIG HOUSE FILM AND PHOTOGRAPHY :
STUDIO, LLC,
:
:
Relief Defendant. :
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #:
DATE FILED: 03/17/2020

14-CV-0581 (VEC)
MEMORANDUM
OPINION & ORDER

VALERIE CAPRONI, United States District Judge:
This Court previously entered final judgment against Defendant Lawrence Penn, III
(“Penn”) for violations of Section 10(b) of the Securities Exchange Act of 1934 (“Exchange
Act”) (15 U.S.C. § 78j(b)), and Rule 10b–5 thereunder (17 C.F.R. § 240.10b–5) and Sections
204, 206(1), and 206(2) of the Investment Advisers Act of 1940 (the “Advisers Act”) (15 U.S.C.
§§ 80b–4, 80b–6(1), 80b–6(2)), and Rule 204–2 thereunder (17 C.F.R. §§ 275.204–2). SEC v.
Penn, 225 F. Supp. 3d 225, 229–30 (S.D.N.Y. 2016). The U.S. Court of Appeals for the Second
Circuit summarily dismissed Penn’s appeal of the judgment, Dkt. 334, and the SEC has moved,
unopposed, for summary judgment against the two entities that Penn controlled and used to
commit the aforementioned violations, Camelot Acquisitions Secondary Opportunities
Management LLC (“CASO Management”), and Camelot Group International, LLC (“CGI”)
(collectively, the “Camelot Entities”), Dkt. 313. Because the Court agrees with the SEC that

Penn’s conduct should be imputed to the Camelot Entities and that there is no genuine dispute as
to liability, the SEC’s motion is granted; the Court further concludes that a permanent injunction,
disgorgement, and civil monetary penalties are appropriate remedies.
I.

BACKGROUND

Most of the pertinent facts are set forth in the Court’s decisions granting summary
judgment against Penn and permanently enjoining him from violating the securities laws. See
Penn, 225 F. Supp. 3d at 230–32; SEC v. Penn, No. 14-CV-581, 2017 WL 5515855, at *1
(S.D.N.Y. Aug. 22, 2017). For purposes of this motion, the Court focuses on the facts needed to
contextualize and establish Penn’s relationship with the Camelot Entities.1

The Court’s account of the record is based on prior rulings, as well as uncontroverted facts in the SEC’s
Rule 56.1 Statement (“Pl. 56.1 Stmt.”) (Dkt. 317) and the supporting declarations filed by James D’Avino
(“D’Avino Decl.”) (Dkt. 315) and Karen E. Willenken (“Willenken Decl.”) (Dkt. 316). The Camelot Entities were
represented by counsel, Ian Orr, when the SEC filed the instant motion. Dkt. 327. The Camelot Entities were
originally required to file any opposition by June 4, 2019, but, despite two extensions granted sua sponte by the
Court, no opposition has been filed. Dkts. 311, 319, 323.
1

On June 6, 2019, Penn, acting without counsel and purporting to file documents on behalf of the Camelot
Entities, moved to disqualify the undersigned from the matter. Dkt. 319. On June 14, 2019, the Court denied
Penn’s motion because he may not represent anyone other than himself in federal court. Id.; see 28 U.S.C. § 1654.
The Court reminded Penn of the need to retain counsel to represent the Camelot Entities and sua sponte extended the
deadline to oppose the SEC’s motion to July 3, 2019, in addition to ordering Orr to explain whether he was
continuing to represent the Camelot Entities. Dkt. 319.
Rather than retain counsel, Penn again purported to represent the Camelot Entities and filed an opposition
to the SEC’s motion. See Dkts. 320–22. No response to the Court’s order was received from Orr as to the status of
his representation.
The Court struck Penn’s opposition to the SEC’s motion for violating 28 U.S.C. § 1654 and Rule 11(a) of
the Federal Rules of Civil Procedure. Dkt. 323. The Court then gave Penn yet another chance to retain counsel and
sua sponte granted him a second extension to July 22, 2019, warning him that further non-compliance would result
in the SEC’s motion being treated as unopposed. Id. The Court also ordered Orr to show cause why he should not
be sanctioned for failing to respond to the Court’s previous order. Id. Orr responded that Penn had terminated his
representation of the Camelot Entities, although he failed to notify the Court until two orders had been issued
seeking information regarding his status; the Court imposed a monetary sanction on Orr, which he has since moved
to reconsider and will be addressed in a separate order. See Dkts. 328–29, 333.
Thereafter, Penn has not retained counsel, and no opposition has been filed. The Court therefore views the
SEC’s motion as unopposed; the Court nevertheless has an independent obligation to determine whether the grant of
summary judgment is warranted in light of the uncontroverted record and the applicable law. See Vermont Teddy
Bear Co., Inc. v. 1-800 Beargram Co., 373 F.3d 241, 242, 244 (2d Cir. 2004).

2

Penn managed a private equity fund, Camelot Acquisitions Secondary Opportunities LP
(the “Fund”), from the Fund’s inception in 2007 to February 2014, when Penn was criminally
charged with grand larceny, money laundering, and falsifying business records. Pl. 56.1 Stmt.
(Dkt. 317) ¶ 1; Penn, 225 F. Supp. 3d at 230. The criminal prosecution stemmed from the same
course of conduct that is at issue in this case—Penn’s scheme to divert over $9 million from the
Fund to entities under his control through the use of false invoices and inaccurate books and
records. Pl. 56.1 Stmt. (Dkt. 317) ¶ 5; Penn, 225 F. Supp. 3d at 230. This action was stayed
pending Penn’s prosecution in state court; he ultimately pleaded guilty in March 2015 to grand
larceny and falsifying business records, both in the first degree. Pl. 56.1 Stmt. (Dkt. 317) ¶ 2;
Penn, 225 F. Supp. 3d at 230–31.
As part of his guilty plea and during the course of this litigation, Penn made numerous
inculpatory admissions, which are now being used by the SEC to advance this motion. In state
court, Penn admitted to making a false entry in the Fund’s schedule of invoices and stealing over
$1 million from the Fund. Penn, 225 F. Supp. 3d at 231. In his amended answer to the SEC’s
Complaint, Penn admitted to transferring $9.3 million from the Fund to Defendants CASO
Management and CGI, the entities against whom the SEC is now seeking summary judgment.
Penn Am. Ans. (Dkt. 134) ¶ 3; Pl. 56.1 Stmt. (Dkt. 317) ¶ 12; Penn, 225 F. Supp. 3d at 230–31.
He also conceded that he violated “Sections 204 of the Investment Advisers Act” and “Rule
204-2 of 17 CFR 275.204-2.” Penn Am. Ans. (Dkt. 134) ¶ 6; Pl. 56.1 Stmt. (Dkt. 317) ¶ 16.
There is no genuine dispute that Penn founded, owned, and controlled the Camelot
Entities, which “collectively” managed the Fund. Penn Am. Counterclaims (Dkt. 134) ¶ 4; Pl.
56.1 Stmt. (Dkt. 317) ¶ 8. CASO Management was a registered investment adviser that acted as
the investment manager for the Fund. Pl. 56.1 Stmt. (Dkt. 317) ¶¶ 10, 18, 22. CGI functioned as

3

an affiliate or parent organization of CASO Management. Id. ¶ 19. Penn admitted that “he had
primary responsibility for all business decisions as Managing Member and Managing Director
of” CASO Management. Id. ¶ 9. Penn also owned at least 99% of both of the Camelot Entities.2
Id. ¶ 8.
Penn, as an investment adviser for the Fund, used the Camelot Entities and an entity
controlled by a co-conspirator, Ssecurion LLC (“Ssecurion”), to misappropriate the Fund’s assets
under the guise of paying due diligence expenses. Pl. 56.1 Stmt. (Dkt. 317) ¶¶ 21, 27, 30; Penn,
225 F. Supp. 3d at 230–31. Specifically, Penn, using a “Camelot Group” signature and email
address, sent an agreement and purported invoices generated by Ssecurion to the Fund’s
administrator to procure payment; CASO Management also maintained a ledger containing due
diligence payments, which the Fund’s administrator relied on to prepare financial statements. Pl.
56.1 Stmt. (Dkt. 317) ¶¶ 27, 30. Ssecurion, in turn, caused the purported due diligence fees to be
transferred to bank accounts owned by CASO Management and CGI. Id. ¶¶ 31-32, 34-35. CGI
received $8,627,004, while CASO Management received $440,000, of the purported due
diligence fees paid to Ssecurion. Id.
Based on those and other facts, the Court granted the SEC’s motion for summary
judgment against Penn, as to his violations of Section 10(b) of the Exchange Act and Rule 10b–5
thereunder; and Sections 204, 206(1), and 206(2) of the Advisers Act and Rule 204–2
thereunder. The Court further determined that Penn must disgorge his pecuniary gain of
$9,286916.65, plus prejudgment interest at the IRS underpayment rate, and pay a civil penalty in
the same principal amount; final judgment was entered on October 1, 2018. Dkt. 300. Penn

Penn purports to own 100% of CASO Management and 99% of CGI. Dkt. 320 ¶ 8. Penn’s father appears
to own the remaining 1%. See Compl. (Dkt. 1) ¶ 20; Penn Am. Ans. (Dkt. 134) ¶ 20. In any event, there is no
material difference in this case between 99% ownership and 100% ownership.
2

4

appealed, unsuccessfully, Dkt. 334, and the SEC now seeks summary judgment against the
Camelot Entities, arguing that Penn’s conduct is imputable to them.
By imputing Penn’s conduct and knowledge to the entities he controlled, the SEC
contends that CASO Management directly violated Section 10(b) of the Exchange Act and Rule
10b-5 thereunder, and Sections 204, 206(1), and 206(2) of the Advisers Act and Rule 204-2
thereunder. SEC Br. (Dkt. 314) at 11 (citing Compl. (Dkt. 1) ¶ 7). CGI is accused of aiding and
abetting the violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and
Sections 206(1) and (2) of the Advisers Act. Compl. (Dkt. 1) ¶ 11.
II.

DISCUSSION

“The court shall grant summary judgment if the movant shows that there is no genuine
dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.
R. Civ. P. 56(a). “A genuine dispute exists when the evidence is such that, if the party against
whom summary judgment is sought is given the benefit of all permissible inferences and all
credibility assessments, a rational factfinder could resolve all material factual issues in favor of
that party.” SEC v. Sourlis, 851 F.3d 139, 144 (2d Cir. 2016). The SEC argues that there is no
genuine dispute of fact, given the prior criminal and civil judgments against Penn and Penn’s
admissions regarding the relationship between him and the Camelot Entities. The Court agrees.
A. Penn’s Conduct
The Camelot Entities failed to oppose the SEC’s motion for summary judgment, but even
if they had responded, they would be barred from re-litigating the facts of Penn’s conduct and his
violations of the securities laws. The doctrine of the law of the case consists of two general
principles. First, it “forecloses relitigation of issues expressly or impliedly decided by the
appellate court.” Stichting Ter Behartiging Van de Belangen Van Oudaandeelhouders In Het

5

Kapitaal Van Saybolt Int’l B.V. v. Schreiber, 407 F.3d 34, 44 (2d Cir. 2005) (citation omitted).
The doctrine also limits “a district court’s discretion to reconsider its own decisions . . . to
circumstances in which new evidence is available, an error must be corrected, or manifest
injustice would otherwise ensue,” unless there is an intervening change in law. Id. Here,
because the Court of Appeals for the Second Circuit has affirmed this Court’s final judgment as
to Penn, and no change in law or circumstance or error has been shown, both principles foreclose
further dispute as to all issues expressly and impliedly decided as part of the judgment against
Penn. Cty. of Suffolk v. Stone & Webster Eng’g Corp., 106 F.3d 1112, 1117 (2d Cir. 1997).
The court has discretion to apply the law of the case doctrine, notwithstanding a
“difference in parties,” provided that doing so would be consistent with the court’s “good sense.”
See Zdanok v. Glidden Co., Durkee Famous Foods Div., 327 F.2d 944, 953 (2d Cir. 1964). The
doctrine is “[d]riven by considerations of fairness to the parties, judicial economy, and the
societal interest in finality.” Suffolk, 106 F.3d at 1117. Here, judicial economy would
undoubtedly be aided by relying on the judgment against Penn, rather than requiring the SEC to
re-litigate the legality of Penn’s actions upon the same record. Such re-litigation would be
inconsistent with finality, as this Court would be acting contrary to the Second Circuit’s mandate
if it were to find that Penn did not in fact violate the securities laws. Although the Camelot
Entities were not parties to the Penn judgment, holding them to any judgment entered against
Penn has been expressly contemplated by the Court and the parties since at least January 19,
2018. SEC Letter (Dkt. 237). The proceeding was stayed as to the Camelot Entities because “it
would conserve judicial and prosecutorial resources to first determine the liability of Penn as the
liability of the Camelot Entities is entirely derivative of his.” Stay Order (Dkt. 243) (“This case
shall remain STAYED as to the Camelot Entities, pending the conclusion of the proceedings

6

relative to Mr. Penn.”). The Camelot Entities, which were represented by counsel, had notice
that any determination of Penn’s liability would dispose of the claims against them and failed to
note any objection. The litigation of the SEC’s summary judgment motion against Penn was,
therefore, effectively a “test case,” and streamlining the rest of this litigation presents no
unfairness to the Camelot Entities, who would have benefitted had Penn prevailed. See Zdanok,
327 F.2d at 953. In sum, the facts and the law have not changed, and application of the law of
the case cannot come as a surprise to the Camelot Entities.
For those reasons, the Court concludes that Penn’s conduct and liability for violating the
securities laws, as set forth in the Court’s prior orders and judgments, are not subject to further
challenge in this case, by Penn or the Camelot Entities.3
B. Imputation of Penn’s Conduct
What remains to be decided is whether Penn’s conduct and violations should be imputed
to the Camelot Entities. Courts have long imputed an individual’s misconduct to his or her
“corporate embodiments.”4 See SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1089 n.3
(2d Cir. 1972) (affirming district court’s conclusions that individual had “blanket authority” over
entities and that imputation of their knowledge was appropriate). That is, where an entity is
completely dominated and controlled by an individual, such that the entity has “no autonomous

The Camelot Entities would also be barred, as the SEC has argued, under issue preclusion or collateral
estoppel, because of exceptions to the rule against non-party preclusion. See Taylor v. Sturgell, 553 U.S. 880, 893–
95 (2008).
3

See also SEC v. Haligiannis, 470 F. Supp. 2d 373, 381–82 (S.D.N.Y. 2007) (“The scienter of Haligiannis,
the president and chief operating officer of Sterling Capital and Sterling Advisors, which in turn have exclusive
control over the management and operations of Sterling Watters, can be imputed to those entities. These undisputed
facts support a finding of the liability for all defendants.”) (citations omitted); SEC v. v. Tee to Green Golf Parks,
Inc., No. 00-CV-478S, 2011 WL 147862, at *8 (W.D.N.Y. Jan. 18, 2011) (“The undisputed facts show that
Blumhagen made these statements knowingly and voluntarily, with intent to deceive and defraud the purchasers.
His misconduct is imputed to Tee to Green because Blumhagen was president and ran the entity’s day-to-day
operations.”).
4

7

and separate existence,” the entity becomes “independently liable for violations of the relevant
statutes and rules” committed by the controlling individual. SEC v. Franco, 253 F. Supp. 2d
720, 730 (S.D.N.Y. 2003). “This [control] principle is consistent with the self-evident
proposition that a corporation can act only through the actions of natural persons and that the
actions of its agents, acting within the scope of their agency, are attributed to the corporation.”
Id. at 729 (citing Affiliated Ute Citizens v. United States, 406 U.S. 128, 154 (1972)); see also
SEC. v. Kinnucan, 9 F. Supp. 3d 370, 375 (S.D.N.Y. 2014) (imputing president’s liability for
Exchange Act violations to his entity).
There is no genuine dispute that Penn completely dominated the Camelot Entities and
that, at least for purposes of the transactions at issue, there is no distinction between them. Penn
owned at least 99% of both of the Camelot Entities and was responsible for all business decisions
made by CASO Management—facts that Penn admitted in his answer and counterclaims. Pl.
56.1 Stmt. (Dkt. 317) ¶¶ 8-9. The Camelot Entities also benefitted from the scheme, with CGI
and CASO Management receiving, respectively, $8,627,004 and $440,000 of the fraudulent due
diligence payments. Id. ¶¶ 11, 34-35. And by virtue of Penn’s domination of the Camelot
Entities, any funds going to the Camelot Entities effectively went to Penn. Under those
circumstances, Penn and the Camelot Entities were acting of one mind, and imputation of Penn’s
conduct and knowledge is appropriate. See Franco, 253 F. Supp. 2d at 728–30 & n.3.
CASO Management is accused of directly violating Section 10(b) of the Exchange Act
and Rule 10b-5 thereunder, and Sections 204, 206(1), and 206(2) of the Advisers Act, as well as
Rule 204-2 thereunder. Because Penn’s conduct and knowledge are imputed to CASO
Management, and the Court has already determined that Penn’s conduct violated the foregoing
provisions, CASO Management is necessarily liable for the same.

8

The SEC charges CGI with aiding and abetting Penn’s (and therefore CASO
Management’s) violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, as
well as Sections 206(1) and (2) of the Advisers Act. To establish aiding and abetting liability,
“the government 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.” SEC v. DiBella, 587 F.3d 553, 566 (2d Cir. 2009) (internal quotation marks
and citation omitted). First, Penn’s securities law violations have already been conclusively
adjudicated. Dkt. 334. Second, Penn’s knowledge of the wrongfulness of his conduct,
established through his guilty plea in state court, see Penn, 225 F. Supp. 3d at 236, is imputed to
CGI, as discussed above. And finally, CGI helped Penn implement the fraud by allowing Penn
to use CGI newsletters and emails to procure the fraudulent due diligence payments from the
Fund. Pl. 56.1 Stmt. (Dkt. 317) ¶¶ 24–26, 30. Because CGI knowingly enabled Penn’s fraud on
the Fund, it is liable for aiding and abetting Penn’s violations of the Exchange Act and the
Advisers Act.
In sum, the undisputed facts as to Penn’s conduct, knowledge, and relationship with the
Camelot Entities establish their liability.5

As noted previously, Penn purported to represent the Camelot Entities and filed an opposition the SEC’s
motion, which the Court ordered stricken because, as a non-lawyer, Penn may not represent anyone other than
himself. See Lattanzio v. COMTA, 481 F.3d 137, 139 (2d Cir. 2007). Penn’s opposition, even if the Court could
consider it, would be unavailing. Penn’s response to the SEC’s statement of undisputed facts, to the extent it raises
any disputes, merely seeks to relitigate his conviction in state court, contending that his guilty plea was “void” and
that his criminal conviction was “wrongful and unlawful” because he disagreed with the state court’s application of
state law—issues that he has exhausted on appeal and cannot be considered in this action. Penn Resp. (Dkt. 320)
¶¶ 1, 2. Penn’s memorandum of law again seeks to overturn the Court’s summary judgment decision, contending
that reliance on his criminal conviction was improper—an argument that this Court and the Second Circuit rejected.
See generally Penn. Br. (Dkt. 322).
5

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C. Remedies
“The court has broad discretion to tailor the sanction to the wrongful conduct involved.”
SEC v. Posner, 16 F.3d 520, 522 (2d Cir. 1994). The SEC seeks a permanent injunction against
further violations of the securities laws, disgorgement with prejudgment interest, and a civil
penalty. SEC Br. (Dkt. 314) at 12.
1. Permanent Injunction
The Court may grant an injunction against a future violation of the securities laws. See
15 U.S.C. §§ 78u(d)(1), 80b–9(d). “The critical question for a district court in deciding whether
to issue a permanent injunction in view of past violations is whether there is a reasonable
likelihood that the wrong will be repeated.” Manor Nursing Centers, Inc., 458 F.2d at 1100. To
ascertain the risk of future violation, “a district court may consider: (1) the egregiousness of the
violation; (2) the degree of scienter; (3) the isolated or repeated nature of the violations; and (4)
the sincerity of defendant’s assurances against future violations.” Haligiannis, 470 F. Supp. 2d
at 384; see also SEC v. Commonwealth Chem. Sec., Inc., 574 F.2d 90, 100 (2d Cir. 1978).
As when the Court granted the SEC’s motion for a permanent injunction against Penn,
“[e]ach factor weighs in favor of an injunction in this case.” Penn, 2017 WL 5515855, at *2.
Penn and his entities all acted egregiously and with a high degree of scienter—the scheme took
substantial planning and involved the coordination of multiple entities, including Ssecurion,
which was controlled by a co-conspirator. Id. Nor was the fraud an isolated incident—
Defendants’ scheme used 32 false invoices to generate 80 improper transfers over a period of
three years. Id. In other words, the fraud was “systematic.” SEC v. First Jersey Sec., Inc., 101
F.3d 1450, 1477 (2d Cir. 1996) (“[A]n injunction is particularly within the court’s discretion
where a violation was founded on systematic wrongdoing, rather than an isolated occurrence.”

10

(citation omitted)). And finally, none of the Defendants has accepted responsibility in this action
or expressed any intention of refraining from future violations. Although Penn pleaded guilty in
state court, he has since repeatedly filed frivolous papers contesting the validity of his guilty plea
and seeking damages from essentially every government official known to have been involved in
the criminal and civil enforcement actions against him. See, e.g., Penn Decl. (Dkt. 302) ¶ 5
(“Defendant asserts that the [SEC] colluded with members of the Manhattan District Attorney
and the State of New York.”); Penn Counterclaims (Dkt. 134) ¶ 1 (“This is an action against staff
members in the New York Office of the Plaintiff, the SEC for federal and state constitutional
violations and tortious conduct committed under the color of state law and in violation of state
law.”); Complaint, Penn v. City of New York et al., No. 19-CV-2106, Dkt. 1 (S.D.N.Y. Mar. 7,
2019). In essence, Penn and his entities appear to believe that they are the victims in this story,
and that the enforcement authorities responsible for stopping their fraud are in the wrong. See
also SEC v. Penn, No. 14-CV-581, 2018 WL 4378444, at *1 (S.D.N.Y. Sept. 14, 2018) (“Despite
the overwhelming evidence of his guilt, Penn asserts that he is the victim of a conspiracy among
the New York District Attorney’s Office, the SEC, and the current managers of the Fund to seize
unlawfully control of his interest in the Fund.”).
For those reasons, the Court concludes that the Camelot Entities, like Penn, have not
demonstrated any respect for the law, and that the entry of a permanent injunction is warranted
due to the likelihood of future violations.
2. Disgorgement
“Disgorgement serves to remedy securities law violations by depriving violators of the
fruits of their illegal conduct.” SEC v. Contorinis, 743 F.3d 296, 301 (2d Cir. 2014). For that
reason, “the disgorgement amount may not exceed the amount obtained through the

11

wrongdoing,” id., although it could be greater than the actual damages to the victim. SEC v.
Cavanagh, 445 F.3d 105, 117 (2d Cir. 2006). Once the SEC satisfies its “burden of establishing
a reasonable approximation of the profits causally related to the fraud, the burden shifts to the
defendant to show that his gains ‘were unaffected by his offenses.’” SEC v. Razmilovic, 738
F.3d 14, 31 (2d Cir. 2013) (quoting SEC v. Lorin, 76 F.3d 458, 462 (2d Cir. 1996)). The Court
“has broad discretion not only in determining whether or not to order disgorgement but also in
calculating the amount to be disgorged.” First Jersey Sec., Inc., 101 F.3d at 1474–75.
Using bank records, the SEC has established with reasonable certainty that Ssecurion,
after receiving fraudulent due diligence payments from the Fund, transferred over $9 million of
those payments, either directly or through an intermediate account,6 to CGI and CASO
Management. D’Avino Decl. ¶ 7. Specifically, CASO Management received $440,000 of the
fraudulent fees, while CGI received $8,627,004. Id. Despite being given multiple opportunities
to file an opposition to the SEC’s request for disgorgement, the Camelot Entities have failed to
provide any basis to rebut the SEC’s calculations or rationale. Accordingly, the Court concludes
that CASO Management and CGI must each disgorge their ill-gotten payments, which are,
respectively, $440,000 and $8,627,004.
The Court further finds that an award of prejudgment interest is appropriate to fully
deprive the Camelot Entities of the fruits of their crimes. The SEC requests that prejudgment
interest, at the IRS underpayment rate, be assessed from July 12, 2013, the date of the final due
diligence payment from the Fund, to the date that the disgorgement payment becomes due. See
D’Avino Decl. ¶ 23. The Court agrees, with one caveat. The Second Circuit has held that

The intermediate account belonged to Big House Film and Photography Studio, LLC (“Big House”), an
entity owned by the same co-conspirator as owned Ssecurion. D’Avino Decl. ¶ 7. The Court has previously entered
a final judgment against Penn’s co-conspirator, Ssecurion, and Big House. Dkts. 105, 106, 107.
6

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prejudgment interest should not be assessed against frozen assets, for the period during which
they were frozen, if such assets will be used to satisfy a defendant’s disgorgement obligation.
See Razmilovic, 738 F.3d at 38. Here, the Camelot Entities have frozen assets totaling
$155,704.63. D’Avino Decl. ¶ 22. To the extent that the SEC intends to use the frozen assets to
satisfy the Camelot Entities’ disgorgement obligation, the SEC must submit a revised
prejudgment interest calculation that accounts for the duration of the asset-freeze order. The
prejudgment interest calculation must also be updated to reflect the present date, as the SEC’s
estimate is currently based on a due date of July 30, 2019. Id. ¶ 23.
Disgorgement, however, should not be duplicative, else it would exceed the amount
gained and acquire a punitive character. See Cavanagh, 445 F.3d at 116 n.25 (noting that
disgorgement is “remedial rather than punitive”). The Court previously ordered Penn to disgorge
the entirety of the ill-gotten gains from the fraud ($9,286,916.65 plus prejudgment interest).
CASO Management’s and CGI’s ill-gotten gains ($9,067,004 plus prejudgment interest) are a
subset of that amount. To avoid duplicative recovery, the Court finds CASO Management and
CGI jointly and severally liable with Penn for disgorgement up to their respective share of the illgotten gains. That is, CASO Management shall be jointly and severally liable with Penn for
disgorgement of $440,000, plus prejudgment interest; CGI shall be jointly and severally liable
with Penn for disgorgement of $8,627,004, plus prejudgment interest.
In sum, the Court finds that disgorgement plus prejudgment interest is an appropriate
remedy in this case. CGI must disgorge $8,627,004, and CASO Management must disgorge
$440,000; prejudgment interest shall be determined based on the SEC’s supplemental
submission, using the IRS underpayment rate.

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3. Civil Penalty
The Exchange Act and Investment Advisers Act authorize the Court to impose a civil
monetary penalty, in addition to disgorgement, to punish and deter fraudulent activities. See 15
U.S.C. §§ 78u(d)(3), 80b–9(e). “In determining whether civil penalties should be imposed, and
the amount of the fine, courts look to a number of factors, including (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.” Haligiannis, 470 F.
Supp. 2d at 386. The maximum penalty is the greater of the defendant’s pecuniary gain and one
of three possible statutory maximums determined by the severity of the defendant’s conduct. See
15 U.S.C. §§ 78u(d)(3), 80b–9(e).
As the Court previously found, imposing a penalty equal to each defendant’s pecuniary
gain in this case is appropriate. Penn, 2018 WL 4378444, at *6 (“Were the Court to treat each
improper transfer from the Fund to Ssecurion as a separate violation, the amount of the fine
could be higher. But doing so would disaggregate a continuous course of fraudulent conduct and
would bear little connection to the factors the Court must consider.”). For the reasons already
discussed, the conduct underlying the scheme, which has been imputed to the Camelot Entities,
“was egregious, involved a high degree of scienter, and was recurrent.” Id. The fraudulent
scheme also led to losses of over $9 million, most of which has never been (and might never be)
recovered. Id. As to their financial circumstances, the Camelot Entities passed on multiple
opportunities to explain why a reduction in penalties is warranted. And finally, by all
indications, the Camelot Entities, like Penn, are recalcitrant; most recently, despite the entry of

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final judgment against Penn, which clearly controls the outcome of the claims against them, the
Camelot Entities refused to accept responsibility, forcing the SEC to file a second motion for
summary judgment, causing unnecessary expenditure of judicial resources, and delaying the
imposition of judgment. See SEC Letter (Dkt. 327).
For those reasons, the Court concludes that a civil monetary penalty, in the amount of the
Camelot Entities’ respective pecuniary gain, is appropriate. Thus, CGI must pay a penalty of
$8,627,004, and CASO Management must pay $440,000.
III.

CONCLUSION

The SEC’s motion for summary judgment, a permanent injunction, disgorgement, and
civil penalties against CASO Management and CGI is GRANTED as set forth above. CGI must
disgorge $8,627,004 and pay a civil penalty of the same amount; CASO Management must
disgorge $440,000 and pay a civil penalty of the same amount. Prejudgment interest on the
disgorgement is GRANTED, with the amount to be fixed upon receipt of a revised calculation
from the SEC that is consistent with this Order.
No later than April 15, 2020, the SEC must submit a proposed final judgment as to the
Camelot Entities, along with a declaration containing revised prejudgment interest amounts. The
SEC must also indicate whether it intends to turn over the Camelot Entities’ frozen assets to
satisfy their disgorgement obligations.
The existing order freezing Defendants’ assets, Dkt. 300, shall remain in effect pending a
decision on the SEC’s anticipated turnover motion. No later than April 15, 2020, the SEC must
either file the anticipated turnover motion or propose a briefing schedule for the motion.

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The Clerk of Court is respectfully directed to terminate docket entries 313 and 326 and
remove Mr. Ian Orr as counsel for the Camelot Entities.

SO ORDERED.
_________________________________
VALERIE CAPRONI
United States District Judge

Date: March 17, 2020
New York, New York

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