Securities and Exchange Commission v. Cope et al

Filing 370

OPINION AND ORDER: A judgment of disgorgement in the amount of $524,885 is imposed against defendant de Maison. Defendant de Maison shall also pay a civil penalty of $4,240,049.30. The SEC shall submit by February 26, 2021 a proposed order implementing the Court's rulings as to de Maison. (Signed by Judge Denise L. Cote on 2/19/2021) (jca)

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UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------- X
SECURITIES AND EXCHANGE COMMISSION,
:
:
Plaintiff,
:
:
-v:
:
JASON COPE, IZAK ZIRK DE MAISON (F/K/A):
IZAK ZIRK ENGELBRECHT), GREGORY
:
GOLDSTEIN, STEPHEN WILSHINSKY, TALMAN :
HARRIS, WILLIAM SCHOLANDER, JACK
:
TAGLIAFERRO, VICTOR ALFAYA, JUSTIN
:
ESPOSITO, KONA JONES BARBERA, LOUIS
:
MASTROMATTEO, ANGELIQUE DE MAISON,
:
TRISH MALONE, KIERNAN T. KUHN, PETER
:
VOUTSAS, RONALD LOSHIN, GEPCO, LTD.,
:
SUNATCO LTD., SUPRAFIN LTD.,
:
WORLDBRIDGE PARTNERS, TRAVERSE
:
INTERNATIONAL, and SMALL CAP RESOURCE :
CORP.,
:
:
Defendants,
:
And
:
:
ANGELIQUE DE MAISON,
:
:
Relief Defendant.
:
-------------------------------------- X

14cv7575 (DLC)
OPINION AND ORDER

APPEARANCES:
For Angelique de Maison:
Jeffrey B. Coopersmith
Orrick, Herrington & Sutcliffe LLP
701 Fifth Avenue, Suite 5600
Seattle, Washington 98104
For the Securities and Exchange Commission:
Philip A. Fortino
John O. Enright
Securities & Exchange Commission - New York Regional Office
200 Vesey Street, Suite 400
New York, New York 10281
DENISE COTE, District Judge:

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In 2018, defendant Angelique de Maison (“de Maison”) was
ordered to pay disgorgement, prejudgment interest, and a civil
penalty, stemming from a consent judgment entered against her in
a Securities and Exchange Commission (“SEC”) enforcement action.
This matter now returns to this Court on remand for further
consideration in light of the Supreme Court’s decision in Liu v.
Securities and Exchange Commission, 140 S. Ct. 1936 (2020).

For

the reasons set forth below, de Maison is ordered to disgorge
$524,885 and pay a civil penalty of $4,240,049.30.
BACKGROUND
Familiarity with the facts of this case is presumed, and
the relevant facts are presented here only briefly.

In

September 2014, the SEC filed a complaint against de Maison and
others, alleging that they conducted a securities fraud scheme
that violated several provisions of the Securities Act of 1933
and the Securities Exchange Act of 1934.

The SEC and de Maison

negotiated a settlement agreement, and on December 23, 2015, the
Court so-ordered a consent agreement between de Maison and the
SEC.
Under the consent agreement, de Maison agreed to pay
disgorgement of her ill-gotten gains, plus prejudgment interest
on the disgorgement, as well as a civil penalty.

On July 30,

2018, the Court issued an Opinion and Order (the “July 30, 2018
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Opinion”) ordering de Maison to disgorge $4,240,049.30, plus
pre-judgment interest, and pay a civil penalty of $4,240,049.30.
Securities and Exchange Commission v. Cope, No. 14cv7575 (DLC),
2018 WL 3628899 (S.D.N.Y. July 30, 2018).
De Maison then appealed to the United States Court of
Appeals for the Second Circuit.
Circuit affirmed.
2019).

On August 30, 2019, the Second

SEC v. de Maison, 785 F. Appx. 3 (2d Cir.

De Maison then sought a writ of certiorari from the

United States Supreme Court.

While her case was pending before

the Supreme Court, the Supreme Court decided Liu, which
implicated the disgorgement remedy ordered in this case.

On

July 2, 2020, the Supreme Court vacated the Second Circuit’s
judgment affirming this Court’s order and remanded the case to
the Second Circuit for further consideration in light of Liu.
de Maison v. SEC, 141 S. Ct. 186 (2020).

On October 8, 2020,

the Second Circuit in turn remanded the case to this Court.
On October 14, 2020, this Court ordered the parties to
submit memoranda addressing the impact of Liu on the judgment
entered in the July 30, 2018 Opinion.
fully submitted on December 3.

That briefing became

In her submission, de Maison

noted that the parties had met and conferred regarding the
issues presented, and that they were in the midst of settlement
discussions.

Subsequently, on December 17, de Maison notified

the Court that the parties had been unable to reach a settlement
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and that the matter was ripe for resolution.
DISCUSSION
In Liu, the Supreme Court affirmed a court’s power to award
disgorgement in an SEC enforcement action pursuant to Title 15,
United States Code, Section 78u(d)(5), which authorizes courts
to grant “any equitable relief that may be appropriate or
necessary for the benefit of investors.”

140 S.Ct. at 1946.

But the Court held that any such disgorgement must “fall[] into
those categories of relief that were typically available in
equity.”

Id. at 1942 (citation omitted) (emphasis in original).

Accordingly, the Court concluded that any disgorgement awarded
in an SEC enforcement action may not exceed a “defendant’s net
profits from wrongdoing.”

Id. at 1946.

The Court also set forth several principles to guide the
lower courts in developing appropriate disgorgement orders in
SEC enforcement actions.

First, the Court reasoned that the

“for the benefit of investors” clause of § 78u(d)(5) “generally
requires the SEC to return a defendant's gains to wronged
investors for their benefit,” and that lower courts should view
requests for disgorgement skeptically where the SEC intends to
deposit disgorgement funds with the United States Treasury.
at 1947-49.

Id.

Second, the Court noted that, in certain instances,

“disgorgement liability on a wrongdoer for benefits that accrue
to his affiliates” is “sometimes seemingly at odds with [a]
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common-law rule requiring individual liability for wrongful
profits.”

Id. at 1949.

Accordingly, courts must carefully

consider whether a defendant may “consistent with equitable
principles, be found liable for profits as partners in
wrongdoing or whether individual liability is required.”

Id.

Finally, “courts must deduct legitimate expenses before ordering
disgorgement.”

Id. at 1950.

While Liu limited to a certain extent the scope of the
disgorgement remedy, a district court retains “broad equitable
power to fashion appropriate remedies” for federal securities
law violations, including imposing disgorgement.

S.E.C. v.

First Jersey Securities, Inc., 101 F.3d 1450, 1474 (2d Cir.
1996).

Before disgorgement may be imposed, the SEC must first

“establish[] a reasonable approximation of the profits causally
related to the fraud.”
(2d Cir. 2013).

S.E.C. v. Razmilovic, 738 F.3d 14, 31

“[B]ecause of the difficulty of determining

with certainty the extent to which a defendant's gains resulted
from his frauds . . . the court need not determine the amount of
such gains with exactitude.”

Id.

Once this reasonable

approximation has been established, “the burden shifts to the
defendant to show that his gains were unaffected by his
offenses,” and a defendant must “clearly . . . demonstrate” that
the “disgorgement figure was not a reasonable approximation.”
Id. at 31-32 (citation omitted).

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The SEC has revised its disgorgement request to $524,885.
In support of disgorgement, the SEC has provided the declaration
of John Enright, an attorney in the Division of Enforcement.

In

this declaration, Enright describes how, shortly after investor
funds were deposited in bank accounts belonging to the
investment entities, de Maison transferred investor funds into
her personal bank accounts or used investor funds to pay off
personal debts.

Enright supports his declaration with relevant

financial records, including bank statements covering de
Maison’s personal account and the bank accounts belonging to the
investment entities.

Based on this declaration, the SEC has

satisfied its burden of establishing “a reasonable approximation
of profits causally connected to the violation.”

Razmilovic,

738 F.3d at 31 (citation omitted).
De Maison disputes the SEC’s disgorgement calculation.

She

does not appear to dispute the SEC’s calculation of the sums of
money withdrawn from the bank accounts belonging to the
investment entities and transferred to her personal accounts or
used to pay her personal debts.

Nor does she dispute that these

transfers were made shortly after the investor funds were
deposited with the investment entities.

Instead, she argues

that sums of money similar or equal to the sums of money
deposited in the investment entity accounts were transferred to
their intended destination, so the funds were not
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misappropriated and were used for the benefit of investors.

She

also argues that, in instances where funds were transferred from
the investment entities to her personal accounts or to her
creditors, the balance of the investment entity accounts was
always greater than the value of the recently deposited investor
funds.

As such, the funds transferred to her accounts were not

traceable to any particular investor, rendering disgorgement
improper.
These arguments are unconvincing because they ignore the
fungibility of money.

Because money is fungible, it is of

course impossible to conclude that the precise tranche of money
diverted to de Maison’s accounts was the precise tranche of
money deposited by an investor.

But the SEC has demonstrated,

and de Maison does not dispute, that de Maison transferred money
to her personal accounts from accounts where that money was
being held for the benefit of investors.

But for her actions,

the balance of the investment entity accounts necessarily would
have been higher, or the value of the funds transferred to their
intended destinations necessarily would have been higher.

As

such, de Maison’s arguments are not sufficient to “clearly . . .
demonstrate” that the SEC’s calculation is not reasonable.
Razmilovic, 738 F.3d at 31-32.
With respect to the other Liu principles, the SEC has
averred that it has identified the investors who were wronged by
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de Maison, and that it intends to return those funds to the
investors.

The SEC also does not intend to seek to impose joint

and several liability on de Maison and claims that the requested
disgorgement sum does not require the deduction of legitimate
expenses.

De Maison does not dispute these conclusions.

This

Court therefore awards disgorgement in the sum of $524,885.

The

SEC no longer seeks prejudgment interest, so the Court declines
to award it.
The SEC further requests that the civil penalty of
$4,240,049.30 imposed in the July 30, 2018 Opinion remain
unaffected.

Liu does not implicate this Court’s authority to

impose civil penalties pursuant to Title 15, United States Code,
Sections 77t(d)(2)(C) and 78u(d)(3)(B)(iii).

Under these

provisions, a court may impose a civil penalty of up to “the
gross amount of pecuniary gain” to a defendant, which may be
higher than the defendant’s net profits contemplated in Liu.
The SEC has previously calculated a gross pecuniary gain to de
Maison of $4,240,049.30, and this Court imposed a civil penalty
of that amount in its July 30, 2018 Opinion, finding that de
Maison’s “egregious and recurrent conduct” justified a “serious
punitive response.”

Cope, 2018 WL 3628899, at *8.

In her submission, de Maison claims that this Court
concluded in its July 30, 2018 Opinion that a civil penalty
equal to the disgorgement sum was appropriate, and that since
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the disgorgement sum has been reduced in the wake of Liu, the
civil penalty should be reduced as well.

But that reasoning

misconstrues the July 30, 2018 Opinion.

In that Opinion, the

Court concluded that “the maximum fine –- an amount equal to the
disgorgement sum of $4,240,049.30 –- is appropriate.”
(emphasis added).

Id.

The maximum fine remains $4,240,049.30, and

the Court sees no reason to reconsider its conclusion that the
maximum fine is appropriate.
CONCLUSION
A judgment of disgorgement in the amount of $524,885 is
imposed against defendant de Maison.

Defendant de Maison shall

also pay a civil penalty of $4,240,049.30.

The SEC shall submit

by February 26, 2021 a proposed order implementing the Court’s
rulings as to de Maison.
Dated:

New York, New York
February 19, 2021
__________________________________
DENISE COTE
United States District Judge

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