Securities and Exchange Commission v. Premiere Power, LLC et al

Filing 84

OPINION AND ORDER: re: 73 MOTION for Judgment Against John Jankovic (Disgorgement, Penalty, Injunctions). filed by Securities and Exchange Commission. For the reasons cited above, the SECs requests for disgorgement in the amount of $450,000, prejudgment interest in the amount of $121,039, a civil money penalty in the amount of $57,000, and a permanent injunction prohibiting Jankovic from violating Sections 17(a)(2) and (3) of the Securities Act are GRANTED. Th e SEC's request for an injunction against Jankovic from soliciting or accepting funds from any person or entity in an unregistered offering of securities is DENIED. The Court understands that this Order may affect the parties' views on th e need to adjudicate the remaining claims in this case. For this reason, the Court hereby ADJOURNS sine die the jury trial previously scheduled to start on February 20, 2018. The parties are ORDERED to file a joint letter on or before February 9, 2018, advising the Court whether they still intend to proceed to trial and suggesting a revised trial schedule as necessary. (Signed by Judge Katherine Polk Failla on 1/4/2018) (js)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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:
SECURITIES AND EXCHANGE
:
COMMISSION,
:
:
Plaintiff,
:
:
v.
:
:
JOHN JANKOVIC,
:
:
Defendant. :
:
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USDC SDNY
DOCUMENT
ELECTRONICALLY FILED
DOC #: _________________
January 4, 2018
DATE FILED: ______________

15 Civ. 1248 (KPF)
OPINION AND ORDER

KATHERINE POLK FAILLA, District Judge:
Plaintiff Securities and Exchange Commission (the “SEC”) brought this
civil enforcement action against Defendant John Jankovic (“Jankovic”) and
others, alleging violations of Section 10(b) of the Securities Exchange Act of
1934 (the “Exchange Act”), 15 U.S.C. § 78j(b); Rule 10b-5 implemented
thereunder, 17 C.F.R. § 240.10b-5; and Sections 17(a)(1), (2), and (3) of the
Securities Act of 1933 (the “Securities Act”), 15 U.S.C. § 77q(a)(1)-(3). On
August 8, 2016, the SEC moved for summary judgment on each alleged
violation. On March 21, 2017, this Court granted the SEC’s motion for
summary judgment solely with respect to the claims under Sections 17(a)(2)
and (3). See SEC v. Jankovic, No. 15 Civ. 1248 (KPF), 2017 WL 1067788
(S.D.N.Y. Mar. 21, 2017).
The SEC now moves for post-judgment remedies and relief. Specifically,
it requests that the Court order disgorgement in the amount of $450,000, plus
prejudgment interest of $121,039; a civil monetary penalty; and permanent

injunctions prohibiting Jankovic from violating Sections 17(a)(2) and (3) of the
Securities Act and from soliciting or accepting funds from any person or entity
in an unregistered offering of securities. Jankovic opposes all facets of the
SEC’s motion, arguing that disgorgement should be limited to the amount of
his personal profits, $57,000; that prejudgment interest is unwarranted; and
that the Court should impose neither a civil penalty nor a permanent
injunction against him. For the reasons set forth in the remainder of this
Opinion, the SEC’s requests for disgorgement, a civil monetary penalty, and a
permanent injunction prohibiting violations of Sections 17(a)(2) and (3) of the
Securities Act are granted. The SEC’s request for a permanent injunction
prohibiting Jankovic from raising funds in an unregistered offering of securities
is denied.
BACKGROUND 1
A.

Factual Background
The following sections discuss the underlying facts only to the extent

necessary to resolve the instant motion, as the Court has previously engaged in
a more exhaustive factual recitation. See Jankovic, 2017 WL 1067788, at *2-6.
1.

Jankovic’s Role at Premiere Power

Jankovic was an initial member — along with his father, Jerry Jankovic,
and an Oklahoma-based attorney, Thomas Gudgel (“Gudgel”) — of Premiere

1

For ease of reference, the Court refers to the SEC’s memorandum of law in support of
its motion for post-judgment relief as “SEC Br.” (Dkt. #74); to Jankovic’s opposition
memorandum as “Def. Opp.” (Dkt. #76); and to the SEC’s reply memorandum as “SEC
Reply” (Dkt. #77).

2

Power, LLC (“Premiere”). Jankovic, 2017 WL 1067788, at *2. Sandra Dyche
(“Dyche”), with whom Jerry Jankovic had previously founded another company
(21st Century Morongo Energy LLC (“Morongo”)), became a member of
Premiere’s Board of Directors. Id. at *1, 3. Premiere’s ostensible mission was
to develop and operate power plants on Native American tribal land, though the
company never developed, built, or operated any such plants nor generated any
revenues. Id. at *2, 6.
Jankovic worked at Premiere from July 2009 until January 1, 2012.
Jankovic, 2017 WL 1067788, at *3, 6. Starting in early December 2009,
Jankovic assumed the role of Premiere’s Chief Executive Officer (“CEO”), id. at
*3, a position he kept until his “active role” in the company “ceased in summer
of 2011,” id. at *6. Between December 2009 and March 2010, Jankovic helped
Premiere raise nearly $2 million in interim financing from three sets of
investors: Moon Joo Yu (“Yu”), who invested $1.5 million; Hee Rak Kim, who
invested $150,000; and Hyun Ja Kim and Jae Duk Kim, who invested
$300,000. Id. at *3, 6. Yu made her investments in three equal tranches: On
December 9, 2009, she gave Dyche $500,000 in cash; on December 14 and 15,
2009, she wired a total of $500,000 to Premiere’s bank account in two separate
installments; and sometime after December 15, 2009, she gave Dyche another
$500,000. Id. at *3. Yu was told that, in exchange for her $1.5 million
investment, she would receive a 0.60% stake in the company. Id. Jae Duk
Kim invested $300,000 on December 23, 2009, for a 0.12% interest in the

3

company. Id. at *6. And in March 2010, Hee Rak Kim invested $150,000 in
exchange for a 0.06% stake in the company. Id.
2.

Misstatements and Omissions Regarding Proceeds from
Investors

Not all of the funds that Yu invested actually went to Premiere. Jankovic,
2017 WL 1067788, at *3. Instead, $1 million of Yu’s investment was used to
pay for “legal fees” incurred in a 2006 lawsuit arising out of events at Morongo.
Id. Like Premiere, Morongo was an energy company with the stated goal of
developing a power plant on Native American land. Id. at *2. In the Morongo
litigation, two individuals — Byung Chul An and Hyang Ok An (collectively, the
“Ans”) — who had invested a combined $1.2 million in Morongo, sued Jerry
Jankovic, Dyche, and others for fraud, negligent misrepresentation, and
conversion. Id.
Sometime in 2009, Jankovic learned from his father that Morongo had
been sued by its investors and that his father was a named defendant in that
action. Jankovic, 2017 WL 1067788, at *2. On September 15, 2009, Jankovic
sent an email to his father and Gudgel; it attached a letter addressed to the
Ans asking them to “drop any and all legal actions against [Morongo], Jerry
Jankovic, [and Dyche]” in exchange for “a 2% ownership interest in Premiere.”
Id. at *3. By December 2009, Jankovic understood that Dyche planned to give
part of Yu’s investment in Premiere to the Ans in order to resolve the Morongo
litigation. Id. And on December 10, 2009, Jankovic sent Gudgel and Dyche an
email, copying his father, that stated: “Sandra, your proposed buy-out of the

4

An interest will serve the same purpose as the An settlement.” Id. (internal
quotation marks omitted).
Jankovic was well aware of the gap between the ownership share that Yu
was entitled to, per a Subscription Agreement she had signed on December 9,
2009, and the money that was actually received by Premiere from Yu’s
investment. Jankovic, 2017 WL 1067788, at *12. Yu’s Subscription
Agreement, which Jankovic received on December 13, 2009, indicated that she
was receiving a 0.60% stake in Premiere in exchange for $1.5 million. Id. at *3.
But Yu had wired just $500,000 into Premiere’s bank account; she gave the
remaining $1 million directly to Dyche. Id. Jankovic spoke with Gudgel about
the gap between the $500,000 that Premiere had received and the $1.5 million
represented on Yu’s Subscription Agreement. Id. at *4. Together, they then
spoke with Dyche. Id. In Jankovic’s telling of events, he encouraged Dyche to
update the Subscription Agreement to reflect that Yu had only invested
$500,000, as well as to speak with Yu to “make sure that [Yu] understood what
[she] was buying.” Id. (internal quotation marks omitted). Dyche did neither.
Id.
Jankovic himself did nothing to correct the problem, though not for lack
of opportunity. On December 22, 2009, Premiere hosted a meeting for current
and prospective investors in the offices of a prominent New York law firm (the
“Investors Meeting”). Jankovic, 2017 WL 1067788, at *5. Jankovic, Dyche,
Gudgel, and others from Premiere attended the meeting, as did Yu, Hee Rak
Kim, Jae Duk Kim, and other potential investors. Id. Jankovic took the lead in
5

addressing investors at the meeting. Id. Yet Jankovic never spoke with Yu at
the meeting (or anytime thereafter) about the disparity between the money she
had invested and the money Premiere had actually received, or, more generally,
about the Morongo litigation and the use of her investment in Premiere to
resolve that litigation. Id. at *4.
To the contrary, Jankovic made affirmative misstatements to Yu that
perpetuated the discrepancy between Yu’s Subscription Agreement and Yu’s
actual investment in Premiere. Jankovic, 2017 WL 1067788, at *4. In January
2010, Jankovic signed a Certificate of Ownership indicating that Yu held a
0.60% interest in Premiere, even though only $500,000 of her investment had
actually gone to Premiere. Id. And on February 10, 2010, Jankovic wrote a
letter to Yu in which he referred to her “0.60% membership in Premiere.” Id.
He did so despite being aware that at least $500,000 of Yu’s investment had
not been invested in Premiere and instead had been used to cover costs related
to the Morongo litigation. Id.
3.

Other Misstatements and Omissions in Key Communications
with Premiere Investors

Jankovic’s missteps extended well beyond failing to inform Yu of the gap
between her $1.5 million investment and the $500,000 Premiere actually
received and issuing a Certificate of Ownership that perpetuated that error. On
various occasions, Jankovic communicated with investors and potential
investors and made material misstatements and omissions that sustained
Premiere’s fraudulent scheme. To begin with, Jankovic was one of the authors
of the Preliminary Information Memorandum (the “PIM”) that Premiere
6

distributed to potential investors, including Yu, Hee Rak Kim, and Jae Duk
Kim. Jankovic, 2017 WL 1067788, at *6. The PIM contained multiple “lies”
that “lent to Premiere an imprimatur of legitimacy.” Id. at *11. Premiere’s
leadership, including Jankovic, made these misstatements even though they
warranted that they “ha[d] taken reasonable care to ensure that the
information” in the PIM was “true and accurate in all material respects.” Id. at
*5 (internal quotation marks omitted). The PIM’s material misstatements
included the following:
i)

The PIM listed a former Oklahoma Congressman as a
member of Premiere’s Board of Directors and claimed
that this Congressman held a 1% equity interest in
Premiere. That Congressman never agreed to serve on
Premiere’s Board.

ii)

The PIM identified the Managing Executive Director of
an energy company as a member of Premiere’s Board of
Directors. Like the Congressman, the Managing
Director was purported to hold a 1% stake in Premiere.
The Managing Director had discussed the possibility of
joining Premiere, but had never committed to serving as
a member of Premiere’s Board.

iii)

The PIM stated that an Oklahoma accounting firm
would handle Premiere’s outsourced accounting and
bookkeeping. That firm, however, never agreed to work
with Premiere.

iv)

Finally, the PIM identified a nationally known
accounting firm as an “Affiliate” of Premiere’s
“Corporate Holdings” division.
But the National
Accounting Firm never had a relationship of any sort
with Premiere.

Id.
In addition, on December 22, 2009, Jankovic repeated many, if not all, of
these misstatements at the Investors Meeting, where he delivered a PowerPoint
7

presentation that mirrored the PIM’s content. Jankovic, 2017 WL 1067788,
at *5. At the meeting, Jankovic distributed copies of the flawed PIM to some of
the investors. Id. He spoke to the assembled investors for approximately one
hour, with Dyche translating his remarks into Korean. Id. at *6. During the
presentation, he did not mention the Morongo litigation, nor any intention to
use any of the investors’ funds to cover fees stemming from that litigation. Id.
at *4.
B.

Procedural Background
On February 20, 2015, the SEC initiated a civil enforcement action by

filing its Complaint against Jankovic, Jerry Jankovic, and Premiere. (Dkt. #1).
Because neither Jerry Jankovic nor Premiere appeared in this matter, on
October 9, 2015, the Court entered default judgments against both. (Dkt. #35,
36). On July 27, 2016, the SEC filed a motion for summary judgment against
Jankovic. (Dkt. #45). On March 21, 2017, the Court found, as a matter of law,
that Jankovic had violated Sections 17(a)(2) and (3) of the Securities Act. (Dkt.
#62). On June 23, 2017, the SEC filed the instant motion for post-judgment
remedies and relief. (Dkt. #73). On July 21, 2017, Jankovic filed a
memorandum of law in opposition to the SEC’s motion for post-judgment
remedies and relief. (Dkt. #76). On August 4, 2017, the SEC filed a reply brief.
(Dkt. #77).

8

DISCUSSION
A.

Applicable Law
1.

Disgorgement

The SEC seeks several post-judgment remedies, each of which is
discussed in turn, beginning with the request for disgorgement. The Court has
broad discretion in determining whether to order the disgorgement of ill-gotten
gains and, if so, in what amount. See SEC v. Fischbach Corp., 133 F.3d 170,
175 (2d Cir. 1997); SEC v. First Jersey Sec., Inc., 101 F.3d 1450, 1474-75 (2d
Cir. 1996). The primary purpose of disgorgement is not punitive; instead, it is
to deprive wrongdoers of any unjust enrichment and to deter similar conduct.
See Official Comm. of Unsecured Creditors of WorldCom, Inc. v. SEC, 467 F.3d
73, 82 (2d Cir. 2006); SEC v. Tome, 833 F.2d 1086, 1096 (2d Cir. 1987); SEC
v. Manor Nursing Ctrs., Inc., 458 F.2d 1082, 1104 (2d Cir. 1972).
To determine the amount of disgorgement, a court focuses on the extent
to which an individual — or a group of individuals — has profited from the
fraud. See First Jersey Sec., Inc., 101 F.3d at 1474. The assessment need not
be made with absolute precision: As the Second Circuit has explained, the
amount of “[d]isgorgement need only be a reasonable approximation of profits
causally connected to the violation.” SEC v. Patel, 61 F.3d 137, 139 (2d Cir.
1995) (quoting SEC v. First City Fin. Corp., 890 F.2d 1215, 1231 (D.C. Cir.
1989). Any “risk of uncertainty … fall[s] on the wrongdoer whose illegal
conduct created that uncertainty.” SEC v. Lorin, 76 F.3d 458, 462 (2d Cir.
1996) (quoting Patel, 61 F.3d at 140).
9

Once the SEC has demonstrated an approximate amount of ill-gotten
gains, the burden shifts to the defendant to “demonstrat[e] that he received less
than the full amount allegedly misappropriated and sought to be disgorged.”
SEC v. Benson, 657 F. Supp. 1122, 1133 (S.D.N.Y. 1987); see also SEC
v. Opulentica, LLC, 479 F. Supp. 2d 319, 330 (S.D.N.Y. 2007). Where
individuals have collaborated, conspired, or otherwise worked together to
violate the securities laws, they may be held jointly and severally liable for any
amount to be disgorged. See, e.g., First Jersey Sec., Inc., 101 F.3d at 1475
(“[W]here a firm has received gains through its unlawful conduct, where its
owner and chief executive officer has collaborated in that conduct and has
profited from the violations, and where the trial court has, within the proper
bounds of discretion, determined that an order of disgorgement of those gains
is appropriate, it is within the discretion of the court to determine that the
owner-officer too should be subject, on a joint and several basis, to the
disgorgement order.”); SEC v. Stone, No. 06 Civ. 6258 (HB), 2009 WL 82661, at
*6 (S.D.N.Y. Jan. 13, 2009) (“Where two or more individuals or entities
collaborated in the violations of the securities laws, the court has discretion to
hold them jointly and severally liable for the disgorgement of illegally obtained
proceeds.”).
A court also has discretion to award prejudgment interest on the amount
of disgorgement and to determine the rate at which such interest shall be
calculated. Prejudgment interest, like the disgorgement itself, “is meant to
deprive wrongdoers of the fruits of their ill-gotten gains from violating securities
10

laws.” SEC v. Lorin, 877 F. Supp. 192, 201 (S.D.N.Y. 1995), aff’d in part and
vacated in part on other grounds, 76 F.3d 458 (2d Cir. 1996). “Requiring
payment of interest prevents a defendant from obtaining the benefit of what
amounts to an interest free loan procured as a result of illegal activity.” SEC
v. Svoboda, 409 F. Supp. 2d 331, 345 (S.D.N.Y. 2006) (internal quotation
marks and citation omitted).
2.

Civil Monetary Penalties

Additionally, Section 20(d)(1) of the Securities Act authorizes the SEC to
seek a civil penalty against any violator. 15 U.S.C. § 77t(d). There are three
tiers of civil penalties. The first tier provides for a penalty, for each violation
committed by a natural person between March 3, 2009, and March 5, 2013, of
the greater of $7,500 or the gross amount of pecuniary gain. 15 U.S.C.
§ 77t(d)(2)(A); 17 C.F.R. § 201.1004. The second tier, which applies where the
conduct at issue “involved fraud, deceit, manipulation, or deliberate or reckless
disregard of a regulatory requirement,” is similar to the first except that it
allows for a penalty of $75,000 per violation. 15 U.S.C. § 77t(d)(2)(B); 17 C.F.R.
§ 201.1004. Finally, the third tier, which applies where the defendant’s
conduct “directly or indirectly resulted in substantial losses or created a
significant risk of substantial losses to other persons,” allows for a penalty of
$150,000 per violation. 15 U.S.C. § 77t(d)(2)(C); 17 C.F.R. § 201.1004.
Civil penalties are punitive in nature: Their purpose is “to create
meaningful financial disincentives to participating in fraudulent conduct.” SEC
v. Jadidian, No. 08 Civ. 8079 (PGG); 2011 WL 1327245, at *8 (S.D.N.Y.
11

Mar. 31, 2011). As the House Report on the Remedies Act notes, civil penalties
are “necessary for the deterrence of securities law violations that otherwise may
provide great financial returns to the violator.” H.R. Rep. No. 101-616, at 1384
(1990). In determining whether to impose civil penalties, courts may consider:
[i] the egregiousness of the defendant’s conduct, [ii] the
degree of the defendant’s scienter, [iii] whether the
conduct created substantial losses or the risk of
substantial losses to other persons, [iv] whether the
conduct was isolated or recurrent, and [v] whether the
penalty should be reduced in light of the defendant’s
demonstrated current and future financial condition.
Jadidian, 2011 WL 1327245, at *8.
3.

Permanent Injunctions

Finally, there is the remedy of injunctive relief. Courts may, in their
discretion, award permanent injunctive relief when “the defendant’s past
conduct indicates … that there is a reasonable likelihood of further violation in
the future.” SEC v. Commonwealth Chem. Sec., Inc., 574 F.2d 90, 99 (2d Cir.
1979) (internal quotation marks and citation omitted); see also SEC v. Monarch
Fund, 608 F.2d 938, 943 (2d Cir. 1979). The Second Circuit has established
that, in weighing whether to issue a permanent injunction, a court should
consider “the fact that defendant has been found liable for illegal conduct;
whether the infraction is an ‘isolated occurrence’; whether defendant continues
to maintain that his past conduct was blameless; and whether, because of his
professional occupation, the defendant might be in a position where future
violations could be anticipated.” Commonwealth Chem. Sec., Inc., 574 F.2d at
100. Courts may also consider “the degree of scienter involved.” SEC v.
12

Cavanaugh, 155 F.3d 129, 135 (2d Cir. 1998) (internal quotation marks and
citation omitted).
B.

Analysis
1.

Disgorgement in the Amount of $450,000 and Prejudgment
Interest in the Amount of $121,039 Are Warranted

The SEC requests disgorgement of the proceeds in the amount of
$450,000. It does not seek the total proceeds received from investors in this
fraudulent scheme — $1.95 million — in light of a recent Supreme Court
decision making clear that SEC claims for disgorgement are subject to the
five-year limitations period set forth in 28 U.S.C. § 2462. See Kokesh v. SEC,
137 S. Ct. 1635 (2017). In this case, the only investments that were
conclusively shown to have been made within the five-year limitations
period — between December 20, 2009, and December 20, 2014 — are those
from Jae Duk Kim and Hee Rak Kim. Yu made her initial investment of
$500,000 on December 9, 2009; her second investment of $500,000 on
December 14 and 15, 2009; and her third investment of $500,000 “[s]ometime
after December 15, 2009,” though the Court cannot, on the record before it,
determine with certainty when that investment was made. Jankovic, 2017 WL
1067788, at *3. Accordingly, the SEC does not seek disgorgement of any of
Yu’s investments. It only seeks disgorgement of the $300,000 investment that
Jae Duk Kim made on December 23, 2009, and the $150,000 investment that
Hee Rak Kim made in March 2010. It argues that Jankovic should be jointly
and severally liable with Premiere and Jerry Jankovic, whom the Court has
already ordered to disgorge $950,000 in connection with this fraudulent
13

scheme. (Dkt. #35, 36).
Jankovic claims that disgorgement in the amount of $450,000 would be
“improper and excessive.” (Def. Opp. 3). He notes that the total amount that
he personally received within the five-year statute of limitations period is
$57,000. (Id. at 3-4). He further submits that he “was not the primary bad
actor and was not responsible for raising all of the funds for Premiere from
investors,” and that “his conduct pales in comparison to that of his father Jerry
Jankovic and Sandra Dyche.” (Id. at 4). Jankovic further claims that he “did
not control Premiere” and, for this reason, it would be unfair to order
disgorgement of any amount beyond his personal profits ($57,000). (Id. at 4).
The Court rejects entirely Jankovic’s arguments. It has already found
that Jankovic was culpable; that he was one of the principal authors of the
PIM; that he served as Premiere’s CEO during the relevant time period; that he
was a principal speaker at the Investors Meeting; and that he was a primary
actor in the fraudulent scheme to misappropriate investors’ funds. Jankovic,
2017 WL 1067788, at *6, 11-12. The Court further notes that, under
controlling precedent, it may disgorge not just the amount of personal profits
but rather “the full amount of the ‘proceeds’ received from investors.” SEC
v. Tourre, 4 F. Supp. 3d 579, 590 (S.D.N.Y. 2014) (citing Manor Nursing Ctrs.,
458 F.2d at 1103-04); see also SEC v. Murray, No. 05 Civ. 4643 (MKB), 2013
WL 839840, at *2 (E.D.N.Y. Mar. 6, 2013) (“[W]here, as here, a defendant uses
an entity as the vehicle for his or her fraud, the court may use that entity’s
profits as a measure of the appropriate disgorgement.”). Because Jankovic
14

failed to notify Yu that her funds were being misappropriated, and because he
failed to conduct even basic diligence to confirm the accuracy of information in
the PIM and Certificate of Ownership, the Court finds no reason to limit
disgorgement to Jankovic’s personal profits. Instead, it holds Jankovic jointly
and severally liable with Premiere and Jerry Jankovic for the $450,000 in
proceeds received within the limitations period.
For the same reasons, the Court grants the SEC’s request for
prejudgment interest in the amount of $121,039, which figure was calculated
using the rate employed by the Internal Revenue Service (the “IRS”) for
underpayment of taxes. Jankovic, along with Premiere and Jerry Jankovic,
engaged in a scheme to defraud the public. Jankovic did in fact defraud three
investors who lost $1.95 million. At a minimum, Jankovic was negligent in
allowing the fraud to take place. Jankovic, Jerry Jankovic, and Premiere
should not be allowed to benefit from the time value of money on their unlawful
gains. Therefore, prejudgment interest that deprives Jankovic of the time value
of those gains is warranted.
2.

A Civil Monetary Penalty in the Amount of $57,000 Is
Appropriate

The SEC also requests that the Court impose a first-tier civil monetary
penalty against Jankovic. (SEC Br. 7-11). First-tier penalties are the lowest
level under Securities Act Section 20(d), and, unlike second- and third-tier
penalties, do not require a showing of “fraud, deceit, manipulation, or
deliberate or reckless disregard of a regulatory requirement.” Compare 15
U.S.C. § 77t(d)(2)(A), with 15 U.S.C. § 77t(d)(2)(B)-(C). The purpose of these
15

penalties is to create financial disincentives to participating in fraudulent
schemes like the one Jankovic, Jerry Jankovic, and Premiere engaged in here.
The size of the penalty is to be “determined by the court in light of the facts and
circumstances.” 15 U.S.C. § 77t(d)(2)(A). As noted, in determining the
appropriate civil penalty, the Court considers:
[i] the egregiousness of the defendant’s conduct; [ii] the
degree of the defendant’s scienter; [iii] whether the
conduct created substantial losses or the risk of
substantial losses to other persons; [iv] whether the
conduct was isolated or recurrent; and [v] whether the
penalty should be reduced in light of the defendant’s
demonstrated current and future financial condition.
Jadidian, 2011 WL 1327245, at *8.
The facts and circumstances of this case, weighed against the relevant
factors, compel this Court to grant the SEC’s request for a first-tier penalty in
the amount of $57,000, equivalent to the total proceeds that Jankovic
personally obtained within the limitations period. This Court’s prior ruling that
Jankovic violated Sections 17(a)(2) and (3) of the Securities Act establishes the
predicate for civil monetary penalties. See, e.g., SEC v. Todt, 7 F. App’x 98, 99
(2d Cir. 2001) (summary order) (affirming civil monetary penalties for violations
of Section 17(a)). More to the point, the Court’s earlier findings show that
Jankovic’s conduct was egregious. To begin, the “lies” in the PIM, a document
that Jankovic authored, “were legion” and “not [mere] puffery.” Jankovic, 2017
WL 1067788, at *11. They made Premiere appear legitimate, which it was not.
Id. In addition, although Jankovic “knew that only one-third of the $1,500,000
Yu believed she invested in Premiere was actually invested in the company,” he
16

“fail[ed] to explain this to Yu, or ensure that Dyche did.” Id. at *16. And after
learning that nobody else at Premiere had told Yu that most of her investment
was not being used for their stated purpose, Jankovic “did nothing to pursue
this issue further.” Id. Finally, Jankovic then executed a Certificate of
Ownership that confirmed Yu’s 0.60% interest in Premiere, which conduct only
reinforced the earlier misstatements made by Jankovic and others.
The Court’s decision to impose a civil monetary penalty is further
justified because (i) Jankovic’s negligence contributed to substantial losses to
Yu, Jae Duk Kim, and Hee Rak Kim, who collectively invested $1.95 million
based at least in part on Jankovic’s misconduct, and (ii) his misconduct
extended over a period of many months. Jankovic’s misconduct included
misrepresentations in the PIM and at the Investors Meeting on December 22,
2009, and continued until at least March 2010, when Hee Rak Kim invested
$150,000 based in part on representations made by Jankovic. Finally,
although Jankovic claims that his “poor financial condition should mitigate any
civil penalty imposed on him” (Def. Opp. 8), he fails to offer documentary
evidence of any financial constraints, fails to consider future earning capability,
and relies exclusively on his own declaration filed in opposition to the SEC’s
motion (see Dkt. #76-1, at ¶¶ 2-3). As sister courts in this District have held,
“claims of financial hardship — presented only in affidavits from defendants
themselves, and not considering future earning capability — are insufficient to
outweigh the appropriateness of a penalty.” SEC v. Forest Res. Mgmt. Corp.,
No. 09 Civ. 903 (JSR), 2010 WL 2077202, at *2 (S.D.N.Y. May 18, 2010).
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3.

The Court Permanently Enjoins Jankovic from Violating
Sections 17(a)(2) and (3) of the Securities Act

Congress authorized courts to issue injunctive relief “to proscribe future
violations of federal securities laws.” SEC v. Cavanagh, 155 F.3d 129, 135 (2d
Cir. 1998). To determine whether to issue an injunction, courts assess the
likelihood of future violations, including by weighing the following factors:
the fact that defendant has been found liable for illegal
conduct; the degree of scienter involved; whether the
infraction is an isolated occurrence; whether defendant
continues to maintain that his past conduct was
blameless; and whether, because of his professional
occupation, the defendant might be in a position where
future violations could be anticipated.
Commonwealth Chem. Sec., Inc., 574 F.2d at 100 (internal quotation marks
omitted). Scienter is not required for negligence-based claims, like those
brought under Sections 17(a)(2) and (3) of the Securities Act. First Jersey Sec.,
Inc., 101 F.3d at 1467.
In the previous section, the Court addressed most of these factors. It
noted that this Court has previously held Jankovic liable for violating
Sections 17(a)(2) and (3) of the Securities Act. It further held that the
infraction was not an isolated incident, but rather spanned from at least
December 2009 until March 2010, and included numerous oral and written
“lies” that “lent to Premiere an imprimatur of legitimacy [and] … made Premiere
appear legitimate when, in fact, it was not.” Jankovic, 2017 WL 1067788,
at *11. And the Court found that Jankovic’s negligence was egregious, even if
the Court could not find as a matter of law that Jankovic had acted with
scienter.
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The only factors that the Court has yet to assess are whether Jankovic
continues to maintain that his past conduct was blameless, and whether
Jankovic, because of his occupation, might be in a position to violate again in
the future. Both militate in favor of an injunction. Though Jankovic does not
maintain that his conduct was entirely blameless, he continues to minimize his
role in the fraudulent scheme and makes only perfunctory statements
regarding his own culpability. The Court has already held that Jankovic failed
“to disclose to Yu the information he knew about Dyche’s plan for Yu’s
investment,” and that he “also made affirmative misstatements to Yu … [that]
erroneously assured Yu that Premiere had upheld its end of a $1,500,000
bargain.” Jankovic, 2017 WL 1067788, at *13. Yet Jankovic focuses almost
exclusively on others’ conduct, noting that his “culpability pales in comparison
to his father and Dyche,” and that he “was not the primary bad actor and was
not responsible for raising all of the funds for Premiere from investors.” (Def.
Opp. 1, 4). Similarly, although the Court has already found that “[t]here are
many reasons to doubt [Jankovic’s] reliance defenses,” Jankovic, 2017 WL
1067788, at *13, Jankovic reasserts them with undiminished vigor, asserting
that, “[t]hroughout the entirety of his activities at Premiere John Jankovic
relied on his father Jerry Jankovic (who was Premiere’s Chairman) for
information and guidance” (Def. Opp. 2). He insists that his conduct “was an
isolated occurrence and does not amount to a pervasive pattern … because
they were based on falsehoods perpetrated by other officers of Premier[e].” (Id.
at 7).
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Jankovic’s submissions do little to assuage the Court’s concerns
regarding the likelihood of future violations. To be sure, defendants are “‘not to
be punished because they vigorously contest the government’s accusations’”
and are not required “‘to behave like Uriah Heep in order to avoid injunctions.’”
SEC v. Johnson, No. 03 Civ. 177 (JFK), 2006 WL 2053379, at *6 (S.D.N.Y
July 24, 2006) (quoting SEC v. First City Fin. Corp., 890 F.2d 1215, 1229 (D.C.
Cir. 1989)). Yet Jankovic’s statements, particularly those made after the Court
explicitly faulted him for making numerous misstatements and omissions that
led Yu, Jae Duk Kim, and Hee Rak Kim to lose nearly $2 million, suggest that
he has not absorbed the seriousness of his misconduct or the gravity of the
harm caused. Jankovic continues to downplay his own negligence and shift
blame onto others, and he does not evince the slightest concern for the
investors that he, Jerry Jankovic, and Premiere defrauded. Accordingly, this
factor weighs in favor of an injunction.
In addition, the Court finds that, because of his occupation, Jankovic
would be in a position to violate again in the future. As the SEC rightly notes,
Jankovic “has an MBA from the University of Michigan”; “[holds] himself out as
having nearly 20 [years] of finance, project and strategy leadership experience”;
“is in his early forties and has decades remaining in his career”; and “has a
track record of starting companies, including a consulting company that
compiled information for the Premiere Power PIM, and an oil and gas startup,
as well as Premiere Power itself.” (SEC Br. 12 (internal quotation marks
omitted)). In light of these facts, the Court finds that it is likely that Jankovic
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again would find himself in a position where he could violate Sections 17(a)(2)
and (3) of the Securities Act.
Jankovic seeks to convince the Court that his negligence “was merely an
isolated occurrence” and “was a result of [his] failure … to verify the statements
made to him by officers at Premier[e].” (Def. Opp. 10). He suggests that,
because he is now estranged from his father, there is little chance that he will
engage in similar misconduct in the future. (Id. at 2, 8). But even if the Court
were to accept Jankovic’s reliance defenses — about which the Court has
already expressed grave concerns — it would still be unconvinced that
Jankovic is unlikely to reoffend. For months after learning that at least
$500,000 of Yu’s investment had been misappropriated, and even after he
learned that Dyche had not alerted Yu to the same, Jankovic still failed to
reach out to Yu or verify the veracity of statements contained in the PIM. To
the contrary, Jankovic issued a Certificate of Ownership that perpetuated the
fraudulent scheme. His misconduct was hardly an isolated occurrence, and
this Court is unconvinced that his misconduct stemmed entirely from the trust
he placed in others at Premiere.
4.

An Injunction Prohibiting Jankovic from Soliciting or
Accepting Funds in an Unregistered Securities Offering Is
Unwarranted

The last remedy that the SEC seeks is a permanent injunction against
Jankovic from directly or indirectly soliciting or accepting funds from any
person or entity in an unregistered offering of securities. The SEC argues that
the injunction “is narrowly tailored to prevent precisely the kind of conduct by
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Jankovic that harmed investors in this case.” (SEC Br. 13). The Court
disagrees.
Jankovic was found liable for negligence-based violations of
Sections 17(a)(2) and (3) — no more, no less. The Court’s injunction against
Jankovic prohibiting violations of Sections 17(a)(2) and (3) of the Securities Act
is narrowly tailored to the conduct that harmed investors in this case. The
SEC’s request for a permanent injunction prohibiting Jankovic from raising
funds would go much further. It would enjoin not just negligence-based
conduct, but also conduct that is devoid of any wrongdoing. It is worth
remembering here that the Court declined to find as a matter of law that
Jankovic acted with scienter or reckless disregard for the truth, even if the
issue “present[ed] a very close question.” Jankovic, 2017 WL 1067788, at *13.
An injunction against soliciting funds might well be appropriate in a case
where the defendant is found to have acted intentionally or with reckless
disregard for the truth. Such culpable conduct calls for a broad injunction.
But it is inappropriate here, where Jankovic has only been found to have acted
negligently.
In an effort to persuade the Court to issue a conduct-based injunction
against Jankovic, the SEC notes that the Court has already issued the same
injunction against Jankovic’s father Jerry. Yet the SEC was awarded a default
judgment against Jankovic’s father on all claims, including the scienter-based
claims. The same cannot be said for the SEC’s scienter-based claims against
Jankovic. And the SEC has cited no cases or other authority that convinces
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the Court that a violation of Sections 17(a)(2) and (3) warrants such a broad
injunction, particularly where the Court has issued a more narrow injunction
specifically prohibiting future violations of Sections 17(a)(2) and (3).
Accordingly, the Court declines to issue a permanent injunction prohibiting
Jankovic from directly or indirectly soliciting or accepting funds from any
person or entity in an unregistered offering of securities.
CONCLUSION
For the reasons cited above, the SEC’s requests for disgorgement in the
amount of $450,000, prejudgment interest in the amount of $121,039, a civil
money penalty in the amount of $57,000, and a permanent injunction
prohibiting Jankovic from violating Sections 17(a)(2) and (3) of the Securities
Act are GRANTED. The SEC’s request for an injunction against Jankovic from
soliciting or accepting funds from any person or entity in an unregistered
offering of securities is DENIED.
The Court understands that this Order may affect the parties’ views on
the need to adjudicate the remaining claims in this case. For this reason, the
Court hereby ADJOURNS sine die the jury trial previously scheduled to start
on February 20, 2018. The parties are ORDERED to file a joint letter on or
before February 9, 2018, advising the Court whether they still intend to
proceed to trial and suggesting a revised trial schedule as necessary.
SO ORDERED.
Dated:

January 4, 2018
New York, New York

__________________________________
KATHERINE POLK FAILLA
United States District Judge
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