Securities and Exchange Commission v. Rashid

Filing 211

FINDINGS OF FACT AND CONCLUSIONS OF LAW: The Court finds that the SEC proved by a preponderance of the evidence that Rashid violated section 206(2) of the Advisors Act. Rashid shall be permanently enjoined from any and all future violations of sectio n 206. Rashid shall separately be assessed a civil penalty of $7,500 for each of the thirty-two violations proved at trial, in a total amount of $240,000. The SEC shall file a Proposed Final Judgment within seven days. (Signed by Judge P. Kevin Castel on 9/23/2020) (jwh)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
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SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
-against-

17-cv-8223 (PKC)
FINDINGS OF FACT
AND CONCLUSIONS OF LAW

MOHAMMED ALI RASHID,
Defendant.
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CASTEL, U.S.D.J.
Defendant Mohammed Ali Rashid is a former senior partner at the private-equity
firm Apollo Management, L.P. (“Apollo” or the “Company”). Plaintiff Securities and Exchange
Commission (“SEC”) asserts that Rashid fraudulently claimed that personal expenses were
business expenses and these expenses were thereafter paid by private-equity funds advised by
Apollo and Rashid. At trial, the SEC proved that Rashid was reimbursed for personal expenses
that included a New Year’s trip to Brazil, a friend’s bachelor party and wedding, a flight to the
Super Bowl and numerous dinners with friends and family at high-end Manhattan restaurants.
The SEC urges that Rashid’s submission of false expense reports violates sections 206(1) and (2)
of the Investment Advisers Act of 1940 (the “Advisers Act”), 15 U.S.C. §§ 80b-6(1), (2), or,
alternatively, that he aided and abetted violations of the Advisers Act pursuant to sections 209(d)
and (f), 15 U.S.C. §§ 80b-9(d), (f).
The Court presided at a nine-day bench trial at which 33 witnesses testified. The
Court now finds that the SEC proved by the preponderance of the evidence that Rashid engaged

in a practice of knowingly and falsely submitting personal expenses as business expenses and
was recklessly indifferent to whether these false business expenses were charged to the funds he
advised. The Court finds that: (1) Rashid knowingly, repeatedly and falsely claimed that personal
expenses were business expenses; (2) Rashid, as a senior partner of Apollo, acted with reckless
indifference in failing to ensure that none of these false business expenses were charged to the
funds he advised; and (3) the false business expenses, in fact, were charged to the funds, thereby
operating as a fraud upon them. These findings lead to the conclusion that Rashid violated
section 206(2) of the Advisers Act. The Court will enter a permanent injunction against Rashid’s
future violations of section 206, and assess a first-tier civil penalty of $7,500 for each of his
thirty-two separate violations that the SEC proved at trial.
OVERVIEW OF THE ADVISERS ACT.
“A fundamental purpose” in Congress’s passage of the Advisers Act “was to
substitute a philosophy of full disclosure for the philosophy of caveat emptor and thus to achieve
a high standard of business ethics in the securities industry.” SEC v. Capital Gains Research
Bureau, Inc., 375 U.S. 180, 186 (1963). “Section 206(1) and 206(2) of the [Investment
Advisers] Act set ‘federal fiduciary standards to govern the conduct of investment advisers’ and
impose ‘enforceable fiduciary obligations’ on those advisers.” SEC v. Penn, 225 F. Supp. 3d
225, 236 (S.D.N.Y. 2016) (Caproni, J.) (quoting Transamerica Mortg. Advisors, Inc. (TAMA) v.
Lewis, 444 U.S. 11, 17 (1979)). “Given the ‘delicate fiduciary nature of . . . [the] investment
advisory relationship,’ Section 206 places ‘an affirmative duty’ on advisers to act with the
‘utmost good faith, and [with] full and fair disclosure of all material facts, as well as an
affirmative obligation to employ reasonable care to avoid misleading.’” SEC v. Gruss, 245 F.

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Supp. 3d 527, 591 (S.D.N.Y. 2017) (Sweet, J.) (quoting Capital Gains Research Bureau, Inc.,
375 U.S. at 194).
Section 206(1) makes it unlawful for an investment adviser to knowingly and
intentionally defraud a client, whereas section 206(2) makes it unlawful to engage in conduct
that “operates as a fraud” on a client. Section 206(1) states that: “It shall be unlawful for any
investment adviser by use of the mails or any means or instrumentality of interstate commerce,
directly or indirectly – (1) to employ any device, scheme, or artifice to defraud any client or
prospective client . . . .” 15 U.S.C. §§ 80b-6(1). Section 206(2) makes it unlawful “to engage in
any transaction, practice, or course of business which operates as a fraud or deceit upon any
client or prospective client . . . .” Id. § 80b-6(2).
Because of the distinction between intentional fraud and conduct that “operates as
a fraud,” liability under sections 206(1) and (2) have different state-of-mind requirements. A
defendant may be liable under section 206(2) based on proof of negligence. See, e.g., SEC v.
DiBella, 587 F.3d 553, 569 (2d Cir. 2009) (“[A]ny transaction that functions or otherwise results
in a fraud is punishable under this provision [section 206(2)]. Thus, the Advisers Act holds
liable negligent acts.”). To be liable under section 206(1), a defendant must have acted with
scienter. Dembski v. United States Sec. & Exch. Comm’n, 726 Fed. App’x 841, 844 (2d Cir.
2018) (“Scienter is required for a Section 206(1) violation but need not be found for a violation
of Sections 206(2) or (4).”) (summary order) (citing In the Matter of David Henry Disraeli &
Lifeplan Assocs., Inc., SEC Release No. 8880 (Dec. 21, 2007)); accord SEC v. Moran, 922 F.
Supp. 867, 896-97 (S.D.N.Y. 1996); SEC v. Treadway, 430 F. Supp. 2d 293, 338 (S.D.N.Y.
2006) (“Section 206(1) requires fraudulent intent, while § 206(2) requires only negligence.”)
(Marrero, J.). This is because the language of section 206(1) “is identical in all relevant

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respects” to section 17(a)(1) of the Securities Act of 1933, 15 U.S.C. § 17q(a), which has a wellestablished scienter requirement.” Moran, 922 F. Supp. at 896 (citing Aaron v. SEC, 446 U.S.
680, 697 (1980)). By contrast, when Congress prohibited activity that “operates as a fraud or
deceit,” as in section 206(2), it did not require proof of intent to injure or defraud. See, e.g.,
Moran, 922 F. Supp at 897.
Thus, in order to prove the section 206(1) claim, the SEC must demonstrate by a
preponderance of the evidence that in submitting his expense reports, Rashid employed a
fraudulent scheme against his clients and did so with scienter. To prove the section 206(2)
claim, the SEC need only demonstrate that Rashid’s submissions operated as a fraud or deceit
upon his clients, and that his state of mind was at least one of negligence.
The Court finds that the SEC failed to prove by a preponderance of the evidence
that Rashid acted with the scienter required of section 206(1) in employing a device, scheme or
artifice to defraud a fund. To be clear, the record amply demonstrates that Rashid intentionally
submitted false expense reports for the purpose of obtaining reimbursement for his personal
expenses. But the SEC failed to prove that Rashid had actual knowledge that the funds paid his
expenses, or that his recklessness was of a nature that satisfies the scienter required under the
federal securities laws. Rashid’s false expense submissions listed research codes associated with
various portfolio companies. Apollo itself then directed the funds who owned those companies
to pay the entirety of Rashid’s reimbursements. While Rashid lied on his expense reports and
was recklessly indifferent about the source of his reimbursements, significant responsibility lies
with Apollo.
The SEC urges that, in the alternative, Rashid is liable under the Advisers Act
because he aided and abetted the fraudulent actions of his employer, Apollo. 15 U.S.C. § 80b-

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9(f). To prove that Rashid is liable for aiding and abetting a violation of section 206(1) or (2),
the SEC must prove by a preponderance of the evidence “(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.” DiBella, 587 F.3d at 566 (quotation marks
omitted). “[T]o satisfy the ‘substantial assistance’ component of aiding and abetting, the SEC
must show that the defendant in some sort associated himself with the venture, that he
participated in it as in something that he wished to bring about, and that he sought by his action
to make it succeed.” SEC v. Apuzzo, 689 F.3d 204, 206 (2d Cir. 2012) (quotation marks and
alterations omitted). The same lack of knowledge and intent that dooms the direct violation of
section 206(1) also dooms the aider and abettor claim.
However, as noted, the Court finds that Rashid knowingly, falsely and repeatedly
claimed that his personal expenses were business expenses and these false business expenses
were, in fact, paid by the private-equity funds that he advised. He was recklessly indifferent to
the identity of the entity who paid for these fake business expenses. Repeatedly, he caused or
acquiesced in the entry of internal project codes corresponding to a portfolio company in which a
fund held a large equity position and, thus, it was reasonably foreseeable to him that these phony
business expenses would be charged to a fund. His knowing and deliberate actions had the effect
of operating as a fraud on the funds. But even if his actions had been merely negligent, i.e., he
failed to use reasonable care to ensure that his knowingly false business expenses were not
charged to the funds, it nevertheless would support a finding that he violated section 206(2).

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FINDINGS OF FACT
1.

Rashid received a bachelor’s degree from Georgetown University and an

MBA from Stanford University. (Rashid Dec. ¶ 1.) 1 He was employed at Apollo from 2004
until February 2014, during which time he was promoted to the job titles of partner and senior
partner. (Fact Stip. ¶¶ 1, 3.) 2
2.

During his time at Apollo, Rashid was viewed as a “very hard worker”

who put in long hours. (Tr. 14, 479.) His job primarily consisted of evaluating companies for
possible investment, with his expertise principally focused on the metals and mining industries.
(Rashid Dec. ¶ 2; Tr. 173.) His work required extensive travel. (Rashid Dec. ¶ 2.) Apollo
ultimately entered into a separation agreement with Rashid, effective February 28, 2014. (Fact
Stip. ¶ 21; DX 34.)
3.

Apollo is a private-equity firm registered as an investment adviser with the

SEC, and as of 2018, it managed more than $270 billion in assets. (Fact Stip. ¶¶ 1, 6; Kelly Dec.
¶ 5.) Apollo manages and advises individual private investment funds formed for the purpose of
making private equity investments. (Fact Stip. ¶¶ 7-11.) Those funds are limited partnerships,
which are managed by an Apollo-controlled general partner. (Id.; Kelly Dec. ¶ 8.) For each
fund relevant to this case, a general partner controlled by Apollo had exclusively authority over
that fund’s “management, operation and control” as well as “its business and the formulation of
investment policy.” (Fact Stip. ¶¶ 7-11.). Each fund’s general partner, in turn, delegated its
authority to an Apollo-formed management company. (Fact Stip. ¶¶ 7-11.) The management

The citation to evidence in the course of these findings is for illustrative purposes. It does not intended to imply
that it is the only evidence that supports a finding. If a finding of fact is incorrectly labelled as a conclusion of law or
vice versa, it should be considered under the proper label.
2
Citations to “Fact Stip.” are to the Stipulations of Fact found in the parties’ Joint Pretrial Order (“JPTO”). (Docket
# 164.)
1

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companies were, in fact, owned and operated by Apollo and were distinct from the funds they
managed. Rashid was among the “private equity professionals” who managed each of the
following Apollo-controlled funds: Apollo Investment Fund III, LP (“Fund III”), Apollo
Investment Fund V, L.P. (“Fund V”), Apollo Investment Fund VI, L.P. (“Fund VI”), Apollo
Investment Fund VII, L.P. (“Fund VII”), and Apollo Natural Resource Partners, L.P. (“ANRP”)
(collectively, the “Relevant Funds”). (Fact Stip. ¶¶ 7-11.) Each of the Relevant Funds was
governed by a limited partnership agreement that delineated the rights and obligations of the
fund and its Apollo-controlled general partner, including issues related to employees’ fees and
expenses. (PX 150, 152, 154-55, 185.)
4.

Generally, Apollo’s private-equity funds invest in distressed or

undervalued companies. (Fact Stip. ¶ 13.) Companies acquired by funds are known as
“portfolio companies.” (Fact Stip. ¶ 13.) The funds took large, often controlling, positions in
portfolio companies, meaning that they were a part of the fund’s portfolio of investments. (See,
e.g., Tr. 513, 536.) Rashid monitored these portfolio companies and implemented plans to
improve their financial performance. (Compl’t ¶ 27; Answer ¶ 27.) Rashid sat on the board of
directors of three publicly-traded portfolio companies: Metals USA, Realogy Holdings
Corporation (“Realogy”) and Quality Distribution, Inc. (“QDI”). (Fact Stip. ¶¶ 15-16.) Each of
these three portfolio companies figured prominently in Rashid’s expense submissions. Rashid’s
work relating to a portfolio company was in reality work for the benefit of the fund holding a
large equity stake in the portfolio company.
5.

Rashid does not dispute that his role at Apollo falls within the statutory

definition of an “investment adviser.” The Advisers Act defines an “investment adviser” as “any
person who, for compensation, engages in the business of advising others, either directly or

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through publications or writings, as to the value of securities or as to the advisability of investing
in, purchasing, or selling securities, or who, for compensation and as part of a regular business,
issues or promulgates analyses or reports concerning securities . . . .” 15 U.S.C.§ 80b-2(a)(11).
6.

Rashid admits in his Answer that he was a member of Apollo’s private

equity investment group and that he advised Apollo’s private-equity funds. (Compl’t ¶ 25;
Answer ¶ 25.) Specifically, he evaluated and recommended investments to Apollo’s private
equity funds and monitored investment performances. (Compl’t ¶ 25; Answer ¶ 25.) Rashid
monitored the portfolio companies and implemented plans to improve their financial
performance. (Compl’t ¶ 27; Answer ¶ 27.) He was a “principal point of contact” between
Apollo’s private-equity funds and their portfolio companies. (Compl’t ¶ 27; Answer ¶ 27.)
Rashid was compensated for providing investment advice to Apollo’s private-equity funds and
received fees for sitting on the corporate boards of certain portfolio companies. (Compl’t ¶ 28;
Answer ¶ 28.)
7.

The Court finds that Rashid’s was an investment adviser within the

meaning of the Advisers Act to Fund III, Fund V, Fund VI, Fund VII and the ANRP. His work
in monitoring and advising portfolio companies was integral part of his service as investment
adviser to the funds.
8.

Apollo tracked employee expenses using a software application called

PeopleSoft. PeopleSoft is a data-entry platform, through which Apollo personnel submitted
details about their travel expenses. Once entries were finalized, PeopleSoft generated an
electronic report, which was then forwarded to an Apollo expense manager for review and
approval.

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9.

Apollo employees were issued American Express cards for the purpose of

covering business expenses. (Dunayer Dec. ¶ 5.) Expenses incurred through Apollo’s corporate
American Express card were automatically loaded into PeopleSoft, whereas out-of-pocket
expenses were entered manually. (Dunayer Dec. ¶¶ 5, 6, 12.) For American Express charges,
PeopleSoft automatically populated on to a spreadsheet each expense’s date, merchant and
amount charged, and allowed them to be organized chronologically or by event. (See, e.g., PX
141; Dunayer Dec. ¶ 12.) The employee, almost always working through his or her
administrative assistant, was required to identify the category of expense, its description and
where to allocate the expense. (Dunayer Dec. ¶ 14.)
10.

An exemplar of one of Rashid’s completed PeopleSoft expense reports is

contained at Plaintiff’s Exhibit 207. It includes columns setting forth the date of each expense;
“Expense Type,” which categorized expenses as, for example, “Hotel & Lodging” or “Meals –
Clients”; Merchant (e.g., “W Hotels Sheraton Cap”); a description of the expense (e.g., “Dinner
with lawyers while working late on Metals USA”); the amount of the expense; and the
department (e.g., “Private Equity”). (PX 207.)
11.

The final column is headed “Investment,” and includes a numeric code

and the name of an entity. (PX 207.) As will be discussed at length, the numeric code entered in
this column guided the later determination of where an expense would be billed for
reimbursement. During trial, witnesses variously referred to the code as a “project code,” “deal
code,” “investment code” or “allocation code.” The Court principally will use the term “project
code.” Apollo maintained a document that listed what appears to be well over 2,000 project
codes. (PX 177.) For instance, an expense relating to the portfolio company Metals USA was
denoted through the project code 12700. (PX 177.) The “Investment” column of the finalized

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expense report at Exhibit 207 contains entries with the project code 13500 next to “Quality
Distribution, Inc.” and the project code 19127 next to “Private Equity Inv.” (PX 207.) The
PeopleSoft data-entry page prominently included a heading, “PLEASE, ENTER PROPER
INVESTMENT CODE FOR EACH EXPENSE LINE.” (PX 87 at 56.)
12.

Once all expense information was complete, PeopleSoft automatically

generated a report. (Dunayer Dec. ¶ 14.) The report and any attached receipts were e-mailed to
Apollo Expense Manager Seth Dunayer, who reviewed and approved employee reports.
(Dunayer Dec. ¶ 14.)
13.

Apollo adopted and promulgated written policies and procedures for the

reimbursement of business expenses in 2009, 2011 and 2013. (PX 4, 102, 103.) As an example,
the Apollo Global Management Travel & Expense Reimbursement Policies and Procedures (the
“Reimbursement Policies”), which became effective in 2011, is twelve single-space pages in
length. (PX 103.) It provided in part that Apollo would reimburse employee expenses “incurred
while performing their duties” so long as “the expenses are necessary, reasonable and
appropriately documented.” (PX 103 § 1.1.) Where relevant, employees were to submit
documentation as to the amount of the expense, date and place, type of entertainment, names of
others in attendance and the specific business purpose of the meeting. (PX 103 § 2.2.) The
Reimbursement Policies included guidance as to different types of reimbursable expenses,
including transportation, lodging, business meals, entertainment and business gifts. (PX 103 §§
4-7.) Certain categories of expenses were expressly listed as not subject to reimbursement,
including spa charges, clothing and “[e]xpenses without a specific business purpose and
explanation.” (PX 103 § 9.)

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14.

The policies of 2009 and 2013 are broadly similar. The 2009 guidelines

were less detailed, whereas the 2013 guidelines devoted several pages to guidance about the
reimbursement of flights, car services and lodging. (PX 4, 102.) However, none of the written
policies gave guidance to employees as to their selection of which entities to list in the project
code columns of their expense reports, or explained how reimbursements were collected.
15.

Apollo also promulgated written Codes of Ethics dated April 2009,

February 2010 and April 2011. (PX 175, 176, 90.) Each of these codes set forth employees’
duties as fiduciaries to Apollo’s private-equity funds, including “a general duty to act at all times
in their best interest,” and advised employees that they must comply with the Advisers Act. (PX
175 at 2, 176 at 2, 90 at 5.) As required of Apollo employees, Rashid filed a digital certification
that he had reviewed the 2011 Code of Ethics. (PX 91.)
16.

Apollo separately promulgated employee handbooks dated May 7, 2011

and January 1, 2012, which further described expense policies and procedures, and stated that
“[e]xpensing items that are not business related is a serious offense.” (PX 108 at 14; PX 92 at
38.) They stated that employees should use their corporate American Express cards for airline
bookings, lodging, meals and other business expenses. (Id.) The employee handbooks advised
that personnel should report out-of-pocket and American Express charges using the company’s
PeopleSoft application. (PX 92 at 38.)
17.

Three administrative assistants who worked with Rashid from January

2010 through June 2013 testified at trial. (PX 306, 307, 311.) Each used the PeopleSoft system
to prepare expense reports on Rashid’s behalf. (La Mons Dec. ¶ 7-8; Feehan Dec. ¶ 5, 16; Gatsik
Dec. ¶ 3, 8.) Each testified that charges to Rashid’s corporate American Express card were
automatically listed in PeopleSoft and that it was their responsibility to manually enter the

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business justification and project code for Rashid’s business expenses. (See, e.g., La Mons Dec.
¶¶ 11, 12.) When Rashid personally paid for a purported business expense, he gave the receipt to
his assistant, who uploaded it into PeopleSoft. (See, e.g., Feehan Dec. ¶ 16.) La Mons and
Feehan testified that they would seek information from Rashid as to the appropriate description
of expenses and the project code, and that they would sometimes consult his calendar entries.
(La Mons Dec. ¶¶ 13-15; Feehan Dec. ¶¶ 18-21.)
18.

Dunayer testified that in 2010, he approved certain expenses submitted by

Rashid, including a $180 charge to a vendor called La Contessa Inc., which was described as
“dinner with mgmt team for Realogy.” (Dunayer Dec. ¶ 17.) An administrative assistant who
worked with Rashid told Dunayer that La Contessa was a hair salon, not a restaurant, which
Dunayer then confirmed. (Dunayer Dec. ¶ 17.) Dunayer sought guidance from Apollo’s thenCFO, Eugene Donnelly, who instructed him to review Rashid’s expense reports for the preceding
six months. (Dunayer Dec. ¶ 17.)
19.

Dunayer determined that over the course of six months, Rashid submitted

fourteen personal expenses totaling $7,828.86. (Dunayer Dec. ¶ 18.) These included ten charges
to La Contessa that were described as meals with portfolio company personnel, a $1,900 charge
to a vendor named “Triple Crown Maffuci Stor” for a portfolio company research report, and
three charges to Citi Habitat II for research. (Dunayer Dec. ¶ 18.) Donnelly stated that he met
with Rashid in 2010 and told him that it was “unacceptable” to submit personal expenses as
business expenses. (Donnelly Dec. ¶ 9.) Donnelly states that Rashid agreed not to do so, and to
reimburse Apollo for amounts that were improperly disbursed to him. (Donnelly Dec. ¶ 9.)
Dunayer recalls that Donnelly described his meeting with Rashid as a “come to Jesus” moment
for Rashid. (Dunayer Dec. ¶ 19.)

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20.

Rashid disputes that Donnelly reprimanded him for his expense practices,

and contends that instead, Donnelly spoke to him in a hallway and told him to speak with
Dunayer about his expense reports. (Rashid Dec. ¶ 16.) Rashid testified that, prior to meeting
with Dunayer, he “had never seen any expense reports before they had been submitted.” (Rashid
Dec. ¶ 16.) Rashid states that he “was eager” to fix any misallocation, did not intend to allocate
personal expenses as business expenses, and immediately reimbursed Apollo for his personal
expenses. (Rashid Dec. ¶ 16.) At trial, Rashid repeatedly stated that he did not recall subsequent
conversations within Apollo about his expenses and denied knowledge as to the reimbursement
process, including the identities of controllers for individual private-equity funds. (Tr. 924-25.)
When asked whether he took any steps to ensure that his personal expenses were not being billed
to individual private equity funds, he answered, “I don’t believe I did.” (Tr. 933.)
21.

None of the falsely claimed business expenses in 2010 or before form the

basis for a finding a violation of section 206 of the Advisers Act. They were received into
evidence as possible bearing on Rashid’s state of mind, i.e. his knowledge, intent and the
absence of mistake, during the relevant limitations period.
22.

In mid-2012, Rashid’s expense practices were flagged for a second time,

after Gatsik and Dunayer learned that Rashid had attempted to expense $3,500 from the Beverly
Hills clothing store Ermenegildo Zegna and $400 in charges from Bliss Spa, with the explanation
that they were holiday gifts for portfolio company executives. (Dunayer Dec. ¶¶ 20-26.)
Donnelly testified that he confronted Rashid about his expenses, which Rashid disputes.
(Donnelly Dec. ¶ 11, 13; Rashid Dec. ¶ 16.) The Court credits Donnelly’s testimony on this point
and finds it to be more credible than that of Rashid.

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23.

Donnelly then directed a review of Rashid’s expenses over the previous

year, which revealed that Rashid had classified approximately $7,000 in personal expenses as
business expenses. (Donnelly Dec. ¶ 12.) This included reimbursement for airfare to fly Rashid
and his wife to Rio de Janeiro for a New Year’s trip. (Donnelly Dec. ¶ 12.)
24.

According to Donnelly, he spoke to Rashid and told him that it was

“completely unacceptable” to seek reimbursement for personal charges as business expenses.
(Donnelly Dec. ¶ 13.) Donnelly states that Rashid acknowledged that the expenses were
personal and asserted that they were submitted in error. (Donnelly Dec. ¶ 13.) Rashid agreed to
repay the expenses. (Donnelly Dec. ¶ 13.) In Rashid’s telling, he discussed the expenses with
Dunayer, and “immediately” agreed to pay for all personal expenses. (Rashid Dec. ¶ 16.)
25.

Dunayer testified that he met with Rashid, as did his supervisor Mona

Breed, who had the job title of Head of Shared Services at Apollo. (Dunayer Dec. ¶ 3.) As
recounted by Dunayer, Rashid acknowledged that his charges to Zegna and Bliss Spa were
personal in nature and not gifts for portfolio company executives. (Dunayer Dec. ¶ 27.)
Dunayer also testified that Rashid acknowledged that he sometimes submitted large numbers of
taxi receipts for reimbursement without attempting to discern whether the receipts were his own
or those of his girlfriend. (Dunayer Dec. ¶ 28.) Rashid subsequently paid Apollo $7,072.36 as
reimbursement for his personal expenses. (Dunayer Dec. ¶ 29.)
26.

In August 2012, Apollo retained the law firm Paul, Weiss, Rifkind,

Wharton & Garrison (“Paul Weiss”) to assist in a review of its firmwide expense-allocation
procedures. (DX 15.) In May 2013, it retained Paul Weiss to specifically review expenses
submitted by Rashid. (Finzi Dec. ¶ 5.) Paul Weiss, in turn, retained BDO Consulting (“BDO”)
to conduct a forensic review of Rashid’s expenses. (Finzi Dec. ¶ 27.)

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27.

Rashid retained the law firm Crowell & Moring to represent him during

the review. (Rashid Dec. ¶ 21.) Rashid testified that he wanted to “settle my dispute with
Apollo as quickly as possible and get back to working at Apollo.” (Rashid Dec. ¶ 21.)
28.

During the course of the Paul Weiss investigation, Rashid reviewed and

commented upon numerous expenses, including certain specific expenses that were in issue at
trial. In many instances, he classified certain expenses as personal in nature and agreed to repay
them. By Rashid’s count, he commented on more than 700 disputed expenses. (Rashid
Proposed Findings ¶¶ 82-85.) Rashid asserts that he was eager to resolve any expense disputes
and was willing to reimburse payments regardless of whether he considered them to be actually
personal in nature. (Id. ¶ 88.)
29.

After Rashid attended a July 1, 2013 meeting with Paul Weiss, Apollo

suspended Rashid with pay and placed him on leave. (Finzi Dec. ¶ 24.) Ultimately, Rashid
entered into a separation agreement with Apollo on January 8, 2014, with an effective date of
February 28, 2014. (DX 34.)
30.

At trial, the SEC came forward with evidence of thirty-two specific

incidents in which Rashid falsely described personal expenses as reimbursable business expenses
and submitted them for reimbursement from either a private-equity fund or a portfolio company.
These included expenses for airfare, hotels and restaurant meals. In each instance, Rashid’s
claimed business expenses were contradicted by contemporaneous e-mails or the testimony of
portfolio-company executives, each of whom credibly denied either their attendance at the event
or meal described, or else denied that there was a legitimate business purpose underlying the
expense. The SEC asserted that the thirty-two instances were merely exemplars used to
demonstrate the means and methods used by Rashid to charge personal expenses as business

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expenses.
31.

The Court finds that Rashid engaged in a pattern of repeatedly, knowingly

and falsely describing personal expenses as business expenses. This finding is based in
significant part on the Court’s assessment of the credibility of the SEC’s witnesses, the lack of
credibility of Rashid’s explanations, the email chains that were written at or about the time of the
events in question and the expense descriptions entered into PeopleSoft at Rashid’s direction or
with his acquiescence.
32.

Plaintiff’s Exhibit 111 collects the data that Rashid, through his assistants,

entered into PeopleSoft. It is a spreadsheet originally drafted as part of the investigation
conducted by Paul Weiss and BDO. The SEC and Rashid stipulated that certain factual
information contained in the spreadsheet, specifically including the descriptions of expenses,
accurately reflects Rashid’s entries into PeopleSoft. (Tr. 163-64.) The Court relies on Plaintiff’s
Exhibit 111 solely for factual information as to Rashid’s PeopleSoft entries, specifically
including transaction dates (column three), merchants (column four), long descriptions (column
five), expense types (column seven), expense allocations (column ten) and transaction amounts
(column twelve). In citing to the “BDO #” listed in Plaintiff’s Exhibit 111, the Court refers to
the line identifications listed in the exhibit’s second column.
33.

As will be discussed below, the Court does not place any evidentiary

weight on Plaintiff’s Exhibit 111 to the extent it recites conclusions reached by Paul Weiss
and/or BDO as to whether Rashid’s expenses were personal expenses or business expenses.
34.

The parties have stipulated that any violations of the Advisers Act

between June 13, 2011 and June 2013 fall within the limitations period. (JPTO at 2-3.) At trial,
the SEC adduced additional evidence that Rashid submitted false expense reports prior to the

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limitations period. The Court has limited its consideration of expense reports outside the
limitations period to their potential to shed light on Rashid’s state of mind during the limitations
period.
July 22 and 23, 2011 Charges for a Room and Meals in Montreal.
35.

Rashid submitted several travel expenses incurred in Montreal, Canada

over the weekend of July 22 and 23, 2011. (PX 111 at BDO # 1241, 1244, 1253.) These
expenses were charged to Rashid’s American Express corporate card as business expenses
related to a portfolio company named Labrador, and were described as “lunch with Tom Larsen
at Labrador” and two entries for “one night lodging in Montreal to meet with Labrador” for July
22 and 23, 2011. (Id.) The charges totaled $760.83 and were entered under the project codes
for LabCorp and Welspun, both of which were portfolio companies. (Id.)
36.

An e-mail chain dated Thursday, July 21, 2011, with the subject line

“Jason’s Bachelor Party,” reflects that Rashid was in Montreal that weekend in order to attend a
friend’s bachelor party. (PX 204.) An e-mail from a non-party inquired into “logistics for
dinners” and stated, “I would stay in Ali [Rashid] and Patrick’s room.” (PX 204.) That person
also stated, “Ali [Rashid] is back- stopping all costs for me.” (PX 204.) A later response stated,
“Going to be a great weekend.” (PX 204.) A separate e-mail chain, on which Rashid was
copied, referred to the attendees’ accommodations at the Hotel du Vogue, Montreal. (PX 226.)
Kevin M. Pierce, an expert in accounting retained by the SEC, testified that Hotel du Vogue did
business through LJC Development Corp., which was listed on Rashid’s expense report as the
vendor for his Montreal hotel expenses. (Tr. 647; PX 111 at BDO # 1244, 1253.)
37.

At trial, Rashid indicated confusion as to why one of the expenses was

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allocated to Welspun and not Labrador. 4 (Tr. 949.) He testified that the bachelor-party weekend
coincided with business in the region, including Friday meetings with personnel from companies
called Champion Minerals and Alderon Resources. (Tr. 1165-68.) Rashid could not recall
whether he submitted any expense for a restaurant meeting, and testified that he did not have
meetings on that Saturday. (Tr. 1168.) The Court also heard testimony from Jason Haim, who
described himself as a close friend to Rashid, and whose bachelor party was held that weekend.
(Tr. 1315-20.) Haim testified that Rashid attended some but not all of the events planned for that
weekend. (Tr. 1317.)
38.

The Court accepts that Rashid may have attended some business meetings

that Friday, but his submissions falsely described group bachelor party lodging on Friday and
Saturday nights as “lodging in Montreal to meet with Labrador.” (PX 111 at BDO # 1244,
1253.) Rashid conceded that he did not conduct business that Saturday and contemporaneous emails reflect a social purpose to the weekend portion of the trip.
39.

The Court finds by a preponderance of the evidence that Rashid knew the

expenses related to the Montreal bachelor party were personal expenses but knowingly and
falsely submitted them as business expenses.
November 2011 Charges for Expenses Related to Wedding Attendance.
40.

Rashid submitted numerous expenses in November 2011 related to airfare,

hotel rooms, meals, drinks and car services in Miami, Florida. (PX 111 at BDO #1442-43,
1454-64, 1466.) His expense reports stated that the expenses were incurred in connection with
work for Metals USA, with explanations referencing a “Metals USA meeting” and “metals usa
trip.” (Id.) For example, there was a charge of $110.84 arising from 2201 Collins Nightclub
Rashid testified that Labrador is a region with iron ore deposits, and indicated that Apollo was considering
investments in a number of companies in the region. (Tr. 1165.) Welspun was based in India. (Tr. 24.)

4

- 18 -

MA on November 3, 2011, described as “drinks in miami for metals usa meeting.” (Id. #
1458.) There were also three charges of $425 from VII MP Miami Hotel Owner for November
3, 4 and 5, 2011, described as “hotel in miami for metals usa meeting.” (Id. # 1454, 1460,
1463.) Rashid also submitted expenses of $921.75 and $674.70 for flights to and from
California for a “QDI meeting,” and listed QDI – Fund III as the reimbursable project. (Id.
1442-43.) In all, Rashid charged approximately $3,806.69 in business expenses from
November 3, 2011 through November 6, 2011.
41.

Rashid’s American Express billing statements include entries of October

29, 2011 for flights of $921.75 and $674.70 between New York City airports and Miami-area
airports. (PX 158B at 683, 685.) At trial, Rashid confirmed that his flights were between
Florida and New York for the wedding of his friend, Jason Haim, and not for a QDI meeting in
California. (Tr. 1040-42.) E-mails confirm that Haim’s wedding occurred on November 5,
2011 in Miami, which coincided with the hotel rooms that Rashid expensed from November 3
to 5. (PX 230.) Rashid also charged as a business expense a $143.09 meal of November 3,
2011 as “dinner in Miami for metals usa meeting” at Fontainebleau Resorts. (PX 111 at BDO
#1457; PX 158B at 686 (credit card expense of $143.09 at “Fontainebleau Hakkas Miami
Beach”).) An e-mail chain of October 30, 2011 between Rashid and friends discusses a dinner
reservation for Hakkasan restaurant, with Rashid stating, “Hakkasan is fantastic, actually
havent been to the one at Fontainbleu but that place is hot,” and a friend replying, “I feel
slightly lame for going to a chain, but it’s a european chain so I got over it.” (PX 231.) At
trial, Rashid agreed that none of the dinner attendees was affiliated with Metals USA. (Tr.
1046-47.)
42.

After Rashid submitted his business expenses for the Miami weekend, his

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administrative assistant inquired whether the expenses should actually be allocated to Metals
USA, and Rashid confirmed that they should because he “[h]ad to stay down there for Metals
USA for the weekend with Lourenco [Goncalves] so should be all work.” (Tr. 1048; PX 232.)
At trial, Rashid testified that Metals USA “was 30 minutes away” and that he had meetings
with Goncalves on Thursday and Friday that week. (Tr. 1050.) Rashid testified, “The
description here with respect to the trip was on me, yes.” (Tr. 1052.) He explained that he
“spent a good portion of” Thursday and Friday with Metals USA personnel, but that “I did not
have business that weekend that I recall, no.” (Tr. 1052.) Rashid acknowledged that he had
been “inaccurate” to claim that Metals USA work required him to stay in Miami through the
weekend. (Tr. 1053.)
43.

The Court accepts that Rashid may have attended some business meetings

on the Thursday and Friday of that week and incurred some legitimate business expenses as a
result. However, he acknowledged that he inaccurately identified his flights as being to
California for QDI business and inaccurately claimed that he needed to remain for the weekend
in order to meet with Goncalves. At the least, Rashid misrepresented a business purpose for
his weekend hotel room and Hakkasan dinner charge, and caused or acquiesced in the entry of
the QDI project code, even though QDI played no role in that trip.
44.

The Court finds by a preponderance of the evidence that Rashid falsely

submitted personal expenses related to the Miami wedding as business expenses relating to
QDI.
August 2011 Charge for San Francisco Air Fare.
45.

Rashid submitted a business expense of August 2, 2011 for $1,866

allocated to Metals USA with the description “JFK to SFO – Metals USA.” (PX 111 at BDO #

- 20 -

1270.) However, contemporaneous e-mails reflect that the purpose of that trip was to attend to
personal issues following a death in the family of Rashid’s wife. In an e-mail chain dated
August 2, 2011, Rashid wrote to friends stating that his wife’s brother had died and that “[w]e
are headed to SF now.” (PX 71.) Subsequent e-mails in the chain discussed plans to pick up
Rashid and family from the airport, and a separate e-mail chain discussed funeral arrangements
and accommodations. (PX 71, 72.)
46.

At trial, Rashid confirmed that the participants on the e-mail chain were

friends and former classmates and that none was affiliated with Metals USA. (Tr. 936, 938-39.)
He testified that the family death was “why we ended up going to San Francisco.” (Tr. 938-39.)
He testified that he informed his assistant that he attended a Metals USA meeting while in San
Francisco. (Tr. 940.) The Court finds that Rashid, who was aware that his expenses had been
scrutinized in the past by Apollo management, reviewed his submitted expenses and discussed
them with his assistant and caused or acquiesced in the entry of a project code relating to Metals
USA.
47.

Rashid also testified that, after the burial service, he met in San Francisco

with an employee of Goldman Sachs to discuss the potential future sale of Metals USA, and that
his trip combined business with a personal matter. (Tr. 1172-73.) The SEC notes that this
meeting is not corroborated by any e-mails, expense claims or correspondence, and that
Rashid’s wife did not recall him conducting business during the trip. (Tr. 766-67.) However,
even assuming that Rashid attended a business meeting during the San Francisco trip, he
testified that the family death was “why we ended up going to San Francisco,” and the date of
the expense for his flight matches contemporaneous e-mails describing the personal nature of
his trip.

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48.

The Court finds by a preponderance of the evidence that Rashid falsely

submitted a personal expense for airfare as a business expense related to Metals USA.
Rashid’s Charges in Brazil over New Year’s 2011-12.
49.

Rashid submitted as a business expense $10,049.10 for airfare on a Delta

flight described as “flight to paris for ascometals trip,” and caused or acquiesced in the entry of a
project code relating to Ascometal SA. (PX 111 at BDO # 1590.) He also submitted an expense
for “flight to Atlanta for Reaolgy tirp [sic]” in the amount of $447.10. (Id. at BDO # 1592.) He
also submitted various hotel-room expenses “hotel in rio for realogy trip,” with project codes
entered for Realogy. (Id. at BDO # 1601-07, 1609-12.) Other expenses included a $203.01
“Intercity flight for Reaoly [sic] trip” and a $177.51 expense described as “car service for asco
metals trip in Rio.” (Id. at BDO # 1608, 1613.) Rashid caused or acquiesced in the entry of a
project code relating to Realogy, except that the flight and car service were assigned to
Ascometal SA.
50.

The Court finds that the expense described as “flight to paris for

ascometals trip” falsely described the expense, which was for a flight to Brazil. (See, e.g., PX
199 (e-mails between Rashid and his assistant discussing Rashid’s expenses in Brazil).) Rashid
urges that these entries reflect data-entry errors on the part of his assistant and that they reflect a
misunderstanding of Rashid’s work, noting that Ascometals is a French company and that Rashid
was in Brazil for work on Metals USA. (Rashid Proposed Findings ¶¶ 129, 138.) 5
51.

Lourenco Goncalves, the CEO of Metals USA, testified that Rashid

informed him that he would be in Brazil over the 2011 holidays, and that Goncalves invited him

Realogy CFO Anthony Hull testified that there was no business reason for Rashid to perform Realogy-related work
on that trip. (Hull Dec. ¶¶ 40-41.)
5

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to visit his home in Brazil. (Goncalves Dec. ¶ 14.) Goncalves testified that Rashid joined his
family for dinner and that Rashid stayed in their home for at least one night. (Goncalves Dec. ¶
15.) Goncalves describes the visit as “purely social. Rashid had no business purpose for this trip
to Brazil related to Metals USA and we did not conduct business together in Brazil.” (Goncalves
Dec. ¶ 15.) On cross-examination, Goncalves reiterated that Rashid “told me he was there on
vacation.” (Tr. 495.) Goncalves agreed that, during the course of their conversations on that
visit, topics would “extend sometimes into general discussions about the metals industry in
general or the mining industry . . . .” (Tr. 495.)
52.

The Court finds by a preponderance of the evidence that, even if the entry

of project codes for Ascometals and Realogy were the product of a data-entry error, the expenses
sought reimbursement for personal expenses, and were submitted with the false assertion that
they were business expenses. Goncalves testified that Rashid’s time with him was purely social
and that Rashid had described his trip as a vacation. Neither Rashid or Goncalves identified
issues relevant to Metals USA that were discussed or resolved on the trip. Even if, as Goncalves
testified, their conversations occasionally veered into subjects that touched on the metals or
mining industries, such fleeting conversations did not warrant reimbursement for a Metals USA
project, let alone for projects attributable to Ascometals or Realogy.
The March 2013 NCAA Basketball Tournament.
53.

Rashid submitted a business expense for $170 from “National RR PSGR

Corp.” on March 21, 2013, describing it as “Rail ticket for bus travel to philadelphia re metals
usa” and caused or acquiesced in the entry of a project code relating to Metals USA. 6 (PX 111 at

The SEC’s proposed findings of fact and conclusions of law categorize this expense as being outside the
limitations period. However, March 2013 is within the parties’ stipulated limitations period, with runs from June 13,
2011 to June 2013.

6

- 23 -

BDO # 2697.) However, Rashid sent an e-mail on March 17, 2013 stating that, “I am definitely
going to Philly” to attend a game of the NCAA basketball tournament. (PX 222 at 6.) The email was part of a lengthy chain discussing the tournament and the logistics of attending the
game in person. (PX 222.) Rashid’s ticket expense was incurred on a Thursday, and the e-mail
chain discussed group get-togethers on the Thursday and Friday of that week. (Id.)
54.

The Court finds by a preponderance of the evidence that the $170 expense

was falsely claimed as a business expense appropriately related to Metals USA when in truth and
in fact it was a personal expense incurred for the purpose of a social visit to Philadelphia.
Rashid’s January 2013 Super Bowl Trip.
55.

Rashid submitted a business expense for $1,548.90 in airfare from New

York to New Orleans on January 29, 2013, stating that it was for “business meetings in
Louisiana.” (PX 111 at BDO # 2537.) Rashid caused or acquiesced in the entry of a project
code relating to Quality Distribution, Inc. (Id.)
56.

At trial, Rashid testified that one of his acquaintances was an employee of

the San Francisco 49ers, which played in the Super Bowl that year. (Tr. 1022.) He testified that
he bought two game tickets directly from his friend. (Tr. 1022.) When asked by his counsel to
identify the primary purpose of his Louisiana trip, Rashid answered, “The Super Bowl.” (Tr.
1185.) Other than airfare, Rashid did not submit expenses for this trip.
57.

Rashid testified that he attended the Super Bowl for networking purposes

related to Apollo. (Tr. 1184, 1186.) He stated, “The Super Bowl is a great place to meet a large
number of business contacts in one location.” (Rashid Dec. ¶ 13.) Gary Enzor, the CEO of QDI,
hosted what he described as “a social brunch for some of its outside legal associates” over the
Super Bowl weekend. (Enzor Dec. ¶ 8.) Enzor testified that he invited Rashid to the brunch

- 24 -

because he “knew Rashid would be in town . . . .” (Enzor Dec. ¶ 8.) Enzor testified, “I did not
invite Mr. Rashid to the Super Bowl. He told me he was coming to the Super Bowl.” (Tr. 993.)
Enzor stated that he invited Rashid to the brunch because Rashid was a director of QDI, and
because an outside attorney, Lance Ostendorf, was expected to attend. (Tr. 993.)
58.

Rashid testified that he attended an additional event with Ostendorf. (Tr.

1185.) Rashid testified that Ostendorf was a “relatively prominent lawyer in the New Orleans
area” who was advising Apollo on “other potential investment opportunities . . . .” (Tr. 1185.)
Rashid states that he “spent a significant amount of time” with Ostendorf during the Super Bowl
trip. (Rashid Dec. ¶ 13.)
59.

While Rashid attended some functions that related to the business of

Apollo, the only such event related to QDI was the brunch organized by Enzor, who testified that
he extended an invitation to Rashid after Rashid told him that he would be in New Orleans for
the Super Bowl. Neither Rashid nor Enzor described any work that Rashid performed for QDI
on the trip. As to Ostendorf, Rashid vaguely describes discussions related to Apollo in general
and not the work of QDI. Therefore, even if Rashid’s activities over the Super Bowl weekend
included work discussions connected to Apollo as a whole, it was still a misrepresentation to
seek reimbursement for “business meetings in Louisiana” related to a QDI project.
60.

The Court finds that Rashid deliberately used the happenstance of Enzor

and Ostendorf’s presence in New Orleans at or about the time of the Super Bowl as a false
justification for seeking reimbursement of a personal trip. The Court finds by a preponderance
of the evidence that Rashid falsely submitted the expense of his air fare to the Super Bowl as a
business expense relating to QDI.

- 25 -

Rashid’s Thanksgiving 2012 Expenses from Bal Harbour, Florida.
61.

Rashid submitted a variety of expenses incurred in Bal Harbour, Florida

and caused or acquiesced in the entry of a project code relating to Metals USA. (PX 111 at BDO
# 2323, 2325, 2327, 2335, 2346.) They included several hotel expenses “for business meetings
with Metals USA” and one “client dinner with meals [sic] usa in florida – Alid [sic] Rashid,
Lourenco Goncalves, Keith Koci, Robert McPherson, Bob Weinrich.” (Id.)
62.

As to the purported “client dinner,” Rashid confirmed at trial that this

expense “was actually the bill for [his] family’s Thanksgiving day dinner,” and explained, “I
think it inaccurately got billed to the wrong hotel room.” (Tr. 1007.) Rashid testified that during
this trip, he stayed at the St. Regis Resort Hotel for four nights. (Tr. 1009.) He testified that
during this trip, he saw Goncalves “[a]t least two, if not three times,” and specifically spent a day
with Goncalves and his family. (Tr. 1009.) Rashid testified that he and his assistant “did not
have conversations about things getting billed to a fund.” (Tr. 1010.)
63.

Goncalves testified that in or around November 2012, Rashid told him that

he would be in Bal Harbour, Florida for Thanksgiving, with his mother, father and sister.
(Goncalves Dec. ¶ 16.) Goncalves was building a new house about an hour from Bal Harbour,
and Rashid asked if he could show the new house to his parents. (Goncalves Dec. ¶ 16.) Rashid
brought his parents and sister to the home that Goncalves was renting during the construction
process. (Goncalves Dec. ¶ 17.) Goncalves testified that “[t]his visit was entirely social and had
no business purpose,” and included a tour of the under-construction home and a boat ride.
(Goncalves Dec. ¶ 18.) Goncalves testified that he never asked Rashid to come to Florida, and
that while “for sure” they discussed business over that weekend, their visit was primarily social,
“[e]specially with family around, that would be more social also because of that.” (Tr. 502.) He

- 26 -

testified that his business discussion with Rashid were not urgent, and could have been raised
over the phone or at a future meeting. (Tr. 502-03.)
64.

Although Rashid’s conversations with Goncalves may have sometimes

touched on business matters, Goncalves credibly testified that such business discussions were
non-urgent, and that the social nature of their interactions was underscored by the presence of
numerous family members. Moreover, Rashid’s explanation that the bill for his family’s hotel
dinner was innocently attributed to the wrong hotel room is entirely non-credible, given that his
description of the expense described a Metals USA dinner attended by personnel from the
company.
65.

The Court finds by a preponderance of the evidence that Rashid falsely

submitted expenses related to this trip as business expenses and caused or acquiesced in the entry
of a project code for Metals USA.
The February 2013 Lion Restaurant Group charge of $1,542.98.
66.

Rashid submitted a February 14, 2013 business expense of $1,542.98,

describing it as “Meals – Clients” billable to QDI. (PX 111 at BDO # 2575.) The description
stated: “Dinner meeting with Quality Distribution team: Ali Rashid, Steve Atwood, John Wilson,
Gary Enzor, Denny Copeland, Thomas Finkbiner, Johnathan Gold, Troy Joseph, Bo Leslie,
Timothy Page.” (Id.)
67.

At trial, Rashid testified that this submission was in error, and should have

reflected that the expense was incurred for an employee’s going-away party, which was attended
by Apollo personnel. (Tr. 1215-16.) He stated that “[t]he charge had obviously been
inadvertently described . . . .” (Tr. 1216.) Rashid testified that he would have been “happy” to
pay for the event himself if the party was not reimbursable to Apollo itself. (Tr. 1216.) Having

- 27 -

been caught redhanded in charging a personal expense as a business expense, and in the context
of his other false submissions, his claim of inadvertence is entitled to little weight.
68.

The Court finds by a preponderance of the evidence that Rashid falsely

submitted the expense of a colleague’s going-away party as a business expense arising from a
dinner with QDI employees and leadership.
June 17, 2011 Charge of $359.37 for Dinner at Spasso Restaurant.
69.

Rashid submitted as a business expense a $359.37 charge at Spasso

restaurant on June 17, 2011, describing it as “Dinner at Spasso with Metals USA – McPerson
[sic], Goncalves” under the project name Metals, USA. (PX 111 at BDO # 1169.)
70.

However, contemporaneous emails show that Rashid joined his friends for

dinner at Spasso, and that he picked up the dinner tab because he was the “last man” to arrive.
(PX 105.) An e-mail chain dated June 16, 2011 included individuals with no discernable
connection to Metals, USA discussing a 7:30 reservation at Spasso, their outdoor table, and the
statement, “I heard dinner is on the last man who gets here!!!” (PX 105.) Rashid replied that he
had been delayed at the office and was stuck in traffic. (PX 105.)
71.

In addition, Metals USA CEO Lourenco Goncalves testified that on

occasions when he met Rashid for meals, he paid for the meals and Rashid did not. (Goncalves
Dec. ¶ 10.) At trial, Rashid confirmed that Goncalves did not attend the meal at Spasso. (Tr.
958.)
72.

Rashid has urged that this was a dinner with “industry colleagues” and

therefore constituted a legitimate business expense, pointing out that other attendees were
employed in the finance industry. (Rashid Proposed Findings ¶¶ 61, 145.) At trial, Rashid
confirmed that at least one of the attendees, Chirag Shah, was a personal friend. (Tr. 958.) It is,

- 28 -

of course, possible that professional issues may have been discussed at his dinner with friends.
But that possibility does not explain the fact that Rashid caused or acquiesced in the entry of a
project code relating to Metals USA and falsely described the meal as a business dinner with
Metals USA executives.
73.

The Court finds by a preponderance of the evidence that Rashid falsely

submitted an expense report for the Spasso dinner, and caused or acquiesced in the entry of a
project code for Metals USA.
Additional Restaurant Expenses.
74.

The Court finds by a preponderance of the evidence that, for each expense

identified in Findings of Fact 75 through 97, Rashid knowingly and falsely claimed that there
was a business purpose behind the expense and caused or acquiesced in the entry of a project
code for a portfolio company. Rashid’s work relating to a portfolio company was an integral
part of his investment advisory services to a private-equity fund that was heavily invested in the
portfolio company and it was reasonably foreseeable to him that these expenses would be borne
by the fund directly or indirectly.
75.

June 21, 2011 dinner of $199.93 (PX 111 at BDO #1181). Rashid

described this expense as “dinner with Troy from QDI” and “ caused or acquiesced in the entry
of a project code for QDI – Fund III.” (Id.) Joseph Troy of QDI testified that he did not attend
such a dinner and that “I do not recall Rashid ever paying for a meal that I attended.” (Troy Dec.
¶¶ 9, 13; Tr. 546.) Troy states that he was not in New York on June 21, 2011, and was instead
traveling from Florida to Maine on a personal trip. (Troy Dec. ¶ 13.)
76.

July 9, 2011 dinner of $197.92 (PX 111 at BDO #1218). Rashid described

this expense for dinner at Chinois on Main restaurant as “dinner with Enzor” and caused or

- 29 -

acquiesced in the entry of a project code for “QDI – Fund III.” (Id.) Enzor testified that he was
not in New York on that date, and instead was with family in or around Chicago. (Enzor Dec. ¶
25.)
77.

July 11, 2011 dinner of $140.94 (PX 111 at BDO #1221). Rashid

described this expense for a restaurant operated by Barolo Ltd. as “dinner with Smith” and
caused or acquiesced in the entry of a project code for Metals USA. (Id.) William Smith of
Metals USA testified that he was not present at that dinner and does not recall ever having a
dinner alone with Rashid. (Smith Dec. ¶ 8; see also Tr. 974 (“I’ve never been to a restaurant
named Barolo, and as I said before, I have never had a dinner alone with Mr. Rashid.”).)
78.

July 14, 2011 dinner of $344 (PX 111 at BDO # 1229). Rashid described

this expense from a restaurant operated by Cerulean Management LLC as “dinner with Hull and
Smith” and caused or acquiesced in the entry of a project code for Realogy. (Id.) Both Hull and
Smith testified that they never attended such a dinner, with Smith stating that he had never
attended a small-group dinner with Rashid. (Hull Dec. ¶ 33; Tr. 517.)
79.

August 16, 2011 dinner of $265.09 (PX 111 at BDO # 1292). Rashid

described this expense at Fig & Olive restaurant as “Dinner with Beddows and Vaughn –
Welspun” and caused or acquiesced in the entry of a project code for the portfolio company
Welspun. (Id.) However, contemporaneous e-mails of that same date reflect plans for a dinner
at Fig & Olive that was to be “in honor of Ruhi’s birthday,” with no one named Beddows or
Vaughn included among the e-mails’ recipients. (PX 38.) At trial, Rashid testified, “I’m not
sure I know Beddows at all . . . . I also don’t know Vaughn . . . .” (Tr. 943.)
80.

September 1, 2011 dinner charge of $311 (PX 111 at BDO # 1316).

Rashid described this expense from Providence Restaurant Management LLC as “Dinner for

- 30 -

QDI – Enzor, Troy,” and caused or acquiesced in the entry of a project code for Quality
Distribution, Inc. (Id.) Enzor testified that he was not at such a dinner, and was in Brandon,
Florida on this date. (Enzor Dec. ¶ 27.) Troy similarly testified that he was in Tampa, Florida
for a post-operative doctor’s appointment. (Troy Dec. ¶ 14.)
81.

October 5, 2011 dinner charge of $120.88 (PX 111 at BDO # 1384).

Rashid described this expense from Honey Jar Inc. as “business meal for ascometals,” and
caused or acquiesced in the entry of a project code for Ascometal SA. (Id.) In e-mails of that
same date, Rashid, his wife and a friend discussed an 8 p.m. dinner reservation at a restaurant
called Apiary. (PX 202 at Bates No. 2880-81.) Susanne P. Cleary, a forensic accountant at
BDO, testified that Apiary’s address matched the address of Honey Jar Inc. (Cleary Dec. ¶
12(b).)
82.

December 12, 2011 dinner charge of $259.55 (PX 111 at BDO # 1563).

Rashid described this expense at Made in Italy Restaurant as “Dinner in London for asco metals
meeting with Mr. Goenke,” and caused or acquiesced in the entry of a project code for
Ascometal SA. (Id.) In contemporaneous e-mails of the same date, Rashid and friends discussed
meeting for dinner at a London restaurant called Made in Italy, after weighing various other
cuisine options. (PX 73.) No one named Goenke was on the e-mail chain.
83.

March 12, 2012 dinner charge of $1,174.30 (PX 111 at BDO # 1752).

Rashid submitted a March 12, 2012 business expense of $1,174.30 from Lucky 13 Associates
LLC, describing it as “dinner for Metals USA with Laurenco Goncalves, Keith Koci and Robert
McPherson.” (PX 111 at BDO # 1752.) Rashid caused or acquiesced in the entry of a project
code for Metals USA. (Id.) Goncalves testified that he did not recall Rashid every paying for a

- 31 -

diner. (Goncalves Dec. ¶ 12.) Koci testified that he had no recollection of the dinner and that his
own expense reports indicate he was not in New York City in March 2012. (Koci Dec. ¶ 6.)
84.

March 20, 2012 dinner charge of $351.42 (PX 111 at BDO # 1777).

Rashid described this expense from Gramercy Tavern Corp. as “dinner with richard smith for
realogy meeting,” and caused or acquiesced in the entry of a project code for Realogy. (Id.)
Richard Smith testified that he did not recall ever having dinner alone with Rashid. (Smith Dec.
¶ 10.) Contemporaneous e-mails reflect that on this same date, Rashid was planning to meet his
sister for dinner at Gramercy Tavern, after the two weighed the comparative ambience of another
well-known Manhattan restaurant, Daniel. (PX 40.)
85.

March 30, 2012 dinner charge of $173.91 (PX 111 at BDO # 1788).

Rashid described this expense from ABC Restaurant as “Realogy dinner with Richard Smith”
and caused or acquiesced in the entry of a project code for Realogy. (Id.) Smith testified that he
did not recall ever having dinner alone with Rashid. (Smith Dec. ¶ 10.) Contemporaneous emails reflect that the dinner was at Rashid’s “favorite restaurant” with his parents, who were
visiting from California. (PX 41; Tr. 1018-19.)
86.

April 7, 2012 dinner charge of $210 (PX 111 at BDO # 1819). Rashid

described this expense from Craft LLC as “dinner whilew orking [sic] on Realogy with Don
Casey and Seth Truwit ,” and caused or acquiesced in the entry of a project code for Realogy
(Id.) Casey testified that on this date, which was a Saturday, he was in Massachusetts for his
son’s basketball game. (Casey Dec. ¶ 7.) Truwit testified that he was not in New York City on
that date. (Truwit Dec. ¶ 13.)
87.

April 9, 2012 dinner charge of $220.53 (PX 111 at BDO # 1823). Rashid

described this charge from When Its Chile Its Hot as “dinner while working on Realogy with

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Richard Smith and Tony Hull,” and caused or acquiesced in the entry of a project code for
Realogy. (Id.) Hull testified that he did not have dinner with Rashid on this date. (Hull Dec. ¶
34.)
88.

April 21, 2012 dinner charge of $434.19 (PX 111 at BDO # 1837). Rashid

described this charge from August Ventures LLC as “dinner with QDI – Gary Enzore [sic] and
Joe Troy,” and caused or acquiesced in the entry of a project code for Quality Distribution, Inc.
(Id.) Enzor and Troy both testified that they were in Tampa, Florida on that night for a QDIrelated golf event. (Enzor Dec. ¶ 28; Troy Dec. ¶ 15.)
89.

April 27, 2012 dinner charge of $181.52 (PX 111 at BDO # 1850). Rashid

described this charge from 218, LLC as “dinner with Gary Enzor – QDI,” and caused or
acquiesced in the entry of a project code for Quality Distribution, Inc. (Id.) Enzor testified that
he was in Tampa, Florida that weekend. (Enzor Dec. ¶ 29.)
90.

April 28, 2012 dinner charge of $296.54 (PX 111 at 1852). Rashid

described this charge to Superior Restaurant as “meal with Lourenco Goncalves and Keith Koci
Metals USA” and caused or acquiesced in the entry of a project code for Metals USA. (Id.)
Both Goncalves and Koci deny that they were at this dinner. (Goncalves Dec. ¶ 12; Koci Dec. ¶
7.)
91.

April 30, 2012 dinner charge of $152.93 (PX 111 at BDO # 1856). Rashid

described this charge to Mr. Jonesing LP at “meals while working on metals usa” and caused or
acquiesced in the entry of a project code relating to Metals USA. (Id.) An e-mail chain of that
same date between Rashid and his friends discussed an 8:30 p.m. dinner reservation at Acme
restaurant, with Rashid noting that “[i]t is a very tough res[ervation]” and congratulating his

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friend on reserving a table. (PX 202 at Bates No. 2931-32.) Cleary testified that Mr. Jonesing,
LP is the business name for Acme restaurant. (Cleary Dec. ¶ 12(d).)
92.

August 14, 2012 dinner charge of $332.28 (PX 111 at BDO # 2097). This

charge reflects an out-of-pocket expense at an unnamed restaurant, which was described as “QDI
dinner =: Johnathan Gold, Gearld [sic] Detter, Bo Leslie, Steve ttwood [sic], Denny Copeland,
Gary Enzor, Thomas inkbiner [sic], Debbie Kend,” and caused or acquiesced in the entry of a
project code for Quality Distribution Inc. (Id.) Enzor testified that, by August 2012, Detter,
Leslie, Copeland and Finkbiner had all departed QDI and thus would have had no reason to
attend a business dinner with Rashid. (Enzor Dec. ¶ 31.) Enzor testified that he was in Tampa,
Florida on the night of this dinner. (Enzor Dec. ¶ 30.)
93.

October 9, 2012 dinner charge of $248.26 (PX 111 at BDO # 2192).

Rashid described this charge to Koi NY as “Dinner with Realogy re: IPO discussion (Ryan
Gorman, David Weaving),” and caused or acquiesced in the entry of a project code relating to
Realogy. (Id.) E-mails from that date between Rashid and his wife discuss a dinner with
“Patrick and Irene,” “pickign [sic] them up from harvard club” and whether to go out for
Japanese, Asian or Mediterranean cuisine. (PX 202 at Bates No. 2948.) In a separate chain of
that same day, Rashid and his wife e-mailed Irene K. Hong about dinner plans, including a
suggestion that they dine at Koi. (Id. at Bates No. 2950.)
94.

October 26, 2012 dinner charge of $148.30 (PX 111 at BDO # 2246).

Rashid described this charge to 1170 Broadway Tenant LLC as “Dinner with metals usa – ali
rashid & Lourenco Goncalves,” and caused or acquiesced in the entry of a project code relating
to Metals USA. (Id.) Goncalves testified that Rashid never paid for any meal with him.
(Goncalves Dec. ¶ 12.)

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95.

October 28, 2012 dinner charge of $250.13 (PX 111 at BDO # 2251).

Rashid described this charge to 228 West 10th St. LLC as “dinner with QDI – ali rashid, John
Wilson, Johnathan Gold & Joseph Troy,” and caused or acquiesced in the entry of a project code
relating to Quality Distribution, Inc. (Id.) Troy testified that he was not in New York on this
date, and that Jonathan Gold was a former general counsel to QDI who had departed the
company prior to the date of this dinner. (Troy Dec. ¶ 16; Tr. 547-48.)
96.

December 13, 2012 lunch charge of $930.10 (PX 111 at BDO # 2399).

Rashid described this charge from RBS Bar Inc. as “Lunch with Metals USA board, Ali Rashid,
Lourenco Goncalves, Robert McPherson, Will Smith, John Baldwin, Joseph Powers, Mark
Steven,” and caused or acquiesced in the entry of a project code relating to Metals USA. (Id.)
Smith testified that to the best of his recollection, he did not have lunch with Rashid on this date.
(Smith Dec. ¶ 6.) Goncalves testified that Rashid never paid for any meal with him. (Goncalves
Dec. ¶ 12.)
97.

February 15, 2013 lunch charge of $243.44 (PX 111 at BDO # 2583).

Rashid described this charge from Nobu 57 LLC as “Lunch meeting with Metals USA team –
Ali Rashid, William Bennett, Lourenco Goncalves, Will Smith and John Hagerman,” and caused
or acquiesced in the entry of a project code relating to Metals USA. (Id.) Smith testified that he
has never been to lunch at Nobu, and that he has never met anyone named Hagerman or Bennett.
(Tr. 974; Smith Dec. ¶ 7.) Again, Goncalves testified that Rashid never paid for any meal with
him. (Goncalves Dec. ¶ 12.)
Additional Personal Expenses Outside the Limitations Period.
98.

The SEC also adduced evidence that Rashid submitted personal expenses

as business expenses prior to the commencement of the limitations period on June 13, 2011.

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This evidence is relevant only as to determining Rashid’s state of mind, i.e. knowledge, intent,
and absence of mistake, during the limitations period.
99.

In each of the following instances, the Court finds by a preponderance of

the evidence that Rashid submitted charges for the reimbursement of personal expenses, and that
there was no business purpose behind these expenses. Unless otherwise noted, the evidence in
each of the following examples is contained in Plaintiff’s Exhibit 327.
100.

The Burger Joint lunch. Rashid submitted a receipt for out-of-pocket

expenses on January 4, 2011 totaling $45 for the Burger Joint at Le Parker Meridien, with
handwritten notes stating, “Lunch Metals USA / Bob Weinrich / Dan Henneke.” The expense
was input to PeopleSoft with the description, “Lunch with Bob Weinrich and Dan Henneke to
discuss Metals USA results.” However, e-mails between Rashid and his sister on that same date
discuss meeting at Burger Joint at 1:30 p.m., the fact that the restaurant was cash-only, and its
location. At trial, Rashid testified that the receipt “does look to be in my handwriting,” and
stated, “I do not recall that meal at all, sir.” (Tr. 796.)
101.

The clothing purchase at Ermenegildo Zegna. Rashid submitted four

expenses dated January 12, 2011 from the Ermenegildo Zegna store in Beverly Hills (“Zegna”),
totaling $3,850, with the explanation that they were for gifts to senior executives at Apollo
portfolio companies. (PX 111 at BDO # 790-93.) Of these expenses, $600 was caused or
acquiesced in the entry of a project code relating to Alteri, $1,200 to Metals USA, $1,100 to QDI
- Fund III and $950 to Realogy. (Id.) However, on January 12, 2011, $3,850 was deposited on a
Zegna account in the name of Rashid’s father, Haroon Rashid. (PX 81.) At trial, Rashid
testified, “I don’t recall that, making that specific charge, but can’t imagine it would have been
anyone but me.” (Tr. 832.) Rashid also testified that he wanted to purchase gifts at Zegna for

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portfolio company executives. (Tr. 835.) A receipt reflects that on that same date,
approximately 31 minutes after the deposit of $3,850, a total charge of $2,671 was made against
the account for a $1,497 two-piece suit, $297 for “long formal trouser,” $265 for crewneck
knitwear, $537 for “long jacket-blouson,” and a $75 delivery charge. (PX 81.) A separate
receipt of that same date reflects the purchase of a $105 tie. (Id.) Rashid testified, “I do not
believe that I purchased the ties that I ended up giving on that date, no, or the gifts that I ended
up giving on that date, no.” (Tr. 837.) Rashid was unable to recall details about the $3,850
transaction, but testified that he believed he gave Zegna-purchased ties to portfolio company
executives. (Tr. 839-41.)
102.

Joel Lehnhoff, a representative of Ermenegildo Zegna in Beverly Hills,

testified at trial justifying Rashid’s version of events. (Tr. 389-429.) Among other things, an
undated and handwritten receipt made out to “Rashid” with the description “Ties for Gifts / 35 /
$3500” was faxed by Zegna to Rashid’s assistant on or about May 2, 2012. (PX 77.) Lehnhoff
testified that he handwrote the receipt at Rashid’s request, and that it reflected a previous deposit
for the purchase of ties to be made at a later date. (Tr. 394-95.) The Court finds this testimony
to be not creditable and crafted to cover for a valued customer.
103.

The going-away dinner. Rashid submitted an April 1, 2011 expense of

$216.19 from Don NYC Inc., describing it as “QDI dinner meeting with Enzor.”
Contemporaneous e-mails from that date described a farewell dinner and karaoke night at Don
Bogan BBQ and Wine Bar in Manhattan attended by Rashid and his friends, with no obvious
connection to QDI or Apollo.
104.

Rashid’s dinner with his wife. Rashid submitted a January 28, 2011

expense of $266.46 from Cerulean Management LLC, describing it as a “Realogy dinner with

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Don Casey and Seth Truwitt.” An entry from Rashid’s work calendar reflects that the dinner
was with his wife. Casey and Truwit both denied that they attended such a dinner. (Casey Dec.
¶¶ 5-6; Truwit Dec. ¶ 11.)
105.

The Brother Jimmy’s outing. Rashid submitted a July 11, 2010 expense of

$147.92 from Brother Jimmy’s NYC, describing it as “Lunch with QDI lawyers.” On that date,
which was a Sunday, Rashid sent an e-mail at 11:33 a.m. to three friends, stating, “Everyone still
up for meeting at brother jimmy’s at 1pm? I am going to eat there so we can hold down table
until the match starts.” At trial, Rashid confirmed that this event was “an outing” to watch a
soccer game with his friends. (Tr. 1062-63.)
Admissions by Rashid Summarized in the So-Called “Master Spreadsheet”
in Connection with an Internal Investigation.
106. The parties have made much of certain statements from Rashid that are
cataloged in a trial exhibit that the parties have referred to as the “Master Spreadsheet.” (PX 24.)
The internal investigation conducted by Paul Weiss and BDO endeavored to identify which
expenses claimed by Rashid were legitimate business expenses and which were personal. As
mentioned, Rashid retained outside counsel from Crowell & Moring during this investigation.
(Finzi Dec. ¶¶ 25-27.) As part of the internal investigation, Rashid self-identified 988 personal
expenses totaling $220,796.87 for which he had obtained reimbursement as business expenses.
(DX 15 at 18.) Many of those expenses fall outside the limitations period. The “Master
Spreadsheet” was received into evidence at trial, subject to Rashid’s objection.
107. Rashid has moved to exclude the so-called “Master Spreadsheet” pursuant
to Rule 408, Fed. R. Evid., arguing that his concessions were over-inclusive and made in the
context of a “settlement dispute” with Apollo over his anticipated departure from Apollo.
Rashid also has contended that he was eager to put the issue of his expenses behind him, and that
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his willingness to agree that the expenses were personal in nature should not be equated to a
factual admission of liability. The SEC urges that Rashid’s classifications of personal expenses
are admissible statements of a party opponent, and that there was no contemplation of litigation
between Apollo and Rashid at the time he made those classifications. The Court concludes
based upon the trial testimony that the statements were neither part of an offer of compromise,
nor made in the course of a compromise negotiation nor otherwise constitute a prohibited use
under Rule 408, Fed. R. Evid. They were properly received into evidence.
108. The Court concludes that concessions by Rashid in reclassifying an
expense as a personal expense that is reflected in the Master Spreadsheet has probative value in
showing Rashid’s lack of diligence and due care . The Court does not consider any specific
concession by Rashid during the course of Apollo’s internal investigation as determinative of the
personal nature of a particular expense and acknowledges that Rashid, as he testified, took an
over-inclusive approach in classifying expenses as personal in nature, based on a desire to
expedite the review process and continue his employment at Apollo. But, the 998 self-identified
instances of charging a personal expense as a business expense, even if that number is
substantially discounted and due consideration is given that many are outside the limitations
period, are a potent admission by Rashid, a fiduciary to the funds, of his wholesale lack of
diligence and due care in failing to ensure that no personal expenses were charged as business
expenses.
109. Similarly, there is no need for the Court to rely on the 2013 calculations of
Suzanne Cleary, a forensic accountant at BDO who conducted a review of Rashid’s expenses
and identified $29,654 worth of personal charges taken during the limitations period. (PX 334.)
While the Court has reviewed and discussed specific expenses identified by Cleary, the Court

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need not rely on any aggregate or summary findings about Rashid’s personal expenses.
110. The Court also need not engage in the exercise of calculating the total
number of expenses falsely submitted by Rashid or the full amount of reimbursement. The SEC
does not seek restitution or disgorgement from Rashid, although it contends that, during the
limitations period, Rashid submitted a total of 440 separate personal expenses, totaling
$113,062.11. (SEC Prop. Findings ¶ 5.)
111. The Court places no weight on the findings of BDO or Paul Weiss.
Further, in analyzing and finding 32 specific instances of false business expenses, the Court has
found it unnecessary to rely on Rashid’s admission concerning the specific expense during the
internal investigation.
112.

The trial record amply demonstrates that Rashid intentionally submitted

false expense reports. In 2010, he was admonished not to submit personal expenses for
reimbursements, after a purported business-dinner expense was learned to be a personal charge
to La Contessa hair salon. Rashid acknowledged that he had submitted a total of $7,828.86 in
personal expenses, and promised that he would not seek reimbursement for personal expenses in
the future. Rashid does not dispute that he was challenged in 2010 on the submission of his
expense reports and that he repaid the $7,828.86 in personal expenses. While Rashid disputes
that he was directly admonished by Donnelly, who was Apollo’s CFO at the time, a reasonable
and prudent person in Rashid’s position would have thereafter devoted extra care and attention to
the accuracy of his expense reports, and would have been especially careful not to submit
personal expenses for reimbursement.
113.

But Rashid was not deterred. From June 2011 through June 2013, he

continued to submit personal expenses as business expenses. Weighed in their entirety, Rashid’s

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expense reports contained a pattern of lies. He commonly fabricated attendees and business
purposes for expensive restaurant dinners, repeatedly naming portfolio company executives who
credibly testified that they were halfway across the country on the dates of the dinners. In some
instances, he identified attendees who had left the portfolio company’s employment months or
even years before the dinner. The consistency and precision of Rashid’s statements are strong
evidence of his intent to lie, and to intentionally submit personal expenses as business expenses.
Rashid’s testimony and argument have attempted to characterize certain expenses as a product of
liberally interpreting expense policies, but that is rebutted by a pattern of submitting false and
fraudulent business expenses with fabricated factual assertions, which negate the claims of
innocent mistakes.
114. The Court also rejects Rashid’s assertion that his false expense reports can
be explained by the mistakes and misunderstandings of his administrative assistants. He testified
that his assistants viewed the preparation of expense reports as “a ‘menial’ task” to be completed
“as quickly as possible,” and that they seldom questioned him about expense details. (Rashid
Dec. ¶ 6.) Rashid’s testimony was contradicted by three of his former assistants, Barbara
Feehan, Beth Gatsik and Nicole La Mons, each of whom testified at trial. Each testified that they
did not perform guesswork if the purpose of an expense was unclear, and that they entered
details about an expense only if they personally booked Rashid’s reservations or were able to
reconstruct entries from his work calendar. (Feehan Dec. ¶¶ 18-19, 23; Gatsik Dec. ¶ 10; La
Mons Dec. ¶¶ 12-13.) Each testified that they questioned Rashid when details about an expense
were unclear, and this testimony was supported by e-mail correspondence and printouts of draft
expense reports with comments in Rashid’s handwriting. (Feehan Dec. ¶ 21; Gatsik Dec. ¶ 1012; La Mons Dec. ¶¶ 17-20; PX 87 at 41253, 140, 141, 198, 199, 210.) The Court found the

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testimony of Feehan, Gastik and Le Mons to be clear, detailed and credible. Rashid’s attempt to
shift some of the blame to his assistants is unpersuasive.
115. The Court also rejects Rashid’s explanation that because some of his
social outings were attended by friends who happened to be finance professionals, he believed
that they served a networking purposes and were appropriately charged as business expenses.
Even assuming that Rashid believed that these dinners and bar nights had a business purpose,
that does not explain why his expense reports falsely listed their attendees and portfolio company
affiliations. If Rashid had actually believed that such outings were appropriate business
expenses, he would have accurately named the attendees.
The Phony Business Expenses Were Paid by the Funds Advised by Rashid.
116. Through the testimony of Crossen, the SEC proved by a preponderance of
the evidence that Rashid’s expenses were reimbursed by Apollo’s private equity funds. Thus,
although Rashid seemingly believed that his expenses would be reimbursed by an Apollo
management fund, they were in truth borne by investors.
117.

While the SEC comfortably proved that Rashid knowingly submitted false

expense reports, it did not prove by a preponderance of the evidence that Rashid knew that his
expenses would be paid by a fund he advised. Apollo’s written guidance did not explain the
expense allocation and reimbursement process to employees.
118. James Crossen testified that in 2017, in his position as CFO for Private
Equity and Real Assets, he directed and oversaw a review of Rashid’s expenses. (Crossen Dec. ¶
14.) Two of the review’s purposes were especially important to this trial: first, to determine
whether expenses that were deemed “personal” to Rashid had actually been invoiced and billed
to Apollo’s private equity funds, and second, to verify that those funds actually reimbursed

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Rashid’s personal expenses. (Crossen Dec. ¶¶ 15-16.) As Crossen described: “As a general
matter, when invoices to Funds are generated, any reimbursed expense in PeopleSoft attributable
to that fund code is then automatically billed to the fund in question – but we wished to verify
that.” (Crossen Dec. ¶ 15.) Crossen testified that, based on his review, “all” expenses that
Rashid had allocated to portfolio companies or private equity funds were “billed to the Funds, or
special purpose vehicles affiliated with the Funds.” (Crossen Dec. ¶ 17.)
119. Crossen testified about the method used to connect Rashid’s expenses to
invoices sent to funds and their payment of reimbursements, using five specific charges as
exemplars. (Tr. 689-706; PX 183, 326A.) He stated that reviewers looked to Rashid’s expense
submissions, and then tracked invoices issued by the relevant Apollo management companies to
the respective fund controllers. (Tr. 690.) The invoices attached line-item Excel tables that
reflected individual expenses, including those submitted by Rashid. (Tr. 694 & PX 183.) The
tables listed Rashid’s name, the portfolio company named in his expense report, the amount of
the charge and the description of the charge. (Tr. 694-95; PX 183.) Crossen testified that the
tables included hundreds of rows of individual line items. (Tr. 695.) Crossen testified that for
each of Rashid’s expenses that was retroactively classified as personal, his review team
confirmed that the expense was paid by a fund. (Tr. 696.) In later questioning, Crossen again
confirmed that every expense that was classified as personal in Plaintiff’s Exhibit 111 was
specifically reimbursed by a fund. (Tr. 728.) That Crossen used five exemplars from the
expense-review process to demonstrate how the tracing process worked, which are summarized
in the demonstrative exhibit at Plaintiff’s Exhibit 326A, did not undermine the validity of his
conclusions.

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Rashid Was Recklessly Indifferent to the Consequences to the Funds.
120.

The SEC has proven that the 32 phony business expenses were in fact

charged to the funds. But the trial record does not contain any written guidance or official
training or conversation with Rashid on allocation of expenses to the funds.
121. Crossen testified that entry of a project code corresponding to a portfolio
company on PeopleSoft did not dictate that the portfolio company would pay the expense.
Instead, the Accounts Receivable Department billed the expense to the private-equity fund that
was being advised about its investment in the portfolio company. (Tr. 683-89.) Based on the
testimony of Crossen, it appears that private-equity funds were billed regardless of the nature of
the expense, in contradiction to the limited partnership agreements that governed the funds. The
limited partnership agreements that created the funds provided that expenses related to
monitoring the fund would be borne by the Apollo-affiliated management company. (PX 15055, 185.) Crossen’s testimony, however, described a process where the Accounts Receivable
Department charged all expenses to the relevant private equity fund, even those that should have
been allocated to the Apollo management company.
122. Rashid testified that he understood at the time of submitting expenses that
expenses would be borne by an Apollo management company. (Tr. 1103-04.) Rashid also
testified that he took no steps to make sure that his expenses were not being billed to funds
because he did not know that they could be billed to funds. (Tr. 933-35, 1004-06.)
123.

The Court does not credit Rashid’s testimony that he believed the

expenses were paid by an Apollo management company. Rashid’s testimony is an after-the-fact
construct to avoid liability under the securities laws. The Court finds that Rashid was recklessly
indifferent concerning who would pay his phony business expenses as long as it was not him.

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124.

Rashid claims that his professions of ignorance about the role of funds in

the reimbursement process is supported by the fact that in November 2010, he wrote out a check
to Apollo Management for $7,828.86 in order to repay the personal expenses that were
discovered after he submitted the expense for the La Contessa hair salon. (PX 89.) But writing a
single check to Apollo made perfect sense. It was Apollo that passed the expenses on to the
funds and it was Apollo that could give the funds a corresponding credit or refund. Writing a
reimbursement check to Apollo does not establish that it bore the loss directly.
125.

The Court acknowledges that Marc Becker, who had the same job title as

Rashid, and Apollo’s current and former CFOs, Martin Kelly and Eugene Donnelly, described
only broad and generic understandings of the reimbursement process, including the apparent
misapprehension that certain expenses were borne by Apollo management companies, when, in
fact, they were paid by private-equity funds. (Tr. 43-50, 78-79, 82-83; Donnelly Dec. ¶ 5.) But
none of them had the same reason as Rashid to ensure that no fund was billed for an expense
because they, unlike Rashid, were not submitting false business expenses.
126.

While significant blame still resides with the practices of Apollo itself,

Rashid’s falsehoods to his employer began a chain of events that operated as a fraud upon
investors in the private equity funds.
127.

The funds had every reason to believe that the expenses tendered to them

as business expenses were legitimate business expenses, but they were, in fact, personal expenses
of Rashid. Rashid’s deliberate actions in submitting personal expenses as business expenses had
the effect of operating as a fraud on the funds.
128.

The Court finds that Rashid intentionally submitted false expense reports,

but that he did not do so with the specific intent of defrauding the private equity funds he

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advised. However, it was reasonably foreseeable to Rashid that in causing or acquiescing in the
entry of a project code for a portfolio company that the expense would be borne directly by the
fund or indirectly by charging it to the portfolio company in which it was heavily invested.
Again, Rashid was utterly indifferent to who paid the false business expense as long as it was not
him.
129.

The Court finds that Rashid engaged in a long-running practice of

knowingly and falsely submitting personal expenses as business expenses and that practice
operated as a fraud or deceit upon private-equity funds he advised. Rashid as a senior partner of
Apollo, he had the ability to ensure, by drilling down within Apollo, that none of his false
business expenses were paid by the funds. This, of course, would have been a perilous course for
Rashid to take because it would likely have been a red flag raising suspicions that he was
cheating on his expenses. The funds Rashid advised were, in fact, deceived and defrauded
because they actually paid Rashid’s personal expenses, believing that they were business
expenses. Rashid was recklessly indifferent in failing to ensure that the funds were protected
from the impact of his defalcations. Alternatively, if he was not recklessly indifferent, he was at
least negligent in failing to protect the funds from the consequences of his thefts which were
reasonably foreseeable to him.
CONCLUSIONS OF LAW.
1.

Section 206(1) makes it “unlawful for any investment adviser by use of

the mails or any means or instrumentality of interstate commerce, directly or indirectly – (1) to
employ any device, scheme, or artifice to defraud any client or prospective client . . . .” 15
U.S.C. §§ 80b-6(1).
2.

As discussed, section 206(1) requires proof of a defendant’s scienter, and

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“[s]cienter is established if it is shown that the defendants acted with a ‘mental state embracing
intent to deceive, manipulate, or defraud.’” Moran, 922 F. Supp. at 891 (quoting Ernst & Ernst
v. Hochfelder, 425 U.S. 185, 193 (1976)). Scienter under section 206(1) may also be proved by
evidence of recklessness. See, e.g., Dembski, 726 Fed. App’x at 844. Conduct is reckless when
it “‘is highly unreasonable’” and “‘represents an extreme departure from the standards of
ordinary care to the extent that the danger was either known to the defendant or so obvious that
the defendant must have been aware of it.’” Kalnit v. Eichler, 264 F.3d 131, 142 (2d Cir. 2001)
(quoting In Re Carter-Wallace, Inc. Secs. Litig., 220 F.3d 36, 39 (2d Cir. 2000)). The scienter
requirement may be satisfied through evidence of “‘conscious recklessness – i.e., a state of mind
approximating actual intent, and not merely a heightened form of negligence.’” Setzer v. Omega
Healthcare Inv’rs, Inc., 968 F.3d 204, 214-15 (2d Cir. 2020) (quoting Novak v. Kasaks, 216 F.3d
300, 312 (2d Cir. 2000)).
3.

The SEC failed to prove that Rashid knew the source of reimbursement for

his expenses, and therefore failed to prove that he knowingly and intentionally sought
reimbursement from the funds he advised.
4.

Rashid’s lies to Apollo are different than the public misrepresentations

that sometimes arise in a fraud-on-the-market case. In such cases, a defendant’s false public
statements, uttered with a reckless indifference to the truth, directly affect share value and cause
injury to shareholders. See, e.g., Setzer, 968 F.3d at 215-16 (reviewing allegations of
recklessness relating to public statements that misled investors about company’s financial
condition). The inaccuracy of such public misstatements, made with a reckless indifference to
the truth, “approximat[e] actual intent” to mislead shareholders. Id. But here, Rashid’s reckless
indifference to the source of his reimbursements does not approximate an actual intent to defraud

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the funds. After Rashid submitted his false expense reports, Apollo’s Accounts Receivable
Department demanded reimbursement from the funds, based on the portfolio companies listed in
Rashid’s research codes. Rashid lied about his expenses and demonstrated a reckless
indifference to the source of his reimbursements, but that recklessness did not approximate an
actual intent to defraud the funds. Apollo’s procedures in its Accounts Receivable Department,
and specifically its practice of seeking reimbursement from funds based on an employee’s entry
of portfolio company research codes, deserve significant blame for the fact that Rashid’s
expenses were ultimately paid by the funds.
5.

The Court therefore finds that the SEC failed to prove by a preponderance

of the evidence that Rashid violated section 206(1).
6.

For the same reasons, the Court finds that the SEC failed to prove by a

preponderance of the evidence that Rashid aided and abetted a violation of section 206(1).
Section 209(f) of the Advisers Act creates liability for “any person that knowingly or recklessly
has aided, abetted, counseled, commanded, induced, or procured a violation of any provision of
this subchapter . . . .” 15 U.S.C. § 80b-9(f).
7.

To prove that Rashid is liable for aiding and abetting a violation of section

206(1), the SEC must prove by a preponderance of the evidence “(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.” DiBella, 587 F.3d at 566. “Consistent with
the specific text of section 209(f), either knowledge or recklessness may suffice for purposes of
aiding-and-abetting liability.” SEC v. Westport Capital Markets LLC, 408 F. Supp. 3d 93, 109
(D. Conn. 2019). “Satisfaction of the knowledge requirement will depend on the theory of

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primary liability, and there may be a nexus between the degree of knowledge and the
requirement that the alleged aider and abettor render ‘substantial assistance.’” DiBella, 587 F.3d
at 566 (quotation marks and alterations omitted).
8.

For the reasons explained as to the 206(1) claim, the Court finds that the

SEC’s evidence of Rashid’s reckless indifference to the source of his reimbursement did not
reflect recklessness approximating actual knowledge that the funds were reimbursing his
expenses. The Court further finds that the SEC has not proved that Apollo, as a purported
primary violator, acted with an intent to defraud the funds. The Court therefore finds that the
SEC failed to prove by a preponderance of the evidence that Rashid is liable for aiding and
abetting a violation of section 206(1) by Apollo.
9.

Section 206(2) makes it unlawful “to engage in any transaction, practice,

or course of business which operates as a fraud or deceit upon any client or prospective
client . . . .” 15 U.S.C. § 80b-6(2). “The extent of conduct subject to liability under the Advisers
Act is broad.” Treadway, 430 F. Supp. 2d at 338. “Consistent with this broad understanding of
liability, the Advisers Act makes it unlawful to ‘engage in any transaction . . . which operates as
a fraud.’ That is, any transaction that functions or otherwise results in a fraud is punishable
under this provision. Thus, the Advisers Act holds liable negligent acts.” DiBella, 587 F.3d at
569. An investment adviser is liable under section 206(2) if he violates “an affirmative
obligation ‘to employ reasonable care to avoid misleading’ his clients.” SEC v. Batterman, 2002
WL 31190171, at *8 (S.D.N.Y. Sept. 30, 2002) (Preska, J.) (quoting Capital Gains Research
Bureau, 375 U.S. at 194).
10.

The Court has found that Rashid knowingly and falsely claimed personal

expenses as business expenses, that the false business expenses were charged to and paid by

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funds he advised and that he was recklessly indifferent to the source of payment of the fake
business expenses, and that this pattern of conduct operated as a fraud upon the funds he advised.
These findings of fact support the conclusion of law that Rashid is liable pursuant to section
206(2) of the Advisers Act.
11.

Alternatively, if Rashid was not recklessly indifferent in failing to ensure

that the source of payment of the fake business expenses was not one of the funds he advised, he
was at least negligent in failing to do so. Rashid’s pattern of conduct in knowingly and falsely
submitting personal expenses as business expenses which were, in fact, paid by the funds
operated as a fraud on the funds he advised and would still support his liability under section
206(2), even if he was negligent in failing to take steps to ensure that the funds did not pay those
expenses. The Court has found that it was reasonably foreseeable that the funds could be the
source of payment.
12.

Because the Court finds that Rashid is liable for a primary violation of

section 206(2), it need not reach the SEC’s argument that he should be found liable on the
alternative grounds of aiding and abetting a section 206(2) violation by Apollo.
REMEDIES.
I.

Rashid Is Enjoined from Committing a Future Violation of Section 206.

“Once the district court has found federal securities law violations, it has broad
equitable power to fashion appropriate remedies.” SEC v. Frohling, 851 F.3d 132, 138 (2d Cir.
2016) (quotation marks omitted). The SEC urges that the Court should issue an order
permanently restraining and enjoining Rashid and all persons in active concert or participation
with him from violating section 206 of the Advisers Act, pursuant to section 209(d) of the Act,
15 U.S.C. § 80b-9(d). It separately urges that Rashid should pay a civil monetary penalty

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pursuant to section 209(e) of the Advisers Act, 15 U.S.C. § 80b-9(e), and specifically advocates
for a maximum tier-three monetary penalty totaling $750,000.
To obtain injunctive relief, the Advisers Act provides that a court “shall” issue a
decree, restraining order, or permanent or temporary injunction “[u]pon a showing that such
person has engaged . . . in any such act or practice” constituting a violation of the Advisers Act.
15 U.S.C. § 80b-9(d). The Second Circuit has held that this language “require[s] a finding of
‘likelihood’ or ‘propensity’ to engage in future violations.” SEC v. Commonwealth Chem. Sec.,
Inc., 574 F.2d 90, 99 (2d Cir. 1978) (citing Chris-Craft Industries, Inc. v. Piper Aircraft Corp.,
480 F.2d 341, 394 (2d Cir. 1973)). However, “a trial judge is vested with considerable discretion
in granting injunctive relief pursuant to this section. There need be only a reasonable likelihood
that the activity complained of will be repeated.” SEC v. Materia, 745 F.2d 197, 200 (2d Cir.
1984); see also SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1100 (2d Cir. 1972)
(“[F]raudulent past conduct gives rise to an inference of a reasonable expectation of continued
violations.”).
Among the other factors a court considers in determining whether there is a
reasonable likelihood of future violations are: (1) that the defendant has been found liable; (2)
the degree of scienter; (3) the isolated or repeated nature of the violations; (4) whether defendant
has accepted blame for his conduct; and (5) whether the nature of defendant’s occupation makes
it likely have he will have opportunities to commit future violations. SEC v. Cavanagh, 155 F.3d
129, 135 (2d Cir. 1998) (citation omitted). “[F]raudulent past conduct gives rise to an inference
of a reasonable expectation of continued violations.” Manor Nursing Ctrs., Inc., 458 F.2d at
1100.
The Court comfortably finds that a permanent injunction against Rashid’s future

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violations of section 206 is warranted. Rashid submitted numerous false expense reports over a
period of years. That he continued to do so after the matter was brought to his attention in 2010
demonstrates that he did not alter his behavior even after learning that his employer had become
aware of his false statements. While the SEC failed to prove that Rashid had actual knowledge
that his expenses were being borne by investors, it demonstrated a reckless indifference on the
part of Rashid, and his willingness to advance untruths even after being exposed. Rashid already
has a history of maintaining a course of misconduct following its discovery. The evidence amply
justifies the entry of an injunction against any future violation of section 206 by Rashid.
II.

Tier-One Civil Monetary Penalties Totaling $240,000 Are Warranted.

Section 209(e) of the Advisers Act provides for the assessment of civil monetary
penalties against persons who violate the statute. 15 U.S.C. § 80b-9(e)(2). It provides for three
tiers of penalties in the respective maximum amounts of $7,500, $75,000 and $150,000 per
violation. Id.; 17 C.F.R. § 201.1001, Table I col. 4, at https://www.sec.gov/enforce/civilpenalties-inflation-adjustments.htm (adjusting statutory penalties for violations between March
2009 and March 2013).
Civil penalties issued pursuant to the federal securities laws may have a punitive
or deterrent purpose. SEC v. Razmilovic, 738 F.3d 14, 38-39 (2d Cir. 2013). “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.” SEC v. Haligiannis, 470 F. Supp. 2d 373, 386 (S.D.N.Y. 2007)

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(Holwell, J.). These factors “have not been deemed an exhaustive list by this Court and are not
to be taken as talismanic.” SEC v. Rajaratnam, 918 F.3d 36, 45 (2d Cir. 2019). Courts may
consider a defendant’s wealth, his refusal to admit wrongdoing, and his lack of cooperation with
authorities. SEC v. Alpine Sec. Corp., 413 F. Supp. 3d 235, 245 (S.D.N.Y. 2019) (Cote, J.).
The highest, third-tier penalty is assessed for a violation of the Advisers Act that
“involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory
requirement” and “directly or indirectly resulted in substantial losses or created a significant risk
of substantial losses to other persons.” 15 U.S.C. § 80b-9(e)(2)(C). A second-tier penalty may
be assessed for the same conduct, except there is no requirement that the defendant’s actions
resulted in loss. Id. § 80b-9(e)(2)(B). There is no requirement that a first-tier penalty be a
product of deliberate or reckless misconduct, and “[t]he amount of the penalty shall be
determined by the court in light of the facts and circumstances.” 15 U.S.C. § 80b-9(2)(A).
Courts have discretion to determine what constitutes a separate violation, which
may vary from case to case. In a case brought under the Securities Act and the Exchange Act,
the Second Circuit noted that the district court appropriately counted each unlawful trade as a
separate violation. SEC v. Pentagon Capital Mgmt. PLC, 725 F.3d 279, 288 n.7 (2d Cir. 2013).
In Alpine Securities Corporation, Judge Cote ordered first-tier penalties to each of the
defendant’s 2,720 violations of an obligation to file suspicious activity reports. 413 F. Supp. 3d
at 250.
The SEC urges that Rashid should be assessed five third-tier civil penalties of
$150,000 each, reflecting that false expenses were passed on to each of Fund III, Fund V, Fund
VI, Fund VII and the ANRP. Rashid urges that his penalty should be limited to a single secondtier fine of $75,000.

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As the Court has already discussed at length, it is persuaded that Rashid engaged
in a course of conduct that involved repeatedly lying over the course of several years. His
behavior continued even after being caught. These were not isolated incidents, and were not, as
Rashid sometimes argued, a product of poor judgment calls or a liberal interpretation of what
was permissible under Apollo’s expense guidelines. The Court particularly notes that, even
through post-trial submissions, Rashid has attempted to pin blame on his administrative
assistants for purportedly engaging in guesswork when recording his expenses on PeopleSoft,
while simultaneously acknowledging responsibility on his own part for not monitoring them
more carefully. The Court finds that Rashid’s behavior was egregious, reckless, and recurrent,
and that his acknowledgment of responsibility was less than resounding.
At the same time, there is no dispute that Rashid cooperated with Apollo’s
internal investigation of his expenses. He voluntarily repaid all expenses that Apollo identified
to be personal in nature, totaling approximately $290,000, including expenses that fall outside
the limitations period. (Tr. 295, 556, 718.) The Court credits Rashid’s testimony that during the
internal investigation conducted by Paul Weiss and BDO, Rashid adopted an over-inclusive
approach to agreeing that all flagged expenses were personal in nature, even when he lacked a
specific memory of an expense. (Rashid Dec. ¶ 22.) Rashid credibly explains that he did so
based on the impression that if he cooperated, he was “very likely to be able to get [his] job
back.” (Rashid Dec. ¶ 20.) In weighing an appropriate civil penalty, the Court affords some
weight to Rashid’s cooperation with the Apollo investigation and his apparent acceptance of
responsibility within the Company itself.
The Court also considers it important that the policies and procedures within
Apollo contributed heavily to any act of fraud that was effected on investors in the Apollo funds.

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Apollo, and not Rashid, put in place a policy of invoicing expenses to funds that, pursuant to the
limited partnership agreements, seemingly should have been borne by Apollo’s own
management companies. The practices of the Accounts Receivable Department, which were
seemingly unknown to Apollo’s employees, also deserve significant blame.
At trial, the SEC proved by a preponderance of the evidence that Rashid
submitted false expense reports pertaining to thirty-two separate meals or trips. As noted, the
Court has some flexibility in determining which conduct qualifies as a violation for the purpose
of assessing a civil penalty. The SEC has urged that the Court view the invoicing of each
separate fund as its own violation, whereas Rashid has urged that his entire course of his conduct
be viewed as a single, unitary violation.
For the purposes of calculating Rashid’s civil penalty, the Court concludes that
the punitive and deterrent purposes of the securities laws are best served by assessing a $7,500
tier-one civil penalty for each of the thirty-two separate trips or meals that the SEC proved at
trial to be have been personal in nature. Trips that included the submission of multiple expenses
(e.g., lodging, flight and meals for the Miami wedding) shall constitute a single violation for
penalty purposes, as they were all submitted under the umbrella of a single trip. An aggregate
penalty of $240,000 is a significant sum that takes into account Rashid’s serial dishonesty while
also recognizing that the fraud effected upon Apollo’s private-equity funds also appears to be
attributable in part to internal Apollo practices that were unknown to Rashid.
The Court therefore directs that Rashid be assessed a civil penalty of $7,500 for
each of the thirty-two violations of section 206 that were proved at trial, for an aggregate penalty
of $240,000.

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CONCLUSION.
The Court finds that the SEC proved by a preponderance of the evidence that
Rashid violated section 206(2) of the Advisors Act. Rashid shall be permanently enjoined from
any and all future violations of section 206. Rashid shall separately be assessed a civil penalty of
$7,500 for each of the thirty-two violations proved at trial, in a total amount of $240,000.
The SEC shall file a Proposed Final Judgment within seven days.
SO ORDERED.

Dated: New York, New York
September 23, 2020

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