United States Securities and Exchange Commission v. Collector's Coffee Inc. et al

Filing 1608

DECISION AND ORDER granting in part and denying in part 1512 Motion ; terminating 1528 Letter Motion for Conference ; terminating 1539 Letter Motion for Conference ; terminating 1540 Letter Motion for Conference. For the foregoing reas ons, it is hereby ORDERED that the motion for remedies by Plaintiff United States Securities and Exchange Commission ("SEC") (Dkt. No. 1512) is GRANTED IN PART and DENIED IN PART; it is further ORDERED that Defendants Collector's Coff ee, Inc. ("Collector's Coffee") and Mykalai Kontilai (together with Collector's Coffee, "Defendants"), shall jointly and severally disgorge $21,910,824.84 in ill-gotten profits and $2,444,911.52 in prejudgmen t interest, with any restitution paid by Mykalai Kontilai in United States v. Kontilai, 20 Cr. 109 (D. Nev.) to offset his disgorgement obligation in this matter; it is further ORDERED that the Relief Defendant Veronica Kontilai shall disgorge $ ;332,522 in ill-gotten profits and $56,154.09 in prejudgment interest, jointly and severally with Defendants; it is further ORDERED that Defendant Collector's Coffee shall pay a civil penalty of $23,035,824 for violations of Section 17 (a) of the Securities Act of 1933 (the "Securities Act"), 15 U.S.C. § 77q(a)(1)-(3), Section 10(b) of the Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78j(b), and Rule 10b-5(b) ("Rule 10b-5") of the Exchange Act, 17 C.F.R. § 240.10b-5; it is further ORDERED that Defendant Collectors Coffee shall pay civil penalties in the amounts of $400,000, $576,158, and $576,158, totaling $1,552,316, for violations of Rule 21F-17 (& quot;Rule 21F-17") of the Exchange Act, 17 C.F.R. § 240.21F-17; it is further ORDERED that Defendant Mykalai Kontilai shall pay a civil penalty of $23,035,824 for violations of Section 17(a) of the Securities Act, Section 10(b) of th e Exchange Act, and Rule 10b-5(b) of the Exchange Act; it is further ORDERED that Defendant Mykalai Kontilai shall pay civil penalties in the amounts of $80,000, $115,231, and $115,231, totaling $310,462, for violations of Rule 2 1F-17 of the Exchange Act; it is further ORDERED that a permanent injunction shall be issued against Defendants Collectors Coffee and Mykalai Kontilai prohibiting future violations of Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act, Rule 10b-5 of the Exchange Act, and Rule 21F-17 of the Exchange Act; and it is further ORDERED that the motion by Defendants and Veronica Kontilai pursuant to Federal Rule of Civil Procedure 59 to set aside the trial verdict (Dkt. Nos. 1537, 1 539) is DENIED. The SEC shall submit a proposed judgment form within fourteen (14) days of the entry of this Order. The Clerk of Court is respectfully directed to close Dkt. Nos. 1512, 1528, 1539, and 1540. SO ORDERED. (Signed by Judge Victor Marrero on 3/10/2025) (jca) Transmission to Finance Unit (Cashiers) for processing.

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK

3/10/2025

SECURITIES AND EXCHANGE COMMISSION,

19 Civ. 4355 (VM)

Plaintiff,

DECISION AND ORDER

- against COLLECTOR’S COFFEE, INC. and MYKALAI
KONTILAI,
Defendants,
- and VERONICA KONTILAI,
Relief Defendant.
VICTOR MARRERO, United States District Judge.

Plaintiff

United

States

Securities

and

Exchange

Commission (“SEC”) brought this enforcement action against
defendants Collector’s Coffee, Inc. (“Collector’s Coffee” or
the “Company”) and Mykalai Kontilai (“Kontilai,” and together
with

Collector’s

Coffee,

“Defendants”).

The

SEC

alleges

violations of the federal securities laws that resulted in
near-total losses by Collector’s Coffee’s investors. The SEC
also named Kontilai’s spouse Veronica Kontilai (“V. Kontilai”
or “Relief Defendant”) as a relief defendant in this action,
alleging that V. Kontilai received funds from Defendants’
ill-gotten gains, with no legitimate claim to such funds.
As described below in greater detail, the Court granted
summary judgment in favor of the SEC on one of the SEC’s six

1

claims. The Court then held a seven-day bifurcated jury trial
on the SEC’s remaining four claims concerning Defendants’
liability. The jury returned a verdict in the SEC’s favor on
those four claims. At trial, the jury did not consider the
appropriate

measures

of

remedies

or

the

SEC’s

claim

concerning the Relief Defendant, which the Court reserved for
itself

to

decide

as

a

legal

matter

pursuant

to

well-

competing

requests

established Second Circuit precedent.
The

Court

is

now

presented

two

concerning what should occur next. The SEC asks the Court to
determine remedies, including a calculation of Defendants’
unlawful profits to be disgorged, an assessment of penalties,
and the issuance of a permanent injunction. (See SEC Motion
for

Remedies,

Dkt.

No.

1512

[hereafter

“SEC

Motion”].)

Defendants and Relief Defendant — citing the United States
Supreme Court’s decision in SEC v. Jarkesy, 603 U.S. 109
(2024) — ask the Court to set aside the trial verdict and
retry this case before a jury without bifurcating the issues
of

liability

and

remedies.

(See

Amended

Notice

of

Supplemental Authority, Dkt. No. 1537 [hereafter “Defendants’
Rule

59

Motion”

or

“Defs.’

Rule

59

Mot.”].)

Defendants

alternatively request that the Court hold a second jury trial
on remedies, or at least hold an evidentiary hearing. (See
Defendants’ Memorandum of Law in Opposition to Motion for
2

Remedies, Dkt. No. 1523 [hereafter “Defendants’ Opposition
Memorandum” or “Defs.’ Opp’n Mem.”].)
For the reasons set forth below, the SEC’s Motion is
hereby GRANTED IN PART and DENIED IN PART without prejudice.
Defendants’ Rule 59 Motion is DENIED.
I.

BACKGROUND

The Court assumes the parties’ familiarity with the
underlying facts of this case, which has been summarized by
the

Court

on

several

previous

occasions.

See

SEC

v.

Collector’s Coffee, Inc., 697 F. Supp. 3d 138, 147-155,
(S.D.N.Y. 2023) (granting preliminary injunction); SEC v.
Collector’s Coffee, Inc., No. 19 Civ. 4355, 2021 WL 1956369,
at *1-3 (S.D.N.Y. May 17, 2021) (recommending denial of motion
to dismiss), report and recommendation adopted, No. 19 Civ.
4355, 2021 WL 3082209 (S.D.N.Y. July 21, 2021).
A.

FACTUAL AND INVESTIGATIVE BACKGROUND
Kontilai founded and incorporated Collector’s Coffee in

2007. (See SEC Trial Exs. 1, 3.) Initially, Collector’s Coffee
aspired to build brick-and-mortar coffee houses at which
collectors could congregate and trade in rare collectibles.
(See Answer to Am. Compl., Dkt. No. 241 [hereafter “Answer”]
¶¶ 22, 26.) By 2009, the business abandoned its plan to open
brick-and-mortar locations and turned its focus instead to

3

establishing a website (the “CCI Website”) that would serve
as a marketplace for collectibles dealers and collectors,
with Collector’s Coffee collecting fees and commissions on
any transactions that its platform facilitated. (See SEC
Trial Exs. 12, 14.) As a parallel venture, Collector’s Coffee
also developed at least one episode of a television show (the
“CCI Television Show”) that showcased collectors and rare
collectible

items.

(Trial

Tr.

516:19-517:7.)

Also

in

parallel, Collector’s Coffee began to develop an authenticity
insurance offering (the “CCI Authenticity Insurance”). (See
SEC

Trial

Ex.

12;

Trial

Tr.

855:24-856:5.)

There

is

no

evidence that any of Collector’s Coffee’s several ventures
ever came to full fruition or generated any revenue.
Collector’s

Coffee,

largely

through

the

efforts

of

Kontilai, raised nearly $30 million from approximately 200
investors by issuing convertible notes between 2007 and 2018,
with upwards of $23 million raised between April 2014 and
December 2018 (the “Relevant Period”). 1 (See SEC Trial Exs.
75, 81; Declaration of Jacqueline M. Moessner, Dkt. No. 15131 [hereafter “Moessner Declaration” or “Moessner Decl.”] 2.)

Pursuant to a tolling agreement between the parties and the relevant
statute of limitations, the SEC did not seek to hold Defendants liable
for any conduct that occurred prior to April 1, 2014. (See SEC Mem. at 10
n.5.)
1

For the Moessner Declaration and supporting exhibits, the Court cites
to the ECF page numbers.

2

4

Communications to prospective investors — including placement
memoranda and Kontilai’s verbal and written statements — gave
a rosy picture of Collector’s Coffee’s various collectiblerelated ventures.
Those
particular,

communications
Defendants

were

materially

represented

that

misleading.

In

hundreds

of

collectibles dealers had committed to dealing collectibles
exclusively on the CCI Website. Defendants told investors
that, as a result of those commitments, billions of dollars’
worth of inventory would become available for sale upon the
launch of the CCI Website, and Collector’s Coffee would soon
earn revenue in fees and commissions when that inventory was
purchased or sold using the Collector’s Coffee platform. (See
Trial Tr. 234:20-25, 281:7-282:7, 537:12-538:5, 718:9-18.) In
reality, only a handful of dealers had committed to using the
CCI Website platform, and those commitments were tentative or
temporary. (Id. at 569:19-570:17, 964:18-965:9.)
Collector’s Coffee also represented that it held two
original contracts signed by the legendary American baseball
player Jackie Robinson (“Robinson”): one contract between
Robinson and the Montreal Royals signed in 1945, and one
contract between Robinson and the Brooklyn Dodgers signed in
1947 (together, the “Jackie Robinson Contracts”). (See SEC
Trial Ex. 13.) As early as 2015, Collector’s Coffee touted
5

that it would sell the Jackie Robinson Contracts – which had
been appraised for $25 million and $36 million in separate
appraisals - to generate much-needed revenue for the Company.
(See SEC Trial Ex. 15 at 20, 24.) This, too, was materially
misleading. Collector’s Coffee never disclosed to investors
the advice it received from industry experts that the Jackie
Robinson Contracts would be unlikely to sell for the amounts
Kontilai expected (and, indeed, Kontilai’s refusal to lower
the price of the Jackie Robinson Contracts is one reason why
Collector’s Coffee was never able to sell them). (See Trial
Tr. 617:6-618:7, 622:10-625:4, 641:24-643:15, 655:22-656:1.)
Moreover, Collector’s Coffee never disclosed that it had
promised large amounts of the contract sale proceeds to
others. (See SEC Trial Ex. 62 at 17; Trial Tr. 656:25-657:19.)
Finally,
funds

for

his

Kontilai

appropriated

personal

use

and

millions

omitted

in

any

investor

mention

to

investors of his unrestrained use of those funds for personal
expenses. Kontilai primarily accomplished this plundering of
corporate funds by directing an associate to make large
withdrawals of cash from company accounts and deliver the
cash

to

Kontilai.

(Trial

Tr.

365:1-374:14,

385:9-389:13,

400:7-405:7; SEC Trial Exs. 31, 74, 75, 110.) Kontilai further
directed that associate to disguise those withdrawals as
being related to collectibles purchases or Kontilai’s salary,
6

even though Kontilai represented to investors both that the
Company would never carry collectibles inventory because it
was

only

a

collectibles

marketplace,

not

a

collectibles

dealer, and that Kontilai performed all work for the Company
without taking any compensation. (See SEC Trial Ex. 35 at 2,
SEC Trial Ex. 40 at 11; Trial Tr. 324:17-23.) Kontilai and V.
Kontilai also used the Company’s credit cards to pay for
personal expenses. (See SEC Trial Exs. 84, 88-90; Moessner
Decl. at 15-16.)
Collector’s Coffee’s persistent difficulty in generating
any revenue — and, by extension, any meaningful returns to
investors — culminated in email complaints from investors in
2015. Kontilai, acting for Collector’s Coffee, entered into
a stock purchase agreement (the “2015 SPA”) to repurchase the
complaining

investors’

shares

in

Collector’s

Coffee

for

$50,015. (See Dkt. No. 938-1.) The 2015 SPA included promises
by

those

investors

not

to

contact

governmental

or

administrative agencies or enforcement bodies for the purpose
of prompting an investigation into Collector’s Coffee. (See
id.)
Collector’s Coffee faced complaints from investors again
in 2017, this time culminating in a lawsuit filed in Nevada
federal court alleging securities fraud, among other claims.
(See Trial Tr. 744:3-25; SEC Trial Ex. 49.) Collector’s Coffee
7

and Kontilai entered into an agreement (the “2017 Settlement
Agreement”) to settle the case with plaintiff-investors Ed
McLaughlin

and

Kirk

Jensen

(the

“Nevada

Plaintiff-

Investors”). (See SEC Trial Ex. 49.) The 2017 Settlement
Agreement included promises by the Nevada Plaintiff-Investors
not to contact or communicate with any regulatory agencies,
including the SEC. (See id.) Pursuant to the 2017 Settlement
Agreement, Collector’s Coffee promised to return the Nevada
Plaintiff-Investors’ principal investment of $1,500,000. (See
id.)
The 2017 lawsuit in Nevada federal court attracted the
attention of the SEC enforcement staff, who then began an
investigation into Collector’s Coffee for possible violations
of

the

federal

securities

laws.

During

the

SEC’s

investigation of the Company, Collector’s Coffee and Kontilai
supplied the SEC with numerous falsified documents, including
fake employment agreements, fake loan agreements, and bank
statements that had been altered to give the appearance that
outflows of cash to Kontilai were legitimate. (See SEC Trial
Exs. 57, 58, 65.)
The SEC also approached the Nevada Plaintiff-Investors,
who refused to voluntarily answer questions about Collector’s
Coffee, citing the 2017 Settlement Agreement. The Nevada
Plaintiff-Investors cooperated with the SEC only after the
8

SEC served them with subpoenas. (See Dkt. No. 1093-4 ¶¶ 1719.)

After

learning

that

the

Nevada

Plaintiff-Investors

supplied information to authorities in response to the SEC
subpoenas, Collector’s Coffee and Kontilai sued the Nevada
Plaintiff-Investors

for

breach

of

the

2017

Settlement

Agreement. (See Answer ¶ 6.) Collector’s Coffee and Kontilai
also brought claims for fraud, unjust enrichment, intentional
interference with contractual relations, civil conspiracy,
and breach of the implied covenant of good faith and fair
dealing. (Id. ¶¶ 129-33.) 3
B.

PROCEEDINGS TO ESTABLISH LIABILITY
The SEC brought this lawsuit against Collector’s Coffee

and Kontilai in May 2019. (See Compl., Dkt. No. 1.) The
Complaint, as amended in November 2019, brings six causes of
action under federal securities statutes and regulations: (1)
that Collector’s Coffee and Kontilai violated Section 10(b)
of the Securities Exchange Act of 1934 (the “Exchange Act”),
and Exchange Act Rule 10b-5(b) (“Rule 10b-5”), by making
fraudulent misstatements and omissions in connection with the
sale or purchase of securities; (2) that Collector’s Coffee
and Kontilai violated Section 17(a)(2) of the Securities Act

3
The lawsuit against the Nevada Investor-Plaintiffs was ultimately
dismissed without prejudice for failure to effect service on the
defendants. (Answer ¶ 135.)

9

of 1933 (the “Securities Act”) through the same fraudulent
misstatements and omissions; (3) that Collector’s Coffee and
Kontilai’s actions amounted to a prohibited fraudulent scheme
under Section 10(b) of the Exchange Act and Rule 10b-5(a) and
(c); (4) that these same actions violated Section 17(a)(1)
and (3); (5) that the 2015 SPA, the 2017 Settlement Agreement,
and the lawsuit to enforce the 2017 Settlement Agreement
violated Rule 21F-17 of the Exchange Act (“Rule 21F-17”); and
(6) that V. Kontilai received funds traceable to Collector’s
Coffee and Kontilai’s violations of the securities laws and
those funds must be equitably disgorged. (See Am. Compl.,
Dkt. No. 134.)
This Court granted summary judgment on the SEC’s fifth
claim,

which

alleged

Collector’s

Coffee’s

and

Kontilai’s

violations of Rule 21F-17. See SEC v. Collector’s Coffee,
Inc., No. 19 Civ. 4355, 2021 WL 5360440, at *3-4 (S.D.N.Y.
Nov. 17, 2021). Rule 21F-17 prohibits “any ‘person’ from
taking ‘any action to impede an individual from communicating
directly

with

the

Commission

staff

about

a

possible

securities law violation, including enforcing, or threatening
to enforce, a confidentiality agreement . . . with respect to
such communications.’” Id. at *4 (citing 17 C.F.R. § 240.21F17(a)). The Court found that there was no genuine dispute of
material fact that Defendants entered into the 2015 SPA and
10

the 2017 Settlement Agreement, which “expressly prevented
[investors]

from

communicating

with

the

SEC

regarding

securities laws violations” in violation of Rule 21F-17. Id.
The Court also found that Defendants “actually sued to prevent
such communications and advertised those suits in order to
chill further communication” in violation of Rule 21F-17. Id.
The SEC’s remaining four claims regarding Defendants’
liability — brought under Section 17 of the Securities Act
and Section 10(b) of the Exchange Act — were tried to a jury
in December 2023. Pursuant to standard SEC practice, the Court
bifurcated the issues of liability and remedies, and the jury
heard only the evidence that was relevant to liability. See
SEC

v.

Collector’s

Coffee,

Inc.,

19

Civ.

4355,

2023

WL

8111865, at *2-3 (S.D.N.Y. Nov. 22, 2023) (excluding evidence
relating to the proper amount of disgorgement because “the
jury’s singular role is to determine Defendants’ liability at
trial”). The Court heard testimony of eleven live witnesses
over

the

received

course

of

the

into

evidence

seven-day
104

trial.

exhibits

The
for

Court
the

also

jury’s

consideration. The jury returned a verdict in favor of the
SEC on all four remaining counts as to both Defendants.

11

C.

PARALLEL CRIMINAL PROCEEDINGS
In addition to capturing the attention of the SEC’s

enforcement

department,

Defendants’

conduct

captured

the

attention of the United States Department of Justice (the
“Justice Department”), which also began an investigation into
potential criminal violations of federal securities laws. As
that investigation proceeded in late 2019, Kontilai departed
the United States. On September 2, 2019, Kontilai arrived in
Russia and sought asylum there on the basis that he feared
political

persecution

by

governmental

authorities

in

the

United States, in particular the SEC. (See Decl. of Mykalai
Kontilai, Dkt. No. 409-1.) More specifically, Kontilai told
Russian authorities that he was a journalist who revealed
corrupt

schemes

within

the

United

States

government

and

therefore faced civil charges in retaliation by the SEC. (See
Decl. of Mykalai Kontilai, Ex. 5, Dkt. No. 409-6; see also
Dkt. No. 1532-1 (certified translation of same).) Kontilai
also

told

government

Russian

authorities

threatened

him

with

that

the

physical

United

States

reprisal

and

imprisonment on fabricated charges, and that Kontilai would
be subject to degrading punishments and treatment. (See id.)
Russian authorities denied Kontilai’s asylum request. (See
id.)

12

On March 10, 2020, Kontilai was indicted by a federal
grand jury in Colorado for conspiring to obstruct official
proceedings, obstructing official proceedings, tampering with
documents, and making false statements, all in connection
with Kontilai’s obfuscation of the SEC’s investigation into
Collector’s Coffee. (See Decl. of Robert Heim, Ex. 1, Dkt.
No. 637-1; see also United States v. Kontilai, 20 Cr. 83,
Dkt. No. 1 (D. Colo. Mar. 10, 2020).) On June 3, 2020,
Kontilai was again indicted — this time by a federal grand
jury in Nevada — for securities fraud, wire fraud, money
laundering, and willful failure to file tax returns, all in
connection with the same conduct that forms the basis of this
action. (See Decl. of Robert Heim, Ex. 2, Dkt. No. 637-2; see
also United States v. Kontilai, 20 Cr. 109, Dkt. No. 1 (D.
Nev. Jun. 3, 2020).)
Although arrest warrants were issued for Kontilai, he
remained

at

large

in

Europe

until

German

authorities

apprehended him on April 22, 2023, pursuant to an Interpol
Red Notice. (See Dkt. No. 1209; see also Transfer Report and
Certified Translation, Dkt. No. 1532-3.) Kontilai remained in
German custody while he contested his extradition to the

13

United States. 4 (See Dkt. No. 1411 at 2-4; see also Dkt. No.
1463 at 1-2.) Kontilai was eventually extradited to the United
States and appeared in the United States District Court for
the District of Nevada on May 7, 2024. (See Dkt. No. 1526.)
On November 21, 2024, Kontilai pleaded guilty to one
count of wire fraud in violation of 18 U.S.C. § 1343 pursuant
to a plea agreement. (See United States v. Kontilai, 20 Cr.
109, Dkt. No. 24 (D. Nev. Nov. 21, 2024).) On December 4,
2024, Kontilai was sentenced to 51 months’ imprisonment and
ordered to pay $6,100,000 in restitution. (See Dkt. No. 16001.) As part of the plea agreement, the Justice Department
dismissed the pending criminal case in Colorado. (See id.)
Kontilai is currently incarcerated. (See id.)
D.

THE INSTANT MOTION
The SEC filed its Motion for remedies on March 1, 2024,

pursuant to the Court’s so-ordered briefing schedule. (See
Dkt. No. 1500.) The SEC Motion was accompanied by a memorandum
of law, (see SEC Memorandum of Law in Support of Motion for
Remedies, Dkt. No. 1513 [hereafter “SEC Memorandum” or “SEC
Mem.”]), the Moessner Declaration with three accompanying
exhibits thereto, (see Moessner Decl.), and excerpts from

Kontilai remained in German custody for the duration of this Court’s
jury trial. The Court did not permit him to testify remotely. (See Dkt.
No. 1411 at 2-4.)
4

14

Kontilai’s

deposition

testimony.

(See

Dkt.

No.

1513-4.)

Defendants filed an opposition memorandum, (see Defs.’ Opp’n
Mem.), and an expert declaration (see Declaration of Stefano
Vranca, Dkt. No. 1523-1 [hereafter “Vranca Declaration” or
“Vranca Decl.”]). 5
The SEC thereafter replied. (See SEC Reply Memorandum of
Law

in

Support

of

Motion

for

Remedies,

Dkt.

No.

1524

[hereafter “SEC Reply Memorandum” or “SEC Reply Mem.”].) V.
Kontilai

filed

(Conditional)

a

separate

Memorandum

opposition

of

Relief

memorandum,

Defendant

(see

Veronica

Kontilai in Response to Motion for Remedies, Dkt. No. 1518
[hereafter

“Relief

Defendant’s

Opposition

Memorandum”

or

“Relief Def.’s Opp’n Mem.”]), to which the SEC separately
replied. (See SEC Reply Memorandum of Law in Support of Motion
for Remedies as to Relief Defendant Veronica Kontilai, Dkt.
No.

1525

[hereafter

“SEC

Reply

Memorandum

to

Relief

Defendant” or “SEC Reply Mem. to Relief Def.”].)
After the SEC Motion had been fully briefed, the SEC
filed a notice of supplemental evidence concerning Kontilai’s
financial condition, particularly admissions made by Kontilai
while making a bail application in his criminal case in

5 The Vranca Declaration, to which the Vranca Report is attached, was
originally submitted in connection with Defendants’ efforts to modify the
asset freeze and preliminary injunction in 2022. (See Dkt. No. 1094-1.)

15

Nevada. (See Dkt. No. 1527.) Defendants supplied a responsive
letter, (see Dkt. No. 1529), and Kontilai himself supplied a
responsive

declaration.

(See

Dkt.

No.

1530-1.)

The

SEC

thereafter replied. (See Dkt. No. 1532.)
While the SEC’s Motion was still pending, Defendants
filed

a

notice

of

supplemental

authority

concerning

the

United States Supreme Court’s decision in SEC v. Jarkesy; the
Court has construed this notice to be a motion to set aside
the trial verdict pursuant to Federal Rule of Civil Procedure
59 (“Rule 59”). (See Defs.’ Rule 59 Mot.) The SEC thereafter
responded,

(see

SEC

Response

to

Notice

of

Supplemental

Authority, Dkt. No. 1538 [hereafter “SEC Response to Rule 59
Motion” or “SEC Resp. to Rule 59 Mot.”]), and Defendants
replied. (See Defendants’ Letter Motion Requesting a New
Trial,

Dkt.

No.

1540

[hereafter

“Defendants’

Rule

59

Reply”].)
II.

RULE 59 DISCUSSION

Before considering the merits of the SEC’s requests to
assess remedies in this case, the Court must first consider
whether Defendants are entitled to a new trial under the
Seventh Amendment pursuant to the holding in SEC v. Jarkesy,
603 U.S. 109 (2024). Rule 59 permits the Court to “grant a
new trial” to any party “for any reason for which a new trial

16

has heretofore been granted in an action at law in federal
court,” Fed. R. Civ. P. 59(a)(1)(A), as long as twenty-eight
days have not passed since the entry of judgment. Fed. R.
Civ. P. 59(b). Judgment has not been entered in this matter,
so Defendants’ request for a new trial under Rule 59(a) is
timely. However, for the reasons explained below, Defendants
are not entitled to a new trial under Jarkesy.
Constitutional infirmities in trial procedures comprise
the types of legal errors that may justify a new trial under
Rule 59. Defendants contend that the Court’s bifurcation of
proceedings in this case — and, more specifically, reserving
for itself issues of remedies — violated the Seventh Amendment
of the United States Constitution. (See Defs.’ Rule 59 Mot.)
The Seventh Amendment guarantees a right to a jury
determination of facts “[i]n Suits at common law.” U.S. Const.
amend. VII. The Supreme Court interprets the term “Suits at
common law” to refer to “suits in which legal rights were to
be ascertained and determined, in contradistinction to those
where equitable rights alone were recognized, and equitable
remedies were administered.” Feltner v. Columbia Pictures
Television,

Inc.,

523

U.S.

340,

347-48

(1998)

(citation

omitted). The Supreme Court has further held that Seventh
Amendment safeguards are not limited to common-law actions
that existed at the time of the Amendment’s ratification, but
17

also extend to “actions brought to enforce statutory rights
that are analogous to common-law causes of action ordinarily
decided in English law courts in the late 18th century, as
opposed to those customarily heard by courts of equity or
admiralty.” Granfinanciera, S.A. v. Nordberg, 492 U.S. 33, 41
(1989).
“[T]he close relationship between federal securities
fraud and common law fraud confirms” that an SEC enforcement
action is “legal in nature” and therefore subject to the jury
right embraced by the Seventh Amendment. Jarkesy, 603 U.S. at
126 (citation omitted). Drawing on this language, Defendants
contend that their Seventh Amendment rights would be violated
if this Court makes its own findings of fact when determining
remedies, even after a jury determined liability. (See Defs.’
Rule 59 Mot. at 3.) More specifically, Defendants would like
a jury to perform the disgorgement calculation in this case
and

decide

frauds,

what

what

funds

funds

Defendants
Defendants

obtained

through

their

already

restituted

to

investors, and what funds should not be disgorged because
they were spent for legitimate business purposes. (See id.)
Defendants misunderstand the holding in Jarkesy, which arose
in a procedural posture entirely different from this case.
To

be

precise,

Jarkesy

was

not

a

challenge

to

the

practice of federal judges finding facts relating to remedies
18

in SEC enforcement actions, but instead was a challenge to
the statute authorizing the SEC to determine liability and
assess

penalties

against

a

defendant

before

an

in-house

administrative law judge. Jarkesy, 603 U.S. at 119-20. As
important

background

on

the

SEC

enforcement

practices

challenged in Jarkesy, the SEC may bring an enforcement action
in one of two forums: the SEC can either “adjudicate the
matter itself” or “it can file suit in federal court.” Id. at
116. “[W]hen the SEC adjudicates the matter in-house, there
are no juries.” Id. at 117. For in-house proceedings, the
Commission may “delegate its role as judge and factfinder to
one of its members or to an administrative law judge [] that
it employs.” Id. By comparison, for actions brought in federal
court, “a jury finds the facts, depending on the nature of
the claim,” and “a life-tenured, salary-protected Article III
judge presides.” Id.
In Jarkesy, the SEC’s claims of securities fraud were
adjudicated by an administrative law judge employed by the
SEC itself, not by a federal court. Id. at 118-19. Indeed,
the securities fraud defendants in Jarkesy sought the same
treatment that the Defendants received here: adjudication of
the SEC’s fraud claims in an Article III federal court. See
id. at 119-20. Because Jarkesy arose from an in-house SEC
assessment of penalties for securities fraud, that case says
19

little about which (if any) factual questions an Article III
court may withdraw from the jury and decide for itself.
Rather, Tull v. United States settled that the Seventh
Amendment does not require a jury determination of remedies
in enforcement actions brought by a governmental agency in
federal court. 481 U.S. 412, 425-27 (1987); id. at 427 (“[A]
determination of a civil penalty is not an essential function
of a jury trial and [] the Seventh Amendment does not require
a jury trial for that purpose in a civil action.”); see also
SEC v. Tome, 833 F.2d 1086, 1096 n.7 (2d Cir. 1987) (“[T]he
Seventh Amendment right to a jury trial does not apply to the
equitable actions for disgorgement.”); SEC v. Commonwealth
Chem. Secs., Inc., 574 F.2d 90, 95 (2d Cir. 1978) (same
regarding disgorgement and permanent injunction). Moreover,
Tull is cited repeatedly with approval by the Supreme Court
in Jarkesy, reinforcing this Court’s conclusion that Jarkesy
did not disturb the holding in Tull. See Jarkesy, 603 U.S. at
120-125, 133-34, 136, 139.
Here, Defendants had a jury trial that conclusively
established their liability for violations of the antifraud
provisions of both the Securities Act and the Exchange Act.
Defendants’ Seventh Amendment right to a jury trial has
therefore been honored by this Court. See Tull, 481 U.S. at

20

426-27. Accordingly, Defendants’ request for proceedings to
determine remedies before a jury is hereby DENIED.
III. REMEDIES DISCUSSION
Turning to the merits, the SEC seeks several remedies
against Defendants Kontilai and Collector’s Coffee, as well
as disgorgement for Relief Defendant V. Kontilai. The Court
addresses in turn the remedies seeking disgorgement, civil
penalties, and issuance of a permanent injunction.
A.

DISGORGEMENT BY DEFENDANTS
The SEC requests that Collector’s Coffee and Kontilai

jointly

and

severally

disgorge

$23,035,824

in

ill-gotten

gains and $2,515,650 in prejudgment interest. Upon collection
of

any

disgorgement

award,

the

SEC

intends

to

make

a

distribution to harmed investors, to the extent feasible.
(See SEC Mem. at 13.) For the reasons explained below, the
Court finds that Defendants are jointly and severally liable
for

$21,910,824.84

in

disgorgement

and

$2,444,911.52

in

prejudgment interest, and that the SEC is entitled to judgment
in those amounts.
1.

Legal Standard

“Once the district court has found federal securities
law violations, it has broad equitable power to fashion
appropriate remedies,” including disgorgement. SEC v. First

21

Jersey Sec., Inc., 101 F.3d 1450, 1474 (2d Cir. 1996). The
Exchange Act, as amended, states that “[i]n any action or
proceeding brought by the Commission under any provision of
the securities laws, the Commission may seek, and any Federal
court

may

order,

disgorgement.”

15

U.S.C.

§

78u(d)(7).

Section 78u(d)(5) similarly permits “any equitable relief
that may be appropriate or necessary for the benefit of
investors.” 15 U.S.C. § 78u(d)(5); see also Liu v. SEC, 591
U.S. 71, 75 (2020) (holding the SEC may seek disgorgement as
a form of equitable relief under Section 78u(d)(5)).
“Disgorgement

serves

to

remedy

securities

law

violations by depriving violators of the fruits of their
illegal conduct.” SEC v. Contorinis, 743 F.3d 296, 301 (2d
Cir. 2014); Litton Indus., Inc. v. Lehman Bros. Kuhn Loeb
Inc., 734 F. Supp. 1071, 1076 (S.D.N.Y. 1990) (recognizing
the

purpose

of

disgorgement

“is

to

prevent

unjust

enrichment”). As an equitable remedy, disgorgement is limited
to “a wrongdoer’s net profits,” meaning “the gain made upon
any

business

or

investment,

when

both

the

receipts

and

payments are taken into account.” Liu, 591 U.S. at 75, 83
(internal quotation marks omitted and citation omitted); see
also SEC v. Ahmed, 72 F.4th 379, 396 (2d Cir. 2023) (holding
that

Liu’s

analysis

under

Section

disgorgement under Section 78u(d)(7)).
22

78u(d)(5)

applies

to

2.
The

Disgorgement Calculation Framework

Second

Circuit

applies

a

two-step

framework

to

calculate equitable monetary relief. SEC v. Gallison, No. 15
Civ. 05456, 2023 WL 8813637, at *3 (S.D.N.Y. Aug. 8, 2023).
When seeking disgorgement, “the SEC bears the ultimate burden
of

persuasion

approximates

that

the

its

amount

disgorgement
of

unjust

figure

reasonably

enrichment.”

SEC

v.

Opulentica, LLC, 479 F. Supp. 2d 319, 330 (S.D.N.Y. 2007).
“The amount of disgorgement ordered need only be a reasonable
approximation

of

profits

causally

connected

to

the

violation.” SEC v. Razmilovic, 738 F.3d 14, 31 (2d Cir. 2013)
(citation omitted). Because “separating legal from illegal
profits exactly may at times be a near-impossible task,” as
long as the SEC’s disgorgement calculation is reasonable, any
risk of uncertainty should “fall on the wrongdoer whose
illegal conduct created that uncertainty.” Id. (citations
omitted).
Once the SEC has met the applicable standard, the burden
shifts to the defendant to show that the SEC’s disgorgement
figure is inaccurate. SEC v. O'Brien, No. 23 Civ. 1071, 2024
WL 2813722, at *2 (2d Cir. June 3, 2024). The defendant
satisfies his burden by “demonstrating that he received less
than the full amount allegedly misappropriated and sought to
be

disgorged.”

SEC

v.

Benson,
23

657

F.

Supp.

1122,

1133

(S.D.N.Y. 1987). The defendant may also rebut the SEC’s
calculation by identifying additional “legitimate” business
expenses that should be deducted from an otherwise reasonable
disgorgement amount. See SEC v. Fowler, 6 F.4th 255, 267 (2d
Cir. 2021).

The

3.

The SEC’s Disgorgement Calculation

SEC

seeks

a

disgorgement

award

of

$23,035,824,

arguing that this figure is a reasonable approximation of
Defendants’ net profits from their unlawful conduct. (SEC
Mem. at 12-13; “SEC Resp. December 2024 Order” at 3, Dkt. No.
1587.) The SEC submitted the Moessner Declaration to support
its

position

that

Defendants

raised

$23,035,824

from

investors since April 1, 2014. (Moessner Decl. at 5-9.) To
calculate Defendants’ net profits, the SEC accounted for
investments made to Collector’s Coffee that appeared in the
Company’s bank records. (Moessner Decl. at 2-3.) The SEC also
accounted for five payments Defendants made to investors,
also based on the Company’s bank records. (Moessner Decl. at
6, 8.) One of these payments was advanced in connection with
the 2015 SPA, by which Defendants repurchased a group of
investors’ shares in Collector’s Coffee for $50,015. (Id. at
6.) However, the SEC did not account for Defendants’ payments
made to the Nevada Plaintiff-Investors in relation to the

24

2017 Settlement Agreement. (See “December 2024 Order,” Dkt.
No. 1584.)
Courts routinely account for money returned to investors
in disgorgement calculations. See SEC v. Govil, 86 F.4th 89,
106-07 (2d Cir. 2023); SEC v. Pierre, No. 19 Civ. 10299, 2024
WL

1994051,

at

*10

(S.D.N.Y.

May

6,

2024).

Given

that

disgorgement is an equitable remedy, a defendant is “only
required to give back the proceeds of his securities fraud
once.” SEC v. Palmisano, 135 F.3d 860, 863 (2d Cir. 1998)
(citation omitted); Liu, 591 U.S. at 80 (under equitable
principles, a wrongdoer “should not profit by his own wrong”
but also “should not be punished by paying more than a fair
compensation to the person wronged” (citations and alteration
omitted)).

Otherwise,

“forcing

a

defendant

to

pay

disgorgement twice amounts to a penalty.” Govil, 86 F.4th at
107. Based on these equitable principles, the Court directed
the SEC to submit a revised disgorgement calculation that
accounted for all of Defendants’ payments made to investors
during the Relevant Period. (See December 2024 Order.) 6
The

SEC’s

revised

net

profits

approximation

of

$21,910,824.84 now accounts for the Company’s payments to the

The SEC submitted its revised disgorgement calculation on January 14,
2025. (See SEC Resp. December 2024 Order.) Defendants submitted a response
on January 29, 2025. (See “Defs.’ Resp. December 2024 Order,” Dkt. No.
1601.)
6

25

Nevada Plaintiff-Investors. 7 (SEC Resp. December 2024 Order
at

3.)

Nonetheless,

the

SEC

maintains

that

Defendants’

payments to the Nevada Plaintiff-Investors should not be
considered because the 2017 Settlement Agreement was illegal
and thus those payments constituted illegitimate business
expenses. (SEC Reply Mem. at 3-4; SEC Resp. December 2024
Order at 3.) The SEC appears to “confuse[] deductions for
business

expenses . . . with

payments

in

satisfaction

of

disgorgement.” Govil, 86 F.4th at 110. Moreover, the SEC’s
position is contradictory because it accounted for the 2015
SPA payment in the Moessner Declaration, but not the 2017
Settlement

Agreement

payments,

despite

both

agreements

containing illegal confidentiality clauses. As this Court
previously held, both the 2015 SPA and the 2017 Settlement
Agreement
provisions

violated

Rule

prohibiting

communicating

with

21F-17

because

investors

from

regulatory

agencies.

they

included

contacting
See

or

Collector’s

The SEC submitted that Defendants paid the Nevada Plaintiff-Investors
$1,125,000 of the $1,500,00 owed under the 2017 Settlement Agreement.
(See SEC Resp. December 2024 Order at 1-2; December 2024 Order at 3.) The
first payment of $750,000 was made from Kontilai’s personal bank account
at TD Bank to counsel for the Nevada Plaintiff-Investors on June 27, 2017.
(SEC Resp. December 2024 Order at 1.) There are no records of the remaining
payment(s) totaling $375,000; however, Defendants stated in the Nevada
litigation that they had paid the Nevada Plaintiff-Investors $1,125,000
under the 2017 Settlement Agreement and the SEC conferred with counsel
for the Nevada Plaintiff-Investors, who confirmed the same. (Id. at 12.) Defendants did not dispute the SEC’s figure of $1,125,000 in their
response. (See Defs.’ Resp. December 2024 Order.) Thus, there is no
indication that Defendants ever paid the remaining $375,000 owed to the
Nevada Plaintiff-Investors under the 2017 Settlement Agreement.
7

26

Coffee, Inc., 2021 WL 5360440, at *3-4. Thus, to properly
account for Defendants’ payments back to investors, the Court
adopts

the

SEC’s

revised

net

profits

approximation

of

$21,910,824.84.
The Court finds that the SEC’s revised net profits
approximation of $21,910,824.84 is sufficiently supported by
the Company’s bank records, as summarized in the Moessner
Declaration and the SEC’s supplemental submission, and is
thus a reasonable calculation of the applicable disgorgement
figure. The Moessner Declaration, as revised, accounts for
payments

from

investors

to

the

Company

as

well

as

the

Company’s payments back to investors, including the 2015 SPA
and the 2017 Settlement Agreement. (Moessner Decl. at 2-3, 59; SEC Resp. December 2024 Order at 3.) See SEC v. Bajic, No.
20 Civ. 7, 2023 WL 6289953, at *3 (S.D.N.Y. Sept. 27, 2023).
The Court finds that the SEC has met its initial burden of
establishing

a

reasonable

computation

of

Defendants’

disgorgement.
4.
Defendants’ Rebuttal of the Disgorgement
Calculation
The burden now shifts to Defendants to dispute the
reasonableness of the SEC’s disgorgement calculation. See
O'Brien, 2024 WL 2813722, at *2. Defendants argue that the
SEC did not account for the Company’s legitimate business

27

expenses. (Defs.’ Opp’n Mem. at 6-14.) Defendants allege that
during the Relevant Period Collector’s Coffee made numerous
expenditures for legitimate business purposes, as evidenced
by

the

expert

report

of

Stefano

Vranca

(“Vranca”)

and

anecdotal witness testimony at trial. (Id.) Defendants also
contend that many of these expenses were “self-evidently”
legitimate.

(Id.)

Further,

Defendants

argue

that

an

evidentiary hearing is necessary because this Court has not
given

them

legitimate

an

opportunity

business

to

expenses.

present
(Id.

at

evidence
6.)

of

these

However,

as

explained below, Defendants have not offered any reliable
evidence

of

legitimate

business

expenses,

nor

is

an

evidentiary hearing necessary.
Attempting to prove the Company’s purportedly legitimate
business

expenses,

Defendants

primarily

rely

on

Vranca’s

expert report, which was initially submitted to modify the
asset freeze and preliminary injunction in 2022. (See id. at
13-14; Vranca Decl.) At the preliminary injunction stage,
Magistrate Judge Gabriel Gorenstein concluded that Vranca’s
expert report was “essentially worthless” because Vranca’s
analysis of the Company’s business expenses “consisted of
simply questioning whether such an expense could conceivably
be made for the benefit of a company [of Collector’s Coffee’s]
size, without any sort of investigation or analysis as to
28

whether the expenses were legitimate or actually made for
[Collector’s Coffee’s] benefit.” Collector’s Coffee, Inc.,
697 F. Supp. 3d at 153. Ultimately, Vranca “ha[d] absolutely
no idea” whether expenses were “proper or legitimate” and
merely

determined

that

“these

expenses,

in

the

sense, are expenses that businesses incur.” Id.

grossest

Magistrate

Judge Gorenstein found that Defendants, relying solely on
Vranca, “ha[d] not offered any competent [evidence] as to
what expenses [were] actually legitimate.” Id. at 173 n.15.
In the same vein, this Court granted the SEC’s motion in
limine to exclude Vranca’s testimony from trial. (Dkt. No.
1440.)

This

“appear[ed]

Court
to

explained

have

the

that

even

academic

though

and

Vranca

professional

qualifications to testify as an expert,” he “d[id] not offer
opinions with sufficient reliability.” (Id. at 7.) Vranca
assumed “that the millions in expenses, loan repayments, and
compensation were lawful expenditures that Collector’s Coffee
incurred in good faith.” (Id. at 7.) However, “Vranca d[id]
not

grapple

with

the

considerable

record

evidence

that

contradict[ed] these assumptions,” concluding instead “that
the expenses were lawful because they [were] conceivably
related

to

the

Collector’s

Coffee

business.”

(Id.)

Even

though “Vranca purport[ed] to compare Collector’s Coffee’s
expenses to businesses of comparable size,” “his report d[id]
29

not explicate his methodology in this respect.” (Id. at 78.)
Undeterred by the absence of evidence refuting those
findings, Defendants now insist that the Court should accept
Vranca’s report as sufficient evidence to rebut the SEC’s
calculations regarding legitimate business expenses. (See
Defs.’ Opp’n Mem. at 12-14.) However, the fundamental flaws
of Vranca’s report – which were previously identified by this
Magistrate

Judge

Gorenstein

and

by

this

Court

-

remain

unchanged. Accordingly, the Court finds that Vranca’s expert
report is not reliable evidence to identify the Company’s
legitimate business expenses.
Nor can Defendants escape Vranca’s flawed opinions by
offering him as a lay witness instead of as an expert. 8 (See
Defs.’ Opp’n Mem. at 4-6.) Vranca is “clearly an ‘expert’”
that brought his “technical background to bear” in examining
Defendants’

accounts

and

records

and

was

“specifically

engaged” for that purpose. Bank Brussels Lambert v. Chase
Manhattan Bank, N.A., 175 F.R.D. 34, 42 (S.D.N.Y. 1997).

8 Defendants once again object to the SEC’s reliance on Moessner as a lay
witness. (Defs.’ Opp’n Mem. at 5-6; Relief Def.’s Opp’n Mem. at 11-13.)
The Court reiterates its previous holding that Moessner was appropriately
presented as a lay witness and that the Moessner Declaration and
accompanying exhibits “centralize voluminous financial records” that
“contain no analysis and are instead simply a distillation of admissible
evidence” that “does not amount to an offer of expert testimony based on
a witness’s scientific, technical, or specialized knowledge.” (Dkt. No.
1440 at 25-26.)

30

Defendants contend, without reliable support, that Vranca
“does not forfeit [his] status as an expert merely because
[he] learned ‘facts’ in the course of its investigation in
addition to developing expert opinions.” Id. at 42-43.
Defendants also insist that an evidentiary hearing is
needed

to

adequately

address

the

question

of

legitimate

business expenses. No hearing is required here. A district
court has broad discretion “in calculating the amount to be
disgorged.” Contorinis, 743 F.3d at 301 (quoting First Jersey
Sec., Inc., 101 F.3d at 1474-75). An evidentiary hearing is
unnecessary where there is a “sufficient basis from which to
evaluate the fairness of the disgorgement sought by the SEC.”
SEC v. Boock, No. 09 Civ. 08261, 2014 WL 7641158, at *7
(S.D.N.Y. Oct. 27, 2014) (citation omitted). As explained
above,

the

SEC’s

submission

and

supporting

evidence

are

sufficient for this Court to make a remedies determination
without conducting a hearing. See SEC v. Becker, No. 09 Civ.
5707, 2010 WL 2165083, at *3 (S.D.N.Y. May 28, 2010).
Nor will an evidentiary hearing cure Defendants’ failure
to

submit

reliable

evidence

bolstering

a

reasonable

disgorgement calculation. Contrary to Defendants’ assertions,
Defendants were not prevented from submitting evidence of
legitimate

business

expenses

at

the

remedies

stage.

For

example, Defendants could have submitted affidavits and other
31

corroborating evidence to support their position on various
business expenses, including those referenced anecdotally at
trial, but failed to do so. See Gallison, 2023 WL 8813637, at
*4

(defendants

failed

to

prove

any

legitimate

business

expenses because they offered no documentation to support the
claimed expenses and did not corroborate the use of funds
that were received); SEC v. Amah, No. 21 Civ. 6694, 2024 WL
3159846, at *4 (S.D.N.Y. June 25, 2024) (no deductions for
business expenses where defendant merely submitted a list of
“purported

expenses

explanation

for

records”

or

without

them”

“a

such

sworn

any

underlying

as

“corresponding

declaration

support

or

business

corroborating

the

information”). Instead, Defendants submitted only Vranca’s
report,

which

this

Court

has

repeatedly

found

was

fundamentally flawed, in part because Vranca did not reliably
determine whether an expense was legitimate.
The trial testimony Defendants cite, without more, is
insufficient

to

prove

the

Company’s

legitimate

business

expenses. (See Defs.’ Opp’n Mem. at 6-11.) Although the Court
will

not

provides

belabor
some

these

various

illustrative

shortcomings,

examples.

Defendants

the

Court

point

to

numerous expenses related to the CCI Television Show and CCI
Website, but the trial testimony indicates that many of those
expenses were incurred before the Relevant Period and are
32

thus improper for calculating disgorgement. Those referenced
expenses include Gary Ferrell’s testimony that Kontilai paid
$495,000 to produce the pilot of the CCI Television Show
sometime in the summer of 2008, (Trial Tr. 503:2-11, 509:22510:4), Kontilai’s deposition testimony, which was read to
the jury, that Collector’s Coffee entered into an agreement
with Bite Size Television to distribute the CCI Television
show in 2013, (id. at 1169:1-20), and that Collector’s Coffee
had spent “seven figures plus” on the CCI Website by 2013.
(Id. at 1160:11-1162:9.) Moreover, Defendants’ references to
broad categories of expenses fall short of the specificity
needed to dispel any uncertainty regarding the date, amount,
or purpose of each expense. See Razmilovic, 738 F.3d 14 at
31. For instance, even though Collector’s Coffee had paid
employees, Defendants did not submit any evidence related to
their salaries, such as how much the employees were paid or
the scope or length of their employment. Defendants also
overlooked witness testimony indicating that Kontilai refused
to

pay

at

least

one

employee,

and

some

employees

were

terminated and re-hired several times. (Trial Tr. 340:17341:10, 381:16-383:19.) See Gallison, 2023 WL 8813637, at *4;
Amah, 2024 WL 3159846, at *4.
Nor did Defendants seek leave to request additional
pages under Section II.D of the Court’s Individual Practices,
33

even

though

Defendants

now

argue

that

the

page

limits

prevented them from presenting evidence of expenses. (See
Defs.’ Opp’n Mem. at 13.) And when given another opportunity
to present evidence of funds paid back to investors, (see
December 2024 Order), Defendants resubmitted Vranca’s report
but did not address the SEC’s accounting or provide additional
evidence of funds returned to investors during the Relevant
Period. (See Defs.’ Resp. December 2024 Order.)
Given the lack of evidence and the principle that a
defendant “will not be allowed to diminish the show of profits
by putting in . . . inequitable deductions” where “the entire
profit of a business or undertaking results from the wrongful
activity,” the SEC was not required to deduct any business
expenses from the disgorgement calculation. Liu, 591 U.S. at
84

(internal

quotations

marks

omitted).

Defendants

have

failed to prove that any legitimate business expenses should
be deducted or that the SEC’s calculation of their unlawful
gains

is

inaccurate.

approximation

of

The

Court

Defendants’

finds

that

net

profits

the

SEC’s
remains

$21,910,824.84.
5.

Restitution in Parallel Criminal Action

Separately, Defendants argue that this Court must limit
disgorgement

to

the

restitution

ordered

in

Kontilai’s

parallel criminal proceeding in Nevada federal court. (Defs.’
34

Resp. December 2024 Order at 2-3.) The restitution order
imposed in that action requires Kontilai to pay $6.1 million
in restitution to dozens of investors. (Dkt. No. 1600-1 at 819

(investor

list

with

pro

rata

restitution

amounts).)

However, this argument fails because Defendants overlook the
distinction between criminal and civil remedies.
“The
actions

is

simultaneous

prosecution

of

civil

and

criminal

generally

unobjectionable

because

the

federal

government is entitled to protect the separate interest of
different federal agencies at the same time.” SEC v. Credit
Bancorp, Ltd., 738 F. Supp. 2d 376, 389 (S.D.N.Y. 2010)
(citation

omitted).

In

terms

of

remedies,

“Congress

may

impose both a criminal and a civil sanction in respect to the
same act or omission,” because the Double Jeopardy Clause
“protects only against the imposition of multiple criminal
punishments for the same offense” in successive proceedings.
Palmisano, 135 F.3d at 864-65 (citations omitted). Courts
have

repeatedly

found

that

“disgorgement,

Commission

penalties, and injunctions are civil” remedies, not criminal,
and “thus do not violate the Double Jeopardy Clause.” Credit
Bancorp,

Ltd.,

738

F.

Supp.

2d

at

389

(listing

cases).

Accordingly, overlapping remedies between criminal and civil
actions are permissible – and common - in cases like the one
now before the Court.
35

Defendants argue that Kontilai’s liability to investors
has already been decided, as evidenced by the $6.1 million
restitution order imposed in the Nevada parallel criminal
proceeding.

(Defs.’

Resp.

December

2024

Order

at

2-3.)

According to Defendants, that restitution order precludes
this Court from imposing a larger disgorgement award based on
the doctrines of collateral estoppel and res judicata. (Id.)
Not so. The doctrines of collateral estoppel and res judicata
do

not

require

equivalent

restitution

and

disgorgement

amounts because restitution and disgorgement are distinct
remedies: “[R]estitution aims to make the damaged persons
whole, while disgorgement aims to deprive the wrongdoer of
ill-gotten gains.” SEC v. Drexel Burnham Lambert, Inc., 956
F. Supp. 503, 507 (S.D.N.Y. 1997); cf. Contorinis, 743 F.3d
at

306-07

(criminal

disgorgement

because

forfeiture
“the

two

did

remedies

not

limit

reflect

civil

different

characteristics and purposes” and “reflect the diversity of
corrective

action

necessary

regime”).

“Although

to

disgorged

enforce
funds

the

may

securities

often

go

to

compensate securities fraud victims” such as investors “for
their losses, such compensation is a distinctly secondary
goal.” SEC v. Fischbach Corp., 133 F.3d 170, 175 (2d Cir.
1997).

Thus,

“a

district

court

36

may

order

disgorgement

regardless of whether the disgorged funds will be paid to
such investors as restitution.” Id. at 176.
Given that “disgorgement and restitution are separate
remedies with separate goals,” these remedies “need not be
treated the same.” SEC v. Smith, 646 F. App'x 42, 44 (2d Cir.
2016)

(holding

collateral

estoppel

did

not

limit

the

disgorgement amount in a civil action to the restitution
amount in the related criminal action); SEC v. Namer, No. 97
Civ. 2085, 2004 WL 2199471, at *7 (S.D.N.Y. Sept. 30, 2004)
(“[R]es

judicata

because

the

does

remedies

not

apply

available

in
in

[Defendants’]
a

civil

action

favor
are

unavailable in a criminal action.”). Indeed, courts routinely
impose

disgorgement

awards

that

are

larger

than

the

restitution ordered in the parallel criminal case. See e.g.,
Palmisano, 135 F.3d at 864. In the instant action, the Court
will

not

reduce

the

disgorgement

award

to

match

the

restitution ordered in Kontilai’s parallel criminal case in
Nevada.
Although not an issue raised by the parties, the Court
is mindful that restitution payments in a parallel criminal
action

are

routinely

credited

towards

the

disgorgement

ordered against the same defendant in a civil enforcement
action because a defendant is “only required to give back the
proceeds of his securities fraud once.” Palmisano, 135 F.3d
37

at 863 (citation omitted); see id. at 863-64 (holding any
payments made towards the $3.7 million restitution order
would be applied to the $9.2 million disgorgement order);
Credit Bancorp, Ltd., 738 F. Supp. 2d at 391 (“To the extent
that

[Defendant]

has

paid

or

pays

the

amount

owed

in

restitution, the amount of his disgorgement obligation may be
offset accordingly.”). Although Defendants make no suggestion
that Kontilai has made any restitution payments, to the extent
that Kontilai pays or has paid restitution as ordered in the
Nevada

criminal

judgment,

such

payments

will

offset

his

disgorgement obligation in this action. See Opulentica, LLC,
479 F. Supp. 2d at 331.
6.

Prejudgment Interest

In connection with a disgorgement award, a district
court has discretion to award prejudgment interest “for the
period during which a defendant had the use of his illegal
profits.” Razmilovic, 738 F.3d at 36. Imposing prejudgment
interest on a disgorgement award “prevents a defendant from
obtaining the benefit of what amounts to an interest free
loan procured as a result of illegal activity.” SEC v. Credit
Bancorp, Ltd., No. 99 Civ. 11395, 2011 WL 666158, at *3
(S.D.N.Y. Feb. 14, 2011) (citation omitted). If awarded,
prejudgment

interest

is

generally

calculated

using

the

Internal Revenue Service (“IRS”) underpayment rate set forth
38

in 26 U.S.C. § 6621(a)(2). See SEC v. Airborne Wireless
Network, No. 21 Civ. 01772, 2024 WL 4891899, at *9 (S.D.N.Y.
Nov. 26, 2024).
Here, an award of prejudgment interest is necessary to
adequately capture the full measure of Defendants’ ill-gotten
gains, as Defendants had improper access to those funds for
years until their assets were frozen in May 2019 in connection
with this litigation. See Collector’s Coffee, Inc., 697 F.
Supp. 3d at 148; SEC v. Universal Exp., Inc., 646 F. Supp. 2d
552, 566 (S.D.N.Y. 2009). Applying the IRS underpayment rate
to the amount of disgorgement ordered above, the prejudgment
interest totals $2,444,911.52. (See SEC Resp. December 2024
Order at 3.) Defendants do not challenge the SEC’s prejudgment
interest calculation, and the Court finds that the SEC’s
calculation is sound. (See id.; Dkt. No 1513-2.)
7.

Joint and Several Liability

The SEC seeks to hold Defendants jointly and severally
liable for the disgorgement and prejudgment interest awards.
When multiple defendants collaborate in the illegal conduct
and liability must be apportioned among them, courts have the
discretion to impose joint and several liability up to the
amount of their combined gains derived from the illegal
conduct. See SEC v. AbsoluteFuture.com, 393 F.3d 94, 97 (2d
Cir. 2004).
39

Joint and several liability is particularly appropriate
where apportionment of the disgorgement award is difficult or
practically
complex,

impossible

heavily

because

disguised

the

defendants

transactions

in

an

engaged

in

effort

to

conceal their fraud. See Boock, 2014 WL 7641158, at *3. Like
with

disgorgement,

defendants

may

be

held

jointly

and

severally liable for prejudgment interest because of their
collaboration and close relationship in committing the fraud.
Becker, 2010 WL 2165083, at *4.
Defendants argue that they cannot be held jointly and
severally liable for the disgorgement award under Liu v. SEC,
591

U.S.

71

Defendants

(2020).

(See

misinterpret

Liu

Defs.’
on

Opp’n

this

Mem.

point.

at
Liu

17-18.)
did

not

categorically reject a disgorgement award imposed against
multiple parties. See FTC v. Shkreli, 581 F. Supp. 3d 579,
642 (S.D.N.Y. 2022). Rather, the Supreme Court found that
disgorgement cannot be applied jointly and severally where
such a remedy was not available at common law. Liu, 591 U.S.
at 90. As relevant here, the Supreme Court recognized that
common

law

“partners

did

permit

engaged

in

joint

and

concerted

several

liability

wrongdoing.”

Id.

for

Thus,

“[j]oint and several liability for disgorgement is properly
imposed when multiple defendants have collaborated in an
illegal scheme.” Shkreli, 581 F. Supp. 3d at 642.
40

Indeed, courts before and after Liu have found joint and
several

liability

is

appropriate

where

individual

and

corporate co-defendants were “partners engaged in concerted
wrongdoing.” Liu, 591 U.S. at 90; First Jersey Sec., Inc.,
101 F.3d at 1475 (affirming joint and several disgorgement
award “where [the] firm ha[d] received gains through its
unlawful conduct” and “its owner and chief executive officer
ha[d] collaborated in that conduct and ha[d] profited from
the violations”); SEC v. Bronson, 602 F. Supp. 3d 599, 61819 (S.D.N.Y. 2022) (imposing joint and several liability on
individual

and

company

defendants

where

the

individual

defendant was “integral to the scheme, which he ran through
the companies that he controlled”).
Joint and several liability is appropriate here. Courts
in this Circuit have imposed disgorgement awards jointly and
severally on defendants, including individuals and corporate
entities,
liable’

where
for

the

the

individual

fraud

that

defendant
created

was

the

“‘primarily

profits,

was

‘intimately involved’ in the perpetration of the fraud, and
was

a

‘controlling

Oppenheimer,

No.

15

person’
Civ.

of

the

5456,

2024

company.”
WL

3342098,

SEC

v.

at

*3

(S.D.N.Y. July 8, 2024) (citations and alterations omitted).
Kontilai and Collector’s Coffee, which Kontilai founded and
solely controlled, were partners in wrongdoing. Kontilai was
41

primarily liable for the fraud that created the resulting net
profits, was intimately involved in the perpetuation of the
fraud, and was a controlling person of the company. See, e.g.,
Shkreli, 581 F. Supp. 3d at 642-43 (imposing joint and several
liability

on

individual

individual

defendant,

and

who

company

was

the

defendant

company’s

where

the

founder

and

largest shareholder, “was the mastermind of [the company’s]
illegal conduct and the person principally responsible for it
throughout the years”).
For the reasons discussed above, the Court finds that
Kontilai and Collector’s Coffee are jointly and severally
liable for disgorgement in the amount of $21,910,824.84 and
$2,444,911.52 in prejudgment interest.
B.

DISGORGEMENT BY RELIEF DEFENDANT
1.

Legal Standard

A relief defendant is someone who “does not have a
legitimate claim to assets that [she] has received as a gift,
without payment of consideration,” SEC v. Constantin, 939 F.
Supp. 2d 288, 311 (S.D.N.Y. 2013), and “may be joined in a
securities enforcement action to aid the recovery of relief.”
CFTC v. Walsh, 618 F.3d 218, 225 (2d Cir. 2010) (citation
omitted). Accordingly, “courts may order equitable relief
against a person who is not accused of wrongdoing in a

42

securities enforcement action where that person: (1) has
received ill-gotten funds; and (2) does not have a legitimate
claim to those funds.” SEC v. Cavanagh, 155 F.3d 129, 136 (2d
Cir. 1998); Ahmed, 72 F.4th at 408 (finding relief-defendant
liability under Cavanagh applies to disgorgement).
2.

Disgorgement

The Court first addresses V. Kontilai’s assertion that
a disgorgement award is improper because the SEC failed to
prove her liability during the December 2023 jury trial.
(Relief Def.’s Opp’n Mem. at 2-3, 8-9.) The Court previously
rejected this argument and reaffirms its ruling here. (See
Dkt. No. 1511 at 1.) “[T]he SEC does not have a ‘cause of
action’ against a relief defendant.” SEC v. Yin, No. 17 Civ.
972, 2023 WL 2753094, at *8 (S.D.N.Y. Mar. 31, 2023). Rather,
a relief defendant is named as a party “solely to effect full
relief in the marshalling of assets that are the fruit of the
underlying fraud.” Id. (citation omitted); SEC v. Aragon Cap.
Advisors, LLC, No. 07 Civ 919, 2011 WL 3278907, at *21
(S.D.N.Y. July 26, 2011) (“Because the nominal or relief
defendant possesses the funds that are the subject of the
litigation, [s]he must often be joined purely as a means of
facilitating collection.” (citation omitted)).
As

the

Court

previously

explained,

given

that

V.

Kontilai is a relief defendant, it is inaccurate “to suggest
43

that the SEC had a burden to introduce evidence concerning
wrongdoing by Veronica Kontilai” at trial. (Dkt. No. 1511 at
1.) V. Kontilai was not on trial – and thus her liability was
not at issue - because the SEC “d[id] not allege that Veronica
Kontilai, herself, violated the securities laws; rather, the
SEC allege[d] only that she received the proceeds of others’
violations of the securities laws.” (Id. at 2.) Naming a
relief defendant, and subsequently seeking disgorgement once
the named defendants’ liability for return of unlawful gains
has been established, is a common practice in SEC enforcement
actions. (Id. at 2 (citing Cavanaugh, 155 F.3d at 136).) Nor
is V. Kontilai entitled to a jury trial at this stage because,
as explained above, the Seventh Amendment right to a jury
trial does not apply to the Court’s determination of remedies.
(See also Dkt. No. 1511 at 2-3.) Accordingly, the Court finds
that V. Kontilai was properly named as a relief defendant and
is now subject to a potential disgorgement award at this stage
of the litigation, as assessed by this Court.
Turning to the merits, the SEC contends that V. Kontilai
received $332,522 in ill-gotten funds from Defendants to
which she had no legitimate claim, as evidenced by deposits
and transfers into her bank accounts, as well as charges to
her Company credit card during the Relevant Period. (SEC Mem.
at

15-16.)

In

response,

V.
44

Kontilai

takes

two

general

positions: (1) V. Kontilai was a housewife and homemaker and
had nothing to do with her husband’s company Collector’s
Coffee, and (2) even if V. Kontilai did receive funds from
Defendants, she obtained such gains for legitimate businessrelated expenses, as evidenced by Vranca’s report. 9 (Relief
Def.’s Opp’n Mem. at 2, 9-15.) The Court first addresses
whether

V.

Kontilai

received

ill-gotten

funds

from

Defendants, and if so, whether V. Kontilai had a legitimate
claim to those funds. See Cavanagh, 155 F.3d at 136.
i.

Sources of Ill-Gotten Funds

V. Kontilai insists that as a housewife and homemaker,
she had no involvement with Collector’s Coffee and did not
receive any funds that can be traced back to the Company.
(Relief Def.’s Opp’n Mem. at 2, 15.) Indeed, the SEC does not
specify

which

persons

deposits - totaling

or

$308,011

-

entities

made

the

137

into

Kontilai’s

bank

V.

V. Kontilai’s arguments concerning the nominee doctrine and the bona
fide purchase defense are irrelevant because the SEC does not seek
disgorgement on the theory that V. Kontilai “holds bare legal title to an
asset” but that Defendants are the true equitable owners of that asset.
Ahmed, 72 F.4th at 408-09 (explaining that the nominee doctrine and the
bona fide purchase defense are both “necessarily an asset-specific
inquiry”). Rather, the SEC seeks disgorgement on the basis that V.
Kontilai received ill-gotten funds without consideration to which she
does not have a legitimate claim. See Cavanagh, 155 F.3d at 136; Ahmed,
72 F.4th at 408 (recognizing that equitable principles permit finding
third-party liability under Cavanagh or the nominee doctrine). The Court
also reiterates its prior holding that compelling V. Kontilai to testify
against her husband in this action did not violate the marital privilege.
(See Dkt. No. 1511 at 3, citing Dkt. No. 45, which granted the SEC’s
motion to compel V. Kontilai’s deposition testimony over marital privilege
objections.)
9

45

accounts during the Relevant Period. 10 (See Moessner Decl. at
10-14.) Because the SEC has not identified the sources of her
income, V. Kontilai argues that the SEC cannot prove that the
funds she received from Defendants were ill-gotten gains.
(Relief Def.’s Opp’n Mem. at 15.)
The

SEC

argues

that

it

is

entitled

to

an

adverse

inference and asks this Court to find that the funds V.
Kontilai

received

were

ill-gotten

gains

from

Defendants

because V. Kontilai repeatedly invoked her Fifth Amendment
privilege for all questions regarding the sources of her
income. (SEC Mem. at 15-16.) The SEC emphasizes that at
deposition, V. Kontilai refused to answer questions about the
source of any deposits she received since the Company was
founded in 2007, the source of any funds she used for living
expenses since 2007, the funds she received from her husband,
her use of the Company’s credit card, and the assets she
currently holds. (Id.) Essentially, the SEC asks this Court
to find that because V. Kontilai was a homemaker and refused
to identify any other income sources, the funds she received
during the Relevant Period derived presumptively from her

V. Kontilai does not dispute that she personally incurred the 73 charges
on the Company credit card issued to her, which totaled $25,511. (Moessner
Decl. at 15-16.)

10

46

husband and Collector’s Coffee, his only source of income
established by the record here.
“[C]ourts in civil cases can draw adverse inferences
against relief defendants should they invoke their Fifth
Amendment privilege not to testify.” See Ahmed, 72 F.4th at
409 n.19; SEC v. Suman, 684 F. Supp. 2d 378, 386 (S.D.N.Y.
2010) (“Such an [adverse] inference may be drawn in a civil
disgorgement action.”). Even though a civil defendant has the
right to remain silent, “[s]he is not entitled to profit by
h[er] silence.” SEC v. Tome, 638 F. Supp. 596, 610 (S.D.N.Y.
1986). Thus, “[a]n adverse inference may be given significant
weight.” LiButti v. United States, 178 F.3d 114, 120 (2d Cir.
1999). Otherwise, “the invocation of the [Fifth Amendment]
privilege results in a disadvantage to opposing parties by
keeping them from obtaining information they could otherwise
get.” Suman, 684 F. Supp. 2d at 386. The scope of an adverse
inference is within the district court’s discretion. See
Donoghue v. Retrophin, Inc., 2015 WL 13882435, at *2 (S.D.N.Y.
July 20, 2015).
The Court agrees that the SEC’s inability to ascertain
the sources of V. Kontilai’s funds – specifically, whether
such funds originated from Defendants - is largely due to V.
Kontilai’s refusal to answer any questions regarding the

47

sources of her income. 11 (See V. Kontilai 6/25/19 Dep. Tr.
21:25-26:13, Dkt. No. 1052-24.) Considering V. Kontilai’s
invocation of her Fifth Amendment privilege, the detailed
accounting by the SEC, and that V. Kontilai was a homemaker
with no other identifiable sources of income, the Court draws
an adverse inference that the funds she received during the
Relevant

Period

were

likely

from

Defendants

and

thus

constituted ill-gotten gains. 12 See SEC v. Durante, No. 01
Civ. 9056, 2013 WL 6800226, at *11 (S.D.N.Y. Dec. 19, 2013)
(drawing adverse inference where defendant’s spouse asserted
her Fifth Amendment privilege on all substantive questions,
ranging from her occupation to the “over $1.2 million dollars
in deposits into a bank account held solely in her name”);
see also SEC v. Fujinaga, 698 F. App'x 865, 867 (9th Cir.
2017) (no abuse of discretion in drawing an adverse inference
where the defendant invoked her Fifth Amendment privilege
because her testimony “was necessary to determine whether
[she] had a legitimate claim to the funds at issue” and she

Likewise, Kontilai invoked his Fifth Amendment privilege when asked
about V. Kontilai’s sources of income since 2007 or if V. Kontilai had
used any Company money for personal expenses since 2014. (Mykalai Kontilai
6/24/2019 Dep. Tr. 14:12-17, 22:9-24, Dkt. No. 689-5.)

11

Any funds transferred to V. Kontilai from Defendants during the Relevant
Period were most likely ill-gotten funds: even though Defendants
repeatedly told investors that Kontilai did not take a salary, Kontilai’s
only source of income from 2007 until May 2019 was Collector’s Coffee
and, as discussed above, all of the profits from Collector’s Coffee were
ill-gotten gains. See Collector’s Coffee, Inc., 697 F. Supp. 3d at 177.

12

48

“was

the

only

person

in

possession

of

the

information

regarding the legitimacy of [her] claim to the funds”); SEC
v. Colello, 139 F.3d 674, 678 (9th Cir. 1998) (same where the
relief defendant “refused to give information necessary to
determine whether he still possessed any of the funds or
whether he had a legitimate claim to them”).
ii.

Legitimate Claim to Ill-Gotten Funds

V. Kontilai argues that even if she received any funds
from Defendants, those funds were for meant and used for
legitimate

business

expenses,

as

evidenced

by

Vranca’s

report. (Relief Def.’s Opp’n Mem. at 13-14.) But as explained
above, Vranca’s report does not comprise reliable evidence of
Collector’s Coffee’s legitimate business expenses and will
not be considered by this Court. Without any other supporting
evidence, V. Kontilai has failed to prove that any funds
dispersed to her were used to pay for the Company’s legitimate
business expenses. Nor does V. Kontilai provide any other
basis for her purportedly legitimate claim to such funds from
Defendants.
iii.

Other Equitable Considerations

V. Kontilai further argues that even if the funds she
received were ill-gotten gains from Defendants, she spent the
funds more than a year before this action was filed. Thus,
according to V. Kontilai, she cannot be ordered to disgorge
49

those funds because doing so would amount to a penalty.
(Relief Def.’s Opp’n Mem. at 11-12, 15.) V. Kontilai also
maintains that she “is nearly a pauper,” so any disgorgement
award would amount to a penalty. (Id. at 11.)
V. Kontilai’s argument that ordering disgorgement is
improper because she already spent the funds is meritless. V.
Kontilai

does

proposition.

not

(See

cite
id.

at

any

legal

authority

15.)

Rather,

courts

for

that

may

order

disgorgement “without giving consideration to whether or not
the defendant may have squandered and/or hidden the illgotten profits.” SEC v. McCaskey, No. 98 Civ. 6153, 2002 WL
850001, at *5 (S.D.N.Y. Mar. 26, 2002) (citation omitted).
Moreover, “to withhold the remedy of disgorgement or penalty
simply because a swindler claims that she has already spent
all the loot and cannot pay would not serve the purposes of
the securities laws.” SEC v. Inorganic Recycling Corp., No.
99 Civ. 10159, 2002 WL 1968341, at *4 (S.D.N.Y. Aug. 23,
2002).
Contrary to V. Kontilai’s assertions, the disgorgement
remedy imposed on her is not punitive. See Off. Comm. Of
Unsecured Creditors of WorldCom, Inc. v. SEC, 467 F.3d 73, 81
(2d Cir. 2006) (“Disgorgement merely requires the return of
wrongfully obtained profits; it does not result in any actual
economic

penalty.”

(citations
50

omitted)).

Ordering

disgorgement here does not amount to a penalty: The SEC simply
seeks to recoup the investor funds that were wrongfully
obtained by Defendants and subsequently distributed to V.
Kontilai. See id. To allow a wrongdoer to transfer their
fraudulent proceeds to others would defeat the disgorgement
remedy by “allow[ing] almost any defendant to circumvent the
SEC’s

power

procedure

to

of

recapture

giving

fraud

[assets]

proceeds,

by

friends

and

to

the

simple

relatives.”

Cavanagh, 155 F.3d at 137.
Moreover,

V.

Kontilai’s

argument

that

disgorgement

cannot be imposed because she is a pauper is self-serving and
unpersuasive. “In deciding a motion for disgorgement, a court
is not bound to consider a defendant's claims of financial
hardship.” Universal Exp., Inc., 646 F. Supp. 2d at 565; see
also McCaskey, 2002 WL 850001, at *5 (“[F]inancial hardship
is

not

Kontilai

grounds

for

presented

denying
any

disgorgement.”).

evidence

about

her

Nor

has

V.

financial

condition. See, e.g., Universal Exp., Inc., 646 F. Supp. 2d
at 565 (declining to consider defendant’s financial condition
because defendant “has provided no evidence of financial
hardship

other

assertions”).

than
The

his

own

self-serving

and

conclusory

Court

will

not

V.

Kontilai’s

consider

financial situation in awarding disgorgement.

51

Ultimately, the Court finds that a disgorgement award of
$332,522

against

V.

Kontilai

as

a

relief

defendant

is

warranted.
3.

Prejudgment Interest

The SEC also seeks a judgment of prejudgment interest
against V. Kontilai in an amount of $56,154.09. As is the
case regarding Defendants, the Court finds that an award of
prejudgment interest is warranted here. See SEC v. Garcy, No.
11 Civ. 2282, 2015 WL 13753679, at *4 (E.D.N.Y. June 24,
2015). “[B]ecause the purpose of disgorgement in the context
of

relief

defendants

is

to

deprive

the

third-party

associates, friends and family of those who violate federal
securities laws of ill-gotten profits, it is appropriate to
account for the prejudgment interest attributable to such
profits.” Id. (citation and alterations omitted). V. Kontilai
does not address prejudgment interest and the Court finds
that the SEC’s calculation at the IRS underpayment rate is
sound. (See Dkt. No. 1513-3.) Accordingly, the Court also
imposes

an

award

of

$56,154.09

in

prejudgment

interest

against V. Kontilai.
4.

Joint and Several Liability

Further, V. Kontilai shall be jointly and severally
liable with Defendants for her portion of the ill-gotten funds
and the accompanying prejudgment interest. See SEC v. Alt.
52

Green Techs., Inc., No. 11 Civ. 9056, 2014 WL 7146032, at *4
(S.D.N.Y. Dec. 15, 2014) (“Each Relief Defendant received a
portion of the ill-gotten gains and may therefore be held
jointly

and

severally

liable,

along

with

the

Named

Defendants, for that portion.”). Joint and several liability
is appropriate because V. Kontilai enjoyed the fruits of the
fraudulent scheme, which funded her lifestyle and included
luxury purchases, dining, and travel. (See Moessner Decl. at
15-16.) See Liu, 591 U.S. at 91 (citing SEC v. Hughes Cap.
Corp., 124 F.3d 449, 456 (3d Cir. 1997) (imposing joint and
several liability for disgorgement where relief defendant
benefited from the ill-gotten funds because her defendantspouse

paid

for

“all

household

expenses,

their

lavish

lifestyle, and expensive automobiles”)); SEC v. VerdeGroup
Inv. Partners, Inc., No. 21 Civ. 07663, 2022 WL 2200409, at
*5 (C.D. Cal. Jan. 14, 2022) (same where disgorgement award
accounted

for

more

expenses,

including

than

$200,000

jewelry,

in

“primarily

cruise

ship

personal

travel,

and

dining”).
* * *
For the reasons discussed above, Defendants Kontilai and
Collector’s

Coffee

$21,910,824.84

in

are

jointly

disgorgement

and

severally

and

liable

for

$2,444,911.52

in

prejudgment interest, totaling $24,355,736.40. To the extent
53

that

Kontilai

has

made

or

makes

payments

towards

the

$6,100,000 ordered in restitution in the parallel criminal
case, such payments will offset his disgorgement obligation
in this action. Further, Relief Defendant V. Kontilai is
jointly and severally liable with Defendants for $332,522 in
disgorgement and $56,154.09 in prejudgment interest, totaling
$388,676.09.
C.

CIVIL PENALTIES
In

addition

penalties

for

to

disgorgement,

Defendants’

the

respective

SEC

seeks

violations

civil
of

the

antifraud provisions in the Securities Act and the Exchange
Act, as well as Defendants’ respective violations of Rule
21F-17. For the reasons explained below, the Court imposes
civil

penalties

of

$23,035,824

against

Kontilai

and

$23,035,824 against Collector’s Coffee for their respective
securities fraud violations. The Court also imposes $310,462
in civil penalties against Kontilai and $1,552,316 in civil
penalties against Collector’s Coffee for their respective
violations of Rule 21F-17.
1.

Legal Standard

The Securities Act and the Exchange Act both authorize
three tiers of civil penalties, in increasing severity, as
remedies for securities law violations. See 15 U.S.C. §

54

77t(d)(2)

(Securities

Act);

15

U.S.C.

§

78u(d)(3)(B)

(Exchange Act). First-tier penalties may be imposed for any
securities violations. 15 U.S.C. § 77t(d)(2)(A); 15 U.S.C.
§ 78u(d)(3)(B)(i). Second-tier penalties may be imposed if
the

violations

involved

fraud,

deceit,

manipulation,

or

deliberate or reckless disregard of a regulatory requirement.
15

U.S.C.

§

77t(d)(2)(B);

15

U.S.C.

§

78u(d)(3)(B)(ii).

Third-tier penalties, which the SEC seeks here, may be imposed
if, in addition to meeting the second-tier requirements, the
violations directly or indirectly resulted in substantial
losses or created a significant risk of substantial losses to
other

persons.

15

U.S.C.

§

77t(d)(2)(C);

penalty

provisions

15

U.S.C.

not

define

§ 78u(d)(3)(B)(iii).
Although

the

do

“violation,” courts may “look to the number of investors
defrauded

or

the

number

of

fraudulent

transactions

to

determine the number of violations.” SEC v. GTF Enters., Inc.,
No. 10 Civ. 4258, 2015 WL 728159, at *4 (S.D.N.Y. Feb. 19,
2015). Courts may also consider “whether the violations were
all part of a single scheme.” Id. The penalty imposed for
each third-tier violation “shall not exceed the greater of
(I) $100,000 for a natural person or $500,000 for any other
person, or (II) the gross amount of pecuniary gain to such
defendant

as

a

result

of

the
55

violation.”

15

U.S.C.

§ 77t(d)(2)(C); see 15 U.S.C. § 78u(d)(3)(B)(iii) (same). The
maximum amount for each civil penalty may be adjusted for
inflation based on the date of the violation. See 17 C.F.R. §
201.1001; Inflation Adjustments to Civil Monetary Penalties
Administered

by

the

SEC

(as

of

January

15,

2024)

(“SEC

Inflation Adjustments 2024”). 13
The Securities Act and the Exchange Act both provide for
civil penalties in addition to disgorgement because these are
distinct

remedies

with

different

purposes.

Unlike

disgorgement, civil penalties are “designed to punish the
individual

violator

and

deter

future

violations

of

the

securities laws.” SEC v. Shehyn, No. 04 Civ. 2003, 2010 WL
3290977, at *8 (S.D.N.Y. Aug. 9, 2010) (citation omitted). To
further this purpose, defendants are not entitled to deduct
money returned to victims from a civil penalties award.
Otherwise, a defendant who paid back all gains before judgment
could

practically

nullify

the

disgorgement.

See

SEC

v.

Fowler, 440 F. Supp. 3d 284, 298–99 (S.D.N.Y. 2020).
Moreover, civil penalties cannot be awarded jointly and
severally. See SEC v. Pentagon Cap. Mgmt. PLC, 725 F.3d 279,
287-88 (2d Cir. 2013) (citing 15 U.S.C. § 77t(d)(2)). However,

Available at https://www.sec.gov/enforce/civil-penalties-inflationadjustments. Because the SEC relies on the inflation adjustments for 2024,
the Court also relies on the 2024 adjustments.

13

56

“where multiple defendants mutually benefitted from the same
gains, the best calculation of a single defendant's gain may
be

the

total

gains

obtained

by

the

group

through

that

defendant's violations.” Fowler, 440 F. Supp. 3d at 299. See
also SEC v. Amerindo Inv. Advisors Inc., No. 05 Civ. 5231,
2014 WL 2112032, at *13 (S.D.N.Y. May 6, 2014) (imposing same
penalty on individual and entity defendants because they were
all involved in the same violations).
The Court first addresses the SEC’s requested penalties
for Defendants’ securities fraud violations before turning to
the

requested

penalties

for

Defendants’

Rule

21F-17

violations.
2.

Securities Fraud Civil Penalties

To assess the appropriate civil monetary penalty, courts
may consider “the egregiousness of the defendant's conduct,
the degree of his scienter, whether his conduct created
substantial

losses,

whether

the

offense

was

isolated

or

recurrent, and whether the penalty should be reduced due to
defendant's

financial

condition.”

SEC

v.

Rabinovich

&

Assocs., LP, No. 07 Civ. 10547, 2008 WL 4937360, at *6
(S.D.N.Y.
defendant's

Nov.

18,

2008).

“failure

to

Courts
admit

may

also

wrongdoing,”

consider

a

“lack

of

cooperation with authorities,” as well as the “brazenness,
scope, and duration of the fraudulent conduct.” SEC v. Lek
57

Sec. Corp., 612 F. Supp. 3d 287, 295-96 (S.D.N.Y. 2020)
(citations omitted).
In light of these considerations and the factual record
in this case, third-tier penalties are appropriate for each
Defendant. The Court finds that Defendants mutually benefited
from these gains and that their repeated violations of the
securities laws over several years arose from a single scheme.
See Rabinovich & Assocs., LP, 2008 WL 4937360, at *6. Because
Kontilai and Collector’s Coffee mutually “benefit[ed] from
the same dollar of gain,” they can both “be penalized for
that gain.” SEC v. Cole, 661 F. App'x 52, 55 (2d Cir. 2016)
(citation omitted). For the reasons explained below, the
Court imposes the maximum penalty of $23,035,824, the gross
amount of pecuniary gain, for each Defendant. 14 (See Moessner
Decl. at 5-9.) SEC v. Great Am. Techs., Inc., No. 07 Civ.
10694,

2010

WL

1416121,

at

*2

(S.D.N.Y.

Apr.

8,

2010)

(imposing third-tier civil penalty “equal to the scheme's
pecuniary gain”).
Over the span of four years, Defendants raised over $23
million from investors through various materially misleading
communications and ultimately, Defendants’ conduct resulted

Although not required, the SEC deducted some of Defendants’ payments
back to investors from its gross pecuniary gains approximation. See
Rabinovich & Assocs., LP, 2008 WL 4937360, at *6. Accordingly, the Court
will not account for those payments.
14

58

in near-total losses by the Company’s investors. Defendants
acted with scienter, meaning they “acted with intent to
deceive,

manipulate

or

defraud,

or

at

least

knowing

misconduct.” SEC v. Haligiannis, 470 F. Supp. 2d 373, 381
(S.D.N.Y. 2007) (quoting Grandon v. Merrill Lynch & Co., 147
F.3d 184, 194 (2d Cir. 1998)). Defendants misrepresented the
state of the business by telling investors that hundreds of
collectibles dealers had committed to selling billions of
dollars’ worth of inventory on the CCI Website, even though
only a handful of dealers had committed to using the CCI
Website platform. (See, e.g., Trial Tr. 234:20-25, 964:18965:9.)

Defendants

also

misrepresented

that

the

Jackie

Robinson contracts would generate much-needed revenue for the
Company by not disclosing that the contracts were unlikely to
sell for the appraised value and that Defendants had promised
large amounts of the contract sale proceeds to others. (See
SEC

Trial

Moreover,

Ex.

15

at

Defendants

20,

24;

Trial

attempted

to

Tr.

656:25-657:19.)

impede

the

SEC’s

investigation of these violations and fabricated evidence,
such as fake employment agreements and forged bank records,
in support of their position. (See SEC Trial Exs. 57, 58,
65.) See SEC v. Musella, 748 F. Supp. 1028, 1040 (S.D.N.Y.
1989)

(“This

false

exculpatory

59

statement

evidences

consciousness of guilt and has independent probative value of
scienter.”).
Kontilai was a fugitive for nearly four years, which
also evidences a high degree of scienter and consciousness of
guilt. See Haligiannis, 470 F. Supp. 2d at 384, 386; see also
SEC v. Sekhri, No. 98 Civ. 2320, 2002 WL 31100823, at *19
(S.D.N.Y. July 22, 2002) (imposing maximum civil penalty
where defendant fled the United States to avoid prosecution
by the SEC). In late 2019, only a few months after the SEC
initiated this action, Kontilai fled the United States and
sought asylum in Russia, falsely claiming that he was a
journalist that revealed corrupt schemes within the United
States government. (See Decl. of Mykalai Kontilai, Ex. 5,
Dkt.

No.

409-6;

see

also

Dkt.

No.

1532-1

(certified

translation of same).) Even though Russian authorities denied
Kontilai’s asylum request in March 2020, (see id.), Kontilai
refused to return to the United States and remained at large
in Europe until he was arrested in Germany in April 2023.
(See Dkt. No. 1411 at 2-4; see also Dkt. No. 1463 at 1-2.)
Kontilai then fought his extradition from Germany to the
United States for nearly a year and remained in German custody
for the duration of the Court’s jury trial in December 2023.
(See Dkt. No. 1411 at 2-4.) Kontilai’s brazen efforts to avoid
responsibility for his conduct warrant the maximum civil
60

penalty. See SEC v. Bahgat, No. 17 Civ. 971, 2023 WL 3491733,
at *11 n.7 (W.D.N.Y. May 17, 2023) (imposing maximum civil
penalty because defendant’s departure from the United States
evidenced his refusal to accept responsibility or cooperate
with authorities).
The

Court

declines

to

impose

a

lower

penalty

for

Kontilai. In addition to the violations described above,
Kontilai appropriated millions in investor funds for his
personal use by directing a company employee to make large
withdrawals of cash for Kontilai. These withdrawals were
disguised as being related to the purchase of collectibles or
Kontilai’s

salary,

even

though

Kontilai

represented

to

investors that the Company would never carry collectibles
inventory and that he did not take a salary. (See SEC Trial
Exs. 35, 40, 74, 75, 100; Trial Tr. 324:17-23.) See Great Am.
Techs., Inc., 2010 WL 1416121, at *2 (imposing third-tier
civil penalty on individual defendant equal to the scheme’s
pecuniary gain of over $2.3 million where the individual
defendant diverted $1 million of that sum to himself).
Kontilai also asks this Court to consider his financial
condition in assessing a civil penalty against him. 15 (Defs.’
At the time of briefing, Kontilai was in the custody of German
authorities. (See Defs.’ Opp’n Mem. at 22.) Kontilai is now serving 51
months’ imprisonment in connection with his parallel criminal case in
Nevada. (See Dkt. No. 1600-1.) Defendants do not include any information
regarding the Company’s current financial state.
15

61

Opp’n Mem. at 23.) Although the Court is mindful that Kontilai
is currently incarcerated, Kontilai has not submitted any
evidence of financial hardship, stating only that he has no
substantial
dishonest

assets.
about

Memorandum,

(Id.)

Moreover,

his

assets.

was

submitted

which

In

Kontilai

Defendants’
in

April

has

been

Opposition

2024,

Kontilai

insisted that he had no substantial assets and that there was
no

evidence

that

he

had

hidden

any

assets

since

this

litigation began in May 2019. (Id.) However, a detention
hearing in Kontilai’s parallel criminal case in May 2024
revealed that Kontilai had $400,000 worth of cash in his
possession when he was arrested by German authorities in April
2023. (See Dkt. Nos. 1527, 1532.) Although Kontilai denies in
an affidavit that this was his money, Kontilai’s position is
contradicted by the findings of the German authorities. (See
Dkt. No. 1532 at 3.) Given Kontilai’s lack of credibility in
his affidavit and the lack of additional supporting evidence
concerning financial hardship, the Court declines to reduce
Kontilai’s civil penalty in light of his purported financial
condition. See Universal Exp., Inc., 646 F. Supp. 2d at 565.

The

3.

Rule 21F-17 Civil Penalties

SEC

also

seeks

civil

penalties

for

Defendants’

violations of Rule 21F-17 of the Exchange Act, for which

62

Defendants’ liability was established at summary judgment
prior to the December 2023 jury trial.
Rule

21F

under

the

Exchange

Act

provides

various

incentives and protections to whistleblowers to encourage
reporting

of

possible

securities

laws

violations.

See

Implementation of the Whistleblower Provisions of Sec. 21F of
the Securities Exchange Act of 1934, Exchange Act Release No.
64545, 2011 WL 2045838, at *90 (May 25, 2011) (the “Adopting
Release”). To implement Section 21F, the SEC promulgated Rule
21F-17, which prevents any “person” from taking “any action
to impede an individual from communicating directly with the
Commission staff about a possible securities law violation,
including

enforcing,

confidentiality

or

threatening

to

.

respect

agreement .

.

with

enforce,
to

a

such

communications.” 17 C.F.R. § 240.21F-17(a).
This Court previously granted summary judgment in favor
of the SEC, holding that Defendants violated Rule 21F-17
because

Defendants

agreements

with

entered

investors

–

into
the

two

2015

confidentiality

SPA

and

the

2017

Settlement Agreement - that expressly prevented investors
from communicating with the SEC regarding securities laws
violations.

Further,

Defendants

actually

sued

to

prevent

communications and advertised those suits to other investors

63

to chill further communication. See Collector’s Coffee, Inc.,
2021 WL 5360440, at *4-5.
The SEC now seeks third-tier civil penalties against
Collector’s Coffee and Kontilai, each for violating Rule 21F17 in three separate instances: (1) entering into the 2015
SPA, (2) entering into the 2017 Settlement Agreement, and (3)
suing the Nevada Plaintiff-Investors for breach of the 2017
Settlement Agreement. (SEC Mem. at 22.) The SEC seeks the
maximum penalty amounts for each violation for Kontilai as a
“natural

person”

and

person,”

accounting

Collector’s
for

Coffee

inflation. 16

as

“any

other

See

15

U.S.C.

§ 78u(d)(3); 17 C.F.R. § 201.1001. In total, the SEC seeks
$620,928

in

penalties

for

Kontilai

and

$3,079,628

in

penalties for Collector’s Coffee. (SEC Mem. at 23-24.)
The

Court

agrees

with

the

SEC

that

penalties

are

warranted given that Defendants’ egregious conduct was in
reckless

disregard

Collector’s

Coffee,

of

a

Inc.,

regulatory
2021

WL

requirement.

5360440,

at

(See

*4-5.

In

Inflation for the 2015 SPA violations, which occurred before November
2, 2015, and the 2017 Settlement Agreement violations, which occurred
after November 3, 2015, differ based on the date of violation. Under the
2024 inflation adjustment, the penalty tiers for violations which occurred
before November 2, 2015, for a natural person were (1) $7,500,
(2) $80,000, and (3) $160,000; the penalty tiers for any other person
were (1) $80,000, (2) $400,000, and (3) $775,000. The penalty tiers for
violations which occurred after November 3, 2015, for a natural person
were (1) $11,524, (2) $115,231, and (3) $230,464; the penalty tiers for
any other person were (1) $115,231, (2) $576,158, and (3) $1,152,314. See
SEC Inflation Adjustments 2024.
16

64

restricting investor communications with regulatory agencies,
Defendants’ fraudulent scheme went undetected for years and
resulted in near total losses for other investors until the
SEC brought this action in May 2019. (Id.) However, the Court
ultimately “has broad discretion to impose the civil monetary
penalties it deems appropriate in the instant case.” SEC v.
Honig, No. 18 Civ. 8175, 2024 WL 3454840, at *5 (S.D.N.Y.
July 18, 2024) (citation omitted). “Despite the severity of [a
defendant’s]

violations

and

the

extent

to

which

those

violations should be punished,” the Court may also consider
“the extent to which other aspects of the relief and/or
judgment issued in this matter will have the desired punitive
effect.”

Universal

Exp.,

Inc.,

646

F.

Supp.

2d

at

568

(reducing requested civil penalties where the defendant was
required to pay $13 million in disgorgement and prejudgment
interest and was permanently enjoined from engaging in future
securities laws violations). Here, Defendants have already
been ordered to jointly and severally disgorge $24,355,736.40
in ill-gotten gains and prejudgment interest. Further, the
Court has awarded $23,035,824 in civil penalties against
Kontilai

and

$23,035,824

in

civil

penalties

against

Collector’s Coffee. In total, Defendants have been ordered to
pay nearly $70.4 million prior to any penalties for the Rule
21F-17 violations.
65

In light of the relief already awarded, the Court imposes
second-tier penalties for the three Rule 21F-17 violations on
each Defendant. For Kontilai, as a natural person, this
amounts to the following penalties: $80,000 for entering the
2015

SPA,

Agreement,

$115,231
and

for

another

entering

$115,231

the

for

2017

Settlement

enforcing

the

2017

Settlement Agreement, totaling $310,462. See SEC Inflation
Adjustments 2024. The penalties for Collector’s Coffee, as a
non-natural person, amount to the following: $400,000 for
entering

the

2015

SPA,

$576,158

for

entering

the

2017

Settlement Agreement, and another $576,158 for enforcing the
2017

Settlement

Agreement,

totaling

$1,552,316.

See

id.

Although those penalties are substantially less than the
maximum third-tier penalties requested by the SEC, in light
of the substantial disgorgement, prejudgment interest, and
other civil penalties already awarded, the “punitive and
deterrent purposes of the civil penalty statutes can be
achieved by these penalties” for the Rule 21F-17 violations.
SEC v. Carrillo Huettel LLP, No. 13 Civ. 1735, 2017 WL 213067,
at *10 (S.D.N.Y. Jan. 17, 2017) (citations and alterations
omitted).
* * *
For the reasons explained above, the Court imposes a
civil penalty of $23,035,824 against Kontilai and a civil
66

penalty of $23,035,824 against Collector’s Coffee for their
respective

securities

fraud

violations.

The

Court

also

imposes $310,462 in civil penalties against Kontilai and
$1,552,316 in civil penalties against Collector’s Coffee for
their respective violations of Rule 21F-17.
D.

PERMANENT INJUNCTION
The

SEC

seeks

a

permanent

injunction

against

each

Defendant to enjoin Defendants from future violations of
Section 17(a) of the Securities Act, Section 10(b) and Rule
10b-5 of the Exchange Act, and Rule 21F-17 of the Exchange
Act. For the reasons explained below, the Court grants the
SEC’s proposed injunctive relief against both Defendants.
1.

Legal Standard

Permanent injunctive relief is authorized under Section
20(b) of the Securities Act and Section 21(d) of the Exchange
Act. See 15 U.S.C. § 77t(b) (Securities Act); 15 U.S.C.
§ 78u(d)(1) (Exchange Act). To obtain a permanent injunction,
the SEC must show that there is a reasonable likelihood of
future

violations

of

the

securities

laws.

See

Carrillo

Huettel LLP, 2017 WL 213067, at *6.
A district court has broad discretion to enjoin possible
future violations of federal securities laws. SEC v. Zwick,
No. 03 Civ. 2742, 2007 WL 831812, at *17 (S.D.N.Y. Mar. 16,

67

2007).

To

evaluate

the

likelihood

of

recurrence

of

wrongdoing, a court may consider the degree of scienter
involved, the sincerity of the defendant's assurances against
future violations, the recurrent or isolated nature of the
infraction,

the

defendant's

nature

his

conduct,

of

recognition

and

the

of

the

likelihood,

wrongful

given

the

defendant's occupation, that future violations may occur. SEC
v. Universal Major Indus. Corp., 546 F.2d 1044, 1048 (2d Cir.
1976).
A

permanent

injunction

is

particularly

appropriate

“where a violation was founded on systematic wrongdoing,
rather than an isolated occurrence” and where the defendant's
“persistent refusals to admit any wrongdoing make it rather
dubious

that

the

[defendant

is]

likely

to

avoid

such

violations of the securities laws in the future in the absence
of an injunction.” SEC v. Alpine Sec. Corp., 413 F. Supp. 3d
235, 251 (S.D.N.Y. 2019) (quoting SEC v. Frohling, 851 F.3d
132, 139 (2d Cir. 2016)).
2.

Injunctive Relief Is Warranted

Considering the relevant factors and the totality of the
circumstances, the Court finds that injunctive relief is
warranted.
As the Court explained above, Defendants acted with
scienter.

Defendants’

fraudulent
68

scheme

continued

over a

period of several years and employed numerous measures to
evade detection. See SEC v. Svoboda, 409 F. Supp. 2d 331, 343
(S.D.N.Y.

2006).

acceptance

of

Moreover,

Defendants

responsibility,

no

have

recognition

shown

no

of

the

wrongfulness of their actions, no remorse, and have given no
assurances (sincere or otherwise) of reform and that they
will not violate securities laws in the future. See Rabinovich
& Assocs., LP, 2008 WL 4937360, at *5. Instead, Defendants
have repeatedly blamed nearly everyone else involved with the
Company, as well as their former counsel and the SEC, for its
misfortunes.
Defendants have also demonstrated that they are capable
of engaging in future unlawful acts, as Defendants flouted
the law by continuing their misconduct during the SEC’s
investigation of Collector’s Coffee. See SEC v. Softpoint,
Inc., 958 F. Supp. 846, 867 (S.D.N.Y. 1997). Beyond the
misconduct discussed above, Kontilai stated at deposition
that the only reason he did not continue pursuing the lawsuit
against the Nevada Plaintiff-Investors for their breach of
the 2017 Settlement Agreement was due to lack of funds. (Dkt.
No. 1513-4 at 223:10-224:4.) Kontilai also fled the United
States – citing the investigations by the Justice Department
and the SEC - and was a fugitive for several years while this
case proceeded to trial. Haligiannis, 470 F. Supp. 2d at 384.
69

Extending

the

injunction

to

Collector’s

Coffee

is

justified, as the Company is still solely controlled by
Kontilai

and

has

not

given

any

assurances

that

it

will

restrain from future violations. See SEC v. Kinnucan, 9 F.
Supp. 3d 370, 375-76 (S.D.N.Y. 2014) (granting permanent
injunction barring company and its president from future
violations of Section 10(b) of the Exchange Act). Cf. SEC v.
Wheeler, 56 F. Supp. 3d 241, 248 (W.D.N.Y. 2014) (denying
permanent injunction against the company where the company
had been sold and was no longer under the direct control of
the individual defendant, who had orchestrated the fraudulent
pump and dump scheme).
Kontilai argues that injunctive relief should not be
imposed on him because, at the time of briefing, he was not
in the United States and thus incapable of committing future
violations. (Defs.’ Opp’n Mem. at 25.) This argument, while
meritless, is moot because Kontilai has since been extradited
to the United States. (See Dkt. No. 1526.) That Kontilai was
sentenced

to

51

months’

imprisonment

and

is

currently

incarcerated does not preclude an injunction. (See Dkt. No.
1600-1.) See SEC v. Cobalt Multifamily Invs. I, LLC, No. 06
Civ. 2360, 2011 WL 4899909, at *4 (S.D.N.Y. June 14, 2011)
(“[C]ourts in this district have repeatedly imposed such
[permanent] injunctions on incarcerated defendants.”). And
70

once released, Kontilai – who has been an entrepreneur for
the last twenty years - will still have the ability to
perpetrate a fraudulent scheme like the one here absent
restraint. See Opulentica, LLC, 479 F. Supp. 2d at 329.
Thus,

the

Court

permanently

enjoins

Defendants

from

future violations of Section 17(a) of the Securities Act,
Section 10(b) and Rule 10b-5 of the Exchange Act and Rule
21F-17 of the Exchange Act.
IV.

ORDER

For the foregoing reasons, it is hereby
ORDERED that the motion for remedies by Plaintiff United
States Securities and Exchange Commission (“SEC”) (Dkt. No.
1512) is GRANTED IN PART and DENIED IN PART; it is further
ORDERED

that

Defendants

Collector’s

Coffee,

Inc.

(“Collector’s Coffee”) and Mykalai Kontilai (together with
Collector’s

Coffee,

“Defendants”),

shall

jointly

and

severally disgorge $21,910,824.84 in ill-gotten profits and
$2,444,911.52 in prejudgment interest, with any restitution
paid by Mykalai Kontilai in United States v. Kontilai, 20 Cr.
109 (D. Nev.) to offset his disgorgement obligation in this
matter; it is further
ORDERED

that

the

Relief

Defendant

Veronica

Kontilai

shall disgorge $332,522 in ill-gotten profits and $56,154.09

71

in

prejudgment

interest,

jointly

and

severally

with

Defendants; it is further
ORDERED that Defendant Collector’s Coffee shall pay a
civil penalty of $23,035,824 for violations of Section 17(a)
of the Securities Act of 1933 (the “Securities Act”), 15
U.S.C. § 77q(a)(1)-(3), Section 10(b) of the Exchange Act of
1934 (the “Exchange Act”), 15 U.S.C. § 78j(b), and Rule 10b5(b) (“Rule 10b-5”) of the Exchange Act, 17 C.F.R. § 240.10b5; it is further
ORDERED

that

Defendant

Collector’s

Coffee

shall

pay

civil penalties in the amounts of $400,000, $576,158, and
$576,158, totaling $1,552,316, for violations of Rule 21F-17
(“Rule 21F-17”) of the Exchange Act, 17 C.F.R. § 240.21F-17;
it is further
ORDERED that Defendant Mykalai Kontilai shall pay a
civil penalty of $23,035,824 for violations of Section 17(a)
of the Securities Act, Section 10(b) of the Exchange Act, and
Rule 10b-5(b) of the Exchange Act; it is further
ORDERED that Defendant Mykalai Kontilai shall pay civil
penalties in the amounts of $80,000, $115,231, and $115,231,
totaling $310,462, for violations of Rule 21F-17 of the
Exchange Act; it is further
ORDERED that a permanent injunction shall be issued
against Defendants Collector’s Coffee and Mykalai Kontilai
72

prohibiting

future

violations

of

Section

17(a)

of

the

Securities Act, Section 10(b) of the Exchange Act, Rule 10b5 of the Exchange Act, and Rule 21F-17 of the Exchange Act;
and it is further
ORDERED

that

the

motion

by

Defendants

and

Veronica

Kontilai pursuant to Federal Rule of Civil Procedure 59 to
set aside the trial verdict (Dkt. Nos. 1537, 1539) is DENIED.
The SEC shall submit a proposed judgment form within
fourteen (14) days of the entry of this Order.
The Clerk of Court is respectfully directed to close
Dkt. Nos. 1512, 1528, 1539, and 1540.

SO ORDERED.
Dated:

10 March 2025
New York, New York

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