Securities & Exchange Commission v. Gilmond

Filing 13

ORDER granting 10 Motion for Sanctions, Entry of Default Judgment and, Alternatively, Summary Judgment Against Defendant Trudy Gilmond: FURTHER ORDERED that defendants Amended Answer 6 is stricken; and default judgment is entered against defendant Gilmond. Signed by Senior Judge Graham Mullen on 3/27/2017. (Pro se litigant served by US Mail.)(eef)

IN THE UNITED STATES DISTRICT COURT
FOR THE WESTERN DISTRICT OF NORTH CAROLINA
CHARLOTTE DIVISION
Civil Action No: 3:15CV591

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SECURITIES AND EXCHANGE
COMMISSION,
Plaintiff,
v.
TRUDY R. GILMOND,
Defendant.

ORDER

This matter is before the Court upon Plaintiff’s Motion for Sanctions, Entry of Default
Judgment and, Alternatively, Summary Judgment Against Defendant Trudy Gilmond, filed
January 27, 2017. Defendant Gilmond did not respond to the motion. The Court entered an
Order on March 8, 2017 directing Defendant Gilmond to show cause within ten days why
default judgment should not be entered in favor of the SEC for her refusal to participate in
discovery in this case. Defendant Gilmond has failed to respond to the Court’s Order.
Specifically, the SEC has moved pursuant to Rule 37 to have the Court: (1) order that the facts
asserted against Gilmond in the Complaint be taken as true; (2) prohibit her from opposing the
Commission’s claims; (3) strike her Amended Answer; and (4) enter default judgment against
her.

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BACKGROUND
This action concerns Defendant Gilmond’s role in the fraudulent unregistered offer and
sale of RVG’s ZeekRewards securities. Doc. No. 1 (Complaint) at ¶1.1 Rex Venture Group,
LLC (“RVG”) and its principals, employees, and promoters, including Gilmond, solicited
investors through the internet and over interstate wires to participate in the ZeekRewards
program (www.zeekrewards.com), describing it as an “affiliate advertising division” for the
companion website Zeekler (www.zeekler.com), through which RVG operated penny auctions.
Id. at ¶2. From approximately January 2011 until RVG and ZeekRewards were shut down in
August 2012, RVG raised more than $850 million from approximately 1 million investors
nationwide and internationally by making unregistered offers and sales of securities through the
ZeekRewards website in the form of Premium Subscriptions and VIP Bids. Id. at ¶3. In reality,
ZeekRewards was a massive Ponzi and pyramid scheme. Approximately 98% of ZeekRewards’
total revenues and purported “net profits” paid to investors came from new investors rather than
legitimate retail sales. Id. at ¶5.
Gilmond was one of the most successful and prolific promoters of ZeekRewards. From at
least September 2011 until ZeekRewards was shut down in August 2012, Gilmond worked
closely with the company founders and served as a senior “field liaison” to promote the scheme,

On August 17, 2012, the Securities and Exchange Commission filed an action in this Court to
obtain injunctive and monetary relief against RVG and Paul Burks, shut down the ZeekRewards
Ponzi and pyramid scheme, freeze RVG’s assets, and seek appointment of a Receiver for RVG.
SEC v. Rex Venture Group, LLC d/b/a ZeekRewards.com and Paul Burks, Civil Action No. 3:12cv-519 (the “RVG Action”), Doc. No. 1 (RVG Complaint). The Receiver sued Gilmond for her
role in the ZeekRewards program. See Kenneth D. Bell v. Todd Disner, et al., Civil Action No.
3:14-cv-00091 (the “Net Winner Action”), Doc. No. 1 (Complaint). The Receiver’s Complaint
was based on the same conduct by Gilmond alleged in the Complaint in this matter. Gilmond
ultimately defaulted in the Net Winner Action, and this Court entered judgment against her in the
amount of $2,129,522.27. The Court observed that Ms. Gilmond not only failed to appear as
directed in that litigation, she advised the Court by letter that she refused to do so.
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persuading scores of unsophisticated retail investors to buy ZeekRewards securities upon the
promise of profit sharing. Gilmond reaped more than $1.7 million in transaction-based
commissions and bogus profit-sharing for her recruiting efforts. Id. at ¶4.
On December 20, 2015, Gilmond answered the Complaint in this case with a general
denial. On February 1, 2016, counsel for the SEC attempted to conduct an attorney conference
pursuant to Fed. R. Civ. P. 26(f) by telephone. Gilmond did not join the planned teleconference,
and counsel was unable to reach her by telephone on that day. Certification of Initial Attorney
Conference and Discovery Plan (Doc. No. 5). On February 3, 2016, counsel reached Gilmond
by telephone, but she was unable or unwilling to participate meaningfully in formulating a
discovery plan. Id. On February 16, 2016, Gilmond filed an Amended Answer at the suggestion
of counsel for the SEC.
After amending her Answer, however, Gilmond has refused to participate further in this
litigation. She made no initial disclosures, as required by Rule 26 of the Federal Rules of Civil
Procedure. Nor did she respond to written discovery served by the SEC, which included
interrogatories, requests for production of documents and requests for admission, most of which
were directed at exploring Gilmond’s role in RVG’s ZeekRewards scheme, quantifying the
compensation she received, and identifying any remaining assets that could be returned to
injured investors. As a result of Gilmond’s failure to respond, the SEC’s Requests for Admission
are deemed admitted. Fed.R.Civ.P. 36.
On September 28, 2016 the SEC served Gilmond with a notice of deposition for
November 7, 2016. The SEC noticed Gilmond’s deposition in Burlington, Vermont, near
Gilmond’s home, rather than in Charlotte, North Carolina, in order to encourage Gilmond to
attend. Nonetheless, she failed to appear. After repeated attempts by SEC counsel to reach

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Gilmond by email and telephone, she responded, making it clear that she was aware of the
planned deposition, and that she did not plan to attend or further contest this matter.
DISCUSSION
Courts have broad discretion to impose sanctions for abuses of the discovery process, and
Rule 37 explicitly contemplates entering “a default judgment against the disobedient party.”
Fed.R.Civ.P. 37(b)(2)(A)(vi); see also Fed.R.Civ.P. 37(c)(1)(C) & (d)(3). In particular, the Rule
authorizes a court to impose sanctions if “a party, after being properly served with interrogatories
under Rule 33 . . . fails to serve its answers, objections, or written response. Fed.R.Civ.P. 37(d).
Rule 37(d) also authorizes sanctions if “a party ... fails, after being served with proper notice, to
appear for that person’s deposition.” Id. Moreover, Rule 37(d)(3) also allows a district court to
require the party failing to appear for the deposition “to pay the reasonable expenses, including
attorney’s fees caused by the failure, unless the failure was substantially justified or other
circumstances make an award of expenses unjust.” Id. “Rule 37 does not require there to be a
violation of a court order in order for the sanctions to be imposed.” Unifi Export Sales, LLC v.
Mekfir Int’l Corp., 233 F.R.D. 443, 445-46 (M.D.N.C. 2005) (granting default judgment based
on “defendants’ complete failure to participate in the discovery in this case”).
In Wilson v. Volkswagen of America, Inc., 561 F.2d 494, 503–06 (4th Cir. 1977), the
Fourth Circuit described a four-part test that courts should apply before defaulting a party for
discovery abuses: (1) whether the noncomplying party acted in bad faith; (2) the amount of
prejudice suffered by his adversary; (3) the need for deterrence of the particular sort of
noncompliance; and (4) the effectiveness of less drastic sanctions. The Court finds that each of
these factors weigh heavily in favor of the sanction of default.

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As described above, Gilmond has utterly refused to participate in discovery. Although
she eventually filed an amended answer to flesh out her previous general denial, she has declined
all further participation in these proceedings. She made no initial disclosures pursuant to Rule 26
and failed to respond to any written discovery. She also failed to appear for her properly-noticed
deposition near her home in Vermont, despite six weeks’ advance notice from the SEC. Without
notifying counsel for the SEC or seeking alternative arrangements, Gilmond failed to appear.
After the SEC counsel made repeated attempts to reach Gilmond by email and telephone,
Gilmond finally responded by email, making it clear that she was aware of the planned
deposition, but that she did not plan to attend or further contest this matter. Based upon this
conduct evidencing Gilmond’s clear intent not to participate in this lawsuit, the Court finds that
she has acted in bad faith. The SEC has been prejudiced by her failure to produce any evidence
relevant to her defense. Moreover, this type of callous disregard for the rules of discovery and
this Court’s Discovery Plan must be deterred. The Court further finds that no lesser sanction is
likely to be effective. Accordingly, default is an appropriate sanction.

As requested, the Court

grants leave to the SEC to file supplemental briefing on remedies, including injunctive relief,
disgorgement, and civil penalties.
IT IS THEREFORE ORDERED THAT the Plaintiff’s Motion for Sanctions, Entry of
Default Judgment and, Alternatively, Summary Judgment Against Defendant Trudy Gilmond is
hereby GRANTED; and
IT IS FURTHER ORDERED THAT the facts asserted against Gilmond in the Complaint
are taken as true; Gilmond is hereby prohibited from opposing the Commission’s claims; her

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Amended Answer is stricken; and default judgment is entered against her.

Signed: March 27, 2017

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