Securities and Exchange Commission v. Hohol et al

Filing 3

ORDER signed by Judge Rudolph T. Randa on 2/5/2014. Securities and Exchange Commission MUST RESPOND to this Decision and Order by 2/28/2014. After e-filing, send a copy of any proposed judgment in a non-PDF format (Word or WordPerfect) to the Court's proposed order email box: [e-mail]. (cc: all counsel)(cb)

UNITED STATES DISTRICT COURT
EASTERN DISTRICT OF WISCONSIN
SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,
v.

Case No. 14-C-41

CHRISTOPER HOHOL, and
BRIAN POSHAK,
Defendants.

DECISION AND ORDER

This matter is before the Court on the motion filed by the Plaintiff, Securities and
Exchange Commission (“S.E.C.”), for entry of proposed “final” Judgments as to the
Defendants, Christopher Hohol (“Hohol”) and Brian Poshak (“Poshak”). (ECF No. 2.)
Poshak appears without counsel. As will be further explained, the Court declines to enter
the proposed judgments as presented and will require the S.E.C. to supplement its filings
by the stated deadline.
The Complaint, filed contemporaneously with the motion, alleges that during at
least the three years from 2008 to 2011, the Defendants, while senior executives at Veolia
Environmental Services Special Services (“Special Services”), a United States subsidiary
of Veolia Environnement S.A. (“Veolia”), violated Section 13(b)(5) of the Securities
Exchange Act of 1934, 15 U.S.C. § 78m(b)(5); and Rule 13b2-1 thereunder, 17 C.F.R. §
240.13b2-1; and aided and abetted Veolia’s violations of Section 13(b)(2)(A) of the

Exchange Act, 15 U.S.C. § 78m(b)(2)(A), by carrying out an illegal scheme. (ECF No.
1.)

Hohol was the most senior executive at Special Services, and Poshak was the

comptroller. Both Hohol and Poshak resigned from Veolia in May 2011.
The scheme, directed and primarily carried out by Hohol, involved overstating
Special Services’ earnings before taxes (“EBT”) by falsifying accounting records and
circumventing corporate internal controls. Special Services overstated its EBT by about
$9 million in 2008, $25 million in 2009, and $30 million in 2010. During the relevant
period, Veolia paid bonuses of $136,000 and $28,000 to Hohol and Poshak, respectively,
that were substantially based upon the financial performance of Special Services.
Therefore the Defendants had a motive for ensuring that Special Services appeared
profitable.
Veolia consolidated the false financial information that Special Services
provided

as a result of Hohol and Poshak’s misconduct

into its publicly disclosed

financial statements. As a result, Veolia’s financial statements for at least the years 2008
through 2010 overstated its income by the same amounts that Special Services overstated
its EBT. Veolia filed those financial statements with the S.E.C. The Complaint seeks a
permanent injunction against the Defendants, disgorgement, and civil penalties pursuant
to 15 U.S.C. § 78u(d)(3).
The motion for entry of judgment is based on the parties’ agreement to settle this
action. Each defendant has consented to the entry of judgment against him pursuant to
the terms of a consent document, (ECF No. 1-3 (Hohol), ECF No. 1-6 (Poshak)), and has
also “agree[d] that the Commission may present the Final Judgment to the Court for

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signature and entry without further notice” (Id., ¶ 13.)
Hohol has consented to an order requiring that he disgorge $136,000 plus $16,649
in prejudgment interest for a total of $152,649; however, all amounts other than $106,000
are waived based on Hohol’s sworn “Statement of Financial Condition” dated September
30, 2013, and other documents submitted to the S.E.C. However, the waiver of $46,649 in
disgorgement and prejudgment interest, and the lack of the imposition of a civil penalty,
are based on the accuracy and completeness of the information provided by Hohol to the
S.E.C. regarding his assets, income, liabilities, and net worth. If at any time after the entry
of final judgment the S.E.C. obtains information indicating that those representations were
fraudulent, misleading, inaccurate, or incomplete, the S.E.C. may petition the Court,
without notice to Hohol, for an order requiring Hohol to pay the unpaid portion of the
disgorgement, pre- and post-judgment interest thereon, and the maximum civil penalty
allowed by law.
Poshak is ordered to disgorge $28,000 plus $3,500 in prejudgment interest. A
civil penalty is waived based on the sworn representations in Poshak’s “Statement of
Financial Condition” dated October 21, 2013, and other documents and information
submitted to the S.E.C. However, the decision not to impose a civil penalty is based on
the accuracy and completeness of the information provided by Poshak to the S.E.C.
regarding his assets, income, liabilities, and net worth. If at any time after the entry of
final judgment the S.E.C. obtains information indicating that those representations were
fraudulent, misleading, inaccurate, or incomplete, the S.E.C. may petition the Court,
without notice to Poshak, for an order requiring Poshak to pay the unpaid portion of the

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disgorgement, pre- and post-judgment interest thereon, and the maximum civil penalty
allowed by law.
Despite the deference afforded to the determination of an administrative agency,
Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 866,
(1984), without additional information about each defendant’s financial condition and the
potential civil penalties under three-tier penalty structure of 15 U.S.C. § 78u(d)(3) that are
being waived, the Court has insufficient information to assess whether, as to each
defendant, the proposed judgments are fair, reasonable, adequate, and in the public
interest. The Court requests that the S.E.C. provide a written factual predicate for why it
believes the Court should find that the proposed final judgments are fair, reasonable,
adequate, and in the public interest. S.E.C. v. Citigroup Global Mkt., Inc., 827 F. Supp. 2d
328, 330-31 (S.D.N.Y. 2011), stayed pending appeal, 673 F.3d 158, 169 (2d Cir. 2012);
United States v. Wells Fargo Bank, NA, 891 F. Supp. 2d 143, 144-45 (D.D.C. 2012).
The Court also calls the parties’ attention to paragraph three, lines nine and ten of
Hohol’s consent to judgment stating that the S.E.C. may petition the Court for payment of
“the unpaid portion of the disgorgement, prejudgment and post-judgment interest
thereon.”

It is unclear whether that amount includes the waived portions of the

disgorgement. The Court has also considered section IV of the proposed judgment and it
does not resolve the question.

The issue does not arise with Poshak because he is

disgorging all his ill-gotten bonuses from Veolia.
Additionally, the proposed judgments provide permanent injunctive relief barring
Hohol and Poshak from any future violations of the statutory provisions identified in the

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Complaint. However, as required by the controlling case law the S.E.C. must revise its
proposed Judgment to include, rather than incorporate by reference, provisions of Hohol
and Poshak’s consents to judgment. See Schmidt v. Lessard, 414 U.S. 473, 476-77 (1974);
International Longshoremen’s Ass’n, Local 1291 v. Philadelphia Marine Trade Ass’n,
389 U.S. 64, 73-76 (1967); Blue Cross & Blue Shield Ass’n v. Am. Express Co., 467 F.3d
634, 636-37 (7th Cir. 2006); Marseilles Hydro Power, LLC v. Marseilles Land & Water
Co., 299 F.3d 643, 646 (7th Cir. 2002). This requirement is consistent with the Court’s
directives in S.E.C. v. Koss Corporation, Case No. 11-C-991 (E.D. Wis.) (ECF Nos. 7 &
9) and S.E.C. v. Enea, Case No. 13-C-1151 (E.D. Wis.) (ECF No. 7).
Furthermore, the revised Judgments should eliminate the following statement:
“[t]here being no just reason for delay, pursuant to Rule 54(b) of the Federal Rules of
Civil Procedure, the Clerk is ordered to enter this Final Judgment forthwith and without
further notice.” While such a statement is required when final judgment is entered as to
“one or more, but fewer than all, claims or parties,” Fed. R. Civ. P. 54(b), the statement is
not appropriate or necessary in this instance because in this action judgment is being
entered against both Defendants and resolves all the claims against each of them. See 10
Charles Alan Wright, Arthur R. Miller, & Mary Kay Kane, Federal Practice and
Procedure, § 2656 (1998) (stating the most obvious of the implicit limitations of Rule
54(b) is “when all the claims have been determined as to all the parties.”).
Finally, the Court raises the question of whether the proposed Judgments are final
judgments because neither expressly states the disposition of the claims against the
defendant; e.g., dismissal without prejudice, while including a provision for the retention

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of jurisdiction over the enforcement of the terms of the settlement agreement. With
respect to the retention of the Court’s jurisdiction, the SEC’s attention is directed to Shapo
v. Engle, 463 F.3d 641, 642-46 (7th Cir. 2006) and Blue Cross & Blue Shield Ass’n, 467
F.3d at 636-39. In that regard, the Court also directs the S.E.C.’s attention to S.E.C. v.
Enea, No. 13-C-1151, 2013 WL 6223017, at * 1 (E.D. Wis. Nov. 26, 2013).
NOW, THEREFORE, BASED ON THE FOREGOING, IT IS HEREBY
ORDERED THAT:
The S.E.C. MUST RESPOND to this Decision and Order by February 28, 2014.
Subsequent to e-filing, the S.E.C. is asked to send a copy of any proposed
judgment in a non-PDF format (Word or Word Perfect) to the Court’s proposed order email box: [e-mail]
Dated at Milwaukee, Wisconsin, this 5th day of February, 2014.
BY THE COURT:

__________________________
HON. RUDOLPH T. RANDA
U.S. District Judge

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