The opinion of the court was delivered by: Kram, District Judge.
MEMORANDUM OPINION AND ORDER
This case now comes before the Court on plaintiff Securities and
Exchange Commission's ("SEC" or "Commission") motion for partial summary
judgment pursuant to Fed.R.Civ.P. 56 as to alleged violations of sections
5(a) and 5(c) of the Securities Act of 1933 ("the Registration
Provisions"), 15 U.S.C. § 77e(a) and 77e(c) by the individual
defendants, Arthur N. Economou and Phyllis H. Economou ("A. Economou,"
"P. Economou," collectively, "the Economous"), proceeding pro Se, and for
voluntary dismissal with prejudice of its other claims against all
defendants pursuant to Fed.R.Civ.P. 41(a)(2). The Court is not
considering any motions with respect to the alleged violations of the
Registration Provisions by the corporate defendants. The SEC seeks a
permanent injunction against
further violation of the Registration Provisions by the Economous,
pursuant to section 20(b) of the Securities Act of 1933 ("the 1933
Act"), 15 U.S.C. § 77t(b).
This opinion follows numerous other opinions in this case, by both this
Court and the Second Circuit, familiarity with which is assumed. The
relevant facts of this case, recounted on many prior occasions, will be
only briefly reviewed here. Because the SEC has requested summary
judgment only with respect to its claim that the individual defendants
violated the Registration Provisions by their role in ABT's sale of the
commercial paper, the Court will briefly recapitulate only those facts
surrounding ABT's sale of the notes.*fn1
This case arose from the sale to investors of interests in Treasury
Bills and of commercial paper by defendant American Board of Trade, Inc.
("ABT"). ABT's commercial paper program involved the sale of notes at a
discount to investors, with maturities of three or six months, in small
denominations. In an opinion affirmed by the Second Circuit, this Court
found that ABT's commercial paper was a security within the meaning of
the 1933 Act. S.E.C. v. American Board of Trade, Inc., 598 F. Supp. 335,
340 (S.D.N.Y.), aff'd, 751 F.2d 529, 539-40 (2d Cir. 1984). On July 25,
1985, the Court issued an injunction prohibiting ABT and American Board
of Trade Service Corp. ("Service") from selling its commercial paper in
violation of the registration provisions of the 1933 Act. At the same
time that injunction was granted, the Court granted a stay pending
registration of the ABT commercial paper in accordance with the 1933
Act. Securities and Exchange Commission v. American Board of Trade,
[1985-86 Transfer Binder] Fed. Sec.L.Rep. (CCH) ¶ 92,224 (S.D.N.Y.
July 26, 1985) (1985 WL 2165). ABT, however, refused to make available
the certified financial statements required for the registration
process. Thus, this Court lifted the stay on the previously-issued
injunction, and further enjoined defendants from redeeming maturing
commercial paper. The Court's second injunction became effective on July
18, 1986 after affirmance by the Second Circuit. Securities and Exchange
Commission v. American Board of Trade, 798 F.2d 45, 47 (2d Cir. 1986). A
Special Master was appointed to provide an accounting of ABT's finances
and to supervise the winding down of the commercial paper program.
Shortly after the injunction against sale and redemption of ABT
commercial paper issued, the Court ordered a freeze on the assets of
ABT's commercial paper program to guard against further depletion of the
program's assets. The Court also ordered appointment of an interim
receiver for all of the ABT entities. In the course of its September 2,
1986 Order, the Court noted Economou's repeated violations of orders and
injunctions. After the injunction against sale and redemption of ABT
commercial paper became effective, A. Economou caused ABT to redeem
commercial paper held by over 100 investors. S.E.C. v. American Board of
Trade, Inc., 645 F. Supp. 1047, 1052 (S.D.N.Y. 1986). Further, without
the required approval of the Special Master, ABT used its funds to send a
bulletin to its commercial paper holders.*fn2 The Court found that there
were willful and knowing violations. In addition, the
Economous disclosed to the Special Master that they had "borrowed" in
excess of $500,000 from ABT to pay their taxes and that those "loans" had
never been repaid. Finally, there were $5 million in unexplained ABT
disbursements after June 1, 1986, and there was evidence that funds from
ABT's commercial paper program were being used to meet the operational
expenses of other ABT entities, in particular Arthur N. Economou & Co.,
Inc. Therefore, for the protection of the assets of the commercial paper
program, the Court expanded its original freeze order to include all ABT
entities*fn3 and appointed an interim receiver.
A. Economou was subsequently found guilty of two counts of criminal
contempt. In addition, he was found liable for civil contempt and ordered
to pay restitution of $175,000 to ABT from personal funds. The Second
Circuit affirmed these findings against Economou.
The report of the Special Master, dated November 5, 1986 revealed that
ABT's liquid assets were short of its liabilities by $55,312,445.
Recognizing that ABT's chances of recovery from its gross insolvency were
dim, the Court ordered the appointment of a receiver and liquidation of
the ABT Entities. A. Economou has paid ABT only $35,000 of the $175,000
restitution and has paid none of the acknowledged $500,000 debt to ABT.
The Economous continue to assert claims against ABT assets.*fn4
Summary judgment is appropriate where "the pleadings, depositions,
answers to interrogatories and admissions on file, together with
affidavits, if any, show that there is no genuine issue as to any
material fact and that the moving party is entitled to judgment as a
matter of law." Fed.R. Civ.P. 56(c). In testing whether the movant has
met this burden, the Court must resolve all ambiguities against the
movant. Lopez v. S.B. Thomas, Inc., 831 F.2d 1184, 1187 (2d Cir. 1987)
(citing United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993,
994, 8 L.Ed.2d 176 (1962)).
The moving party bears the initial burden of demonstrating the absence
of a genuine issue of material fact. Adickes v. S.H. Kress and Co.,
398 U.S. 144, 157, 90 S.Ct. 1598, 1608, 26 L.Ed.2d 142 (1970). The movant
may discharge this burden by demonstrating to the Court that there is an
absence of evidence to support the nonmoving party's case on which that
party would have the burden of proof at trial. Celotex Corp. v. Catrett,
477 U.S. 317, 323, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986).*fn5 The
non-moving party then has the burden of coming forward with "specific
facts showing that there is a genuine issue for trial." Fed.R.Civ.P.
56(e). The non-movant must "do more than simply show that there is some
metaphysical doubt as to the material facts." Matsushita Electric
Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348,
1356, 89 L.Ed.2d 538 (1986). Speculation, conclusory allegations and mere
denials are not enough to raise genuine issues of fact. To avoid summary
judgment, enough evidence must favor the non-moving party's case such
that a jury could return a verdict in
its favor. See Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct.
2505, 2510, 91 L.Ed.2d 202 (1986) (interpreting the "genuineness"
In this claim for permanent injunction, summary judgment will be
appropriate if there is no genuine issue of material fact as to the
existence of a prior violation of the securities laws, and as to the
"reasonable likelihood" that the violation will be repeated. Securities
and Exchange Commission v. Manor Nursing Centers, Inc., 458 F.2d 1082,
1100 (2d Cir. 1972) (citing SEC v. Culpepper, 270 F.2d 241, 249 (2d Cir.
1959); and United States v. W.T. Grant Co., 345 U.S. 629, 633, 73 S.Ct.
894, 897, 97 L.Ed. 1303 (1953)). Trial courts have broad discretion in
granting injunctive relief pursuant to the provisions of the 1933 Act.
Manor Nursing Centers, supra, 458 F.2d at 1100.
There can be no genuine dispute that the Economous violated the
Registration Provisions. Both this Court and the Second Circuit have
found that the commercial paper issued by ABT are securities within the
meaning of the 1933 Act, and must therefore be registered with the
Securities and Exchange Commission pursuant to the Registration
Provisions. S.E.C. v. American Board of Trade, Inc., 593 F. Supp. 335,
340 (S.D.N.Y.), aff'd, 751 F.2d 529, 539-40 (2d Cir. 1984). There is no
question that the ABT commercial paper was never actually registered. As
"controlling persons" of ABT, the individual defendants are responsible
under section 15 of the 1933 Act (15 U.S.C. § 77o) for violations of
the Registration ...