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Securities and Exchange Commission v. Shainberg

December 21, 2007

SECURITIES AND EXCHANGE COMMISSION, PLAINTIFF,
v.
JOSHUA S. SHAINBERG AND LARYSSA SHAINBERG, DEFENDANTS.



The opinion of the court was delivered by: Louis L. Stanton, U.S.D.J.

OPINION AND ORDER

The Securities and Exchange Commission ("SEC") moves for an attachment against defendants Joshua and Laryssa Shainberg in this action to set aside the transfer of a Manhattan cooperative apartment from Joshua Shainberg to Laryssa Shainberg and to enforce a judgment against Joshua Shainberg.

Background

Interested in whether Joshua Shainberg violated the federal securities laws in 1995, the SEC began a non-public investigation into his activities. On August 6, 1996 it subpoenaed documents from him. On September 5, 1996, Joshua Shainberg testified to the SEC. On August 7, 1997, the SEC sent him a "Wells Notice" offering him the opportunity to argue why the SEC should not initiate an enforcement action, which the SEC staff would recommend. Mr. Shainberg denies ever receiving that notice.

On November 10, 1999 the SEC commenced a civil injunctive action against Mr. Shainberg in the United States District Court for the Eastern District of New York. On March 9, 2006, the SEC obtained a judgment against Mr. Shainberg that required him to pay disgorgement in an amount which, with prejudgment interest, totaled $589,109.81 and a civil penalty of $200,000. The entire judgment remains unpaid.

The Transfer of the Apartment

Joshua Shainberg and Laryssa Shepherd met in 1991, and after several years she wanted to get married. Joshua told her that in order to marry him she must convert to Orthodox Judaism. Laryssa undertook the conversion process, which took two or three years and cost $20,000 or $30,000.*fn1 In 1996, the couple was about to announce their engagement, but Joshua "disappeared." When he returned, Laryssa told him that if the relationship was to continue, she wanted ownership of Apartment L-806 at 385 Grand Street, New York,

New York ("the apartment"), which Joshua and his brothers had inherited from their parents. Joshua and Laryssa signed a premarital agreement on January 1, 1997, wherein Joshua promised "to transfer after marriage his interest to the cooperative." The agreement also stated that Joshua's brothers would transfer their interest to him, which he in turn would transfer to Laryssa. Joshua and Laryssa were married in June, 1998. The Seward Park Housing Corporation issued certificates transferring the apartment to Laryssa on October 16, 2001 and April 3, 2003.

In 2005, Laryssa obtained a loan for $250,000 secured by the apartment. On December 23, 2005, she purchased a home at #57 Vacation Village Townhouse Road, situated in the Village of Loch Sheldrake, Town of Fallsburg, County of Sullivan, State of New York ("the Fallsburg property") with $175,000 of the proceeds of the loan.

The Present Action

The SEC brought this action on October 12, 2007 alleging that Joshua Shainberg fraudulently transferred the apartment to his wife. It seeks an Order of Attachment to secure the SEC's claims for disgorgement and prejudgment interest. The Court signed an Order to Show Cause temporarily restraining Joshua and Laryssa Shainberg from transferring the proprietary lease or shares of ownership stock of the apartment and from transferring the Fallsburg property pending the determination of the SEC's Motion for Attachment.

The following is a timeline of the relevant events: 1991: Joshua and Laryssa met. 1994 or 1995: Laryssa began the process to convert to Orthodox Judaism. 1995 or 1996: The SEC commenced an investigation of Joshua. 1996: Laryssa told Joshua she wanted to marry him. He agreed to marry her, but when the time came to announce the engagement, he disappeared.

August 6, 1996: The SEC subpoenaed documents from Joshua.

September 5, 1996: Joshua testified to the SEC. January 1, 1997: Joshua and Laryssa signed a premarital agreement, wherein he agreed to transfer the apartment to Laryssa after marriage.

May 25, 1997: Laryssa completed the process of conversion to Orthodox Judaism.

August 7, 1997: The SEC sent Joshua a Wells Notice, which he denies receiving.

June 1998: Joshua and Laryssa got married.

August 3, 1999: The petition for the administration of Joshua's father's estate was commenced.

November 10, 1999: The SEC commenced an action against Joshua.

October 16, 2001: Joshua and Laryssa received a shares certificate and a proprietary lease for the apartment in their joint names.

April 3, 2003: Laryssa received a shares certificate and proprietary lease for the apartment in her sole name. 2005: Laryssa obtained a loan for $250,000 secured by the apartment and on December 23, she purchased the Fallsburg property.

March 9, 2006: The SEC obtained a judgment against Joshua.

Discussion

On a motion for an order of attachment, the plaintiff must show "that there is a cause of action, that it is probable that the plaintiff will succeed on the merits, that one or more grounds for attachment provided in section 6201 exists, and that the amount demanded from the defendant ...


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