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Securities and Exchange Commission v. Euro Security Fund

August 27, 2009


The opinion of the court was delivered by: Denise Cote, District Judge


Over ten years ago, the United States Securities and Exchange Commission ("S.E.C.") filed this lawsuit, which includes allegations that several Dutch nationals committed insider trading in violation of United States securities laws. On March 23, 2009, the S.E.C. moved for an order entering default judgments against defendants H.J.M. de Boer and Franck Hakkert and striking their responsive pleadings, based on Boer's and Hakkert's failure to participate in discovery. The motion is unopposed. For the reasons stated below, it is granted.


The facts are taken from the Modified First Amended Complaint, except where noted. Between September 10, 1998 and October 13, 1998, seven Dutch nationals purchased shares and options in Elsag Bailey Process Automation, N.V. ("Elsag"). Elsag's stock trades on the New York Stock Exchange, and options on the stock of Elsag traded on the Pacific Exchange beginning in late July 1998. On October 14, 1998, ABB Asea Brown Boveri ("ABB") announced a tender offer for Elsag. Hakkert and DeBoer, Amsterdam residents and neighbors, purchased 90 Elsag Nov 22.5 call options and 20 Elsag Nov. 22.5 call options, respectively, on October 13, 1998. Hakkert's brother worked at Elsag, and de Boer bought his call options at Hakkert's suggestion. 15 Elsag Nov. 22.5 call options were purchased that same day by other defendants in this action; together, the 125 call options purchased that day represented 100% of the trading volume for that series of call options. The day after Elsag announced the tender offer, its shares rose from $19-$21 per share to $36 per share.

The S.E.C.'s complaint, originally filed on October 19, 1998, amended on November 17, 1998, modified on July 26, 2007, alleged that Hakkert and de Boer bought call options using material nonpublic information, in violation of Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), 15 U.S.C. § 78j(b); Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5; Section 14(e) of the Exchange Act, 15 U.S.C. § 78(n)(e); and Rule 14e-3 promulgated thereunder, 17 C.F.R. § 240.14e-3.

The complaint alleged that personal jurisdiction over the foreign defendants exists because the transactions made use of a national securities exchange. An Opinion and Order of February 17, 1999 found that this was a sufficient basis to exercise jurisdiction over two other foreign defendants in the action, Mario Merello and Fabrizio Pessina. S.E.C. v. Euro Sec. Fund, No. 98 Civ. 7347 (DLC), 1999 WL 76801, at *4 (S.D.N.Y. Feb. 17, 1999) (the "February 17, 1999 Opinion"). The February 17, 1999 Opinion held that trading Elsag shares provided sufficient minimum contacts with the United States to confer personal jurisdiction because "Elsag's stock is registered under Section 12(b) of the Exchange Act and . . . its stock trades exclusively on the NYSE." Id. at *3.

Following a hearing on November 10, 1998, an Order for a Preliminary Injunction and Asset Freeze was entered against the defendants, including de Boer and Hakkert. Hakkert and de Boer then submitted four documents to the S.E.C. which the S.E.C. has construed as responsive pleadings and which it moves to strike by the instant motion. On December 28, 1998, a letter from de Boer was docketed, in which he attempts to explain his purchase of Elsag options. The S.E.C. also possesses two documents captioned as "Answer to the First Amended Complaint," one from de Boer and one from Hakkert, which are dated February 17, 1999. Neither document was filed with the court. De Boer, Hakkert, and a third defendant also submitted a letter explaining their purchase of Elsag options, which was docketed on March 19, 1999. The letter stated that they wished to amend their "answers" of February 17 to add that "[t]he defendants put their fullest trust in American jurisdiction, but do not recognize the judgment [sic] in a case against defendants of a foreign nation."

On November 22, 1999, proceedings against the Dutch defendants were stayed. The stay was lifted on December 1, 2006, and the S.E.C. was instructed to serve a copy of the Order lifting the stay on the Dutch defendants and confer with the defendants regarding a proposed discovery schedule. Pursuant to the Order, the S.E.C. served de Boer and Hakkert with a copy and attempted to confer with them. An Order of January 31, 2007 again directed the parties to confer regarding a schedule for initial disclosures, discovery, and other pretrial procedures. The Order also directed the S.E.C. to serve the January 31 Order and serve the December 1 Order on the Dutch defendants to the extent that it had not already done so. While the S.E.C. attempted to meet and confer with the defendants, their Dutch counsel informed the S.E.C. in a letter of March 5, 2007 that they refused to participate in the litigation. The S.E.C. submitted letters to the Court on March 14 and March 16 detailing its efforts to confer with the defendants.

On March 20, 2007, an Order issued scheduling a pretrial conference for May 25, 2007 and required the S.E.C. to serve copies of the Order on the Dutch defendants. The S.E.C. complied, and a declaration from its Dutch counsel filed on May 21, 2007 attested to service.

Neither de Boer nor Hakkert appeared at the May 25, 2007 conference, nor did they make arrangements to appear by telephone. A pretrial scheduling order issued the same day (the "May 25 Order"). As the May 25 Order directed, the S.E.C. served defendants with copies of both the Order and a transcript of the conference.

The May 25 Order required the parties to serve their Federal Rule of Civil Procedure 26(a) initial disclosures on or before July 2, 2007. The S.E.C. did not receive initial disclosures from de Boer and Hakkert, and sent their counsel a letter on August 9, 2007 informing him of the failure to make the required disclosures. De Boer and Hakkert did not subsequently provide disclosures or explain their failure to comply with the July 2 deadline.

De Boer and Hakkert also did not respond to the S.E.C.'s timely served requests for admission, issued on February 4, 2008 pursuant to Rule 34, Fed. R. Civ. P. As with the initial disclosures, when the defendants did not respond to the S.E.C.'s requests for admission, the S.E.C. sent the defendants a letter via their Dutch counsel on March 31, 2008, informing them of their failure to respond. Again, the S.E.C. received no response.

The S.E.C. served a request for production of documents on March 28, 2008, and received nothing in response. In a June 16 letter to defendants' counsel, the S.E.C. requested that defendants participate in a conference call to discuss the discovery documents sent by the S.E.C. and defendants' obligations under the scheduling order. The S.E.C. propounded its first set of interrogatories, pursuant to Fed. R. Civ. P. 33, on July 1, 2008, and received no response.*fn1 The S.E.C. followed up in a letter of July 10, reminding defendants that they had not provided Rule 26(a) initial disclosures and had failed to respond to the S.E.C.'s requests for admissions and documents. The letter also requested that defendants contact the S.E.C. or provide a way for the S.E.C. to contact them to confer regarding the outstanding discovery request pursuant to Rule 37(a)(1), Fed. R. Civ. P.*fn2 Defendants were unresponsive.

On October 17, 2008, the S.E.C. sent defendants' Dutch counsel copies of the instant motion in draft form, along with a proposed order and supporting exhibits and warned defendants that it would seek a default and move to strike defendants' responsive pleadings unless they responded. The defendants did not respond. The S.E.C. submitted a status letter on January 22, 2009, in ...

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