The opinion of the court was delivered by: Denise Cote, District Judge:
The plaintiff, the United States Securities and Exchange Commission ("SEC"), brought this action against five defendants -- Irwin Boock ("Boock"), Stanton B.J. DeFreitas ("DeFreitas"), Nicolette D. Loisel ("Loisel"), Roger L. Shoss ("Shoss") and Jason C. Wong ("Wong") (collectively, the "Defendants") -- alleging a securities fraud scheme whereby these individuals hijacked defunct or inactive corporations, issued unregistered stock and sold the securities in violation of the antifraud and registration requirements of the federal securities laws (the "Scheme"). The Court has entered a default as to Boock and DeFreitas. This action is stayed with regard to Loisel and Shoss pending criminal proceedings against them.
The SEC filed a motion for summary judgment as to Wong on February 25, 2011, seeking judgment on its claims under Section 5 of the Securities Act of 1933, 15 U.S.C. § 77e(a) ("Section 5"); Section 17(A) of the Securities Act of 1933, 15 U.S.C. § 77q(a) ("Section 17(a)"); Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b) ("Section 10(b)"); and Rule 10b-5, 17 C.F.R. § 240.10b-5 ("Rule 10b-5"). Wong cross-moved for partial summary judgment on the same day, seeking dismissal of the SEC's claim against him under Section 5 as well as the SEC's requested relief of disgorgement.
On April 14, the SEC filed a motion to strike portions of Wong's reply brief in support of his motion for partial summary judgment. In addition, within the briefing on both parties' motions for summary judgment, both parties have requested to strike from the record various exhibits relied upon by the other. For the following reasons, the SEC's motion for summary judgment is granted in part, Wong's motion for partial summary judgment is denied, the SEC's motion to strike is granted in part, the SEC's other requests to strike are granted in part, and Wong's requests to strike are denied.
The following facts are undisputed unless otherwise
indicated. The SEC alleges that the Defendants took control of
inactive public corporations (the "Hijacked Corporations")*fn1
process that would begin one of two ways. In some cases, one of the
Defendants would falsely represent to the secretary of state of the
state in which the defunct public corporation was incorporated that he
was duly authorized to revive the corporation. In other cases, where
the inactive public corporation was void in its state of
incorporation, one of the Defendants would instead incorporate a new
corporation in the same name of the void corporation. Whether they had
newly incorporated a company or gained control over a pre-existing
one, the next steps in the Scheme were to change the name of the
company, effect a reverse stock split to reduce the number of
outstanding shares, and submit fraudulent and deceptive paperwork in
order improperly to obtain new Committee on Uniform Security
Identification Procedures ("CUSIP") identification numbers and stock
ticker symbols. These manipulations would result in all outstanding
shares in those public corporations being changed to the new ticker
symbol. The Defendants then issued new unrestricted and unregistered
shares into the marketplace. The SEC alleges that Boock conceived of
the Scheme and carried it out with respect to certain companies with
Loisel and Shoss, and with respect to other companies with DeFreitas
and Wong. Boock admitted to all the allegations against him in the
complaint at his deposition on January 13, 2011.*fn2
DeFreitas has also admitted many of the allegations and his part in
the Scheme as part of an agreement with the SEC.
II. Wong's Involvement in the Hijacking Scheme
The SEC has offered evidence to show that Wong had a significant role in the Scheme. He was made aware that other Defendants were locating dormant public companies. Wong would then file documents with various secretaries of state to incorporate new entities, file documents with regulatory entities so that these entities could assume the identity of the dormant public companies, corresponded with some clients interested in shell deals, and caused the Hijacked Corporations to issue shares.
Prior to 2003, Wong had a close personal friendship and business relationship with Boock, a friendship which continues still. Wong's early business activity demonstrates familiarity with various functions necessary to carry out the Scheme. In 2002, he co-founded and served as president of a private company called Online Database Solutions, Inc. ("Online Database Solutions") in Ontario. In 2003, he and a business partner, Kervin Findlay ("Findlay"), purchased a public shell company incorporated in Nevada, Database Solutions, and merged it with his pre-existing private company, Online Database Solutions. Wong later became the sole owner of private Ontario corporations 1606884 Ontario, Inc. ("1606884 Ontario"), JWV, Inc. ("JWV"), and Eventing Capital, as well as the private Delaware corporation World Eventer. Also starting in 2003, Wong began receiving inquiries from companies seeking financing. He referred them to Shoss, among others.
The participants in the Scheme maintained regular contact. Between July 1, 2004 and May 17, 2006, Wong and Boock exchanged 1,704 calls between numbers that Boock and Wong do not deny were theirs. Between June 13, 2005 and March 13, 2006, Wong and DeFreitas exchanged 251 calls. Wong also exchanged telephone calls with Loisel and Shoss between June and September 2005.
A. Locating Dormant Public Companies
Boock located dormant public companies and provided their trading symbols to other participants in the Scheme. Wong was informed that the Scheme involved dormant public companies that were to be hijacked. Emails among Wong, DeFreitas and Boock provide some information as to Wong's exercise of control over these dormant public companies. For example, in October 2004 Wong emailed DeFreitas to ask if he should sign documents on behalf of shell company Caribbean Developments. Boock emailed Wong in September 2005 with the website address for Marinas International, a Hijacked Corporation, and indicated that he hoped that the company was theirs. In another September 2005 email, Wong forwarded Boock an email he received from the officer of a target Hijacked Corporation accusing him of trying to take over the company illegally. Boock replied to this email, telling Wong that he should respond by threatening legal action against the complaining officer.
B. Incorporating and Filing Corporate Documents for New Private Entities
Wong was involved in the incorporation of many of the new entities that were part of the Scheme. For example, Wong paid to incorporate KSW/Energomash J/V Ltd., a proposed joint venture between a KSW Industries, a hijacked entity and a Russian company, in Delaware in September 2005. Between June 23 and November 23, 2005, Wong exchanged eight telephone calls with the office of the Delaware Secretary of State.
Documents filed with the California Secretary of State in July 2005, January 2006 and September 2006, name Wong as an officer of International Energy, PCC Group, LeaseSmart, and Baker Communications, all companies affiliated with the Scheme. Many of these filed documents also list the name of Findlay, Wong's business partner and employee at Online Database Solutions. Other than Baker Communications, each of these companies' California records list a post office box in Orlando, Florida which Boock testified he used along with Wong (the "Orlando Post Box"). On February 15, 2006, Wong communicated by telephone with the California Secretary of State's office.
Florida Department of State records dated from 2003 to 2006 list Wong as an agent for Grand Lux. Florida Department of State records also show that Wong was an incorporator of El Apparel in July 2005 and the submitter of incorporation documents for TCPI in February 2006. These Florida records listed either an address which Wong admits was the business address for his company or the Orlando Post Box, which Boock admits he shared with Wong. On March 27, 2006, Wong communicated by telephone with the Florida Department of State's office.
C. Filing Fraudulent Documents to Assume the Identity of
1. Requesting New CUSIP Numbers for the Target Public Companies
New CUSIP numbers were necessary to reflect the new names given to the Hijacked Corporations by the participants in the Scheme. Wong's name appeared as a requester for new CUSIPs numbers on papers filed with Standard & Poor's CUSIP Global Services ("CUSIP Services") for Big Hub, Caribbean Developments, Marinas International, Alcar Chemicals, PCC Group and International Energy. These filings listed the Orlando Post Box and an email address with which CUSIP Services corresponded with Wong or someone claiming to be Wong. CUSIP Services confirmation letters regarding CUSIP number changes were sent to Wong at the Orlando Post Box, or, with regard to Grand Lux, listed his Ontario business address.
The number and frequency of requests under Wong's name raised a red flag with the manager for operations at CUSIP Services. The name "John Sparrow" was used on CUSIP number change requests for LeaseSmart, listing a telephone number and address associated with Boock. In other CUSIP Services documents, John Sparrow was associated with Wong and Select American Transfer ("SAT"), Wong's company. Between July 15, 2005 and October 4, 2007, Wong made or received six telephone calls with CUSIP Services.
2. Requesting new NASDAQ Symbols and Reverse Stock Splits for the Hijacked Public Companies
In April 2005, Boock incorporated SAT under an alias in Delaware using his own address and telephone number. Boock listed Wong as the sole director and included Wong's address in the incorporation documents. Wong registered SAT with the SEC later that month, naming himself as president and CEO. Wong obtained a fax number and email address for SAT in April 2005. Until September 9, 2005, he was the sole director of SAT. Although there is some dispute about when Wong formally resigned as director -- Wong claimed in his deposition that he resigned either in June 2005 or on August 19, 2005, and bank records show he resigned in December 2005 -- there is undisputed evidence that Wong was involved in SAT's operations, whether or not he retained a formal title, at least through late 2005. Wong has offered no documentary evidence of a date of resignation earlier than that supported by the bank records. These records, as well as check drafts and the testimony of DeFreitas and Saudia Allie ("Allie"), SAT's employee, indicate that Wong maintained a presence at SAT and was paid by SAT at least to the end of 2005, and possibly until March 2006.
SAT served as a transfer agent for 37 companies, sixteen of which are Hijacked Corporations. As part of its role as a transfer agent, SAT submitted Transfer Agent Verification Forms ("TAVF"s) that were filed with NASDAQ Stock Market, Inc.'s Market Operations division ("NASDAQ") by issuers that requested symbol changes to reflect name changes. A TAVF submitted in July 2005 for International Energy listed Findlay as the company's contact, Wong as the president of both International Energy and SAT, and a Boock telephone number. The TAVF filed in August 2005 for El Apparel indicated that Wong was president of SAT and listed one of Wong's telephone numbers as the contact number for the company. A note on the El Apparel form by a NASDAQ employee indicated that she called the company number and spoke with Wong, who answered that number. The Marinas International TAVF filed in August 2005 also listed Wong as the president of SAT. Shortly after approving a name change and reverse stock split for LeaseSmart in October 2005, NASDAQ received a complaint from an individual claiming to be the true owner of LeaseSmart. After investigating the complaint, NASDAQ discovered that Wong was listed as CEO of the Hijacked Corporation in a form filed in July 2005 and that SAT was the transfer agent. In addition, Wong was listed as an officer of International Energy and as a registered agent for Lotta Energy and Grand Lux in files provided to NASDAQ along with TAVFs.
Throughout these documents are aliases which Boock and/or DeFreitas have admitted were used by the Defendants as part of the Scheme. In addition, these documents listed addresses associated with either Boock and Wong, or DeFreitas. Other than the request for El Apparel, which listed Wong's cell phone number, the NASDAQ filings listed one of Boock's telephone numbers.
By January 2006, NASDAQ had assigned Wong a red flag because he had exhibited a pattern for reinstating dormant companies and assuming their corporate identities. NASDAQ employees also found it odd that Wong was listed as both an officer of the companies requesting new symbols and as president of SAT, the transfer agent for those companies.
D. Dealing with Clients Interested in Shell Deals
Boock, DeFreitas and Wong also coordinated by email on dealing with clients who were interested in shell deals -- deals in which their companies would be merged into previously dormant public companies. Wong corresponded directly with third parties about shell deals. Two witnesses -- one a potential client and one a stock promoter that performed services for Wong -- testified that Wong contacted them about a shell deal involving KSW Industries. In 2003 or 2004, Wong and DeFreitas met a business consultant at a trade show in New York and spoke to him about shell deals.
Again, emails show Wong's involvement in the sales of shells to interested private companies. In October 2004, Wong corresponded with DeFreitas about a client's return of shell companies. Boock wrote to a client in May 2005 indicating that Wong would arrange initial financing for a potential KSW Industries shell deal. An email from Boock to Wong in September 2005 directed Wong to offer an unnamed shell company for $150,000.
Boock testified Wong was involved in the sale of the Baker Communications shell, and Wong's email communications support this testimony, showing that he was in contact with the shell purchaser and set terms for the closing. Wire instructions given to an agent involved in the sale indicated that $105,000 was to be deposited in the account of 1606884 Ontario, a Wong-controlled company, and the bank records of that entity indicate that it did indeed receive a transfer of $104,970 at the time of the sale of Baker Communications. Wong denies that "Baker Communications was a shell that [he] sold" but does not deny that he was aware that it was a dormant shell company.
E. Issuing Shares For the Hijacked Public Companies
Wong also played a role in printing the shares for the Hijacked Corporations which, among other things, were used to compensate Boock, DeFreitas and Wong himself as part of the Scheme. In October 2005, SAT hired an employee, Allie, who had no experience in securities or with a transfer agency like SAT. Wong taught her how to print stock certificates and how to either use a signature stamp or forge by hand the signature of Amy Giles, the purported president of SAT after Wong left that position.*fn3 Wong returned to SAT several times after Allie's first day in October 2005 and advised her on how to handle requests for stock certificates to be printed. Allie would receive requests for printing shares by fax followed by a telephone call from someone claiming to represent the issuing company, and Allie subsequently would send out printed certificates by FedEx. Allie referred questions from investors to Wong and DeFreitas. Her duties were based on what she had been taught by Wong and, to a lesser extent, DeFreitas. SAT issued stock certificates for some of the Hijacked Corporations, including Caribbean Developments and KSW Industries.
Wong maintained personal involvement with share issuances in late 2005 and early 2006. Boock directed DeFreitas and Wong by email to issue shares to certain shareholders of Big Hub, in August 2005. On September 28, 2005, Wong requested by email that DeFreitas issue a certificate for 100,000 shares of KSW Industries to stock promoter Tony Golden ("Golden"). On January 16, 2006, Wong emailed DeFreitas asking that he issue a million shares of "EL" to his account and a million shares of "LS" to an account of 1606884 Ontario, a company Wong owned. Indeed, Wong's 1606884 Ontario's trading account records show that he received one million shares of El Apparel on January 20, 2006 and one million shares of LeaseSmart on February 1, 2006. Wong later emailed Boock in February 2006 for advice on the issuance of shares for Baker Communications.
F. Creating a Market by Promoting the Shares of the Hijacked Companies
Wong had a significant role in creating a market for the newly-issued shares of Hijacked Corporations by drafting, editing, and issuing press releases. On March 13, 2005, Wong emailed different versions of draft press releases for Grand Lux to DeFreitas that included a Boock telephone number and the address of the Orlando Post Box associated with Boock and Wong. Similarly, Wong sent DeFreitas and/or Boock draft press releases or other promotional language for Caribbean Developments in July (and possibly September) 2005, for KSW Industries in September 2005, and for El Apparel in November 2005.
Wong admits that he forwarded a press release for KSW Industries to a stock promoter, Mark Moline ("Moline"). Moline testified that Wong also worked with him to promote Big Hub, LeaseSmart, El Apparel, Global Aerial Surveillance, Inc., Caribbean Developments, Grand Lux, Transworld Oil and Gas Ltd., Magellan Energy and International Energy. Moline edited these press releases but did not draft them himself. He always worked Hijacked Corporation with Wong, and never had contact with any third person who worked for these companies. Moline billed Wong for these services.
Wong also worked with an investor relations professional, Golden, whose Georgia-based company, Shareholder Development Group, distributes press releases for companies traded on the OTC Pink Sheets of the OTC Markets Group, a major interdealer quotation system on which market makers of a security post "bid" and "ask" quotes. Wong referred KSW Industries and Caribbean Developments to Golden. In working with Golden, Wong does not dispute that he used a telephone number and email address which were used in other communications related to the Scheme and on some of the Hijacked Corporations' filings with the NASDAQ.
III. Wong Received and Sold Shares of the Hijacked Corporations Wong received shares of the Hijacked Corporations and liquidated them soon thereafter. Through Royal Bank of Canada trading accounts under his name or JWV and 1606884 Ontario, companies he owned, Wong deposited or purchased and sold shares for various Hijacked Corporations within the date ranges and in the quantities specified in the below table.
79 (after reverse stock split)
4/6/2006 (date of reverse stock split)