The opinion of the court was delivered by: Denise Cote, District Judge:
Plaintiff the United States Securities and Exchange Commission ("SEC"), moves for an entry of judgments establishing equitable and monetary remedies as to defendants Irwin Boock ("Boock"), Stanton B.J. DeFreitas ("DeFreitas"), and Jason C. Wong ("Wong") (collectively, the "Toronto-based Defendants"). The factual background of this litigation was set forth in detail in the Court's Opinion of August 25, which granted in part the SEC's motion for summary judgment against defendant Wong. See SEC v. Boock, et al., No. 09 Civ. 8261 (DLC), 2011 WL 3792819 (S.D.N.Y. Aug. 25, 2011) (the "Summary Judgment Opinion"). Familiarity with that Opinion is assumed.
Briefly stated, the SEC brought this action against five defendants -- Boock, DeFreitas, Wong, Nicolette D. Loisel ("Loisel"), and Roger L. Shoss ("Shoss") -- 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. On March 26, 2010, the Court entered a default as to Boock and DeFreitas and imposed permanent injunctions and penny-stock bars as to both of them and an officer-and-director bar as to Boock. The action is stayed with regard to the SEC's claims against Loisel and Shoss pending the resolution of criminal proceedings against them.
As noted, on August 25, the Court entered summary judgment as to Wong on the SEC's claims under 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"). With respect to the SEC's claims under Section 5 of the Securities Act of 1933, 15 U.S.C. § 77e(a) ("Section 5"), the Court granted summary judgment in part, finding that the evidence established Section 5 violations by Wong as to only 12 of the 23 companies that were hijacked pursuant to the scheme. See Summary Judgment Opinion, 2011 WL 3792819, at *19. Wong's motion for reconsideration of the Summary Judgment Opinion was denied on November 9, 2011. See SEC v. Boock, et al., No. 09 Civ. 8261 (DLC), 2011 WL 5417106 (S.D.N.Y. Nov. 9, 2011).
Having conducted additional discovery in an effort to trace the proceeds of the scheme, the SEC now petitions the Court for the following remedies as to the Toronto-based Defendants: 1) permanent injunctions and penny-stock bars as to Boock, DeFreitas, and Wong; 2) officer-and-director bars as to Boock and Wong; 3) joint and several liability for disgorgement in the amount of $6,140,172 and prejudgment interest in the amount of $2,062,282 as to Boock, DeFreitas, and Wong; and 4) civil penalties in the amount of $2,999,000 as to Boock, $1,560,000 as to Wong, and $130,000 as to DeFreitas.
Boock and Wong have opposed the motion for judgments. Because Boock is in default, he lacks standing to challenge the SEC's application. Nonetheless, both Boock's objections and Wong's objections are considered below.
Once a violation of the federal securities laws has been found, a district court "has broad equitable power to fashion appropriate remedies." SEC v. First Jersey Securities, Inc., 101 F.3d 1450, 1474 (2d Cir. 1996). Among these remedies are permanent injunctive relief, a penny-stock bar, civil penalties, disgorgement and prejudgment interest. See id. at 1474--78.
I. Permanent Injunction as to Wong
Section 21(d) of the Exchange Act and Section 20(b) of the Securities Act authorize a court to enjoin future violations of the securities laws. See 15 U.S.C. §§ 78u(d), 77t(b). A permanent injunction is appropriate in SEC enforcement cases where "'there is a likelihood that, unless enjoined, the violations will continue.'" First Jersey, 101 F.3d at 1477 (quoting Commodity Futures Trading Commission v. American Board of Trade, Inc., 803 F.2d 1242, 1250-51 (2d Cir. 1996)). A permanent injunction may be particularly appropriate where a violation was "founded on systematic wrongdoing, rather than an isolated occurrence," or involved a "high degree of scienter." Id. (citation omitted).
Because the March 26, 2010 Order imposed permanent injunctions and penny-stock bars as to DeFreitas and Boock, it only remains for the Court to consider the propriety of similar relief as to Wong. Wong resists the imposition of a permanent injunction, arguing primarily that he poses no threat to the public going forward. That assertion, however, is belied by the record. Wong's fraudulent behavior did not arise from a single, isolated incident, but rather represented a continuing course of wrongful conduct lasting for more than two years. The record further reflects that Wong acted willfully and knowingly in carrying out the fraud. See Summary Judgment Opinion, 2011 WL 3792819, at *24. Because of his history and experience in the penny stock industry, there is reason to believe that Wong might attempt to return to investment activity in the future. Based on the above facts, there is a likelihood that, unless enjoined, Wong will continue to violate the federal securities laws. Accordingly, the SEC's request to enjoin Wong permanently from future violations of Section 10(b), Rule 10b-5, Section 17(a), and Section 5 of the Securities Act is granted.
II. Penny-Stock Bar and Officer-and-Director Bar as to Wong Section 20(e) of the Securities Act and Section 21(d)(2) of the Exchange Act authorize the court to bar a violator of the securities laws from serving as an officer or director of a publicly held company if the court determines that "the person's conduct demonstrates unfitness" to serve as an officer or director. See 15 U.S.C. §§ 77t(e), 78u(d)(2). In making that determination, the court must consider ""(1) the egregiousness of the underlying securities law violation; (2) the defendant's repeat offender status; (3) the defendant's role or position when he engaged in the fraud; (4) the defendant's degree of scienter; (5) the defendant's economic stake in the violation; and (6) the likelihood that misconduct will recur." SEC v. Patel, 61 F.3d 137, 141 (2d Cir. 1995) (citation omitted). The standard for imposing a penny-stock bar pursuant to Section 20(g) of the Securities Act and Section 21(d)(6) of the Exchange Act, 15 U.S.C. §§ 77t(g), 78u(d)(6), "essentially mirrors that for imposing an officer-or-director bar." SEC v. Universal Exp., Inc., 475 F. Supp. 2d 412, 429 (S.D.N.Y. 2007).
As discussed, Wong's conduct was blatantly unlawful and not at all isolated. Wong was listed as an officer or director of several of the companies involved in the scheme, positions he exploited for his own benefit and that of his co-conspirators. Summary Judgment Opinion, 2011 WL 3792819, at *3. Though Wong continues to insist that he never consented to the use of his name, the Court found otherwise in its Summary Judgment Opinion. Id. at *12-*14. Wong not only consciously engaged in the fraud, he also profited from it, both by selling shares of the hijacked issuers at inflated prices and by requiring compensation for promotion and other services he performed. Id. at *6, *24. He acted willfully and knowingly, and there is a serious ...