The opinion of the court was delivered by: Paul A. Engelmayer, District Judge
Plaintiff the Securities and Exchange Commission ("SEC") moves for an order directing defendants Chetan Kapur and Lilaboc, LLC d/b/a ThinkStrategy Capital Management, LLC ("ThinkStrategy") to disgorge the amounts gained as a consequence of their violations of the securities laws; the SEC also seeks an award of prejudgment interest and the imposition of third-tier civil penalties. For the reasons stated herein, the SEC's motion is granted.
A.The Parties and Relevant Events
Kapur is a citizen of India and a resident of New York. He is the founder and was at all relevant times the sole managing director and controlling principal of ThinkStrategy. Compl. ¶¶ 9, 13. ThinkStrategy is a Delaware company formed in November 2002, with its principal place of business in New York. Id. ¶ 10. It has never been registered with the SEC. Id. ThinkStrategy served as general partner and investment adviser to two hedge funds: ThinkStrategy Capital Fund (the "Capital Fund") and TS Multi-Strategy Fund (the "Multi-Strategy Fund"). Id.
In July 2003, Kapur formed the Capital Fund, a long-short market neutral hedge fund. Id. ¶ 14. In 2006, Kapur started a second share class for the Capital Fund-Capital Fund-B-which allocated capital to three independent sub-advisers and began trading in October 2006. Id. ¶ 16. The Capital Fund ceased operations in 2007. Id. ¶ 11.
In mid-2004, Kapur founded the Multi-Strategy Fund, which invested in other hedge funds. Id. ¶ 15. In 2007, Kapur created a second share class for this fund-Multi-Strategy Fund- B-which began investing in January 2008. Id. ¶ 17. In November 2010, the Multi-Strategy Fund entered into voluntary liquidation and was placed under the control of court-appointed receivers. Id. ¶ 12.
Kapur and ThinkStrategy made numerous misrepresentations to their investors regarding the funds' investment performance, id. ¶¶ 18--36; the funds' longevity and past performance, id. ¶¶ 37--44; the funds' assets under management, id. ¶¶ 45--48; the credentials and experience of ThinkStrategy's management team, id. ¶¶ 49--56; and the degree of due diligence performed on hedge funds in which the Multi-Strategy Fund invested, id. ¶¶ 57--80. See generally Schwarz, 2012 WL 2026365, at *2--13. These misrepresentations are the bases of the SEC's Complaint in this action.
On November 10, 2011, the SEC filed a Complaint against the defendants, alleging violations of Section 17(a) of the Securities Act of 1933, 15 U.S.C. § 77q(a); Section 10(b) of the Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and Rule 10b-5 promulgated thereunder, 17 C.F.R. § 240.10b-5; and Section 206(4) of the Investment Advisers Act of 1940, 15 U.S.C. § 80b-6(4), and Rule 206(b)(4)-8 promulgated thereunder, 17 C.F.R. § 275.206(4)-8. Dkt. 1. On November 16 and 18, 2011, this Court, upon consent of the parties, entered judgment against each defendant. Dkt. 4--5. The consent judgments provided that the defendants "shall pay disgorgement of ill-gotten gains, prejudgment interest thereon, and civil penalties" in amounts to be determined by the Court upon the SEC's motion. Id.
On March 20, 2012, the Court entered a consent order authorizing discovery regarding the money obtained by defendants from their illegal conduct and the defendants' current financial status. Dkt. 10. On March 29, 2012, the SEC noticed Kapur for a deposition. Dkt. 13- 4. That deposition never occurred, because Kapur repeatedly claimed that he was in India and too sick to travel to the United States. See Dkt. 13-5 (correspondence between SEC and defense attorneys, dating from March 21 to June 14, 2012). That excuse, however, was later revealed to have been a blatant lie: On July 16, 2012, Kapur was arrested at John F. Kennedy Airport, seeking to leave the United States. Passport and credit card records reflect that Kapur had been in the United States during the time period in which he had claimed to be in India. Dkt. 13-6 (letter from United States Attorney to Court and parties).
On August 10, 2012, the SEC filed this motion. Dkt. 12. On October 8, 2012, defendants filed a brief in opposition. Dkt. 16. On November 2, 2012, the SEC filed its reply. Dkt. 20.
The SEC moves for disgorgement, an award of prejudgment interest, and the imposition of civil penalties. The ...