United States District Court, S.D. New York
ARJENT LLC and ROBERT P. DEPALO, Plaintiffs,
UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Defendant
Decided March 17, 2014.
For Arjent Llc, Robert P. Depalo, Plaintiffs: Andrew J. Goodman, Ella Rachel Aiken, Malcolm Seymour, Garvey Schubert Barer, New York, NY; Garvey Schubert Barer, New York, NY.
For United States Securities And Exchange Commission, Defendant: Melinda Hardy, Securities and Exchange Commission (DC), Washington, DC.
MEMORANDUM AND ORDER
P. Kevin Castel, United States District Judge.
Plaintiffs Arjent LLC and its chief executive officer (" CEO" ), Robert DePalo, (collectively, " Arjent" ) bring this action against defendant United States Securities and Exchange Commission (the " SEC" ). Seeking a permanent injunction, Arjent alleges tat the SEC has been conducting a harassing investigation over the last three years which exceeded the scope of its authority. Arjent further alleges that, as a small broker/dealer, it is subjected to harsher treatment compared to large firms in violation of the Equal Protection Clause of the Constitution.
Arjent now moves for a preliminary injunction to halt the SEC's investigation. (Docket # 7.) The SEC cross-moves to dismiss the claims against it for lack of subject matter jurisdiction pursuant to Rule 12(b)(1), Fed. R. Civ. P., and for failure to state a claim pursuant to Rule 12(b)(6), Fed.R.Civ.P. (Docket # 29.)
The Court concludes that the Complaint (Docket #1) fails to state an equal protection claim and that sovereign immunity bars Arjent's other claims. For reasons further explained, the SEC's motion to dismiss is granted. Arjent's motion for a preliminary injunction is denied as moot.
The following facts are taken from the Complaint, and matters of which judicial notice may appropriately be taken. See Chambers v. Time Warner, Inc., 282 F.3d 147, 152-53 (2d Cir. 2002). All facts are assumed to be true for the purpose of deciding defendant's motion to dismiss. All reasonable inferences are drawn in favor of the plaintiffs as non-movants. See In re Elevator Antitrust Litig., 502 F.3d 47, 50-51 (2d Cir. 2007) (per curiam).
Plaintiff Arjent LLC is a registered New York-based securities broker/dealer. (Compl. ¶ 9.) Plaintiff Robert DePalo acted as Arjent LLC's CEO at all relevant times. (Id. ¶ 10.) During the summer of 2011, the SEC began a " routine" field examination of Arjent to ascertain its compliance with applicable laws and regulations. (Id. ¶ 12.) After examining Arjent's files, the SEC requested that Arjent voluntarily provide documentation regarding three entities listed as " outside business activities" for several of its employees. (Id. ¶ 14.) Arjent substantially cooperated with the SEC's requests, withholding only portions of DePalo's personal financial records. (Id. ¶ 17.)
Through the summer and early fall of 2011, the SEC's inquiries intensified, culminating in a Formal Order of Investigation (" FOI" ) on November 3, 2011. (Id. ¶ 17, 28.)
Arjent asserts that it was not informed of the FOI until November 17, 2011. (Id. ¶ 33.) During the two week period between the issuance of the FOI and the SEC's disclosure of the FOI, the SEC continued to make inquiries of Arjent employees " under a pretext of informality." (Id. ¶ 30.)
In the spring of 2012, the SEC began transmitting subpoenas to Arjent in connection with its investigation. (Id., ¶ 34.) On September 19, 2012, the SEC transmitted a second set of subpoenas that superseded and replaced the previously issued subpoenas. (Id. ¶ 36.) The second set had been issued pursuant to an amended FOI, which, at that time, had not been provided to Arjent. (Id. ¶ 36.) After learning that the FOI had been amended, Arjent's counsel requested a copy from the SEC. (Id. ¶ 37-39.) In response, the SEC demanded to know the identity of counsel's clients. (Id. ¶ 40.) When counsel refused to disclose which subpoenaed parties it represented, the SEC refused to provide a copy of the amended FOI and refused to provide a legal rationale for doing so. (Id.)
On October 12, 2012, Arjent filed a complaint with the SEC Inspector General concerning the SEC's conduct during the investigation. (Id. ¶ 63.) Arjent ...