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Securities and Exchange Commission v. One or More Unknown Purchasers of Securities of Global Industries, Ltd.

United States District Court, S.D. New York

May 23, 2014



RONNIE ABRAMS, District Judge.

Before the Court is the motion of the Kyrgyz Republic to intervene in this action. The Securities and Exchange Commission ("SEC") opposes the motion. For the reasons below, the motion is denied.


The SEC filed a complaint on September 16, 2011 alleging that one or more unknown Defendants had traded on inside information in violation of the federal securities laws by making "highly profitable and suspicious" purchases of common stock through an omnibus account, the records of which did not identify the beneficial owners. (Compl. ΒΆΒΆ 1, 2, 6, 19-22.) On the same day the complaint was filed, Judge Castel, to whom this case was previously assigned, entered a temporary restraining order freezing assets tied to the alleged insider trading and ordered the unknown Defendants to show cause why a preliminary injunction should not issue. (Dkt. No. 4.) Defendants failed to appear, and on September 22, 2011, Judge Castel granted a preliminary injunction extending the asset freeze. (Dkt. No. 7.) That order also required, among other things, that Defendants disclose contact information and any accounts held in their names. (Id.)

On April 13, 2012, Defendant Ergoport Experts Limited ("Ergoport") appeared in this case, providing addresses in New Zealand and Russia and a bank account number at a Latvian bank. (Dkt. Nos. 11, 12.) On May 10, 2012, Judge Castel endorsed a stipulation between the SEC and Ergoport that limited the asset freeze to funds held in a Citibank account in the amount of $5, 338, 763.63. (Dkt. No. 13.) The matter was reassigned to the undersigned on July 9, 2012. (Dkt. No. 14.) Ergoport answered the Complaint on July 31, 2012, admitting to making the relevant trades but denying wrongdoing. (Dkt. No. 17.)

On August 16, 2012, the United States Attorney for the Eastern District of New York ("U.S. Attorney") filed a motion to intervene for the purpose of seeking a stay of discovery. (Dkt. No. 21.) The U.S. Attorney argued that the stay was necessary in order to prevent prejudice to a criminal investigation into an insider trading scheme that involved accounts held in Ergoport's name. (Dkt. No. 22 at 1-3.) On November 9, 2012, the Court granted the U.S. Attorney's motion to intervene and stayed discovery for six months, with the possibility of an extension upon a showing of good cause. See S.E.C. v. One or More Unknown Purchasers of Sec. of Global Indus., Ltd., 11 Civ. 6500 (RA), 2012 WL 5505738, at *1 (S.D.N.Y. Nov. 9, 2012) (Dkt. No. 31). The U.S. Attorney made no application for an extension.

In an order dated May 21, 2013, the Court noted that the discovery stay had expired on May 9, 2013 and directed the parties to update the Court on the status of the case. (Dkt. No. 32.) On May 31, 2013, the SEC and Ergoport submitted a joint letter informing the Court that the SEC "intend[ed] to seek permission from the Commission to voluntarily dismiss this action." (Dkt. No. 33.) On July 18, 2013, counsel for the Kyrgyz Republic emailed to the Court a letter of the same date addressed to the SEC that stated that the Kyrgyz Republic "underst[oo]d that the SEC intend[ed] to dismiss the civil case" and requested a meeting with representatives of the SEC to discuss the Kyrgyz Republic's interest in the funds frozen by the preliminary injunction. On October 15, 2013, the SEC and Ergoport submitted a stipulation of dismissal signed by both parties, which provided that they "hereby stipulate and agree that, pursuant to Fed.R.Civ.P. 41(a)(1)(A)(ii), this action is dismissed." (Dkt. No. 37.) The case was subsequently designated as closed on the Court's docket.

On November 5, 2013, the Kyrgyz Republic filed the instant motion to intervene. (Dkt. No. 40.) It claims that "the unknown persons who directed and conducted the [insider trading] include a former Kyrgyz government official and a close associate charged and convicted in absentia in the Kyrgyz Republic with large scale corruption and the theft of public funds, and that the funds utilized in the trades, including the restrained funds [subject to the preliminary injunction] constituted, include, or are proceeds of the stolen Kyrgyz public funds." (Memorandum of Points and Authorities in Support of Motion to Intervene submitted by the Kyrgyz Republic ("KR Mem.") 1.)[1] As a result, the Kyrgyz Republic seeks leave to intervene "to pursue its claim for the imposition of a constructive trust over these funds and assets, including the restrained funds, and the return of such funds and assets to the Kyrgyz Republic." (Id.)


"In order to intervene as of right under Fed.R.Civ.P. 24(a)(2), an applicant must (1) timely file an application, (2) show an interest in the action, (3) demonstrate that the interest may be impaired by the disposition of the action, and (4) show that the interest is not protected adequately by the parties to the action." N.Y. News, Inc. v. Kheel , 972 F.2d 482, 485 (2d Cir. 1992). "Failure to satisfy any one of these requirements is sufficient grounds to deny the application.'" Id . (quoting United States v. State of N.Y. , 820 F.2d 554, 556 (2d Cir. 1987)). At the same time, "[t]he various components of the Rule are not bright lines, but ranges, " and "[a]pplication of the Rule requires that its components be read not discretely, but together" in order to give "thoughtful consideration of the objectives it is intended to serve." United States v. Hooker Chem. & Plastics Corp. , 749 F.2d 968, 983 (2d Cir. 1984) (internal quotation marks omitted).

Permissive intervention may be granted "[o]n timely motion" when the applicant "has a claim or defense that shares with the main action a common question of law or fact." Fed.R.Civ.P. 24(b)(1)(B). "In exercising its discretion, the court must consider whether the intervention will unduly delay or prejudice the adjudication of the original parties' rights." Id . 24(b)(3).


The SEC does not dispute that the Kyrgyz Republic has an interest in the action that is not adequately represented by any existing party and that would be impaired by the disposition of the action. (Reply 1.) Rather, it argues that (1) the motion is untimely and moot because it was filed after the suit was voluntarily dismissed by the parties and (2) the Securities Exchange Act of 1934 precludes interference in SEC enforcement proceedings by private parties without the SEC's consent. (Opp'n 1, 4-5.) Because the Court finds the SEC's first argument persuasive, it need not reach the second.

As a threshold matter, the parties dispute whether the action has been dismissed. Federal Rule of Civil Procedure 41(a)(1)(A) provides that a plaintiff may voluntarily dismiss an action "without a court order" only by filing either "(i) a notice of dismissal before the opposing party serves either an answer or a motion for summary judgment" or "(ii) a stipulation of dismissal signed by all parties who have appeared." As Ergoport filed an answer to the complaint, (Dkt. No. 17), the SEC was required to file a stipulation "signed by all parties who have appeared" pursuant to Rule 41(a)(1)(A)(ii) in order to dismiss the case. The Kyrgyz Republic ...

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