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Securities and Exchange Commission v. Cole

United States District Court, S.D. New York

September 22, 2014

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
LEE COLE, et al., Defendants.

Plaintiff is represented by Aaron P. Anzen, Securities and Exchange Commission, San Francisco, CA. Andrew M. Calamari, Michael D. Paley, and Stephen A. Larson, Securities and Exchange Commission, New York, NY.

Defendants are proceeding pro se.

OPINION AND ORDER

RICHARD J. SULLIVAN, District Judge.

Plaintiff, the Securities and Exchange Commission (the "SEC"), brings this action against Defendants Lee Cole ("Cole") and Linden Boyne ("Boyne" and, with Cole, the "Defendants") for violations of numerous federal securities laws. (Compl., Doc. No. 1.)[1] The Court previously entered default judgment against Defendants on the SEC's allegations that the pair had violated various provisions of the Securities Act of 1933, the Exchange Act of 1934, the Sarbanes-Oxley Act of 2002, and the associated rules promulgated thereunder. (See Default Judgment, Doc. No. 87 ("Default Judgment"), at 6 (finding liability on Claims 1-3, 5, 7-15, and 18 of the Complaint).) As part of the Default Judgment, the Court directed the SEC to propose and justify the relief that should be granted based on Defendants' liability. (Id. at 6.) Consistent with that instruction, the SEC now moves for relief, seeking disgorgement, civil fines, and several permanent injunctions. (Mot. for Relief, Doc. No. 93 ("Mot."), at 1-2.) For the reasons set forth below, the Court grants the SEC's motion.

I. BACKGROUND

Because the history of the case is set out in detail in the Court's Default Judgment (see Default Judgment at 1-5), the Court provides only a brief summary here.

The SEC commenced this action by filing a Complaint on November 8, 2012. (See Compl.) According to the Complaint, between 2006 and 2009, Defendants served as CEO and CFO of Electronic Game Card, Inc. ("EGMI"), a publicly-owned company. (Id. ΒΆ 1.) During that period, Defendants, inter alia, lied to the investing public about the operations and financial status of EGMI in order to inflate EGMI's stock price and "secretly funnel[ed] millions of shares of EGMI stock to Gibraltar-based entities they secretly controlled (the "Gibraltar Entities")." (Id. lilt 1-3.)

During discovery, Defendants failed to comply with five Court Orders (see Default Judgment at 2-5), including one to appear for a deposition (Doc. No. 71) and one to pay sanctions totaling $1, 500.00 (Doc. No. 73). On August 6, 2013, the Court held a hearing to address whether default judgment should be entered against the pair. (See Default Judgment at 5.) Defendants did not appear at the hearing. (See id.) Two days later, the Court entered default judgment in favor of the SEC with respect to liability on the violations listed above. (See id. at 6.)

On October 1, 2013, the SEC filed the instant motion and memorandum of law seeking civil fines, permanent injunctions, and either disgorgement or reimbursement. (See Mem. of Law in Supp. of Mot., Doc. No. 94 ("Mem."), at 1-2.) The SEC's submission also included a declaration from Stephen A. Larson, attached to which were 46 exhibits establishing links between Defendants, their affiliates, and eleven Gibraltar Entities. (Decl. of Stephen A. Larson, dated Oct. 1, 2013, Doc. No. 96 ("Decl." or the "Declaration").) On or about October 8, 2013, Defendants submitted their responses, denying that they committed the violations and asserting that they "have cooperated as best as they were able."[2] (Obj. to Mot., dated Oct. 8, 2013, Doc. No. 125 ("Obj."), at 4-5, 36-37.) They further insisted that the SEC had not "furnished factual proof' of the violations, and they blamed their failure to abide by the Court's various Orders on "jurisdictional conflict[s] of law, " declining to elaborate further. (Id. at 5-6, 38.) To date, Defendants have not filed a motion to set aside or vacate the default judgment, as is permitted by Federal Rules of Civil Procedure 55(c) and 60(b).

II. DISCUSSION

As a threshold matter, the Court notes that a default judgment, unless vacated, is "final" and authorizes the Court to grant a plaintiff "any relief to which the [C]ourt decides [plaintiff] is entitled." City of New York v. Mickalis Pawn Shop, LLC, 645 F.3d 114, 128 (2d Cir. 2011). As part of a default judgment, the Court accepts as true "all of the factual allegations of the complaint, except those relating to damages." Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir. 1981). With respect to the substance of the instant motion, the SEC seeks (1) disgorgement or, in the alternative, reimbursement under Section 304 of the Sarbanes-Oxley Act; (2) civil fines; and (3) injunctive relief barring Defendants from (a) further violating the securities laws, (b) acting as an officer or director of a public company, and (c) participating in activities involving penny stocks. (See Mem. at 1-2.) The Court addresses each request in turn.

A. Disgorgement

The SEC argues that Defendants should disgorge their "ill-gotten gains" and pay prejudgment interest. (See Mem. at 1, 4-8.) For the reasons set forth below, the Court finds that Defendants jointly and severally are ...


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