United States District Court, S.D. New York
B. DANIELS, United States District Judge
enforcement action alleging violations of Sections 5(a),
5(c), and 17(a) of the Securities Act of 1933, 15 U.S.C.
§§ 77e(a) & (c), 77q(a), Section 10(b) of the
Securities Exchange Act of 1934, 15 U.S.C. § 78j(b), and
Rule 10b-5, 17 C.F.R. § 240.10b-5, the Securities and
Exchange Commission (the "SEC") seeks a default
judgment pursuant to Rule 55(b)(2) of the Federal Rules of
Civil Procedure against six defendants: Carrillo Huettel LLP.
Luis J. Carillo, Wade D. Huettel, Gibraltar Global
Securities, Warren Davis, and Luniel de Beer.
("SEC's Default J. Mot, " ECF No. 279.)
matter was referred to Magistrate Judge James C. Francis IV.
(ECF No. 295.) Before this Court is Magistrate Judge
Francis' Report and Recommendations. ("Report,
" ECF No. 304). This Court adopts the Report's
recommendations and overrules the objections filed by
Carrillo and Huetell. The Report properly recommended joint
and several disgorgement of ill-gotten gains as to Defendants
Carrillo Huettel LLP, Luis J. Carillo, Wade D. Huettel and
Luniel de Beer. However, the joint and severable liability
amount should be reduced by the disgorgement amounts the SEC
has procured from the other defendants through settlement
agreements. Further, the civil penalties assessed by
Magistrate Judge Francis are reasonable.
Court "may accept, reject, or modify, in whole or in
part, the findings or recommendations" set forth within
a magistrate judge's report. 28 U.S.C. § 636(b)(1).
The Court must review de novo the portions of a
magistrate judge's report to which a party properly
objects. Id. Portions of a magistrate judge's
report to which no or merely perfunctory objections have been
made are reviewed for clear error. See Edwards v.
Fischer, 414 F.Supp.2d 342, 346-47 (S.D.N.Y.2006). Clear
error is present only when "upon review of the entire
record, [the court is] left with the definite and firm
conviction that a mistake has been committed." Brown
v. Cunningham, No. 14-CV-3515, 2015 WL 3536615, at *4
(S.D.N.Y. June 4, 2015) (internal citations omitted).
Judge Francis advised the parties that failure to file timely
objections to the Report would constitute a waiver of those
objections on appeal. (Report, at 29.) Only Carrillo and Huettel
oppose the SEC's motion and filed timely objections to
the Report. (Defs.'s Objections to the Report
("Defs.'s Objs."), ECF Nos. 309, 311.) The SEC
filed a timely response to Defendants' objections. (ECF
Report recommends that second-tier penalties of $375, 000 be
awarded against both Carrillo and Huettel individually.
Carrillo and Huettel argue that this amount "seem[s]
unnecessarily high based on the role [they] played as well as
the total lack of civil penalties assessed against the other,
more culpable defendants." (Defs.'s Objs. at 14.)
This Court rejects Carrillo and Huettel's objection.
Given that the civil fines assessed are substantially less
than the maximum third-tier penalties requested by the SEC,
the Magistrate Judge's recommendation is reasonable.
Report further recommends that Carrillo Huettel LLP,
Carrillo, Huettel and de Beer be held jointly and severally
liable for disgorgement of $13, 376, 519.99 plus prejudgment
interest. (Report at 29). As an initial matter, the total
amount of disgorgement is not contested. Carrillo and Huettel
essentially argue that joint and several disgorgement is
unnecessary and inequitable as to them because (1) the
settling defendants were the ones who orchestrated the
scheme, (2) the settling defendants are not required to
jointly and severally disgorge the full amount of the
proceeds, and (3) the SEC does not allege that Carrillo and
Huettel personally received the $13, 376, 519.99.
and Huettel made a conscious decision to cease defending
against this action and have defaulted. Therefore, this Court
has no basis to conclude that they should be treated as less
culpable than the other defendants. They neither defended nor
settled the claims against them. By defaulting and failing to
fully participate in discovery, Carrillo and Huettel
"surrendered their opportunity to minimize their
exposure" in this action. (Report at 24.) Thus, this
Court rejects Carrillo and Huettel's objections as it
relates to the Report's disgorgement recommendation. The
Report properly recommended joint and several disgorgement of
the total ill-gotten gains obtained by all defendants as a
result of their concerted scheme. However, it is reasonable
to credit the individual amounts the SEC has procured from
other defendants through settlement agreements and to hold
Carrillo Huettel LLP, Carrillo, Huettel and de Beer jointly
and severably liable for the remaining amount of illicit
profits generated by the overall scheme.
adopted the Report, the SEC's motion for default judgment
is granted. This Court accepts the Report's disgorgement
and civil penalties recommendations to the extent that:
a. Carrillo Huettel LLP, Luis J. Carrillo, Wade D. Huettel,
and Luniel de Beer are jointly and severally liable for the
disgorgement of $13, 376, 519.99, reduced by the $6, 673,
035.84 the SEC has procured from other defendants through
settlement agreements, for a total of $6, 703,
484.15, plus ...