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Securities and Exchange Commission v. Plexcorps

United States District Court, E.D. New York

December 14, 2017

SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
PLEXCORPS a/k/a and d/b/a PLEXCOIN and SIDEPAY.CA, DOMINIC LACROIX and SABRINA PARADIS-ROYER, Defendants,

          ORDER GRANTING PRELIMINARY INJUNCTION, ASSET FREEZE, AND OTHER INTERIM RELIEF

          Carol Bagley Amon, United States District Judge.

         On December 1, 2017, Plaintiff Securities and Exchange Commission (the "Commission") filed the instant action against Defendants PlexCorps a/k/a and d/b/a PlexCoin and Sidepay.ca (the "Entity Defendant"), Dominic Lacroix ("Lacroix"), and Sabrina Paradis-Royer (with Lacroix, the "Individual Defendants"), alleging securities fraud in violation of the Securities Act of 1933 (the "Securities Act"), 15 U.S.C. § 77a et seq.; the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. § 78a et seq.; and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5. That day, the Commission filed an emergency application (the "Application") for an order to show cause, temporary restraining order, and asset-freezing order against Defendants, and the Court granted the application, issuing an ex parte Order to Show Cause, scheduling a preliminary injunction hearing to take place on December 12, 2017, and requiring Defendants to respond by December 7, 2017, at 5:00 p.m. Plaintiff duly served the Order to Show Cause on Defendants. On December 8, 2017, the Court granted an extension of the temporary restraining order against the Individual Defendants, who consented, and rescheduled the preliminary injunction hearing to March 5, 2018. However, the Entity Defendant neither consented to the extension nor responded to the Court's Order to Show Cause; in fact, it has not appeared in the instant action. Pursuant to Rule 65(b)(2) of the Federal Rules of Civil Procedure, the temporary restraining order against the Entity Defendant remains in effect for a 14-day period ending December 15, 2017.

         Before the Court is the Commission's December 12, 2017, letter motion for preliminary injunction against the Entity Defendant. Normally, the Court applies the test articulated in eBay Inc. v. MercExchange, LLC. 547 U.S. 388 (2006), to determine whether a preliminary injunction is warranted. See, e.g., Abbott Labs, v. Adelphia Supply USA. No. 15-CV-5826 (CBA), 2015 WL 10906060, at *5 (E.D.N.Y.Nov. 6, 2015). Under the eBay test, which applies to purely equitable injunctions, the movant must establish that (1) the movant likely will succeed on the merits; (2) the movant likely will suffer irreparable harm; (3) the balance of hardships tips in the movant's favor; and (4) the preliminary injunction would not disserve the public interest. See eBay, 547 U.S. at 391; Malletier v. Burlington Coat Factory Warehouse Corp., 426 F.3d 532, 537 (2d Cir. 2005). However, because preliminary injunctions in lawsuits brought by the Commission are "creatures of statute" and not "rooted wholly in the equity jurisdiction of the federal court, " the Second Circuit has not required the Commission to prove the elements of the rigid eBay test. See SEC v. Mgmt. Dynamics, Inc., 515 F.2d 801, 808 (2d Cir. 1975). Instead, the Commission "need only make 'a substantial showing of likelihood of success as to both a current violation and the risk of repetition.'" Smith v. SEC, 653 F.3d 121, 127-28 (2d Cir. 2011) (quoting SEC v. Cavanagh, 155 F.3d 129, 132 (2d Cir. 1998)). A "substantial showing of likelihood of success" is a sliding-scale standard; the Commission "should be obliged to make a more persuasive showing of its entitlement to a preliminary injunction the more onerous . .. the burdens of the injunction it seeks." Id. at 128 (quoting SEC v. Unifund SAL, 910 F.2d 1028, 1039 (2d Cir. 1990)).

         To show a violation of Section 10(b) of the Exchange Act and SEC Rule 10b-5, the Commission must show that Defendants "(1) made a material misrepresentation or a material omission as to which he had a duty to speak, or used a fraudulent device; (2) with scienter; (3) in connection with the purchase or sale of securities." SEC v. Pentagon Capital Mfimt. PLC, 725 F.3d 279, 285 (2d Cir. 2013). "The requirements for a violation of Section 17(a) apply only to a sale of securities but in other respects are the same as Section 10(b) and Rule 10b-5, except that 'no showing of scienter is required for the SEC to obtain an injunction under [Section 17] (a)(2) or (a)(3)." Id. (alterations in original) (quoting SEC v. Monarch Funding Corp., 192 F.3d 295, 308 (2d Cir. 1999)). Finally, "to state a cause of action under Section 5 [of the Securities Act], one must show '(1) [the] lack of a registration statement as to the subject securities; (2) the offer or sale of the securities; and (3) the use of interstate transportation or communication and the mails in connection with the offer or sale." Cavanagh, 445 F.3d 105, 111 n.13 (2d Cir. 2006) (quoting Eur. & Overseas Commodity Traders, S.A. v. Banque Paribas London, 147 F.3d 118, 124 n.4 (2d Cir. 1998)).

         The Court has considered the exhibits to the letter motion and the filings associated with the Commission's December 1, 2017, Application. Based upon those documents, the Court finds the following:

1. The Commission has made a substantial showing of likelihood of success on the merits of the securities violation; in particular, it likely will demonstrate that the Entity Defendant has violated Sections 5(a), 5(c), and 17(a) of the Securities Act; Section 10(b) of the Exchange Act; and SEC Rule 10b-5.
2. The Commission likely will establish that the Entity Defendant participated in a scheme to obtain more than $15 million in proceeds from unlawful activities related to "PlexCoin Tokens, " which are investment contracts subject to the Securities Act and Exchange Act.
3. The Commission has made a substantial showing of likelihood of success on the merits with respect to establishing a risk of repetition of the securities violations.
4. Freezing the Entity Defendant's assets is necessary to preserve the status quo and to protect the Court's ability to award relief in the form of disgorgement of ill-gotten gains, prejudgment interest, and civil penalties.
5. The Entity Defendant or its associates likely have contemplated destroying evidence relating to the allegations in the Complaint. An order prohibiting the Entity Defendant or its associates from destroying, altering, or concealing records of any kind-including documents concerning the allegations in the complaint or the assets, finances, or business operations of the Entity Defendant-is necessary to ensure compliance with the asset freeze imposed on the Entity Defendant and to protect the integrity of the instant litigation.
6. The Court likely has subject-matter jurisdiction over the instant action and personal jurisdiction over the Entity Defendant. It is also likely that venue properly lies in the Eastern District.

         NOW, THEREFORE,

         I.

         IT IS HEREBY ORDERED that the Commission's Motion for a Preliminary Injunction with respect to Defendant PlexCorps ...


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