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Securities and Exchange Commission v. Jankovic

United States District Court, S.D. New York

January 4, 2018



          KATHERINE POLK FAILLA, District Judge

         Plaintiff Securities and Exchange Commission (the “SEC”) brought this civil enforcement action against Defendant John Jankovic (“Jankovic”) and others, alleging violations of Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. § 78j(b); Rule 10b-5 implemented thereunder, 17 C.F.R. § 240.10b-5; and Sections 17(a)(1), (2), and (3) of the Securities Act of 1933 (the “Securities Act”), 15 U.S.C. § 77q(a)(1)-(3). On August 8, 2016, the SEC moved for summary judgment on each alleged violation. On March 21, 2017, this Court granted the SEC's motion for summary judgment solely with respect to the claims under Sections 17(a)(2) and (3). See SEC v. Jankovic, No. 15 Civ. 1248 (KPF), 2017 WL 1067788 (S.D.N.Y. Mar. 21, 2017).

         The SEC now moves for post-judgment remedies and relief. Specifically, it requests that the Court order disgorgement in the amount of $450, 000, plus prejudgment interest of $121, 039; a civil monetary penalty; and permanent injunctions prohibiting Jankovic from violating Sections 17(a)(2) and (3) of the Securities Act and from soliciting or accepting funds from any person or entity in an unregistered offering of securities. Jankovic opposes all facets of the SEC's motion, arguing that disgorgement should be limited to the amount of his personal profits, $57, 000; that prejudgment interest is unwarranted; and that the Court should impose neither a civil penalty nor a permanent injunction against him. For the reasons set forth in the remainder of this Opinion, the SEC's requests for disgorgement, a civil monetary penalty, and a permanent injunction prohibiting violations of Sections 17(a)(2) and (3) of the Securities Act are granted. The SEC's request for a permanent injunction prohibiting Jankovic from raising funds in an unregistered offering of securities is denied.


         A. Factual Background

         The following sections discuss the underlying facts only to the extent necessary to resolve the instant motion, as the Court has previously engaged in a more exhaustive factual recitation. See Jankovic, 2017 WL 1067788, at *2-6.

         1. Jankovic's Role at Premiere Power

         Jankovic was an initial member - along with his father, Jerry Jankovic, and an Oklahoma-based attorney, Thomas Gudgel (“Gudgel”) - of Premiere Power, LLC (“Premiere”). Jankovic, 2017 WL 1067788, at *2. Sandra Dyche (“Dyche”), with whom Jerry Jankovic had previously founded another company (21st Century Morongo Energy LLC (“Morongo”)), became a member of Premiere's Board of Directors. Id. at *1, 3. Premiere's ostensible mission was to develop and operate power plants on Native American tribal land, though the company never developed, built, or operated any such plants nor generated any revenues. Id. at *2, 6.

         Jankovic worked at Premiere from July 2009 until January 1, 2012. Jankovic, 2017 WL 1067788, at *3, 6. Starting in early December 2009, Jankovic assumed the role of Premiere's Chief Executive Officer (“CEO”), id. at *3, a position he kept until his “active role” in the company “ceased in summer of 2011, ” id. at *6. Between December 2009 and March 2010, Jankovic helped Premiere raise nearly $2 million in interim financing from three sets of investors: Moon Joo Yu (“Yu”), who invested $1.5 million; Hee Rak Kim, who invested $150, 000; and Hyun Ja Kim and Jae Duk Kim, who invested $300, 000. Id. at *3, 6. Yu made her investments in three equal tranches: On December 9, 2009, she gave Dyche $500, 000 in cash; on December 14 and 15, 2009, she wired a total of $500, 000 to Premiere's bank account in two separate installments; and sometime after December 15, 2009, she gave Dyche another $500, 000. Id. at *3. Yu was told that, in exchange for her $1.5 million investment, she would receive a 0.60% stake in the company. Id. Jae Duk Kim invested $300, 000 on December 23, 2009, for a 0.12% interest in the company. Id. at *6. And in March 2010, Hee Rak Kim invested $150, 000 in exchange for a 0.06% stake in the company. Id.

         2. Misstatements and Omissions Regarding Proceeds from Investors

         Not all of the funds that Yu invested actually went to Premiere. Jankovic, 2017 WL 1067788, at *3. Instead, $1 million of Yu's investment was used to pay for “legal fees” incurred in a 2006 lawsuit arising out of events at Morongo. Id. Like Premiere, Morongo was an energy company with the stated goal of developing a power plant on Native American land. Id. at *2. In the Morongo litigation, two individuals - Byung Chul An and Hyang Ok An (collectively, the “Ans”) - who had invested a combined $1.2 million in Morongo, sued Jerry Jankovic, Dyche, and others for fraud, negligent misrepresentation, and conversion. Id.

         Sometime in 2009, Jankovic learned from his father that Morongo had been sued by its investors and that his father was a named defendant in that action. Jankovic, 2017 WL 1067788, at *2. On September 15, 2009, Jankovic sent an email to his father and Gudgel; it attached a letter addressed to the Ans asking them to “drop any and all legal actions against [Morongo], Jerry Jankovic, [and Dyche]” in exchange for “a 2% ownership interest in Premiere.” Id. at *3. By December 2009, Jankovic understood that Dyche planned to give part of Yu's investment in Premiere to the Ans in order to resolve the Morongo litigation. Id. And on December 10, 2009, Jankovic sent Gudgel and Dyche an email, copying his father, that stated: “Sandra, your proposed buy-out of the An interest will serve the same purpose as the An settlement.” Id. (internal quotation marks omitted).

         Jankovic was well aware of the gap between the ownership share that Yu was entitled to, per a Subscription Agreement she had signed on December 9, 2009, and the money that was actually received by Premiere from Yu's investment. Jankovic, 2017 WL 1067788, at *12. Yu's Subscription Agreement, which Jankovic received on December 13, 2009, indicated that she was receiving a 0.60% stake in Premiere in exchange for $1.5 million. Id. at *3. But Yu had wired just $500, 000 into Premiere's bank account; she gave the remaining $1 million directly to Dyche. Id. Jankovic spoke with Gudgel about the gap between the $500, 000 that Premiere had received and the $1.5 million represented on Yu's Subscription Agreement. Id. at *4. Together, they then spoke with Dyche. Id. In Jankovic's telling of events, he encouraged Dyche to update the Subscription Agreement to reflect that Yu had only invested $500, 000, as well as to speak with Yu to “make sure that [Yu] understood what [she] was buying.” Id. (internal quotation marks omitted). Dyche did neither. Id.

         Jankovic himself did nothing to correct the problem, though not for lack of opportunity. On December 22, 2009, Premiere hosted a meeting for current and prospective investors in the offices of a prominent New York law firm (the “Investors Meeting”). Jankovic, 2017 WL 1067788, at *5. Jankovic, Dyche, Gudgel, and others from Premiere attended the meeting, as did Yu, Hee Rak Kim, Jae Duk Kim, and other potential investors. Id. Jankovic took the lead in addressing investors at the meeting. Id. Yet Jankovic never spoke with Yu at the meeting (or anytime thereafter) about the disparity between the money she had invested and the money Premiere had actually received, or, more generally, about the Morongo litigation and the use of her investment in Premiere to resolve that litigation. Id. at *4.

         To the contrary, Jankovic made affirmative misstatements to Yu that perpetuated the discrepancy between Yu's Subscription Agreement and Yu's actual investment in Premiere. Jankovic, 2017 WL 1067788, at *4. In January 2010, Jankovic signed a Certificate of Ownership indicating that Yu held a 0.60% interest in Premiere, even though only $500, 000 of her investment had actually gone to Premiere. Id. And on February 10, 2010, Jankovic wrote a letter to Yu in which he referred to her “0.60% membership in Premiere.” Id. He did so despite being aware that at least $500, 000 of Yu's investment had not been invested in Premiere and instead had been used to cover costs related to the Morongo litigation. Id.

         3. Other Misstatements and Omissions in Key Communications with Premiere Investors

         Jankovic's missteps extended well beyond failing to inform Yu of the gap between her $1.5 million investment and the $500, 000 Premiere actually received and issuing a Certificate of Ownership that perpetuated that error. On various occasions, Jankovic communicated with investors and potential investors and made material misstatements and omissions that sustained Premiere's fraudulent scheme. To begin with, Jankovic was one of the authors of the Preliminary Information Memorandum (the “PIM”) that Premiere distributed to potential investors, including Yu, Hee Rak Kim, and Jae Duk Kim. Jankovic, 2017 WL 1067788, at *6. The PIM contained multiple “lies” that “lent to Premiere an imprimatur of legitimacy.” Id. at *11. Premiere's leadership, including Jankovic, made these misstatements even though they warranted that they “ha[d] taken reasonable care to ensure that the information” in the PIM was “true and accurate in all material respects.” Id. at *5 (internal quotation marks omitted). The PIM's material misstatements included the following:

i) The PIM listed a former Oklahoma Congressman as a member of Premiere's Board of Directors and claimed that this Congressman held a 1% equity interest in Premiere. That Congressman never agreed to serve on Premiere's Board.
ii) The PIM identified the Managing Executive Director of an energy company as a member of Premiere's Board of Directors. Like the Congressman, the Managing Director was purported to hold a 1% stake in Premiere. The Managing Director had discussed the possibility of joining Premiere, but had never committed to serving as a member of Premiere's Board.
iii) The PIM stated that an Oklahoma accounting firm would handle Premiere's outsourced accounting and bookkeeping. That firm, however, never agreed to work with Premiere.
iv) Finally, the PIM identified a nationally known accounting firm as an “Affiliate” of Premiere's “Corporate Holdings” division. But the National Accounting Firm never ...

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