United States District Court, S.D. New York
the Securities and Exchange Commission: Howard A. Fischer
John O. Enright For Trish Malone: Trish Malone Pro Se
Angelique de Maison: Jeffrey B. Coopersmith Lauren Rainwater
Davis Wright Tremaine LLP
OPINION AND ORDER
COTE, UNITED STATES DISTRICT JUDGE
to the judgments entered against them on consent, the
Securities and Exchange Commission (“SEC”) seeks
an assessment of civil penalties against three individuals
--Angelique de Maison, Trish Malone, Louis Mastromatteo --
and one entity, Traverse International. For the reasons that
follow, the four defendants are ordered to pay disgorgement,
prejudgment interest, and civil penalties.
above-captioned case, first brought by the SEC on September
18, 2014, arises out of a series of fraudulent schemes
conducted by the defendants -- masterminded by defendant Izak
Zirk de Maison F/K/A/ Izak Zirk Engelbrecht
(“Engelbrecht”) --between 2008 and
2014. In general, the SEC alleges that
Englebrecht, with the aid of the co-defendants and others,
would cause corporations (“Fraudulent
Issuers”) to issue tens of millions of shares of
restricted stock to himself and his nominees, which he would
then use for illegal distributions.
October 22, 2014, after a conference held with the SEC and
counsel representing three defendants,  the Court entered
a preliminary injunction order, enjoining the defendants from
committing federal securities violations and freezing the
assets of certain defendants and their spouses, including de
Maison, Mastromatteo, and Traverse (the “Freeze
Order”). On June 15, 2015, after continuing its
investigation into the alleged fraud, the SEC filed an
Amended Complaint. The Amended Complaint expanded the scope
of the conduct charged: defendants were added, the number of
Fraudulent Issuers increased, the time period of the
allegedly violative conduct widened, and the amount of relief
sought increased. Mastromatteo and Traverse answered the
Amended Complaint on September 18. On October 7, the SEC, in
a status letter, informed the Court that it had reached
settlements or was engaged in settlement discussions with
multiple defendants, including de Maison.
against Malone was entered October 8, 2015. Judgment was
entered against de Maison on December 23, 2015. Judgment was
entered against Mastromatteo and Traverse on January 4, 2016.
Along with each respective judgment, the Court so ordered a
Consent between the SEC and each settling defendant.
to the terms of their respective Judgment and Consent, Malone
and de Maison agreed to eventually pay disgorgement of their
ill-gotten gains, along with prejudgment interest, and a
civil penalty. Mastrometteo and Traverse's Judgment noted
The Court shall determine whether it is appropriate to order
Defendants to pay disgorgement of ill-gotten gains,
prejudgment interest thereon, and a civil penalty pursuant to
Section 20(d) of the Securities Act [15 U.S.C. § 77t(d)]
and Section 21(d)(3) of the Exchange Act [15 U.S.C. §
78u(d)(3)]. If it is determined that such disgorgement,
prejudgment interest, and a civil penalty is warranted, the
Court shall determine the amounts of the disgorgement and
civil penalty upon motion of the Commission.
(Emphasis supplied.) In the Consent signed by Mastromatteo
(in his individual capacity and in his representative
capacity on behalf of Traverse), defendants “agree[d]
that the Court shall order disgorgement of ill-gotten gains,
prejudgment interest thereon, and a civil penalty
pursuant” to the relevant statutes. (Emphasis
supplied.) All defendants agreed that “for the purposes
of a [an SEC motion for disgorgement and/or civil penalties],
the allegations of the Complaint shall be accepted and deemed
as true by the Court.” On January 26, 2018, the SEC
moved for monetary relief against de Maison, Malone,
Traverse, and Mastromatteo.Specifically, the SEC requests
disgorgement of ill-gotten gains in the amount of $4, 240,
049.30 from de Maison, $394, 741.24 from Malone, $58, 753
from Mastromatteo and Traverse, and that each defendant pay
prejudgment interest on their respective disgorgement sums.
The SEC has also asked that the Court impose civil money
penalties. The SEC has not requested a specific sum for those
civil penalties, but has suggested multiple methods of
calculation. Malone and de Maison both oppose the imposition
of disgorgement and civil penalties. Mastromatteo and
Traverse have not opposed the SEC's motion. A summary of
each of the defendant's underlying conduct relevant to
the disgorgement and civil penalties the SEC seeks, taken
from the Amended Complaint, follows.
Maison, Engelbrecht's wife, sought out investors to
purchase unregistered securities in two of the Fraudulent
Issuers, Kensington and Casablanca. She raised approximately
$1 million for Kensington, and $3.5 million for Casablanca.
De Maison did not transfer all proceeds from those
investments to the companies as promised, but used some of
the proceeds to pay her own personal expenses and diverted
other proceeds to other entities associated with the scheme.
De Maison advised investors on the merits of potential
investments and the companies she was advertising. Investors
lost their entire investments in Casablanca and Kensington.
She also arranged for the execution of the governing
agreements and the mailing of stock certificates to
investors. The SEC identifies $748, 000 in ill-gotten gains
from investments related to Kensington, and $3, 456, 049.30
from investments related to Casablanca, for a total of $4,
Maison made materially misleading statements concerning
another company of which she was an officer, Gepco. De Maison
provided quotes concerning the sale and purchase of diamonds
for a Gepco press release. De Maison omitted material facts,
including that she was personally involved with the relevant
purchases and sales. The SEC does not, in the instant motion,
identify any ill-gotten gains from de Maison's
involvement with Gepco.
December 23, 2015, the Court entered a partial judgment
against de Maison, accompanied by her signed Consent. In that
Consent, she agreed to be enjoined from violating Sections 5,
17(a)(1), and 17(a)(3) of the Securities Act; and Sections
10(b), 15(a), and 16(a) of the Exchange Act, and Rule 10b-5
served as the Chief Financial Officer (“CFO”) for
several of the Fraudulent Issuers -- Lustros, Kensington,
Wikifamiles, and Gepco -- and also held positions at a number
of the other companies alongside Engelbrecht. In her role as
CFO, Malone engaged in multiple unregistered securities
offerings. The SEC seeks ill-gotten gains in the form of
Malone's salary during the periods she served as an
officer of the Fraudulent Issuers during unregistered
was at the center of many of Engelbrecht's schemes and
fraudulent transactions. For example, Malone helped to merge
Wikifamilies, at the time a shell company, into new company,
rename it, and conduct a “reverse merger, ”
allowing the shell company to issue over 30 million shares of
common stock, including to herself and other co-defendants.
Malone also served as president, CFO, and secretary of Gepco
and facilitated the issuance of shares to Jason Cope, a
co-defendant in this action, and other individuals to
liquidate in the open market. Neither Gepco nor Wikifamilies,
at the time, had registered any of their securities with the
SEC and no exemption from the standard registration
has calculated $394, 741.24 in ill-gotten gains from the
salary payments Malone received for her service as CFO of the
various companies. Specifically, the SEC requests
disgorgement of $4, 615.39, Malone's pay for a week in
May 2011, during which Wikifamilies issued 31.5 million
shares of unregistered securities; disgorgement of $309,
783.85, the sum of Malone's pay between June 2012 and
January 2014, during which time she was involved in the
offering of unregistered shares of Lustros; and disgorgement
of $80, 342.00, Malone's pay between February and
September 2014, during which time she participated in the
unregistered offerings of Gepco securities.
October 8, 2015, the Court entered a partial judgment against
Malone, accompanied by her signed Consent. In that Consent
she agreed to be enjoined from violating Sections 5,
17(a)(1), and 17(a)(3) of the Securities Act; and Section
10(b) of the Exchange Act, and Rule 10b-5 thereunder.
Mastromatteo and Traverse
individually and through his corporation Traverse,
participated in a fraudulent scheme to acquire and sell more
than 2.5 million shares of Gepco stock in an unregistered
offering, after which Mastromatteo funneled most of the
proceeds to Cope. Cope used the proceeds to pay a judgment to
the SEC that had previously been entered against him by this
Court in the Milan litigation. In return, Cope made payments
back to Mastromatteo through Traverse. The SEC seeks $58, 753
in ill-gotten gains, the amount Mastromatteo allegedly
received in payments from Cope.
January 5, 2016, the Court entered a partial judgment against
Mastromatteo and Traverse, accompanied by a signed Consent.
In the Consent, they agreed to be enjoined from violating
Sections 5(a), 5(c), and 17(a) of the Securities Act; and
Section 10(b) of the Exchange Act, and Rule 10b-5 thereunder.
instant motion was filed on January 26, 2018. Malone, who is
appearing pro se, submitted a response dated March
26.De Maison filed a response on March 30.
Mastromatteo and Traverse have not filed any response. The
SEC filed its reply on April 27. Malone submitted an
unsolicited sur-reply dated July 10.
the district court has found federal securities law
violations, it has broad equitable power to fashion
appropriate remedies, including ordering that culpable
defendants disgorge their profits.” SEC v.
Razmilovic, 738 F.3d 14, 31 (2d Cir. 2013) (citation
omitted). Disgorgement is used “to prevent wrongdoers
from unjustly enriching themselves through violations, which
has the effect of deterring subsequent fraud.” SEC
v. Cavanagh, 445 F.3d 105, 117 (2d Cir. 2006). See also
SEC v. Fischbach Corp., 133 F.3d 170, 175 (2d Cir.
1997). “[T]he size of a disgorgement order need not be
tied to the losses suffered by defrauded investors.”
Official Committee of Unsecured Creditors of WorldCom,
Inc. v. SEC, 467 F.3d 73, 81 (2d Cir. 2006) (citation
omitted). Courts may even require disgorgement
“regardless of whether the disgorged funds will be paid
to . . . investors as restitution.” Kokesh v.
SEC, 137 S.Ct. 1635, 1644 (2017) (citation omitted).
district court has broad discretion not only in determining
whether or not to order disgorgement but also in calculating
the amount to be disgorged.” SEC v.
Contorinis,743 F.3d 296, 301 (2d Cir. 2014) (citation
omitted). To calculate disgorgement, the district court
engages in “factfinding . . . to determine the amount
of money acquired through wrongdoing, ” and then issues
“an order compelling the wrongdoer to pay that amount
plus interest.” Cavanagh, 445 F.3d at 116. The
Supreme Court has recently noted that, at least for statute
of limitations purposes, “SEC disgorgement is imposed
for punitive purposes.” Kokesh, 137 S.Ct. ...